FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
(Exact name of registrant as specified in its charter)
Virginia 54-0166880
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 East Cary Street
Richmond, Virginia 23218-2350
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 804-697-1000
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
------------------------------
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 / / .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of March 31, 1998: 21,195,613 shares.
Page 1 of 23<PAGE>
CHESAPEAKE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings-
Three months ended March 31, 1998
and March 31, 1997 3
Consolidated Balance Sheets
at March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows-
Three months ended March 31, 1998
and March 31, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
<PAGE>
<TABLE>
PART I
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $216.8 $294.5
Costs and expenses:
Cost of products sold 154.6 223.6
Depreciation and cost of timber harvested 13.2 26.7
Selling, general and administrative expenses 34.4 41.3
------ ------
Earnings from operations 14.6 2.9
Other income and expenses, net 2.7 1.0
Interest expense, net (4.6) (9.5)
------ ------
Earnings (loss) before taxes 12.7 (5.6)
Income tax expense (benefit) 4.7 (2.1)
------ ------
Net earnings (loss) $ 8.0 $ (3.5)
====== ======
Basic earnings (loss) per share $0.38 $(0.15)
====== ======
Weighted average number of
common shares 21.2 23.4
====== ======
Diluted earnings (loss) per share $0.37 $(0.15)
====== ======
Weighted average number of
common shares and
equivalents outstanding,
assuming dilution 21.5 23.4
====== ======
Cash dividends declared per
share of common stock $0.20 $0.20
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE> CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<CAPTION>
(Unaudited)
March 31, 1998 Dec. 31, 1997
-------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66.3 $ 73.3
Accounts receivable, less
allowances for doubtful
accounts (1998 - $5.9;
1997 - $5.9) 117.0 111.8
Inventories, at lower of cost
or market 102.6 98.8
Deferred income taxes 17.8 17.8
Other 6.3 6.6
------ ------
Total current assets 310.0 308.3
------ ------
Property, plant and equipment, at cost 827.4 818.6
Less accumulated depreciation 358.6 350.1
------ ------
468.8 468.5
------ ------
Timber and timberlands, net 39.8 39.8
------ ------
Net property, plant and equipment 508.6 508.3
------ ------
Goodwill, net 47.1 44.0
Other assets 50.3 52.4
------ ------
Total assets $916.0 $913.0
======= =======
/TABLE
<PAGE>
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except share data )
<CAPTION>
(Unaudited)
March 31, 1998 Dec. 31, 1997
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $50.7 $52.1
Accrued liabilities 73.1 74.5
Current maturities of long-term debt 0.7 0.6
Dividends payable 4.2 4.3
Income taxes payable 6.7 1.9
----- -----
Total current liabilities 135.4 133.4
----- -----
Long-term debt 266.0 264.3
Other long-term liabilities 5.5 5.8
Postretirement benefits other than pensions 20.0 19.1
Deferred income taxes 68.4 68.4
----- ------
Total liabilities 495.3 491.0
----- -----
Shareholders' equity:
Preferred stock, $100 par value,
issuable in series;
authorized, 500,000 shares;
issued, none - -
Common stock, $1 par value;
authorized 60,000,000 shares;
outstanding 21,195,613 in 1998 and
21,330,232 shares in 1997, respectively 21.2 21.3
Additional paid-in capital 22.0 26.4
Foreign currency translation adjustment (3.4) (2.8)
Other (1.6) (1.7)
Retained earnings 382.5 378.8
------ ------
Total shareholders' equity 420.7 422.0
------ ------
Total liabilities and
shareholders' equity $916.0 $913.0
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION> Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net earnings (loss) $ 8.0 $ (3.5)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation, cost of timber harvested and
amortization of intangibles 15.2 27.7
Deferred income taxes - 0.5
Gain on sale of property, plant and equipment (1.5) (0.6)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (4.1) (14.5)
Inventories (3.2) 1.0
Other assets 0.5 2.4
Accounts payable 1.3 10.3
Accrued liabilities (4.5) (18.1)
Income taxes payable 4.7 (3.2)
----- -----
Net cash provided by operating activities 16.4 2.0
----- -----
Investing activities
Purchases of property, plant and equipment (15.8) (15.1)
Acquisitions and proceeds from sale of
property, plant and equipment ( 2.8) 0.6
Other 2.2 (0.3)
----- -----
Net cash used in investing activities (16.4) (14.8)
----- -----
Financing activities
Net borrowing on lines of credit 2.5 23.9
Payments on long-term debt (1.0) (5.3)
Proceeds from issuances of common stock - 0.3
Purchases of outstanding common stock (4.7) -
Dividends paid (4.2) (4.7)
Other 0.4 (0.5)
------ -----
Net cash (used in) provided by financing activities (7.0) 13.7
----- -----
(Decrease) increase in cash and cash equivalents (7.0) 0.9
Cash and cash equivalents at beginning of period 73.3 9.8
----- -----
Cash and cash equivalents at end of period $ 66.3 $ 10.7
====== ======
Supplemental cash flow information:
Interest payments $ 4.7 $ 8.1
====== ======
Income tax payments, net of refunds $ 0.5 $ 2.1
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies
The condensed consolidated financial statements of Chesapeake
Corporation and subsidiaries (the "Company") included herein are
unaudited, except for the December 31, 1997 consolidated balance
sheet, and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, the condensed consolidated financial statements reflect
all adjustments, all of a normal recurring nature, necessary to
present fairly the Company's consolidated financial position at March
31, 1998 and December 31, 1997, and the results of operations and cash
flows for the three months ended March 31, 1998 and 1997.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates in reporting the amounts of certain revenues and expenses
during the reporting period of the financial statements and certain
assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates. These condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included
or incorporated by reference in the Company's latest Annual Report on
Form 10-K. The results of operations for the 1998 interim period
should not be regarded as necessarily indicative of the results that
may be expected for the entire year.
Certain prior-year data have been reclassified to conform to the
1998 presentation.
Note 2. Adoption of Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
is effective for all fiscal periods beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements, either in the statements of operations
or in a separate statement. Additionally, SFAS 130 requires the
display of the accumulated balance of other comprehensive income. For
<PAGE>
<TABLE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 2. Adoption of Accounting Pronouncements, continued
the three months ended March 31, 1998 and 1997, comprehensive income
is as follows:
<CAPTION>
Mar. 31, 1998 Mar. 31, 1997
------------- -------------
(In millions)
<S> <C> <C>
Net Earnings $8.0 $(3.5)
Other comprehensive income, net
of tax:
Foreign currency translation (0.4) (0.3)
---- ----
Comprehensive income $7.6 $(3.8)
==== =====
</TABLE>
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of
an Enterprise and Related Information" (SFAS "131"), and Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS No.
131, which the Company expects to adopt in the second quarter of 1998,
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that selected operating segment information be
reported in interim financial statements. SFAS No. 132, which is
effective for fiscal years beginning after December 31, 1997,
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of
plan assets, and eliminates certain disclosures that are no longer
useful. The American Institute of Certified Public Accountants has
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and SOP 98-5,
"Reporting on the Costs of Start-up Activities." SOP 98-1 provides
guidance on accounting for the cost of computer software and SOP 98-5
provides guidance on the financial reporting of start-up costs and
organizational costs. SOP 98-1 and SOP 98-5 are effective for fiscal
years beginning after December 15, 1998. The Company is currently
evaluating these pronouncements and does not expect their adoption to
have a material impact on its financial statements.
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 3. Acquisitions and Dispositions
In February, 1998, Chesapeake Packaging Co. purchased
substantially all of the assets, and assumed certain liabilities, of
Rock City Box Co., Inc., of Utica, NY. This operation manufactures
corrugated containers, trays, and pallets, as well as wood and foam
packaging products.
