SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3203
CHESAPEAKE CORPORATION
Incorporated under the laws I.R.S. Employer
of Virginia Identification No. 54-0166880
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
Telephone Number (804) 697-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $1 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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The aggregate market value on February 8, 1994, of the voting stock held by
non-affiliates of the registrant was $544 million. In determining this
figure, the company has assumed that all of its directors and officers are
affiliates. This assumption shall not be deemed conclusive for any other
purpose.
23,518,688 shares of the registrant's common stock, par value $1, were
outstanding as of February 8, 1994.
Portions of the registrant's Annual Report to Stockholders for the
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year ended December 31, 1993 are incorporated in Parts I, II and IV by
reference. Portions of the registrant's definitive Proxy Statement for the
annual meeting of stockholders to be held on April 27, 1994 are
incorporated in Part III by reference.
<PAGE>
PART I
Item 1. Business
GENERAL
Chesapeake Corporation, a Virginia corporation organized in 1918, is a
paper and packaging company, whose primary businesses are kraft products,
tissue and packaging. Our operating businesses include: Chesapeake Paper
Products Company and Chesapeake Forest Products Company (kraft products,
building products and woodlands operations); Wisconsin Tissue Mills Inc.
(commercial and industrial tissue products); Chesapeake Consumer Products
Company (consumer tabletop tissue products); Chesapeake Packaging Co.
(point-of-sale displays and specialty packaging, consumer graphic packaging
and corrugated shipping containers); and Delmarva Properties, Inc. and
Stonehouse Inc. (land development).
Chesapeake competes in a large, capital-intensive industry. Until
several years ago, Chesapeake's products were primarily kraft commodity
products manufactured at Chesapeake Paper Products. In commodity markets,
selling prices are controlled by total market supply and demand. To be
successful in these markets, it is important to maximize production and
minimize operating costs. Selling prices and profits for commodity
products are usually cyclical and follow general economic conditions.
During the past several years, Chesapeake has pursued a strategy of
focusing on specialty products in markets that management believes have
growth potential or in which the Company has or may be able to achieve
competitive advantages. The Company's strategy for success with its
specialty products is to utilize its recycling expertise creatively, to
differentiate itself from its competition by producing products which are
distinctive and to utilize its superior ability to respond to customers'
requirements. Management believes this strategy allows the Company to
achieve less cyclical and greater profits than with commodity products and
to better utilize Chesapeake's strengths. During 1993, sales of specialty
products were approximately 60% of Chesapeake's total sales. During the
last three years, low selling prices for commodity products, such as
bleached market pulp and corrugating medium, have offset much of the
benefit derived from specialty product sales.
Because we understand the service needs of our customers, we believe
we are able to provide quality products quickly and efficiently. Our
decentralized management style allows quick decision making. Our
operations are designed to be flexible to changing customer demands and
business conditions.
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Our manufacturing and converting processes are capital intensive;
property, plant and equipment, including timber and timberlands, comprise
approximately 70% of our total assets. Our tissue and kraft operations
require major investments in paper machines, fiber preparation equipment
and converting equipment. In 1992, the Company completed an eight-year
$600 million capital spending program for machinery, equipment and new
technology to increase production of specialty products while reducing the
company's emphasis on pure commodity products such as brown paperboard and
bleached hardwood pulp. About one-half of these expenditures have been for
paper machine projects for our kraft and tissue businesses. This program
also included a $100 million project for a recovery boiler, evaporators and
related equipment for our kraft business. At our other businesses, we have
continued to invest in specialized converting and processing equipment
needed to meet our strategic goals and customer requirements. During the
past nine years, acquisitions have amounted to approximately $200 million.
The major acquisition was Wisconsin Tissue, which provided the Company with
a significant, immediate presence in the industrial and commercial tissue
market. Other acquisitions, primarily in packaging, have benefited the
Company with immediate expertise or marketing strength for our future needs
and requirements.
Our businesses are grouped into three major segments: kraft products,
tissue and packaging. The information presented in "Notes to Consolidated
Financial Statements, Note 14 - Business Segment Information" of the 1993
Annual Report to Stockholders (the "1993 Annual Report") is incorporated
herein by reference. Industry segment groupings were changed in 1993 to
better reflect the way Chesapeake manages its businesses. Information with
respect to the registrant's working capital is set forth under the caption
"Financial Review 1991-1993, Liquidity and Capital Structure" of the 1993
Annual Report and is incorporated herein by reference. Information
regarding the registrant's anticipated capital spending is set forth under
the caption "Financial Review 1991-1993, Capital Expenditures" of the 1993
Annual Report and is incorporated herein by reference.
KRAFT PRODUCTS
Chesapeake's kraft products segment includes Chesapeake Paper Products
Company, our kraft products operations, and Chesapeake Forest Products
Company, our woodlands and building products operations, both based in West
Point, Virginia. Chesapeake Building Products Company, a wholly owned
subsidiary of Chesapeake Forest Products Company, was formed in 1993 with
the merger of the company's lumber division and Chesapeake Wood Treating
Co.
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Chesapeake Paper Products Company
Chesapeake Paper Products manufactures white top paperboard, which
accounts for 80% of the total paperboard product mix, kraft paperboard,
kraft paper, corrugating medium and bleached hardwood pulp at its mill
located in West Point, Virginia. Paperboard and corrugating medium, the
outer and inner materials of a corrugated container, are sold to external
and company-owned container and packaging plants. Kraft paper is sold to
external converters to make bags and wrappings. Our bleached hardwood pulp
is sold primarily to non-pulp producing paper manufacturers which
manufacture predominantly printing and writing paper. Most of our
customers are located in the eastern half of the United States, primarily
in the mid-Atlantic and northeastern states, where we have the advantage of
lower freight rates compared to many of our competitors. We also sell to
international customers, primarily in Canada and Europe. Our salesforce
markets these products to integrated and independent converters and
manufacturers. Total shipments from the West Point mill were 798,000 tons
in 1993, 721,000 tons in 1992 and 708,000 tons in 1991.
In 1993, approximately 65% of the raw materials for products from our
kraft products mill was virgin wood fiber, with the remainder being
recycled fiber recovered through our recycling system. Five company-owned
recycling centers collect recycled fiber for the mill. About 76% of the
virgin wood fiber used in 1993 was purchased from wood producers or
independent timberland owners and the rest was from company-owned
timberlands. In addition to our three paper machines and a market pulp
machine, the West Point facility includes wood storage, wood pulping, paper
recycling and steam and power generation equipment.
Chesapeake Forest Products Company, Woodlands Division
Chesapeake Forest Products, Woodlands Division owns and actively
manages approximately 330,000 acres of timberland located in Virginia,
Maryland, Delaware and North Carolina. The primary objective of our
woodlands operation is to provide an adequate supply of wood at a
competitive cost to our kraft products mill located at West Point. Wood
comes from our company-owned lands and from independent landowners. Our
foresters use environmentally sound, modern forestry methods intended to
ensure a long-term, low-cost fiber supply. Our genetically superior pine
seedlings, which are used in our reforestation program on company-owned
land and by private landowners, grow quicker and provide higher quality,
more uniform fibers at time of harvest than traditional seedlings. We are
actively utilizing natural reforestation techniques to generate new
hardwood timber stands on company-owned and privately held land.
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For more than 25 years, Chesapeake has participated in research
programs that have improved the quality, disease resistance and growth rate
of our planted trees.
Chesapeake Building Products Company
Chesapeake Building Products Company operates four sawmills in
Virginia and Maryland, manufacturing pine and hardwood lumber. The raw
materials are provided from both company-owned timberlands and from other
independent landowners. Our sawmill products are sold by our own
salesforce to independent users.
Substantially all of the assets of the former Chesapeake Wood Treating
Co. were conveyed to Universal Forest Products, Inc. under lease and
purchase agreements in October 1993. Chesapeake Wood Treating Co. produced
chemically treated pine lumber for the home improvement and residential
construction markets. Net sales of this business were $85.8 million in
1993, $97.7 million in 1992 and $81.7 million in 1991.
TISSUE
Chesapeake's tissue segment includes Wisconsin Tissue Mills Inc.,
which produces tissue for industrial and commercial markets, and Chespeake
Consumer Products Company, a converter of tissue products for the consumer
market.
Wisconsin Tissue Mills Inc.
Wisconsin Tissue, acquired in 1985, manufactures napkins,
tablecovers, toweling, placemats, wipers and facial and bathroom tissue for
commercial and industrial markets at its paper mill and converting
facilities located in Menasha, Wisconsin. Our strategy is to provide a
full line of disposable products for the commercial and industrial tissue
markets. Our 2,200 products are found in full-menu and fast-food
restaurants, hotels, motels, clubs, health care facilities, schools and
office locations and on airlines.
The raw material for the paper we manufacture is 100% recycled fiber.
Four paper machines manufacture base tissue stock that is converted on over
100 specialized machines. The Company believes that its computerized
warehouse inventory and distribution systems give it an advantage over many
of its competitors in product shipping efficiency and inventory control.
Our tissue products are sold throughout the United States and in Canada by
our national salesforce. Shipments by Wisconsin Tissue were 220,000 tons
in 1993, 211,000 tons in 1992 and 190,000 tons in 1991.
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Chesapeake Consumer Products Company
The strategic objective of Chesapeake Consumer Products, formed in
1989 from acquired companies and an internally developed product line, is
to expand the marketing and distribution of tabletop tissue products. In
1990 the product line was narrowed to focus on napkins, plates, cups,
tablecovers and accessories, and in 1992 and 1993 the company reorganized
the former Finess portion of the business. With our narrow product focus
we believe we can be successful in the highly competitive consumer products
marketplace. Our consumer products are sold throughout the United States
by our own salesforce and by independent representatives, and can be found
in supermarkets, retail chain stores and other mass merchandisers. We have
improved our manufacturing process by installing state-of-the-art napkin
converting and napkin wrapping machines and adding a new warehouse and
shipping area. During 1993, Chesapeake Consumer Products began producing
napkins that used flexographic edge-to-edge printing technology.
PACKAGING
Chesapeake Packaging Co.
Chesapeake Packaging has three marketing thrusts: point-of-sale
displays and specialty packaging, consumer graphic packaging and corrugated
shipping containers.
We believe that our packaging group is a leader in serving the point-
of-sale display and specialty packaging needs of major national consumer
products companies. Through a network of regional sales and design
offices, the point-of-sale group, Chesapeake Display and Packaging Company,
provides creative design services to our customers. Our manufacturing
facilities utilize modern production, assembly and packaging processes to
meet our customers' stringent quality and shipment demands. With the
recent consolidation of the company's West Des Moines, Iowa packaging plant
into its Sandusky, Ohio facility, at year-end 1993 we had two strategically
located point-of-sale display and specialty packaging manufacturing plants
and four assembly plants which provide service to customers throughout the
United States.
Our Color-Box facility supplies consumer graphic packaging to
customers nationwide that require full litho-laminated point-of-sale
packaging. The final phase of a $13 million expansion project to double
the capacity of this facility was completed 1993.
At year-end 1993 we owned seven corrugated container plants that
manufactured corrugated boxes and specialty packaging for customers within
each plant's geographic area. The raw materials
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for the packaging plants include paperboard and corrugating medium
(purchased both from independent suppliers and from Chesapeake Paper
Products) that are converted to make the walls of the packaging unit.
Various converting equipment is used to print, cut, slot and glue the
container to customer specifications.
Additional growth is anticipated in graphic packaging and corrugated
shipping containers with the January 24, 1994 acquistion of Lawless Holding
Corporation by Chesapeake Packaging. This acquisition included the Lawless
Container Corporation corrugated container plant in North Tonawanda, New
York; corrugated sheet plants in Scotia, New York, LeRoy, New York and
Madison, Ohio; and Lawless Packaging and Display, a consumer graphic
packaging plant in Buffalo, New York.
OTHER BUSINESSES
Delmarva Properties, Inc. and Stonehouse Inc.
Delmarva Properties develops and markets land that has potential for
value greater than as timberland. Nearly all of Delmarva Properties'
present land inventory of approximately 15,000 acres was formerly
timberland owned by Chesapeake Forest Products. Delmarva Properties
develops land in Virginia, Maryland and Delaware primarily for residential
housing. Sales also include large lots and acreage for others to develop.
Stonehouse Inc. is managing the planning for development of a new
7,600-acre planned community near Williamsburg, Virginia. The company is
in the process of applying for required permits and approvals for this
large project. Sales are not anticipated until at least the latter part of
the 1990s. Most of Stonehouse's land was formerly timberland owned by
Chesapeake Forest Products.
RAW MATERIALS
The Company's raw materials are readily available at competitive
prices.
ENVIRONMENTAL
The information presented under the caption "Financial Review 1991-
1993, Environmental" of the 1993 Annual Report is incorporated herein by
reference.
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EMPLOYEES
As of December 31, 1993, the Company had 4,833 employees. The Company
believes that its relations with its employees are good. In 1992, the
Company reached agreement on five-year collective bargaining agreements
with the unions representing employees at the Wisconsin Tissue and
Chesapeake Paper Products mills.
COMPETITION AND SEASONALITY
With its diversity of products, Chesapeake has many customers buying
different products and is not dependent on any single customer, or group of
customers, in any market segment. Longstanding relationships exist with
many of our customers who place orders on a continuing basis. Because of
the nature of our business, order backlog is not large. The third and
fourth quarters of each year are usually the highest in sales and earnings.
Our major businesses generally experience peak activity during the months
of August through October.
Competition is intense in all business segments from much larger
companies and from local and regional producers and converters. The
Company believes that competitive factors in our industry preclude a
meaningful estimate of the number of competitors and, except as noted, the
Company's relative competitive position. The Company does not have any
appreciable market share in pure commodity products, such as bleached
hardwood pulp and brown paperboard. For this reason, the Company has de-
emphasized these products to pursue specialty products that we believe will
provide less pricing volatility and increased profitability. We believe
that, with our strengths of customer service and competitive products, we
are well positioned to compete in these specialized markets.
RESEARCH AND DEVELOPMENT
In addition to forestry research programs, the Company conducts
limited continuing technical research and development projects relating to
new products and improvements of existing products and processes.
Expenditures for research and development activities are not material.
Item 2. Properties
At year-end 1993, Chesapeake manufactured or converted paper and wood
products at 36 facilities in 11 states. The information presented under
"Operating Managers and Locations" in the 1993 Annual Report is
incorporated herein by reference. The Company owns substantially all of
its production facilities, which are
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well maintained and in good operating condition, and are utilized at
practical capacities that vary in accordance with product mixes, market
conditions and machine configurations.
Item 3. Legal Proceedings
The information presented in "Notes to Consolidated Financial
Statements, Note 10 - Litigation" of the 1993 Annual Report is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
The names and ages of each executive officer of Chesapeake, together
with a brief description of the principal occupation or employment of each
such person during the last five years, is set forth below. Executive
officers serve at the pleasure of the board of directors and are elected at
each annual organizational meeting of the board of directors.
J. Carter Fox (54)
President & Chief Executive Officer since 1980
Paul A. Dresser, Jr. (51)
Chief Operating Officer since 1991
Executive Vice President since 1990
Chief Financial Officer 1981-1991
Group Vice President-Finance & Administration 1984-1990
Thomas Blackburn (42)
Group Vice President-Kraft Products since 1991
President, Chesapeake Paper Products Company and
Chesapeake Forest Products Company since 1991
Kraft Products-Executive Vice President 1990-1991
General Manager, Crossett, Arkansas,
Georgia-Pacific Corporation 1988-1990
Charles S. Cianciola (60)
Group Vice President-Tissue Products since 1988
President, Wisconsin Tissue Mills Inc. since 1988
Samuel J. Taylor (54)
Group Vice President-Packaging since 1988
President, Chesapeake Packaging Co. since 1988
J. P. Causey Jr. (50)
Vice President, Secretary & General Counsel since 1986
John W. Kirk (47)
Vice President-Strategic Development since 1992
Controller & Chief Acccounting Officer 1990-1992
Controller 1981-1992
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Andrew J. Kohut (35)
Vice President-Finance & Chief Financial Officer since 1991
President and General Manager, Color-Box, Inc. 1989-1991
Senior Director-Strategic Development 1987-1989
Thomas A. Smith (47)
Vice President-Human Resources & Assistant Secretary since 1987
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The dividend and stock price information presented under the caption
"Recent Quarterly Results" and the information concerning retained earnings
available for dividends presented in "Notes to Consolidated Financial
Statements, Note 3 - Long-Term Debt" of the 1993 Annual Report are
incorporated herein by reference. The Company is listed on the New York
Stock Exchange under the symbol - CSK. As of March 2, 1994, there were
7,466 stockholders of record of the Company's common stock.
Item 6. Selected Financial Data
The information for the years 1989-1993 presented under the caption
"Eleven-Year Comparative Record" of the 1993 Annual Report is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The information presented under the caption "Financial Review 1991-
1993" of the 1993 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and subsidiaries,
including the notes thereto, and the information presented under the
caption "Recent Quarterly Results" of the 1993 Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information presented under the captions "Information Concerning
Nominees" and "Directors Continuing in Office" of the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held April 27,
1994 (the "1994 Proxy Statement") is incorporated herein by reference.
Item 11. Executive Compensation
The information presented under the captions "Compensation of
Directors" and "Executive Compensation" of the 1994 Proxy Statement
(excluding, however, the information presented under the subheadings
"Compensation Committee Report on Executive Compensation" and "Performance
Graph") is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information presented under the caption "Security Ownership of
Certain Beneficial Owners and Management" of the 1994 Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information presented under the caption "Certain Transactions" of
the 1994 Proxy Statement is incorporated herein by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a. Documents
(i) Financial Statements
The financial statements incorporated by reference
into this report are listed in the Index to Financial
Statements and Schedules on page 13 hereof.
(ii) Financial Statement Schedules
The financial statement schedules filed as a part
of this report are listed in the Index to Financial
Statements and Schedules on page 13 hereof.
(iii) Exhibits filed or incorporated by reference
The exhibits that are required to be filed or
incorporated by reference herein are listed in
the Exhibit Index found on pages 18-19 hereof.
Exhibits 10.1 - 10.11 hereto constitute management
contracts or compensatory plans or arrangements
required to be filed as exhibits hereto.
b. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
February 8, 1994 By /s/ CHRISTOPHER R. BURGESS
Christopher R. Burgess
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
By By /s/ WALLACE STETTINIUS
Paul A. Dresser, Jr. Wallace Stettinius
Director
By /s/ J. CARTER FOX By /s/ JOHN HOYT STOOKEY J.
Carter Fox John Hoyt Stookey
Director; President & Director
Chief Executive Officer
By /s/ ROBERT L. HINTZ By /s/ RICHARD G. TILGHMAN
Robert L. Hintz Richard G. Tilghman
Director Director
By /s/ WILLIAM D. McCOY By
William D. McCoy Joseph P. Viviano
Director
By /s/ STURE G. OLSSON By /s/ H. H. WARNER
Sture G. Olsson Harry H. Warner
Chairman of the Board Director
of Directors
By /s/ JOHN W. ROSENBLUM By /s/ ANDREW J. KOHUT
John W. Rosenblum Andrew J. Kohut
Director Vice President & Chief
Financial Officer
By /s/ FRANK S. ROYAL By /s/ CHRISTOPHER R. BURGESS Frank
S. Royal Christopher R. Burgess Director
Controller
Each of the above signatures is affixed as of February 8, 1994.
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CHESAPEAKE CORPORATION
Index to Financial Statements and Schedules
The consolidated balance sheet of Chesapeake Corporation and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income and retained earnings and cash flows for each of the
three years in the period ended December 31, 1993, including the notes
thereto, are presented in the Company's 1993 Annual Report and are
incorporated herein by reference. With the exception of the aforementioned
information, and the information incorporated by reference in numbered
Items 1, 2, 3, 5, 6, 7 and 8, no other data appearing in the 1993 Annual
Report is deemed to be "filed" as part of this Form 10-K. The following
additional financial data should be read in conjunction with the
consolidated financial statements.
Page
Report of Independent Accountants .......................... 14
Financial Statement Schedules*
Schedules for each of the three years in the period ended
December 31, 1993
II. Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other Than Related
Parties......... ............................ 15
V. Property, Plant and Equipment........................ 16
VI. Accumulated Depreciation of Property, Plant and
Equipment............................................. 17
*Schedules other than those listed above are omitted because they are not
applicable or are not required.
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REPORT OF INDEPENDENT ACC0UNTANTS
To the Stockholders and Board of Directors
Chesapeake Corporation:
We have audited the consolidated financial statements of Chesapeake
Corporation and subsidiaries as of December 31, 1993 and 1992, and for each
of the three years in the period ended December 31, 1993, which financial
statements are included in the 1993 Annual Report to Stockholders of
Chesapeake Corporation and incorporated herein by reference. We have also
audited the financial statement schedules listed in the index on page 13 of
this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Chesapeake Corporation and subsidiaries as of December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in notes 4, 6 and 13 to the consolidated financial
statements, the company changed its methods of accounting for
postretirement benefits other than pensions and accounting for income taxes
in 1992.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Richmond, Virginia
January 25, 1994
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CHESAPEAKE CORPORATION AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE (IN EXCESS OF $100,000)
FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
Balance
at
Deductions
end of
year Number of
Balance at Amounts
collateral
beginning Amounts written
Not
shares at
Name of debtor(a) of year Additions collected off
Current Current
end of year
(Dollar amounts
in thousands)
Year ended December 31, 1991:
J. Carter Fox $103 $ - $41 $ -
$ 32 $ 30
13,850
Year ended December 31, 1992:
J. Carter Fox $ 62 $ - $ 62 $ -
$ - -
-
Year ended December 31, 1993:
$ - $ - $ - $ -
$ - $ -
-
Note:
(a) Under the provisions of the Company's stock option plans, five-year
loans may be made to
individuals in connection with their exercise of options for shares of
common stock.
Outstanding loans bear interest at 9% per annum, mature within five years
in installments that
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comply with applicable rules of the Federal Reserve Board and are collateralized
by shares of common
stock.
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CHESAPEAKE CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Cost of
timber
Balance at Additions
harvested
Balance
beginning at Sales and credited
to Other at
end
of year Cost retirements asset
cost Changes of
year
(In millions)
Year ended December 31, 1991
Land - plant sites $ 11.6 $ .2 $ .6 $ -
$ - $
11.2
Buildings and structures
111.1 5.5 1.6 -
-
115.0
Machinery and equipment 828.8 36.9 (a) 16.1
-
- 849.6
Construction in progress
19.4 47.5 (a) - -
-
66.9
Subtotals 970.9 90.1
18.3
- - - 1,042.7
Timber and timberlands 39.7 2.1 - 1.1
-
40.7
Totals $1,010.6 $92.2 $18.3
$ 1.1 $ -
$1,083.4
Year ended December 31, 1992
Land - plant sites $ 11.2 $ .1 $ - $ -
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$ - $
11.3
Buildings and structures 115.0 5.4
.6
- - 3.2 (b) 123.0
Machinery and equipment 849.6 129.6 (a) 10.7
-
16.4 (b) 984.9
Construction in progress
66.9 (52.1) (a) - -
-
14.8
Subtotals 1,042.7 83.0 11.3
-
19.6 1,134.0
Timber and timberlands 40.7 2.0 .2
1.1
- - 41.4
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Totals $1,083.4 $ 85.0 $11.5 $ 1.1
$19.6
$1,175.4
Year ended December 31, 1993
Land - plant sites $ 11.3 $ .4 $ .8 $ -
$ - $
10.9
Buildings and structures 123.0 12.6 5.5
-
(.2) 129.9
Machinery and equipment 984.9 44.4
30.1
- .2 999.4
Construction in progress
14.8 4.9 .4
-
- 19.3
Subtotals
1,134.0 62.3 36.8
-
- 1,159.5
Timber and timberlands
41.4 1.6 2.5 .7
-
39.8
Totals $1,175.4 $63.9 $39.3
$ .7 $ -
$1,199.3
Notes:
(a) Major additions
1991 and 1992 - Number 5 recovery boiler (Chesapeake Paper
Products)
(b) Adoption of SFAS 109
18
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
OF PROPERTY, PLANT AND EQUIPMENT
Additions
Balance at charged to
Balance at
beginning costs and Other
end of
of
year expenses
Retirements changes year
(Inmillions)
Year ended December 31, 1991:
Buildings and structures $ 28.8 $ 4.3 $ 1.2 $
.3 $ 32.2
Machinery and equipment 365.6 56.7 13.0
.3 409.6
Totals $394.4 $61.0 $14.2 $
.6 $441.8
Year ended December 31, 1992:
Buildings and structures $ 32.2 $ 5.2 $ .5 $
1.6 (a)
$ 38.5
Machinery and equipment 409.6
60.2 9.9 8.7
(a) 468.6
Totals $441.8 $65.4 $10.4
$10.3 $507.1
Year ended December 31, 1993:
Buildings and structures $ 38.5 $ 5.1 $ 4.2 $
(.2) $ 39.2
Machinery and equipment 468.6 64.4 26.9
.2 506.3
Totals $507.1 $69.5 $31.1
$ - $545.5
Notes:
(a) Adoption of SFAS 109
19
<PAGE>
EXHIBIT INDEX
2.1 Asset Purchase Agreement, dated as of September 24, 1993, By
and Between Chesapeake Building Products Company and Universal
ForestProducts, Inc.
2.2 Agreement of Merger, dated as of December 31, 1993, By andAmong
Chesapeake Packaging Co., Lawless Acquistion Co., Lawless
Holding Corporation and the Common Shareholders of Lawless Holding
Corporation
The registrant agrees to furnish supplementally to the
Securities and Exchange Commission, upon request, copies of the
schedules and exhibits to Exhibits 2.1 and 2.2 hereto that are not filed
herewith prusuant to Item 601(b)(2) of Regulation S-K.
3.1 Articles of Incorporation (filed as Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1989 and incorporated herein by reference)
3.2 Bylaws (filed as Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference)
4.1 Indenture, dated as of July 15, 1985, between the Registrant
and Sovran Bank, N.A., as Trustee (filed as Exhibit 4.1 to Form
S-3 Registration Statement No. 33-30900 and incorporated herein by
reference)
4.2 First Supplemental Indenture, dated as of September 1, 1989, to
the Indenture dated as of July 15, 1985, between the Registrant
and Sovran Bank, N.A., as Trustee (filed as Exhibit 4.1 to the
Registrant's
Current Report on Form 8-K filed October 9, 1990, and incorporated
herein by reference)
The registrant agrees to furnish to the Securities and Exchange
Commission, upon request, copies of those agreements defining the rights
of holders of long-term debt of the registrant and its subsidiaries that
are not filed herewith pursuant to Item 601(b)(4)(iii) of
Regulation S-K.
10.1 1981 Stock Incentive Plan (included as Exhibit A to the
Prospectus contained in Post-Effective Amendment No. 1 to Form
S-8 Registration Statement No. 2-71595 and incorporated herein by
reference)
10.2 1987 Stock Option Plan (filed as Exhibit A to the Registrant's
definitive Proxy Statement for the Annual
Meeting of Stockholders held April 22, 1987 and incorporated
herein by reference)
20
<PAGE>
10.3 Directors' Deferred Compensation Plan (filed as Exhibit VII to
the Registrant's Annual Report on Form 10-K for the year ended December
28, 1980 and incorporated herein by reference)
10.4 Non-Employee Director Stock Option Plan (filed as Exhibit 4.1
to Form S-8 Registration Statement No. 33-53478 and incorporated herein by
reference)
10.5 Executive Supplemental Retirement Plan (filed as Exhibit VI to
the Registrant's Annual Report on Form 10-K for the year ended
December 28, 1980 and incorporated herein by reference)
10.6 Retirement Plan for Outside Directors (filed as Exhibit 10.9
to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987 and incorporated
herein by reference)
10.7 Officers' Incentive Program (filed as Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by reference)
21
<PAGE>
10.8 Chesapeake Corporation Salaried Employees' Benefits
Continuation Plan (filed as Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989
and incorporated herein by reference)
10.9 Chesapeake Corporation Long-Term Incentive Plan (filed as
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989 and incorporated herein by reference)
10.10 Chesapeake Corporation 1993 Incentive Plan (filed as Exhibit
4.1 to Form S-8 Registration Statement No. 33-67384 and incorporated
herrein by reference)
10.11 Agreement between Thomas Blackburn and Chesapeake Paper
Products Company dated as of November 24, 1993
11.1 Computation of Net Income Per Share of Common Stock
12.1 Computation of Ratio of Earnings to Fixed Charges
13.1 Portions of the Chesapeake Corporation Annual Report to
Stockholders for the year ended December 31, 1993
21.1 Subsidiaries
23.1 Consent of Coopers & Lybrand
28.1 Form 11-K Annual Report, Hourly Employees' Stock Purchase Plan
for the plan fiscal year ended November 30, 1993
22
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
CHESAPEAKE BUILDING PRODUCTS COMPANY
AND
UNIVERSAL FOREST PRODUCTS, INC.
September 24, 1993
<PAGE>
TABLE OF CONTENTS
Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
1.1 Agreement . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Assets . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Books and Records . . . . . . . . . . . . . . . . . . 2
1.4 Buyer . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Buyer's Closing Certificate . . . . . . . . . . . . . 2
1.6 Closing . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Closing Date . . . . . . . . . . . . . . . . . . . . 3
1.8 Contracts . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Effective Time of Closing . . . . . . . . . . . . . . 3
1.10 Escrow Agreement . . . . . . . . . . . . . . . . . . 3
1.11 Equipment . . . . . . . . . . . . . . . . . . . . . . 3
1.12 Intangibles . . . . . . . . . . . . . . . . . . . . . 3
1.13 Inventory . . . . . . . . . . . . . . . . . . . . . . 3
1.14 Inventory Cost . . . . . . . . . . . . . . . . . . . 4
1.15 Knowledge of Buyer . . . . . . . . . . . . . . . . . 4
1.16 Knowledge of Seller . . . . . . . . . . . . . . . . . 4
1.17 Law . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.18 Leases . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 Non-Competition Agreement . . . . . . . . . . . . . . 4
1.20 Opinion of Buyer's Counsel . . . . . . . . . . . . . 4
1.21 Opinion of Seller's Counsel . . . . . . . . . . . . . 5
1.22 Permitted Liens . . . . . . . . . . . . . . . . . . . 5
1.23 Plants . . . . . . . . . . . . . . . . . . . . . . . 5
1.24 Purchase Price . . . . . . . . . . . . . . . . . . . 5
1.25 Required Consents . . . . . . . . . . . . . . . . . . 5
1.26 Seller . . . . . . . . . . . . . . . . . . . . . . . 5
1.27 Seller's Closing Certificate . . . . . . . . . . . . 6
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . 6
2.2 Payment of the Purchase Price . . . . . . . . . . . . 6
2.3 Determination of Inventory . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Organization of Seller . . . . . . . . . . . . . . . 8
3.2 Authorization; Enforceability . . . . . . . . . . . . 9
3.3 No Violation or Conflict by Seller . . . . . . . . . 9
3.4 Title to Assets . . . . . . . . . . . . . . . . . . . 10
(i)
<PAGE>
Page
3.5 No Litigation . . . . . . . . . . . . . . . . . . . . 10
3.6 Condition of Equipment . . . . . . . . . . . . . . . 11
3.7 Books and Records . . . . . . . . . . . . . . . . . . 11
3.8 Contracts . . . . . . . . . . . . . . . . . . . . . . 11
3.9 Intangibles . . . . . . . . . . . . . . . . . . . . . 11
3.10 No Broker . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization . . . . . . . . . . . . . . . . . . . . 12
4.2 Authorization; Enforceability . . . . . . . . . . . . 12
4.3 No Violation or Conflict . . . . . . . . . . . . . . 13
4.4 No Litigation . . . . . . . . . . . . . . . . . . . . 13
4.5 No Broker . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Cooperation . . . . . . . . . . . . . . . . . . . . . 15
5.4 Publicity . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Confidentiality . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
6.1 Compliance with Agreement . . . . . . . . . . . . . . 16
6.2 Proceedings, Instruments and Due Diligence Satisfactory
16
6.3 No Litigation . . . . . . . . . . . . . . . . . . . . 16
6.4 Representations and Warranties . . . . . . . . . . . 17
6.5 Material Damage to Assets . . . . . . . . . . . . . . 17
6.6 Deliveries at Closing . . . . . . . . . . . . . . . . 17
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
7.1 Compliance with Agreement . . . . . . . . . . . . . . 18
7.2 Proceedings and Instruments Satisfactory . . . . . . 18
7.3 No Litigation . . . . . . . . . . . . . . . . . . . . 18
7.4 Representations and Warranties . . . . . . . . . . . 18
7.5 Deliveries at Closing . . . . . . . . . . . . . . . . 18
ARTICLE VIII
INDEMNITIES AND ADDITIONAL COVENANTS
8.1 Seller's Indemnity . . . . . . . . . . . . . . . . . 19
8.2 Buyer's Indemnity . . . . . . . . . . . . . . . . . . 21
8.3 Employment Matters . . . . . . . . . . . . . . . . . 23
(ii)
<PAGE>
Page
8.4 Allocation of Purchase Price . . . . . . . . . . . . 24
8.5 No Use of Name . . . . . . . . . . . . . . . . . . . 25
8.6 Bulk Sales Compliance . . . . . . . . . . . . . . . . 25
8.7 Pocomoke Assets . . . . . . . . . . . . . . . . . . . 25
ARTICLE IX
TERMINATION
9.1 Termination . . . . . . . . . . . . . . . . . . . . . 26
9.2 Rights on Termination; Waiver . . . . . . . . . . . . 27
ARTICLE X
MISCELLANEOUS
10.1 Transfer Taxes and Fees . . . . . . . . . . . . . . . 27
10.2 Entire Agreement; Amendment . . . . . . . . . . . . . 28
10.3 Expenses . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Governing Law . . . . . . . . . . . . . . . . . . . . 29
10.5 Assignment . . . . . . . . . . . . . . . . . . . . . 29
10.6 Notices . . . . . . . . . . . . . . . . . . . . . . . 29
10.7 Counterparts; Headings . . . . . . . . . . . . . . . 30
10.8 Interpretation . . . . . . . . . . . . . . . . . . . 30
10.9 Severability . . . . . . . . . . . . . . . . . . . . 30
10.10 No Reliance . . . . . . . . . . . . . . . . . . . . . 31
(iii)
<PAGE>
EXHIBITS
Exhibit 1.5 Buyer's Closing Certificate
Exhibit 1.8 Contracts
Exhibit 1.10 Escrow Agreement
Exhibit 1.11 Equipment
Exhibit 1.12 Intangibles
Exhibit 1.14 Inventory Valuation
Exhibit 1.15 Knowledge of Buyer
Exhibit 1.16 Knowledge of Seller
Exhibit 1.18 Form of Lease
Exhibit 1.19 Non-Competition Agreement
Exhibit 1.20 Opinion of Buyer's Counsel
Exhibit 1.21 Opinion of Seller's Counsel
Exhibit 1.22 Permitted Liens
Exhibit 1.25 Required Consents
Exhibit 1.27 Seller's Closing Certificate
Exhibit 6.6 Chesapeake Corporation Guaranty
Exhibit 7.5 Universal Companies Guaranty
Exhibit 8.3A Retained Employees
Exhibit 8.3B Severance Benefits
Exhibit 8.4 Allocation of Purchase Price
(iv)
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, made as of the 24th day of
September, 1993, by and between CHESAPEAKE BUILDING PRODUCTS
COMPANY, a Virginia corporation, and UNIVERSAL FOREST PRODUCTS,
INC., a Michigan corporation.
RECITALS
WHEREAS, Seller owns the Assets and is a party to the
Contracts, which Assets and Contracts are employed by Seller in
the operation of its wood treating business; and
WHEREAS, Seller desires to sell the Assets and assign the
Contracts to Buyer, and Buyer desires to purchase the Assets and
accept the assignment of the Contracts from Seller.
NOW, THEREFORE, in consideration of the Recitals and of the
mutual covenants, conditions and agreements set forth herein and
for other good and valuable consideration, the receipt and suffi-
ciency of which hereby are acknowledged, it hereby is agreed
that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have
the meanings specified:
1.1 Agreement. "Agreement" shall mean this Asset Purchase
Agreement, together with the Exhibits attached hereto, as the
-1-
<PAGE>
same may be amended from time to time in accordance with the
terms hereof.
1.2 Assets. "Assets" shall mean the Books and Records, the
Equipment, the Intangibles and the Inventory.
1.3 Books and Records. "Books and Records" shall mean
original or true and complete copies of all of the books,
records, data and information relating primarily to Seller's
business operations at, or related to, the Plants, including,
without limitation, all customer lists, financial and accounting
records, correspondence and miscellaneous records with respect to
customers and supply sources and all other general
correspondence, records, books and files now or hereafter owned
by Seller with respect to the operation of Seller's business
operations at, or related to, the Plants; provided, however, that
Books and Records shall not include books, records or other
materials that, in Seller's reasonable judgment, are subject to
the attorney-client privilege or disclose attorney work product,
or that relate (i) to outdated matters without relevance to the
ongoing business operations at the Plants or Buyer's use
following Closing of the Assets or performance under the
Contracts or (ii) primarily to business operations of Seller
other than at, or related to, the Plants.
