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UNITED STATES 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, 1999
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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value on March 1, 2000, of the voting stock held
by non-affiliates of the registrant was $373 million. In determining this
figure, the registrant has assumed that all of its directors and officers
are affiliates. This assumption shall not be deemed conclusive for any
other purpose.
17,509,043 shares of the registrant's common stock, par value $1, were
outstanding as of March 1, 2000.
Portions of the registrant's Annual Report to Stockholders for the year
ended December 31, 1999, 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 26, 2000, are
incorporated in Part III by reference.
PART I
Item 1. Business
GENERAL
Chesapeake Corporation (the "Company" or "Chesapeake"), is a
Virginia corporation which was organized in 1918. During 1999,
the Company conducted its business in four industry segments:
Merchandising and Specialty Packaging; European Specialty
Packaging; Tissue; and Forest Products/Land Development. The
principal business units included in each industry segment for
all or a portion of 1999, and their respective principal
products, were as follows: the Merchandising and Specialty
Packaging segment -- Chesapeake Display and Packaging Company,
Chesapeake Europe S.A., and Chesapeake Packaging Co. (point-of-
sale displays, graphic packaging, and corrugated shipping
containers); the European Specialty Packaging segment - Field
Group plc (cartons, containers, printed leaflets and labels); the
Tissue segment -- Wisconsin Tissue Mills Inc. and Wisconsin
Tissue de Mexico, S.A. de C.V.(commercial and industrial tissue
products); and the Forest Products/Land Development segment --
Chesapeake Forest Products Company and Chesapeake Building
Products Company (woodlands operations and building products) and
Delmarva Properties, Inc. and Stonehouse Inc. (land development).
The operations of these segments and the impact of acquisition
and divestiture activity are described below.
During the past five years, Chesapeake has made significant
progress in implementing its strategy of shifting from a U.S.-
based paper and forest products manufacturer to a global supplier
of specialty packaging and merchandising services. This
strategic shift has resulted in substantial changes in the
Company's business portfolio through acquisitions and
divestitures of businesses and restructuring of operations.
Management believes this strategy will allow the Company to
achieve greater profits and better utilize Chesapeake's
strengths. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's 1999 Annual
Report to Stockholders (the "1999 Annual Report") incorporated
herein by reference.
Information with respect to business segments and
international sales and long-lived assets is presented in "Notes
to Consolidated Financial Statements, Note 15 - Business Segment
Information" of the 1999 Annual Report and is incorporated herein
by reference. Information with respect to the Company's working
capital practices is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" of the 1999 Annual
Report and is incorporated herein by reference. Information
regarding the Company's anticipated capital spending is set forth
under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations - 2000 Outlook" of
the 1999 Annual Report and is incorporated herein by reference.
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RECENT COMPANY HISTORY
To implement the strategy of repositioning the Company to be
a global supplier of specialty packaging products while reducing
its capital intensity and cyclicality, Chesapeake has
reconfigured its business portfolio as follows (see Notes to
Consolidated Financial Statements, Note 2 "Acquisitions and
Divestitures" and Note 3 "Restructuring/Special Charges" of the
1999 Annual Report, incorporated herein by reference):
Chesapeake expanded internationally for the first time
during 1996, acquiring display and packaging facilities in Canada
and France as well as tissue converting operations in Mexico.
Included in these acquisitions were the operations of the former
Display Division of Dyment Limited, with locations in Canada and
the United States. In 1996, Chesapeake also purchased the point-
of-sale display and packaging businesses of Sailliard S.A., a
French manufacturer. The businesses acquired from Sailliard S.A.
were reported in the Merchandising and Specialty Packaging
segment and included operations specializing in the design and
manufacture of permanent and temporary point-of-sale displays;
the design and manufacture of rigid boxes, with a focus on
perfume, champagne, and specialty products customers; and the
design, printing, and manufacture of folding cartons for the
luxury goods and pharmaceutical industries.
Further expansion in 1995 and 1996 in the Merchandising and
Specialty Packaging segment included: new graphic packaging
plants in California and Mississippi; new custom packing
operations in Tennessee, Pennsylvania, and Ohio; and the
acquisition of point-of-sale and packaging operations in
Kentucky. Capital expenditures intended to enhance efficiency,
and to improve product quality and productivity, were made at
several existing packaging facilities during the same period.
On May 23, 1997, Chesapeake sold its West Point, VA, kraft
products mill, four corrugated container plants, and other
related assets to St. Laurent Paperboard (U.S.) Inc for cash
proceeds of approximately $491 million. This sale was a major
step forward in Chesapeake's strategy of focusing on its faster-
growing operations while reducing the capital intensity and
cyclicality of the Company's mix of businesses.
In February 1998, the Company acquired substantially all of
the assets, and assumed certain liabilities, of Rock City Box
Co., Inc., in Utica, NY. This operation manufactures corrugated
containers, trays, and pallets, as well as wood and foam
packaging products. In November 1998, the Company acquired all of
the outstanding capital stock of Capitol Packaging Corporation, a
specialty packaging company in Denver, CO.
In March 1999, the Company expanded its international
packaging business through the acquisition of Field Group plc
("Field Group"), a European specialty packaging company. The
acquisition was effected through a tender offer by Chesapeake UK
Acquisitions plc, a wholly-owned subsidiary of Chesapeake, for
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all of the outstanding capital shares of Field Group at a
purchase price of (pound) 3.60 per share, or approximately $373
million. Field Group operates 20 facilities in the United
Kingdom, Ireland, the Netherlands, Belgium, France, and Spain.
During 1999, Field Group acquired Berry's (Holding) Limited, one
of Ireland's largest suppliers of printed pharmaceutical leaflets
and self-adhesive labels, and formed a joint venture with one of
Spain's leading printing groups.
In October 1999, the Company completed the acquisition of
Consumer Promotions International Incorporated ("CPI"), a
designer and manufacturer of permanent point-of-sale displays.
CPI, based in Mount Vernon, New York, has operations in the
United States, the United Kingdom and France.
On October 3, 1999, Wisconsin Tissue Mills Inc. completed
the formation of a joint venture with Georgia-Pacific Corporation
("G-P") through which the companies combined their commercial
tissue businesses. Wisconsin Tissue Mills Inc. contributed
substantially all of the assets and liabilities of the Company's
tissue business to the joint venture, known as Georgia-Pacific
Tissue, LLC (the "Tissue JV"), and received a 5 percent equity
interest in the Tissue JV and a tax-deferred cash distribution of
approximately $755 million. The Company's continuing ownership
interest in this business is limited to its remaining 5 percent
equity investment in the Tissue JV.
In the third quarter of 1999 the Company sold its Building
Products business, approximately 278,000 acres of timberland and
Stonehouse Inc.'s investment in a joint venture with Dominion
Capital, Inc. for combined cash proceeds of approximately $185
million.
To solidify the Company's position as a leading global
manufacturer of specialty packaging products, on February 24,
2000, Chesapeake completed the acquisition of substantially all
of the outstanding shares of Boxmore International PLC
("Boxmore"), a leading European specialty packaging company,
headquartered in Belfast, Northern Ireland. Boxmore is a
manufacturer of specialty folding carton and plastic packaging
products for pharmaceutical and healthcare, food and beverage,
and agrochemical businesses. Additionally, on February 18, 2000,
the Company completed the formation of a joint venture with G-P,
in which the two companies combined their litho-laminated graphic
packaging businesses. See "Notes to Consolidated Financial
Statements, Note 14 - Subsequent Events" of the 1999 Annual
Report, incorporated herein by reference.
During the past three years, the Company recorded
restructuring and other special charges principally relating to
plant closures, management reorganizations and review of asset
valuations. See Notes to Consolidated Financial Statements, Note
13 "Commitments and Other Matters" of the 1999 Annual Report,
incorporated herein by reference.
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MERCHANDISING AND SPECIALTY PACKAGING SEGMENT
Chesapeake's Merchandising and Specialty Packaging segment
is composed of Chesapeake Display and Packaging Company ("CD&P"),
which designs and manufactures temporary and permanent point-of-
sale displays and graphic packaging in the United States, Canada,
and Europe, and Chesapeake Packaging Co. ("CP"), which produces
corrugated shipping containers in the United States. Specialty
Packaging products are sold using a dedicated sales force.
Specialty Packaging operations use various converting equipment
to print, cut, slot, and glue packaging, displays, or containers
to customer specifications. The primary raw materials for the
packaging plants include linerboard and corrugating medium, which
are converted to make the walls of the packaging unit.
Chesapeake Display and Packaging
CD&P designs, manufactures, and, in certain cases, packs,
distributes and services display and promotional units that are
used as marketing tools in supermarkets, video stores,
convenience stores, and other retail locations. Point-of-sale
displays are free-standing and highlight or advertise a specific
product or set of products for customers. Most point-of-sale
displays are temporary and are used to support a specific product
advertisement. Design creativity, strength, and high quality
printing are critical performance features.
CD&P operates a network of design, manufacturing, assembly,
packaging, and distribution facilities throughout the United
States, Canada and Europe, and provides its customers with a wide
range of products and services, including graphic and structural
design, in-house manufacturing, project management, assembly,
custom packing, distribution and in-store service.
CD&P also designs and manufactures light-weight graphic
packaging that is used by consumer products companies to pack,
store, stack, and display retail products. This is a litho-
laminated, printed, corrugated product, which is preferred by
mass merchandisers because of its superior graphic appearance and
stacking strength. As with point-of-sale displays, CD&P offers
turn-key service to its graphic packaging customers by providing
CAD-CAM mechanical design, digital art board, graphic design, die
making, product testing, and full customer support. CD&P
operates three dedicated graphic packaging facilities in Visalia,
CA, Richmond, IN, and Pelahatchie, MS, that are capable of
servicing national accounts. In February 2000, these operations
were contributed to a joint venture with G-P. See "Notes to
Consolidated Financial Statements, Note 14 - Subsequent Events"
of the 1999 Annual Report, incorporated herein by reference.
Chesapeake Europe produces point-of-sale displays, rigid and
luxury boxes, and specialty folding cartons in seven facilities
in France, primarily for consumer and luxury goods producers in
France.
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Chesapeake Packaging
CP consists of ten corrugated shipping container plants
located in seven states, which manufacture corrugated boxes and
specialty packaging primarily for customers within each plant's
regional area.
EUROPEAN SPECIALTY PACKAGING SEGMENT
Chesapeake's European Specialty Packaging segment consists
of Field Group, which is headquartered in the United Kingdom.
Field Group specializes in the design and production of cartons,
containers, printed leaflets and labels. Field Group is focused
on three end-use sectors: Pharmaceuticals and Healthcare;
International and Branded Products; and Food and Household.
Field Group operates 20 facilities in the United Kingdom,
Ireland, the Netherlands, Belgium, France and Spain. Field
Group's Pharmaceutical and Healthcare division offers pan-
European integrated manufacturing and distribution of cartons,
labels and leaflets, and provides this market sector with
rigorous product security. Its International and Branded Products
division produces packaging and labels primarily for the
beverage, tobacco and confectionery markets. Its Food and
Household division produces packaging for multinational consumer
products companies. Field Group's products are sold by an
internal dedicated sales force. Products of the Pharmaceutical
and Healthcare division are distributed throughout Europe.