On May 23, 1997, the Company completed the sale to St. Laurent
Paperboard (U.S.) Inc. ("St. Laurent (U.S.)"), a wholly-owned
subsidiary of St. Laurent Paperboard Inc. (Toronto and
Montreal:(SPI)), of : (i) the sole membership interest in Chesapeake
Paper Products Company LLC (successor to Chesapeake Paper Products
Company), a wholly-owned subsidiary of Chesapeake which, as of the
closing date, owned and operated Chesapeake's kraft products mill
located in West Point, VA (the "West Point Mill"); (ii) all of the
capital stock of Chesapeake Box Company which, as of the closing date,
owned and operated directly or through a subsidiary substantially all
of the assets of four of Chesapeake's corrugated box plants; and (iii)
all of the capital stock of Chesapeake Fiber Company which, as of the
closing date, owned and operated directly or through a subsidiary
certain assets related to the West Point Mill's wood procurement
operations. The four box plants involved in the transaction are
located in Richmond, VA; Roanoke, VA; Baltimore, MD; and North
Tonawanda, NY.
The purchase price of approximately $500.0 million was paid in
cash at closing, with a post-closing purchase price adjustment of
approximately $10 million paid to the buyer. The transaction resulted
in an after-tax gain for Chesapeake of $49.1 million, or $2.07 a
share, recorded in the second quarter of 1997. Chesapeake used
approximately $250 million of net after-tax proceeds to reduce debt,
$79 million to repurchase common stock, and plans to use the remainder
of the net after-tax proceeds for further repurchases of its common
stock and to finance growth opportunities internally and through
acquisitions.<PAGE>
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
<TABLE>
Note 4. Inventories
<CAPTION>
Mar. 31, 1998 Dec. 31, 1997
------------- -------------
(In millions)
<S> <C> <C>
Inventories consist of:
Finished goods $ 36.7 $26.7
Work in process 27.9 36.2
Materials and supplies 38.0 35.9
----- ----
Totals $102.6 $98.8
====== =====
</TABLE>
Note 5. Commitments
At March 31, 1998, commitments, primarily for capital
expenditures, approximated $54 million. These commitments include
anticipated expenditures of $1.5 million in 1998 for environmental
protection related to the Company's tissue mills. The remaining
commitments of $52.5 million are related to various capital projects,
none of which are individually material.
Additional non-determinable environmental protection expenditures
could be required in the future if facilities are expanded or if more
stringent standards become applicable. See Note 8.
Note 6. Litigation
Wisconsin Tissue ("WT"), a wholly-owned subsidiary of the
Company, has been identified by the federal government and the State
of Wisconsin as a potentially responsible party with respect to
possible natural resource damages and Superfund liability in the Fox
River and Green Bay System. See Note 8 for further information
regarding this matter.
On May 13, 1997, the Attorney General of Florida filed a civil
complaint against WT alleging violations of antitrust laws. The
complaint also names nine other commercial and industrial tissue
manufacturers and seeks compensatory monetary damages, civil
penalties, and injunctive relief. At least 35 other private civil
antitrust class actions have also been filed against WT (or against
the Company, identifying WT as a "division" of the Company) and
against the other defendants. WT and the Company believe that WT has
valid defenses to the plaintiffs' claims and intend to defend the
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 6. Litigation, continued
actions vigorously. 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, results of
operations, or cash flows.
Note 7. Income Taxes
The Company's effective income tax rate was 37.5% in the first
quarter of 1998 and 1997. The difference between the Company's
effective income tax rate and the statutory federal income tax rate
are primarily due to state income taxes and purchase accounting
adjustments resulting from acquisitions.
Note 8. Environmental Matters
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 & 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.
The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and similar state "Superfund" laws impose
liability, without regard to fault or to the legality of the original
action, on certain classes of persons (referred to as potentially
responsible parties or "PRPs") associated with a release or threat of
a release of hazardous substances into the environment. Financial
responsibility for the clean-up or other remediation of contaminated
property or for natural resource damages can extend to previously
owned or used properties, waterways, and properties owned by third
parties, as well as to properties currently owned and used by a
company even if contamination is attributable entirely to prior
owners. As discussed below, the U.S. Environmental Protection Agency
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 8. Environmental Matters, continued
("EPA") has given notice of its intent to list the lower Fox River in
Wisconsin on the National Priorities List under CERCLA and has
identified WT as a possible PRP.
The previously disclosed identification by EPA of the Company's
Color-Box, Inc., subsidiary as a PRP in connection with certain sites
operated by PCB Treatment, Inc., in Kansas and Missouri was resolved
in April, 1998, through a de micromis settlement with the PRP Steering
Committee. The settlement was not material to the Company's financial
position or results of operation. Except for the Fox River matter,
the Company has not been identified as a potential PRP at any CERCLA-related
sites. However, there can be no assurance that the Company
will not be named as a PRP at any other sites in the future, or that
the costs associated with additional sites would not be material to
the Company's financial position or results of operation.
In June 1994, the United States Fish and Wildlife Service
("FWS"), a federal natural resources trustee, notified WT that it had
identified WT and four other companies located along the lower Fox
River in northeast Wisconsin as PRPs for purposes of natural resources
liability under CERCLA arising from alleged releases of
polychlorinated biphenyls ("PCBs") in the Fox River and Green Bay
System. Two other companies subsequently received similar notice from
the FWS. The FWS and other governmental and tribal entities, including
the State of Wisconsin, allege that natural resources, including
endangered species, fish, birds, tribal lands, or lands held by the
United States in trust for various Indian tribes, have been exposed to
PCBs that were released from facilities located along the lower Fox
River. The FWS is proceeding with a natural resource damage
assessment with respect to the alleged discharges. On January 31,
1997, the FWS notified WT of its intent to file suit, subject to final
approval by the Department of Justice, against WT to recover alleged
natural resource damages. WT and other PRPs are engaged in
discussions with the parties asserting federal trusteeship of the
natural resources concerning the damage assessment and the basis for
resolution of the federal natural resource damage claims.
WT and other PRPs are also engaged in discussions with the State
of Wisconsin with respect to resolving possible state claims
concerning remediation, restoration, and natural resource damages
related to the alleged discharge of PCBs into the Fox River and Green
Bay System. On January 31, 1997, the PRPs signed an interim agreement
with the State of Wisconsin under which the PRPs will provide funds
for an interim phase of resource damage assessment and restoration
work. WT's obligation under the agreement is not
material to the Company's financial position or results of operations.
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 8. Environmental Matters, continued
On June 18, 1997, the EPA announced that it was initiating the
process of listing the lower Fox River on the CERCLA National
Priorities List of hazardous waste sites. The EPA identified several
possible PRPs including WT. The EPA has announced that it will
proceed with a remedial investigation/feasibility study of the lower
Fox River site.
The ultimate cost to WT, if any, associated with these matters
cannot be predicted with certainty at this time, due to the inability
to determine the outcome of pending settlement discussions or, if a
settlement cannot be reached, WT's share of any multi-party clean-up
expenses; the uncertain extent of any contamination; the varying costs
of alternative restoration methods; the evolving nature of clean-up
technologies and governmental regulations; the lack of controlling
legal precedent; the extent to which contribution will be available
from other parties; and the scope of potential recoveries from
insurance carriers and prior owners of WT. Based on presently
available information, the Company believes that there are additional
parties, some of which may have substantial resources, that may also
be identified as PRPs with respect to this matter and could be
expected to participate in any final settlement. The Company believes
that it is entitled to indemnification from a prior owner of WT,
pursuant to a stock purchase agreement between the parties, with
respect to liabilities related to this matter. The prior owner has
reimbursed WT for out-of-pocket costs and attorneys' fees related to
investigation of the matter. The Company believes that the prior
owner intends to, and has the financial ability to, honor its
indemnification obligation under the stock purchase agreement.
In March 1995, the EPA issued "Final Guidance" for basin-wide
water quality standards pursuant to the Great Lakes Water Quality
Agreement between the U.S. and Canada regarding the development of
water quality standards for the Great Lakes and their tributaries.
Wisconsin has issued a discharge permit for WT's mill in Menasha, WI,
based on the Final Guidance. WT does not expect to have significant
capital expenditures or additional operating costs to comply with the
permit.