1.4 Buyer. "Buyer" shall mean Universal Forest Products,
Inc., a Michigan corporation.
1.5 Buyer's Closing Certificate. "Buyer's Closing Certifi-
cate" shall mean the certificate of Buyer in the form of Exhi-
bit 1.5 attached hereto.
-2-
<PAGE>
1.6 Closing. "Closing" shall mean the conference held at
10:00 a.m., local time, on the Closing Date, at the offices of
Seller, James Center II, 1021 East Cary Street, Richmond,
Virginia.
1.7 Closing Date. "Closing Date" shall mean October 4,
1993, or such other date as the parties may mutually agree in
writing.
1.8 Contracts. "Contracts" shall mean those contracts,
agreements, leases, sales orders, blanket and other purchase
orders and guaranteed product commitments and invoices related
thereto, to which the Seller is a party or by which it is bound,
that are specifically identified on Exhibit 1.8 attached hereto.
1.9 Effective Time of Closing. "Effective Time of Closing"
shall mean 12:01 a.m., local time, on the Closing Date.
1.10 Escrow Agreement. "Escrow Agreement" shall mean the
Escrow Agreement by and among Buyer, Seller and NationsBank,
N.A., as escrow agent, in the form of Exhibit 1.10 attached
hereto.
1.11 Equipment. "Equipment" shall mean those items of
tangible personal property specifically identified on Exhibit
1.11 attached hereto.
1.12 Intangibles. "Intangibles" shall mean those
trademarks, tradenames, service marks and trademark and service
mark registrations that are specifically listed on Exhibit 1.12
attached hereto.
1.13 Inventory. "Inventory" shall mean all inventories of
raw materials, stores, supplies, treating chemicals, work in
-3-
<PAGE>
process, semi-finished goods and finished goods set forth on the
inventory sheets prepared pursuant to Section 2.3.
1.14 Inventory Cost. "Inventory Cost" shall mean for each
item of Inventory the lower of (i) Seller's actual cost for such
item, or (ii) the wholesale market price of such item, in each
case determined as of the Closing Date in accordance with Exhibit
1.14 attached hereto.
1.15 Knowledge of Buyer. "Knowledge of Buyer" shall mean
the actual knowledge of any person listed on Exhibit 1.15
attached hereto.
1.16 Knowledge of Seller. "Knowledge of Seller" shall mean
the actual knowledge of any person listed on Exhibit 1.16
attached hereto.
1.17 Law. "Law" shall mean any federal, state, local or
other law or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder.
1.18 Leases. "Leases" shall mean the Lease and Purchase
Agreements between Buyer and Seller in the form of Exhibit 1.18
attached hereto with respect to, among other things, Buyer's
lease from Seller of the real property and improvements located
thereon associated with each of the Plants except Seller's
Pocomoke, Maryland Plant.
1.19 Non-Competition Agreement. "Non-Competition Agreement"
shall mean the Non-Competition Agreement between Buyer and Seller
in the form of Exhibit 1.19 attached hereto.
1.20 Opinion of Buyer's Counsel. "Opinion of Buyer's Coun-
sel" shall mean the opinion of Clary, Nantz, Wood, Hoffius,
-4-
<PAGE>
Rankin & Cooper, counsel to Buyer and The Universal Companies,
Inc., in the form of Exhibit 1.20 attached hereto.
1.21 Opinion of Seller's Counsel. "Opinion of Seller's
Counsel" shall mean the opinion of Hunton & Williams, counsel to
Seller and Chesapeake Corporation, in the form of Exhibit 1.21
attached hereto.
1.22 Permitted Liens. "Permitted Liens" shall mean those
liens, encumbrances, mortgages, charges, claims, restrictions,
pledges, security interests, impositions and other matters
affecting the Assets or Contracts that are listed on Exhibit 1.22
attached hereto.
1.23 Plants. "Plants" shall mean Seller's operating
locations used in the production of treated lumber located in:
Fredericksburg, Virginia; Pocomoke, Maryland; North East,
Maryland; Stockertown, Pennsylvania; Elizabeth City, North
Carolina; and Holly Hill, South Carolina.
1.24 Purchase Price. "Purchase Price" shall mean $850,000,
plus an amount equal to the aggregate Inventory Cost for all
items of Inventory.
1.25 Required Consents. "Required Consents" shall mean
those consents of governmental authorities and other parties
required to give effect to the transactions contemplated herein,
as identified on Exhibit 1.25 attached hereto.
1.26 Seller. "Seller" shall mean Chesapeake Building
Products Company, a Virginia corporation.
-5-
<PAGE>
1.27 Seller's Closing Certificate. "Seller's Closing
Certificate" shall mean the certificate of Seller in the form of
Exhibit 1.27 attached hereto.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale. (a) Seller hereby agrees that at
the Closing, and upon all of the terms and subject to all of the
conditions of this Agreement, it shall sell, transfer, assign,
convey and deliver or cause to be delivered to Buyer by bill of
sale, assignment or other appropriate instrument, free and clear
of all liens, claims, mortgages or encumbrances except Permitted
Liens, the Assets and the Contracts.
(b) Buyer hereby agrees that at the Closing, and upon all
of the terms and subject to all of the conditions of this
Agreement, it shall purchase the Assets and assume all of
Seller's rights and obligations under the Contracts, and in full
payment therefor shall pay to Seller the Purchase Price as
provided in this Article.
2.2 Payment of the Purchase Price. Buyer shall pay the
Purchase Price to Seller by wire transfer of immediately
available funds as follows: (a) $350,000 at Closing to an
account designated by Seller at a U.S. bank; (b) $500,000 at
Closing to the account contemplated in the Escrow Agreement; and
(c) the balance of the Purchase Price (representing the aggregate
Inventory Cost) in three equal installments due on the 30th, 60th
and 90th day after
-6-
<PAGE>
Closing, to an account designated by Seller at a U.S. bank. The
Purchase Price shall in no event exceed $14.9 million in the
aggregate.
2.3 Determination of Inventory. (a) The Inventory to be
purchased by Buyer and considered for the purposes of calculating
the Purchase Price shall be determined based on an itemized
physical count taken within seven days before the Closing Date,
of all inventories of raw materials, stores, supplies, treating
chemicals, work in progress, semi-finished goods and finished
goods owned by Seller and held for processing or sale at each of
the Plants. The count shall be conducted by Seller and Buyer,
and shall be tallied and reconciled to Seller's perpetual
inventory system, with the physical tallies controlling any
discrepancy. Upon such reconciliation, duplicate inventory
reports shall be generated showing the quantity of each item, the
Inventory Cost of each item and the aggregate Inventory Cost of
all such items. Such inventory reports shall be updated by Buyer
and Seller through the Closing Date to reflect purchases and
sales of Inventory and, as so updated, shall reflect the
Inventory conveyed at Closing and the aggregate Inventory Cost
thereof.
(b) All items that are found to be damaged or defective or
otherwise obsolete, unusable or unmerchantable, based upon
industry standards, shall be excluded from Inventory. All
disputes regarding valuation, useability or merchantability of
inventory items shall be resolved within five working days after
the physical count by Buyer and Seller. If the Closing Date
-7-
<PAGE>
occurs before such five business day period has expired and
certain inventory items remain the subject of a dispute, such
items shall be excluded from the Inventory that is conveyed at
Closing; provided, however, that upon resolution of any such
disputes, such items shall be included in Inventory, shall be
deemed to have been conveyed by Seller to Buyer as of the Closing
Date and the Inventory Cost thereof shall be included in the
Purchase Price payable pursuant to Section 2.2 hereof.
(c) All items that are the subject of good faith unresolved
disputes following such five business day period, and all stores
and supplies that bear the name "Chesapeake", the "rolling C"
logo or any variation thereof, shall be excluded from Inventory.
Seller shall remove from the Plants at its expense all such items
that are excluded from Inventory within 30 days after the Closing
Date. Until such items are removed by Seller, Buyer shall
segregate and store such items at no charge to Seller at the
Plants under the same conditions as it would store its own
inventory, provided that risk of loss with respect to such items
shall be borne by Seller. Buyer and Seller shall bear the
expense of their own employees' participation in the physical
count.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
3.1 Organization of Seller. Seller is a corporation duly
incorporated, validly existing and in good standing under the
-8-
<PAGE>
laws of the Commonwealth of Virginia and has full corporate power
to enter into this Agreement and the documents and instruments
required hereby from Seller and to otherwise to perform its
obligations hereunder and thereunder. Seller is duly qualified
as a foreign corporation to do business and is in good standing
under the laws of Maryland, Pennsylvania, North Carolina and
South Carolina.
3.2 Authorization; Enforceability. The execution, delivery
and performance by Seller of this Agreement and the documents and
instruments required hereby from Seller are within the corporate
power of Seller and have been duly authorized by all necessary
corporate action of Seller. This Agreement is, and the other
documents and instruments required hereby will be, when executed
and delivered by the parties hereto, the valid and binding
obligations of Seller, enforceable against Seller in accordance
with their respective terms.
3.3 No Violation or Conflict by Seller. The execution,
delivery and performance by Seller of this Agreement and the
documents and instruments required hereby from Seller do not and
will not conflict with or violate any Law, judgment, order or
decree binding on Seller or the Articles of Incorporation or
Bylaws of Seller or any contract or agreement to which Seller is
a party or by which it is bound, the breach of which could have a
material adverse effect on the Assets or the Contracts following
the Closing or Seller's ability to perform its obligations
hereunder or under any document or instrument contemplated herein
(except that Seller makes no representation or warranty with
-9-
<PAGE>
respect to compliance with the bulk sales laws of any state).
Except for the Required Consents, no consent of any other person,
and no notice to, filing or registration with, or authorization,
consent or approval of, any governmental, regulatory or self-
regulatory agency is necessary or is required to be made or
obtained by Seller in connection with the execution and delivery
of this Agreement by Seller or the performance by Seller of its
obligations under this Agreement.
3.4 Title to Assets. Seller owns good, valid and
marketable title to the Assets, free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions,
pledges, security interests or impositions, except Permitted
Liens, and, upon delivery of the Assets to Buyer at Closing and
upon Buyer's payment of the Purchase Price in accordance with
Section 2.2 hereof, good and valid title to the Assets, free and
clear of all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests or impositions, except
Permitted Liens, will pass to Buyer.
3.5 No Litigation. There is no litigation, arbitration
proceeding, governmental investigation, citation or action of any
kind pending or, to the Knowledge of Seller, proposed or
threatened, against Seller or relating to the business, assets or
properties of Seller which, if adversely determined, would
materially and adversely affect the Assets or the Contracts after
the Closing or the ability of Seller to perform its obligations
hereunder or any document or instrument required hereby from
Seller.
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3.6 Condition of Equipment. The Equipment has been
inspected by Buyer and is accepted by Buyer "as is and where is".
3.7 Books and Records. The Books and Records are true,
complete and correct in all material respects.
3.8 Contracts. Seller has previously delivered to Buyer
true and correct copies of each of the Contracts. Seller has
performed each material term, covenant and condition of each of
the Contracts that is to be performed by Seller at or before the
date hereof. No event has occurred that would, with the passage
of time or compliance with any applicable notice requirements,
constitute a default by Seller or, to the Knowledge of Seller,
any other party under any of the Contracts, and, to the Knowledge
of Seller, no party to any of the Contracts intends to cancel,
terminate or exercise any option under any of the Contracts.
3.9 Intangibles. Seller owns the entire right, title and
interest in and to the Intangibles, subject only to the Permitted
Liens. To the Knowledge of Seller, there are no claims, demands
or proceedings instituted, pending or threatened by any third
party pertaining to or challenging Seller's right to use any of
the Intangibles, and there is no trademark, tradename, patent or
copyright owned by a third party (other than those intangibles
that are the subject of Section 8.6 hereof) that Seller is using
without a license to do so. Seller does not own any patents or
patent applications that relate to its wood treating business as
conducted at the Plants.
3.10 No Broker. Seller has retained no broker or other
intermediary to act on its behalf in connection with the
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transactions contemplated by this Agreement except Dillon, Read &
Co. Inc. ("Dillon Read") and has, pursuant to a separate
agreement, agreed to pay Dillon Read a fee if the transactions
contemplated by the Agreement are consummated. Seller agrees to
indemnify and hold Buyer harmless from and against all amounts
payable to Dillon Read in connection with the transactions
contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
4.1 Organization. Buyer is a corporation duly
incorporated, validly existing and in good standing under the
laws of Michigan and has full corporate power to enter into this
Agreement and the documents and instruments required hereby from
Buyer and to otherwise perform its obligations hereunder and
thereunder.
4.2 Authorization; Enforceability. The execution, delivery
and performance by Buyer of this Agreement and the documents and
instruments required hereby from Buyer are within the corporate
power of Buyer and have been duly authorized by all necessary
corporate action of Buyer. This Agreement is, and the other
documents and instruments required hereby will be, when executed
and delivered by the parties hereto, the valid and binding
obligations of Buyer, enforceable against Buyer in accordance
with their respective terms.
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4.3 No Violation or Conflict. The execution, delivery and
performance by Buyer of this Agreement and the documents and
instruments required hereby from Buyer do not and will not
conflict with or violate any Law, judgment, order or decree
binding on Buyer or the Articles of Incorporation or Bylaws of
Buyer or any contract or agreement to which Buyer is a party or
by which it is bound, the breach of which could have a material
adverse effect on Buyer's ability to perform its obligations
hereunder or under any document or instrument contemplated
herein. Except for the Required Consents, no consent of any
other person, and no notice to, filing or registration with, or
authorization, consent or approval of, any governmental, regu-
latory or self-regulatory agency is necessary or is required to
be made or obtained by Buyer in connection with the execution and
delivery of this Agreement by Buyer or the performance by Buyer
of its obligations under this Agreement.
4.4 No Litigation. There is no litigation, arbitration
proceeding, governmental investigation, citation or action of any
kind pending or, to the Knowledge of Buyer, proposed or
threatened, against Buyer or relating to the business, assets or
properties of Buyer which, if adversely determined, would
materially and adversely affect the ability of Buyer to perform
its obligations hereunder or any document or instrument required
hereby from Buyer.
4.5 No Broker. Buyer has not had any dealings, negotia-
tions or communications with any broker or other intermediary in
connection with the transactions contemplated by this Agreement
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other than Dillon Read, and Buyer has not agreed to pay Dillon
Read any fee in connection with the transactions contemplated by
this Agreement.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
Seller covenants to Buyer that from and after the date of
this Agreement and until the Closing Date:
5.1 Carry on in Regular Course. Except for changes
incidental to the transactions contemplated herein, Seller shall
carry on its business at the Plants in the ordinary course and
substantially in the same manner as heretofore carried on and use
its reasonable best efforts to preserve the Assets and to perform
all material obligations and to preserve its rights under the
Contracts. Seller will advise Buyer promptly in writing of any
material adverse change in Seller's financial condition or
business affecting the Assets or the Contracts.
5.2 Access. At Buyer's expense, Buyer and Buyer's
authorized agents, officers and representatives shall have
reasonable access to the Plants, the Assets and the Contracts and
to any books, records and other materials to be retained by
Seller that have relevance to the Assets, the Contracts or the
operation of Seller's business at the Plants; provided, however,
that such examinations and investigations: (a) shall be conducted
only in the presence of a designated representative of Seller;
(b) shall be conducted during Seller's normal business hours; (c)
shall not unreasonably interfere with Seller's operations and
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activities; (d) shall be subject to the prior approval of Seller
if the information or documents requested are of a nature that
may compromise the competitive position of Seller in a line of
business other than the wood treatment industry; and (e) shall
not extend to any books, records or other materials that, in
Seller's reasonable judgment, are subject to the attorney-client
privilege or disclose attorney work product.
5.3 Cooperation. Buyer and Seller will cooperate in all
respects in connection with the giving of any notices to any
governmental authority or securing the permission, approval,
determination, consent or waiver of any governmental authority
required by Law in connection with the consummation of the
transactions contemplated by this Agreement.
5.4 Publicity. All general notices, releases, statements
and communications to employees, suppliers, distributors and
customers of Seller and to the general public and the press
relating to the transactions covered by this Agreement shall be
made only at such times and in such manner as may be mutually
agreed upon by Buyer and Seller; provided, however, that Seller
and Buyer shall be entitled to make a public announcement of the
proposed transaction if, in the opinion of its legal counsel,
such announcement is required to comply with Law or the rules and
regulations of the New York Stock Exchange.
5.5 Confidentiality. Notwithstanding any other provision
of this Agreement to the contrary, Buyer agrees that, unless and
until the transactions contemplated herein are consummated, Buyer
shall remain subject to all of the terms and conditions of the
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Confidentiality Agreement, dated July 14, 1992, between Dillon
Read, as representative of Seller, and Buyer, the terms of which
Confidentiality Agreement are incorporated herein by reference.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the
Closing Date shall be subject to the satisfaction prior to or at
the Closing of the following express conditions precedent:
6.1 Compliance with Agreement. Seller shall have performed
and complied in all material respects with all of its obligations
under this Agreement which are to be performed or complied with
by it prior to or on the Closing Date.
6.2 Proceedings, Instruments and Due Diligence
Satisfactory. All proceedings, corporate or other, to be taken
by Seller in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to Buyer and
Buyer's counsel, and Seller shall have made available to Buyer
for examination the originals or true and correct copies of all
documents which Buyer may reasonably request in connection with
the transactions contemplated by this Agreement. Buyer, in its
sole discretion, shall be satisfied with the results of its due
diligence investigation of the Assets and Contracts.
6.3 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any court or
governmental agency that seeks restraint, prohibition, damages or
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other relief in connection with this Agreement or the consumma-
tion of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations
and warranties made by Seller in this Agreement shall be true and
correct in all material respects as of the Closing Date with the
same force and effect as though such representations and warran-
ties had been made on the Closing Date.
6.5 Material Damage to Assets. Between the date of this
Agreement and the Closing Date, neither the Assets nor the
premises and equipment that are the subject of the Leases shall
have been materially and adversely affected by reason of any
loss, taking, condemnation, destruction or physical damage,
whether or not insured against.
6.6 Deliveries at Closing. Seller shall have delivered to
Buyer the following documents, each properly executed and dated
as of the Closing Date: (a) the Opinion of Seller's Counsel; (b)
Seller's Closing Certificate; (c) the Escrow Agreement; (d) the
Non-Competition Agreement; (e) a guaranty by Chesapeake
Corporation of all of Seller's obligations hereunder and under
the Leases in the form of Exhibit 6.6 attached hereto; and (f)
the Leases.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the
Closing Date shall be subject to the satisfaction prior to or at
the Closing of the following express conditions precedent:
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7.1 Compliance with Agreement. Buyer shall have performed
and complied in all material respects with all of its obligations
under this Agreement which are to be performed or complied with
by it prior to or on the Closing Date.
7.2 Proceedings and Instruments Satisfactory. All proceed-
ings, corporate or other, to be taken by Buyer in connection with
the transactions contemplated by this Agreement, and all docu-
ments incident thereto, shall be reasonably satisfactory in form
and substance to Seller and Seller's counsel, and Buyer shall
have made available to Seller for examination the originals or
true and correct copies of all documents which Seller may reason-
ably request in connection with the transactions contemplated by
this Agreement.
7.3 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any court or
governmental agency that seeks restraint, prohibition, damages or
other relief in connection with this Agreement or the consumma-
tion of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations
and warranties made by Buyer in this Agreement shall be true and
correct in all material respects as of the Closing Date with the
same force and effect as though such representations and warran-
ties had been made on the Closing Date.
7.5 Deliveries at Closing. Buyer shall have delivered to
Seller the following documents, each properly executed and dated
as of the Closing Date: (a) the Opinion of Buyer's Counsel; (b)
Buyer's Closing Certificate; (c) the Escrow Agreement; (d) the
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Non-Competition Agreement; (e) a guaranty by The Universal
Companies, Inc. of all of Buyer's obligations hereunder and under
the Leases in the form of Exhibit 7.5 attached hereto; and (f)
the Leases.
ARTICLE VIII
INDEMNITIES AND ADDITIONAL COVENANTS
8.1 Seller's Indemnity. (a) Seller hereby agrees to indem-
nify and hold Buyer harmless from and against, and agrees to
defend promptly Buyer from and to reimburse Buyer for, any and
all losses, damages, costs, expenses, liabilities, obligations
and claims of any kind, including, without limitation, reasonable
attorneys' fees and other legal costs and expenses (hereinafter
referred to collectively as "Losses"), that Buyer may at any time
suffer or incur, or become subject to, as a result of or in
connection with (i) any breach or inaccuracy of any of the
representations and warranties made by Seller in or pursuant to
this Agreement, (ii) any failure by Seller to perform any of its
covenants and obligations set forth in this Agreement or in any
document or instrument delivered pursuant hereto and (iii) any
claims by third parties against Buyer relating to the operation
and ownership by Seller of the Assets, the performance by Seller
under the Contracts or the conduct of Seller's business at any of
the Plants prior to the Effective Time of Closing (excluding any
such claims relating to environmental matters, which claims shall
be governed exclusively by the indemnification provisions set
forth in the Leases); provided, however, that Seller shall not be
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required to indemnify Buyer pursuant to Section 8.1(a)(i) hereof
in respect of the representations and warranties made by Seller
unless such right is asserted (whether or not such Losses have
actually been incurred) by written notice to Seller within one
year of the Closing Date describing with specificity the facts
giving rise to the asserted right; and provided, further, that
Seller shall not be required to indemnify Buyer pursuant to
Section 8.1(a)(i) in respect of the representations and
warranties made by Seller unless and until the amount of all
Losses for which indemnification is sought hereunder first
exceeds $25,000, in which event only Losses in excess of such
amount shall be subject to indemnification. Seller's aggregate
obligations pursuant to this Section 8.1(a) shall in no event
exceed $2.0 million.
(b) In the event a claim against Buyer arises that is
covered by the indemnity provisions of Section 8.1(a) hereof,
notice shall be given promptly by Buyer to Seller. Provided that
Seller admits in writing to Buyer that such claim is covered by
the indemnity provisions of Section 8.1(a) hereof, Seller shall
have the right to contest and defend by all appropriate legal
proceedings such claim and to control all settlements (unless
Buyer agrees to assume the cost of settlement and to forgo such
indemnity) and to select lead counsel to defend any and all such
claims at the sole cost and expense of Seller; provided, however,
that Seller may not effect any settlement that could result in
any cost, expense or liability to Buyer unless Buyer consents in
writing to such settlement and Seller agrees to indemnify Buyer
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therefor. Buyer may select counsel to participate in any
defense, in which event Buyer's counsel shall be at the sole cost
and expense of Buyer. In connection with any such claim, action
or proceeding, the parties shall cooperate with each other and
provide each other with access to relevant books and records in
their possession.
(c) Except as provided in Sections 3.10 and 8.6 hereof and
except as set forth in the Leases, this Section 8.1 shall be the
sole remedy of Buyer against Seller for any claim arising in
connection with the transactions contemplated herein. Seller's
representations and warranties made herein shall survive the
Closing, but only to the extent and for such time as is necessary
to enable Buyer to enforce its rights to indemnification under
this Section.
8.2 Buyer's Indemnity. (a) Buyer hereby agrees to indem-
nify and hold Seller harmless from and against, and agrees to
defend promptly Seller from and to reimburse Seller for, any and
all Losses that Seller may at any time suffer or incur, or become
subject to, as a result of or in connection with (i) any breach
or inaccuracy of any of the representations and warranties made
by Buyer in or pursuant to this Agreement, (ii) any failure by
Buyer to perform any of its covenants and obligations set forth
in this Agreement or in any document or instrument delivered
pursuant hereto and (iii) any claims by third parties against
Seller relating to the operation and ownership by Buyer of the
Assets, the performance by Buyer under the Contracts or the
conduct of Buyer's business at any of the Plants from and after
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the Effective Time of Closing (excluding any such claims relating
to environmental matters, which claims shall be governed
exclusively by the indemnification provisions set forth in the
Leases); provided, however, that Seller shall have no right to be
indemnified, held harmless from, defended or reimbursed pursuant
to Section 8.2(a)(i) hereof in respect of the representations and
warranties made by Buyer unless such right is asserted (whether
or not such Losses have actually been incurred) by written notice
to Buyer within one year of the Closing Date describing with
specificity the facts giving rise to the asserted right; and
provided, further, that Buyer shall not be required to indemnify
Seller under Section 8.2(a)(i) hereof in respect of the
representations and warranties made by Buyer unless and until the
amount of all Losses for which such indemnification is sought
hereunder first exceeds $25,000, in which event only Losses in
excess of such amount shall be subject to indemnification.
Buyer's aggregate obligations pursuant to this Section 8.2(a)
shall in no event exceed $2.0 million.
(b) In the event a claim against Seller arises that is
covered by the indemnity provisions of Section 8.2(a) hereof,
notice shall be promptly given by Seller to Buyer. Provided that
Buyer admits in writing to Seller that such claim is covered by
the indemnity provisions of Section 8.2(a) hereof, Buyer shall
have the right to contest and defend by all appropriate legal
proceedings such claim and to control all settlements (unless
Seller agrees to assume the cost of settlement and to forgo such
indemnity) and to select lead counsel to defend any and all such
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claims at the sole cost and expense of Buyer; provided, however,
that Buyer may not effect any settlement that could result in any
cost, expense or liability to Seller unless Seller consents in
writing to such settlement and Buyer agrees to indemnify Seller
therefor. Seller may select counsel to participate in any
defense, in which event such counsel shall be at the sole cost
and expense of Seller. In connection with any such claim, action
or proceeding, the parties shall cooperate with each other and
provide each other with access to relevant books and records in
their possession.
(c) Except as provided in Section 8.7 hereof and except as
set forth in the Leases, this Section 8.2 shall be the sole
remedy of Seller against Buyer for any claim arising in
connection with the transactions contemplated herein. Buyer's
representations and warranties made herein shall survive the
Closing, but only to the extent and for such time as is necessary
to enable Seller to enforce its rights to indemnification under
this Section.
8.3 Employment Matters. (a) As of the Effective Time of
Closing, Seller shall terminate the employment of all of the
persons employed by Seller at the Plants (and such persons shall
be treated as terminated employees under Seller's benefit plans).
Seller shall remain liable for all obligations to employees of
Seller and Chesapeake Corporation for periods prior to the
Effective Time of Closing including, without limitation, any and
all wages, benefits, profit sharing and/or pension benefits,
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vacation pay, workers compensation benefits and retirement
agreements.
(b) Buyer agrees that Buyer shall offer employment for a
six month probationary period to those persons specified on
Exhibit 8.3A attached hereto at one of Buyer's wood treating
facilities. Buyer represents and warrants to Seller that the
persons identified on Exhibit 8.3A have been selected to receive
offers of employment solely by Buyer, and that Buyer has not
received or relied upon any information from Seller as a basis
for making such employment decisions. Buyer agrees that each
person identified in Exhibit 8.3A who accepts employment with
Buyer (each, a "Retained Employee") shall be eligible to
participate in Buyer's employee welfare plans pursuant to the
terms and conditions thereof; provided, however, that Buyer's
medical benefits plan shall not include a waiting or eligibility
period for any such Retained Employee; and provided further,
however, that Buyer shall not be obligated to extend medical
benefits, or to assume any liability or expense, for any "pre-
existing medical condition" of any Retained Employee or his
dependents (as such term is currently defined in Buyer's medical
benefits plans). Seller agrees that for a period of six months
after Closing, Seller shall extend to each Retained Employee who
had been a salaried employee of Seller those severance benefits
described on Exhibit 8.3B attached hereto.
8.4 Allocation of Purchase Price. The Purchase Price shall
be allocated among the Assets, the Contracts and the Non-
Competition Agreement in accordance with Exhibit 8.4 hereto.
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This allocation is intended to comply with the allocation method
required by Section 1060 of the Internal Revenue Code of 1986, as
amended. The parties shall cooperate to comply with all
substantive and procedural requirements of Section 1060 and the
regulations thereunder and the allocation shall be adjusted only
if and to the extent necessary to comply with such requirements.
Buyer and Seller agree that they will not take nor will they
permit any affiliated person to take, for income tax purposes,
any position inconsistent with such allocation.
8.5 No Use of Name. Buyer agrees that without Seller's
consent, it will not make any use of the name "Chesapeake
Corporation", the word "Chesapeake" or the "rolling C" logo, or
any variation thereof in any manner.
8.6 Bulk Sales Compliance. Buyer hereby waives compliance
by Seller with the provisions of the bulk sales law of any
jurisdiction, and Seller covenants and agrees to pay and
discharge when due all claims of any governmental entities and
creditors of Seller and its subsidiaries that could be asserted
against Buyer by reason of such non-compliance. Seller agrees to
indemnify and hold Buyer harmless from and against and shall on
demand reimburse Buyer for any and all losses, damages, costs,
expenses, liabilities, obligations and claims of any kind,
including, without limitation, reasonable attorneys' fees and
other legal costs and expenses, suffered by Buyer by reason of
Seller's failure to pay and discharge any such claims.
8.7 Pocomoke Assets. Exhibit 1.11 specifically identifies
certain items of Equipment that are located at Seller's Pocomoke,
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Maryland Plant (the "Pocomoke Assets"). Buyer will, at its own
expense and within 60 days after the Closing Date, remove all of
the Pocomoke Assets from the site of Seller's Pocomoke, Maryland
Plant. Such removal shall be done by Buyer in a good and
workmanlike manner, with the minimum practical damage to the
fixtures and improvements associated with the Pocomoke Plant and
in compliance with all applicable Laws; provided, however, that
Buyer's plans for such removal shall be subject to Seller's
reasonable approval in advance. Such plans will not require
Buyer to restore or repair fixtures or improvements that must be
dismantled or damaged to permit a workmanlike removal of the
Pocomoke Assets. Buyer shall indemnify and hold Seller harmless
from and against any Losses suffered by Seller that are solely
attributable to the negligence or willful misconduct of Buyer or
any of Buyer's employees or agents in connection with the removal
of the Pocomoke Assets. Until the Pocomoke Assets are removed by
Buyer in accordance with this Section, Seller shall permit Buyer
to store such assets without charge at the Pocomoke Plant,
provided that risk of loss with respect to such assets shall be
borne by Buyer.
ARTICLE IX
TERMINATION
9.1 Termination. Time is of the essence of this Agreement.
This Agreement may be terminated and the transactions contem-
plated hereby may be abandoned as follows: (a) at any time prior
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to the Closing Date by mutual written agreement of Seller and
Buyer; or (b) by Buyer at any time within 20 business days
following Buyer's becoming aware of the occurrence of any event
set forth in Section 6.3 hereof or on the Closing Date if any of
the conditions set forth in Article VI of this Agreement shall
not have been fulfilled by the Closing Date; or (c) by Seller at
any time within 20 business days following the Seller's becoming
aware of the occurrence of any event set forth in Section 7.3
hereof or on the Closing Date if any of the conditions set forth
in Article VII of this Agreement shall not have been fulfilled by
the Closing Date; or (d) by Seller or Buyer on or after
October 5, 1993, if by that date Closing has not occurred.
9.2 Rights on Termination; Waiver. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of
the parties under or pursuant to this Agreement shall terminate
without further liability of either party to the other, provided
that Buyer's obligations contained in Section 5.5 of this Agree-
ment shall survive any such termination. If this Agreement is
terminated other than pursuant to Section 9.1, the parties hereto
shall retain all of their respective rights under applicable Law
resulting from such termination.
ARTICLE X
MISCELLANEOUS
10.1 Transfer Taxes and Fees. Seller shall pay all transfer
fees, transfer taxes, sales taxes and assessments (other than
local, state and federal income taxes, to which this Section does
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not apply) charged under applicable Law in connection with the
transfer of the Assets and Contracts to Buyer.
10.2 Entire Agreement; Amendment. Except as set forth in
Section 5.5 hereof, this Agreement, the Leases and the documents
referred to herein and therein and to be delivered pursuant
hereto and thereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede
all prior and contemporaneous agreements, understandings,
negotiations and discussions of the parties, whether oral or
written, and there are no warranties, representations or other
agreements between the parties in connection with the subject
matter hereof, except as specifically set forth herein or
therein. No amendment, supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision of this Agreement,
whether or not similar, nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided. The
representations and warranties of each party hereto shall be
deemed to be material and to have been relied upon by the other
party, notwithstanding any investigation heretofore or hereafter
made by the other party.
10.3 Expenses. Whether or not the transactions contemplated
by this Agreement are consummated and except as provided in the
Leases, each of the parties hereto shall pay the fees and
expenses of its counsel, accountants and other experts and the
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other expenses incident to the negotiation and preparation of
this Agreement and consummation of the transactions contemplated
hereby.
10.4 Governing Law. This Agreement shall be construed and
interpreted according to the laws of the Commonwealth of
Virginia, without regard to the conflicts of law rules thereof.
10.5 Assignment. This Agreement and each party's respective
rights hereunder may not be assigned at any time by operation of
law or otherwise without the prior written consent of the other
party.
10.6 Notices. All communications, notices and disclosures
required or permitted by this Agreement shall be in writing and
shall be deemed to have been given at the earlier of the date
when actually delivered to an officer of the other party or when
deposited in the United States mail, certified or registered
mail, postage prepaid, return receipt requested and addressed as
follows, unless and until either of such parties notifies the
other in accordance with this Section of a change of address:
If to Seller: Chesapeake Building Products Company
2 James Center, 22nd Floor
1021 East Cary Street
P.O. Box 2350
Richmond, Virginia 23218-2350
Attention: Andrew J. Kohut
With a copy to: Chesapeake Corporation
2 James Center, 22nd Floor
1021 East Cary Street
P.O. Box 2350
Richmond, Virginia 23218-2350
Attention: J.P. Causey Jr., Esq.,
Vice President, Secretary
and General Counsel
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If to Buyer: Universal Forest Products, Inc.
2801 East Beltline, N.E.
Grand Rapids, Michigan 49505
Attention: R. Dale Lausch
With a copy to: The Universal Companies, Inc.
2801 East Beltline, N.E.
Grand Rapids, Michigan 49505
Attention: Matthew J. Missad
Vice President - Operations
Compliance
10.7 Counterparts; Headings. This Agreement may be executed
in several counterparts, each of which shall be deemed an
original, but such counterparts shall together constitute but one
and the same Agreement. The Table of Contents and Article and
Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
10.8 Interpretation. Unless the context requires otherwise,
all words used in this Agreement in the singular number shall
extend to and include the plural, all words in the plural number
shall extend to and include the singular and all words in any
gender shall extend to and include all genders. All references
to contracts, agreements, leases, employee benefit plans or other
understandings or arrangements shall refer to oral as well as
written matters.
10.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby.
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10.10 No Reliance. No third party is entitled to rely on any
of the representations, warranties and agreements contained in this
Agreement. Buyer and Seller assume no liability to any third party because
of any reliance on the representations, warranties and agreements of Buyer
and Seller contained in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Asset Purchase
Agreement to be duly executed as of the day and year first above written.
CHESAPEAKE BUILDING PRODUCTS COMPANY
By: /s/ J.P. Causey Jr.
Its: Secretary
UNIVERSAL FOREST PRODUCTS, INC.