Products of the International and Branded Products and the Food
and Household divisions are distributed primarily within the
respective countries in which the products are manufactured.
To continue to expand its global specialty packaging
presence, on February 24, 2000, Chesapeake completed the
acquisition of substantially all of the outstanding shares of
Boxmore, a leading European manufacturer of specialty folding
carton and plastic packaging products for pharmaceutical and
healthcare, food and beverage, and agrochemical businesses.
The Company believes that the combined operations of Field
Group and Boxmore establish Chesapeake as a leading European
supplier for the pharmaceutical and healthcare industries. With
a pan-European presence, the Company has a local supply base to
service targeted national and multinational companies.
TISSUE SEGMENT
Chesapeake's Tissue segment, which consisted of Wisconsin
Tissue Mills Inc. and Wisconsin Tissue de Mexico, S.A. de C.V.
(collectively, "Wisconsin Tissue" or "WT"), produced tissue for
industrial and commercial markets, including full-menu and fast-
food restaurants, hotels, motels, clubs, health care facilities,
schools, office locations, and commercial airlines.
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Operations of the Tissue segment included: paper mills in
Menasha, WI, Flagstaff, AZ, and Chicago, IL; and converting and
distribution facilities in Neenah, WI, Bellemont, AZ, Greenwich,
NY, and Toluca, Mexico. The combined operations sold over 2,200
products, including napkins, tablecovers, toweling, placemats,
wipers, and facial and bathroom tissue. Wisconsin Tissue's
products were sold throughout the United States, Canada, and
Mexico using a dedicated sales force and independent
distributors.
The raw material for the paper manufactured by Wisconsin
Tissue was 100% recovered paper. Tissue operations required
major investments in paper machines, fiber preparation equipment,
and converting equipment. Wisconsin Tissue's seven paper
machines manufactured various weights and grades of tissue that
were converted on approximately 150 specialized machines.
Shipments of converted products by Wisconsin Tissue were 229,000
tons in 1999 (prior to the formation of the Tissue JV), 299,000
tons in 1998, and 268,000 tons in 1997.
On October 3, 1999, WT completed the formation of a joint
venture with G-P through which the companies combined their
commercial tissue businesses. WT contributed substantially all
of the assets and liabilities of the Company's tissue business to
the Tissue JV and received a 5 percent equity interest in the
Tissue JV and a tax-deferred cash distribution of approximately
$755 million. The Company's continuing ownership interest in this
business is limited to its remaining 5 percent equity investment
in the Tissue JV.
FOREST PRODUCTS/LAND DEVELOPMENT SEGMENT
Chesapeake's Forest Products/Land Development segment
consisted of Chesapeake Forest Products Company, Chesapeake
Building Products Company, Delmarva Properties, Inc. and
Stonehouse Inc. After the sales of approximately 278,000 acres
of timberland, the Building Products Company and Stonehouse
Inc.'s investment in a joint venture, the retained business owns
and markets approximately 45,000 acres of land in various stages
of development that the Company believes is more valuable when
used as developed property than as timberland. Sales include
large lots and acreage for third parties to develop for both
residential and commercial uses.
RISKS AND UNCERTAINITIES
The information presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Risk Management" and Notes to Consolidated Financial
Statements, Note 7 "Financial Instruments and Risk
Concentrations" of the 1999 Annual Report is incorporated herein
by reference.
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RAW MATERIALS
Most of the Company's raw materials are readily available at
competitive market prices. The primary raw materials for the
Merchandising and Specialty Packaging segment and the European
Specialty Packaging segment are boxboard, linerboard and
corrugating medium, which are converted to make the walls of the
packaging unit. The raw materials for the packaging segments are
purchased from various suppliers at market prices. The raw
material for the paper manufactured by the Tissue segment was
100% recovered paper purchased from independent dealers and
brokers on the open market.
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. Each
expansion project has been planned to comply with applicable
environmental regulations and to enhance environmental protection
at existing facilities. Compliance with existing environmental
regulations is not expected to have a material adverse effect on
the Company's financial condition or results of operations. See
also "Notes to Consolidated Financial Statements, Note 13 -
Commitments and Contingencies - Legal and Environmental Matters"
of the 1999 Annual Report, incorporated herein by reference.
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 ("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 PRP.
Except for the Fox River matter, the Company has not been
identified as a 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 condition or results of operations.
In June 1994, the United States Department of Interior, Fish
and Wildlife Service ("FWS"), a federal natural resources
trustee, notified WT that it had identified WT and four other
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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 notices 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 have engaged in discussions with the
parties asserting trusteeship of the natural resources concerning
the damage assessment and the basis for resolution of the 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. Under an interim agreement with the
State of Wisconsin, the PRPs provided funds for an interim phase
of resource damage assessment and restoration work in 1998 and
1999. WT's obligation under the agreement was not material to
the Company's financial condition or results of operations.
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 PRPs, including WT.
On February 26, 1999, the Wisconsin Department of Natural
Resources ("DNR") released for public comment a draft remedial
investigation/feasibility study ("RI/FS") for the lower Fox River
site. In the draft RI/FS, the DNR reviewed and summarized
several categories of possible remedial alternatives for the
site, estimated to cost in the range of $143 million to $721
million, but did not identify a preferred remedy. (As required
by applicable regulations, the draft RI/FS also includes a "no
action" alternative that does not entail remediation costs, but
the Company does not believe that the "no action" alternative
will be selected). There can be no assurance that many of the
cost estimates in the draft RI/FS will not differ significantly
from actual costs. The Company submitted timely comments on the
draft RI/FS both individually and in conjunction with other PRPs.
After finalizing the RI/FS, the DNR and the EPA are expected to
announce a preferred remedial alternative in a Proposed Remedial
Action Plan. The Proposed Remedial Action Plan will be subject to
a public comment period, and enforcement of any definitive
Remedial Action Plan may be subject to judicial review.
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The largest components of the costs of the more expensive
clean-up alternatives presented in the draft RI/FS are
attributable to large-scale sediment removal, treatment and
disposal. Based on current information and advice from its
environmental consultants, WT believes that an aggressive effort
to remove substantial amounts of PCB-contaminated sediments (most
of which are buried under cleaner material or are otherwise
unlikely to move), as contemplated by certain alternatives
presented in the draft RI/FS, would be environmentally
detrimental and therefore inappropriate. Instead, WT believes
that less intrusive alternatives are more environmentally
appropriate, cost effective and responsible methods of managing
risks attributable to sediment contamination.
The ultimate cost to WT associated with this matter cannot
be predicted with certainty at this time, due to uncertainties
with respect to: which, if any, of the remedial alternatives
presented in the draft RI/FS will be implemented, and
uncertainties associated with the actual costs of each of the
potential alternatives; the outcome of the federal and state
natural resource damage assessments; WT's share of any multi-
party clean-up/restoration expenses; the timing of any clean-
up/restoration; the evolving nature of clean-up/restoration
technologies and governmental regulations; 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. While such costs
cannot be predicted with certainty at this time, the Company
believes that the ultimate clean-up/restoration costs associated
with the lower Fox River site may exceed $100 million for all
PRPs in the aggregate. Under CERCLA, each PRP generally will be
jointly and severally liable for the full amount of the clean-up
costs, subject to a right of contribution from the other PRPs. In
practice, PRPs generally negotiate among themselves to determine
their respective contributions to any multi-party
cleanup/restoration, based upon factors including their
respective contributions to the alleged contamination and their
ability to pay. Based on presently available information, the
Company believes that several of the named PRPs will be able to
pay substantial shares toward remediation and restoration, and
that there are additional parties, some of which have substantial
resources, that may also be jointly and severally liable.
The Company also believes that it is entitled to substantial
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 Company believes that
the prior owner intends to, and has the financial ability to,
honor its indemnification obligation under the stock purchase
agreement.
Pursuant to the Joint Venture Agreement for the Tissue JV,
the Company has retained liability for, and the third party
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indemnity rights associated with, the discharge of PCBs and other
hazardous materials in the Fox River and Green Bay System. Based
on presently available information, the Company believes that if
any remediation/restoration is done in an environmentally
appropriate, cost effective and responsible manner, the matter is
unlikely to have a material adverse effect on the Company's
financial condition or results of operations. However, because
of the uncertainties described above, there can be no assurance
that WT's ultimate liability with respect to the lower Fox River
site will not have a material adverse effect on the Company's
financial condition or results of operations.
On April 19, 1999, the EPA and the Virginia Department of
Environmental Quality ("DEQ") each issued Notices of Violation
("NOVs") under the Clean Air Act Amendments of 1990 ("CAA")
against St. Laurent Paper Products Corp. ("St. Laurent") (and, in
the case of EPA's NOV, Chesapeake) relating to St. Laurent's
kraft products mill located in West Point, Virginia (the "West
Point Mill") formerly owned and operated by Chesapeake Paper
Products, L.L.C. Chesapeake Paper Products, L.L.C. was sold by
Chesapeake to St. Laurent Paperboard (U.S.) Inc. ("St. Laurent
(U.S.)") in May 1997, pursuant to a Purchase Agreement dated as
of April 30, 1997, by and among Chesapeake Corporation, St.
Laurent Paperboard Inc. and St. Laurent (U.S.) (the "Purchase
Agreement"). In general, the NOVs allege that from 1984 to the
present, the West Point Mill installed certain equipment and
modified certain production processes without obtaining required
permits. Under applicable law, the EPA and DEQ may commence a
court action with respect to the matters alleged in the NOVs
seeking injunctive relief to compel compliance with the CAA, and
a court may impose civil penalties of up to $25,000 per day of
violation ($27,500 per day for violations after January 30, 1997)
for violations of the CAA (provided that a court, in determining
the amount of any penalty to be assessed, shall take into
consideration, among other things, the size of the business, the
economic impact of the penalty on the business, the business'
compliance history and good faith efforts to comply, the economic
benefit to the business of noncompliance and the seriousness of
the violation). The Purchase Agreement provides that Chesapeake
will indemnify St. Laurent against any violations of applicable
environmental laws (including the CAA) that existed at the West
Point Mill as of the date of the Purchase Agreement and as of the
May 1997 closing date (and any other such violations that existed
prior to such dates as to which Chesapeake had "knowledge," as
defined in the Purchase Agreement). Chesapeake's indemnification
obligation to St. Laurent with respect to such matters is capped
at $50 million and, in certain circumstances, is subject to a
$2.0 million deductible. The Company and St. Laurent have
jointly responded to and are defending against the matters
alleged in the NOVs. Based upon a review of the NOVs and an
analysis of the applicable law and facts, the Company believes
that both it and St. Laurent have substantial defenses against
the alleged violations and intend to defend against the alleged
violations vigorously. The Company and St. Laurent are
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negotiating with EPA, the United States Department of Justice and
DEQ to address the matters that are the subject of the NOVs. The
ultimate cost, if any, to the Company relating to matters alleged
in the NOVs cannot be determined with certainty at this time, due
to the absence of a determination whether any violations of the
CAA occurred and, if any violations are ultimately found to have
occurred, a determination of (i) any required remediation costs
and penalties, and (ii) whether St. Laurent would be entitled to
indemnification from the Company under the Purchase Agreement.