The EPA has published draft rules under the Clean Water Act and
the Clean Air Act which would impose new air and water quality
standards for pulp and paper mills (the "Cluster Rules"). The
recently published Cluster Rules, which are primarily applicable to
the bleached kraft industry, require compliance within three years
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 8. Environmental Matters, continued
after the date of adoption. Based on the Company's preliminary
estimates, compliance with the recently published cluster rules will
require capital expenditures totaling not more than approximately $5
to 6 million, primarily at the Company's largest paper mill located
in Menasha, WI. The EPA has stated its intent to develop additional
Cluster Rules. The eventual capital expense impact on the Company of
compliance with the additional Cluster Rules is not presently
determinable and will depend on a number of factors, including the
scope of the standards imposed and time permitted for compliance; the
Company's strategic decisions related to compliance, including
potential changes in product mix and markets; and developments in
compliance technology.
In March 1998, WT's Chicago tissue mill received a Notice of
Violation from EPA alleging violation of the Illinois State
Implementation Plan as adopted pursuant to the Clean Air Act. The
alleged violation involves the emission of volatile organic material.
WT is in the process of evaluating the allegations of a violation.
The ultimate cost to WT, if any, associated with the alleged violation
cannot be determined with certainty at this time due to the absence of
a determination that there has been a violation, and, if a violation
is found to have occurred, a determination of the appropriate capture
and control techniques or other corrective action and the cost
thereof, and the amount of any penalties imposed by EPA. WT believes
that it is entitled to significant indemnification for any costs or
expenses incurred with regard to this matter from the prior owner of
the Chicago mill and that the prior owner has the financial ability to
pay any such indemnification.
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.
<PAGE>
<TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
BUSINESS SEGMENT HIGHLIGHTS
<CAPTION>
First Quarter
-------------
1998 1997
---- ----
<S> <C> <C>
Net Sales:
Tissue $101.7 $ 94.7
Specialty packaging 104.3 93.8
Forest products/land development 10.8 6.5
----- -----
Ongoing operations 216.8 195.0
Divested businesses - 99.5
----- -----
$216.8 $294.5
====== ======
EBIT:
Tissue $15.4 $13.2
Specialty packaging 0.8 (2.0)
Forest products/land development 3.3 2.7
Corporate (2.2) (4.0)
---- ----
Ongoing operations 17.3 9.9
Divested businesses - (6.0)
----- ----
$17.3 $ 3.9
===== =====
</TABLE>
First Quarter 1998 vs. First Quarter 1997
Net earnings for the three months ended March 31, 1998, were $8.0
million, or $.37 a share fully diluted, compared with the 1997 first
quarter reported net loss of $3.5 million, or $.15 a share.
Net earnings from ongoing operations for the first quarter of 1997 on
a pro forma basis (after giving effect to the May 23, 1997, sale of
the West Point, VA, kraft mill and related assets as if it had
occurred as of the beginning of the first quarter of 1997) were $3.6
million, or $.15 a share fully diluted. The increase in net earnings
was primarily the result of higher sales volume, higher corrugated box
pricing and lower interest costs on outstanding debt.
Net sales for the three months ended March 31, 1998, were $216.8
million, compared with first quarter net sales of $294.5 million in
1997. First quarter 1998 net sales were up 11% from first quarter
1997 net sales from ongoing operations of $195.0 million. This
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
increase was primarily the result of growth in unit volume.
Net sales for the Tissue segment of $101.7 million for the first
quarter of 1998, were up 7% from the first quarter of 1997. Shipments
of converted tissue products were up 8% over the first quarter of
1997. Sales of parent rolls were nearly twice that of last year's
first quarter. Earnings before interest and taxes ("EBIT") for the
tissue segment for the first quarter of 1998 of $15.4 million
increased 17% compared to the first quarter of 1997 due primarily to
volume growth.
Net sales for the Specialty Packaging segment for the first
quarter of 1998 of $104.3 million were up 11% compared to net sales
from ongoing operations for the segment during the first quarter of
1997 due primarily to improved product mix, volume growth and higher
corrugated box pricing. For the first quarter of 1998, segment EBIT
was $.8 million, a $2.8 million improvement over the $2 million loss
for the first quarter of 1997 for ongoing operations. The increase
was primarily due to cost reductions in the display and custom
packaging business coupled with strong revenue growth. The corrugated
container business unit continued to perform well.
Net sales for the Forest Products/Land Development segment for
the first quarter of 1998 were $10.8 million, up 66% from net sales of
$6.5 million in the first quarter of 1997, due, primarily to
additional pulpwood shipments and slightly higher lumber pricing.
Segment EBIT for the first quarter of 1998 was $3.3 million, up 22%
compared to $2.7 million for the first quarter last year. The increase
was primarily due to favorable shipments and pricing, offset in part
by the negative impact on logging operations due to the extremely wet
weather during the first quarter of 1998.
Other income and expenses, net increased for the first quarter of
1998 compared to the first quarter of 1997 due primarily to a gain on
the sale of a corporate aircraft.
Part of the proceeds from the sale of the West Point Mill and
related assets were used to reduce outstanding debt during 1997,
thereby reducing interest expense in the first quarter of 1998 by $4.9
million from $9.5 million in the first quarter of 1997.
Capital Expenditures
Capital expenditures for the three months ended March 31, 1998
and 1997, respectively, totaled $15.8 million and $15.1 million and
related primarily to strategic initiatives in the packaging and tissue
businesses. Planned capital expenditures and acquisitions for 1998 <PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
are expected to be approximately $65 to $70 million. These initiatives
include new for tissue converting equipment at the Menasha, WI,
Bellemont, AZ, and Greenwich, NY, facilities; implementation of
several new information systems throughout the company; and expansion
and modernization of the West Point, VA, sawmill. These projects are
consistent with Chesapeake's strategy of expanding the packaging and
tissue businesses, reducing costs, and focusing capital spending on
projects that are expected to generate a high return on investment.
No other 1998 capital project is expected to account for more than 5%
of the total planned spending. Capital expenditures and acquisitions
for 1998 are expected to be financed with internally generated cash.
Liquidity and Capital Resources
Working capital decreased $.3 million during the first quarter of
1998. The decrease was primarily due to the decrease in cash and
cash equivalents resulting from the repurchase of common stock and the
completion of the Rock City Box acquisition in February 1998,
partially offset by an increase in accounts receivable. The average
accounts receivable collection period for the first three months of
1998 improved slightly compared to the first three months of 1997.
The inventory turnover rate for the first three months of 1998 was
approximately the same as the first three months of last year. The
ratio of current assets to current liabilities was 2.3 at the end of
the first quarter of 1998 and 1997.
EBITDA, a measure of internal cash flow combining earnings before
interest and income taxes plus non-cash charges for depreciation, cost
of timber harvested and amortization, was $32.5 million for the first
quarter of 1998. This was slightly higher than EBITDA of $31.6
million for the first quarter of 1997. Net cash provided by operating
activities for the first quarter was $16.4 million, up from $2.0
million of net cash provided by operating activities for the first
quarter of 1997 due to improved net earnings and improved management
of working capital.
At the end of the first quarter of 1998, long-term debt totaled
$266 million, compared to $518.7 million at the end of the same period
of 1997. Long-term debt was substantially reduced in the second
quarter of 1997 by use of part of the proceeds of the sale of the West
Point Mill and related assets. The ratio of long-term debt to total
capital was 35% at the end of the first quarter of 1998, a reduction
of 12% from the end of the same period last year. The ratio of long-term debt
to shareholders' equity was 63% at the end of the first
quarter of 1998 compared to 112% at the end of the first quarter of
1997. Out of a total of $67 million committed and $105 million
uncommitted domestic and foreign credit lines available at the end of
the first quarter of 1998, $11 million of foreign lines were utilized.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Foreign currency transactions and financial statements of foreign
subsidiaries are translated into U.S. dollars at prevailing or current
rates respectively, except for revenue, costs and expenses, which are
translated at average current rates during each reporting period.
Gains and losses resulting from foreign currency transactions are
included in income.
Year 2000 Planning
The Company has established a company-wide plan for addressing
the Year 2000 issue, primarily through significant upgrades of
information systems for the Company's packaging businesses. Contracts
have been signed with appropriate application vendors and consultants,
where appropriate, to provide most of the upgrades of the packaging
business systems and the necessary modifications or upgrades to the
systems for the Company's other businesses. The Company's plans, and
the contracts with the outside vendors, anticipate substantial
completion of the necessary upgrades and modifications by 1999. Based
on the contracts with outside vendors and current cost estimates,
management does not expect the cost of compliance with the Year 2000
issues will have a material impact on the Company's financial
position, results of operations or cash flow. While the Company
believes its planning efforts are adequate to address its Year 2000
concerns, the Company could be adversely impacted by the Year 2000
date issue if suppliers, customers and other businesses do not address
this issue successfully. Management continues to assess these risks
in order to reduce the impact on the Company.