By: /s/ William G. Currie
Its: Chief Executive Officer
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EXHIBIT 2.2
AGREEMENT
OF MERGER
BY AND AMONG
CHESAPEAKE PACKAGING CO.,
LAWLESS ACQUISITION CO.,
LAWLESS HOLDING CORPORATION
AND THE COMMON
SHAREHOLDERS OF LAWLESS HOLDING CORPORATION
Dated as of December 31, 1993
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TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.01 Accounts . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02 Agreement . . . . . . . . . . . . . . . . . . . . . 2
Section 1.03 Assets . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.04 Bank Accounts . . . . . . . . . . . . . . . . . . . 2
Section 1.05 Charter Amendment . . . . . . . . . . . . . . . . . 2
Section 1.06 Chesapeake . . . . . . . . . . . . . . . . . . . . . 3
Section 1.07 Closing . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.08 Code . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.09 Common Shares; Common Shareholders . . . . . . . . . 3
Section 1.10 Company . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.11 Confidentiality Agreement . . . . . . . . . . . . . 4
Section 1.12 Contracts . . . . . . . . . . . . . . . . . . . . . 4
Section 1.13 December Balance Sheet . . . . . . . . . . . . . . . 4
Section 1.14 DGCL . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.15 DOL . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.16 Draft Final Balance Sheet . . . . . . . . . . . . . 4
Section 1.17 Effective Time . . . . . . . . . . . . . . . . . . . 5
Section 1.18 Equipment . . . . . . . . . . . . . . . . . . . . . 5
Section 1.19 ERISA . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.20 ESOP; ESOT . . . . . . . . . . . . . . . . . . . . . 5
Section 1.21 Exchange Act . . . . . . . . . . . . . . . . . . . . 5
Section 1.22 Final Balance Sheet . . . . . . . . . . . . . . . . 5
Section 1.23 GAAP . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.24 Groveton Stock . . . . . . . . . . . . . . . . . . . 6
Section 1.25 HSR Act . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.26 Intellectual Property . . . . . . . . . . . . . . . 6
Section 1.27 Interim Financial Statements . . . . . . . . . . . . 7
Section 1.28 Inventory . . . . . . . . . . . . . . . . . . . . . 8
Section 1.29 IRS . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.30 Knowledge of the Company . . . . . . . . . . . . . . 8
Section 1.31 Law . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.32 Lawless Group . . . . . . . . . . . . . . . . . . . 8
Section 1.33 Management Contracts . . . . . . . . . . . . . . . . 8
Section 1.34 Merger . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.35 Merger Price . . . . . . . . . . . . . . . . . . . . 9
Section 1.36 Parent . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.37 Parent's Notes . . . . . . . . . . . . . . . . . . . 9
Section 1.38 Partnerships . . . . . . . . . . . . . . . . . . . . 9
Section 1.39 PBGC . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.40 Permitted Liens . . . . . . . . . . . . . . . . . . 10
Section 1.41 Permits . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.42 Plan of Merger . . . . . . . . . . . . . . . . . . . 10
Section 1.43 Preferred Shares . . . . . . . . . . . . . . . . . . 10
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Section 1.44 Proxy Statement; Information Statement . . . . . . . 10
Section 1.45 Purchaser . . . . . . . . . . . . . . . . . . . . . 10
Section 1.46 Real Property . . . . . . . . . . . . . . . . . . . 11
Section 1.47 Representatives . . . . . . . . . . . . . . . . . . 11
Section 1.48 SEC . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.49 Secretary of State . . . . . . . . . . . . . . . . . 12
Section 1.50 Securities Act . . . . . . . . . . . . . . . . . . . 12
Section 1.51 Shares . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.52 Shareholders . . . . . . . . . . . . . . . . . . . . 12
Section 1.53 Special Meeting . . . . . . . . . . . . . . . . . . 12
Section 1.54 Subsidiaries . . . . . . . . . . . . . . . . . . . . 13
Section 1.55 Surviving Corporation . . . . . . . . . . . . . . . 13
Section 1.56 Trustee . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.57 VSCA . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.58 Virginia Corporation Commission . . . . . . . . . . 13
ARTICLE II
THE MERGER
Section 2.01 The Merger . . . . . . . . . . . . . . . . . . . . . 14
Section 2.02 Effective Time; Effects of the Merger . . . . . . . 14
Section 2.03 Determination of Aggregate Merger Price . . . . . . 15
Section 2.04 Preparation and Delivery of Final Balance Sheet . . 17
Section 2.05 Allocation and Distribution of Merger Price Among
Common Shares and ESOP . . . . . . . . . . . . . . 19
Section 2.06 ESOP . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.07 Special Meeting . . . . . . . . . . . . . . . . . . 23
Section 2.08 Approval of Merger; Redemption of Preferred Shares . 24
Section 2.09 Closing; Filing of Articles of Merger . . . . . . . 25
Section 2.10 Exchange of Shares . . . . . . . . . . . . . . . . . 25
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01 Organization . . . . . . . . . . . . . . . . . . . . 28
Section 3.02 Capitalization . . . . . . . . . . . . . . . . . . . 28
Section 3.03 The Company's Net Worth . . . . . . . . . . . . . . 29
Section 3.04 Subsidiaries . . . . . . . . . . . . . . . . . . . . 29
Section 3.05 Partnerships . . . . . . . . . . . . . . . . . . . . 31
Section 3.06 Authority Relative to this Agreement . . . . . . . . 32
Section 3.07 Consents and Approvals; No Violations . . . . . . . 33
Section 3.08 No Adverse Change . . . . . . . . . . . . . . . . . 34
Section 3.09 Proxy Statement; Information Statement . . . . . . . 35
Section 3.10 No Litigation . . . . . . . . . . . . . . . . . . . 36
Section 3.11 Title to Assets . . . . . . . . . . . . . . . . . . 37
Section 3.12 Bank Accounts; Powers of Attorney . . . . . . . . . 37
Section 3.13 Condition of Equipment . . . . . . . . . . . . . . . 37
Section 3.14 Inventory . . . . . . . . . . . . . . . . . . . . . 38
Section 3.15 Books and Records . . . . . . . . . . . . . . . . . 38
Section 3.16 Contracts . . . . . . . . . . . . . . . . . . . . . 38
Section 3.17 Accounts . . . . . . . . . . . . . . . . . . . . . . 39
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Section 3.18 Real Property . . . . . . . . . . . . . . . . . . . 40
Section 3.19 Intellectual Property . . . . . . . . . . . . . . . 42
Section 3.20 Financial Statements . . . . . . . . . . . . . . . . 45
Section 3.21 Insurance . . . . . . . . . . . . . . . . . . . . . 46
Section 3.22 Employee Benefit Plans . . . . . . . . . . . . . . . 47
Section 3.23 Compliance with Law . . . . . . . . . . . . . . . . 62
Section 3.24 Transactions With Affiliates . . . . . . . . . . . . 62
Section 3.25 Fees and Expenses of Brokers and Others . . . . . . 63
Section 3.26 Tax Matters . . . . . . . . . . . . . . . . . . . . 64
Section 3.27 Environmental Matters . . . . . . . . . . . . . . . 67
Section 3.28 Orders, Commitments and Returns . . . . . . . . . . 71
Section 3.29 Product Warranties . . . . . . . . . . . . . . . . . 71
Section 3.30 Labor Matters . . . . . . . . . . . . . . . . . . . 72
Section 3.31 Management Contracts . . . . . . . . . . . . . . . . 73
Section 3.32 Accuracy of Information . . . . . . . . . . . . . . 73
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMMON SHAREHOLDERS
Section 4.01 Organization; Individual Capacity; Enforceability . 74
Section 4.02 No Violation or Conflict by Common Shareholders . . 75
Section 4.03 Title to Shares . . . . . . . . . . . . . . . . . . 75
Section 4.04 Nature of Common Shareholders; Purchase for
Investment . . . . . . . . . . . . . . . . . . . . 76
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
Section 5.01 Organization . . . . . . . . . . . . . . . . . . . . 77
Section 5.02 Authority Relative to this Agreement . . . . . . . . 77
Section 5.03 Consents and Approvals; No Violations . . . . . . . 78
Section 5.04 Financial Statements . . . . . . . . . . . . . . . . 79
Section 5.05 Proxy Statement; Information Statement . . . . . . . 80
Section 5.06 Fees and Expenses of Brokers and Others . . . . . . 80
Section 5.07 Ownership of Shares . . . . . . . . . . . . . . . . 81
ARTICLE VI
COVENANTS
Section 6.01 Conduct of Business of the Company . . . . . . . . . 81
Section 6.02 No Solicitation . . . . . . . . . . . . . . . . . . 85
Section 6.03 Access to Information . . . . . . . . . . . . . . . 86
Section 6.04 Best Efforts . . . . . . . . . . . . . . . . . . . . 86
Section 6.05 Public Announcements . . . . . . . . . . . . . . . . 87
Section 6.06 Confidentiality Agreement . . . . . . . . . . . . . 87
Section 6.07 Shareholder Vote; No Appraisal Rights; Irrevocable
Proxy . . . . . . . . . . . . . . . . . . . . . . 87
Section 6.08 Adequate Capitalization. . . . . . . . . . . . . . 88
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ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
Section 7.01 Conditions Precedent to Each Party's Obligation to
Effect the Merger . . . . . . . . . . . . . . . . 89
Section 7.02 Conditions Precedent to Obligations of the Parent
and the Purchaser . . . . . . . . . . . . . . . . 90
Section 7.03 Conditions Precedent to Obligations of the Company . 92
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.01 Termination . . . . . . . . . . . . . . . . . . . . 94
Section 8.02 Effect of Termination . . . . . . . . . . . . . . . 96
Section 8.03 Amendment . . . . . . . . . . . . . . . . . . . . . 96
Section 8.04 Extension; Waiver . . . . . . . . . . . . . . . . . 96
ARTICLE IX
INDEMNIFICATION
Section 9.01 Indemnification . . . . . . . . . . . . . . . . . . 97
Section 9.02 Survival of Representations, Warranties and
Covenants . . . . . . . . . . . . . . . . . . . . 103
Section 9.03 Indemnity Amounts to be Computed on After-Tax
Basis . . . . . . . . . . . . . . . . . . . . . . 103
Section 9.04 Environmental Matters . . . . . . . . . . . . . . . 103
Section 9.05 Release of Claims . . . . . . . . . . . . . . . . . 106
ARTICLE X
MISCELLANEOUS
Section 10.01 Entire Agreement; Assignment . . . . . . . . . . . 107
Section 10.02 Notices . . . . . . . . . . . . . . . . . . . . . . 108
Section 10.03 Governing Law . . . . . . . . . . . . . . . . . . . 109
Section 10.04 Descriptive Headings . . . . . . . . . . . . . . . 109
Section 10.05 Parties in Interest . . . . . . . . . . . . . . . . 110
Section 10.06 Counterparts . . . . . . . . . . . . . . . . . . . 110
Section 10.07 Specific Performance . . . . . . . . . . . . . . . 110
Section 10.08 Fees and Expenses . . . . . . . . . . . . . . . . . 110
Section 10.09 Severability . . . . . . . . . . . . . . . . . . . 110
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EXHIBIT INDEX
Exhibit 1.04 Bank Accounts
Exhibit 1.05 Charter Amendment
Exhibit 1.131992 Audited Financial Statements
Exhibit 1.26Intellectual Property
Exhibit 1.27Interim Financial Statements
Exhibit 1.30Key Management
Exhibit 1.37Form of Parent Note and Chesapeake Guaranty
Exhibit 1.38Partnerships
Exhibit 1.40Permitted Liens
Exhibit 1.41Permits
Exhibit 1.42Plan of Merger
Exhibit 1.46Real Property
Exhibit 1.52Shareholders
Exhibit 1.54Subsidiaries
Exhibit 2.04Special Accounting Principles
Exhibit 3.01Foreign Qualifications
Exhibit 3.04Former Subsidiaries
Exhibit 3.05Former Partnerships
Exhibit 3.07 Required Consents
Exhibit 3.08Adverse Changes
Exhibit 3.10Litigation
Exhibit 3.16Certain Contracts and Leases
Exhibit 3.17Disputed Accounts
Exhibit 3.21Insurance
Exhibit 3.22Employee Benefit Plans
Exhibit 3.23Compliance with Law
Exhibit 3.24Transactions with Affiliates
Exhibit 3.26Taxes
Exhibit 3.27Environmental Matters
Exhibit 3.28Orders, Commitments and Returns
Exhibit 3.29Product Warranties
Exhibit 3.30Labor Matters
Exhibit 7.02AForm of Opinion of Counsel to the Company
Exhibit 7.02BForm of Opinion of Special Benefits Counsel to the Company
Exhibit 7.03Form of Opinion of Counsel to Parent and Purchaser
Exhibit 9.01Indemnity Items
Exhibit 9.04Environmental Remediation
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AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated as of December 31, 1993, by and among the
Company, the Common Shareholders, the Parent and the Purchaser.
RECITALS
WHEREAS, the Parent desires to purchase all of the Common Shares
outstanding as of the Effective Time through the Merger of the Purchaser
with and into the Company, and the parties hereto desire to effect the
Merger upon the terms and subject to the conditions of this Agreement and
the Plan of Merger; and
WHEREAS, the parties hereto contemplate that all Preferred Shares
outstanding immediately prior to the Effective Time will be redeemed by the
Company immediately prior to such Effective Time.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, agreements and conditions set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
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ARTICLE I
DEFINITIONS
Section 1.01 Accounts. "Accounts" shall mean all accounts receivable,
notes receivable and associated rights owned by the Company or its
Subsidiaries as of the Effective Time.
Section 1.02 Agreement. "Agreement" shall mean this Agreement of Merger
together with the Exhibits attached hereto, as amended from time to time in
accordance with the terms hereof.
Section 1.03 Assets. "Assets" shall mean all of the assets of the Company
and its Subsidiaries as of the Effective Time, including, without
limitation, the Accounts, Bank Accounts, Contracts, Equipment, Intellectual
Property, Inventory and Real Property.
Section 1.04 Bank Accounts. "Bank Accounts" shall mean the checking
accounts, savings accounts, custodial accounts, certificates of deposit,
safe deposit boxes and other bank accounts maintained by the Company and
its Subsidiaries as of the Effective Time, all of such Bank Accounts being
listed on Exhibit 1.04 attached hereto.
Section 1.05 Charter Amendment. "Charter Amendment" shall mean the
amendment to the Company's Certificate of Incorporation in the form of
Exhibit 1.05 attached hereto, to be considered by the Shareholders at the
Special Meeting.
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Section 1.06 Chesapeake. "Chesapeake" shall mean Chesapeake Corporation,
a Virginia corporation and owner of all of the outstanding capital stock of
the Parent.
Section 1.07 Closing. "Closing" shall mean the conference held on the
date determined in accordance with Section 2.09 hereof, at a time mutually
agreed-upon by the parties, at the offices of Hunton & Williams, Riverfront
Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia, or at such
other place as the parties may mutually agree in writing.
Section 1.08 Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
Section 1.09 Common Shares; Common Shareholders. "Common Shares" shall
mean, collectively, all issued and outstanding shares of Class A Common and
Class B Common. "Common Shareholders" shall mean all record holders of
Common Shares.
Section 1.10 Company. "Company" shall mean Lawless Holding Corporation, a
Delaware corporation.
Section 1.11 Confidentiality Agreement. "Confidentiality Agreement" shall
mean the letter agreement, dated as of May 24, 1993, by and between the
Company and Chesapeake.
Section 1.12 Contracts. "Contracts" shall mean all contracts, agreements,
leases, licenses, relationships and commitments, written or oral, to which
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the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound as of the Effective Time.
Section 1.13 December Balance Sheet. "December Balance Sheet" shall mean
the audited consolidated balance sheet of the Company as of December 31,
1992, included in Exhibit 1.13 attached hereto.
Section 1.14 DGCL. "DGCL" shall mean the Delaware General Corporation
Law, as amended.
Section 1.15 DOL. "DOL" means the United States Department of Labor.
Section 1.16 Draft Final Balance Sheet. "Draft Final Balance Sheet" shall
mean the proposed audited consolidated balance sheet of the Company as of
the Effective Time, prepared and delivered as set forth in Section 2.04
hereof.
Section 1.17 Effective Time. "Effective Time" shall mean the later of the
time of issuance by the Virginia Corporation Commission, and the time of
filing with the Secretary of State, of Certificates of Merger with respect
to the Merger.
Section 1.18 Equipment. "Equipment" shall mean all machinery, vehicles,
equipment, furniture, fixtures, furnishings, parts, tools, engineering and
other items of tangible personal property owned or leased by the Company
and its Subsidiaries as of the Effective Time.
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Section 1.19 ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
Section 1.20 ESOP; ESOT. "ESOP" shall mean the Lawless Holding
Corporation Employee Stock Ownership Plan. "ESOT" shall mean the trust
established pursuant to the Lawless Holding Corporation Employee Stock
Ownership Plan Trust Agreement.
Section 1.21 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
Section 1.22 Final Balance Sheet. "Final Balance Sheet" shall mean the
audited consolidated balance sheet of the Company as of the Effective Time,
prepared and delivered by the Company, and agreed upon by the Parent, as
set forth in Section 2.04 hereof.
Section 1.23 GAAP. "GAAP" shall mean generally accepted accounting
principles as in effect in the United States of America at the time of the
preparation of the subject financial statement.
Section 1.24 Groveton Stock. "Groveton Stock" shall mean 5,300 shares of
the common stock, $10.00 par value, of Groveton Paper Board, Inc., a New
Hampshire corporation, owned of record and beneficially by the Company.
Section 1.25 HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
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Section 1.26 Intellectual Property. "Intellectual Property" shall mean
(a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto and all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and
reexaminations thereof, (b) all trademarks, service marks, trade dress,
logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof and including all
goodwill associated therewith and all applications, registrations and
renewals in connection therewith, (c) all copyrightable works, all
copyrights and all applications, registrations and renewals in connection
therewith, (d) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier
lists, pricing and cost information and business and marketing plans and
proposals), (e) all computer software (including data and related
documentation), (f) all other proprietary rights, (g) all rights as a
licensee or authorized user of the intellectual property of any third party
and (h) all copies and tangible embodiments thereof (in whatever form or
medium) used in the business of the Company and its Subsidiaries as of the
Effective Time, including, without limitation, the Intellectual Property
listed on Exhibit 1.26 attached hereto. Exhibit 1.26 sets forth separately
(x) all Intellectual Property of which the Company or any of its
Subsidiaries is the exclusive owner, identifying the subject matter, any
related registration and the owner, (y) all Intellectual Property which the
Company or any of its Subsidiaries uses pursuant to license or other
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authorization of a third party, listing the subject matter, any ancillary
registration and the source of authorization and (z) all Intellectual
Property that the Company or any of its Subsidiaries owns jointly with a
third party.
Section 1.27 Interim Financial Statements. "Interim Financial Statements"
shall mean the unaudited consolidated financial statements of the Company
as of and for the month and year-to-date ended October 31, 1993, a copy of
which is attached as Exhibit 1.27 hereto.
Section 1.28 Inventory. "Inventory" shall mean all inventories of goods
and supplies owned by the Company and its Subsidiaries as of the Effective
Time.
Section 1.29 IRS. "IRS" shall mean the Internal Revenue Service.
Section 1.30 Knowledge of the Company. "Knowledge of the Company" shall
mean the actual knowledge, after due inquiry, of any person listed on
Exhibit 1.30 attached hereto.
Section 1.31 Law. "Law" shall mean any federal, state, local or other law
or governmental requirement of any kind, domestic or foreign, and the
rules, regulations and orders promulgated thereunder.
Section 1.32 Lawless Group. "Lawless Group" shall mean the Company, the
Subsidiaries and the Partnerships.
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Section 1.33 Management Contracts. "Management Contracts" shall mean the
employment and non-competition agreements, dated the date of the Closing,
between the Company and each of Wesley Herman, Anthony Urban, Gregory
Sommer, Randal N. Bernick, Cecil E. Thompson and Susan Thompson.
Section 1.34 Merger. "Merger" shall mean the merger of the Purchaser into
the Company pursuant to the Plan of Merger.
Section 1.35 Merger Price. "Merger Price" shall mean the amount
determined in accordance with Sections 2.03 and 2.04 hereof, payable in
cash and Parent's Notes, and allocated and distributed in accordance with
Section 2.05 hereof to each holder of a Common Share outstanding
immediately prior to the Effective Time, without interest on the cash
portion thereof, in accordance with the Plan of Merger.
Section 1.36 Parent. "Parent" shall mean Chesapeake Packaging Co., a
Virginia corporation and owner of all of the outstanding capital stock of
the Purchaser.
Section 1.37 Parent's Notes. "Parent's Notes" shall mean unsecured
promissory notes of Parent bearing interest from the Effective Time at the
rate of 5.25 percent per annum, payable quarterly in arrears, maturing
thirty-nine (39) months after the date of the Closing, and guaranteed by
Chesapeake, in the form of Exhibit 1.37 attached hereto.
Section 1.38 Partnerships. "Partnerships" means all of the partnerships,
joint ventures and other business associations, other than the
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Subsidiaries, in which the Company is a participant as of the Effective
Time, all of such Partnerships being listed on Exhibit 1.38 attached
hereto.
Section 1.39 PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
Section 1.40 Permitted Liens. "Permitted Liens" shall mean those liens,
encumbrances, mortgages, charges, claims, restrictions, pledges, security
interests, impositions and other matters affecting the Assets that are
specifically listed on Exhibit 1.40 attached hereto.
Section 1.41 Permits. "Permits" shall mean all permits, licenses and
governmental authorizations, registrations and approvals used or required
in the conduct of the business of the Company and its Subsidiaries,
including, without limitation, those Permits listed on Exhibit 1.41
attached hereto.
Section 1.42 Plan of Merger. "Plan of Merger" shall mean the plan of
merger of Purchaser with and into the Company attached hereto as Exhibit
1.42.
Section 1.43 Preferred Shares. "Preferred Shares" shall mean,
collectively, all issued and outstanding shares of Class A Preferred and
Class B Preferred.
Section 1.44 Proxy Statement; Information Statement. "Proxy Statement"
shall mean the proxy materials distributed to Shareholders in connection
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with the Special Meeting. "Information Statement" shall mean the
Information Statement/Private Placement Memorandum distributed to Common
Shareholders in connection with the Merger.
Section 1.45 Purchaser. "Purchaser" shall mean Lawless Acquisition Co., a
Virginia corporation and a wholly owned subsidiary of Parent.
Section 1.46 Real Property. "Real Property" shall mean the real property
owned or leased by the Company and its Subsidiaries as of the Effective
Time, together with the improvements located thereon, including all
appurtenant rights, claims and interests, all of such Real Property being
listed on Exhibit 1.46 attached hereto.
Section 1.47Representatives. "Representatives" shall mean Fleet Venture
Resources, Inc. and Fleet Venture Partners II (each a "Fleet
Representative"), and David Chapin and Wesley Herman (each an "Employee
Shareholder Representative"), acting in their capacities as representatives
of the Common Shareholders hereunder. Any action, consent or agreement of
the Representatives pursuant to this Agreement shall require the approval
of at least one Fleet Representative and one Employee Shareholder
Representative. In the event that any Representative dies or resigns, the
remaining Representatives shall have the power to appoint his or its
substitute.
Section 1.48 SEC. "SEC" shall mean the Securities and Exchange
Commission.
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Section 1.49 Secretary of State. "Secretary of State" shall mean the
Secretary of State of the State of Delaware.
Section 1.50 Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
Section 1.51 Shares. "Shares" shall mean all issued and outstanding
shares of capital stock of the Company, consisting of (i) 4,250.01 shares
of Class A Common Stock, $.10 par value per share ("Class A Common"), (ii)
1,821.42 shares of Class B Common Stock, $.10 par value per share ("Class B
Common"), (iii) 1,019.70 shares of Class A Convertible Preferred Stock,
$.10 par value per share ("Class A Preferred"), (iv) 3,108.76 shares of
Class B Convertible Preferred Stock, $.10 par value per share ("Class B
Preferred") and (v) 0 shares of Class C Preferred Stock, $.10 par value per
share.
Section 1.52 Shareholders. "Shareholders" shall mean all record holders
of the Shares. A true and correct schedule of the names, addresses and
Share holdings of each Shareholder is attached hereto as Exhibit 1.52.
Section 1.53 Special Meeting. "Special Meeting" shall mean the special
meeting of Shareholders called pursuant to Section 2.07 hereof to consider
the Charter Amendment, and any adjournments thereof.
Section 1.54 Subsidiaries. "Subsidiaries" shall mean all of the corporate
entities with respect to which the Company has the direct or indirect right
to vote shares representing 50% or more of the votes eligible to be cast in
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the election of directors of each such entity as of the Effective Time, all
of such Subsidiaries being listed on Exhibit 1.54 attached hereto.
Section 1.55 Surviving Corporation. "Surviving Corporation" shall mean
the Company as the surviving corporation in the Merger.
Section 1.56 Trustee. "Trustee" shall mean Marine Midland Bank, in its
capacity as Trustee under the ESOT.
Section 1.57 VSCA. "VSCA" shall mean the Virginia Stock Corporation Act,
as amended.
Section 1.58 Virginia Corporation Commission. "Virginia Corporation
Commission" shall mean the State Corporation Commission of Virginia.
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ARTICLE II
THE MERGER
Section 2.01 The Merger. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the VSCA and the DGCL, at the
Effective Time the Purchaser shall be merged with and into the Company
pursuant to and on the terms set forth in the Plan of Merger. The Merger
shall occur as soon as practical following the satisfaction or waiver of
the conditions set forth in Article VII hereof. The Company shall continue
as the Surviving Corporation in the Merger and the separate corporate
existence of the Purchaser shall cease.
Section 2.02 Effective Time; Effects of the Merger. The Merger shall be
consummated by filing with (a) the State Corporation Commission Articles of
Merger in such form as is required by, and executed in accordance with, the
relevant provisions of the VSCA, together with such other documents as may
be required by the relevant provisions of the VSCA, and (b) the Secretary
of State a Certificate of Merger in such form as is required by, and
executed in accordance with, the relevant provisions of the DGCL, together
with such other documents as may be required by the DGCL. The Merger shall
become effective at the Effective Time and shall have the effects set forth
in Section 13.1-721 of the VSCA, Section 259 of the DGCL and in the Plan of
Merger. At the Effective Time, (i) the Company shall become a wholly owned
subsidiary of the Parent and, as the Surviving Corporation, shall have the
Certificate of Incorporation, bylaws, directors and officers set forth in
or determined in accordance with the Plan of Merger, and (ii) the Common
Shares shall be cancelled and converted, without any action on the part of
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the holders thereof, into the consideration set forth in the Plan of
Merger.
Section 2.03 Determination of Aggregate Merger Price. The aggregate
Merger Price shall equal $15.27 million (the "Base Merger Price"), adjusted
as follows:
(a)Groveton Stock Adjustment. The parties
acknowledge that the Company intends to sell the Groveton Stock prior
to the Effective Time. If the Company is successful in consummating
the sale of the Groveton Stock prior to the Effective Time, the Base
Merger Price shall be: (i) increased by 50% of the amount by which the
net proceeds to the Company from such sale exceed $2.5 million, up to
a maximum increase of $250,000 (it being understood that if such net
proceeds exceed $3.0 million, the amount in excess of $3.0 million may
be distributed by the Company as a special dividend to the Common
Shareholders prior to the Effective Time; or (ii) decreased by 50% of
the amount by which the net proceeds to the Company from such sale are
less than $2.5 million, up to a maximum decrease of $250,000 (it being
understood that if such net proceeds are less than $2.0 million, the
Company shall, at its election, either (x) terminate this Agreement in
accordance with Section 8.01(f) hereof; (y) distribute the Groveton
Stock prior to its sale as a special dividend to the Common
Shareholders, in which case the Base Merger Price shall be decreased
by $2.5 million; or (z) proceed with the transactions contemplated
herein, in which case the Base Merger Price shall be decreased by 100%
of the amount by which such net proceeds are less than $2.0 million).
If, prior to the Effective Time, the Company has reached agreement
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with respect to the sale of the Groveton Stock but such sale will not
be consummated prior to the Effective Time, the parties agree to
negotiate in good faith with respect to establishing a mechanism for
proceeding to Closing that will take into account such prospective
sale. If, prior to the Effective Time, the Company has not reached
agreement with respect to the sale of the Groveton Stock, the Company
may, at its election, either (y) terminate this Agreement in
accordance with Section 8.01(f) hereof, or (z) distribute the Groveton
Stock prior to the Effective Time as a special dividend to the Common
Shareholders, in which case the Base Merger Price shall be decreased
by $2.5 million.
(b)Working Capital Adjustment. The Base Merger
Price shall also be (i) increased by the amount, if any, by which
Working Capital exceeds $3.2 million, or (ii) decreased by the amount,
if any, by which Working Capital is less than $3.2 million. For
purposes of this paragraph, "Working Capital" shall mean the amount by
which current assets exceeds current liabilities as of the Effective
Time, as reflected on the Final Balance Sheet; provided, however, that
(w) current assets for this purpose shall exclude any proceeds from
the sale of the Groveton Stock, (x) current liabilities for this
purpose shall include the aggregate tax accrual, determined in
accordance with the Special Accounting Principles (as defined in
Section 2.04 hereof), related to the sale of the Groveton Stock, (y)
current liabilities for this purpose shall exclude the demand loan
made by Parent to the Company pursuant to Section 2.08(b) hereof to
fund the redemption of all Preferred Shares and (z) Working Capital
shall be calculated exclusive of the effect on current assets and
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current liabilities of the Company's Madison, Ohio plant expansion
project.
(c)Long-Term Debt Adjustment. The Base Merger Price shall also be (i)
increased by the amount, if any, by which Long-Term Debt is less than
$2.9 million, or (ii) decreased by the amount, if any, by which Long-
Term Debt exceeds $2.9 million. For purposes of this paragraph,
"Long-Term Debt" shall mean the aggregate amount of long-term debt
reflected on the Final Balance Sheet, excluding any such debt incurred
in connection with the Company's Madison, Ohio plant expansion
project.
Section 2.04 Preparation and Delivery of Final Balance Sheet.
(a)Within 45 days after the Closing Date, Ernst
& Young, independent public accountants to the Company ("E&Y"), shall
prepare and deliver to the Parent and the Shareholders the Draft Final
Balance Sheet prepared in accordance with the special accounting
principles set forth in Exhibit 2.04 hereto (the "Special Accounting
Principles").
(b) If the Parent has any objections to the Draft
Final Balance Sheet, it will deliver a detailed statement describing
its objections to E&Y and the Shareholders within 30 days after
receiving the Draft Final Balance Sheet. The Parent and E&Y will use
their reasonable best efforts to resolve any such objections. If a
final resolution is not obtained within 30 days after E&Y has received
the statement of objections, the Parent and the Representatives will
select a nationally-recognized accounting firm mutually acceptable to
them to resolve any remaining objections. If the Parent and the
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Representatives are unable to agree on the choice of an accounting
firm, they will select a nationally-recognized accounting firm by lot
(after excluding E&Y and Coopers & Lybrand).
(c) E&Y will revise the Draft Final Balance Sheet as appropriate to
reflect the resolution of the Parent's objections (as agreed upon by
the Parent and E&Y or as determined by such selected accounting firm)
and deliver it to the Parent and the Shareholders within 10 days after
the resolution of such objections. Such revised balance sheet shall
be certified by E&Y and shall constitute the Final Balance Sheet.
(d) If any unresolved objections are submitted to an accounting firm
for resolution as provided above, the Parent and the Shareholders will
share equally the fees and expenses of such accounting firm (with the
Shareholders' share of such expenses to be treated as a reduction in
the Merger Price).
(e) E&Y will make the work papers used in preparing the Draft Final
Balance Sheet and the Final Balance Sheet available to the Parent and
its representatives at reasonable times and upon reasonable notice at
any time during the preparation by E&Y of the Draft Final Balance
Sheet and the resolution of any objections with respect thereto.
Section 2.05 Allocation and Distribution of Merger Price Among Common
Shares and ESOP.
(a)The Merger Price shall be payable in cash and Parent's Notes as
follows: (i) the first $600,000 of the Merger Price shall be payable
in cash and shall be deposited in the environmental escrow established
pursuant to Section 9.04 hereof (the "Environmental Escrow"); and (ii)
the balance of the Merger Price shall be payable in Parent's Notes;
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provided, however, that if the Merger Price exceeds $15.93 million,
all amounts in excess thereof shall be payable one-half in cash and
one-half in Parent's Notes. The Merger Price shall be allocated on a
pro rata basis to each share of Class A Common and Class B Common
outstanding at the Effective Time; provided, however, that if the
Merger Price exceeds $16.27 million, 20% of the amount in excess
thereof shall be payable to the Trustee (out of the cash portion of
the Merger Price) in trust for the benefit of participants in the ESOP
(the "Participants"), to be allocated as an additional redemption
payment with respect to the shares of Class A Preferred and Class B
Preferred to be redeemed pursuant to Section 2.08(b) hereof, and the
balance of the Merger Price shall be allocated on a pro rata basis to
each share of Class A Common and Class B Common outstanding at the
Effective Time. As provided in Section 6.07 hereof, no Common
Shareholder will exercise his or its right, pursuant in Section 262 of
the DGCL, to receive payment of the appraised fair value of his or its
Common Shares in connection with the Merger.
(b) As soon as practicable following the allocation of the definitive
Merger Price among the Common Shares and the ESOP pursuant to
subsection (a) hereof, the portion of such Merger Price payable in
respect of the Common Shares shall be distributed pursuant to Section
2.10 hereof; provided, however, that $5.0 million of such Merger Price
payable in the form of Parent's Notes to holders of Common Shares
shall be subject to offset by the Parent on a pro rata basis (the
"Indemnity Offset") in accordance with Section 9.01 hereof.
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Section 2.06 ESOP.
(a)Prior to the Effective Time, the ESOP shall complete its regular
year-end allocations of Preferred Shares to the accounts of
Participants with respect to calendar year 1993. In addition, prior
to the Effective Time, the Company shall amend the ESOP to provide for
the immediate allocation of any shares of Class A Preferred not
previously allocated to the accounts of Participants. The Class A
Preferred allocated as a result of such amendment shall be allocated
among the accounts of Participants in accordance with the terms of the
ESOP and applicable Law.
(b)On January 5, 1994, the Company will declare, and on January 15,
1994, the Company will pay, its regularly-scheduled cash dividend of
approximately $270,000 with respect to outstanding shares of Class B
Preferred. Pursuant to that certain Loan Agreement, dated August 2,
1989, between Lawless Container Corp. ("LCC") and the ESOT (the "ESOT
Debt"), the Trustee is required to use such cash dividend to pay the
regularly-scheduled payment of approximately $270,000 due on January
31, 1994, with respect to the ESOT Debt. Pursuant to that certain
Credit Agreement, dated August 2, 1989, between LCC and Bank of New
England, N.A. (the "BNE Debt"), LCC is required to apply the payment
received on the ESOT Debt to pay the regularly-scheduled payment of
approximately $270,000 due on January 31, 1994, with respect to the
BNE Debt. The Company will use its best efforts to negotiate with the
current holder of the BNE Debt to obtain a waiver, through the
Effective Time, of LCC's obligation to make such payment. Provided
that such waiver is obtained, the Company will cause LCC to waive the
corresponding payment due by the ESOT under the ESOT Debt, and the
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approximately $270,000 dividend payment will instead be used by the
Trustee, to the extent permitted by Law, to pay all administrative
fees and expenses associated with the transactions contemplated
herein, with any balance to be allocated to Participants' ESOP
accounts in accordance with the terms of the ESOP.
(c)Following the allocations contemplated in subsections (a) and (b)
hereof, and prior to the Effective Time, the Trustee shall convey all
remaining unallocated shares of Class B Preferred to LCC in full and
final satisfaction of all outstanding obligations and indebtedness of
the ESOT to LCC under the ESOT Debt. Such shares of Class B Preferred
shall be immediately transferred by LCC to the Company as a dividend,
and shall be cancelled by the Company immediately upon their receipt.
(d)Prior to the record date for the Special Meeting, the Company shall
amend the ESOP (i) to require pass-through voting by Participants with
respect to all allocated shares of Class A Preferred and Class B
Preferred in connection with the Charter Amendment, (ii) to eliminate
proportionate voting of unallocated shares of Class A Preferred and
Class B Preferred, instead providing for Trustee voting of such shares
in accordance with its fiduciary duties, (iii) to convert the ESOP, as
of the Effective Time, into a discretionary profit sharing plan that
as to its form satisfies section 401 and related sections of the Code
and the rules and regulations thereunder, and (iv) to provide,
effective as of the Effective Time, for a limited in-service
withdrawal feature, exercisable one time during the first or second
calendar quarter after determination of the Merger Price, payable
solely in cash.
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Section 2.07 Special Meeting. The Company, acting through its Board of
Directors, shall, subject to the fiduciary duties of such Board of
Directors under applicable Law as advised by counsel and in accordance with
applicable Law:
(a)duly call, give notice of, convene and hold the Special Meeting as
soon as practicable following the execution of this Agreement for the
purpose of considering and taking action upon the Charter Amendment;
(b) include in the Proxy Statement the recommendation of its Board of
Directors that the Shareholders vote to approve and adopt the Charter
Amendment;
(c) use its best efforts to (i) obtain and furnish the information
required to be included by it in the Proxy Statement and cause the
Proxy Statement to be mailed to the Shareholders at the earliest
practicable time, (ii) cause the Trustee to distribute the Proxy
Statement and solicit and receive the voting instructions of the
Participants in accordance with the terms of the ESOP and applicable
Law and (iii) obtain the necessary approvals of the Charter Amendment
by the Shareholders; and
(d) as soon as practicable following approval of the Charter Amendment
at the Special Meeting in accordance with the Company's Certificate of
Incorporation and applicable Law, file the Charter Amendment with the
Secretary of State in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL.
Section 2.08 Approval of Merger; Redemption of Preferred Shares.
(a)Pursuant to Section 6.07 hereof, each of the Common Shareholders
has delivered his or its irrevocable proxy to approve the Merger by
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written consent pursuant to Section 228 of the DGCL; provided,
however, that such consent shall not be effective until after the
redemption of all outstanding Preferred Shares pursuant to subsection
(b) of this Section.