EMPLOYEES
As of December 31, 1999, the Company had 6,616 employees.
The Company believes that its relations with its employees are
good.
COMPETITION
Competition is intense in the Merchandising and Specialty
Packaging and the European Specialty Packaging segments from both
large companies and from local and regional producers and
converters. The Company competes by differentiating itself
through product design and exceptional customer service. In the
Merchandising and Specialty Packaging segment, the Company
believes, based on sales, that its CD&P business is a leading
provider of temporary and permanent displays and merchandising
services, competing primarily with the Alliance division of Rock-
Tenn Company and the Phoenix division of International Paper Co.
The Company's CP operations compete with a large number of
national, regional and local producers. The Company believes that
its European Specialty Packaging segment has a leading position
in Europe, competing primarily with Van Genechten, Mayr-Melnhof,
Lawson Mardon, and other regional and local producers. Chesapeake
has many customers who buy its products and is not dependent on
any single customer, or group of customers, in any of its
business segments. Longstanding relationships exist with many
customers who place orders on a continuing basis. Because of the
nature of Chesapeake's businesses, order backlogs are not large.
SEASONALITY
Due to the significant shift in the Company's business
portfolio to focus on specialty packaging products, the Company's
sales and earnings have become increasingly seasonal. The
specialty packaging based businesses generally experience peak
operational activity during the months of August through
November. As a result, approximately 70 to 85 percent of the
Company's annual sales and earnings are expected to be generated
in the third and fourth quarters of each year divided
approximately evenly between such quarters.
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RESEARCH AND DEVELOPMENT
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.
TRADEMARKS
The Company utilizes various trademarks in the course of its
business, none of which are individually material.
Item 2. Properties
The information presented under "Operating Locations" in the
1999 Annual Report is incorporated herein by reference. The
Company believes that its production facilities are 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 13 - "Commitments and Contingencies" of the
1999 Annual Report is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
13
Executive Officers of the Registrant
The name and age of each executive officer of the Company
as of March 1, 2000, together with a brief description of the
principal occupation or employment of each such person during the
past five years, is set forth below. Executive officers serve at
the pleasure of the board of directors and are generally elected
at each annual organizational meeting of the board of directors.
Thomas H. Johnson (50)
President and Chief Executive Officer since 1997
Vice Chairman, Riverwood International Corporation (1996-1997)
President and Chief Executive Officer, Riverwood
International Corporation (1989-1996)
Octavio Orta (55)
Executive Vice President - Merchandising and Specialty
Packaging since 1999
Executive Vice President-Display & Packaging (1998)
President of Chesapeake Display & Packaging Company since 1998
Senior Vice President-Coated Board Sales & Packaging
Operations Groups, Riverwood International Corporation
(1995-1998)
Senior Vice President, Europe and Asia/Pacific, Riverwood
International Corporation (1993-1995)
Keith Gilchrist (51)
Executive Vice President-European Specialty Packaging since
1999
Chief Executive, Field Group plc since 1991
J. P. Causey Jr. (56)
Senior Vice President, Secretary & General Counsel since 1995
Vice President, Secretary & General Counsel (1986-1995)
Harold Mark Ennis (43)
Senior Vice President since 2000
Group Chief Executive, Boxmore International PLC (1997-2000)
Group Deputy Managing Director, Boxmore International PLC
(1995-1997)
Group Director of Corporate Development, Boxmore International
PLC (1994-1995)
John F. Gillespie (52)
Senior Vice President - Human Resources and Organizational
Development since 2000
Senior Vice President - Human Resources, Communications and
Public Affairs, Venator Group (1996-2000)
Senior Vice President - Human Resources, Lever Brothers (1990-
1996)
Andrew J. Kohut (41)
Senior Vice President-Strategic Business Development since
1998
Group Vice President-Specialty Packaging & Merchandising
Services (1996-1998)
Group Vice President-Finance & Strategic Development (1995-
1996)
Chief Financial Officer (1991-1996)
Vice President-Finance (1991-1995)
14
Robert F. Schick (57)
Senior Vice President-Containers since 1998
President, Chesapeake Packaging Co. since 1996
Vice President-Containers (1997-1998)
Vice President-Operations, Chesapeake Packaging Co. (1988-
1996)
William T. Tolley (42)
Senior Vice President-Finance & Chief Financial Officer since
1998
Group Vice President-Finance & Chief Financial Officer (1996-
1998)
Vice President, Finance & Chief Financial Officer, Carrier
Corporation, North American Operations, a division of United
Technologies (1995-1996)
Vice President & Chief Financial Officer, Carrier Transicold,
a division of United Technologies (1991-1995)
Thomas A. Smith (53)
Vice President-Human Resources since 1999
Vice President-Human Resources & Assistant Secretary (1987-
1999)
15
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The dividend and stock price information presented under the
caption "Recent Quarterly Results" of the 1999 Annual Report is
incorporated herein by reference. The Company's common stock is
listed on the New York Stock Exchange under the symbol "CSK". As
of March 1, 2000, there were 6,207 stockholders of record of the
Company's common stock.
The Company has certain loan agreements related to a portion
of its debt which contain certain limits on the Company's ability
to pay dividends. See Notes to Consolidated Financial
Statements, Note 6 "Long-Term Debt" and Note 14 "Subsequent
Events" of the 1999 Annual Report, incorporated herein by
reference.
Item 6. Selected Financial Data
The information presented under the caption "Five-Year
Comparative Record" of the 1999 Annual Report is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" of the 1999 Annual Report, except the information set
forth under the caption "Environmental" therein, is incorporated
herein by reference. The information set forth under the caption
"Environmental" in Item 1 - "Business" of this Form 10-K is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of the Company and its
subsidiaries, including the notes thereto, and the information
presented under the caption "Recent Quarterly Results" of the
1999 Annual Report, are incorporated herein by reference. The
"Report of Independent Accountants" as presented in the Company's
1999 Annual Report is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
16
PART III
Item 10. Directors and Executive Officers of the Registrant
The information presented under the captions "Information
Concerning Nominees", "Directors Continuing in Office", and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 26, 2000 (the "2000 Proxy
Statement"), and the information presented under the caption
"Executive Officers of the Registrant" in Part I of this Form 10-
K, is incorporated herein by reference.
Item 11. Executive Compensation
The information presented under the captions "Compensation
of Directors" and "Executive Compensation" of the 2000 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
2000 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information presented under the caption "Certain
Relationships and Related Transactions" of the 2000 Proxy
Statement is incorporated herein by reference.
17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a. Documents
(i) Financial Statements
The consolidated balance sheet of
Chesapeake Corporation and subsidiaries as of
December 31, 1999 and 1998, and the related
consolidated statements of income and
comprehensive income, cash flows, and changes
in stockholders' equity for each of the three
years in the period ended December 31, 1999,
including the notes thereto, are presented in
the 1999 Annual Report and are incorporated
herein by reference. The "Report of
Independent Accountants" as presented in the
1999 Annual Report is 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 of this
Form 10-K, no other data appearing in the
1999 Annual Report is deemed to be "filed" as
part of this Form 10-K.
(ii) Financial Statement Schedules
None required.
(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 20-
23 hereof. Exhibits 10.1 - 10.21 hereto
constitute management contracts or
compensatory plans or arrangements required
to be filed as exhibits hereto.
b. Reports on Form 8-K
(i) Current Report, dated February 23, 2000, filed March 8,
2000, reporting, under Items 2 and 7, information
related to the acquisition of Boxmore International PLC
and a new six month $250 million senior credit facility.
18
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 16, 2000
By /s/ WILLIAM T. TOLLEY
William T. Tolley
Senior Vice President -
Finance & Chief
Financial Officer
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 /s/ DAVID FELL By /s/ WALLACE STETTINIUS
Sir David Fell Wallace Stettinius
Director Director
By /s/ ROBERT L. HINTZ By /s/ RICHARD G. TILGHMAN
Robert L. Hintz Richard G. Tilghman
Director Director
By /s/ THOMAS H. JOHNSON By /s/ JOSEPH P. VIVIANO
Thomas H. Johnson Joseph P. Viviano
Director; Chief Executive Director
Officer and President
By /s/ FRANK S. ROYAL By /s/ HARRY H. WARNER
Frank S. Royal Harry H. Warner
Director Chairman of the Board
By /s/ JAMES E. ROGERS By /s/ HUGH V. WHITE, JR.
James E. Rogers Hugh V. White, Jr.
Director Director
By /s/ JOHN W. ROSENBLUM By /s/ WILLIAM T. TOLLEY
John W. Rosenblum William T. Tolley
Director Chief Financial and
Accounting Officer
Each of the above signatures is affixed as of February 16, 2000.
19
EXHIBIT INDEX
2.1 Purchase Agreement, dated as of April 30, 1997, by and
between Chesapeake Corporation, St. Laurent Paperboard Inc. and
St. Laurent Paperboard (U.S) Inc. (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated May 23, 1997, and
incorporated herein by reference)
2.2 Joint Venture Agreement, dated as of October 4, 1999, among
Georgia-Pacific Corporation, Chesapeake Corporation, Wisconsin
Tissue Mills Inc. and Georgia-Pacific Tissue Company, LLC (filed
as Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999, and incorporated herein
by reference)
2.3 Operating Agreement of Georgia-Pacific Tissue, LLC, dated as
of October 4, 1999, among Wisconsin Tissue Mills Inc. and Georgia-
Pacific Corporation (filed as Exhibit 2.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, and incorporated herein by reference)
2.4 Indemnity Agreement, dated as of October 4, 1999, between
Wisconsin Tissue Mills Inc. and Georgia-Pacific Corporation
(filed as Exhibit 2.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference)
2.5 Amended and Restated Indemnity Agreement, dated as of
November 12, 1999, between Wisconsin Tissue Mills Inc. and
Georgia-Pacific Corporation, filed herewith
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 Amended and Restated Bylaws, filed herewith
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)
4.3 Second Supplemental Indenture, dated as of October 4, 1999,
to the Indenture dated as of July 15, 1985, between the
Registrant and The Bank of New York, as successor Trustee, filed
herewith
20
4.4 Credit Agreement, dated as of February 23, 2000, among
Chesapeake, Chesapeake UK Acquisitions II PLC, Chesapeake UK
Acquisitions PLC and Chesapeake UK Holdings Limited, as the
Borrowers, Various Financial Institutions and Other Persons From
Time to Time Parties Thereto, as the Lenders, and First Union
National Bank, as the Administrative Agent (filed as Exhibit 4.1
to the Registrant's Current Report on Form 8-K, dated February
23, 2000, and incorporated herein by reference)
4.5 Rights Agreement, dated as of March 15, 1998, between the
Registrant and Harris Trust and Savings Bank, as rights
agent (filed as Exhibit 1 to Registration Statement on
Form 8-A, dated March 13, 1998)
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 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)
10.2 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)
10.3 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)
10.4 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)
10.5 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)
10.6 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)
10.7 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)
21
10.8 Chesapeake Corporation 1993 Incentive Plan (filed as Exhibit
4.1 to Form S-8 Registration Statement No. 33-67384 and
incorporated herein by reference)
10.9 Chesapeake Corporation Directors' Stock Option and Deferred
Compensation Plan (filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference)
10.10 Chesapeake Corporation 401(k) Restoration Plan (filed as
Exhibit 10.11 to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1996, and incorporated
herein by reference)
10.11 Chesapeake Corporation 1997 Incentive Plan (filed as
exhibit 4.5 to Form S-8 Registration Statement No. 333-30763 and
incorporated herein by reference)
10.12 Employment and Severance Benefit Agreement, dated as of
July 17, 1997, with Thomas H. Johnson (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, and incorporated
herein by reference)
10.13 First Amendment to Employment and Severance Benefit
Agreement with Thomas H. Johnson, dated as of September
13, 1999, filed herewith
10.14 Executive Employment Agreement with J.P. Causey Jr., dated
as of September 13, 1999, filed herewith
10.15 Employment and Severance Benefit Agreement with Keith
Gilchrist, dated as of March 3, 1999, filed herewith
10.16 First Amendment to Employment and Severance Benefit
Agreement with Keith Gilchrist, dated as of September 13,
1999, filed herewith
10.17 Executive Employment Agreement with Andrew J. Kohut, dated
as of September 13, 1999, filed herewith
10.18 Executive Employment Agreement with Octavio Orta, dated as
of September 13, 1999, filed herewith
10.19 Executive Employment Agreement with Robert F. Schick, dated
as of September 13, 1999, filed herewith
10.20 Executive Employment Agreement with Thomas A Smith, dated
as of September 13, 1999, filed herewith
10.21 Executive Employment Agreement with William T. Tolley,
dated as of September 13, 1999, filed herewith
11.1 Computation of Net Income Per Share of Common Stock
13.1 Portions of the Chesapeake Corporation Annual Report to
Stockholders for the year ended December 31, 1999
22
21.1 Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule - 1999
27.2 Restated Financial Data Schedule - 1998
27.3 Restated Financial Data Schedule - 1997
99.1 Form 11-K Annual Report, Hourly Employees' Stock Purchase
Plan for the plan fiscal year ended November 30, 1999
23
EX 2.5
AMENDED AND RESTATED INDEMNITY AGREEMENT
AMENDED AND RESTATED INDEMNITY AGREEMENT (the
"Agreement"), dated as of November 12, 1999, between
WISCONSIN TISSUE MILLS INC., a Delaware corporation and
wholly owned subsidiary of Chesapeake Corporation ("WISCO"
or the "Indemnitor"), and GEORGIA-PACIFIC CORPORATION, a
Georgia corporation ("G-P"). Capitalized terms used but not
otherwise defined herein shall have the respective meanings
given to such terms in the Joint Venture Agreement or the
Operating Agreement, each referred to below.