Accounting Pronouncements
The Financial Accounting Standards Board has issued several new
pronouncements, including standards on information about capital
structure, comprehensive income, business segment reporting and
pensions and other post-retirement benefits. In addition, the
American Institute of Certified Public Accountants has issued several
new standards on accounting for computer software and reporting the
cost of start-up activities. These standards are not expected to have
a material impact on the Company's financial statements. See Note 2 in
the notes to consolidated financial statements for more information on
these standards.
Other
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" may include "forward-looking statements" that
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Changes in the following
important factors, among others, could cause the Company's actual
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
results to differ materially from those expressed in the forward-looking
statements: competitive products and pricing; production
costs, particularly for raw materials such as waste paper and
corrugated box and display materials; fluctuations in demand;
governmental policies and regulations affecting the environment;
interest rates; currency translation movements; and other risks that
are detailed from time to time in reports filed by the Company with
the Securities and Exchange Commission.
<PAGE>
PART II
Item 1. Legal Proceedings
Reference is made to Note 6 of the Notes to
Consolidated Financial Statements included herein
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on April 22, 1998, the
following business was transacted:
(1) All nominees for election to the Board of
Directors were elected.
<TABLE>
Number Number
of of Shares
Shares Authority
For Withheld
<CAPTION>
<S> <C> <C>
Robert L. Hintz 15,091,222 3,373,462
Thomas H. Johnson 15,958,859 2,505,825
Frank S. Royal 15,996,637 2,468,047
</TABLE>
(2) The appointment of Coopers & Lybrand L.L.P. as
independent accountants for the fiscal year ending
December 31, 1998 was ratified. There were 18,405,937
votes for the proposal and 25,305 against with 33,442
abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3.2 - Amended and Restated Bylaws
Exhibit 10.1 - J. Carter Fox Consulting Agreement
Exhibit 11.1 - Computation of Net Earnings Per
Share of Common Stock
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements 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)
Date: May 6, 1998 BY: /s/William T. Tolley
William T. Tolley
Group Vice President - Finance
& Chief Financial Officer
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Page
<S> <C>
Exhibit 3.2
Amended and Restated Bylaws
Exhibit 10.1
J. Carter Fox Consulting Agreement
Exhibit 11.1
Computation of Net Earnings per Share of
Common Stock 23
<PAGE>
</TABLE>
<TABLE>
EXHIBIT 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE OF COMMON STOCK
FOR THE FIRST QUARTER ENDED MARCH 31, 1998 AND 1997
(Share amounts in thousands, dollar amounts in millions,
except for per share amounts)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Basic:
Weighted average number of common shares
outstanding 21,195 23,410
====== ======
Net earnings (loss) $ 8.0 $ (3.5)
===== ======
Per share amount $0.38 $(0.15)
===== ======
Fully diluted:
Weighted average number of common shares
outstanding 21,195 23,410
Net additional common shares
issuable upon exercise of
dilutive options, determined
by treasury stock method using
the average price 267 23
------ ------
Common shares, equivalents and
other potentially dilutive
securities 21,462 23,433
====== ======
Net earnings (loss) for fully diluted
computation $ 8.0 $ (3.5)
====== =======
Per share amount $ 0.37 $ (0.15)
====== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000019731
<NAME> CHESAPEAKE CORP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 66,300,000
<SECURITIES> 0
<RECEIVABLES> 122,900,000
<ALLOWANCES> 5,900,000
<INVENTORY> 102,600,000
<CURRENT-ASSETS> 310,000,000
<PP&E> 867,200,000
<DEPRECIATION> 358,600,000
<TOTAL-ASSETS> 916,000,000
<CURRENT-LIABILITIES> 135,400,000
<BONDS> 266,000,000
<COMMON> 21,200,000
0
0
<OTHER-SE> 399,500,000
<TOTAL-LIABILITY-AND-EQUITY> 916,000,000
<SALES> 216,800,000
<TOTAL-REVENUES> 216,800,000
<CGS> 154,600,000
<TOTAL-COSTS> 202,200,000
<OTHER-EXPENSES> 2,700,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,600,000
<INCOME-PRETAX> 12,700,000
<INCOME-TAX> 4,700,000
<INCOME-CONTINUING> 8,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,000,000
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
of
CHESAPEAKE CORPORATION
(as adopted 2/13/90, with amendments through 2/10/98)
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation in the Commonwealth of Virginia shall be in the City of
Richmond or such other location as may be designated by the Board of
Directors from time to time.
Section 2. Other Offices. The Corporation may have offices at
such other place or places as the Board of Directors may from time to
time designate or appoint.
ARTICLE II
Capital Shares
Section 1. Certificates. Shares of the Corporation shall be
evidenced by certificates in forms prescribed by the Board of
Directors and executed in any manner permitted by law and stating
thereon the information required by law.
Transfer books in which shares shall be transferred shall be kept
by the Corporation or by one or more transfer agents appointed by it.
A record shall be kept of each share certificate that is issued. The
Corporation shall have the right to appoint at any time or from time
to time one or more registrars of its capital shares.
Section 2. Transfer of Shares. Shares of the Corporation shall
be transferable or assignable only on the books of the Corporation by
the holder in person or by an attorney on surrender of the certificate
representing such shares duly endorsed and, if sought to be
transferred by an attorney, accompanied by a written power of
attorney. The Corporation will recognize, however, the exclusive
right of the person registered on its books as the owner of shares to
receive dividends and to vote as such owner.
Section 3. Lost, Destroyed and Mutilated Certificates. After
receiving notice from a shareholder of any loss, destruction or
mutilation of a share certificate, the Secretary or his nominee may in
his discretion cause one or more new certificates for the same number
of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof of
such loss or destruction and the deposit of a bond in such form and
amount and with such surety as the Secretary or his nominee may
require.
Section 4. Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70)
days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is
fixed for the determination of shareholders entitled to notice of or
to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notices of the
meeting are first mailed or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of shareholders.
Section 5. Control Share Acquisitions Statute. The provisions
of Article 14.1 of Chapter 9 of Title 13.1 of the Code of Virginia
(1950), as amended, entitled Control Share Acquisitions, shall not
apply to the Corporation.
ARTICLE III
Shareholders
Section 1. Annual Meeting. Subject to the Board of Directors'
ability to postpone a meeting under Virginia law, the annual meeting
and all other meetings of shareholders shall be held on such date and
at such time and place as may be fixed by the Board of Directors and
stated in the notice of the meeting. The annual meeting shall be held
for the purpose of electing Directors and for the transaction of only
such other business as is properly brought before the meeting in
accordance with these bylaws. To be properly brought before an annual
meeting, business must be (I) specified in the notice of annual
meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (ii) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the annual meeting by a
shareholder. In addition to any other applicable requirements for
business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary.
To be timely, a shareholder's notice must be in writing and delivered
or mailed to and received by the Secretary not less than sixty (60)
days before the first anniversary of the date of the Corporation's
proxy statement in connection with the last annual meeting. A
shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting
(I) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class, series and number of the
Corporation's shares that are beneficially owned by the shareholder,
and (iv) any material interest of the shareholder in such business.
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article III(1); provided, however, that
nothing in this Article III(1) shall be deemed to preclude discussion
by any shareholder of any business properly brought before the annual
meeting. In the event that a shareholder attempts to bring business
before an annual meeting without complying with the provisions of this
Article III(1), the chairman of the meeting shall declare to the
shareholders present at the meeting that the business was not properly
brought before the meeting in accordance with the foregoing
procedures, and such business shall not be transacted.
Section 2. Special Meetings. Special meetings of the
shareholders may be held at any time and at any place designated in
the notice thereof, upon call of the Chairman of the Board of
Directors, the President or a majority of the Board of Directors.