(b)Following effectiveness of the Charter Amendment, and provided that
all other conditions precedent to each party's obligation to
consummate the Merger (other than approval of the Merger by the Common
Shareholders by written consent pursuant to subsection (a) of this
Section 2.08) have been satisfied or waived, Parent will lend to the
Company, pursuant to a demand promissory note, the sum of $14.73
million in cash. Upon receipt of the proceeds of such loan, the
Company shall immediately (i) repay in full all outstanding
obligations and indebtedness under the BNE Debt, and terminate the
credit facilities related to the BNE Debt, and (ii) redeem, in
accordance with the terms of the Company's Certificate of
Incorporation as amended by the Charter Amendment, all outstanding
Preferred Shares.
Section 2.09 Closing; Filing of Articles of Merger. Upon the terms and
subject to the conditions hereof, as soon as practicable after all of the
conditions to the obligations of the parties hereunder have been satisfied
or waived, the parties shall conduct the Closing for the purpose of
confirming the foregoing. As soon as practicable following the Closing,
the Company and the Purchaser shall in the manner required by the VSCA and
the DGCL deliver to and file with (a) the Virginia Corporation Commission
duly executed Articles of Merger in accordance with the provisions of the
VSCA, and (b) the Secretary of State, a duly executed Certificate of Merger
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in accordance with the provisions of the DGCL, and the parties hereto shall
take all such other and further action as may be required by Law to make
the Merger effective.
Section 2.10 Exchange of Shares.
(a) Upon determination of the Merger Price per Common Share in
accordance with Sections 2.03, 2.04 and 2.05 hereof, the Parent will
deliver to the Surviving Corporation, in trust for the benefit of the
holders of Common Shares, immediately available funds and an aggregate
principal amount of Parent's Notes necessary to make the payments
contemplated by the Plan of Merger on a timely basis.
(b) Promptly after the Effective Time, the Surviving Corporation
shall mail to each record holder of Common Shares, as of the Effective
Time, a form letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to certificates which
immediately prior to the Effective Time represented Common Shares (the
"Certificates") shall pass, only upon proper delivery of the
Certificates to the Surviving Corporation) and instructions for use in
effecting the surrender of Certificates for payment therefor. Upon
surrender to the Surviving Corporation of a Certificate, together with
such letter of transmittal duly executed, and any other required
documents, the holder of such Certificate shall be entitled to receive
in exchange therefor the consideration set forth in the Plan of
Merger, subject to the Environmental Escrow and the Indemnity Offset,
and such Certificate shall forthwith be cancelled. Except as provided
in Section 9.01 hereof with respect to the Indemnity Offset and
Section 9.04 hereof with respect to the Environmental Escrow, no
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interest will be paid or accrued on the cash portion of the Merger
Price payable upon the surrender of the Certificates. If payment is
to be made to a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed
or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required
by reason of the payment to a person other than the registered holder
of the Certificate surrendered or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of
this Section 2.10, each Certificate shall represent for all purposes
only the right to receive the consideration, if any, set forth in the
Plan of Merger with respect thereto, without any interest thereon.
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the Common Shares
that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be cancelled and exchanged for
the consideration provided in the Plan of Merger in accordance with
the procedures set forth in this Section 2.10.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Common Shareholders hereby jointly and severally
represent and warrant to the Parent and the Purchaser as follows:
Section 3.01 Organization. Each of the Company and the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and each has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted. Each of the Company
and the Subsidiaries is duly qualified or licensed and in good standing to
do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to so
qualify would not have a material adverse effect on the business, financial
condition or results of operations of the Company or any such Subsidiary.
Exhibit 3.01 attached hereto is a true and complete list of all such
jurisdictions for the Company and its Subsidiaries.
Section 3.02 Capitalization. The Shares represent all of the issued and
outstanding capital stock of the Company, have been duly and validly issued
and are fully paid and non-assessable, and were not issued in violation of
any preemptive or other right. All of the Shares were offered and sold in
compliance with all applicable federal and state securities laws and
regulations. Exhibit 1.52 describes any agreements between the Company and
any Shareholder, and any agreements between Shareholders, relating to the
Shares, true and correct copies of which agreements have been delivered to
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the Parent. There are no outstanding or authorized options, warrants,
purchase rights, conversion rights, exchange rights, or other contracts or
commitments to subscribe for or purchase any capital stock of the Company
or securities convertible into or exchangeable for, or which otherwise
confer on the holder any right to acquire, any capital stock of the
Company, nor is the Company committed to issue any such option, warrant or
other right. There are no outstanding stock appreciation, phantom stock,
profit participation or similar rights with respect to the capital stock of
the Company.
Section 3.03 The Company's Net Worth. The consolidated net worth of the
Company, determined in accordance with GAAP, is not less than $10.3 million
(excluding the ESOT Debt).
Section 3.04 Subsidiaries. Exhibit 1.54 is a true and complete list of
all corporations with respect to which the Company owns or otherwise
controls, directly or indirectly through one or more subsidiaries,
partnerships, joint ventures or other business associations, shares
representing 50% or more of the votes eligible to be cast in election of
directors of each such entity. Exhibit 1.54 accurately sets forth for each
Subsidiary (a) its name and jurisdiction of incorporation, (b) the number
of shares of authorized capital stock of each class of its capital stock,
(c) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof and the number of shares
held by each such holder and (d) the number of shares of its capital stock
held in treasury (if any). All of the issued and outstanding shares of
capital stock of each Subsidiary have been duly authorized and are validly
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issued, fully paid and nonassessable. All of the issued and outstanding
shares of capital stock of each Subsidiary are owned of record and
beneficially by the Company or another Subsidiary, free and clear of any
and all restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), taxes, mortgages, liens,
encumbrances, charges, pledges, impositions, security interests, options,
warrants, purchase rights, contracts, commitments, equities, claims and
demands, except Permitted Liens. There are no outstanding or authorized
options, warrants, purchase rights, conversion rights, exchange rights,
subscription rights or other contracts or commitments that could require
the Company to sell, transfer or otherwise dispose of any capital stock of
any of the Subsidiaries or that could require any Subsidiary to issue, sell
or otherwise cause to become outstanding any of its own capital stock.
There are no outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to any Subsidiary. There are
no voting trusts, proxies or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary. Exhibit 3.04
attached hereto is a true and complete list of all corporations, other than
the Subsidiaries, with respect to which the Company or any Subsidiary has
owned or otherwise controlled, within the last five years, a majority of
the outstanding voting securities (the "Former Subsidiaries") and
accurately sets forth for each Former Subsidiary (a) its name and
jurisdiction of incorporation, (b) the nature and extent of the Company's
or such Subsidiary's interest in such Former Subsidiary, (c) the date such
interest was disposed of and (d) the manner of such disposition. The
Company and its Subsidiaries do not own, and have not within the last five
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years owned, any equity interest in any corporate entity except the
Subsidiaries and the Former Subsidiaries.
Section 3.05 Partnerships. Exhibit 1.38 is a true and complete list of
all of the partnerships, joint ventures and other business associations in
which the Company or any Subsidiary is a participant and accurately sets
forth (a) the name and jurisdiction of organization of each Partnership,
and (b) the nature and extent of the Company's or such Subsidiary's
interest in each Partnership. The interests of the Company and its
Subsidiaries in the Partnerships are owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act
and state securities laws), taxes, mortgages, liens, encumbrances, charges,
pledges, impositions, security interests, options, warrants, purchase
rights, contracts, commitments, equities, claims and demands, except the
Permitted Liens. There are no outstanding contracts or commitments that
could require any of the Partnerships to admit additional participants or
require the Company or any Subsidiary to sell, transfer or otherwise
dispose of its interest in any Partnership. Exhibit 3.05 attached hereto
is a true and complete list of all of the partnerships, joint ventures and
other business associations, other than the Partnerships, in which the
Company or any Subsidiary has been a participant in the last five years
(the "Former Partnerships") and accurately sets forth for each Former
Partnership (a) the type of entity, (b) its name and jurisdiction of
organization, (c) the nature and extent of the Company's or such
Subsidiary's interest in such Former Partnership, (d) the date such
interest was disposed of and (e) the manner of such disposition.
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Section 3.06 Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement and of all of the other
documents and instruments required hereby by the Company are within the
corporate power of the Company. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
will, prior to Closing, be duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated herein (other than (a) with respect to the Charter Amendment,
the approval of the Shareholders at the Special Meeting, and (b) with
respect to the Merger, the approval and adoption of the Plan of Merger by
the Common Shareholders). This Agreement and all of the other documents
and instruments required hereby have been or will be duly and validly
executed and delivered by the Company and constitute or will constitute
valid and binding agreements of the Company, enforceable against the
Company in accordance with their terms.
Section 3.07 Consents and Approvals; No Violations. Except for any
applicable requirements of the HSR Act and any applicable filings under
state securities or "Blue Sky" laws, and except for the filing and
recordation of Articles of Merger as required by the VSCA and of a
Certificate of Amendment and a Certificate of Merger as required by the
DGCL, no filing or registration with, and no permit, authorization, consent
or approval of, any public body or authority is necessary or required in
connection with the execution and delivery of this Agreement by the Company
or for the consummation by the Company of the transactions contemplated by
this Agreement. Assuming that all filings, registrations, permits,
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authorizations, consents and approvals contemplated by the immediately
preceding sentence have been duly made or obtained, and assuming that the
required consents under, and termination of, certain agreements specified
in Exhibit 3.07 hereto (the "Required Consents") have been obtained,
neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated hereby by the Company will
(i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or bylaws of the Company or any Subsidiary or
the partnership agreement (or other organizational documents) of any
Partnership, (ii) result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which it or any of them
or any of their properties or assets may be bound (including, without
limitation, the ESOP) or (iii) violate any order, writ, injunction, decree
or Law applicable to the Company, any of the Subsidiaries or any of their
properties or assets.
Section 3.08 No Adverse Change. Except as set forth in Exhibit 3.08,
since December 31, 1992, there has not been: (a) any material adverse
change in the business, financial condition or results of operations of the
Company or any of its Subsidiaries (including, without limitation, any
material reduction or, to the Knowledge of the Company, any notice of a
planned material reduction, in purchases by any principal customer of the
Company or any of its Subsidiaries); (b) any loss, damage, condemnation or
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destruction to any of the properties of the Company or any of its
Subsidiaries materially adversely affecting the business or properties of
the Company or any of its Subsidiaries (whether covered by insurance or
not); (c) any increase, other than in the ordinary course of business, in
the rates of pay of any of the employees of the Company and its
Subsidiaries; (d) any labor dispute or disturbance, litigation or any event
or condition of any character that could materially adversely affect the
business, financial condition or results of operations of the Company or
any of its Subsidiaries; (e) any borrowings by the Company or any of its
Subsidiaries other than in the ordinary course of business; (f) any
mortgage, pledge, lien or encumbrance made on any of the properties or
assets of the Company or any of its Subsidiaries, except for Permitted
Liens; or (g) any sale, transfer or other disposition of assets of the
Company or any of its Subsidiaries other than in the ordinary course of
business or as contemplated by this Agreement. Since December 31, 1992,
neither the Company nor the Shareholders have adopted or taken any action
in contemplation of any plan of liquidation, dissolution or merger (other
than the Merger) involving the Company.
Section 3.09 Proxy Statement; Information Statement. The Proxy Statement
will, at the time of the mailing of notice of the Special Meeting and at
the time of such meeting, contain no untrue statement of a material fact
nor will it omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however,
that no representation or warranty is made by the Company or the Common
Shareholders with respect to information set forth under the caption
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"Certain Information Concerning Chesapeake, Parent and Purchaser" in the
Proxy Statement. The Information Statement will, at the time of its
mailing and at the Effective Time, contain no untrue statement of a
material fact nor will it omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading;
provided, however, that no representation or warranty is made by the
Company or the Common Shareholders with respect to information set forth
under the caption "Certain Information Concerning Chesapeake, Parent and
Purchaser" in the Information Statement or in the Appendixes thereto
relating to Chesapeake, the Parent, the Purchaser or their affiliates.
Section 3.10 No Litigation. Except as listed in Exhibit 3.10 attached
hereto, there is no litigation, arbitration proceeding, governmental
investigation, citation or action of any kind pending or, to the Knowledge
of the Company, proposed or threatened (a) against any member of the
Lawless Group, (b) relating to the business, assets, properties or products
of any member of the Lawless Group or (c) that seeks restraint,
prohibition, damages or other relief in connection with this Agreement or
the consummation of the transactions contemplated hereby. The matters
listed on Exhibit 3.10, if decided in a manner adverse to any member of the
Lawless Group, will not have a material adverse effect on the business,
financial condition or results of operations of the Company or any of its
Subsidiaries.
Section 3.11 Title to Assets. The Company and its Subsidiaries own good
and marketable title to the Assets (excluding, for purposes of this
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sentence, Assets held under leases), free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions, except the Permitted Liens. The Assets
include all tangible and intangible assets, contracts and rights necessary
or desirable for the operation of the business of the Company and its
Subsidiaries in accordance with past practice.
Section 3.12 Bank Accounts; Powers of Attorney. The Bank Accounts
constitute all checking accounts, savings accounts, custodial accounts,
certificates of deposit, safe deposit boxes or other similar accounts
maintained by the Company and its Subsidiaries as of the Effective Time.
Exhibit 1.04 is a true and complete listing of the Bank Accounts, and sets
forth the name of each person with signature authority for each such
account immediately prior to the Effective Time. Except as set forth on
Exhibit 1.04, the Company and its Subsidiaries have granted no outstanding
powers of attorney to any person with respect to any matter.
Section 3.13 Condition of Equipment. The Equipment, taken as a whole, is
in good operating condition and repair and is in a condition comparable to
that as of September 22, 1993, subject to ordinary wear and tear, and is
substantially fit for use in accordance with the Company's past practices.
Section 3.14 Inventory. The Inventory is useable or saleable in the
ordinary course of business of the Company and its Subsidiaries as
heretofore conducted and is valued at the lower of cost or market value.
Paper Inventories are accounted for under the Last In-First Out method, and
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non-paper Inventories are accounted for under the First In-First Out
method.
Section 3.15 Books and Records. The books and records of the Company and
its Subsidiaries are complete and correct in all material respects and the
Company and its Subsidiaries have made available to Parent for examination
the originals or true and correct copies of all documents material to the
businesses of the Company and its Subsidiaries as conducted prior to the
Effective Time and all other documents which Parent has requested in
connection with the transactions contemplated by this Agreement.
Section 3.16 Contracts. Exhibit 3.16 attached hereto is a true and
complete list of all of the Contracts that constitute: (a) a lease of any
interest in any real property; (b) a lease of any personal property with
(i) aggregate annual rental payments in excess of $25,000, or (ii) a
remaining term in excess of one year (unless such lease is cancellable
without penalty on notice of 90 days or less); (c) an agreement to purchase
or sell a capital asset for a price in excess of $25,000; (d) an agreement
relating to the borrowing or lending of money; (e) a guaranty, contribution
agreement or other agreement that includes any indemnification,
contribution or support obligation; (f) an agreement limiting in any
respect the Company's or any Subsidiary's ability to compete in any line of
business or with any person; and (g) any other agreement involving an
amount in excess of $25,000. The Company has delivered to the Parent true
and complete copies of each Contract listed on Exhibit 3.16. The Company
and its Subsidiaries have performed each material term, covenant and
condition of each of the Contracts that is to be performed by them at or
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before the date hereof. No event has occurred that would, with the passage
of time or compliance with any applicable notice requirements, constitute a
default by the Company or any of its Subsidiaries or, to the Knowledge of
the Company, any other party under any of the Contracts, and, to the
Knowledge of the Company, no party to any of the Contracts intends to
cancel, terminate or exercise any option under any of the Contracts.
Section 3.17 Accounts. The Accounts all have arisen from bona fide
transactions in the ordinary course of business, and there are no offsets
or credits involving amounts in excess of $1,000 individually or $10,000 in
the aggregate that may be applied against the Accounts. All accounts
payable of the Company and its Subsidiaries have arisen from bona fide
transactions in the ordinary course of business and are to be paid in
accordance with normal trade practice. All accounts receivable of the
Company and its Subsidiaries have arisen from bona fide transactions in the
ordinary course of business and were, on the December Balance Sheet and the
balance sheet included in the Interim Financial Statements, and will be on
the Final Balance Sheet, subject to adequate reserves in accordance with
the Company's past practice. Except as set forth in Exhibit 3.17 hereto,
to the Knowledge of the Company none of the accounts receivable are in
dispute or subject to any reduction or counterclaim involving amounts in
excess of $1,000 individually or $10,000 in the aggregate.
Section 3.18 Real Property. Exhibit 1.46 is a true and correct list of
all Real Property owned or leased by the Company and its Subsidiaries.
With respect to each such parcel of Real Property, except as set forth on
Exhibit 1.46:
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(a)there are no pending or, to the Knowledge of the Company,
threatened condemnation proceedings, lawsuits or administrative
actions relating to the parcel or other matters affecting adversely
the current use, occupancy or value thereof;
(b)the legal description for the parcel contained in the deed thereof
or lease therefor describes such parcel fully and adequately, the
buildings and improvements are located within the boundary lines of
the described parcels, are not in violation of applicable setback
requirements, zoning laws and ordinances (and none of the properties
or buildings or improvements thereon are subject to "permitted non-
conforming use" or "permitted non-conforming structure"
classifications) and do not encroach on any easement which may burden
the parcel, and the parcel does not serve any adjoining property for
any purpose inconsistent with the use of the parcel, and the parcel is
not located within any flood plain or subject to any similar type
restriction for which any permits or licenses necessary to the use
thereof have not been obtained;
(c)all facilities have received all approvals of governmental
authorities (including Permits) required in connection with the
ownership, occupation or operation thereof and have been operated and
maintained in accordance with applicable Law;
(d)there are no leases, subleases, licenses, concessions or other
agreements, written or oral, granting to any party or parties the
right of use or occupancy of any portion of the parcel;
(e)there are no outstanding options or rights of first refusal to
purchase the parcel, or any portion thereof or interest therein;
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(f)there are no parties (other than the Company and its Subsidiaries)
in possession of the parcel, other than tenants under any leases or
subleases disclosed in Exhibit 1.46, who are in possession of space to
which they are entitled;
(g)all facilities located on the parcel are supplied with utilities
and other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer and storm
sewer, all of which services are adequate in accordance with all
applicable Law and are provided via public roads or via permanent,
irrevocable, appurtenant easements benefitting the parcel; and
(h)each parcel abuts on and has direct vehicular access to a public
road, or has access to a public road via a permanent, irrevocable,
appurtenant easement benefitting the parcel, and access to the
property is provided by paved public right-of-way with adequate curb
cuts available.
The Company has delivered to the Parent true and correct copies of: (i)
each deed by which the Company acquired title to the real estate described
on Exhibit 1.46; (ii) each policy of title insurance in effect and any
title report with respect to the real estate described on Exhibit 1.46;
(iii) the most recent survey or surveys in the Company's possession with
respect to the real estate described in Exhibit 1.46; (iv) all certificates
of occupancy and building permits for the improvements on the real estate
described in Exhibit 1.46; and (v) any variance granted with respect to any
of such real estate pursuant to applicable zoning laws or ordinances.
Section 3.19 Intellectual Property.
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(a)Except as set forth on Exhibit 1.26, the Company and its
Subsidiaries own exclusively or have the exclusive right to use
pursuant to license, sublicense, agreement or permission all
Intellectual Property necessary for the operation of the businesses of
the Company and its Subsidiaries as presently conducted and as
presently proposed to be conducted by the Company. Each item of
Intellectual Property owned or used by the Company and its
Subsidiaries immediately prior to the Effective Time will be owned or
available for use by them on identical terms and conditions
immediately subsequent to the Effective Time. The Company and its
Subsidiaries have taken all necessary and desirable action to maintain
and protect each item of Intellectual Property that they own or use.
No owned item of Intellectual Property has been abandoned. Each item
of Intellectual Property used by the Company or any of its
Subsidiaries pursuant to license or other authorization of a third
party is used with the authorization of every other claimant thereto
and the execution, delivery and performance of this Agreement by the
Company will not impair such use.
(b)Except as set forth on Exhibit 1.26, the Company and its
Subsidiaries have not interfered with, infringed upon, misappropriated
or otherwise come into conflict with any intellectual property rights
of any third party, and Company and its Subsidiaries have not received
any unresolved charge, complaint, claim, demand or notice alleging any
such interference, infringement, misappropriation or violation
(including any claim that the Company or any Subsidiary must license
or refrain from using any intellectual property rights of any third
party). To the Knowledge of the Company, no third party has
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interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of the Company or
any of its Subsidiaries.
(c)Exhibit 1.26 identifies each patent, trademark, copyright or other
registration that has been issued to the Company and its Subsidiaries
with respect to any of its Intellectual Property, identifies each
pending application or application for registration that the Company
or any of its Subsidiaries has made with respect to any of its
Intellectual Property and identifies each license, agreement or other
permission that the Company or any of its Subsidiaries has granted to
any third party with respect to any of its Intellectual Property
(together with any exceptions thereto). Except as set forth on
Exhibit 1.26, the Company and its Subsidiaries have delivered to the
Parent correct and complete copies of all such patents, registrations,
applications, licenses, agreements and permissions (as amended to
date) and have made available to the Parent correct and complete
copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. Exhibit 1.26 also
identifies each trade name or unregistered trademark used by the
Company and its Subsidiaries in connection with any of their
businesses. Except as set forth on Exhibit 1.26, with respect to each
item of Intellectual Property required to be identified therein:
(i) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(ii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the
Knowledge of the Company, is threatened which challenges the
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legality, validity, enforceability, use or ownership of the item;
and
(iii) neither the Company nor any of its Subsidiaries has
licensed or permitted any third party to use any such item.
Section 3.20 Financial Statements. The December Balance Sheet, including
the notes thereto, a copy of which is included in Exhibit 1.13 hereto, is
true and correct in all material respects, presents fairly the consolidated
financial position of the Company as of December 31, 1992, and was prepared
in accordance with GAAP applied on a basis consistent with the Company's
past practice. The Company's audited consolidated statement of income and
shareholders' equity and statement of cash flows for the fiscal year ended
December 31, 1992, which are included in Exhibit 1.13 hereto, are true and
correct in all material respects, present fairly the results of operations
and cash flows for such period, and were prepared in accordance with GAAP
applied on a basis consistent with the Company's past practice. The
Interim Financial Statements, including the notes thereto, are true and
correct in all material respects, present fairly the consolidated financial
position and results of operations of the Company as of and for the dates
indicated, and were prepared in accordance with GAAP applied on a basis
consistent with the Company's past practice (except for the omission of
certain footnote disclosures required under GAAP and subject to ordinary
year-end audit adjustments). The Final Balance Sheet, including the notes
thereto, will be true and correct in all material respects, will present
fairly the consolidated financial position of the Company as of the
Effective Time, and will be prepared in accordance with GAAP applied on a
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basis consistent with the Company's past practice (subject to the Special
Accounting Principles).
Section 3.21 Insurance. Exhibit 3.21 attached hereto accurately sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability and worker's
compensation coverage and bond and surety arrangements) to which the
Company or any Subsidiary has been a party, a named insured or otherwise
the beneficiary of coverage at any time since January 1, 1988:
(a)the name, address and telephone number of the agent;
(b)the name of the insurer, the name of the policyholder, and the name
of each covered insured;
(c)the policy number and the period of coverage;
(d)the scope (including an indication of whether the coverage was on a
claims made, occurrence or other basis) and amount (including a
description of how deductibles and ceilings are calculated and
operate) of coverage; and
(e)a description of any retroactive premium adjustments or other loss-
sharing arrangements.
With respect to each such insurance policy which is still in effect or
under which the Company or any Subsidiary has any continuing rights or
obligations: (a) the policy is legal, valid, binding, enforceable and in
full force and effect; (b) the policy will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (c)
neither the Company, any Subsidiary nor any other party to the policy is in
breach or default thereunder (including with respect to the payment of
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premiums or the giving of notices), and no event has occurred that, with
notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification or acceleration under the policy; and (d)
no party to the policy has repudiated any provision thereof. The Company
and each of its Subsidiaries has been covered since April 10, 1986, by
insurance in scope and amount customary and reasonable for the businesses
in which they have been engaged during such period. Exhibit 3.21 describes
any self-insurance arrangements affecting the Company and its Subsidiaries.
Section 3.22 Employee Benefit Plans.
(a)Definitions. When used in this Section 3.22:
(i) "Affiliated Entity" means any corporation, trade or business
(whether or not incorporated) that is, along with the Company, a
member of a controlled group of corporations or a controlled
group of trades or businesses, as described in Section 414(b) or
(c) of the Code or Section 4001(a)(14) of ERISA, or which, with
the Company, is treated as a single employer under the Code or
ERISA;
(ii) "Employee Benefit Plan" means any plan, fund, program,
policy, arrangement, practice, custom or understanding providing
benefits of economic value, whether formal or informal, whether
or not set forth in writing, and whether covering one person or
more than one person, sponsored or maintained by the Company or
an Affiliated Entity and covering one or more Employees, one or
more former employees of the Company or an Affiliated Entity, or
one or more present or former beneficiaries, dependents or
assignees of any such Employee or former Employee to or under
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which the Company or an Affiliated Entity has an obligation to
contribute or for benefits, other than regular salary, wages or
commissions paid substantially concurrently with the performance
of the services for which paid. Without limitation, the term
"Employee Benefit Plan" includes any employee welfare benefit
plan within the meaning of Section 3(1) of ERISA and any employee
pension benefit plan within the meaning of Section 3(2) of ERISA,
provided, however, that, except as otherwise specifically
provided, such term does not include any plan to which more than
one employer (treating the Company and each Affiliated Entity as
a single employer) is required to contribute and which is
maintained pursuant to one or more collective bargaining
agreements; and
(iii) "Employee" means any person employed by the Company or an
Affiliated Entity at the Effective Time. Any person who has
ceased employment with the Company or an Affiliated Entity before
the Effective Time shall not be an Employee for purposes of this
Agreement, even if such person has rights under an Employee
Benefit Plan as a result of service with the Company or an
Affiliated Entity.
(b)Identification of Plans. Exhibit 3.22 includes a complete list of
all Employee Benefit Plans (including, for this purpose, any plan that
would be an Employee Benefit Plan except for the fact that more than
one employer is required to contribute to the plan and it is
maintained pursuant to one or more collective bargaining agreements).
Each Employee Benefit Plan providing benefits funded through a policy
of insurance is so indicated by the word "insured" in Exhibit 3.22.
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Any unfunded liability with respect to any plan, other than a
qualified retirement plan, is stated or referred to in Exhibit 3.22 to
the extent that such unfunded liability is not reflected on the
Interim Balance Sheet and will not be reflected on the Final Balance
Sheet. Exhibit 3.22 also lists or identifies any reserves which
formally or informally relate to or may be used to fund any such
liabilities.
(c)Claims Against Employee Benefit Plans. No actions, suits or claims
(other than routine claims for benefits) have been filed or, to the
Knowledge of the Company, are contemplated or threatened against any
Employee Benefit Plan or against the assets of any Employee Benefit
Plan and, to the Knowledge of the Company, there is no basis for any
such action, suit or claim.
(d)Prohibited Transactions. To the Knowledge of the Company, neither
any Affiliated Entity nor the Company has engaged in any prohibited
transaction, as defined in Section 4975 of the Code or Section 406 of
ERISA, that could subject any Employee Benefit Plan (including, for
this purpose, any plan that would be an Employee Benefit Plan except
for the fact that more than one employer is required to contribute to
the plan and it is maintained pursuant to one or more collective
bargaining agreements) to any material tax or penalty imposed under
Section 4975(a) of the Code or Section 502(i) of ERISA.
(e)Plan Documents. The Company has made available to Parent a true,
correct and complete copy of each instrument constituting a part of
each Employee Benefit Plan or a summary of any such Employee Benefit
Plan that is not evidenced by a written plan document. Such documents
include, without limitation, plan documents, benefit schedules,
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insurance contracts, trusts and other funding vehicles and published
announcements, policy statements, procedures, summary plan
descriptions, summaries of material modifications and similar
instruments setting forth the provisions of any Employee Benefit Plan.
As to each funded Employee Benefit Plan and each unfunded Employee
Benefit Plan as to which actual or contingent reserves are maintained,
the Company has delivered to Parent the most recent annual financial
report with respect to such plan, any information regarding subsequent
contributions or withdrawals and any subsequent interim report. Each
such financial report is an accurate description of the financial
status of the subject Employee Benefit Plan as of the date thereof,
and there have been no material adverse changes in the financial
status of any such Employee Benefit Plan since the date of the most
recent report provided for each plan.
(f)Plan Provision Changes. The documents described in the preceding
paragraph (e) and made available to Parent describe all currently
effective benefits and all benefits that the Company or any Affiliated
Entity has undertaken to provide in the future. Neither the Company
nor any Affiliated Entity has made any written or oral, implied or
express representations that are inconsistent with the terms of the
documents described in the preceding paragraph (e). Further, neither
the Company nor any Affiliated Entity has made any written or oral,
express or implied representations regarding the continuation of any
Employee Benefit Plan after the Effective Time.
(g)Qualified Status of Certain Plans. Exhibit 3.22 specifically
identifies each Employee Benefit Plan that is represented or intended
to be a qualified plan under Code Section 401(a) using the words
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"Qualified Plan." With respect to each Employee Benefit Plan so
identified and except as set forth on Exhibits 3.22 and 3.23, the IRS
has issued favorable determination letters to such plans to the effect
that the forms of such Qualified Plans (or predecessor plans) satisfy
the requirements of Code Section 401(a) and for all years subsequent
to the establishment of the Qualified Plans (or predecessor plans) and
up to the Effective Time, and with respect to which the Company's and
the Affiliated Entities' tax returns and the Qualified Plans' and
trusts' returns are open to audit, the Qualified Plans have satisfied,
in form and operation, the qualification requirements of Code Section
401(a) (except for any required amendments for which the remedial
amendment period, as defined in Section 401(b) of the Code, has not
expired with respect to such Qualified Plan), and no action that has
been taken or not taken with respect to the Qualified Plans subsequent
to such date has had or is reasonably expected to have any adverse
impact on the continued qualification of the Qualified Plans through
the Effective Time. The Qualified Plans are in compliance with the
special nondiscrimination rules under Code Sections 401(k)(3) and (m),
if applicable. The IRS has not revoked any letter of determination or
opinion letter to which reference is made above, nor has the IRS
threatened any such revocation.
(h)Funding Status.
(i) No "accumulated funding deficiency" within the meaning of
either Code Section 412 or ERISA Section 302 exists with respect
to any Employee Benefit Plan nor would any such deficiency exist
but for the application of an alternative minimum funding
standard. No waiver of the minimum funding standards imposed by
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the Code with respect to any such plan has been requested or
issued.
(ii) As of the Effective Time, full payment will be made to each
Employee Benefit Plan (including, for this purpose, any plan that
would be an Employee Benefit Plan except for the fact that more
than one employer is required to contribute to the plan and it is
maintained pursuant to one or more collective bargaining
agreements) of all contributions that are required under the
terms thereof and under ERISA or the Code to be made on or prior
to that date for any plan year or fiscal year of the Company or
an Affiliated Entity or period ending prior to or coincident with
the Effective Time, and full payment will be made to each such
Employee Benefit Plan (or will be properly accrued on the Final
Balance Sheet in accordance with the Special Accounting
Principles) of all such contributions attributable to the pro
rata portion (based on the number of days in the applicable plan
year before and after the Effective Time) of any plan year which
contains the Effective Time, even if such contributions are not
yet required to be made or accrued under the terms of the
Employee Benefit Plan or under ERISA or the Code.
(iii) The actuarial present values of all accrued deferred
compensation entitlement of Employees, former employees of the
Company or any Affiliated Entity and their respective
beneficiaries, other than entitlement accrued pursuant to funded
retirement plans subject to the provisions of Section 412 of the
Code or Section 302 of ERISA, have been fully reflected on the
financial statements of the Company and will be fully reflected
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on the Final Balance Sheet and identified in Exhibit 3.22. Such
entitlements include, without limitation, any entitlement under
any executive compensation, supplemental retirement or any
employment continuity agreement.
(iv) As to each plan identified in Exhibit 3.22 with the word
"insured", all premiums due or payable for coverage through the
Effective Time have been paid in full, and no such premium is
overdue or in its grace period. Further, except as disclosed in
Exhibit 3.22, the Company and any Affiliated Entity have funded
each Employee Benefit Plan in accordance with its terms through
the Effective Time. To the extent that any annual contribution
for the current year is not yet required for any Employee Benefit
Plan as of the Effective Time, each sponsoring Affiliated Entity
has made a pro rata (based on the number of days in the
applicable plan year before and after the Effective Time)
contribution or accrual for such obligation to said plan for the
period ended on the Effective Time. Any premium stabilization
and other reserve held under such contract is also listed in
Exhibit 3.22.
(v) Except as set forth on Exhibit 3.22, the fair market value
of the assets of each funded defined benefit pension plan
maintained by the Company or an Affiliated Entity equals or
exceeds the actuarial present value of all accrued benefits under
the plan (whether or not forfeitable), including, without
limitation, early retirement subsidies, automatic cost of living
adjustments and all other amounts considered to be benefit
liabilities upon a standard termination of a defined benefit plan
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subject to Title IV of ERISA, with such actuarial present value
being determined by application of the actuarial methods and
assumptions applied by the plan's enrolled actuary in the most
recent annual valuation of the plan, or by application of the
methods and assumptions prescribed by the PBGC for the valuation
of such benefits in connection with plans being terminated
pursuant to this Agreement, whichever yields the higher such
actuarial present value for the aggregate of all accrued benefits
under such plan, plus all administrative expenses, fiduciaries'
fees and similar charges payable by the plan, plus all taxes, if
any, payable from plan assets. The amount of any such
underfunding disclosed in Exhibit 3.22 shall be accrued on the
Final Balance Sheet in accordance with the Special Accounting
Principles.
(vi) Exhibit 3.22 discloses any liability for post-retirement
benefits that would be required to be recorded under Financial
Accounting Standards Bulletin No. 106, assuming that the Company
or any Affiliated Entity were subject to such standard and it was
fully effective as of the Effective Time. The amount of any such
liability shall be accrued on the Final Balance Sheet in
accordance with the Special Accounting Principles.
(i)Government Contract Matters. The Company has not received
reimbursement for any contributions made to, benefits accrued under or
other costs incurred in connection with any defined benefit pension
plan under any provision of any contract with the government of the
United States, any agency thereof, any state or any political
subdivision thereof.
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(j)Excise Tax Liability and Liens. Neither the Company nor any
Affiliated Entity (i) has engaged in any transaction that may result
in the imposition on the Company or any Affiliated Entity of any
excise tax under Section 4971, 4972, 4975 and 4976 through 4980 of the
Code, or otherwise incurred a liability for any excise tax, other than
excise taxes that have heretofore been paid or have been accrued, and,
in either case, will be fully reflected in the Final Balance Sheet, or
(ii) is now, nor at any time will be by virtue of any action taken
prior to the Effective Time, subject to a requirement to provide
security under Section 401(a)(29) of the Code, nor shall any asset of
the Company or any Affiliated Entity be subject to a lien by reason of
the provisions of Section 412(n) of the Code.
(k)Claims Liability. No action, claim, demand, grievance or
allegation of unfair labor practices of any kind has been brought or,
to the Knowledge of the Company, is contemplated or threatened by any
potential claimant or representative of such claimant under any
Employee Benefit Plan (including, for this purpose, any plan that
would be an Employee Benefit Plan except for the fact that more than
one employer is required to contribute to the plan and it is
maintained pursuant to one or more collective bargaining agreements)
identified in Exhibit 3.22 (or improperly omitted from that Exhibit)
where the Company or any Affiliated Entity may be either (a) liable
directly on such action, claim or demand, or (b) obligated to
indemnify any person, group of persons or entity with respect to such
action, claim or demand.
(l)Administrative Agency Matters. Except as identified in Exhibit
3.22, there is not any investigation, proceeding, administrative
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review or other administrative agency process pending or, to the
Knowledge of the Company, contemplated or threatened that could result
in the imposition on the Company or an Affiliated Entity of any
penalty or other assessment in connection with any of the Employee
Benefit Plans (including, for this purpose, any plan to which more
than one employer is required to contribute and which is maintained
pursuant to one or more collective bargaining agreements) identified
in Exhibit 3.22.
(m)Title IV Contingent Employer Liability. Except as identified in
Exhibit 3.22, neither the Company nor any Affiliated Entity presently
maintains one or more qualified defined benefit pension plans which
are not multiemployer plans, as defined in Section 3(37) of ERISA, but
which are subject to the provisions of Title IV of ERISA.