W I T N E S S E T H:
WHEREAS, Chesapeake Corporation, WISCO, G-P and Georgia
Pacific Tissue, LLC, a Delaware limited liability company
(the "Company"), are parties to a Joint Venture Agreement,
dated as of October 4, 1999 (the "Joint Venture Agreement");
WHEREAS, WISCO and G-P are parties to the Operating
Agreement of the Company, dated as of October 4, 1999 (the
"Operating Agreement");
WHEREAS, the Company is a party to a Credit Facility,
dated as of October 4, 1999, among the Company and Bank of
America, N.A. (the "First Lender") (as amended, supplemented
or otherwise modified from time to time in accordance with
the Operating Agreement, the "Credit Agreement"), pursuant to
which the First Lender made a loan to the Company in the
amount of $755.2 million (the "First Company Debt");
WHEREAS, the Company has executed a promissory note,
dated as of October 4, 1999, evidencing the First Company
Debt;
WHEREAS, G-P has provided to the First Lender a full and
unconditional guaranty of payment of the First Company Debt
pursuant to a Guaranty Agreement, dated as of October 4, 1999
(the "First G-P Guaranty");
WHEREAS, pursuant to an Indemnity Agreement, dated as of
October 4, 1999, the Indemnitor has agreed to indemnify G-P
against amounts that may be actually paid by G-P to the First
Lender under the G-P Guaranty for the original principal
amount of the First Company Debt, subject to the terms and
limitations set forth therein;
WHEREAS, Section 3.17 of Operating Agreement provides
for the Company to refinance the First Company Debt with
Permanent Company Debt, and the Company desires to effect a
partial refinancing of the First Company Debt with
$491,415,000 of Permanent Company Debt in the form of the
Second Company Debt (as defined below);
WHEREAS, Georgia-Pacific Finance LLC, a Delaware limited
liability company (the "Second Lender" and together with the
First Lender, the "Lenders"), is a wholly-owned subsidiary of
Georgia-Pacific West, Inc., an Oregon corporation, which in
turn is a wholly-owned subsidiary of G-P;
-1-
WHEREAS, the Second Lender intends to lend to the
Company, and the Company intends to borrow from the Second
Lender, $491,415,000 (the "Second Company Debt") pursuant to
a promissory note in the form attached hereto as Exhibit A
(the "Note"), in order for the Company to refinance an equal
amount of the First Company Debt;
WHEREAS, G-P has provided to the Second Lender a full
and unconditional guaranty of payment of the Second Company
Debt pursuant to a Guaranty Agreement, dated as of November
12, 1999 (the "Second G-P Guaranty"), a copy of which is
attached hereto as Exhibit B;
WHEREAS, the First Company Debt and the Second Company
Debt are referred to herein collectively as the "Company
Debt";
WHEREAS, the First G-P Guaranty and the Second G-P
Guaranty are referred to herein collectively as the "G-P
Guaranties";
WHEREAS, the Company shall use, and G-P shall cause the
Company to use, all the proceeds of the Second Company Debt
to repay $491,415,000 of the principal amount of the First
Company Debt, such repayment be effected by the wire transfer
of funds directly from the Second Lender (on behalf of the
Company) to the First Lender;
WHEREAS, after such repayment of $491,415,000 of the
principal amount of the First Company Debt, the principal
amount of the Company Debt shall be $755.2 million;
WHEREAS, the Indemnitor has agreed to indemnify G-P
against amounts that may be actually paid by G-P to the
Second Lender under the Second G-P Guaranty for the original
principal amount of the Second Company Debt, subject to the
terms and limitations set forth herein;
WHEREAS, pursuant to Sections 3.15(b) and 3.17 of the
Operating Agreement, the Indemnitor is to continue to "bear
the economic risk of loss" (within the meaning of Section
1.752-2 of the Regulations) for $755.2 million of the Company
Debt;
WHEREAS, assuming the validity and enforceability of the
G-P Guaranties, the Note, the Credit Agreement and the
promissory note relating thereto, the Indemnitor has
determined that, upon the duly authorized execution and
delivery of this Agreement and consummation of the partial
refinancing of the First Company Debt as contemplated herein,
the Indemnitor will "bear the economic risk of loss" within
the contemplation of Sections 3.15(b) and 3.17 of the
Operating Agreement; and
WHEREAS, the parties hereto desire to amend and restate
the Indemnity Agreement, dated as of October 4, 1999, in this
Agreement, in order to set forth the Indemnitor's agreement
to indemnify G-P with respect to the Second G-P Guaranty and
the original principal amount of the Second Company Debt and
the continuation of the Indemnitor's agreement to indemnify G-
P with respect to the First G-P Guaranty and the original
principal amount of the First Company Debt (reduced by the
amount of the Second Company Debt).
-2-
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Indemnity. Subject to Sections 3 and 4
hereof, the Indemnitor unconditionally agrees to indemnify G-
P as follows for payments of the original principal amount of
the Company Debt that G-P may make under either of the G-P
Guaranties: If (i) G-P shall have made a payment of
principal (excluding any accrued and unpaid interest that may
be added to principal) of the Company Debt to either of the
Lenders under either of the G-P Guaranties, (ii) G-P shall
have exhausted all of its rights (whether by subrogation or
otherwise) to reimbursement or recovery from the Company or
the Company's assets, and (iii) G-P shall have demanded
reimbursement from the Indemnitor within 120 days after G-P
exhausts such rights, the Indemnitor shall reimburse G-P upon
demand for the amount of such payment in excess of the amount
so recovered from or reimbursed by the Company or its assets.
SECTION 2. Subrogation/Acquisition of Interest.
(a) Upon such reimbursement by the Indemnitor pursuant
to Section 1 hereof, the Indemnitor shall (i) be subrogated
to the remaining rights of G-P against the Company to the
extent of such reimbursement and (ii) at the Indemnitor's
option, obtain an Interest or (if the Indemnitor is then a
Member) an increased Interest in the Company in satisfaction
of such rights. To exercise the option to obtain an Interest
or increased Interest, the Indemnitor shall give G-P notice
of exercise within 30 days after the payment of such
reimbursement. Such Interest or increase in Interest shall
consist of (i) a Capital Account, or increase in Capital
Account, equal to the amount of such reimbursement and (ii) a
Percentage Interest, or increase in Percentage Interest,
equal to the ratio of (A) the amount of such reimbursement to
(B) the sum of the total of all Capital Accounts immediately
before the payment of the reimbursement plus the amount of
such reimbursement. For this purpose, the amount of Capital
Accounts immediately before the payment of the reimbursement
shall take into account the revaluation of Capital Accounts,
pursuant to the Regulations under Section 704(b) of the Code,
occasioned by the Indemnitor's acquisition of the Interest or
increased Interest pursuant to this paragraph. G-P shall,
either directly or through any of its Affiliates that is then
a Member, cause the Company to issue to the Indemnitor the
appropriate number of Units to represent such Interest or
increase in Interest.
(b) Notwithstanding any other provision of this
Agreement or of applicable Law to the contrary, the
Indemnitor hereby waives any and all claims and other rights
(whether legal or equitable) that it may now have or
hereafter acquire against G-P, any other Member, or any other
person (other than the Company) by reason of making a payment
pursuant to Section 1 hereof, including, without limitation,
any right of indemnification, subrogation, reimbursement,
exoneration, or contribution or any right to participate in
any claim or remedy of either of the Lenders or G-P against
any person (other than the Company).
SECTION 3. Limitation on Amount of Indemnity.
Notwithstanding any provision of this Agreement to the
contrary, the aggregate obligation of the Indemnitor
hereunder shall in no event exceed the amount of the Special
Distribution (that is, $755.2 million).
-3-
SECTION 4. Termination. Except as otherwise provided
in this Section 4, this Agreement shall survive and be in
full force and effect so long as any of the original
principal amount of the Company Debt is outstanding and has
not been paid in full. On the third anniversary and on each
subsequent anniversary of October 4, 1999, the Indemnitor may
terminate this Agreement by giving written notice of such
termination (the "Termination Notice") to G-P at least 15
days and not more than 30 days before the anniversary date on
which such termination is to take effect (the "Termination
Date"), provided that (i) no Default (as defined in the
Credit Agreement or the Note) relating to the nonpayment of
principal or interest or Event of Default (as defined in the
Credit Agreement) is pending under the Credit Agreement on
the date of the Termination Notice, and (ii) either (A)
neither WISCO nor any Affiliate of WISCO owns any Interest on
the Termination Date, or (B) notice of exercise of an Option
Right with respect to all Units owned by WISCO and any
Affiliate of WISCO is given under the Operating Agreement on
or before the Termination Date. In addition, this Agreement
shall terminate on the first date (the "Cessation Date") that
both of the following circumstances exist: (x) neither WISCO
nor any Affiliate of WISCO owns any Interest, if WISCO (or
such Affiliate) ceases to own its Interest as a result of the
exercise of the G-P Call or G-P's option under Section 8.5(b)
of the Operating Agreement; and (y) no Default (as defined in
the Credit Agreement or the Note) relating to the nonpayment
of principal or interest or Event of Default (as defined in
the Credit Agreement) is pending under the Credit Agreement.