Section 3. Notice. Notice in writing of every annual or special
meeting of the shareholders, stating the date, time and place, and, in
case of a special meeting, the purpose or purposes thereof, shall be
mailed not less than ten (10) nor more than sixty (60) days before any
such meeting to each shareholder of record entitled to vote at such
meeting, at his address as it appears in the share transfer books of
the Corporation. Such further notice shall be given as may be
required by law, but meetings may be held without notice if all of the
shareholders entitled to vote at the meeting waive such notice, by
attendance at the meeting or otherwise, in accordance with law.
Section 4. Quorum. A majority of the votes entitled to be cast
by any voting group on any matter, represented in person or by proxy,
shall constitute a quorum of such voting group with respect to action
on such matter. If at the time and place of the meeting there be
present less than a quorum, the meeting may be adjourned from time to
time by the vote of a majority of the shares present in person or by
proxy without notice other than announcement at the meeting.
Section 5. Voting. Except as otherwise specified in the
Articles of Incorporation or the Virginia Stock Corporation Act, at
all meetings of the shareholders, each holder of an outstanding share
may vote in person or by proxy, and shall be entitled to one vote on
each matter voted on at such meeting for each share registered in the
name of such shareholder on the books of the Corporation on the record
date for such meeting. Every proxy shall be in writing, dated and
signed by the shareholder entitled to vote or his duly authorized
attorney-in-fact.
Unless a greater vote is required pursuant to the Articles of
Incorporation or the Virginia Stock Corporation Act, if a quorum
exists, action on a matter (other than the election of Directors) by a
voting group is approved if the votes cast favoring the action exceed
the votes cast opposing the action. Unless otherwise provided in the
Article of Incorporation, Directors shall be elected by a plurality of
votes cast by shares entitled to vote in the election at a meeting at
which a quorum is present.
Section 6. Presiding Officer. All meetings of the shareholders
shall be presided over by the Chairman of the Board of Directors or,
in his absence or at his request, by the President. In case there be
present neither the Chairman of the Board of Directors nor the
President, the meeting shall elect a chairman. The Secretary or, in
his absence or at his request, an Assistant Secretary, shall act as
secretary of such meetings. In case there be present neither the
Secretary nor an Assistant Secretary, a secretary may be appointed by
the chairman of the meeting.
Section 7. Inspectors and Tellers. An appropriate number of
inspectors and tellers for any meeting of the shareholders may be
appointed by or pursuant to the direction of the Board of Directors.
Inspectors and tellers so appointed will open and close the polls,
will receive and take charge of proxies and ballots and will decide
all questions as to the qualifications of voters, validity of proxies
and ballots and the number of votes properly cast.
ARTICLE IV
Directors
Section 1. General Powers. The business and the affairs of the
Corporation shall be managed under the direction of the Board of
Directors, and, except as expressly provided by law, the Articles of
Incorporation or these bylaws, all of the powers of the Corporation
shall be vested in such Board of Directors.
Section 2. Number and Election of Directors. The number of
Directors constituting the Board of Directors shall be nine (9), who
shall be divided into three classes, Class I, Class II and Class III,
as nearly equal in number as possible. Directors of each class shall
be elected by the shareholders to serve for the terms specified in the
Articles of Incorporation and, unless sooner removed in accordance
with the Articles of Incorporation and applicable law, shall serve
until their respective successors are duly elected and qualified. The
Board of Directors may increase the number of Directors by two (2)
during any twelve month period and may decrease the number of
Directors by thirty (30) percent or less of the number of Directors
last elected by the shareholders. Any vacancy, including a vacancy
resulting from an increase in the number of Directors as specified
above, may be filled by the affirmative vote of a majority of the
remaining Directors, though less than a quorum of the Board of
Directors, and Directors so chosen shall hold office until the next
meeting of the shareholders at which Directors are elected. At such
meeting of the shareholders, the shareholders shall elect a Director
to fill the vacancy, and the newly elected Director shall hold office
for a term expiring at the annual meeting of the shareholders at which
the term of the class to which he has been elected expires.
Subject to any rights of holders of preferred shares, only
persons who are nominated in accordance with the procedures set forth
in this Article IV(2) shall be eligible for election as Directors.
Notice of nominations made by shareholders entitled to vote for the
election of Directors shall be received in writing by the Secretary
not less than fifty (50) nor more than seventy-five (75) days before
the first anniversary of the date of the Corporation's proxy statement
in connection with the last meeting of shareholders called for the
election of Directors. Each notice shall set forth (I) the name, age,
business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment
of each such nominee, and (iii) the number of capital shares of the
Corporation beneficially owned by each such nominee. The Secretary
shall deliver all such notices to the Corporation's Nominating
Committee, or such other committee as may be appointed by the Board of
Directors from time to time for such purpose, for review. The
Nominating Committee shall thereafter make its recommendation with
respect to nominees to the Board of Directors. The chairman of any
meeting of shareholders called for the election of Directors may, if
the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedures, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 3. Annual Meeting. A regular annual meeting of the
Board of Directors shall be held following the adjournment of the
annual meeting of the shareholders at such place as the Board of
Directors may designate. The regular annual meeting of the Board of
Directors then just elected by the shareholders shall be held for the
election of officers of the Corporation and the transaction of all
other business as shall come before the said meeting.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board of
Directors, the President or by any two members of the Board of
Directors on such date and at such time and place as may be designated
in such call, or may be held on any date and at any time and place
without notice by the unanimous written consent of all the members or
by the presence of all of the members at such meeting.
Section 5. Notice of Meetings. Notice of the time and place of
every meeting of the Board of Directors shall be mailed, telephoned or
transmitted by any other means of telecommunication by or at the
direction of the Secretary or other officer of the Corporation to each
Director at his last known address not less than twenty-four (24)
hours before such meeting, provided that notice need not be given of
the annual meeting or of regular meetings held at times and places
fixed by resolution of the Board of Directors. Such notice need not
describe the purpose of a special meeting. Meetings may be held at
any time without notice if all the Directors waive such notice, by
attendance at the meeting or otherwise, in accordance with law.
Section 6. Quorum; Presence at Meeting. A quorum at any
meeting of the Board of Directors shall consist of a majority of the
number of Directors fixed from time to time in these bylaws. Members
of the Board of Directors may participate in any meeting of the Board
of Directors by means of a conference telephone or similar
communications equipment whereby all persons participating in the
meeting may simultaneously hear each other, and participation by such
means shall be deemed to constitute presence in person at such
meeting.
Section 7. Voting. If a quorum is present when a vote is taken,
the affirmative vote of a majority of Directors present is the act of
the Board of Directors, unless the Articles of Incorporation or these
bylaws require the vote of a greater number of Directors. A Director
who is present at a meeting of the Board of Directors or any committee
thereof when corporate action is taken is deemed to have assented to
the action unless (I) he objects at the beginning of the meeting, or
promptly upon his arrival, to holding it or transacting specified
business at the meeting, or (ii) he votes against, or abstains from,
the action taken.
Section 8. Compensation of Directors. Directors, as such, shall
not receive any stated salary for their services, except that, by
resolution of the Board of Directors, Directors may be paid (I) a
retainer in an amount determined by the Board of Directors for their
services as such, (ii) an additional retainer in an amount determined
by the Board of Directors for their services as Chairman of the Board
of Directors or chairman of any special or standing committee of the
Board of Directors, and (iii) a fixed sum and expenses for attendance
at each regular, adjourned, or special meeting of the Board of
Directors or any special or standing committee thereof. Nothing
herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving
compensation therefor.
Section 9. Eligibility. Except as hereinafter provided, no
person shall be elected or re-elected to the Board of Directors if at
the time of any proposed election or re-election he shall have
attained the age of 70 years; provided, however, that the foregoing
provision shall not apply to persons who were members of the Board of
Directors on January 1, 1966. Any Director who (I) separates from
employment with the business or professional organization by which he
was principally employed as of the date of his most recent election or
re-election to the Board of Directors, or (ii) ceases to serve as an
officer in any of the capacities in which he served with such business
or professional organization as of the date of his most recent
election or re-election to the Board of Directors, shall be deemed to
have submitted his resignation as a Director effective upon such
separation from employment or cessation of service as an officer.
Such resignation shall be considered by the Board of Directors at its
next regularly scheduled meeting.