(n)Plan Withdrawal/Termination Liability. Neither the Company nor any
Affiliated Entity is a party to any multiemployer plan, as defined in
Section 3(37) of ERISA. Neither the Company nor an Affiliated Entity
is now or has ever been a party to, or become subject to, any
collective bargaining agreement pursuant to which the Company or an
Affiliated Entity has been, is or will become obligated to contribute
to a multiemployer plan as a result of events occurring on or before
the Effective Time. Neither the Company nor any Affiliated Entity is
now liable or has potential for liability under Sections 4063 or 4064
of ERISA, and cannot be treated, whether by reason of the transactions
contemplated in this Agreement or otherwise, as a withdrawing
substantial employer under a plan to which more than one employer
makes contributions by application of Section 4068 of ERISA. Neither
the Company nor any Affiliated Entity has either primary or secondary
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liability under the provisions of Section 4204 of ERISA or any
agreement entered into in accordance with the provisions of that
Section.
(o)Benefits Obligations. As of the Effective Time, neither the
Company nor any Affiliated Entity will be liable or potentially liable
for contributions to, benefits under, taxes, penalties, fees or costs
incurred with respect to, judgments or awards against, fiduciary
obligations under or withdrawal or termination liabilities associated
with, any employee benefit plan (within the meaning of Section 3(3) of
ERISA) (including for this purpose, any plan that would be an Employee
Benefit Plan except for the fact that more than one employer is
required to contribute to the plan and it is maintained pursuant to
one or more collective bargaining agreements) of any nature whatsoever
that is not described on Exhibit 3.22.
(p)Reporting and Disclosure; Withholding. Except as disclosed on
Exhibit 3.22, the Company and each Affiliated Entity have filed or
caused to be filed on a timely basis each and every return, report,
statement, notice, declaration and other document required by any
governmental agency, federal, state and local (including, without
limitation, the IRS, the DOL and the PBGC), with respect to each
Employee Benefit Plan sponsored or maintained by the Company or any
Affiliated Entity. The Company has delivered to Parent all available
records with respect to such plans, including copies of all annual
reports filed with respect to the Employee Benefits Plans for the past
five years. The Company and each Affiliated Entity has withheld and
remitted to the proper depository all income taxes and wage taxes on
benefits derived under its Employee Benefit Plans or arranged for such
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withholding and remittance, to the extent such withholding is required
by Law or has been elected by plan participants.
(q)Participant and Related Party Notifications. The Company and each
Affiliated Entity have delivered or caused to be delivered to every
participant, beneficiary, alternate payee or other party entitled to
such material, all plan descriptions, returns, reports, schedules,
notices, statements and similar materials, including, without
limitation, summary plan descriptions, summaries of material
modifications, summary annual reports, individual reports of accrued
benefits and documentation required by regulation in connection with
denied claims for benefits (where applicable) under Title I of ERISA,
under the Code, under applicable securities laws or under regulations
with respect to any of the foregoing. The Company and each Affiliated
Entity and its appointed plan administrators are in compliance in all
material respects with statutory and regulatory requirements relating
to communications with, and solicitation of elections and consents
from, persons covered by, or having an entitlement to benefits under,
each Employee Benefit Plan.
(r)General Compliance with Applicable Law. The Company and each
Affiliated Entity have operated, and have caused their appointees and
nominees to operate, each and every Employee Benefit Plan identified
on Exhibit 3.22 (or improperly omitted from said Exhibit) in a manner
which is in compliance with all Laws applicable thereto. To the
Knowledge of the Company, every Employee, every former employee of the
Company or any Affiliated Entity, and every dependent of the foregoing
entitled to continuation of benefit coverage under any employee
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welfare benefit plan, has been accorded all of the rights to which
such person is entitled as a matter of Law.
(s)Collective Bargaining Agreements. Except as described in Exhibit
3.22, neither the Company nor any Affiliated Entity is party to any
collective bargaining agreement or other agreement with any "Labor
Organization" (as such term is defined in Section 2(5) of the National
Labor Relations Act, as amended).
(t)Information with Respect to Employees. The Company has provided
Parent with the names of each of the Employees and each Employee's
current salary, age, employment date, position and address.
Section 3.23 Compliance with Law. Except as set forth in Exhibit 3.23
attached hereto, the conduct of the business of the Company and its
Subsidiaries and the use of their Assets does not violate or conflict, and
has not violated or conflicted, with any Law in any material respect. All
Permits required with respect to the conduct of the businesses of the
Company and its Subsidiaries have been obtained, are in full force and
effect and are being complied with in all material respects. Exhibit 1.41
is a true and complete list of all such Permits. The Permits will remain
in full force and effect immediately following the consummation of the
transactions contemplated herein.
Section 3.24 Transactions With Affiliates. Except as set forth in
Exhibit 3.24 attached hereto, since December 31, 1992, the Company and its
Subsidiaries have not, in the ordinary course of business or otherwise,
purchased, leased or otherwise acquired any material property or assets or
obtained any material services from, or sold, leased or otherwise disposed
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of any material property or assets or provided any material services to
(except with respect to remuneration for services rendered as a director,
officer or employee of the Company and its Subsidiaries in the ordinary
course), (i) any employee of the Company or any of its Subsidiaries, (ii)
any Shareholder of the Company or minority shareholder of any of the
Subsidiaries, (iii) any person, firm or corporation that directly or
indirectly controls, is controlled by or is under common control with the
Company, or (iv) any member of the immediate family of any of the foregoing
persons (collectively, an "Affiliate"). Except as set forth in
Exhibit 3.24, (a) the Contracts do not include any obligation or commitment
between the Company or any of its Subsidiaries and any Affiliate, (b) the
Assets do not include any receivable or other obligation or commitment from
an Affiliate to the Company or any of its Subsidiaries and (c) the
liabilities reflected on the December Balance Sheet and the balance sheet
included in the Interim Financial Statements, and to be reflected on the
Final Balance Sheet, do not include any obligation or commitment to any
Affiliate.
Section 3.25 Fees and Expenses of Brokers and Others. Neither the Company
nor the Shareholders have had any dealings, negotiations or communications
with any investment banking firm, broker or other intermediary in
connection with the transactions contemplated by this Agreement, none of
them is committed to any liability for any brokers' or finders' fees or any
similar fees in connection with the transactions contemplated by this
Agreement and none of them has retained any investment banking firm, broker
or other intermediary to act on his or its behalf in connection with the
transactions contemplated by this Agreement, except that the Trustee has
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retained the investment banking firm of Houlihan, Lokey, Howard & Zukin
("HLHZ") to render a fairness opinion to the Trustee in connection with
such transactions. Pursuant to a separate agreement with the Company, the
Trustee has agreed that the administrative fees and expenses of the
Trustee, HLHZ and the Trustee's counsel in connection with the transactions
contemplated by the Agreement will be paid out of the ESOT trust fund to
the extent permitted by Law. The Company will pay the balance of any such
fees and expenses prior to the Effective Time. All other fees and expenses
(including attorneys' and accountants' fees) of the Company and the Common
Shareholders in connection with the transactions contemplated herein shall
be paid in full by the Company prior to the Effective Time.
Section 3.26 Tax Matters. (a) Except as set forth on Exhibit 3.26:
(i) the Company and the Subsidiaries are members of the
affiliated group, within the meaning of Section 1504(a) of the
Code, of which the Company is the common parent, such affiliated
group files a consolidated federal income tax return and neither
the Company nor any of the Subsidiaries has ever filed a
consolidated federal income tax return with (or been included in
a consolidated return of) a different affiliated group;
(ii) each of the Company and the Subsidiaries has filed or
caused to be filed all tax returns and reports required to have
been filed by or for it on or before the Effective Time, and all
information set forth in such returns or reports is accurate and
complete in all material respects;
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(iii) the Company and the Subsidiaries have paid or made
adequate provision for all taxes, additions to tax, penalties and
interest for periods covered by those returns or reports;
(iv) each of the Company and the Subsidiaries is in compliance
with, and the records of each of them contain all information and
documents (including, without limitation, properly completed IRS
Forms W-9) necessary to comply with, all information reporting
and tax withholding requirements under federal, state, local and
foreign laws, rules and regulations, and such records identify
with specificity all accounts subject to backup withholding under
Section 3406 of the Code;
(v) there are no unpaid taxes, additions to tax, penalties or
interest payable by the Company or any of the Subsidiaries or by
any other person that are or could become a lien on any asset, or
otherwise adversely affect the business, properties or financial
condition, of the Company or any of the Subsidiaries;
(vi) each of the Company and the Subsidiaries has collected or
withheld all amounts required to be collected or withheld by it
for any taxes, and all such amounts have been paid to the
appropriate governmental agencies or set aside in appropriate
accounts for future payment when due;
(vii) each of the December Balance Sheet and the balance sheet
included in the Interim Financial Statements fully and properly
reflects, and the Final Balance Sheet will fully and properly
reflect, as of their respective dates, the liabilities of the
Company and the Subsidiaries for all taxes, additions to tax,
penalties and interest, including, without limitation, all taxes
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and related liabilities resulting from the disposition of the
Groveton Stock;
(viii) neither the Company nor any of the Subsidiaries has
granted (nor is any of them subject to) any waiver of the period
of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted
against or with respect to the Company or any of the Subsidiaries
by any taxing authority;
(ix) neither the Company nor any of the Subsidiaries has made or
entered into, or holds any asset subject to, a consent filed
pursuant to Section 341(f) of the Code and the regulations
thereunder or a "safe harbor lease" subject to former Section
168(f)(8) of the Code and the regulations thereunder;
(x) neither the Company nor any of the Subsidiaries is required
to include in income any amount from an adjustment pursuant to
Section 481 of the Code or the regulations thereunder; and
(xi) the Company is not, and has not been at any time within the
last five years, a "United States real property holding
corporation" for purposes of section 897 of the Code.
(b)Exhibit 3.26 describes all tax elections, consents and agreements
made by or affecting the Company or any of the Subsidiaries, lists all
types of taxes paid and returns filed by or on behalf of the Company
or any of the Subsidiaries and expressly indicates each tax with
respect to which the Company or any of the Subsidiaries is or has been
included in a consolidated, unitary or combined return.
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Section 3.27 Environmental Matters.
(a)Definitions. When used in this Section 3.27:
(i) "Environmental Laws" shall mean any and all federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or requirements of any Governmental
Authority regulating, relating to or imposing liability or
standards of conduct concerning any Hazardous Materials or
Petroleum Products or environmental protection as in effect at
the Effective Time or at any time in the past;
(ii) "Governmental Authority" shall mean any federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality, or any court, in each case
whether of the United States or foreign;
(iii) "Hazardous Materials" shall mean any hazardous material,
hazardous waste, infectious medical waste, hazardous or toxic
substance defined or regulated as such in or under any
Environmental Law, including, without limitation, materials
exhibiting the characteristics of ignitability, corrosivity,
reactivity or extraction procedure toxicity, as such terms are
defined in connection with hazardous materials or hazardous
wastes or hazardous or toxic substances in any Environmental Law;
and
(iv) "Petroleum Products" shall mean gasoline, diesel fuel,
motor oil, waste or used oil, heating oil, kerosene and any other
petroleum products.
(b)Except as set forth in Exhibit 3.27 (i) no member of the Lawless
Group and no Former Subsidiary or Former Partnership has used, stored,
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treated, transported, manufactured, refined, handled, produced or
disposed of any Hazardous Materials or Petroleum Products on, under,
at, from or in any way affecting any of their properties or assets
(including, without limitation, any properties or assets now or
previously owned or operated by any member of the Lawless Group, any
of the Former Subsidiaries or any of the Former Partnerships), or
otherwise, in any manner which at the time of the action in question
violated any Environmental Law governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials or Petroleum Products, and (ii) to the
Knowledge of the Company, no prior owner of such property or asset or
any tenant, subtenant, prior tenant or prior subtenant thereof has
used Hazardous Materials or Petroleum Products on, from or in any way
affecting any such property or asset, or otherwise, in any manner
which at the time of the action in question violated any Environmental
Law governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous
Materials or Petroleum Products.
(c)Except as set forth in Exhibit 3.27, no member of the Lawless Group
has any obligations or liabilities, whether absolute or contingent,
accrued or unaccrued, asserted or unasserted, known or unknown, or
otherwise, that could have a material adverse effect on the
properties, business, financial condition or results of operations of
the Company and its Subsidiaries, and no pending claims have been made
against any of the foregoing and no presently outstanding citations or
notices have been issued against any of the foregoing, that could have
a material adverse effect on the properties, business, financial
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condition or results of operations of the Company and its
Subsidiaries, and that in the case of any of the foregoing, have been
or are imposed by reason of or based upon any provision of any
Environmental Laws, including, without limitation, any such
obligations or liabilities relating to or arising out of or
attributable, in whole or in part, to the manufacture, processing,
distribution, use, treatment, storage, release, disposal, arranging
for disposal, transport or handling of any Hazardous Materials or
Petroleum Products by any member of the Lawless Group, the Former
Subsidiaries and the Former Partnerships or, to the Knowledge of the
Company, by any predecessors in interest in connection with or in any
way arising from or relating to any member of the Lawless Group, the
Former Subsidiaries and the Former Partnerships or any of their
respective properties, or relating to or arising from or attributable,
in whole or in part, to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any such
substance by any other person at or on or under any of the real
properties owned or used by any member of the Lawless Group.
(d)Each member of the Lawless Group has received all Permits as may be
required of it under applicable Environmental Laws to conduct its
business, and each member of the Lawless Group is in compliance in all
material respects with the terms and conditions of all such Permits.
No member of the Lawless Group, and no Former Subsidiary or Former
Partnership, has received any notices or claims that it is a
potentially responsible party in connection with any claim or notice
asserted pursuant to 42 U.S.C. Section 9601 et seq., or any state
superfund law.
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(e)Except as set forth on Exhibit 3.27, there are no "wetlands" (as
that term has ever been defined by the U.S. Army Corps of Engineers or
any other regulatory agency) on any of the real property owned,
operated or leased by any member of the Lawless Group.
Section 3.28 Orders, Commitments and Returns. Except as set forth in
Exhibit 3.28 attached hereto, all accepted and unfulfilled orders for the
sale of products and the performance of services entered into by the
Company and its Subsidiaries and all outstanding contracts or commitments
for the purchase of supplies, materials and services used or to be used in
the businesses of the Company and its Subsidiaries were made in bona fide
transactions in the ordinary course of business. Except as set forth in
Exhibit 3.28, there are no claims against the Company or any of its
Subsidiaries to return products by reason of alleged overshipments,
defective products or otherwise, and no products of the Company or any of
its Subsidiaries are in the hands of customers or distributors under a
consignment arrangement or other understanding that such products will be
returnable.
Section 3.29 Product Warranties. Except as set forth in Exhibit 3.29
attached hereto, (i) the Company has no unexpired express product warranty
with respect to any product that it manufactures or sells or that it has
heretofore manufactured or sold, (ii) the Company has not received any
notice of any claim based on any product warranty and (iii) to the
Knowledge of the Company, there are no other claims (actual or threatened)
based on any product warranty of which the Company has not received notice.
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Section 3.30 Labor Matters. (a) Except as set forth in Exhibit 3.30
attached hereto, with respect to employees of the Company and its
Subsidiaries:
(i)to the Knowledge of the Company, no executive, key employee or
group of employees has any plans to terminate employment with the
Company or any of its Subsidiaries;
(ii)the Company and its Subsidiaries are and have been in compliance
in all material respects with all applicable Laws governing employment
and employment practices, terms and conditions of employment and wages
and hours, including without limitation any such Laws respecting
employment discrimination and occupational safety and health
requirements, and neither the Company nor any of its Subsidiaries have
engaged in any unfair labor practice;
(iii) there is no unfair labor practice charge or complaint against
the Company or any of its Subsidiaries pending or, to the Knowledge of
the Company, threatened before the National Labor Relations Board or
any other comparable authority;
(iv)no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Knowledge of
the Company, no claims therefor exist or have been threatened; and
(v)there is no litigation, arbitration proceeding, governmental
investigation, citation or action of any kind pending or, to the
Knowledge of the Company, proposed or threatened against the Company
or any of its Subsidiaries relating to employment, employment
practices, terms and conditions of employment or wages and hours.
(b) Except as described in Exhibit 3.30 attached hereto, neither the
Company nor any of its Subsidiaries has any collective bargaining
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relationship or duty to bargain with any Labor Organization, and neither
the Company nor any Subsidiary has recognized any Labor Organization as the
collective bargaining representative of any of its employees.
Section 3.31 Management Contracts. Each of the Management Contracts will,
prior to the Effective Time, be duly authorized, executed and delivered by
each of the parties thereto (other than the Parent), will constitute a
valid and binding obligation of each of such parties, and will be
enforceable against each of the parties in accordance with its terms.
Section 3.32 Accuracy of Information. Neither this Agreement nor any
other document provided by the Company or any of its Subsidiaries to either
the Purchaser or the Parent in connection with the transactions
contemplated herein contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMMON SHAREHOLDERS
The Common Shareholders hereby jointly and severally represent and warrant
to the Parent and the Purchaser as follows:
Section 4.01 Organization; Individual Capacity; Enforceability. Each
Common Shareholder that is a corporation or a partnership is duly
organized, validly existing and in good standing under the laws of its
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jurisdiction of incorporation or organization, with full power, legal right
and authority to enter into this Agreement and to perform its obligations
hereunder. Each Common Shareholder who is a natural person has full power,
legal right and capacity to enter into this Agreement and to perform his
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the board of directors of each Common Shareholder that is a
corporation and by the general partners of each Common Shareholder that is
a partnership, and no other corporate or partnership proceedings on the
part of any Common Shareholder are necessary to authorize this Agreement or
to consummate the transactions contemplated herein. This Agreement is, and
the other documents and instruments required hereby will be, when executed
and delivered by the parties hereto, the valid and binding obligations of
each of the Common Shareholders, enforceable against each of the Common
Shareholders in accordance with their respective terms.
Section 4.02 No Violation or Conflict by Common Shareholders. The
execution, delivery and performance of this Agreement by each of the Common
Shareholders (a) do not and will not conflict with or violate any Law,
judgment, order or decree binding any of the Common Shareholders or any
contract or agreement to which any of the Common Shareholders is a party or
by which any of the Common Shareholders are bound, and (b) will not require
the consent or approval of any other party. Except for the applicable
requirements of the HSR Act, no notice to, filing or registration with, or
authorization, consent or approval of, any governmental, regulatory or
self-regulatory agency is necessary or is required to be made or obtained
by any of the Common Shareholders in connection with the execution and
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delivery of this Agreement by it or him or the consummation by it or him of
the transactions contemplated hereby.
Section 4.03 Title to Shares. Each of the Common Shareholders owns of
record and beneficially good, valid and marketable title to his or its
Shares, free and clear of any and all mortgages, liens, encumbrances,
charges, claims restrictions, pledges, security interests or impositions.
Exhibit 1.52 is a true and correct list of the Shares owned of record and
beneficially by each of the Common Shareholders immediately prior to the
Effective Time.
Section 4.04 Nature of Common Shareholders; Purchase for Investment. Each
Common Shareholder represents, and in entering into this Agreement the
Parent and Chesapeake believe, that such Common Shareholder either is an
"accredited investor" within the meaning of Rule 501(a) under the
Securities Act, or that such Common Shareholder, alone or with his or its
"purchaser representative(s)" (as such term is defined in Rule 501(a) under
the Securities Act) has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of
an investment in the Parent's Notes. Each Common Shareholder further
represents that he or it is acquiring the Parent's Notes for the purpose of
investment and not with a view to the distribution thereof, and that such
Common Shareholder has no present intention of selling, negotiating or
otherwise disposing of the Parent's Notes received by such Common
Shareholder in the Merger. Each Common Shareholder acknowledges that the
Parent's Notes shall bear the following legend:
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. THIS NOTE MAY NOT
BE TRANSFERRED, AND NO ATTEMPTED TRANSFER OF THIS NOTE SHALL BE VALID
OR EFFECTIVE, UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B) THE HOLDER
HEREOF SHALL HAVE DELIVERED TO THE PARENT EITHER A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL
EXPERIENCED IN SECURITIES MATTERS, WHICH OPINION OF COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE PARENT, TO THE EFFECT THAT SUCH
PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
ACT.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
The Parent and the Purchaser jointly and severally represent and warrant to
the Company as follows:
Section 5.01 Organization. Each of Chesapeake, the Parent and the
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and each
has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted.
Chesapeake owns all of the outstanding capital stock of the Parent, and the
Parent owns all of the outstanding capital stock of the Purchaser.
Section 5.02 Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement and of all of the documents and
instruments required hereby by Chesapeake, the Parent and the Purchaser are
within the corporate power of Chesapeake, the Parent and the Purchaser.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will, prior to Closing, be duly authorized
by the Boards of Directors of Chesapeake, the Parent and the Purchaser, and
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by the Parent as the sole shareholder of the Purchaser, and no other
corporate proceedings on the part of Chesapeake, the Parent or the
Purchaser are necessary to authorize this Agreement or to consummate the
transactions contemplated herein. This Agreement and all of the other
documents and instruments required hereby have been or will be duly and
validly executed and delivered by Chesapeake, the Parent and the Purchaser
and constitute or will constitute valid and binding agreements of
Chesapeake, the Parent and the Purchaser, enforceable against them in
accordance with their terms.
Section 5.03 Consents and Approvals; No Violations. Except for any
applicable requirements of the Exchange Act, the HSR Act and any applicable
filings under state securities or "Blue Sky" laws, and except for the
filing and recordation of Articles of Merger as required by the VSCA and of
a Certificate of Merger as required by the DGCL, no filing or registration
with, and no permit, authorization, consent or approval of, any public body
or authority is necessary or required in connection with the execution and
delivery of this Agreement by Chesapeake, the Parent and the Purchaser or
for the consummation by Chesapeake, the Parent and the Purchaser of the
transactions contemplated by this Agreement. Assuming that all filings,
registrations, permits, authorizations, consents and approvals contemplated
by the immediately preceding sentence have been duly made or obtained,
neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated hereby by Chesapeake, the
Parent and the Purchaser will (i) conflict with or result in any breach of
any provision of the Articles of Incorporation or bylaws of Chesapeake, the
Parent or the Purchaser, (ii) result in a violation or breach of, or
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constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, contract, agreement or other instrument or
obligation to which Chesapeake, the Parent or any of their subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound or (iii) violate any order, writ, injunction, decree or Law
applicable to Chesapeake, the Parent, any of their subsidiaries or any of
their properties or assets. The Parent has no intention to take any
action, as of the Effective Time, that would require the Company to take
any action under the federal WARN Act or similar state statute prior to the
Effective Time.
Section 5.04 Financial Statements. The Parent has previously delivered to
the Company true and correct copies of the audited consolidated balance
sheets of Chesapeake as of December 31, 1992 and 1991, and the related
audited consolidated statements of income and retained earnings and cash
flows for each of the three years in the period ended December 31, 1992
(collectively, the "Chesapeake Financials"). The Chesapeake Financials,
including the notes thereto, are true and correct in all material respects,
present fairly the consolidated financial position, results of operations
and cash flows of Chesapeake as of and for the periods presented, and were
prepared in accordance with GAAP applied on a consistent basis (except as
otherwise noted therein).
Section 5.05 Proxy Statement; Information Statement. None of the
information set forth under the caption "Certain Information Concerning
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Chesapeake, Parent and Purchaser" in the Proxy Statement, at the time of
the mailing of the notice of the Special Meeting or at the time of such
meeting, be false or misleading with respect to any material fact or will
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. None of the information set
forth under the caption "Certain Information Concerning Chesapeake, Parent
and Purchaser" in the Information Statement or in the Appendixes thereto
relating to Chesapeake, the Parent the Purchaser or their affiliates will,
at the time of the mailing thereof or at the Effective Time, be false or
misleading with respect to any material fact or will omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 5.06 Fees and Expenses of Brokers and Others. Neither Chesapeake,
the Parent nor the Purchaser has had any dealings, negotiations or
communications with any investment banking firm, broker or other
intermediary in connection with the transactions contemplated in this
Agreement except HLHZ, none of them is committed to any liability for any
brokers' or finders' fees or any similar fees in connection with the Merger
and none of them has retained any investment banking firm, broker or other
intermediary to act on its behalf in connection with the transactions
contemplated in this Agreement.
Section 5.07 Ownership of Shares. Neither Chesapeake, the Parent nor the
Purchaser, nor any of their "affiliates" or "associates" (as those terms
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are defined in Section 203 of the DGCL) is an "interested shareholder" of
the Company as such term is defined in Section 203 of the DGCL.
ARTICLE VI
COVENANTS
Section 6.01 Conduct of Business of the Company. Except for the ongoing
expansion of the Company's Madison, Ohio plant as described in the
Company's capital budget for 1993 and 1994, copies of which have previously
been supplied to the Parent (the "Capital Budget"), and except as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company and the Subsidiaries will
conduct their operations according to their ordinary and usual course of
business and consistent with past practice, and the Company and the
Subsidiaries will use their reasonable best efforts to preserve intact
their business organizations, to keep available the services of their
officers and employees and to maintain existing relationships with
licensors, licensees, suppliers, contractors, distributors, customers and
others having material business relationships with them. Without limiting
the generality of the foregoing, and except as otherwise expressly provided
in this Agreement, prior to the Effective Time, neither the Company nor any
of the Subsidiaries will, without the prior written consent of the Parent:
(a)amend its Certificate of Incorporation or bylaws;
(b)authorize for issuance or issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class
or any other securities;
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(c)split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of
its capital stock, or redeem or otherwise acquire any of its
securities or any securities of the Subsidiaries, except for the
anticipated dividend (or other distribution for nominal consideration)
of the Company's interest in (i) that certain cooperative apartment
located at 1850 South Ocean Drive, Fort Lauderdale, Florida, and (ii)
an insurance partnership (as previously described to Parent);
(d)except in the ordinary course of business (i) incur or assume any
long-term debt not currently outstanding, (ii) assume, guarantee,
endorse or otherwise become liable or responsible for the obligations
of any person, other than a Subsidiary, (iii) make any loans, advances
or capital contributions to, or investments in, any other person
(other than customary loans or advances to employees in accordance
with past practice), (iv) enter into any contract or agreement other
than in the ordinary course of business or in connection with the
transactions contemplated by this Agreement or (v) authorize any
single capital expenditure which is in excess of $100,000 or capital
expenditures which are, in the aggregate, in excess of $250,000 for
the Company and the Subsidiaries taken as a whole, other than capital
expenditures as to which the Company or a Subsidiary is contractually
committed as of the date hereof or are currently reflected in the
Capital Budget of the Company and the Subsidiaries previously
furnished to the Parent;
(e)adopt or amend (except as may be required by Law or as provided in
this Agreement) any bonus, profit sharing, compensation, severance,
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termination, stock option, stock appreciation right, restricted stock,
pension, retirement, deferred compensation, employment, severance or
other employee benefit agreements, trusts, plans, funds or other
arrangements for the benefit or welfare of any present or former
director, officer or employee or the dependent or beneficiary of any
present or former director, officer or employee, or (except for normal
increases in the ordinary course of business that are consistent with
past practices and that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Company) increase
in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any existing
plan and arrangement (including, without limitation, the granting of
stock options, stock appreciation rights, shares of restricted stock
or performance units) or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(f)acquire, sell, lease or dispose of any material assets outside the
ordinary course of business;
(g)take any action other than in the ordinary course of business and
in a manner consistent with past practice with respect to accounting
policies or procedures;
(h)make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability;
(i)except for the payment of professional fees, pay, discharge or
satisfy any material claims, liabilities or obligations (absolute,
accrued or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business
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of liabilities reflected or reserved against in the Interim Financial
Statements or incurred in the ordinary course of business; or
(j)agree in writing or otherwise to take any of the foregoing
actions.
Section 6.02 No Solicitation. The Company and the Subsidiaries shall not,
after the date hereof, directly or indirectly, through any officer,
director, employee, agent or otherwise, solicit, initiate or encourage
submission of proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) a substantial portion of the assets of, or any equity interest
in, the Company or any of its Subsidiaries or any business combination with
the Company or any of its Subsidiaries or, except to the extent required by
fiduciary obligations under applicable Law as advised by counsel,
participate in any negotiations regarding, or furnish to any other person
any information with respect to, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing. The Company shall
promptly advise the Parent if any such proposal or offer, or any inquiry or
contact with any person with respect thereto, is made, shall promptly
inform the Parent of all the terms and conditions thereof, and shall
furnish to the Parent copies of any such written proposal or offer and the
contents of any communications by the Company in response thereto. The
Company shall not waive any provisions of any "standstill" agreements
between the Company and any party, except to the extent that such waiver
is, as advised by counsel, required by fiduciary obligations under
applicable Law.
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Section 6.03 Access to Information. Between the date of this Agreement
and the Effective Time, the Company will give the Parent and its authorized
representatives reasonable access during normal business hours to all
plants, offices, warehouses and other facilities and to all books and
records of it and the Subsidiaries, will permit the Parent to make such
inspections as it may reasonably require and will cause its officers and
those of the Subsidiaries to furnish the Parent with such financial and
operating data and other information with respect to the business and
properties of the Company and the Subsidiaries as the Parent may from time
to time reasonably request. Subject to Section 6.07 hereof, all such
information shall be kept confidential in accordance with the
Confidentiality Agreement.
Section 6.04 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper and advisable under applicable Law (including,
without limitation, the HSR Act), and to obtain the consents of all third
parties, necessary to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes
of this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary action. The Company and the
Purchaser will execute any additional instruments necessary to consummate
the transactions contemplated hereby.
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Section 6.05 Public Announcements. The Parent and the Company will
consult with each other before issuing any press release or otherwise
making any public statement with respect to this Agreement, the Plan of
Merger or the Merger and shall not issue any such press release or make any
such public statement prior to such consultation or as to which the other
party reasonably objects, except as may be required by Law or by
obligations pursuant to any listing agreement with any national securities
exchange or inter-dealer quotation system.
Section 6.06 Confidentiality Agreement. Notwithstanding the execution of
this Agreement, the Confidentiality Agreement shall remain in full force
and effect through the Effective Time, at which time the Confidentiality
Agreement shall terminate and be of no further force and effect. The
Company hereby waives the provisions of the Confidentiality Agreement as
and to the extent necessary to permit the solicitation of votes of the
Shareholders with respect to the Charter Amendment pursuant to the Proxy
Statement and to permit consummation of the transactions contemplated
herein.
Section 6.07 Shareholder Vote; No Appraisal Rights; Irrevocable Proxy.
Each Common Shareholder covenants and agrees with the Parent (a) to vote
all Common Shares held by it or him in favor of the Charter Amendment, the
Merger and the other transactions contemplated herein, and (b) that such
Common Shareholder shall not demand appraisal of the fair value of its or
his Shares pursuant to Section 262 of the DGCL. Each Common Shareholder
hereby appoints Wesley Herman, Anthony Urban and Randal Bernick, and each
of them, as proxies, each with the power to appoint his substitute, and
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hereby authorizes each of them to execute written consents with respect to
all of the shares of Class A Common held of record by such Common
Shareholder, on the record date for such written consent, to approve the
Merger. Each Common Shareholder understands and agrees that the foregoing
proxy is irrevocable and is coupled with an interest.
Section 6.08 Adequate Capitalization. The Parent covenants and agrees
that, immediately after the Effective Time, it shall convert a sufficient
portion of the loan extended to the Company pursuant to Section 2.08(b)
hereof from debt into equity to ensure that (a) the Company will not,
immediately after the Effective Time, be "insolvent" or have "unreasonably
small capital", as such terms are used in either (i) Del. Code Ann. Tit. 6
1304 and 1305, or (ii) 548 of the Federal Bankruptcy Code, as amended,
and (b) the capital of the Company will not have been "impaired" by virtue
of the redemption of the Preferred Shares, as such term is used in DGCL
160.
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
Section 7.01 Conditions Precedent to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to consummate the Merger
is subject to the satisfaction at or prior to the Effective Time of the
following express conditions precedent:
(a)the Charter Amendment shall have been approved by the affirmative
vote of the Shareholders by the requisite vote in accordance with
applicable Law, and the Participants shall have directed the Trustee
to vote a majority of the shares of Class A Preferred and a majority
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of the shares of Class B Preferred allocated to Participant accounts
in the ESOP in favor of the Charter Amendment;
(b) the Charter Amendment shall have been filed with the Secretary of
State and shall have become effective in accordance with the DGCL, and
all outstanding Preferred Shares shall have been redeemed in
accordance with Section 2.08 hereof;
(c)after redemption of all outstanding Preferred Shares, the Plan of
Merger shall have been adopted by the affirmative vote of the Common
Shareholders by the requisite vote in accordance with applicable Law;
(d)no order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any United States court of competent
jurisdiction or any United States governmental authority which
prohibits the consummation of the Merger or the other transactions
contemplated herein; provided, however, that the parties hereto shall
use their best efforts to have any such order, decree or injunction
vacated or reversed;
(e)any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired, all applicable requirements of the
Exchange Act shall have been satisfied and any applicable filings
under state securities, "Blue Sky" or anti-takeover laws shall have
been made; and
(f)delivery of an opinion by HLHZ to the Trustee with respect to the
transactions contemplated herein in form satisfactory to the Company
and Parent.
Section 7.02 Conditions Precedent to Obligations of the Parent and the
Purchaser. The obligations of the Parent and the Purchaser to consummate
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the Merger are subject the satisfaction or waiver at or prior to the
Effective Time of the following conditions precedent:
(a)there shall have occurred no material adverse change in the
business, financial condition or results of operations of the Company
and its Subsidiaries taken as a whole from the date hereof to the
Effective Time;
(b)the representations and warranties of the Company and the
Shareholders contained in Articles III and IV shall be true and
correct in all material respects when made and at and as of the
Effective Time with the same force and effect as if those
representations and warranties had been made at and as of such time
(with such exceptions, if any, necessary to give effect to events or
transactions expressly permitted herein);
(c)the Company shall, in all material respects, have performed all
obligations and complied with all covenants necessary to be performed
or complied with by it on or before the Effective Time;
(d) the Company shall have obtained all of the Required Consents;
(e)the Parent and the Purchaser shall have received a certificate of
the Chairman, President or any Vice President of the Company, in form
satisfactory to counsel for the Parent, certifying fulfillment of the
matters referred to in paragraphs (a) through (d) of this Section
7.02;
(f)all proceedings, corporate or other, to be taken by the Company in
connection with the transactions contemplated by this Agreement, and
all documents incident thereto, shall be reasonably satisfactory in
form and substance to the Parent and the Parent's counsel, and the
Company shall have made available to the Parent for examination the
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originals or true and correct copies of all documents that the Parent
may reasonably request in connection with the transactions
contemplated by this Agreement;
(g)no event affecting the Parent or Chesapeake shall have occurred
between the date hereof and Closing that would prevent the issuance of
the Parent's Notes from constituting, in the Parent's reasonable
judgment, a valid private placement for purposes of federal and state
securities laws; and
(h)the Parent and the Purchaser shall have received the opinions of
Hinckley, Allen & Snyder, and/or Jaeckle, Fleischmann & Mugel, counsel
for the Common Shareholders and the Company, and Edwards & Angell,
special counsel to the Company for employee benefits matters, each
dated the Effective Time, with respect to such matters as the Parent
and the Purchaser may reasonably request and substantially in the form
of Exhibits 7.02A and 7.02B hereto.
Section 7.03 Conditions Precedent to Obligations of the Company. The
obligation of the Company to consummate the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions precedent:
(a)the representations and warranties of the Parent and the Purchaser
contained in Article V shall be true and correct in all material
respects when made and at and as of the Effective Time with the same
force and effect as if those representations and warranties had been
made at and as of such time (with such exceptions, if any, necessary
to give effect to events or transactions expressly permitted herein);
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(b)each of the Parent and the Purchaser shall, in all material
respects, have performed all obligations and complied with all
covenants necessary to be performed or complied with by it on or
before the Effective Time;
(c)the Company shall have received a certificate of the Chairman,
President or any Vice President of each of the Parent and the
Purchaser, in form satisfactory to counsel for the Company, certifying
fulfillment of the matters referred to in paragraphs (a) and (b) of
this Section 7.03;
(d)all proceedings, corporate or other, to be taken by Chesapeake, the
Parent and the Purchaser in connection with the transactions
contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to the Company
and the Company's counsel, and Chesapeake, the Parent and the
Purchaser shall have made available to the Company for examination the
originals or true and correct copies of all documents that the Company
may reasonably request in connection with the transactions
contemplated by this Agreement;
(e)the Company shall have received the opinion of Hunton & Williams,
counsel for Chesapeake, the Parent and the Purchaser, dated the
Effective Time, with respect to such matters as the Company may
reasonably request and substantially in the form of Exhibit 7.03
hereto.