As of the Termination Date or the Cessation Date, as
applicable, the Indemnitor shall be released from any and all
liabilities hereunder; provided, however, that the Indemnitor
shall not be released from any unpaid liability of the
Indemnitor for which G-P has made or is then entitled to make
a demand pursuant to Section 1 hereof, or for which G-P then
would be so entitled to make a demand upon exhaustion of its
rights to reimbursement or recovery from the Company or the
Company's assets.
SECTION 5. No Third Party Reliance. Nothing in this
Agreement, expressed or implied, is intended to confer upon
any person other than the parties hereto and their respective
permitted successors and assigns any rights or remedies under
or by reason of this Agreement. Without limiting the
foregoing, it is expressly understood that the Lenders shall
have no rights (either jointly or severally) against the
Indemnitor hereunder.
SECTION 6. Governing Law. This agreement shall be
governed by, and construed in accordance with, the laws of
the State of Virginia.
SECTION 7. No Waiver; Amendment.
(a) No failure on the part of the Indemnitor or G-P to
exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or
remedy by the Indemnitor or G-P preclude any other or further
exercise thereof or the exercise of any other right, power or
remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law. Neither the
Indemnitor nor G-P shall be deemed to have waived any rights
hereunder unless such waiver shall be in writing and signed
by such parties.
(b) Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to a written
agreement entered into between all of the parties hereto.
-4-
SECTION 8. Notices. All communications and notices
hereunder between and among the parties hereto shall be in
writing and given as provided in the Operating Agreement and
addressed as specified therein.
SECTION 9. Binding Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the permitted successors
and assigns of such party; and all covenants, promises and
agreements by or on behalf of the parties that are contained
in this Agreement shall bind and inure to the benefit of
their respective permitted successors and assigns. No party
hereto may assign or transfer any of its rights or
obligations hereunder (and any such attempted assignment or
transfer shall be void) without the prior written consent of
the other party hereto.
SECTION 10. Severability. In case any one or more of
the provisions contained in this Agreement should be held
invalid, illegal or unenforceable in any respect, no party
hereto shall be required to comply with such provision for so
long as such provision is held to be invalid, illegal or
unenforceable, but the validity, legality and enforceability
of the remaining provisions contained herein shall not in any
way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 11. Counterparts; Effectiveness; Execution.
This Agreement may be executed in counterparts (and by
different parties hereto on different counterparts), each of
which shall constitute an original, but all of which when
taken together shall constitute a single contract. Delivery
of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually
signed counterpart of this Agreement.
SECTION 12. Rules of Interpretation. The rules of
interpretation specified in Section 1.2 of the Operating
Agreement shall be applicable to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their duly
authorized officers as of the date first appearing above.
WISCONSIN TISSUE MILLS INC.
By: /s/ J.P. Causey Jr.
J. P. Causey Jr.
Secretary
GEORGIA-PACIFIC CORPORATION
By: /s/ Kenneth F. Khoury
Kenneth F. Khoury
Vice President, Deputy
General Counsel and Secretary
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EX 3.2
AMENDED AND RESTATED BYLAWS
of
CHESAPEAKE CORPORATION
(as adopted 2/13/90, with amendments through 2/16/00)
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
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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.
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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
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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
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(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. Notwithstanding the foregoing, the President, the
Secretary or any Vice President may approve procedures to enable
a stockholder or a stockholder's duly authorized attorney-in-fact
to authorize another person or persons to act for him or her as
proxy by transmitting or authorizing the transmission of a
telegram,
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cablegram, internet transmission, telephone transmission or other
means of electronic transmission to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such
transmission, provided that any such transmission must either set
forth or be submitted with information from which the inspectors
of election can determine that the transmission was authorized by
the stockholder or the stockholder's duly authorized attorney-in-
fact. If it is determined that such transmissions are valid, the
inspectors shall specify the information upon which they relied.
Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to
this Section 5 may be substituted or used in lieu of the original
writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that
such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing
or transmission.
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
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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 eleven
(11), 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
-7-
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
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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.
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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
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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
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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
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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
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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,
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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
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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
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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
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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
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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.
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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
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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
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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:
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(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
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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 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
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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
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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
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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
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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.
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(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
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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.
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EX 4.3
CHESAPEAKE CORPORATION
to
THE BANK OF NEW YORK,
Trustee
____________________
SECOND SUPPLEMENTAL INDENTURE
Dated as of October 4, 1999
Supplementing the Indenture,
dated as of July 15, 1985
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SECOND SUPPLEMENTAL INDENTURE, dated as of October 4, 1999,
between CHESAPEAKE CORPORATION, a corporation duly organized and
existing under the laws of the Commonwealth of Virginia (herein
called the "Company"), having its principal office at TWO JAMES
CENTER, 1021 EAST CARY STREET, RICHMOND, VIRGINIA 23219, and THE
BANK OF NEW YORK, a banking corporation organized and existing
under the laws of the State of New York (as successor to Sovran
Bank, N.A.), as Trustee (herein called the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee are parties to an
Indenture, dated as of July l5, 1985, as amended by a First
Supplemental Indenture thereto dated as of September 1, 1989
(collectively the "Indenture"), relating to the issuance from
time to time by the Company of its Securities on terms to be
specified at the time of issuance;
WHEREAS, Section 902 of the Indenture provides, among other
things, that with the consent of the Holders of not less than 51%
in principal amount of the Outstanding Securities of each series
affected, by Act of such holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture supplemental to the
Indenture for the purpose of changing or eliminating any
provision of the Indenture, subject to certain limitations
therein set forth;
WHEREAS, the Company proposes, through a Restricted
Subsidiary, to enter into a joint venture with respect to its
commercial tissue business (the "Joint Venture"), and for such
Restricted Subsidiary to indemnify its Joint Venture partner with
respect to such partner's guarantee of certain indebtedness of
the Joint Venture;
WHEREAS, for the avoidance of doubt, the Company proposes by
this Second Supplemental Indenture to amend the Indenture in
certain respects with respect to each series of Outstanding
Securities and to waive certain provisions of the Indenture
potentially relating to the Joint Venture; and
WHEREAS, all things necessary to make this Second
Supplemental Indenture a valid agreement of the Company, in
accordance with its terms, have been done.
AGREEMENT
NOW, THEREFORE, the Company and the Trustee agree as
follows:
1. The first clause (2) of Section 1005 of the Indenture is
amended to read as follows:
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(2) will not permit any Restricted Subsidiary to
incur, issue or assume any unsecured Debt;
2. Section 801 of the Indenture is specifically confirmed as
having no applicability to the proposed Joint Venture, the
Holders of each series agreeing that the transfer by the Company
to the Joint Venture shall not constitute a conveyance or
transfer of all or substantially all the properties and assets of
the Company.
3. Except as modified herein, the Indenture, as heretofore
supplemented and amended, is ratified and confirmed in all
respects.
4. Capitalized terms used herein but not defined herein shall
have the respective meanings assigned to them in the Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this
Second Supplemental Indenture to be duly executed, and their
respective seals to be hereunto affixed and attested, all as of
the date first above written.
[CORPORATE SEAL] CHESAPEAKE CORPORATION
By: /s/ William T. Tolley
William T. Tolley
Title: Senior Vice
President - Finance
and Chief Financial Officer
Attest:
/s/ J.P. Causey Jr.
J.P. Causey Jr.
Title: Secretary
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[CORPORATE SEAL] THE BANK OF NEW YORK
By: /s/ Mary Beth Lewicki
Mary Beth Lewicki
Title: Vice President
-4-
COMMONWEALTH OF VIRGINIA
CITY OF RICHMOND
On this 7th day of October, 1999, before me personally came
William T. Tolley, to me known, who, being by me duly sworn, did
depose and say that he is Senior Vice President - Finance and
Chief Financial Officer of CHESAPEAKE CORPORATION, one of the
corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal, that it
was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like
authority.
[SEAL] /s/ Cecile L. Johnson
Cecile L. Johnson
Notary Public
My Commission expires:
February 28, 2000
STATE OF NEW YORK
COUNTY OF NEW YORK
On the 12th day of October, 1999, before me personally came
Mary Beth Lewicki, to me known, who, being by me duly sworn, did
depose and say that he/she is a Vice President of THE BANK OF NEW
YORK, one of the corporations described in and which executed the
foregoing instrument; that he/she knows the seal of said
corporation, that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board
of Directors of said corporation, and that he/she signed his/her
name thereto by like authority.
[SEAL] /s/ Edward Souter
Edward Souter
Notary Public
My Commission expires:
July 15, 2001
-5-
EX 10.13
FIRST AMENDMENT TO
EMPLOYMENT AND SEVERANCE BENEFITS AGREEMENT
FIRST AMENDMENT TO EMPLOYMENT AND SEVERANCE BENEFITS
AGREEMENT, dated as of September 13, 1999, between CHESAPEAKE
CORPORATION, a Virginia corporation (the "Company"), and THOMAS
H. JOHNSON (the "Executive").
WHEREAS, the Company and the Executive entered into an
Employment and Severance Benefits Agreement (the "Agreement") as
of July 17, 1997; and
WHEREAS, the Company has approved the terms of agreements
with selected officers of the Company to provide certain
assurances to the officers regarding the terms applicable to
certain terminations of the officers service and to provide
certain assurances to the Company regarding the officers' conduct
during the term of the agreements and following the officers'
termination of service; and
WHEREAS, the Company and the Executive desire to amend the
Agreement to conform certain provisions to the terms of the
agreements between the Company and other officers of the Company;
NOW THEREFORE, the Agreement is hereby amended in the
following respects:
FIRST: Section 1(a) of the Agreement is amended to read as
follows:
(a) Cause. "Cause" means the Executive's conviction by
a court of competent jurisdiction for, or pleading no
contest to, a felony.
SECOND: Section 1(b) of the Agreement is amended to read as
follows:
(b) Change in Control. "Change in Control" has the same
meaning, as of any applicable date, as set forth in the
Chesapeake Corporation Benefits Plan Trust (as in effect
on such date).
THIRD: Section 1(d) of the Agreement is renumbered as
Section 1(e) and the following new Section 1(d) is added to the
Agreement:
(d) Control Change Date. "Control Change Date" has the
same meaning, as of any applicable date, as set forth in
the Chesapeake Corporation Benefits Plan Trust (as in
effect on such date).
FOURTH: A new Section 1(f) is added to the Agreement to
provide as follows:
(f) Good Reason. "Good Reason" means (x) a material
reduction in the Executive's duties or responsibilities;
(y) the failure by the Company or its successors to
permit the Executive to exercise such responsibilities as
are consistent with the Executive's position; (z) a
requirement that the Executive relocate his principal
place of employment to a location that is at least fifty
miles farther from his principal residence than was his
former principal place of employment; (x) the failure by
the Company or its successor to award the Executive
annual incentive, long-term incentive or stock option
opportunities consistent with those provided to similarly
situated executives and (y) the failure by the Company or
its successor to make a payment when due to the
Executive.