ARTICLE V
Executive and Other Committees
Section 1. Creation of Executive Committee. The Board of
Directors may, whenever it sees fit, by a majority vote of the number
of Directors fixed from time to time in these bylaws, designate an
Executive Committee which shall consist of three (3) or more
Directors, including the Chairman of the Board of Directors and the
President, provided that the President shall be a member of the
Executive Committee only if designated the Chief Executive Officer.
The Chairman of the Board shall be the Chairman of the Executive
Committee. The members of the Executive Committee shall serve until
their successors are designated by the Board of Directors or until
removed or until the Executive Committee is dissolved by a majority
vote of the number of Directors fixed from time to time in these
bylaws.
Section 2. Powers of Executive Committee. Except as otherwise
provided by the Articles of Incorporation or these bylaws, the
Executive Committee, when the Board of Directors is not in session,
shall have all powers vested in the Board of Directors by law, by the
Articles of Incorporation or by these bylaws; provided, that the
Executive Committee shall not have the authority to take any action
that may not be delegated to a committee under the Virginia Stock
Corporation Act. The Executive Committee shall report at the next
regular or special meeting of the Board of Directors on all action it
has taken since the last regular or special meeting of the Board of
Directors.
Section 3. Committee of Outside Directors. The Directors who
are not employees or former employees of the Corporation ("Outside
Directors"), shall constitute the Committee of Outside Directors. The
Committee of Outside Directors shall (a) evaluate the performance of
the Chairman of the Board and the Chief Executive Officer, (b)
recommend, when appropriate, a successor for the Chairman of the Board
and the Chief Executive Officer, (c) in consultation with the Chairman
of the Board, consider and make recommendations to the Board of
Directors for the election of the other officers of the Corporation
and (d) perform such other duties as may be delegated to the Committee
of Outside Directors by the Board of Directors. The Committee of
Outside Directors shall at the annual meeting of the Board of
Directors elect from their number by a majority vote of the number of
Outside Directors a Chairman of the Committee of Outside Directors who
shall preside at meetings of the Committee of Outside Directors and
perform such other duties as may be assigned by the Committee of
Outside Directors. No Director shall be elected Chairman of the
Committee of Outside Directors for more than three (3) consecutive
full terms, provided that a director shall be eligible for election as
Chairman if he has not served as Chairman during the immediately
preceding eleven (11) months.
Section 4. Audit Committee. The Board of Directors, by
resolution adopted by a majority of the number of Directors fixed in
accordance with these bylaws, shall elect an Audit Committee which
shall consist of a Chairman and not less than two (2) Directors, all
of whom shall be Outside Directors. The Audit Committee shall review
and discuss with the corporation's independent accountants the
financial records of the Corporation and report to the Board of
Directors with respect thereto, and shall perform such other duties as
may be assigned by the Board of Directors. The Audit Committee shall
report regularly to the Board of Directors all action which it has
taken.
Section 5. Executive Compensation Committee. The Board of
Directors, by resolution adopted by a majority of the number of
Directors fixed in accordance with these bylaws, shall elect an
Executive Compensation Committee which shall consist of a Chairman and
not less than two (2) other members, all of whom shall be Outside
Directors. The Executive Compensation Committee shall approve
officers' incentive awards and stock option grants, recommend to the
Board of Directors remuneration levels for executive officers, and
perform such other duties as may be assigned to it by the Board of
Directors. The Executive Compensation Committee shall report
regularly to the Board of Directors all action which it has taken.
Section 6. Nominating Committee. The Board of Directors, by
resolution adopted by a majority of the number of Directors fixed in
accordance with these bylaws, shall elect a Nominating Committee which
shall consist of a Chairman and not less than two (2) other members,
all of whom shall be Outside Directors. The Nominating committee
shall review annually the attendance and performance of the
Directors, review the compensation of Directors and make
recommendations to the Board of Directors as to such compensation,
recommend nominees for election to the Board of Directors and perform
such other duties as may be assigned to it by the Board of Directors.
The Nominating Committee shall report regularly to the Board of
Directors all action which it has taken.
Section 7. Other Committees. The Board of Directors, by
resolution adopted by a majority of the number of Directors fixed in
accordance with these bylaws, may establish such other standing or
special committees of the Board of Directors as it may deem advisable,
consisting of two (2) or more Directors. The members, terms and
authority of such committees shall be set forth in the resolutions
establishing the same.
Section 8. Meetings. Regular and special meetings of any
committee established pursuant to this Article may be called by the
Chairman of the Board, the President, the Chairman of the committee
involved or any two (2) members of the committee involved and held
subject to the same requirements with respect to date, time, place and
notice as are specified in these bylaws for regular and special
meetings of the Board of Directors.
Section 9. Quorum and Manner of Acting. A quorum of the members
of any committee serving at the time of any meeting thereof for the
transaction of business at such meeting shall consist of (I) one-third
(but not fewer than two (2)) of such members in the case of any
committee other than the Executive Committee, and (ii) a majority of
such members in the case of the Executive Committee. The action of a
majority of those members present at a committee meeting at which a
quorum is present shall constitute the act of the committee.
Section 10. Term of Office. Members and the chairman of any
committee, excluding the Committee of Outside Directors, shall be
elected at the annual meeting of the Board of Directors and shall hold
office until the next annual meeting of the Board of Directors and
until their successors are elected by the Board of Directors, or until
such committee is dissolved by the Board of Directors.
Section 11. Resignation and Removal. Any member of a committee
may resign at any time by giving written notice of his intention to do
so to the Chairman of the Board or the Secretary, or may be removed,
with or without cause, at any time by such vote of the Board of
Directors or, in the case of the Committee of Outside Directors, by
such vote of the Committee as would suffice for his election.
Section 12. Vacancies. Any vacancy occurring in a committee
resulting from any cause whatever may be filled by a vote of a
majority of the number of Directors fixed by these bylaws.
ARTICLE VI
Officers
Section 1. Required Officers. The officers of the Corporation
shall be a Chairman of the Board, a President and a Secretary,
together with such other officers, including one or more Vice
Presidents (whose seniority and titles may be specified by the Board
of Directors) and a Treasurer, as may be elected from time to time by
the Board of Directors. Any two or more offices may be held by the
same person.
Section 2. Election of Officers; Compensation. The officers of
the Corporation shall be elected by the Board of Directors and shall
hold office until the next annual meeting of the Board of Directors
and until their successors are duly elected and qualified; provided,
however, that any officer may be removed and the resulting vacancy
filled at any time, with or without cause, by the Board of Directors.
The salaries or compensation of all officers of the Corporation shall
be fixed by or pursuant to the direction of the Board of Directors.
Section 3. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the shareholders, Directors and the
Executive Committee and shall have such other powers as may be
conferred upon him by the Board of Directors. If the Chairman of the
Board is not the Chief Executive Officer, he shall, in the absence of
or inability of the Chief Executive Officer to act, be the Acting
Chief Executive Officer until such time as another person is
designated by the Board of Directors as Chief Executive Officer or
Acting Chief Executive Officer. He may sign and execute in the name
of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments except in cases where the signing and
the execution thereof shall be expressly and exclusively delegated by
the Board of Directors or by these bylaws to some other officer or
agent of the Corporation or shall be required by law otherwise to be
signed or executed.
Section 4. President. The President shall perform such duties
as shall be required of him by the Chairman of the Board or the Board
of Directors. If the President is not the Chief Executive Officer, he
shall, in the absence of or inability of the Chief Executive Officer
to act, be the Acting Chief Executive Officer until such time as
another person is designated by the Board of Directors as Chief
Executive Officer or Acting Chief Executive Officer. He may sign and
execute in the name of the Corporation share certificates, deeds,
mortgages, bonds, contracts or other instruments except in cases where
the signing and the execution thereof shall be expressly and
exclusively delegated by the Board of Directors or by these bylaws to
some other officer or agent of the Corporation or shall be required by
law otherwise to be signed or executed.