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ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.01 Termination. This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time
notwithstanding approval thereof by the Shareholders, but prior to the
Effective Time:
(a)by mutual written consent of the Parent and the Company;
(b)by the Parent or the Purchaser at any time following the Parent or
the Purchaser becoming aware that the Company or any Common
Shareholder has breached any representation, warranty or covenant
contained in this Agreement in any material respect, if the Parent or
the Purchaser has notified the Company and the Common Shareholders of
the breach and the breach has continued without cure for a period of
30 days after the notice of breach;
(c)by the Company at any time following the Company becoming aware
that the Parent or the Purchaser has breached any representation,
warranty or covenant contained in this Agreement in any material
respect, if the Company has notified the Parent and the Purchaser of
the breach and the breach has continued without cure for a period of
30 days after the notice of breach;
(d)by the Parent or the Company, if the Effective Time shall not have
occurred on or before January 25, 1994 (provided that the right to
terminate this Agreement under this Section 8.01(d) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of or has resulted in the failure of
the Effective Time to occur on or before such date);
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(e)by the Parent or the Purchaser if, prior to the Effective Time, the
Board of Directors of the Company shall have withdrawn or modified in
a manner adverse to the Purchaser its approval or recommendation of
the Merger, or shall have recommended another offer or shall have
resolved to do any of the foregoing;
(f)by the Company, if the net proceeds from the sale of the Groveton
Stock are less than $2.0 million;
(g)by the Company if, prior to the Effective Time, a corporation,
partnership, person or other entity or group shall have made a bona
fide proposal that the Board of Directors of the Company believes, in
good faith after consultation with its financial advisors, is more
favorable, from a financial point of view, to the Shareholders than
the proposal set forth in this Agreement and the Plan of Merger (a
"Superior Proposal"); provided, that the Parent does not make, within
five business days of the Parent receiving notice of such third party
proposal, an offer that the Board of Directors of the Company
believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to
the Shareholders as such Superior Proposal; or
(h)by the Parent or the Company, if any court of competent
jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the
transactions contemplated herein and such order, decree, ruling or
other action shall have become final and nonappealable.
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Section 8.02 Effect of Termination. If this Agreement is terminated
pursuant to Section 8.01 hereof and the Merger is not consummated, this
Agreement shall forthwith become void and have no effect, without any
liability on the part of any party or its directors, officers or
shareholders; provided, however, that nothing contained in this Section
8.02 shall relieve any party from liability for any breach of this
Agreement.
Section 8.03 Amendment. This Agreement may be amended by action taken by
the Company, the Parent and the Purchaser at any time before or after
adoption of the Plan of Merger by the Common Shareholders. No amendment to
this Agreement shall be made except by an instrument in writing signed on
behalf of all of the parties.
Section 8.04 Extension; Waiver. At any time prior to the Effective Time,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii)
waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
INDEMNIFICATION
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Section 9.01 Indemnification. (a) Each of the Common Shareholders hereby
severally but not jointly indemnifies and holds Parent, the Purchaser and,
from and after the Effective Time, each member of the Lawless Group
(collectively, the "Indemnified Parties") harmless from and against, and
agrees to defend promptly each of the Indemnified Parties for, any and all
losses, damages, costs, expenses, liabilities, obligations and claims of
any kind, including, without limitation, reasonable attorneys' fees and
other legal costs and expenses (hereinafter referred to collectively as
"Losses"), that any of the Indemnified Parties may at any time suffer or
incur, or become subject to, as a result of or in connection with: (i) any
breach or inaccuracy of any of the representations and warranties made by
the Company and the Shareholders in or pursuant to this Agreement; (ii) any
failure of the Company or any of the Shareholders to carry out, perform,
satisfy and discharge any of their covenants, agreements, undertakings,
liabilities or obligations under this Agreement or under any of the
documents and instruments delivered by the Company or any of the
Shareholders pursuant to this Agreement (it being understood that this
Section 9.01(a)(ii) shall not apply to those Management Contracts with
Randal Bernick, Cecil E. Thompson or Susan Thompson); (iii) claims by third
parties against any Indemnified Party relating to the ownership and
operation of the business of the Lawless Group prior to the Effective Time,
including, without limitation, those matters specified on Exhibit 3.10
attached hereto, except to the extent such claims are reflected on the
Final Balance Sheet (but such exception shall apply only with respect to
the specific dollar amount reflected thereon for each such claim); and (iv)
those items that the parties have agreed will be covered by indemnification
that are identified on Exhibit 9.01 hereto; provided, however, that the
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Indemnified Parties shall have the right to be indemnified, held harmless
from, defended or reimbursed under this Section 9.01(a) only if such right
is asserted (whether or not such Losses have actually been incurred) on or
before the date two (2) years after the Effective Time (for representations
and warranties other than those made in Section 3.26), or six months after
the expiration of any applicable statute of limitations for the assessment
or collection of taxes, including any extensions thereof (in the case of
the representations and warranties made in Section 3.26); and provided,
further, that (A) the Common Shareholders shall not be required to
indemnify the Indemnified Parties under this Section 9.01(a) unless and
until the amount of all Losses for which indemnification is sought shall
first exceed $100,000, at which point the Common Shareholders will be
obligated to indemnify the Indemnified Parties for all such Losses in
excess of such amount, and (B) the indemnification obligation of each
Common Shareholder pursuant to this Section 9.01(a) shall not exceed the
pro rata portion of the Indemnity Offset attributable to such Common
Shareholder in connection with the Merger.
(b)In the event a claim against any of the Indemnified Parties arises that
is covered by the indemnity provisions of Section 9.01(a) of this
Agreement, notice shall be given promptly by such Indemnified Party to the
Common Shareholders. In the event that the Common Shareholders admit in
writing to the party seeking indemnification that such claim is covered by
the indemnity provisions of Section 9.01(a) hereof, the Common Shareholders
shall have the right to contest and defend by all appropriate legal
proceedings such claim and to control all settlements (unless the party
seeking indemnification agrees to assume the cost of settlement and to
forego fully such indemnity) and to select lead counsel to defend any and
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all such claims at the sole cost and expense of the Common Shareholders;
provided, however, that the Common Shareholders may not effect any
settlement that could result in any cost, expense or liability to any
Indemnified Party unless such party consents in writing to such settlement
and the Common Shareholders agree to indemnify such party therefore. The
party seeking indemnification may select counsel to participate in any
defense, in which event such counsel shall be at the sole cost and expense
of such party. In the event that the Common Shareholders do not admit in
writing to the party seeking indemnification that such claim is covered by
the indemnity provisions of Section 9.01(a) hereof, then the party seeking
indemnification and the Common Shareholders shall cooperate in good faith
jointly to contest, defend and settle such claim. In connection with all
such claims, actions or proceedings, the parties shall cooperate with each
other and provide each other with access to relevant books and records in
their possession. Except as otherwise provided herein, the costs and
expenses of counsel retained pursuant hereto shall be paid by the Company
as incurred and shall be charged against the Indemnity Offset.
(c)The Indemnified Parties shall offset against the Indemnity Offset, on a
pro rata basis, the amount of any Losses with respect to which the Common
Shareholders are required to indemnify the Indemnified Parties pursuant to
this Section 9.01. The Indemnified Parties shall give the Common
Shareholders 20 days prior written notice of the amount of and grounds for
any such offset. Unless, within 20 days following receipt of the
Indemnified Parties' notice, the Common Shareholders object to such offset
by a writing setting forth the grounds for such objection, such offset
shall become effective at the close of business on the 20th day following
the Common Shareholders' receipt of the Indemnified Parties' notice. If
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the Common Shareholders timely object to any offset, the Indemnified
Parties and the Common Shareholders will use their reasonable best efforts
to resolve such objection. If a final resolution is not obtained within 20
days after the Indemnified Parties' receipt of the Common Shareholders'
objections, the Indemnified Parties and the Common Shareholders will submit
the matter for arbitration to a third party mutually selected by them. If
the Indemnified Parties and the Common Shareholders are unable to agree on
the choice of a third party arbitrator within 20 days after the Indemnified
Parties' receipt of the Common Shareholders' objections, the Indemnified
Parties and the Common Shareholders will apply to the American Arbitration
Association for appointment of an arbitrator and shall accept such
appointment. The arbitrator shall rule on the Common Shareholders'
objections within 60 days from submission of the matter to him, and the
Indemnified Parties and the Common Shareholders agree that the arbitrator's
decision shall be conclusive. The Indemnified Parties and the Common
Shareholders shall share equally the fees and expenses of any arbitrator
appointed under this Section 9.01(c). On the date two (2) years after
Closing, the Parent shall release from the right of offset pursuant hereto
any remaining part of the Indemnity Offset, less the amount of any Losses
for which a claim of indemnification has been made hereunder but not yet
resolved. Any remaining portion of the Indemnity Offset not released on
the date two (2) years after Closing because of pending claims for
indemnification shall be promptly released upon resolution of such claims.
Any payments of interest made on the portion of the Parent's Notes that are
subject to the Indemnity Offset shall constitute a part of such Indemnity
Offset and shall be recoverable by the indemnified parties to satisfy the
Common Shareholders' indemnification obligations hereunder. Any payment of
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principal to be made with respect to any portion of the Parent's Notes that
remain subject to the Indemnity Offset shall be held by the Parent until
the related pending claims for indemnification are resolved. The amount of
such principal held by the Parent from time to time shall bear interest
from the date such principal would otherwise have been paid to the holder
of a Parent Note to the date applied against Losses or disbursed to the
noteholder at the rate of 5.25% per annum.
(d)Pursuant to that certain Stockholders' Agreement, dated as of January
24, 1994, by and among each of the Common Shareholders (the "Shareholders
Agreement"), each of the Common Shareholders will irrevocably appointed and
constituted the Representatives to act as his or its agent and
representative for all purposes under this Article IX, with full power and
authority to act on its behalf for all purposes hereunder.
(e)Except in the case of a termination of this Agreement prior to the
Effective Time pursuant to Section 8.01 hereof, this Section 9.01 shall be
the sole and exclusive remedy, at law or in equity, of the Parent, the
Purchaser or the Lawless Group against the Shareholders with respect to
Losses that any of them may at any time suffer or incur, or become subject
to, as a result of or in connection with any breach or inaccuracy of any of
the representations or warranties made by the Company or the Shareholders
in or pursuant to this Agreement or otherwise in any way arising out of
this Agreement or the transactions contemplated by this Agreement.
Section 9.02 Survival of Representations, Warranties and Covenants. The
representations and warranties made herein by the Company and the
Shareholders shall survive Closing for the periods set forth in Section
9.01 hereof. The representations and warranties of the Parent and the
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Purchaser shall survive the Closing until the payment in full of the
Parent's Notes.
Section 9.03 Indemnity Amounts to be Computed on After-Tax Basis. The
amount of any indemnification payable under Section 9.01 hereof shall be
(i) net of any federal or state income tax benefit realized or the then-
present value (based on a discount rate of six percent) of any such income
tax benefit reasonably expected to be realized by the indemnified party by
reason of the facts and circumstances giving rise to the indemnification,
and (ii) increased by the amount of any federal or state income tax
required to be paid by the indemnified party as a result of the accrual or
receipt of the indemnification payment. For purposes of the preceding
sentence, the amount of any state income tax benefit or cost shall take
into account the federal income tax effect of such benefit or cost.
Section 9.04 Environmental Matters.
(a)Exhibit 9.04 attached hereto describes certain environmental conditions
affecting the Real Property that have been identified by Parent and
acknowledged by the Company. In accordance with Section 2.05 hereof, at
the Effective Time $600,000 of the Merger Price, in cash, shall be
segregated by the Parent and shall constitute the Environmental Escrow.
From and after the Effective Time, the Parent will cause the Company to
effect the remediation plan described in Exhibit 9.04 in the manner set
forth therein. All fees and expenses (including reasonable attorneys' fees
and expenses) incurred by the Company in connection with the remediation of
the matters described in Exhibit 9.04 will first be offset against the
Environmental Escrow. In the event that the Environmental Escrow is
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inadequate to pay all such fees and expenses, any excess shall be offset
against the Indemnity Offset (without application of the $100,000 "basket"
contained in the final proviso of Section 9.01(a) hereof). Promptly
following completion of remediation of all of the matters described in
Exhibit 9.04 hereto, any remaining balance of the Environmental Escrow
shall be disbursed to the Common Shareholders in accordance with Section
2.10 hereof. The amount of the Environmental Escrow held by the Parent
from time to time shall bear interest from the date of the Closing to the
date it is applied against remediation fees and expenses, or disbursed to
the Common Shareholders as provided herein, at the rate of 5.25% per annum.
The Common Shareholders acknowledge and agree that the operation of this
Section shall not limit the Indemnified Parties' rights to indemnification
pursuant to Section 9.01 hereof with respect to environmental conditions
other than those described in Exhibit 9.04.
(b)Notwithstanding any other provision of this Agreement, the Indemnified
Parties shall not be entitled to assert claims for indemnification under
Section 9.01 hereof with respect to Losses suffered or incurred as a result
of or in connection with the breach or inaccuracy of the representations
and warranties set forth in Section 3.27 hereof, unless:
(i) such Losses relate to the matters described in Exhibit 9.04
hereto, in which event such Losses shall be addressed in the manner
prescribed by Sections 9.04(a) and 9.01 hereof; or
(ii)the facts and circumstances giving rise to such claim for
indemnification were first identified by any Governmental Authority or
other unaffiliated third party, provided that such third party has not
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been retained by Parent or any of its affiliates to conduct
environmental testing; or
(iii) the facts and circumstances giving rise to such claim for
indemnification were first identified by an Indemnified Party in the
ordinary course of its business rather than pursuant to an
environmental testing program (for example, by way of illustration and
not limitation, facts and circumstances first identified in the course
of a building expansion or routine maintenance of the Real Property);
or
(iv) the facts and circumstances giving rise to such claim for
indemnification were first identified in the course of environmental
testing conducted pursuant to a requirement of applicable Law or at
the request of a Governmental Authority.
Section 9.05 Release of Claims. Each Common Shareholder, for himself or
itself and for his heirs and assigns or its successors and assigns, hereby
agrees that as of the Effective Time he or it shall remise, release, acquit
and forever discharge the Company and its Subsidiaries and all present or
former officers, directors and employees of the Company and its
Subsidiaries in their capacities as such, and each of them, from any and
all actions and causes of action (whether at law or in equity), losses,
damages, costs, expenses, liabilities, obligations and claims or demands of
any kind, including, without limitation, attorneys' fees and other legal
costs and expenses (collectively, "Claims"), known and unknown, foreseen
and unforeseen, whether now existing or arising at any time in the future.
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Each Common Shareholder intends, pursuant to Section 8.01-35.1 of the Code
of Virginia, that if any third party jointly liable to such Common
Shareholder with respect to any Claim has a right of contribution or
indemnification against any or all of the Company and its Subsidiaries and
any or all of their present and former officers, directors and employees
with respect thereto, then this Section shall act to release such third
party from any claim or action by such Common Shareholder or any liability
to such Common Shareholder to the same extent as the Company and its
Subsidiaries and their present and former officers, directors and
employees. Each Common Shareholder understands that this Section is
contractual and not merely a recital, and that by executing this Agreement
such Common Shareholder is giving up all of his or its rights and granting
a final and complete release with respect to all Claims as of the Effective
Time; provided, however, that this Section shall not limit the rights of
any Common Shareholder against any other Common Shareholder, in his or its
capacity as such, pursuant to the Shareholders Agreement; and provided,
further, that this Section shall not limit the rights, if any, of any
Common Shareholder to indemnification from the Company with respect to his
actions or inactions prior to the Effective Time in his capacity as an
officer, director or employee of the Company.
ARTICLE X
MISCELLANEOUS
Section 10.01 Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement among the parties with respect to the
subject matter hereof, except as provided in Section 6.07 hereof, and
supersedes all other prior agreements and understandings, both written and
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oral, between the parties or any of them with respect to the subject matter
hereof, and (b) shall not be assigned by operation of law or otherwise;
provided, that the Parent may assign its rights and obligations or those of
the Purchaser to the Parent or any direct or indirect wholly owned
subsidiary of the Parent, but no such assignment shall relieve the Parent
or the Purchaser, as the case may be, of its obligations hereunder if such
assignee does not perform such obligations.
Section 10.02 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
if to the Parent or the Purchaser:
Chesapeake Packaging Co.
2104 W. Laburnum Avenue
Richmond, Virginia 23227
Attention: Samuel J. Taylor
President
with a copy to:
Chesapeake Corporation
James Center II
1021 E. Cary Street
Richmond, Virginia 23218
Attention: J. P. Causey, Jr., Esq.
Vice President, Secretary &
General Counsel
if to the Company:
Lawless Holding Corporation
c/o Fleet Equity Partners
111 Westminster Street
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<PAGE>
Providence, Rhode Island 02903
Attention: Habib Y. Gorgi
and
Lawless Holding Corporation
51 Robinson Street
N. Tonawanda, New York 14120
Attention: Wesley Herman
Executive Vice President
with a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Attention: Richard G. Small, Esq.
if to the Shareholders:
to their respective addresses set forth on
Exhibit 1.52 attached hereto
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
Section 10.03 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
Section 10.04 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
Section 10.05 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
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Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 10.06 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 10.07 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that
the parties shall be entitled to specific performance of the terms hereof,
in addition to any other remedy at law or equity.
Section 10.08 Fees and Expenses. Except as otherwise provided in this
Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, whether or not the Merger is consummated.
Section 10.09 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
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to effectuate the original intent of the parties as closely as possible in
an acceptable manner to the end that the transactions contemplated hereby
are fulfilled to the extent possible.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf by its officers thereunto duly authorized, all
as of the day and year first above written.
LAWLESS HOLDING CORPORATION
By: /s/ Wesley Herman
Executive Vice President
CHESAPEAKE PACKAGING CO.
By: /s/ J.P. Causey Jr.
Secretary
LAWLESS ACQUISITION CO.
By: /s/ J.P. Causey Jr.
Secretary
COMMON SHAREHOLDERS:
Fleet Venture Partners II
By: /s/ Habib Y. Gorgi
General Partner
Fleet Venture Resources, Inc.
By: /s/ Habib Y. Gorgi
Executive Vice President
/s/ David M. Chapin
David M. Chapin
/s/ Wesley Herman
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Wesley Herman
/s/ Anthony Urban
Anthony Urban
/s/ Martin Elzer
Martin Elzer
/s/ Gregory Sommer
Gregory Sommer
/s/ Michael Lawless
Michael Lawless
/s/ Cecil Thompson
Cecil Thompson
/s/ James Dempsey
James Dempsey
/s/ Ronald Marchewka
Ronald Marchewka
/s/ George Pish
George Pish
/s/ Thomas Dotterweich
Thomas Dotterweich
/s/ Gene Graziotto
Gene Graziotto
/s/ Randal N. Bernick
Randal N. Bernick
/s/ Daniel Milbrand
Daniel Milbrand
/s/ Robert McAndrew
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Robert McAndrew
/s/ Charles Lawless
Charles Lawless
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<PAGE>
Exhibit 10.11
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
Employment and Severance Benefits Agreement (the "Agreement"), dated
as of November 24, 1993, between Chesapeake Paper Products Company, a
Virginia corporation (the "Company"), and Thomas Blackburn (the
"Employee").
WHEREAS, the Board of Directors recognizes that the Employee has made
and is expected to make substantial contributions to the past and future
growth and prospects of the Company; and
WHEREAS, the Board of Directors desires to assure the Company of the
continued services of the Employee now and in the event that the Company is
faced with a change in control; and
WHEREAS, the Employee desires to agree to remain in the employ of the
Company during the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements set forth herein, the parties hereto covenant and agree as
follows:
1. When used in this Agreement, the following terms shall have the
meanings specified:
(a) Cause. "Cause", when referring to a termination of
employment, shall mean any termination resulting from the Employee's
failure to devote his full business time and energies to the business and
affairs of the Company, failure to use his best efforts, skill and
abilities to promote the Company's business, aiding competitors of the
Company or conviction by a court of competent jurisdiction for a felony
involving dishonesty or moral turpitude.
(b) Change in Control. "Change in Control" shall have the same
meaning as such term is defined in the Chesapeake Corporation Long-Term
Incentive Plan.
(c) Control Change Date. "Control Change Date" shall have the same
meaning as such term is defined in the Chesapeake Corporation Long-Term
Incentive Plan.
(d) Reduction in Service. A "Reduction in Service" shall be
deemed to have occurred if the job title, job description, responsibilities
or duties assigned to the Employee are materially reduced from those
assigned to him on the date hereof.
(e) Retirement. "Retirement" shall mean early, normal or delayed
retirement under the terms of the Chesapeake Corporation Retirement Plan
for Salaried Employees.
(f) Total and Permanent Disability. "Total and Permanent
Disability" shall have the same meaning as such term is defined in the
Chesapeake Corporation Retirement Plan for Salaried Employees.
<PAGE>
2. If a Control Change Date occurs on or before 5:00 p.m. Richmond
time on September 30, 1994, then this Agreement shall continue in full
force and effect for one year following such Control Change Date. If a
Control Change Date has not occurred on or before 5:00 p.m. on September
30, 1994, then this Agreement shall terminate as of such time.
3. During the period that the Employee is an active employee of the
Company pursuant to this Agreement, the Employee agrees to (i) devote his
full business time and energies to the business and affairs of the Company,
(ii) use his best efforts, skill and abilities to promote the Company's
interests
and (iii) not aid competitors of the Company.
4. From the date of this Agreement to the earlier of a Control
Change Date or September 30, 1994, the Company will not terminate the
employment of the Employee without Cause or reduce the base salary of the
Employee from the base salary as of the date of this Agreement.
5. The Employee will be eligible to receive any awards under the
Chesapeake Corporation Officers' Incentive Program for 1993 that may be
awarded to him by Chesapeake Corporation's Executive Compensation
Committee.
6. If a Control Change Date occurs during the term of this Agreement
and the Employee is in the employ of the Company on such Control Change
Date:
(a) The Employee will be eligible to receive a lump sum bonus of
up to $120,000, less applicable withholdings. The amount of the lump sum
bonus will be determined in the sole discretion of the President & Chief
Executive Officer of Chesapeake Corporation based on his evaluation of the
Employee's performance during the period from the date of this Agreement
through the Control Change Date. This lump sum bonus shall be paid within
fifteen (15) days of the Control Change Date. This lump sum bonus will be
in lieu of any awards under the Officers' Incentive Program for 1994.
(b) If the Company does not make a contribution to the Chesapeake
Corporation Salaried Employees' Stock Purchase Plan for the Employee's
account as of the Control Change Date, the Employee shall receive a payment
equal to the amount that would have been contributed by the Company
assuming the Control Change Date was the end of the Plan Year, less
applicable withholdings.
(c) If the Employee does not continue as a participant in the
Chesapeake Corporation Retirement Plan for Salaried Employees, or in a
similar plan that recognizes his service with the Company, immediately
after the Control Change Date, the Employee shall receive a payment, less
applicable withholdings, equal to the present value of his nonvested
accrued benefit under the Plan as of the Control Change Date, as determined
by the Company.
(d) If the Employee does not continue as a participant in the
Chesapeake Corporation Executive Supplemental Retirement Plan, or in a
similar plan that recognizes his service with the Company, immediately
after the Control Change Date, the Employee shall receive a payment, less
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applicable withholdings, equal to the present value of his nonvested
accrued benefit under the Plan as of the Control Change Date, as determined
by the Company.
(e) If the Employee does not continue as a participant in the
Chesapeake Corporation 401(k) Savings Plan for Salaried Employees after the
Control Change Date, the Employee shall receive a payment, less applicable
withholdings, equal to his nonvested account balance under the Plan as of
the Control Change Date.
(f) The Company agrees that unless the Employee accepts a
relocation to another location of a successor to the Company hereunder and
qualifies for relocation assistance under the successor's relocation
policy, it will purchase the Employee's personal residence located in the
town of West Point, Virginia at the Fair Market Value as determined under
the Company's Relocation Policy, provided however, that such Fair Market
Value shall not be less than $270,000. If the Employee qualifies for
relocation assistance from such successor, the Company agrees that it will
make a payment to the Employee equal to the amount, if any, that the amount
received by the Employee from the successor for the purchase of the
Employee's residence is less than $270,000. If the Company purchases the
Employee's residence, the Employee may rent the residence from the Company
for a reasonable period.
7. If (i) a Control Change Date occurs during the term of this
Agreement, (ii) the Employee elects to terminate his employment with the
Company as of such Control Change Date and (iii) the Employee does not
accept employment with Chesapeake Corporation or one of its affiliates as
of the Control Change Date:
(a) The Employee shall receive severance payments in an amount
equal to twelve (12) months of the Employee's base salary as of the Control
Change Date unless the Employee is offered employment in a position that
does not constitute a Reduction in Service with the Company, a successor to
the Company hereunder or with Chesapeake Corporation or one of its
affiliates as of the Control Change Date. If the Employee refuses such
offer of employment, the severance payments shall equal nine (9) months of
the Employee's base salary. Further, the Employee shall receive his fixed
reimbursement under the Runzheimer Reimbursement Program during his
severance period. These severance payments and the fixed reimbursement
shall be paid, less applicable withholdings, on the normal payroll payment
dates.
(b) The Company shall provide for the continued benefit of the
Employee until the earlier of the end of the severance period or the date
he becomes entitled to participate in similar plans, programs or
arrangements provided by a subsequent employer, coverage under all life,
medical and dental benefits plans or programs in which he participates
immediately prior to his date of termination on such terms as are then in
effect, provided that his continued participation is possible under the
general terms and provisions of such plans or programs. In the event that
the Employee's participation in any such plan or program is barred by its
terms, the Company shall arrange to provide the Employee with benefits
substantially similar to those which he is entitled to receive under such
plans or programs.
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(c) The Company shall transfer ownership of the personal computer
used by the Employee at the Company to the Employee.
(d) The Company shall reimburse the Employee for reasonable long
distance telephone charges incurred by the Employee in his employment
search.
8. If a Control Change Date occurs during the term of this Agreement
and the Employee remains employed by the Company after the Control Change
Date the Company agrees that it will retain the Employee in its employ for
a period of one year after the Control Change Date unless the Employee's
employment is terminated for Cause. The Employee's base salary during this
one year period will not be reduced below his base salary as of the Control
Change Date. In the event the Employee's employment is terminated by the
Company without Cause during this one year period, or in the event the
Employee voluntarily terminates his employment due to a Reduction in
Service, the Employee will be entitled to continue to receive his base
salary on the normal payroll payment dates for the remainder of the one
year period. In addition, the Employee shall continue to be eligible to
participate in all life, medical and dental benefit plans or programs or
arrangements in which he participates immediately prior to his date of
termination on such terms as are then in effect, provided that his
continued participation is possible under the general terms and provisions
of such plans and programs. In the event that the Employee's participation
in any such plan or program is barred by its terms, the Company shall
arrange to provide the Employee with benefits substantially similar to
those which he is entitled to receive under such plans and programs. Cause
shall not include refusal to accept a transfer or relocation to another
facility or office of the Company. If the Employee voluntarily terminates
his employment (except following a Reduction in Service) during this one
year period, the Employee will not be entitled to any continuation of
compensation or benefits.
9. In the event that, as of the Control Change Date, the Employee
owns or has the right (except to the extent such right is generally
available to public investors) to acquire, in excess of one percent (1%) of
the equity of any entity participating in a Change of Control transaction
involving the Company, all obligations under this Agreement on the part of
the Company to provide employment, pay compensation or provide benefits
shall terminate.
It is the Employee's responsibility to notify the Company of his ownership
interest or his right to acquire such interest.
10. During the period of his employment by the Company, the Employee
has had access to certain confidential, non-public information concerning
the Company and Chesapeake Corporation (the "Information"). The Employee
agrees to maintain the Information as confidential and not disclose it to
third parties or to use it in his employment following the Control Change
Date. The Employee agrees that if this confidentiality obligation is
breached, the Company and/or Chesapeake Corporation shall, in addition to
other remedies available, be entitled to injunctive relief.
11. In the event of the Employee's death, Total and Permanent
Disability, or Retirement while an employee of the Company during the term
of this Agreement, the Company's obligations to provide employment, pay
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compensation or provide benefits shall cease except to the extent that such
obligations are provided for under applicable Company benefit plans as are
then in effect.
12. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure by the Company to obtain such agreement
prior to the effectiveness of any succession shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Company
in the same amount and on the same terms as he would be entitled to receive
pursuant to Sections 5, 6, 7 and 8 hereof. As used in this Agreement,
"Company" shall mean the Company as defined herein and any successor to its
business and/or assets which executes and delivers the agreement provided
for in this Section 12 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law or otherwise.
13. The Employee agrees that he will not voluntarily leave the employ
of the Company during the term of this Agreement and that he will render
services to the Company and its affiliates commensurate with his position
throughout the term of this Agreement.
14. In the event the Employee becomes eligible to receive benefits
under the Chesapeake Corporation Salaried Employees' Benefits Continuation
Plan, those benefits shall reduce the Company's obligation to pay
compensation or provide benefits under this Agreement.
15. This Agreement shall inure to the benefit of and be enforceable
by the personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees of the Employee. If
the Employee should die while any amounts are still payable to him
hereunder, then all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to his devisees,
legatees, or other designees or, if there be no such designees, to his
estate.
16. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia.
17. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf, and the Employee has duly executed this Agreement,
all as of the date first above written.
Chesapeake Paper Products Company
/s/ Thomas Blackburn By: /s/ Paul A. Dresser, Jr.
Employee Chairman
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EXHIBIT 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
for the three years ended December 31, 1993
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
1993 1992 1991
Primary:
Weighted average number of common shares
outstanding 23,393 22,585 20,513
Net additions to common shares assuming
exercise of dilutive options,
determined by treasury stock method
38 94 31
Common shares and equivalents 23,431 22,679 20,544
Income before cumulative effect of
accounting changes $10.4 $14.4 $15.4
Cumulative effect of accounting changes -
(9.7) -
Net income $10.4 $ 4.7
$15.4
Per share amount
Before cumulative effect of accounting changes $
.44 $ .63 $ .75
Cumulative effect of accounting changes -
(.46) -
Net $ .44 $ .17
$ .75
Fully diluted:
Common shares and equivalents
23,431 22,679 20,544
Net additional common shares issuable upon
exercise of dilutive options, determined
by treasury stock method using year-end
market price, if higher than average price 27 6
31
Common shares, equivalents and other
potentially dilutive securities 23,458 22,685 20,575
Income before cumulative effect of
accounting changes $ 10.4 $ 14.4 $ 15.4
Cumulative effect of accounting changes -
(9.7) -
Net income for fully diluted computation $ 10.4 $ 4.7$
15.4
Per share amount (a)
Before cumulative effect of accounting changes $ .44
<PAGE>
$ .63 $
.75
Cumulative effect of accounting changes -
(.46) -
Net $ .44 $
.17 $ .75
NOTE: (a) Dilution is less than 3%.
<PAGE>
EXHIBIT 12.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
for the three years ended December 31, 1992
(Dollar amounts in millions)
1993 1992 1991
Income before cumulative effect of accounting
changes $10.4 $14.4 $15.4
Add:
Provision for income taxes 10.3 8.1 10.7
Interest expense including amortization
of deferred loan costs 32.0 31.4 35.4
Portion of rental expense representative
of interest factor (assumed to be one-third)
4.4 4.4 4.2
Earnings, as adjusted $57.1 $58.3 $65.7
Fixed charges
Interest expense including amortization
of deferred loan costs $32.0 $31.4 $35.4
Capitalized interest .4 3.7 2.5
Portion of rental expense representative
of interest factor (assumed to be one-third)
4.4 4.4 4.2
Fixed Charges $36.8 $39.5 $42.1
Ratio 1.6 1.5 1.6
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 13.1
Portions of the
CHESAPEAKE CORPORATION
Annual Report To Stockholders
For the year ended December 31, 1993
<PAGE>
Financial Review 1991-1993
Earnings Overview
Operationally, 1993 was a good year for Chesapeake; however, poor
sales prices, especially for kraft products, resulted in lower earnings
than in either 1992 or 1991. Increases in sales volume and productivity,
combined with effective cost control and working capital management,
enabled the Company to achieve record cash flow from operations and to
reduce its long-term debt despite lower earnings. Disposal of certain
assets, which were no longer strategic, had a net positive impact on
earnings, offset in part by a charge relating to a change in deferred taxes
resulting from the new federal tax law.
1989 1990 1991 1992
1993
Graph: Sales by Business Segment 813.1 841.2 840.5 888.4
885.0
(Millions of Dollars)
(Percent)
Kraft products 46% 43% 41% 41%
39%
Tissue 24 28 31 32
32
Packaging 30 29 28 27
29
Total 100 100 100 100
100
Chesapeake's 1993 net sales were $885.0 million, 1% less than
1992's record net sales of $888.4 million and 5% higher than 1991's net
sales of $840.5 million. For the third straight year, all three of
Chesapeake's major businesses--kraft products, tissue and packaging--
achieved record shipments. Shipments were up 11% for kraft products, 4%
for tissue and 3% for packaging over last year. Competitive pricing
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<PAGE>
pressures that began for the industry in 1990 continued to confront
Chesapeake for many of its products in 1993. Overall kraft product prices
were down 13% from 1992. Prices of certain kraft products began to show
some improvement near the end of 1993 and in early 1994. Tissue prices
began to improve during the second quarter, with the first of three price
increases implemented in 1993, and were up slightly compared to the
previous year. Overall packaging prices approximated those of the previous
year. Net sales of the consumer products business declined 5% as a result
of the reorganization of that business, and net sales of building products
were down 6% from 1992 because of the conveyance of the assets of the wood
treating business to Universal Forest Products, Inc. at the beginning of
the fourth quarter. Sales of Chesapeake's land development business more
than doubled over last year's depressed levels, but remain a small part of
Chesapeake's total operations. Chesapeake continued its emphasis
on specialty products that the Company believes have less price volatility
and higher growth and profitability potential than commodity products.
During 1993, sales of these specialty products remained at approximately
60% of Chesapeake's total sales. During the last three years, low selling
prices for commodity products, such as bleached market pulp and corrugating
medium, have offset much of the benefit derived from specialty product
sales.
1989 1990 1991 1992
1993
Graph: Net Income
(Millions of Dollars)
Income before cumulative
effect of accounting
changes 47.6 16.7 15.4 14.4
10.4
Net Income 47.6 16.7 15.4 4.7
10.4
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<PAGE>
Net income for 1993 was $10.4 million, or $.44 a share, down 28%
from $14.4 million, or $.63 a share, earned in 1992 before the cumulative
effect of accounting changes, and down 32% from $15.4 million, or $.75 a
share, earned in 1991. Included in 1993 results was an after tax gain of
$3.4 million, or $.15 share, resulting from the disposal of certain assets
as part
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of the Company's plan to reduce assets which were no longer strategic.
These transactions included the conveyance of the assets of the Company's
wood treating business to Universal Forest Products, Inc.; the
consolidation of a packaging plant at West Des Moines, Iowa, with one in
Sandusky, Ohio; and the sale of approximately 19,000 acres of timberlands.
Net income for 1993 also includes a charge of $2.4 million, or $.10 share,
to reflect changes in deferred taxes resulting from the 1993 Revenue
Reconciliation Act. During 1992 Chesapeake adopted Statements of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and No. 109 "Accounting for Income Taxes",
which resulted in a net one-time, after-tax charge of $9.7 million, or $.46
a share. The one-time effect consisted of a transition obligation charge
of $11.9 million to accrue for the costs of future health benefits for
retirees and current employees after retirement, and an increase in net
income of $2.2 million from changing the method of accounting for income
taxes. These new accounting standards, which reduced net income for 1992
to $4.7 million, or $.17 a share, had no effect on cash flow or income
before the cumulative effect of accounting changes. See Notes 4, 6 and 13
to the consolidated financial statements for information regarding these
accounting changes.
1989 1990 1991 1992
1993
Graph: Income from Operations 102.5 58.9 58.5 52.2
44.0
(Millions of Dollars)
Income from operations for 1993 was $44.0 million, or $8.2
<PAGE>
million less than in 1992. Increased depreciation expense of $3.7 million
in 1993 was primarily related to the first full year of depreciation on the
4
<PAGE>
recovery boiler and related equipment completed at Chesapeake Paper
Products' West Point mill during 1992. Included in 1993's operating
expenses was approximately $2.0 million relating to the consolidation of
the Company's West Des Moines, Iowa packaging plant into its Sandusky, Ohio
facility and additional expenses related to the reorganization of the
consumer products business. Operating expenses for 1992 included
approximately $4.8 million of unusual charges related primarily to the
reorganization of the Finess consumer products business and the write-off
of some older equipment replaced by the start-up of the new recovery boiler
at Chesapeake Paper Products' West Point, Virginia mill. Also, the
shutdown of an old recovery boiler at the West Point mill before its
replacement was operational increased 1992 costs by $2.8 million during the
year. Cost of products sold increased by 1% from 1992 and represented
approximately 76% of net sales for the year. Gross profit and operating
margins were down 1% compared to the previous year. Selling, general and
administrative expenses in 1993 decreased $4.6 million, or 4%, from 1992
and remained at 12% of net sales.