FIFTH: Section 2 is hereby amended to read as follows:
2. Term. Subject to Section 7 hereof, the term of this
Agreement (the "Employment Term") shall be the period
described in the following Section 2(a) and any period
for which the same may be extended as provided in the
following Sections 2(b) and 2(c).
(a) The Employment Term includes the period
beginning on July 17, 1997, and ending on December 31,
2002.
(b) The period described in Section 2(a) shall be
extended for an additional twelve months unless the
Company, before each September 1 of any year, provides
written notice to the Executive that the period will not
be extended. The preceding sentence shall first be
effective to extend the period described in Section 2(a)
until December 31, 2003, unless written notice to the
contrary is provided to the Executive by the Company
before September 1, 2000.
(c) The period described in Section 2(a) shall
be extended if there is a Control Change Date during the
Employment Term. In that event, the period described in
Section 2(a) shall be extended automatically until the
third anniversary of the Control Change Date. The period
described in Section 2(a) shall be further extended by
twelve months under this Section 2(c) unless the Company,
at least ninety days prior to an anniversary of the
Control Change Date, provides written notice to the
Executive that the period will not be extended. The
preceding sentence shall first be effective to extend the
period described in Section 2(a) (after giving effect to
the extension provided in the second sentence of this
Section 2(c)), until the fourth anniversary of the
Control Change Date unless written notice to the contrary
is provided to the Executive at least ninety days prior
to the first anniversary of the Control Change Date.
SIXTH: Section 7(c) of the Agreement is amended to read as
follows:
(c) By the Company Without Cause. The Company may terminate
the Executive's employment under this Agreement without
Cause, and other than by reason of his death or Disability,
by sending written notice of termination to the Executive,
which notice shall specify a date not less than ten (10) and
not more than ninety (90) days after the date of such notice
as the effective date of such termination (the "Termination
Date"). From the date of such notice through the Termination
Date, the Executive shall continue to perform the normal
duties of his employment hereunder and shall be entitled to
receive when due all compensation and benefits applicable to
the Executive hereunder. Promptly following the Termination
Date, the Company shall pay the Standard Termination Payments
to the Executive. In addition, the Company shall pay or
provide the Executive the amounts and the benefits described
in the following Section 7(c)(i) or Section 7(c)(ii), as
applicable.
(i) The Executive shall be entitled to receive the
severance and welfare benefits and the pension supplement
described in this Section 7(c)(i) if, during the Employment
Term, there is a Change in Control and the Executive's
employment with the Company and its successors is terminated
after the Control Change Date without Cause.
(a) The severance benefit payable under
this Section 7(c)(i) is an amount equal to the
sum of (x) three times the Executive's annual
base salary (as in effect on the date the
Executive ceases to be employed by the Company
and its successors or, if greater, the highest
annual rate of base salary as in effect during
the twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 7(c)(i), less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 7(c)(i) are continued coverage of
the Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 7(c)(i) shall continue until
the earlier of (x) the third anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 7(c)(i) is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 7(c)(i)
shall be reduced, but not below zero, by any
benefit that the Executive accrues during such
period under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 7(c)(i), less
applicable income and employment taxes and
other authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 7(c)(i)
and any offset or reductions for benefits
provided by the Company or its successor shall
be made on an actuarially equivalent basis
using the SERP's actuarial assumptions and
methods.
(ii) Subject to the final sentence of this Section
7(c)(ii), the Executive shall be entitled to receive the
severance and welfare benefits described in this Section
7(c)(ii) if, during the Employment Term but prior to a
Change in Control, the Executive's employment with the
Company and its successors is terminated by the Company or
its successor without Cause.
(a) The severance benefit payable under
this Section 7(c)(ii) is an amount equal to the
sum of (x) three times the Executive's annual
base salary (as in effect on the date the
Executive ceases to be employed by the Company
and its successors or, if greater, the highest
annual rate of base salary as in effect during
the twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 7(c)(ii), less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 7(c)(ii) are continued coverage of
the Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 7(c)(ii) shall
continue until the earlier of (x) the third
anniversary of the Executive's cessation of
service to the Company and its successors and
(y) the date that the Executive is eligible for
similar coverage under another employer's plan.
No benefits will be payable or available under this
Section 7(c)(ii) unless the Executive executes a
release and waiver of the Company in a form
satisfactory to the Company and the Executive
complies with Sections 8 and 9.
The Executive shall have no obligation whatsoever to
mitigate any damages, costs or expenses suffered or incurred
by the Company with respect to the severance obligations set
forth in this Section 7(c) and, except as set forth in this
Section 7(c), no such severance payments or benefits
received or receivable by the Executive shall be subject to
any reduction, offset, rebate, or repayment as a result of
any subsequent employment or other business activity by the
Executive.
SEVENTH: Section 7(d) of the Agreement is hereby amended to
read as follows:
(d) By the Executive. (i) The Executive may
terminate his employment, and any further obligations
which the Executive may have to perform services on
behalf of the Company hereunder at any time after the
date hereof, by sending written notice of termination to
the Company, not less than ninety (90) days prior to the
effective date of such termination. During such ninety
(90) day period, the Executive shall continue to perform
the normal duties of his employment hereunder, and shall
be entitled to receive when due all compensation and
benefits applicable to the Executive hereunder. If the
Executive elects to terminate his employment hereunder
(other than as a result of Disability), then the
Executive shall be entitled to receive the Standard
Termination Payments, but the Company shall have no
obligation to make payments or provide benefits to the
Executive except as provided in the following Section
7(d)(ii).
(ii) The Executive shall be entitled to receive the
severance and welfare benefits and the pension supplement
described in this Section 7(d)(ii) if, during the Employment
Term, there is a Change in Control and the Executive
terminates his employment with the Company and its
successors within one (1) year after the Control Change Date
(with or without Good Reason) or thereafter with Good
Reason.
(a) The severance benefit payable under
this Section 7(d)(ii) is an amount equal to the
sum of (x) three times the Executive's annual
base salary (as in effect on the date the
Executive ceases to be employed by the Company
and its successors or, if greater, the highest
annual rate of base salary as in effect during
the twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 7(d)(ii), less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 7(d)(ii) are continued coverage of
the Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 7(d)(ii) shall continue
until the earlier of (x) the third anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
(c) The pension supplement payable under
this Section 7(d)(ii) is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 7(d)(ii)
shall be reduced, but not below zero, by any
benefit that the Executive accrues during such
period under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 7(d)(ii), less
applicable income and employment taxes and
other authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 7(d)(ii)
and any offset or reductions for benefits
provided by the Company or its successor shall
be made on an actuarially equivalent basis
using the SERP's actuarial assumptions and
methods.
The Executive shall have no obligation whatsoever to
mitigate any damages, costs or expenses suffered or incurred
by the Company with respect to the severance obligations set
forth in this Section 7(d)(ii) and, except as set forth in
this Section 7(d)(ii), no such severance payments or benefits
received or receivable by the Executive shall be subject to
any reduction, offset, rebate, or repayment as a result of
any subsequent employment or other business activity by the
Executive.
EIGHTH: Section 7(e) of the Agreement is hereby amended by
deleting the language that follows the first sentence thereof.
NINTH: Sections 9 through 19 of the Agreement are
renumbered as Sections 11 through 21, respectively, and the
Agreement is further amended by adding the following as Sections
9 and 10:
9. Covenant Not to Compete. The Executive agrees
that he will not take certain actions that would be
damaging to the competitive position of the Company or
its successor. By making this commitment, the Executive
agrees that during Executive's employment with the
Company and its successors and for twelve months
thereafter if the Executive's employment ceases as
described in Section 7(c)(ii), the Executive will not
(x) accept any employment with, ownership interest in,
or engagement as a consultant, contractor or service
provider to any business engaged in a business that is
competitive with the Company or its successor or (y) on
behalf of any such business solicit any business that
was a customer of the Company or its successor during
the preceding twelve months The Executive understands
and agrees that each provision of this Agreement is a
separate and independent clause, and if any clause
should be found unenforceable, that will not affect the
enforceability of the other clauses. In the event that
any of the provisions of this Agreement should ever be
deemed to exceed the time, geographic area or activity
limitations permitted by applicable law, the Company and
the Executive agree that such provisions must be and are
reformed to the maximum time, geographic area and
activity limitations permitted by applicable law, and
expressly authorize a court having jurisdiction to
reform the provisions to the maximum time, geographic
area and activity limitations permitted by applicable
law.
10. Excise Tax, etc. Indemnity. One or more
benefits provided under this Agreement may constitute
"parachute payments" (as defined in Section
280G(b)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), but without regard to Code section
280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the
application of the tax imposed by Code section 4999. To
effect this indemnification, the Company must pay the
Executive an additional amount that is sufficient to pay
any excise tax imposed by Code section 4999 on the
payments and benefits to which the Executive is entitled
(whether payable under this Agreement or any other plan,
agreement or arrangement), plus the excise, employment
and income taxes on the additional amount. Such
additional amount shall be paid to the Executive at such
times as may be necessary for the Executive to satisfy
any such tax obligation, including the payment of
estimated taxes.
TENTH: Section 12 of the Agreement (numbered Section 10
prior to giving effect to the preceding amendment) is hereby
amended by designating the existing provisions as Section
12(a) and by adding a new Section 12(b) to read as follows:
(b) The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and
costs that the Executive may incur in connection with
the enforcement of this Agreement.
Except as provided above, the terms of the Agreement,
effective as of July 17, 1997, shall remain in effect.
IN WITNESS WHEREOF, the Company has caused this First
Amendment to Employment and Severance Benefits Agreement to by
duly executed on its behalf and the Executive has duly executed
this First Amendment to Employment and Severance Benefits
Agreement, all as of the date first above written.
THOMAS H. JOHNSON CHESAPEAKE CORPORATION
By: /s/ Thomas H. Johnson By /s/ Thomas A. Smith
Thomas H. Johnson Thomas A. Smith
Date:____12/20/99____ Vice President - Human Resources
Title
EX 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 13, 1999, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and J. P. Causey Jr. (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Senior Vice President, Secretary & General Counsel of
the Company; and
WHEREAS, the Company recognizes that the Executive has made
substantial contributions to the Company and in the future is
expected to make substantial contributions to the success of the
Company; and
WHEREAS, the Company recognizes that, as with any publicly
traded corporation, a Change in Control of the Company is a
possibility; and
WHEREAS, the Company recognizes that the possibility of a
Change in Control of the Company or a negotiation of a
transaction that will result in a Change in Control of the
Company may cause the Executive uncertainty regarding his
continued service; and
WHEREAS, the Company desires to provide certain assurances
to the Executive regarding the terms applicable to certain
terminations of the Executive's service; and
WHEREAS, the Executive wishes to provide certain assurances
to the Company regarding his conduct during the Term of this
Agreement and following the Executive's termination of service;
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the Company and the
Executive covenant and agree as follows:
1. Term. The Term of this Agreement is the period
described in the following paragraph (a) and any period for which
the same may be extended as provided in the following paragraphs
(b) and (c).