Section 5. Chief Executive Officer. The Board of Directors
shall designate one of the officers of the Corporation as the Chief
Executive Officer of the Corporation. The Chief Executive Officer
shall be primarily responsible for the implementation of policies of
the Board of Directors. He shall have authority over the general
management and direction of the business and operations of the
Corporation and its divisions, if any, subject only to the ultimate
authority of the Board of Directors
Section 6. Vice Presidents. The Vice Presidents shall perform
such duties as shall be required of them by the Chairman of the Board,
the President or the Board of Directors. Any Vice President may sign
and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments authorized by the Board of Directors,
except where the signing and execution of such documents shall be
expressly and exclusively delegated by the Board of Directors, the
Chairman of the Board or the President to some other officer or agent
of the Corporation or shall be required by law or otherwise to be
signed or executed.
Section 7. Secretary. The Secretary shall prepare and maintain
custody of the minutes of all meetings of the Board of Directors and
stockholders of the Corporation. When requested, he shall also act as
secretary of the meetings of the committees of the Board of Directors.
He shall see that all notices required to be given by the Corporation
are duly given and served; he shall have custody of all deeds, leases,
contracts and other important corporate documents; he shall have
charge of the books, records and papers of the Corporation relating to
its organization and management as a Corporation; and he shall in
general perform all the duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him by the
Chairman of the Board, the President or the Board of Directors. An
Assistant Secretary may exercise any of the functions or perform any
of the duties of the Secretary.
Section 8. Treasurer. The Treasurer shall have custody of the
moneys and securities of the Corporation, shall sign or countersign
such instruments as require his signature and shall perform such other
duties as may be incident to his office or are properly required of
him by the Chairman of the Board, the President, or the Board of
Directors. An Assistant Treasurer may exercise any of the functions
or perform any of the duties of the Treasurer.
ARTICLE VII
Limit on Liability; Indemnification
Section 1. Definitions. In this Article:
"applicant" means the person seeking indemnification pursuant to
this Article;
"expenses" includes counsel fees;
"liability" means the obligation to pay a judgment, settlement,
penalty, fine, including any excise tax assessed with respect to
an employee benefit plan, or reasonable expenses incurred with
respect to a proceeding;
"party" includes an individual who was, is or is threatened to be
made a named defendant or respondent in a proceeding; and
"proceeding" means any threatened, pending or completed action,
suit or proceeding,
whether civil, criminal, administrative or investigative and
whether formal or informal.
Section 2. Limitation on Liability. To the full extent that the
Virginia Stock Corporation Act, as it exists on the date hereof or may
hereafter be amended, permits the limitation or elimination of the
liability of Directors and officers, no Director or officer of the
Corporation shall be liable to the Corporation or its shareholders for
monetary damages with respect to any transaction, occurrence or course
of conduct, whether prior or subsequent to the effective date of this
Article.
Section 3. Indemnification. The Corporation shall indemnify (a)
any person who was or is a party to any proceeding, including a
proceeding brought by or in the right of the Corporation, by reason of
the fact that he is or was a Director or officer of the Corporation,
and (b) any Director or officer of the Corporation who is or was
serving at the request of the Corporation as a director, trustee,
partner or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against any
liability incurred by him in connection with such proceeding unless he
engaged in willful misconduct or a knowing violation of the criminal
law. A person is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the Corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. The Board of Directors
is hereby empowered, by a majority vote of a quorum of disinterested
Directors, to enter into a contract to indemnify any Director or
officer in respect of any proceeding arising from any act or omission,
whether occurring before or after the execution of such contract.
Section 4. Application; Amendment. The provisions of this
Article shall be applicable to all proceedings commenced after the
adoption hereof by the shareholders of the Corporation, arising from
any act or omission, whether occurring before or after such adoption.
No amendment or repeal of this Article shall have any effect on the
rights provided under this Article with respect to any act or omission
occurring prior to such amendment or repeal. The Corporation shall
promptly take all such actions, and make all such determinations, as
shall be necessary or appropriate to comply with its obligation to
make any indemnity under this Article and shall promptly pay or
reimburse all reasonable expenses, including attorneys' fees, incurred
by any Director or officer in connection with such actions and
determinations or proceedings of any kind arising therefrom.
Section 5. Termination of Proceeding. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not of itself create a
presumption that the applicant engaged in willful misconduct or a
knowing violation of the criminal law.
Section 6. Determination of Availability. Any indemnification
under Section (3) of this Article (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the applicant is proper in the
circumstances because he did not engage in willful misconduct or a
knowing violation of the criminal law. The determination shall be
made:
(a) by the Board of Directors by a majority vote of a quorum
consisting of Directors not at the time parties to the proceeding;
(b) if a quorum cannot be obtained under subsection (a) of this
section, by majority vote of a committee duly designated by the Board
of Directors (in which designation Directors who are parties may
participate), consisting solely of two or more Directors not at the
time parties to the proceeding;
(c) by special legal counsel:
(I) selected by the Board of Directors or its committee in
the manner prescribed in subsection (a) or (b) of this section;
or
(ii) if a quorum of the Board of Directors cannot be
obtained under subsection (a) of this section and a
committee cannot be designated under subsection (b) of this
subsection, selected by majority vote of the full Board of
Directors, in which selection Directors who are parties may
participate; or
(d) by the shareholders, but shares owned by or voted under
the control of Directors who are at the time parties to the proceeding
may not be voted on the determination.
Any evaluation as to the reasonableness of expenses shall be made
in the same manner as the determination that indemnification is
permissible, except that if the determination is made by special legal
counsel, such evaluation as to reasonableness of expenses shall be
made by those entitled under subsection (c) of this section to select
counsel.
Notwithstanding the foregoing, in the event there has been a
change in the composition of a majority of the Board of Directors
after the date of the alleged act or omission with respect to which
indemnification is claimed, any determination as to indemnification
and advancement of expenses with respect to any claim for
indemnification made pursuant to this Article shall be made by special
legal counsel agreed upon by the Board of Directors and the applicant.
If the Board of Directors and the applicant are unable to agree upon
such special legal counsel, the Board of Directors and the applicant
each shall select a nominee, and the nominees shall select such
special legal counsel.
Section 7. Advances. (a) The Corporation may pay for or
reimburse the reasonable expenses incurred by any applicant who is a
party to a proceeding in advance of final disposition of the
proceeding or the making of any determination under Section (6) if:
(I) the applicant furnishes the Corporation a written
statement of his good faith belief that he has met the standard
of conduct described in Section (3); and
(ii) the applicant furnishes the Corporation a
written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he did
not meet such standard of conduct.
Section 8. Indemnification of Others. The Board of Directors of
Directors is hereby empowered, by majority vote of a quorum of
disinterested Directors, to cause the Corporation to indemnify or
contract to indemnify any person not specified in Section (3) of this
Article who was, is or may become a party to any proceeding, by reason
of the fact that he is or was an employee or agent of the Corporation,
or is or was serving at the request of the Corporation as director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, to the same
extent as if such person were specified as one to whom indemnification
is granted in Section (3). The provisions of Sections (4) through (7)
of this Article shall be applicable to any indemnification provided
hereafter pursuant to this Section (8).
Section 9. Insurance. The Corporation may purchase and maintain
insurance to indemnify it against the whole or any portion of the
liability assumed by it in accordance with this Article and may also
procure insurance, in such amounts as the Board of Directors may
determine, on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any liability asserted
against or incurred by him in any such capacity or arising from his
status as such, whether or not the Corporation would have power to
indemnify him against such liability under the provisions of this
Article.
Section 10. Further Indemnity. Every reference herein to
Directors, officers, employees and agents shall include former
Directors, officers, employees and agents and their respective heirs,
executors and administrators. The indemnification hereby provided and
provided hereafter pursuant to the power hereby conferred on the Board
of Directors shall not be exclusive of any other rights to which any
person may be entitled, including any right under policies of
insurance that may be purchased and maintained by the Corporation or
others, with respect to claims, issues or matters in relation to which
the Corporation would not have the power to indemnify such person
under the provisions of this Article. Such rights shall not prevent
or restrict the power of the Corporation to make or provide for any
further indemnity, or provisions for determining entitlement to
indemnity, pursuant to one or more indemnification agreements, bylaws,
or other arrangements (including, without limitation, creation of
trust funds or security interests funded by letters of credit or other
means) approved by the Board of Directors (whether or not any of the
Directors of the Corporation shall be a party to or beneficiary of any
such agreements, bylaws or arrangements); provided, however, that any
provision of such agreements, bylaws or other arrangements shall not
be effective if and to the extent that it is determined to be contrary
to this Article or applicable laws of the Commonwealth of Virginia.