1989 1990 1991 1992
1993
Graph: Interest Expense 25.9 29.4 35.4 31.4
32.0
(Millions of Dollars)
The $7.0 million increase in other income, net in 1993 resulted
primarily from the sale, in the fourth quarter, of approximately 19,000
acres of timberland holdings that were no longer strategic. The sale
produced a pre-tax gain of approximately $8 million. Interest expense for
1993, net of $.4 million of capitalized interest, was $32.0 million, while
interest expense for 1992, net of $3.7 million of capitalized interest, was
5
<PAGE>
$31.4 million. Excluding capitalized interest, interest expense in 1993
decreased $2.7 million from 1992 due to reduced debt levels and lower
interest rates.
6
<PAGE>
Income taxes for 1993 include a charge of $2.4 million, or $.10 a
share, to reflect changes in deferred taxes resulting from the 1993 Revenue
Reconciliation Act.
1989 1990 1991 1992
1993
Graph: EBIT + D
(Millions of Dollars)
Earnings before cumulative
effect of accounting
changes 104.4 58.5 61.5 53.9
52.7
Non-Cash charges for
Depreciation, Cost of
Timber Harvested and
Amortization 50.3 58.5 64.8 68.3
71.9
154.7 117.0 126.3 122.2
124.6
Liquidity and Capital Structure
Net cash provided by operating activities was a record $113.6 million
in 1993, 64% higher than the $69.2 million generated in 1992. EBIT + D, a
measure of internal cash flow combining earnings before interest, income
taxes and the cumulative effect of accounting changes plus noncash charges
for depreciation, cost of timber harvested and amortization, was $124.6
million for 1993, 2% more than 1992's $122.2 million. Compared to 1992,
working capital decreased $35.1 million to $87.1 million at year-end 1993
due to a decrease in inventories and an increase in accounts payable and
accrued expenses. The ratio of current assets to current liabilities was
1.9 at year-end 1993 compared to 1992's 2.4 and 1991's 2.1. Accounts
receivable at year-end 1993 decreased $ .9 million with the average
collection period up one day from last year. Inventories at the end of the
year decreased $25.5 million compared to 1992. Inventories of the treated
7
<PAGE>
wood business, sold to Universal Forest Products at the beginning of the
fourth quarter of 1993, were $13.5 million at year-end 1992. The remaining
decrease occurred primarily in the finished goods and work-in-process
inventories of the kraft
8
<PAGE>
products and tissue businesses. The annual inventory turnover rate
increased from 6.8 for 1992 to 7.6 for 1993. Accounts payable and accrued
expenses increased $10.5 million due to the timing of payments.
The Company is in a very capital intensive industry and generally uses
long-term debt to fund major capital expansions that cannot be funded by
internally generated funds. In 1993, increased sales volume and
productivity, combined with effective cost control, working capital
management and controlled capital spending, resulted in net cash provided
by operations exceeding capital investments by nearly $50 million. In
turn, Chesapeake was able to reduce its long-term debt by $50 million, or
13%, during 1993. In conjunction with the first quarter sale of $85
million principal amount of 7.2% debentures due March 15, 2005, the Company
entered into an interest rate swap agreement in order to increase the
portion of its debt that would bear interest at a floating rate. During
the third quarter this interest rate swap was terminated resulting in a
pre-tax gain of $1 million to Chesapeake. The gain is being recognized
over the estimated 18 month life of the swap. See Note 3 to the
consolidated financial statements for additional long-term debt
information.
1989 1990 1991 1992
1993
Graph: Capital Structure 704.4 783.7 820.8 849.6
799.7
(Millions of Dollars)
(Percent)
Long-Term Debt 43% 49% 51% 45%
42%
Deferred Taxes 13 11 10 11
12
Stockholders' Equity 44 40 39 44
9
<PAGE>
46
Total 100 100 100 100
100
10
<PAGE>
Chesapeake's total capitalization was $799.7 million at the end of
1993. The year end ratio of long-term debt to total capital decreased to
42% for 1993 compared to 45% for 1992 and 51% for 1991. Chesapeake's long-
term debt to total capital ratio target range is 35% to 45%. The year end
ratio of long-term debt to stockholders' equity was 91% for 1993, 103% for
1992 and 131% for 1991. The 1993 decrease in the ratio of long-term debt
to stockholders' equity was attributable to lower debt levels, while the
1992 decrease resulted primarily from the public offering of 2.5 million
shares of the Company's common stock.
During 1993 the Company maintained cash dividends of $.72 a
share, the same level as the previous
four years. Chesapeake's dividends paid as a percentage of net cash
provided by operating activities were 15% for 1993, 24% for 1992 and 22%
for 1991. Outstanding common shares at year end 1993 totaled 23.5 million,
up .2 million for shares issued in connection with employee benefit plans.
Outstanding shares increased 2.7 million in 1992 due to the public offering
of 2.5 million shares of the Company's common stock and the issuance of .2
million shares in connection with employee benefit plans. In the five
years prior to 1992, the number of outstanding shares of common stock
remained virtually unchanged, as purchases of shares by the Company offset
shares issued for employee benefit plans. No shares were purchased by the
Company under board of directors' stock purchase authorizations in 1993 or
1992. See Note 7 to the consolidated financial statements for capital
stock and additional paid-in capital information. Year end 1993
stockholders' equity per share was $15.65, approximating 1992 and 1991
amounts. The market price for Chesapeake's common stock ranged from $17.13
per share to $25.75 per share in 1993, with a year end market price of
11
<PAGE>
$25.50 per share.
12
<PAGE>
1989 1990 1991 1992
1993
Graph: Net Cash Provided by
Operating Activities 98.6 69.2 67.8 69.2
113.6
(Millions of Dollars)
Capital Expenditures
Expenditures for property, plant and equipment in 1993 were $64
million, 25% less than the $85 million spent in 1992. Capital spending in
1991 was $92 million. About one-third of the capital spending in 1993 was
related to the rebuild of the No. 2 paper machine and expansion of the pulp
mill and bleach plant at Chesapeake Paper Products' West Point mill. The
Company also spent $7 million completing the final phase of an expansion
program that doubled the capacity of Color-Box, Chesapeake Packaging's
consumer graphic packaging subsidiary. Other capital expenditures for
1993, none of which was individually material, focused on operational
improvements throughout the Company.
1989 1990 1991 1992 1993
Graph: Total Assets 789.7 875.9 915.5 958.9
919.3
(Millions of Dollars)
(Percent)
Goodwill & Other 8% 8% 9% 8%
9%
Current Assets 23 22 21 22
20
Property, Plant & Equipment 69 70 70 70
71
Total 100 100 100 100
100
About one-half of the capital spending in both 1992 and 1991 related
to the $100 million project at Chesapeake Paper Products' West Point mill
for a recovery boiler, evaporators and related equipment. This project was
13
<PAGE>
completed late in the third quarter of 1992 with the successful start of
the recovery boiler.
14
<PAGE>
Planned capital spending for 1994 approximates 1993 levels, with no
1994 capital project individually more than 5% of the total planned
spending. Projected capital expenditures are expected to be funded with
internally generated cash supplemented by proceeds from borrowings. See
Note 13 to the consolidated financial statements for information regarding
capital commitments.
Operating Results
Until the early 1980s, Chesapeake's products were primarily
commodities in slow growth markets. Because of strategic changes
implemented by management, approximately 60% of sales now come from
specialty products that the Company believes have less price volatility and
higher growth and profitability potential than commodity products. Low
prices of commodity products, such as bleached market pulp and corrugating
medium, have offset much of the benefit derived from specialty product
sales in the past three years.
Another strategic change is the increased use of recycled fiber.
Chesapeake is a leader among paper manufacturers in the use of recycled
fiber. During 1993 Chesapeake recycled nearly 568,000 tons of fiber. 100%
of the paper produced at Wisconsin Tissue is made from recycled fiber,
while more than 35% of Chesapeake Paper Products' raw material was recycled
fiber in 1993. This high recycled content lowers production costs,
provides marketing advantages and reduces solid waste to landfills.
1989 1990 1991 1992
1993
Graph: Capital Expenditures 139.5 128.5 92.2 85.0
63.9
(Millions of Dollars)
15
<PAGE>
16
<PAGE>
1993 vs. 1992
Kraft Products
Chesapeake Paper Products recorded a slight loss in 1993 because of
terrible pricing. Negative price variances from 1992 totaled approximately
$40 million. Overall average sales prices declined an additional 13% from
1992's already depressed levels. Prices for bleached hardwood pulp, which
dropped dramatically late in 1992, fell another 33% in 1993. Total
shipments were up 11% in 1993 to a record 798,000 tons. Productivity and
quality gains were experienced in all product categories, as the mill
achieved record good tons produced per day for the year and reduced off-
quality production by 8% compared to last year. Specialty white top
paperboard, which has higher profit margins than brown paperboard, remained
at 80% of the paperboard mix. Depreciation expense increased 15% because
of the first full year of depreciation on the recovery boiler and related
equipment, which were completed near the end of the third quarter of 1992.
Operating costs for 1992 were increased by the premature shutdown of an old
recovery boiler prior to the start of the new boiler and by the write-off
of the old recovery boiler and related equipment.
Chesapeake Building Products was formed in 1993 with the merger of
Chesapeake Forest Products' lumber division and Chesapeake Wood Treating
Co. Results of the lumber division improved significantly in 1993 as sales
volume and prices increased 6% and 27%, respectively, from the prior year.
Substantially all of the assets of the wood treating business were conveyed
to Universal Forest Products at the beginning of the fourth quarter. Net
<PAGE>
sales of the wood treating business were approximately $16 million in the
fourth quarter of 1992. The Company recorded charges of $1.3 million in
1993
17
<PAGE>
and $1.0 million in 1992 related to the conveyance. The combined earnings
in 1993 and 1992 of normal operations of this business nearly offset these
charges.
Tissue
Wisconsin Tissue's EBIT for 1993 improved 6% over 1992 and was just
below 1991's record results. Sales prices, which eroded in 1992, began to
recover in the second quarter of 1993 when the first of three 1993 price
increases was implemented, and for the year averaged slightly higher than
in 1992. Even with the increases achieved during the year, average sales
prices remain below levels experienced in the late 1980s. Shipments were a
record 220,000 tons in 1993, up 4% from 1992. Secondary fiber costs
increased during 1993 resulting in slightly lower margins. Paper machine
operating rates averaged at or above 100% for all four paper machines.
The reorganized Chesapeake Consumer Products business reduced its loss
in 1993 by $2.9 million, or 52%, from 1992. Net sales declined 5% from the
previous year, because of the reorganization of the Finess portion of this
business. Operating expenses increased due to additional costs related to
the reorganization of the business.
1989 1990 1991 1992
1993
Graph: Dividends Declared Per Share .72 .72 .72 .72
.72
(Dollars)
Packaging
Chesapeake Packaging's EBIT for 1993 increased 15% from 1992, as
results improved for two of its three businesses. Average sales prices
approximated 1992 levels, while total shipments were a record 3,725 million
square feet, an increase of 3% from 1992 shipments. Shipments of
18
<PAGE>
corrugated shipping containers increased 1%, while shipments of point-of-
sale displays decreased
19
<PAGE>
2%. Shipments of consumer graphic packaging increased 25% as a result of
the completion of the final phase of a capital expansion program that
doubled the capacity of the Color-Box facility. Additional growth is
anticipated in graphic packaging and corrugated shipping containers with
the January 24, 1994 acquisition of Lawless Holding Corporation by
Chesapeake Packaging. Operating expenses were increased in 1993 by the
consolidation of the West Des Moines, Iowa packaging facility into the
Sandusky, Ohio facility.
1989 1990 1991 1992
1993
Graph: Earnings Per Share:
(Dollars)
Earnings before cumulative
effect of accounting
changes 2.31 .81 .75 .63
.44
Earnings 2.31 .81 .75 .17
.44
1992 vs. 1991
Chesapeake achieved record net sales in 1992 of $888.4 million, 6%
higher than 1991's $840.5 million. For the second straight year, all three
of Chesapeake's major businesses - kraft products, tissue and packaging -
achieved record shipments. Shipments were up 2% for kraft products, 11%
for tissue and 6% for packaging from 1991. Despite the improvement in
sales volume, continued pricing pressures prevented any earnings
improvement. The combined decline in prices from 1991 in our kraft and
tissue businesses was $10 million. Net sales of consumer products grew 11%
and net sales of treated wood products were up 22% from 1991. The real
<PAGE>
estate business remained depressed, with sales approximating 1991 levels.
Chesapeake's shift to specialty products continued in 1992, as sales of
20
<PAGE>
these products increased 8% over 1991 and represented approximately 60% of
Chesapeake's total sales. Income for 1992, before the cumulative
effect of accounting changes, was $14.4 million, or $.63 a share, down 6%
from $15.4 million, or $.75 a share,
21
<PAGE>
earned in 1991. New accounting standards, adopted in 1992, reduced net
income for 1992 by $9.7 million, or $.46 a share, to $4.7 million, or $.17
a share, but had no effect on cash flow or income before the cumulative
effect of accounting changes.
1989 1990 1991 1992
1993
Graph: Return on Common
Stockholders'Equity* 17.0% 5.3% 4.9% 4.5%
2.8%
*Before cumulative effect of
accounting changes - 1992
(Percent)
Income from operations for 1992 was $52.2 million, or $6.3 million
less than in 1991. Included in 1992's operating expenses was approximately
$4.8 million of unusual charges related primarily to the reorganization of
the Finess consumer products business and the write-off of some older
equipment replaced by the start of a new recovery boiler at Chesapeake
Paper Products' West Point mill. The shutdown of an old recovery boiler at
the West Point mill before its replacement was operational increased costs
by $2.8 million during 1992. Cost of products sold increased by 7% from
1991 primarily as a result of the increase in sales and represented
approximately 75% of net sales for the year. Increased depreciation
expense of $4.4 million in 1992 was primarily related to the new recovery
boiler and related equipment. Despite these additional costs, gross profit
and operating margins declined only 1% from the previous year. Selling,
general and administrative expenses increased $3.6 million, or 3%, from
1991, but remained at 12% of net sales. Despite the difficult economic
times of 1992, bad debt expense declined to $1.7 million, compared to $3.4
22
<PAGE>
million in the previous year.
The $1.3 million decrease in other income, net in 1992 was due in part
to accrued costs associated with the anticipated sale of the Company's wood
23
<PAGE>
treating business. Interest expense for 1992, net of $3.7 million of
capitalized interest, was $31.4 million, while interest expense for 1991,
net of $2.5 million of capitalized interest, was $35.4 million. Excluding
capitalized interest, interest expense decreased $2.8 million due to lower
debt levels and lower interest rates.
Kraft Products
Chesapeake Paper Products' EBIT for 1992 was slightly over that of
1991 as a result of higher volumes and a modest increase of 1% in overall
average sales prices. Kraft shipments were a record 721,000 tons, an
increase of 2% from 1991. Shipments of specialty white top paperboard
exceeded 80% of the paperboard mix, as shipments of white top paperboard
increased 20% to 285,000 tons. Prices for bleached hardwood pulp dropped
dramatically during the latter part of the fourth quarter. Slow market
conditions near the end of the year and record production for 1992 caused
finished goods inventory levels to increase substantially late in the year.
About $2.8 million of additional operating costs were incurred due to the
temporary reduction of chemical recovery capabilities resulting from the
premature shutdown of an old recovery boiler prior to the start of a new
recovery boiler. Operating costs also increased due to write-offs of some
older equipment replaced by the new boiler late in the third quarter.
Depreciation expense increased 10% because of the new recovery boiler and
related equipment.
Results of the wood treating business in 1992 improved over 1991, as
shipments and average selling prices increased 6% and 1%, respectively.
The results of Chesapeake Forest Products' lumber division, a small part of
Chesapeake's total operations, showed significant improvement in 1992, as
24
<PAGE>
both sales volumes and sales prices increased significantly.
25
<PAGE>
Tissue
Wisconsin Tissue's EBIT for 1992 was only 9% less than 1991's record
results despite severe pricing pressures throughout most of the year. The
average sales prices for tissue products dropped 5% to approximately 1984
levels, as industry operating rates averaged less than 90% for the year.
Shipments, however, were a record 211,000 tons, up 11% from 1991. Paper
machine operating rates averaged near 100% for the year and direct costs
continued to be tightly controlled.
Chesapeake Consumer Products continued to show improvement in sales
and overall performance during 1992. Compared to 1991, sales increased 11%
and operating losses were reduced 20%, or $1.3 million. The Appleton
portion of the business that lost more than $12 million in 1990 turned
profitable for the year, but the Finess portion continued to be
unprofitable. Costs increased during the fourth quarter due to charges
related to the reorganization of the Finess portion of the business.
Packaging
Overall EBIT for Chesapeake Packaging declined approximately 25% in
1992, as results of its businesses were mixed. Corrugated shipping
container sales volume increased 10% and consumer graphic packaging gained
5%. Shipments of point-of-sale displays declined 5% due to changes in
promotional spending of large consumer products companies and increased
competitiveness. Overall average selling prices were unchanged from 1991.
A permanent display division was formed during 1992 in order to offer
customers a full-service merchandising program.
26
<PAGE>
Other
More information about Chesapeake's businesses is provided under the
caption "Business Segment Highlights" and in Note 14 to the consolidated
financial statements.
Environmental
Chesapeake has a strong commitment to protecting the environment. The
Company has an environmental audit program to monitor compliance with
environmental laws and regulations. The Company is committed to abiding by
the environmental, health and safety principles of the American Forest and
Paper Association. Each expansion project has been planned to comply with
applicable environmental regulations and to enhance environmental
protection at existing facilities. The Company faces increasing capital
expenditures and operating costs to comply with expanding and more
stringent environmental regulations, although compliance with existing
environmental regulations is not expected to have a materially adverse
effect on the Company's earnings, financial position or competitive
position. See Note 13 to the consolidated financial statements for further
capital spending information relating to environmental compliance.
Chesapeake operates under, and believes that it is in substantial
compliance with, the terms of various air emission and water and effluent
discharge permits and other environmental regulations.
27
<PAGE>
1989 1990 1991
1992 1993
Graph: Stockholders' Equity Per
Share 15.28 15.36 15.43 15.88
15.65
(Dollars)
Common Stock Price Range
Low 17.88 12.75 13.25 18.25
17.13
High 24.13 21.50 24.00 29.13
25.75
(Dollars)
28
<PAGE>
BUSINESS SEGMENT HIGHLIGHTS*
1993
1992 1991
(Dollar amounts in millions)
Net sales:
Kraft products $343.5 39% $365.8 41%
$339.1 41% Tissue 283.5
32 276.2 32 260.5 31
Packaging 252.7 29 243.8 27
238.2 28
Corporate 5.3 - 2.6 -
2.7 -
$885.0 100% $888.4 100%
$840.5 100%
Operating income:
Kraft products $12.5 20% $23.8 36%
$21.5 30%
Tissue 31.1 51 26.3 40
28.2 40
Packaging 17.6 29 15.5 24
21.3 30
61.2 100% 65.6 100%
71.0 100%
Corporate (8.5) (11.7)
(9.5)
Income before interest, taxes
and cumulative effect of
accounting changes $52.7 $53.9
$61.5
*1992 and 1991 results have been restated to conform with the current year
presentation. See Note 14 to consolidated financial statements for further
information regarding business segments.
29
<PAGE>
RECENT QUARTERLY RESULTS
Per Share
Income (loss) Earnings (loss)
Before Before
Cumulative Cumulative
Effect of Net Effect of
Net Gross Accounting Income
Accounting
Earnings
Dividends
Stock Price
Quarter Sales Profit Changes (loss)
Changes
(loss)
Declared High
Low
(Dollars in millions except per share amounts)
1991:
First $198.4 $ 38.7 $ 2.4 $ 2.4 $ .12
$ .12
$ .18 $17.25 $13.25
Second 218.9 39.1 2.4 2.4
.12 .12 .18 21.63 16.13
Third 219.4 41.2 4.9 4.9 .23
.23
.18 21.50 18.25
Fourth 203.8 42.6 5.7 5.7 .28
.28
.18 24.00 19.00
Totals $840.5 $161.6 $15.4 $15.4 $
.75$ .75
$ .72
1992:
First $210.1 $ 37.1 $ 2.3 $(7.4) $ .11
$(.35)
$ .18 $29.13 $23.00
Second 229.3 40.6 4.3 4.3 .19
.19
.18 25.38 21.88
Third 236.2 44.1 6.5 6.5 .28
.28
.18 25.25 19.38
Fourth 212.8 37.1 1.3 1.3 .05
.05
.18 23.25 18.25
30
<PAGE>
Totals $888.4 $158.9 $14.4 $ 4.7 $
.63 $ .17
$ .72
1993:
First $209.3 $ 32.4 $ (.8) $ (.8) $(.03)
$(.03)
$ .18 $23.13 $19.00
Second 236.4 35.7 1.3 1.3 .05
.05
.18 21.50 17.63
Third 238.3 41.0 2.6 2.6 .11
.11
.18 20.63 17.13
Fourth 201.0 37.0 7.3 7.3 .31
.31
.18 25.75 19.63
Totals $885.0 $146.1 $10.4 $10.4 $
.44$ .44
$ .72
31
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Chesapeake Corporation is responsible for the preparation, integrity and
fair
presentation of its published financial statements. The financial
statements
have been prepared in accordance with generally accepted accounting
principles
and, as such, include, where necessary, amounts based on judgments and
estimates
made by management.
To fulfill its responsibilities, Chesapeake maintains and continues to
refine a
system of internal accounting controls, policies and procedures to
provide
reasonable assurance that the Company's assets are safeguarded,
transactions are
executed in accordance with proper management authorization, and the
financial
records are reliable for the preparation of financial statements. This
system
of internal controls, policies and procedures is evaluated regularly
by the
Company's internal audit staff to confirm that it is adequate and is
operating
effectively.
As indicated in the report of independent accountants, Coopers &
Lybrand
performs an annual audit of Chesapeake's consolidated financial statements
for
the purpose of determining that the statements are presented fairly,
in all
material respects, in conformity with generally accepted accounting
principles.
<PAGE>
The independent accountants are appointed annually by Chesapeake's
board of
directors based upon a recommendation by the audit committee, and
the
appointment is ratified by Chesapeake's stockholders.
The audit committee of the board of directors, composed of outside
directors,
meets periodically with the Company's management, internal auditors
and
independent accountants to review internal accounting controls and
financial
reporting practices and the nature, extent and results of audit efforts.
The
independent accountants and the internal auditors have direct and
independent
access to the audit committee.
/s/Andrew J. Kohut
Andrew J. Kohut
Vice President Finance &
Chief Financial Officer
January 25, 1994
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Chesapeake Corporation:
We have audited the accompanying consolidated balance sheet of
Chesapeake
Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related
consolidated statements of income and retained earnings and cash flows for
each
of the three years in the period ended December 31, 1993. These
financial
statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements
based on
our audits.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of
material
misstatement. An audit includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the financial statements. An audit also
includes
assessing the accounting principles used and significant estimates
made by
management, as well as evaluating the overall financial statement
presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Chesapeake Corporation and subsidiaries as of December
31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting
principles.
<PAGE>
As discussed in notes 4, 6 and 13 to the consolidated financial statements,
the Company changed its methods of accounting for postretirement benef
its other than pensions and accounting for income taxes in 1992.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Richmond, Virginia
January 25, 1994
34
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
1993 1992
(In millions)
ASSETS
Current assets:
Cash $ .7 $ .7
Accounts receivable 87.5 88.4
Inventories 79.7 105.2
Deferred income taxes 12.2 12.4
Other 6.1 5.2
Total current assets 186.2 211.9
Property, plant and equipment:
Plant sites and buildings 140.8 134.3
Machinery and equipment 999.4 984.9
Construction in progress 19.3 14.8
1,159.5 1,134.0
Less accumulated depreciation 545.5 507.1
614.0 626.9
Timber and timberlands 39.8 41.4
Net property, plant and equipment 653.8 668.3
Other assets 79.3 78.7
$ 919.3 $ 958.9
35
<PAGE>
December 31,
1993 1992
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 90.5 $ 80.0
Current maturities of long-term debt 1.5 4.3
Dividends payable 4.2 4.2
Income taxes payable 2.9 1.2
Total current liabilities 99.1 89.7
Long-term debt 333.1 382.8
Postretirement benefits other than pensions 20.5 19.6
Deferred income taxes 98.6 96.4
Stockholders' equity:
Common stock, $1 par value;
authorized, 60 million shares;
outstanding, 23.5 million and
23.3 million shares 23.5 23.3
Additional paid-in capital 102.6 98.8
Retained earnings 241.9 248.3
368.0 370.4
$919.3 $958.9
The accompanying Notes to Consolidated Financial Statements are part of
the financial statements.
36
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For the years ended December 31,
1993 1992 1991
(In millions except per share data)
Income:
Net sales $885.0 $888.4 $840.5
Costs and expenses:
Cost of products sold 668.7
663.0 616.8
Depreciation and cost of timber
harvested 70.2 66.5 62.1
Selling, general and administrative
expenses 102.1 106.7 103.1
Income from operations
44.0 52.2 58.5
Other income, net 8.7 1.7 3.0
Income before interest, taxes and
cumulative
effect of accounting changes
52.7 53.9 61.5
Interest expense (32.0) (31.4) (35.4)
Income before taxes and cumulative
effect of
accounting changes 20.7 22.5 26.1
Income taxes 10.3 8.1 10.7
Income before cumulative effect of
accounting
changes 10.4
14.4 15.4
Cumulative effect of accounting changes -
(9.7) -
Net income $ 10.4 $ 4.7 $
15.4
Per share:
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Earnings before cumulative effect of
accounting changes $ .44 $.63 $ .75
Cumulative effect of accounting
changes - (.46) -
Earnings $ .44 $ .17 $.75
Retained earnings:
Balance, beginning of year $248.3 $260.3 $259.7
Net income 10.4 4.7 15.4
Cash dividends declared, $.72 per share each year (16.8)
(16.7) (14.8)
Balance, end of year
$241.9 $248.3 $260.3
The accompanying Notes to Consolidated Financial Statements are part of the
financial statements.
38
<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31,
1993 1992 1991
(In millions)
Operating activities:
Net income $ 10.4 $ 4.7 $ 15.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, cost of timber harvested
and amortization of intangibles 72.4 68.6
65.2
Deferred income taxes 2.4 (2.5) (2.4)
Cumulative effect of accounting changes -
9.7 -
(Gains) losses on sales of property, plant and equipment (9.4)
( .4) .2
(Gains) losses on sales of businesses 1.3 1.0
(1.3)
Changes in operating assets and liabilities, net
of acquisitions and dispositions:
Accounts receivable .9 (4.4) (1.0)
Inventories 25.5 2.0 (12.4)
Other assets (3.0) (4.3) (1.6)
Accounts payable and accrued expenses 10.5 (3.5)
6.5
Income taxes payable 1.7 (2.2) ( .8)
Other payables .9 .5 -
Net cash provided by operating activities 113.6 69.2 67.8
Investing activities:
Purchases of property, plant and equipment (63.9) (84.7) (90.0)
Acquisitions - - (1.1)
Proceeds from sales of property, plant and equipment 15.9 1.5
4.4
Other (.3) ( .2) (2.5)
Net cash used in investing activities (48.3) (83.4) (89.2)
Financing activities:
Proceeds from long-term debt 82.1 .2 109.3
Payments on long-term debt (80.3) (36.8) (10.5)
Net borrowings (payments) on credit lines (54.3) 2.7
(63.3)
Proceeds from issuances of common stock 3.7 63.7 .6
Dividends paid (16.8) (16.3) (14.8)
Other .3 .4 .3
Net cash provided by financing activities (65.3) 13.9 21.6
<PAGE>
Increase (decrease) in cash .0 ( .3) .2
Cash at beginning of year .7 1.0 .8
39
<PAGE>
Cash at end of year $ .7 $ .7 $ 1.0
Supplemental cash flow information:
Interest payments $ 32.7 $ 35.2 $ 37.5
Income tax payments, net of refunds $ 3.7 $ 13.9 $ 14.3
The accompanying Notes to Consolidated Financial Statements are part of the
financial statements.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Principles of Consolidation: The consolidated financial
statements include the accounts and operations of Chesapeake
Corporation and subsidiaries (the "Company"). All significant
intercompany accounts and transactions are eliminated.
b. Inventories: Inventories are valued at the lower of cost
or market. The cost of certain product and manufacturing materials
inventories is determined by the last-in, first-out (LIFO) method. The cost
of other inventories is determined principally by the average cost method.
c. Property, Plant and Equipment: Property, plant and
equipment, except timber and timberlands, are stated at cost. Timber and
timberlands are stated at cost net of the accumulated cost of timber
harvested.
The costs of major rebuilds and replacements of plant and equipment
are
capitalized, and the costs of ordinary maintenance and repairs are
charged to
income as incurred. When properties are sold or retired, their costs
and the
related accumulated depreciation are removed from the accounts, and the
gains or
losses are reflected in income.
d. Depreciation: Depreciation for financial reporting
purposes is computed principally by the straight-line method, based on the
estimated useful lives of the assets. Depreciation rates vary according
to the
class of equipment or buildings and average 6% for equipment and 4% for
buildings.
e. Cost of Timber Harvested: Cost of timber harvested is
41
<PAGE>
computed on quantities cut from individual Company-owned tracts based on
costs and estimated volumes of recoverable timber.
f. Income Taxes: The Company defers to future periods the
income tax effects resulting from temporary differences (principally
depreciation) between financial and taxable income.
g. Earnings Per Share: Earnings per share are based on the
weighted average number of outstanding common shares and equivalents
(23,431,411
in 1993, 22,679,425 in 1992 and 20,543,658 in 1991).
42
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, continued
h. Other: Goodwill, the cost in excess of estimated fair
value of identifiable assets of acquired businesses (net of $10.1 million
and
$9.1 million accumulated amortization at year-end 1993 and 1992,
respectively),
is being amortized on a straight-line basis. Specifically identifiable
purchased intangible assets (net of $3.9 million and $3.2 million
accumulated
amortization at year-end 1993 and 1992, respectively) are being
amortized
according to estimated economic lives. Amortization periods are limited
to 40
years or less. Research and development costs, not significant in
amount, are
charged to operations as incurred.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Inventories
Year-end inventories consist of:
1993 1992 1991
(In millions)
Finished goods and work in process $49.3 $70.6 $ 64.8
Materials and supplies 30.4 34.6 42.4
Totals $79.7 $105.2 $107.2
Inventories determined by the LIFO method, included in the above,
totaled (in millions) $15.8 for 1993, $22.9 for 1992 and $18.9 for
1991, or
$4.5, $5.6 and $5.2 less than the respective amounts of such inventories
stated
at current costs. The amount of work in process inventories is
insignificant in
relation to total inventories.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Long-Term Debt
Long-term debt at year-end consists of:
1993 1992
(In millions)
Notes payable - banks (unsecured):
Credit lines, interest
1993 3.40%, 1992 3.43% to 3.85% $ 3.1 $57.4
Term loan, interest 3.77% to 3.83%, due 1996-2003
40.0 50.0
8.85% term loan - 12.0
Unsecured notes:
11.75% notes, due 1995 50.0 50.0
9.375% notes, due 1996 - 50.0
10.375% notes, due 2000 55.0 55.0
9.875% notes, due 2003 60.0 60.0
7.20% notes, due 2005 85.0 -
Industrial development authority obligations:
9% note, due 1994 10.5 10.5
10% to 10.125% notes, due 2004-2009 20.8 20.8
6.375% to 6.875% notes, due 1994-2003 6.2 9.7
65% of prime rate notes, due 1994-1999 3.2 3.8
Other debt, interest 4.0% to 10.25%, due 1994-2005 .8 7.9
Totals 334.6 387.1
Less current maturities 1.5 4.3
$333.1 $382.8
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Long-Term Debt, continued
Principal payments on long-term debt
(excluding renewable credit lines and $10.5 million note) for the next
five
years are (in millions): 1994 $1.5; 1995 $51.0; 1996 $5.1; 1997 $6.5; and
1998
$5.5. Because of the availability of long-term financing under the terms
of the
committed credit lines, the $10.5 million note and the borrowings
under
uncommitted credit lines have been classified as long-term debt.
The Company maintains two-year renewable credit lines with several
banks under which it can borrow up to $75 million at the prime rate or
lower. Nominal commitment fees are paid on the
unused amount. Other lines of credit totaling $75 million are maintained
with
several banks on an uncommitted basis.
During the first quarter of 1993 the Company issued $85 million
principal amount of 7.2% debentures due March 15, 2005. The net
proceeds from the sale of these debentures were used to redeem at
par the $50 million outstanding principal balance of the Company's 9.375%
notes
due March 15, 1996, to reduce outstanding bank credit line borrowings
and for
general corporate purposes.
Certain loan agreements include provisions permitting the
holder of the debt to require the Company to repurchase all or a
portion of such debt outstanding upon the occurrence of
specified events involving a change of control or ownership. In
addition, various loan agreements contain provisions that restrict the
disposition of certain assets, require the Company to maintain a ratio of
long-term debt to
46
<PAGE>
total capital not in excess of 60% and to meet an annual cash flow test.
The Company is required to maintain adjusted stockholders' equity of at
least $310 million and a consolidated current ratio of at least 1.5 under
the provisions of certain loan agreements. Under the most restrictive
covenant, the Company had approximately $70.1 million of retained
earnings available for dividends as of December 31, 1993.
Interest expense is net of capitalized interest of $.4 million, $3.7
million and $2.5 million for 1993, 1992 and 1991,
respectively.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Long-Term Debt, continued
In accordance with Statement of Financial Accounting Standards
No. 107 "Disclosure about Fair Value of Financial
Instruments," the Company has estimated the fair value of long-term
debt for 1993 to be $365.6 million, or 10% higher than the book value of
$333.1
million.
The fair value is based on the quoted market prices for similar
issues or current rates offered for debt of the same or similar
maturities.
The difference between fair and book values is due to the decline of
interest rates during the past few years. The Company believes that
its long-term debt was financed at the most favorable rates available
at the dates borrowed.
The carrying amounts of trade receivables and trade payables approximate
fair value because of the short maturity of the instruments.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Income Taxes
In 1992, the Company elected early adoption of the
liability method of accounting for deferred income taxes
pursuant to Statement of Financial Accounting Standards No. 109. As a
result,
first quarter 1992 earnings were restated for an accounting change
that
increased net income $2.2 million, or $.11 per share.
The provision for income taxes consists of:
1993 1992 1991
(In millions)
Currently payable:
Federal $ 7.2 $10.9 $11.8
State .7 (.3) 1.3
Total current 7.9 10.6 13.1
Deferred:
Federal 2.2 (3.0) (2.2)
State .2 .5 (.2)
Total deferred 2.4 (2.5) (2.4)
Total income taxes $10.3 $ 8.1 $10.7
Deferred income taxes result from temporary differences in
the recognition ofincome and expenses for income tax and financial
statement purposes. Significant components of the year end
deferred income tax assets and liabilities are:
1993 1992
(In millions)
Postretirement medical benefits $ 7.9 $ 7.3
Alternative minimum tax credit 21.2 15.1
Other 14.2 13.4
Deferred tax assets 43.3 35.8
Accumulated depreciation (117.1) (110.1)
Pension accrual (7.8) (6.7)
Other (4.8) (3.0)
Deferred tax liabilities (129.7) (119.8)
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<PAGE>
Net deferred taxes $(86.4) $(84.0)
Classified in balance sheet as
Current assets $ 12.2 $ 12.4
Long term liabilities (98.6) (96.4)
Net deferred taxes $(86.4) $(84.0)
50
<PAGE>
The 1991 deferred tax provision totaled $(2.4) million and was
composed of accelerated depreciation $(2.4) million; pension expense $.5
million; inventory valuation $.4 million; facility shutdown $.4 million;
and other $(1.3) million.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Income Taxes, continued
The differences between the Company's effective income tax rate
and the statutory federal income tax rate are:
1993 1992 1991
Federal income tax rate 35.0%
34.0% 34.0%
State income tax, net of federal
income tax benefit 2.6 .5 2.9
Purchase accounting adjustments 1.8 1.6 7.5
Effect on deferred taxes of tax rate increase 11.7 - -
Other, net (1.5) - (3.4)
Consolidated effective income tax rate 49.6% 36.1% 41.0%
Income tax expense for 1993 includes a charge of $2.4 million,
or$.10 a share, to reflect changes in deferred taxes
resulting from the 1993 Revenue Reconciliation Act.
52
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Employee Retirement Plans
The Company maintains several noncontributory defined benefit retirement
plans
covering substantially all employees. Pension benefits are based
primarily on
the employees' compensation and/or years of service. Annual pension
costs are
actuarially determined, and the plans are funded with sufficient assets to
meet
future benefit payment and regulatory requirements. The net periodic
pension
cost includes amortization of prior service costs over periods of the
greater of
15 years or the average remaining employee service period.