(a) The Term includes the period
beginning on September 13, 1999, and ending on
December 31, 2002.
(b) The period described in paragraph (a)
shall be extended for an additional twelve
months unless the Company, before each
September 1 of any year, provides written
notice to the Executive that the period will
not be extended. The preceding sentence shall
first be effective to extend the period
described in paragraph (a) until
1
December 31, 2003, unless written notice to the
contrary is provided to the Executive by the
Company before September 1, 2000.
(c) The period described in paragraph (a)
shall be extended if there is a Control Change
Date during the Term of this Agreement. In
that event, the period described in paragraph
(a) shall be extended automatically until the
third anniversary of the Control Change Date.
The period described in paragraph (a) shall be
further extended by twelve months under this
paragraph (c) unless the Company, at least
ninety days prior to an anniversary of the
Control Change Date, provides written notice to
the Executive that the period will not be
extended. The preceding sentence shall first
be effective to extend the period described in
paragraph (a) (after giving effect to the
extension provided in the second sentence of
this paragraph (c)), until the fourth
anniversary of the Control Change Date unless
written notice to the contrary is provided to
the Executive at least ninety days prior to the
first anniversary of the Control Change Date.
2. Change in Control Benefits. The Executive shall be
entitled to receive the severance and welfare benefits and the
pension supplement described in this Section 2 if, during the
Term of this Agreement, (x) there is a Change in Control and the
Executive's employment with the Company and its successors is
terminated or terminates after the Control Change Date without
Cause or for Good Reason or (y) there is a sale or other
divestiture of the business unit of the Company or its successor
to which the Executive is assigned and the Executive's employment
with the Company and its successors is terminated or terminates
after such sale or divestiture without Cause or for Good Reason.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) three times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 2, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
2
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 2 shall continue until the
earlier of (x) the third anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 2 is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 2 shall
be reduced, but not below zero, by any benefit
that the Executive accrues during such period
under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 2, less applicable
income and employment taxes and other
authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 2 and any
offset or reductions for benefits provided by
the Company or its successor shall be made on
an actuarially equivalent basis using the
SERP's actuarial assumptions and methods.
3. Benefits Prior to a Change in Control. Subject to the
final sentence of this Section 3, the Executive shall be entitled
to receive the severance and welfare benefits described in this
Section 3 if, during the Term of this Agreement but prior to a
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
3
assigned, the Executive's employment with the Company and its
successors is terminated by the Company or its successor without
Cause.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) two times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) two times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 3, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 3 shall continue
until the earlier of (x) the second anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
No benefits will be payable or available under this
Section 3 unless the Executive executes a release and
waiver of the Company in a form satisfactory to the
Company and the Executive complies with Sections 4 and 5.
4. Confidentiality. During the period of employment with the
Company, the Executive has had access to certain confidential,
non-public information concerning the Company (the
"Information"). The Executive agrees to maintain the Information
as confidential and not
4
disclose it to third parties or use it in the Executive's
employment with any direct or indirect competitor of the Company
or its successors during employment with the Company and its
successors and thereafter following a termination of employment
described in Section 3. The Executive agrees that compliance
with this confidentiality obligation is a condition precedent to
the Executive's right to receive the benefits described in
Section 3.
5. Covenant Not to Compete. The Executive agrees that he
will not take certain actions that would be damaging to the
competitive position of the Company or its successor. By making
this commitment, the Executive agrees that during Executive's
employment with the Company and its successors and for twelve
months thereafter if the Executive's employment ceases as
described in Section 3, the Executive will not (x) accept any
employment with, ownership interest in, or engagement as a
consultant, contractor or service provider to any business
engaged in a business that is competitive with the Company or its
successor or (y) on behalf of any such business solicit any
business that was a customer of the Company or its successor
during the preceding twelve months. The Executive understands and
agrees that each provision of this Agreement is a separate and
independent clause, and if any clause should be found
unenforceable, that will not affect the enforceability of the
other clauses. In the event that any of the provisions of this
Agreement should ever be deemed to exceed the time, geographic
area or activity limitations permitted by applicable law, the
Company and the Executive agree that such provisions must be and
are reformed to the maximum time, geographic area and activity
limitations permitted by applicable law, and expressly authorize
a court having jurisdiction to reform the provisions to the
maximum time, geographic area and activity limitations permitted
by applicable law.
6. Excise Tax, etc. Indemnity. One or more benefits
provided under this Agreement may constitute "parachute payments"
(as defined in Section 280G(b)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), but without regard to Code
section 280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the application of
the tax imposed by Code section 4999. To effect this
indemnification, the Company must pay the Executive an additional
amount that is sufficient to pay any excise tax imposed by Code
section 4999 on the payments and benefits to which the Executive
is entitled (whether payable under this Agreement or any other
plan, agreement or arrangement), plus the excise, employment and
income taxes on the additional amount. Such additional amount
shall be paid to the Executive at such times as may be necessary
for the Executive to satisfy any such tax obligation, including
the payment of estimated taxes.
7. Legal Fees. The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and costs that
the Executive may incur in connection with the enforcement of
this Agreement.
8. Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Cause" means the Executive's
conviction by a court of competent jurisdiction
for, or pleading no contest to, a felony.
5
(b) "Change in Control" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(c) "Control Change Date" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(d) "Good Reason" means (x) a material
reduction in the Executive's duties or
responsibilities; (y) the failure by the
Company or its successor to permit the
Executive to exercise such responsibilities as
are consistent with the Executive's position;
(z) a requirement that the Executive relocate
his principal place of employment to a location
that is at least fifty miles farther from his
principal residence than was his former
principal place of employment; (x) the failure
by the Company or its successor to award the
Executive annual incentive, long-term incentive
or stock option opportunities consistent with
those provided to similarly situated executives
and (y) the failure by the Company or its
successor to make a payment when due to the
Executive.
9. Successors. This Agreement shall inure to the benefit
of and be binding on 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 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.
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.
10. Modification, etc. 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 Executive and a duly authorized officer 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, other than its choice of laws
provision.
11. Enforceability. 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.
6
12. Non-Disparagement. The Company and the Executive
agree, that after the Executive's employment with the Company
terminates, to refrain from taking any action or making any
statements, written or oral, which are intended to disparage the
goodwill or reputation of the Company or the Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf and the Executive has duly
executed this Agreement, all as of the date first above written.
J. P. CAUSEY JR. CHESAPEAKE CORPORATION
By: /s/ J.P. Causey, Jr. By /s/ Thomas H. Johnson
J.P. Causey, Jr. Thomas H. Johnson
Date___1/27/00_________ President & CEO
Title
7
EX 10.15
DATED 31/3/99
Field Group Public Limited Company
-and-
Keith Gilchrist
_______________________
SERVICE AGREEMENT
_______________________
THIS AGREEMENT is made on 31/3/99
BETWEEN:
(1) Field Group Public Limited Company (registered in England
No. 2586987) whose registered office is at Misbourne House,
Badminton Court, Rectory Way, Old Amersham, Bucks HP7 0DD (the
"Company") which is a member of the Chesapeake Corporation, James
Center II, 1021 E. Cary Street, Box 2350, Richmond, VA 23218-
2350, USA, ("Chesapeake") and
(2) Keith Gilchrist of "The Tudor House", Devonshire Avenue,
Amersham, Bucks HP6 5JF (the "Director")
WHEREBY IT IS AGREED as follows:
1. DEFINITIONS
In this Agreement:
"Associated Company" means a company which is from time
to time a subsidiary or a holding
company of the Company or a
subsidiary (other than the Company)
of a holding company of the
Company. In this definition
"subsidiary" and "holding company"
have the same meanings as in
section 736 Companies Act 1985, as
originally enacted;
"Board" means the Board of Directors from
time to time of the Company;
"Chesapeake Company" means Chesapeake and any company
which is from time to time a
subsidiary or a holding company of
Chesapeake or a subsidiary (other
than Chesapeake) of a holding
company of Chesapeake with the
exception of the Company and each
Associated Company. In this
definition "subsidiary" and
"holding company" have the same
meanings as in Section 736
Companies Act 1985, as originally
enacted;
-2-
"Confidential Information" means all Know-how and Marketing
Information and any other
commercial, financial, technical or
other confidential information
(including trade secrets, secret
formulae, secret processes,
methods, appliances, machinery
used, experiments or research
carried out) relating to the
business of the Company or any
Associated Company or any
Chesapeake Company;
"Know-how" means information (including
without limitation, that comprised
in formulae, specifications,
designs, drawings, components
lists, databases, software (or pre-
cursor documents), manuals,
instructions and catalogues) held
in whatever form relating to the
production, creation, supply or
provision of the products or
services of the Company or any
Associated Company or any
Chesapeake Company; and
"Marketing Information" means information relating to the
marketing or sales of any products
or services of the Company and any
Associated Company and any
Chesapeake Company, including,
without limitation, lists of
customers' and suppliers' names,
addresses and contracts, sales
targets and statistics, market
share and pricing statistics,
marketing surveys, research reports
and advertising and promotional
material.
2. TERM OF APPOINTMENT
(A) The Director shall serve the Company as Chief Executive-
Field Group, or in such other capacity of a like status as the
Company may require. The Company may give to the Director not
less than 36 months' notice in writing or by the payment of 36
months' salary and other contractual benefits in lieu thereof at
any time and the Director may
-3-
give to the Company not less than 12 months' notice in
writing at any time.
(B) The Director's employment shall in any event terminate on
the date on which the Director reaches the age of 60.
3. POWERS AND DUTIES
(A) The Director shall exercise such powers and perform such
duties (not being duties inappropriate to his status as a
Director of the Company) in relation to the business of the
Company or any Associated Company or any Chesapeake Company as
may from time to time be vested in or assigned to him by the
President and CEO, Chesapeake. The Director shall comply with
all reasonable directions from, and all regulations of, the Board
and shall report to such person as is the President and CEO,
Chesapeake, from time to time.
(B) The Director, who shall work such hours as may reasonably be
required for the proper performance of his duties, shall devote
the whole of his time, attention and abilities during those hours
to carrying out his duties in a proper, loyal and efficient
manner.
(C) The Director shall travel to such places as the Company may
from time to time reasonably require.
(D) The Director's normal place of work shall be in Amersham, or
such other location as may be agreed between the Company and the
Director from time to time.
(E) The Company shall be under no obligation to vest in or
assign to the Director any powers or duties or to provide any
work for the Director, and the Company may at any time or from
time to time during any period of notice as specified in Clause
2(A) of this Agreement or in circumstances in which it reasonably
believes that the Director is guilty of gross misconduct or in
breach of this Agreement in order that the circumstances giving
rise to that belief may be investigated suspend the Director
from, the performance of his duties or exclude him from any
premises of the Company. Salary and other contractual benefits
will not cease to be payable by reason only of such suspension or
exclusion.
4. SALARY
(A) The Director shall be paid monthly in arrears for his
services during his employment a salary at a rate of
-4-
L215,000 per annum or at such higher rate or rates as the
Board may from time to time determine and notify to the
Director in writing.
(B) The Director shall also be paid such bonuses as the Board,
in its absolute discretion, may from time to time determine.
At the time of writing this contract the target bonus
payment for achievement of budget and agreed objectives for
this position is 50% of salary.