Section 11. Further Board Action. Any other provision of this
Article notwithstanding, the Board of Directors shall be empowered to
amend this Article from time to time, to the extent permitted by then
applicable law, to limit, eliminate or extend the rights provided
hereunder, provided that no such amendment shall limit or reduce the
rights provided under this article with respect to any act or omission
occurring prior to such amendment.
Section 12. Severability. Each provision of this Article shall
be severable, and an adverse determination as to any such provision
shall in no way affect the validity of any other provision.
ARTICLE VIII
Emergency Bylaws
The emergency bylaws provided in this Article shall be operative
during any emergency, notwithstanding any different provision in the
preceding Articles of these bylaws, in the Articles of Incorporation
or in the Virginia Stock Corporation Act (other than those provisions
relating to emergency bylaws). An emergency exists if a quorum of the
Board of Directors cannot readily be assembled because of some
catastrophic event. To the extent not inconsistent with these
emergency bylaws, the bylaws provided in the preceding Articles shall
remain in effect during such emergency. Upon the termination of such
emergency, the emergency bylaws shall cease to be operative unless and
until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
officer of the Corporation or by any Director. The notice thereof
shall specify the date, time and place of the meeting. To the extent
feasible, notice shall be given in accord with Article IV, Section (5)
above, but notice may be given only to such of the Directors as it may
be feasible to reach at the time, by such means as may be feasible at
the time, including publication or radio, and at a time less then
twenty-four (24) hours before the meeting if deemed necessary by the
person giving notice. Notice shall be similarly given, to the extent
feasible, to the other persons referred to in Subsection (b) below.
(b) At any meeting of the Board of Directors, a quorum shall
consist of a majority of the number of Directors fixed at the time in
accordance with Article IV, Section (6) of these bylaws. If the
Directors present at any particular meeting shall be fewer than the
number required for such quorum, other persons present as referred to
below to the number necessary to make up such quorum shall be deemed
Directors for such particular meeting as determined by the following
provisions and in the following order of priority:
(I) the President, if not already serving as a Director;
(ii) Vice Presidents not already serving as Directors, first
in the order of the seniority of their title as designated by the
Board of Directors before the emergency, and then in the order of
their seniority of first election to such offices; provided, that
if two or more shall have the same seniority of title or shall
have been first elected to such offices on the same day, then in
the order of their seniority in age;
(iii) [reserved for future use]
(iv) all other officers of the Corporation in the order of
their seniority of first election to such offices, or if two or
more shall have been first elected to such offices on the same
day, then in the order of their seniority in age; and
(v) any other persons who are designated on a list that shall
have been approved by the Board of Directors before the
emergency, such persons to be taken in such order of priority and
subject to such conditions as may be provided in the resolution
approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all
officers or agents of the Corporation shall for any reason be rendered
incapable of discharging their duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the principal
office, or designate several alternative offices, or authorize the
officers so to do.
No officer, Director or employee shall be liable for action
taken in good faith in accordance with these emergency bylaws.
These emergency bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the
shareholders, except that no such repeal or change shall modify the
provisions of the next preceding paragraph with regard to action or
inaction prior to the time of such repeal or change. Any such
amendment of these emergency bylaws may make any further or different
provisions that may be practical and necessary for the circumstances
of the emergency.
ARTICLE IX
Miscellaneous
Section 1. Voting of Shares. Shares of any corporation which
this Corporation shall be entitled to vote may be voted, either in
person or by proxy, by this Corporation's Chairman of the Board or
President or by any other officer expressly authorized by this
Corporation's Board of Directors or Executive Committee, and each such
officer is authorized to give this Corporation's consent in writing to
any action of such corporation, and to execute waivers and take all
other necessary action on behalf of the Corporation with respect to
such shares.
Section 2. Seal. The corporate seal of the Corporation shall
consist of a flat-faced circular die, of which there may be any number
of counterparts, on which there shall be engraved two concentric
circles between which is inscribed the name of the corporation, and in
the center the year of its organization and the words "corporate
seal".
Section 3. Amendments to Bylaws. Unless proscribed by the
Articles of Incorporation, the Board of Directors of the Corporation
shall have the power to adopt and from time to time amend, alter,
change or repeal these bylaws with or without the approval of the
shareholders of the Corporation, but bylaws so made, amended, altered
or changed, may be further amended, altered, changed or repealed by
the shareholders. The shareholders in adopting or amending a
particular bylaw may provide expressly that the Board of Directors may
not amend or repeal that bylaw.
EXHIBIT 10.1
April 1, 1998
Mr. J. Carter Fox
8019 Riverside Drive
Richmond, VA 23225
Dear Carter:
With your agreement, Chesapeake Corporation (the "Company") will
retain your consulting services on the following terms and conditions:
1. You will provide consulting services for the Company on
special projects related to corporate development, business
strategy and organizational development activities as
specifically agreed upon between you and me. The activities
are expected to include woodlands and wood products
activities, and business development in Europe. You will
provide the services in a professional manner and consistent
with the quality standards of the Company.
2. You will provide your services to the Company as an
independent contractor, and the providing of such services
shall not be construed as establishing an employer-employee
relationship between you and the Company. The Company is
interested only in the results to be achieved, and the
conduct and control of your work will be solely with you.
The Company requests that you render your services in a
timely manner, but is our intention that your services be
rendered at your convenience, and you shall operate without
supervision and accomplish the services in a manner that you
deem appropriate. The scope of the consulting services over
the term of this agreement is expected to require
approximately forty (40) days of your time.
3. You will commence providing the consulting services
described herein on April 1, 1998, and this Agreement will
conclude on March 31, 1999, or at such other time as the
parties mutually agree to terminate it.
<PAGE>
April 1, 1998
Page Two
4. As compensation for your consulting services during the term
of this agreement, the Company agrees to pay you a fee of
$1,500.00 per day that you perform services for the Company
pursuant to this agreement (including per diem compensation
for days in excess of the 40 days estimated to perform your
duties under this agreement), provided that a minimum fee of
$3,000.00 per month shall be paid each month, and applied as
a credit on the per diem fee if any payable for that month,
on or before the fifth day of each month commencing with the
month in which this agreement commences. For the purposes
of this agreement, a day shall be deemed to consist of not
less than six (6) hours in a twenty-four (24) consecutive
hour period devoted to performing services under this
agreement. Employee FICA and withholding taxes will not be
deducted from this compensation, and this compensation will
be reported to the Internal Revenue Service as compensation
paid to an independent contractor. As an independent
contractor, you will not be eligible to participate in the
Company's employee benefit programs, except to the extent
you may be eligible to participate in your capacity as a
retired employee or under the terms of other agreements with
the Company.
5. You will be reimbursed by the Company for reasonable
business expenses incurred in your performance of services
covered by this agreement in a manner consistent with the
Company's reimbursement policy, provided that expenses for
out-of-town travel shall be reimbursed only if the travel is
authorized in advance.
6. If you die or become physically unable to perform the
services provided for in this agreement, this agreement will
be terminated as of that time. Also, this agreement may be
terminated at any time by mutual consent of both parties.
In either event, the relevant provisions in &7 will continue
to apply.
For and in consideration of the payments made to you under this
agreement, you agree that any confidential information to
which you may have access or obtain knowledge of while performing
your services as a consultant to the Company shall be maintained
as confidential and not disclosed to any third parties unless
required by a court or administrative agency order. This
commitment will survive termination of this agreement for three
(3) years. Your use of confidential information which you
received or had access to and which subsequently was made public
by the Company will not be restricted.
April 1, 1998
Page Three
It is understood and agreed that this agreement is fully binding
on the Company and its successors in interest and assigns.
If you agree to provide consulting services to the Company on the
terms and conditions set forth in this letter, please countersign the
enclosed copy of this letter and return it to the Company.
Sincerely,
Thomas H. Johnson
President & CEO
I agree to provide the consulting services described above, on
the terms and conditions described above.
April _____, 1998 ----------------------------
J. Carter Fox