Assumptions used in determining the net pension credit (based upon
beginning of
the year assumptions) for 1993, 1992 and 1991 and related pension
obligations
(based upon year end assumptions) as of October 1 were:
1993 1992 1991
Discount rate 7 1/2% 8 1/2% 8 3/4%
Increase in future compensation levels 5 5 1/4 5 1/2
Long-term rate of return on assets 9 1/2 9 1/2 9 1/4
53
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5.Employee Retirement Plans, continued
The following table, based on actuarial valuations as of October 1,
1993 and 1992, sets forth the plans' funded status and amounts recognized
in the Company's consolidated financial statements for 1993 and 1992:
1993 1992
(In millions)
Accumulated benefit obligation:
Vested benefits $ 63.0 $ 49.3
Nonvested benefits 8.6 6.3
Totals 71.6 55.6
Effect of projected future salary increases 20.6 16.8
Projected benefit obligation for service rendered to date
92.2 72.4
Plan assets at fair value, primarily corporate equity and
debt securities 119.3 108.1
Plan assets in excess of projected benefit obligation 27.1
35.7
Unrecognized net (gain) loss from past experience different from
that assumed and effects of changes in assumptions 3.1 (4.3)
Unrecognized net (asset) at beginning of plan year being
amortized principally over 17 years (13.4) (14.8)
Prepaid pension cost recognized in Other assets $ 16.8 $
16.6
The components of the net pension credit for 1993, 1992 and
1991 are as follows:
1993 1992 1991
(In millions)
Service cost - benefits earned during the period $ 3.5 $ 3.0 $ 2.7
Interest cost on projected benefit obligation 6.1 4.8 4.2
54
<PAGE>
Actual (return) loss on plan assets (13.3) (19.3) (17.9)
Net amortization and deferral 1.9 9.7 9.9
Net pension credit $(1.8) $(1.8) $(1.1)
55
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Postretirement Benefits Other Than Pensions
The Company provides certain health care and life insurance benefits to
certain hourly and salaried employees who retire under the provisions of
the Company's retirement plans. The Company does not pre-fund these
benefits.
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), which requires recognition of the liability for
these benefits during the period employees render service rather than the
Company's previous practice of recognizing these costs as claims were
paid. The Company elected to recognize immediately, as an accounting
change, the accumulated liability measured as of January 1, 1992.
First quarter 1992 results were restated for a one-time pre-tax charge of
$19.1 million ($11.9 million, or $ .57 per share, net of taxes). The
adoption of SFAS 106 decreased 1992 income before taxes and
cumulative effect of accounting changes by approximately $.5 million.
Postretirement benefits expense was $2.3 million in 1993, $2.2 million in
1992 and $1.3 million in 1991. The components of expense in 1993 and
1992 were as follows:
1993 1992
(In millions)
Service cost-benefits earned during the period $ .6 $ .6
Interest cost on accumulated postretirement benefit obligation 1.7 1.6
Net postretirement benefit cost $ 2.3 $ 2.2
The following table sets forth the accumulated postretirement benefit
obligation
recognized in the Company's consolidated balance sheet as of December 31,
1993 and 1992.
56
<PAGE>
1993 1992
(In millions)
Retirees $15.6 $13.4
Fully eligible active plan participants 5.2 4.1
Other active plan participants 4.1 3.3
Accumulated postretirement benefit obligation 24.9 20.8
Unrecognized net loss (4.4) (1.2)
Accrued postretirement benefit
obligation $20.5 $19.6
57
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6.Postretirement Benefits Other Than Pensions, continued
The assumed health care cost trend rate used in measuring future benefit
costs was 14% in 1992 and 13% in 1993, gradually declining to 5.5%
by 2003 and remaining at that level thereafter. A 1% increase in this
annual trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1993 by $1.7 million and the 1993
postretirement benefit expense by $.2 million.
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1993 and 8.5% in 1992 and
the assumed rate of increase in future compensation levels was 5% in 1993
and 5.5% in 1992.
The Company will continue to manage and control postretirement
benefits, and pay benefits as incurred.
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Capital Stock and Additional Paid-In Capital
Changes in common stock and additional paid-in capital during 1991,
1992, and 1993 are:
Common Stock Additional
Aggregate Paid-In
Shares
Par Value Capital
(Dollar amounts in millions)
Balances, January 1, 1991 20,435,826 $20.4 $ 33.7
Issuances of shares:
Employee stock plans 199,309 .2 3.5
Other - - .3
Balances, December 31, 1991 20,635,135 20.6 37.5
Issuances of shares:
Public offering 2,500,000 2.5 57.0
Employee stock plans 194,397 .2 4.0
Other - - .3
Balances, December 31, 1992 23,329,532 23.3 98.8
Issuances of shares:
Employee stock plans 184,846 .2 3.5
Other - - .3
Balances, December 31, 1993 23,514,378 $23.5 $102.6
59
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Capital Stock and Additional Paid-In Capital, continued
In addition to its common stock, the Company's authorized
capital includes 500,000 shares of preferred stock ($100
par), of which 100,000 shares are designated as Series A Junior
Participating Preferred Stock ("Series A Preferred"). None was
outstanding during the three years ended December 31, 1993.
On April 1, 1992, the Company sold 2.5 million shares of its common
stock in an underwritten public offering at $25.00 per share. The net
proceeds from the sale, after underwriting discounts and
expenses payable by the Company, were approximately $59.5 million, and were
used to repay at maturity a $25 million, 11.5% note due August 1, 1992,
to reduce amounts outstanding under the Company's committed and
uncommitted bank lines of credit and for general corporate purposes.
Each outstanding share of the Company's common stock has attached
to it one preferred share purchase right,
which entitles the shareholder to buy one unit (one one-thousandth of a
share) of Series A Preferred at an exercise price of $70 a
share, subject to adjustment. The rights will become exercisable only
if a person or group acquires or announces a tender offer for 20%
or more of Chesapeake's common stock. When exercisable, Chesapeake
may issue a share of common stock in exchange for each right other
than those held by such person or group. If a person or group
acquires 30% or more of the common stock, each right will
entitle the holder, other than the acquiring party, upon payment of the
exercise
price, to acquire Series A Preferred or, at the option of Chesapeake,
common stock, having a value equal to twice the right's purchase price.
If Chesapeake is acquired in a merger or other business combination or if
50% of its earnings
60
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power is sold, each right will entitle the holder, other than
the acquiring person, to purchase securities of the surviving Company
having a market value equal to twice the exercise price of the rights.
The rights will expire on March 15, 1998, and may be redeemed by the
Company at any time prior to the tenth day after an announcement that
a 20% position has been acquired, unless such period has been extended by
the board of directors.
61
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Options
The 1993 Incentive Plan provides that the executive compensation
committee of the board of directors or its delegate may grant stock opt
ions, stock appreciation rights ("SARs"), stock awards,
performance shares or stock units and may make incentive awards to the
Company's key employees and officers. The maximum aggregate number of
shares of common
stock that may be issued under the plan is the sum of 1% of the
outstanding shares of common stock as of January 1 of each calendar
yearduring the term of the plan. The plan also limits the number of
shares that may be covered by the grant of options, SARs, stock awards,
performance shares and stock units in any calendar year. The annual
limitation is 1% of the outstanding shares of common stock as of
January 1 of that year increased by 1) the number of shares
available but not awarded during all prior years during the term of the
plan plus 2) any forfeited or terminated grants that were not exercised.
In addition, the maximum aggregate number of shares that may be covered by
performance shares and that may be issued in any calendar year as a stock
award or in settlement of stock units is 30% of the annual share
limitation. The annual share limitation for 1993 was 233,295 shares. The
options granted may be either incentive stock options ("ISOs") or
nonqualified stock options. Options may be granted at not
less than the fair market value at the date of grant if the option is an
ISO, or not less than 85% of the fair market value if the option is a
nonqualified stock option. SARs may be granted in relation to option
grants ("corresponding SARs") or independently of option grants. Grants
may provide options and SARs exercisable over periods of up to 10
years.
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The Non-employee Director Stock Option Plan provides for grants to
the Company's non-employee directors of stock options for up to 93,500
shares of the Company's common stock. Automatic awards will be made in
lieu of projected increases in the cash retainer and meeting
fees payable to participants. Each participant may also choose to
receive an elective award in lieu of all or part of his or her regular
cash retainer of an option to purchase 125 shares for each $1,000 of
foregone retainer. The option price per share for automatic awards and
elective awards will be the average closing price of the Company's common
stock for
63
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Options, continued
the twenty trading days before the October 31 that immediately
precedes the grant date.
For both plans, payment may be made by the participant in cash or
the Company's common stock. Up to 326,795 shares plus 1% of shares
outstanding as of January 1 of each calendar year through 2002
may be issued after December 31, 1993, upon exercise of options or
SARs for these two plans.
The 1987 Stock Option Plan provided for grants to the Company's key
employees and officers of stock options and corresponding SARs for up to
1,000,000 shares of the Company's authorized, but unissued common stock
and up to 200,000 SARs independent of stock options. As
of December 31, 1993, there were 1,032,964 shares issuable under this
plan, including 375,308 shares available for grants. With the adoption
of the 1993
Incentive Plan, awards under this plan were discontinued.
64
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Options, continued
The following schedule summarizes stock option activity for the
three years ended December 31, 1993:
Number of
Option Price
Stock Options Per Share
Outstanding, January 1, 1991 665,775 14.17 to 22.75
Granted 171,400 13.89 to
19.50
Exercised 127,962 13.89 to 21.43
Cancelled 35,879 14.58 to 21.43
Outstanding, December 31, 1991 673,334 13.89 to 22.75
Granted 163,900 21.66 to 25.23
Exercised 101,079 13.89 to 21.43
Cancelled 32,912 18.65 to 21.43
Outstanding, December 31, 1992 703,243 13.89 to 25.23
Granted 194,100 19.15 to 20.49
Exercised 11,905 18.65 to 20.88
Cancelled 31,882 16.63 to 23.88
Outstanding, December 31, 1993 853,556 13.89 to 25.23
Exercisable:
December 31, 1991 367,685 14.38 to 22.75
December 31, 1992 389,842 13.89 to 22.75
December 31, 1993 504,044 13.89 to 25.23
Available for grants:
December 31, 1991 484,569
December 31, 1992 438,099
December 31, 1993 506,203
65
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Employees' Stock Plans and Other Compensation Plans
The Company has stock purchase plans for certain eligible
salaried and hourly employees. Shares of the Company's common stock are
purchased based upon participant and Company contributions. At
December 31, 1993, 590,285 shares remain available for issuance under
these plans.
The Company also has a noncontributory Employee Stock Ownership Plan
that covers eligible salaried and hourly employees. Shares of the
Company's stock are purchased at the Company's discretion. No purchases
were made in 1993, 1992 or 1991.
The Company also sponsors, in accordance with the provisions of
Section 401(k) of the Internal Revenue Code, pre-tax savings programs
for eligible salaried and hourly employees. Certain participants'
contributions are matched up to designated contribution levels by
the Company. Contributions are invested in several investment options,
which may include common stock of the Company, as selected by the
participating employee. At December 31, 1993, 200,000 shares of the
Company's common stock are reserved for issuance under these programs.
The 1993 Incentive Plan (see Note 8) provides that the executive
compensation committee of the board of directors may select certain
officers to receive annual incentive awards in the form of cash,
common stock or a combination thereof, based upon the Company's overall
financial performance and the officer's individual performance. Annual
66
<PAGE>
incentive awards for officers during 1992 and 1991 were granted under
the Officers' Incentive Program.
The Long-Term Incentive Plan provides that the executive
compensation committee of the board of directors may award
key employees shares of restricted stock with or without restricted stock
units.
A maximum of 300,000 shares of common stock may be issued under the plan.
As of December 31, 1993, award potentials had been granted with respect
to 83,500 shares of common stock, of which 2,092 restricted stock
shares and 864 restricted stock units had been earned.
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Employees' Stock Plans and Other Compensation Plans, continued
ith the adoption in 1993 of the 1993 Incentive Plan, awards under
the Officers' Incentive Program and the Long-Term Incentive Plan, which
plans were in effect for 1992 and 1991, were discontinued.
The Company has other incentive compensation plans in effect for key
employees under which awards are based principally on operating results.
The charges to income for these plans approximated $4.9 million in
1993, $4.8 million in 1992 and $5.1 million in 1991.
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Litigation
The Company is a defendant in various litigation related to fire
retardant treated plywood ("FRT plywood"). Between 1984 and 1988, the
Company treated plywood with a chemical intended to retard the spread
of flames. It has been alleged that the fire retardant chemical applied
to the FRT plywood has caused some of the plywood prematurely to lose'
some of its structural strength under certain circumstances.
Management believes that, to the extent that the Company has
responsibility for any such claims, its insurance carriers and the
supplier of the fire retardant chemical will indemnify the Company for
significant portions of the claims. Although the outcome of the claims
related to FRT plywood is not determinable at this time, the Company
believes that the resolution of the claims, individually or in the
aggregate, will not have a materially adverse effect on its
consolidated financial position or results of operations.
The Company is a party to various other legal actions which are
ordinary and incidental to its business. While the outcome of legal
actions cannot be predicted with certainty, the Company believes the
outcome of any of these proceedings, or all of them combined, will
not have a materially adverse effect on its consolidated financial position
or results of operations.
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Supplemental Income Statement Information
1993 1992 1991
(In millions)
a. Other income, net:
Interest earned $ .2 $ .1 $ .1
Gains on sales of property and equipment 9.4 1.3 .4
Gains (losses) from sales of businesses (1.3) (1.0) 1.3
Miscellaneous income 5.4 4.8 4.5
Miscellaneous deductions (5.0) (3.5) (3.3)
Totals $ 8.7 $ 1.7 $ 3.0
b. Selected charges to costs and expenses:
Taxes other than payroll and income taxes:
Property $ 6.6 $ 6.2 $ 6.1
Other 1.1 .8 .6
Totals $ 7.7 $ 7.0 $ 6.7
Maintenance and repairs $55.5 $56.8 $56.8
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Supplemental Balance Sheet Information
1993 1992
(In millions)
a. Accounts receivable, net:
Trade $89.4 $89.9
Other 1.1 1.2
Allowance for doubtful accounts (3.0) (2.7)
Totals $87.5 $88.4
b. Other assets
Goodwill, net $28.0 $28.9
Purchased intangible assets,net 2.3 3.0
Other 49.0 46.8
Totals $79.3 $ 78.7
c. Accounts payable and accrued expenses:
Accounts payable:
Trade creditors $31.0 $ 27.1
Bank checks in transit 10.2 8.0
41.2 35.1
Accrued expenses:
Interest 7.8 8.5
Compensation and employee benefits 24.3 20.5
Other 17.2 15.9
49.3 44.9
Totals $90.5 $ 80.0
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Commitments and Other Matters
At December 31, 1993, commitments, primarily for capital
expenditures, approximated $35 million of the Company's 1994 $65
million capital spending estimate. These commitments include
anticipated expenditures of $16 million in 1994 related to environmental
protection in connection with planned expansions and upgrades mainly at
the Company's facilities in West Point, Virginia and Menasha, Wisconsin.
The remaining commitments of $19 million are for various capital
projects, none of which is individually material.
Uncommitted environmental protection projects may cost the Company
another $9 million during the next several years. Additional
non-determinable environmental protection expenditures could be
required in the future when facilities are expanded or if more
stringent standards become applicable.
The Company leases certain assets (principally transportation and
information processing equipment and office space) generally for three to
five year terms. The present value of any unrecorded capital leases and
the impact on net income if these leases were recorded are not material.
Rental expense for operating leases totaled (in millions) $13.1 for
1993, $14.0 for 1992 and $12.6 for 1991. As of December 31, 1993,
aggregate minimum rental payments in future years on noncancelable leases
approximated $12.9 million. The amounts applying to future years
are (in millions): 1994 $4.9; 1995 $3.7; 1996 $1.8; 1997 $1.4; 1998 $.4;
and thereafter $.7.
72
<PAGE>
Early in the fourth quarter of 1993 Chesapeake conveyed to Universal
Forest Products, Inc. the assets of Chesapeake's Fredericksburg,
Virginia; North East, Maryland; Stockertown, Pennsylvania; Elizabeth
City, North Carolina; and Holly Hill, South Carolina facilities; and
the machinery and equipment from the Pocomoke City, Maryland
facility. The assets, which were conveyed under lease and purchase
agreements having a present value of $3.4 million, represented
substantially all of the assets of the former Chesapeake Wood Treating
Co. Net sales of this business were $85.8 million in 1993, $97.7
million in 1992 and $81.7 million in 1991.
This conveyance concluded Chesapeake's involvement in the wood treating
business and enables the Company to better focus on its three primary
businesses. Also, in the fourth, quarter Chesapeake announced
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Commitments and Other Matters
the consolidation of the Company's West Des Moines, Iowa packaging
plant into its Sandusky, Ohio facility. Lastly, during the fourth
quarter, the Company sold approximately 19,000 acres of timberland
holdings which were no longer strategic. These three events netted
to a $5.4 million pre-tax gain during the fourth quarter.
As of December 31, 1993 Chesapeake signed an agreement of merger
for Chesapeake Packaging Co. to acquire Lawless Holding Corporation,
based in North Tonawanda, New York. Lawless Holding Corporation
had annual sales of over $60 million in 1992 and includes the
Lawless Container Corporation corrugated container plant in North
Tonawanda, corrugated sheet plants located in Scotia, New York, Le
Roy, New York and Madison, Ohio, and Lawless Packaging and Display, a
consumer graphic packaging plant located in Buffalo, New York. This
transaction closed on January 24, 1994.
During the fourth quarter of 1992, Chesapeake adopted new, required
accounting rules for postretirement benefits other than pensions and
for income taxes, recording, as accounting changes, a net one-time,
after-tax charge of $9.7 million, or $.46 per share. The
cumulative effect consisted of a transition obligation charge of $19.1
million pretax, or $11.9 million after tax, to accrue for the costs of
future health benefits for retirees and current employees after
retirement, and an increase in net income of $2.2 million from changing
the method of accounting for income taxes. These new accounting rules
had no effect on cash flow or income before
74
<PAGE>
the cumulative effect of accounting changes.
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Business Segment Information
The Company's three business segments are kraft products, tissue
and packaging. The kraft products segment includes kraft, forest and
building products. Tissue is comprised of commercial, industrial and
consumer tissue products. Packaging consists of point-of-sale
displays, special packaging, consumer graphic packaging and corrugated
shipping containers. General corporate expenses, gains (losses) from
the sales of businesses and land development are shown as corporate.
Sales between segments reflect transfer prices at market value.
Intersegment sales not included below were $18.5 million in 1993, $17.3
million in 1992 and $16.6 million in 1991. Segment operating income is
revenue less allocable operating expenses. Operating expenses include
all expenses except interest, income taxes and the cumulative
effect of accounting changes.
Segment identifiable assets are those which are directly used in
segment operations. Timber and timberlands are included in the kraft
products segment. Corporate assets are cash, certain
nontrade receivables, real estate held for sale and other assets.
Industry segment groupings were changed in 1993 to better reflect
the way Chesapeake manages its businesses. Prior year amounts have been
restated to reflect this change.
Export sales, principally to Europe, Canada and Asia, were (in
millions): 1993 $62.9; 1992 $67.1; and 1991 $51.9.
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Business Segment Information, continued
Financial information by business segments:
1993 1992 1991
(In millions)
Net sales:
Kraft products $343.5 $365.8 $339.1
Tissue 283.5 276.2 260.5
Packaging 252.7 243.8 238.2
Corporate 5.3 2.6 2.7
Consolidated net sales $885.0 $888.4 $840.5
Operating income:
Kraft products $12.5 $23.8 $21.5
Tissue 31.1 26.3 28.2
Packaging 17.6 15.5 21.3
61.2 65.6 71.0
Corporate (8.5) (11.7) (9.5)
Income before interest, taxes and
cumulative effect of accounting changes 52.7 53.9 61.5
Interest expense (32.0) (31.4) (35.4)
Income before taxes and cumulative effect of
accounting changes $20.7 $22.5 $26.1
Identifiable assets:
Kraft products $433.5 $451.8 $409.6
Tissue 335.1 358.8 367.5
Packaging 118.4 111.4 107.4
Corporate 32.3 36.9 31.0
Consolidated assets $919.3 $958.9 $915.5
Capital expenditures:
Kraft products $41.9 $66.8 $69.9
Tissue 9.5 6.9 8.7
Packaging 12.4 11.2 13.4
Corporate .1 .1 .2
Totals $63.9 $85.0 $92.2
Depreciation and cost of timber harvested
Kraft products $36.3 $33.1 $30.8
Tissue 24.3 24.3 22.9
Packaging 9.2 8.7 8.0
Corporate .4 .4 .4
Totals $70.2 $66.5 $62.1
77
<PAGE>
ELEVEN-YEAR COMPARATIVE RECORD
(Dollar amounts in millions except per share data)
1993 19921 1991 1990 1989
Operating Results
Net sales $885.0 $888.4 $840.5 $841.2 $813.1
Net cost except depreciation and cost
of timber harvested 794.1 799.4 752.3 756.3 686.7
Depreciation and cost of timber
harvested 70.2 66.5 62.1 55.8 47.9
Income before taxes and cumulative effect
of accounting changes 20.7 22.5 26.1 29.1 78.5
Income taxes 10.3 8.1 10.7 12.4 30.9
Income before cumulative effect of
accounting changes 10.4 14.4 15.4 16.7 47.6
Cumulative effect of accounting changes - 9.7 - - -
Net income 10.4 4.7 15.4 16.7 47.6
Cash dividends declared on common stock 16.8 16.7 14.8 14.8 14.8
Income retained for use in the business (6.4) (12.0) .6 1.9 32.8
Net cash provided by operating activities 113.6 69.2 67.8 69.2 98.6
Percent of income before cumulative effect
of accounting changes
To net sales 1.2% 1.6% 1.8% 2.0% 5.9%
To stockholders' equity 2.8 4.5 4.9 5.3 17.0
To total assets 1.1 1.6 1.8 2.1 7.2
Common Stock
Number of stockholders of record 7,778 7,964 7,741 7,789 7,387
Shares outstanding (in thousands) 23,514 23,330 20,635
20,436 20,564
Per share
Earnings before cumulative effect of
accounting changes $.44 $ .63 $ .75 $ .81 $ 2.31
Earnings .44 .17 .75 .81 2.31
Dividends declared .72 .72 .72 .72 .72
Stockholders' equity 15.65 15.88 15.43 15.36 15.28
Financial Position
Working capital $ 87.1 $122.2 $101.7 $ 92.8 $ 98.3
Property, plant and equipment, net 53.8 668.3 641.6 616.2 544.7
Total assets 919.3 958.9 915.5 875.9 789.7
Total capital 799.7 849.6 820.8 783.7 704.4
Long-term debt 333.1 382.8 415.9 381.0 301.1
Deferred income taxes 98.6 96.4 86.5 88.9 89.2
Stockholders' equity 368.0 370.4 318.4 313.8 314.1
Percent of long-term debt
To total capital 41.7% 45.1% 50.7% 48.6% 42.7%
To stockholders' equity 90.5 103.3 130.6 121.4 95.9
Additional Data
Capital expenditures $63.9 $ 85.0 $ 92.2 $128.5 $139.5
Acres of timberland owned (in thousands) 3295 3505 3505 3505 3575
Number of employees 4,833 5,062 5,039 5,104 4,945
78
<PAGE>
NOTES TO ELEVEN-YEAR COMPARATIVE RECORD
Accounting policies are stated in Note 1 of Notes to Consolidated
Financial Statements. Percent of income before cumulative effect of
accounting changes information is calculated using beginning of year and
acquisition amounts where appropriate.
1. Includes net one-time, after tax charge of $9.7 million, or $.46
per share, related to the adoption of SFAS 106 and SFAS 109 in 1992.
5. Excludes 17,000 - 25,000 acres held by land development subsidiaries
during 1989 - 1993.
79
<PAGE>
OPERATING MANAGERS AND LOCATIONS
CHESAPEAKE PAPER PRODUCTS Company
Thomas Blackburn
West Point, Virginia
Recycling Centers
Baltimore, Maryland
Greensboro, North Carolina
Norfolk, Virginia
Richmond, Virginia
Roanoke, Virginia
CHESAPEAKE FOREST PRODUCTS Company
Thomas Blackburn
West Point, Virginia
Elizabeth City, North Carolina
Keysville, Virginia
Pocomoke City, Maryland
Chesapeake Building Products Company
Jack C. King
West Point, Virginia
Keysville, Virginia
Milford, Virginia
Princess Anne, Maryland
WISCONSIN TISSUE MILLS INC.
Charles S. Cianciola
Menasha, Wisconsin
Neenah, Wisconsin
CHESAPEAKE CONSUMER PRODUCTS Company
William A. Raaths
Appleton, Wisconsin
LAND DEVELOPMENT
Joel K. Mostrom
Delmarva Properties, Inc.
Robert F. Brake
West Point, Virginia
Stonehouse Inc.
Joel K. Mostrom
Williamsburg, Virginia*
80
<PAGE>
OPERATING MANAGERS AND LOCATIONS, (Continued)
CHESAPEAKE PACKAGING CO.
Samuel J. Taylor
Chesapeake Display and Packaging Company
George F. Barnes
Bruce M. Pinover
Winston-Salem, North Carolina
Bruce A. Watson
Sandusky, Ohio*
West Des Moines, Iowa
Permanent Display Division
George F. Barnes
Rural Hall, North Carolina
Color-Box, Inc.
Jack L. Creech
Richmond, Indiana
Chesapeake Packaging Divisions
Robert F. Schick
Robert S. Argabright, II
Baltimore, Maryland
Edward R. Badyna
Binghamton, New York
Scranton, Pennsylvania
Terry R. Jenkins
Louisville, Kentucky
St. Anthony, Indiana
Gerald E. Nelson
Richmond, Virginia
Edward P. Godsey
Roanoke, Virginia
Corporate Headquarters
1021 E. Cary Street, Box 2350
Richmond, Virginia 23218-2350*
804/697-1000
* Leased real property
81
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARY CORPORATIONS OF CHESAPEAKE CORPORATION
December 31, 1993
State of
Name Incorporation
Cary St. Company Delaware
Chesapeake Consumer Products Company Virginia
The Chesapeake Corporation of Virginia Virginia
Chesapeake Display and Packaging Company Iowa
Chesapeake Forest Products Company Virginia
Chesapeake Packaging Company Virginia
Chesapeake Paper Products Company Virginia
Chesapeake Recycling Company Virginia
Chesapeake Resources Company Virginia
Chesapeake Trading Corp. Virginia
Chesapeake Trading Company, Inc. U. S. Virgin
Islands
Chesapeake Building Products Company Virginia
Color-Box, Inc. Indiana
Delmarva Properties, Inc. Virginia
Stonehouse Inc. Virginia
Wisconsin Tissue Mills Inc. Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND
We consent to the incorporation by reference of our report dated January
25, 1994 on our audits of the consolidated financial statements and
financial statement schedules of Chesapeake Corporation and subsidiaries as
of December 31, 1993 and 1992, and for each of the three years in the
period ended December 31, 1993, which report is included in this Annual
Report on Form 10-K, in the following registration statements on Form S-8:
The Chesapeake Corporation of Virginia 1981 Stock Incentive Plan
(File No. 2-71595)
Salaried Employees' Stock Purchase Plan (File No. 33-14926)
Hourly Employees' Stock Purchase Plan (File No. 2-79636)
Chesapeake Corporation 1987 Stock Option Plan (File No. 33-14925)
Chesapeake Corporation 401(k) Savings Plan for Salaried Employees
(File No. 33-14927)
Chesapeake Corporation 401(k) Savings Plan for Hourly Employees
(File No. 33-26150)
Chesapeake Corporation Non-Employee Director Stock Option Plan
(File No. 33-53478)
Wisconsin Tissue Mills Inc. 401(k) Savings Plan for Hourly Employees
(File No. 33-55558)
Chesapeake Corporation 1993 Incentive Plan (File No. 33-67384)
We consent to the incorporation by reference in the registration statement
on Form S-8 for the Hourly Employees' Stock Purchase Plan (File No. 2-
79636) of our report dated December 10, 1993 on our audits of the balance
sheet of the Hourly Employees' Stock Purchase Plan of Chesapeake
Corporation and participating subsidiaries as of November 30, 1993 and
1992, and the related Ystatement of changes in plan equity for each of the
three fiscal years in the period ended November 30, 1993, which report is
included in the Annual Report on Form 11-K (Exhibit 28.1).
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Richmond, Virginia
March 3, 1994
<PAGE>
<PAGE>
EXHIBIT 28.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
for the fiscal year ended November 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
for the transition period from _______ to _______
Commission file number 2-79636
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
CHESAPEAKE CORPORATION
1021 East Cary Street
P. O. Box 2350
Richmond, Virginia 23218-2350
<PAGE>
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
Administration of the Plan:
The Plan is administered by the Hourly Employees' Stock
Purchase Plan Committee (the "Committee"), under the
direction of the Board of Directors of Chesapeake
Corporation (the "Corporation"). The present members of the
Committee, of which Thomas A. Smith is Chairman, are:
Name Address
Thomas A. Smith (1) Richmond, Virginia 23218
J. P. Causey Jr. (2) Richmond, Virginia 23218
Andrew J. Kohut (3) Richmond, Virginia 23218
(1) Mr. Smith is Vice President - Human Resources &
Assistant Secretary of the Corporation.
(2) Mr. Causey is Vice President, Secretary & General
Counsel of the Corporation.
(3) Mr. Kohut is Vice President - Finance & Chief Financial
Officer of the Corporation.
Committee members are appointed by and serve at the pleasure of the Board
of Directors of the Corporation. Committee members are employees of the
Corporation and receive no additional compensation for serving on the
Committee. The Plan provides that the Corporation will indemnify members
of the Committee to the same extent and on the same terms as it indemnifies
its officers and directors by reason of their being officers and directors.
Financial Statements and Exhibits:
(a) Financial statements:
Hourly Employees' Stock Purchase Plan:
Balance Sheet
Statement of Changes in Plan Equity
(b) Exhibits:
See Exhibit 23.1 to the Chesapeake
Corporation Annual Report on Form 10-K for
the year ended December 31, 1993 for consent
of independent accountants.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Committee have duly caused this annual report to be signed
by the undersigned hereunto duly authorized.
HOURLY EMPLOYEES' STOCK PURCHASE
PLAN
By: /s/ Thomas A. Smith
Thomas A. Smith, Chairman
of the Committee
March 3, 1994
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Committee have duly caused this annual report to be signed
by the undersigned hereunto duly authorized.
HOURLY EMPLOYEES' STOCK PURCHASE
PLAN
By: /s/ Thomas A. Smith
Thomas A. Smith, Chairman
of the Committee
March 3, 1994
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Hourly Employees' Stock
Purchase Plan Committee:
We have audited the balance sheet of the Hourly Employees' Stock Purchase
Plan (the "Plan") of Chesapeake Corporation and participating subsidiaries
as of November 30, 1993 and 1992, and the related statement of changes in
plan equity for each of the three years in the period ended November 30,
1993. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of Ymaterial misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Plan as of November
30, 1993 and 1992, and the changes in plan equity for each of the three
years in the period ended November 30, 1993, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Richmond, Virginia
December 10, 1993
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Hourly Employees' Stock
Purchase Plan Committee:
We have audited the balance sheet of the Hourly Employees' Stock Purchase
Plan (the "Plan") of Chesapeake Corporation and participating subsidiaries
as of November 30, 1993 and 1992, and the related statement of changes in
plan equity for each of the three years in the period ended November 30,
1993. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Plan as of November
30, 1993 and 1992, and the changes in plan equity for each of the three
years in the period ended November 30, 1993, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Richmond, Virginia
December 10, 1993
4
<PAGE>
HOURLY EMPLOYEES' STOCK PURCHASE PLAN OF CHESAPEAKE CORPORATION
AND PARTICIPATING SUBSIDIARIES
BALANCE SHEET, November 30, 1993 and 1992
1993 1992
Asset:
Funds held by Chesapeake Corporation and
Participating Subsidiaries (Note 3) $9,292 $7,903
Plan equity $9,292 $7,903
STATEMENT OF CHANGES IN PLAN EQUITY
for the fiscal years ended November 30, 1993, 1992 and 1991
1993 1992 1991
Contributions:
Employees $1,063,957 $ 936,107 $
821,736
Employer: $510,826 in 1993, $451,512
in 1992 and $393,367 in 1991; less
withheld taxes of $165,268, $144,925
and $121,822, respectively 345,559 306,587
271,545
1,409,516 1,242,694
1,093,281
Deductions:
Purchase and distribution to participants
at year end of 60,012 shares in 1993
($23.0125 per share), 55,439 shares
in 1992 ($21.90625 per share), and
49,328 shares in 1991 ($21.50 per
share) of common stock of Chesapeake
Corporation (Note 1) 1,381,024 1,214,458
1,060,616
Refunds to employees withdrawing from the
Plan attributable to:
Employees' contributions for
the year 23,917 24,238 24,967
Employees' account balances at beginning
of year 492 420
216
1,405,433 1,239,116
1,085,799
Net transfers to Salaried Employees' Stock
Purchase Plan 2,694 2,942
4,622
1,408,127 1,242,058
1,090,421
5
<PAGE>
Increase in plan equity 1,389 636 2,860
Plan equity, beginning of year 7,903 7,267
4,407
Plan equity, end of year $ 9,292 $ 7,903 $
7,267
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan:
The stockholders of Chesapeake Corporation (the
"Corporation") have approved the Hourly Employees' Stock
Purchase Plan (the "Plan") and reserved a total of 900,000
shares of the Corporation's common stock for sale to
eligible hourly employees of the Corporation and
participating subsidiaries (the "Employer").
Participants in the Plan, which became effective in
December 1982, are permitted to invest up to 5% of their
basic compensation. The Employer contributes to the Plan,
as of the end of the Plan Year (see Note 2), a percentage
(generally 30% to 50%) of the participant's contribution
reduced by amounts required to be withheld under income
tax, F.I.C.A. and comparable laws. The combined amount
becomes available to purchase from the Corporation shares
of its common stock at a price equal to the average of the
closing prices of such common stock on the New York Stock
Exchange (composite tape) for the 20 consecutive trading
days immediately preceding the last day of the Plan Year.
As of November 30, 1993, 508,595 shares (60,012 shares in the
current year and 448,583 in prior years) of the Corporation's
common stock had been issued under the Plan and 391,405 shares were
available for future issuance.
2. Plan Year:
The fiscal year of the Plan ("Plan Year") ends each November 30.
3. Funds Held by Chesapeake Corporation and Participating
Subsidiaries:
Funds received or held by the Employer with respect to the Plan may
be used for any corporate purpose; therefore, the Plan does not
prevent the Employer from creating a lien on these funds.
4. Taxes and Expenses:
The Employer's contribution, when made to the Plan, is taxable to a
participant as ordinary income. Purchases of stock by the Plan
result in no gain or loss to the participant; therefore, no tax
consequences are incurred by a participant upon receipt of stock
purchased under the Plan. Sale by a participant of shares acquired
under the Plan will result in a gain or loss in an amount equal to
the difference between the sale price and the price paid for the
stock acquired pursuant to the Plan. The Plan is not subject to
income taxes.
Expenses of administering the Plan are borne by the Employer.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
5. Contributions to the Plan:
Contributions (net of withheld taxes) were as follows:
1993 1992
1991
Employer Employees Employer
Employees Employer Employees
Chesapeake Corporation
Subsidiaries:
Chesapeake Packaging
Co.$
88,700 $ 260,356 $ 75,261 $230,385 $
61,438 $191,557
Chesapeake Forest
Products
Company
(a)
17,014 62,880 10,283 31,386 9,743
30,443
Chesapeake Paper
Products
Company
(b)
239,845 740,721 221,043 674,336
200,364 599,736
Totals
$345,559$1,063,957 $306,587 $936,107 $271,545
$821,736
(a) Pursuant to a corporate
reorganization, Chesapeake Forest
Products Company became a wholly owned
subsidiary effective January 1, 1991.
The Employer and employee contribution
amounts are for all of fiscal 1991.
(b) Pursuant to a corporate
reorganization, Chesapeake Paper
Products Company became a wholly owned
subsidiary effective January 1, 1991.
The Employer and employee contribution
amounts are for all of fiscal 1991.
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March 1, 1994
Mr. Thomas A. Smith
Vice President - Human Resources
Chesapeake Corporation
P. O. Box 2350
Richmond, Virginia 23218-2350
Dear Tom:
Enclosed are five copies of the Form 11-K for the Hourly Employees' Stock
Purchase Plan for the year ended November 30, 1993.
As we previously discussed, this plan is being electronically filed as an
exhibit to Chesapeake Corporation's 1993 Form 10-K. We will coordinate the
electronic filing with Charles Smith.
Sincerely,
James A. Carleton
Enclosure
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