(C) At least once in each 12 months the Company shall review,
but shall not be obliged to increase, the salary payable under
this Agreement. The first such review shall be in April 2000.
(D) The Director shall not be entitled to any other salary or
fees as a director or employee of the Company or any Associated
Company and the Director shall, as the Company may direct, either
waive his right to any such salary or fees or account for the
same to the Company.
5. PENSIONS
The Director is a member of the Field Group Pension Scheme,
the trust deed and rules of which are available for
inspection at the Company Secretary's office at any time
upon reasonable notice. Employee contributions to the Field
Group Pension Scheme will be deducted from salary. For the
avoidance of doubt, nothing in this Agreement shall affect
either the accrued rights and benefits of the Director under
the Field Group Pension Scheme, or the trust deed and rules
thereof currently in force and the Director's rights and
benefits under the Field Group Pension Scheme shall not be
affected hereby.
A contracting out certificate is in force in respect of the
employment under this Agreement.
6. CAR
The Company shall provide for the Director a motor car
suitable for a person of his status and shall bear or
reimburse its costs, including fuel costs attributable to
reasonable private mileage subject to the payment by the
Director of such charges as may from time to time be
applicable as contributions for such private use. The
Director shall take good care of the car, procure that the
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provisions of any policy of insurance are observed and
return the car as the Company may reasonably direct
immediately upon the termination of his employment, which
for the avoidance of doubt shall be taken to be the expiry
of the notice period specified herein upon such termination
if applicable.
7. OTHER BENEFITS
The Company shall provide for the Director, in each case on
terms no less favourable than those that currently prevail:
(i) cover for the Director, his wife and dependent
children under the age of 21 or under the age of 25
if in full time education under such privately
insured medical care scheme as the Company considers
appropriate and, in any event, subject to the
Director's complying at all times with conditions as
to eligibility as prescribed from time to time by
the relevant insurer; and
(ii) cover for the Director under such life assurance scheme as
the Company considers appropriate providing cover for such sum as
the Company Secretary shall notify to the Director from time to
time.
8. EXPENSES
The Company shall reimburse to the Director against
production of receipts if requested all reasonable
travelling, hotel, entertainments and other out-of-pocket
expenses which he may from time to time be authorised to
incur in the execution of his duties hereunder. Expenses of
the Director are subject to the approval of and
authorisation by the President and CEO, Chesapeake or such
person as he may designate.
9. HOLIDAYS
In addition to bank and other public holidays, the Director
will be entitled to 26 working days' paid holiday in every
calendar year to be taken at such time or times as may be
approved by the President and CEO, Chesapeake. Holidays not
taken in the calendar year of entitlement will, unless
otherwise agreed by the Company in writing, be lost.
-6-
10. INVENTIONS AND IMPROVEMENTS
(A) It shall be part of the normal duties of the Director at all
times:
(i) to consider in what manner and by what new methods or
devices the products, services, processes, equipment or systems
of the Company, or any Associated Company or any Chesapeake
Company, with which he is concerned or for which he is
responsible might be improved; and
(ii) promptly to give to the Secretary of the Company full
details of any invention or improvement which he may from time to
time make or discover in the course of his duties; and
(iii) to further the interests of the Company's undertaking
with regard thereto.
Subject to the Patents Act 1977, the Company shall be
entitled free of charge to the sole ownership of any such
invention or improvement and to the exclusive use thereof.
(B) The Director shall forthwith and from time to time both
during his employment and for such reasonable time thereafter at
the request and cost of the Company apply for and execute and do
all such documents acts and things as may in the opinion of the
Board be necessary or conducive to obtain letters patent or other
protection for any such invention or improvement in any part of
the world and to vest such letters patent or other protection in
the Company or its nominees.
(C) The Director hereby irrevocably authorises the company for
the purposes of this Clause to make use of the name of the
Director and to sign and to execute any documents or do any thing
on his behalf (or where permissible to obtain the patent or other
protection in its own name or in that of its nominees).
(D) The Director shall not knowingly do anything to imperil the
validity of any patent or protection or any application therefor
but shall at the cost of the Company render all possible
assistance to the Company, or any Associated Company or any
Chesapeake Company, both in obtaining and in maintaining such
patents or other protection.
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(E) The Director shall not either during his employment or
thereafter exploit or assist others to exploit any invention or
improvement which he may from time to time make or discover in
the course of his duties or (unless the same shall have become
public knowledge) make public or disclose any such invention or
improvement or give any information in respect of it except to
the Company or as it may direct.
(F) The Director hereby irrevocably and unconditionally waives
in favour of the Company, it licensees and successors-in-title
any and all moral rights arising pursuant to the provisions of
Chapter IV of the Copyright, Designs and Patents Act 1988 in any
works (existing or future) the subject of copyright made by the
Director in the course of his employment and any and/or other
moral rights under any legislation now existing or in future
enacted in any part of the world.
(G) The Director shall, at the request and expense of the
Company, take all steps that may be necessary to enforce against
any third party his moral rights in any copyright work owned by
the Company or any Associated Company or any Chesapeake Company.
11. CONFIDENTIAL INFORMATION ETC
(A) The Director shall not, either during the continuance of his
appointment under this Agreement (except in the proper
performance of his duties hereunder) or at any time after its
termination:
(i) directly or indirectly make use of or divulge or communicate
to any person, firm, company, partnership or organisation any of
the Confidential Information of which the Director may have
become possessed during the continuance of his employment with
the Company or any Associated Company; or
(ii) copy or reproduce in any form or by or on any media or
device (or allow others so to copy or reproduce) documents,
disks, tapes or other material containing or referring to
Confidential Information.
(B) All documents (including copies) disks, tapes and other
material held by the Director containing or referring to
Confidential Information or relating to the affairs and business
of the Company or any Associated Company (and whether or not
prepared by the Director or supplied by the
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Company or any relevant Associated Company and shall be
delivered by the Director to the Company forthwith upon
request and in any event upon the termination of the
Director's employment by the Company. Further, if requested
by the Board, the Director shall delete any Confidential
Information from any re-usable material.
(C) The restrictions contained in this Clause shall cease to
apply to Confidential Information which has come into the public
domain otherwise than as a result of any breach by the Director
or which the Director is required to disclose by any applicable
law.
12. NON-SOLICITATION
The Director shall not for a period of one year after the
termination of his employment with the Company (howsoever
caused) either personally or by an agent directly or
indirectly:
(i) either on his own account or for any other person, firm,
company or organisation or in association with or in the
employment of any other person, firm, company or organisation
solicit or serve or interfere with or endeavour to entice away
from the Company or any Associated Company any person, firm,
company or organisation who within one year up to the date of
such termination was a customer of the Company or any Associated
Company and with whom the Director had contact; or
(ii) either on his own account or for any other person, firm,
company or organisation solicit or interfere with or endeavour to
entice away from the Company any person who within one year up to
the date of such termination was an employee in a sales executive
or design or technical capacity, or a director or consultant of
the Company or any Associated Company and with whom the Director
dealt (other than in a de minimis way) at any time during the
said period; or
(iii) employ in any capacity or offer employment in any
capacity to or enter into or offer to enter into partnership with
any person in relation to whom Clause 12(ii) is applicable; or
(iv) represent himself as being in any way connected with or
interested in the business of the Company or any Associated
Company or any Chesapeake Company.
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13. NON-COMPETITION
(A) During his employment the Director shall not (unless
otherwise agreed in writing by the Company) undertake any other
business or profession or be or become an employee or agent of
any other company, firm or person or assist or have any financial
interest in any other business or profession. The Director may,
however, hold or acquire by way of bona fide investment any
shares or other securities of any company which are listed or
dealt in on any recognised stock exchange or eligible shares in
qualifying companies as those expressions are defined in section
289 and section 293 respectively of the Income and Corporation
Taxes Act 1988 (Business Expansion Schemes) unless the Company
shall require him not to do so in any particular case on the
ground that such other company is or may be carrying on a
business competing or tending to compete with the business of the
Company or any Associated Company.
(B) The Director will not for a period of one year after the
date of the termination of his employment with the Company
(howsoever caused) either personally or by an agent directly or
indirectly either on his own account or for any other person,
firm or company or in association with or in the employment of
any other person, firm or company be engaged in or concerned
directly or indirectly in any executive, technical or advisory
capacity in any business concern (of whatever kind) which is in
competition with the business of the Company or any Associated
Company. This Clause shall not restrain the Director from being
engaged or concerned in any business concern in so far as the
Director's duties or work shall relate solely:
(i) to geographical areas where such business concern is not in
competition with the Company or any Associated Company; or
(ii) to services or activities of a kind with which the Director
was not concerned to a material extent during his employment with
the Company or any Associated Company.
14. RETURN OF PAPERS, ETC
The Director shall promptly whenever requested by the
Company and in any event upon the termination of his
employment deliver up to the Company all lists of clients or
customers, correspondence and all other documents,
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papers and records which may have been prepared by him or
have come into his possession, custody or control in the
course of his employment, and the Director shall not be
entitled to and shall not retain any copies thereof. Title
and copyright therein shall vest in the Company.
15. RESIGNATION OF DIRECTORSHIPS
The Director shall resign from the Board and the boards of
any Associated Company of which he is Director:
15.1 if at any time during his employment under this Agreement
the Director is prevented from performing his duties whether
through long term sickness or because the Company has exercised
its rights under clause 3(E) or otherwise howsoever and the
Company requires the Director to resign; and in any event
15.2 on the termination of the Director's employment for
whatsoever reason.
16. SICKNESS
Subject to production, if requested, of medical certificates
satisfactory to the Company, remuneration will not cease to
be payable by reason only of the Director's incapacity for
work due to sickness or accident but any such remuneration
shall include any sums the Company is obliged to pay to the
Director pursuant to the Social Security and Housing
Benefits Act 1982 (Statutory Sick Pay). The Company may
reduce remuneration during incapacity by an amount equal to
the benefit (excluding any lump sum benefit) which the
Director would be entitled to claim during such incapacity
under the then current Social Security Acts (whether or not
such benefit is claimed by the Director).
17. TERMINATION OF EMPLOYMENT
If the Director:
(i) shall be or become incapacitated from any cause whatsoever
from efficiently performing his duties hereunder for 12 months in
aggregate in any period of 18 consecutive months; or
(ii) shall have an order under section 252 of the Insolvency Act
1986 made in respect of him or if an interim receiver of his
property is appointed under section 286 of that Act; or
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(iii) shall be or become prohibited by law from being a
director; or
(iv) shall be guilty of gross misconduct or shall commit any
serious or persistent breach of any of his obligations to the
Company or any Associated Company or any Chesapeake Company
(whether under this Agreement or otherwise); or
(v) shall refuse or neglect to comply with any lawful orders
falling within the scope of his duties hereunder given to him by
the Company,
then the Company shall be entitled by notice in writing to
the Director to terminate forthwith his employment under
this Agreement. The Director shall have no claim against
the Company by reason of termination pursuant to paragraphs
(ii), (iii), (iv) or (v) above.
Any delay or forbearance by the Company in exercising any
right of termination shall not constitute a waiver of it.
18. DISCIPLINARY RULES AND GRIEVANCE PROCEDURE
(A) The Director is expected at all times to conduct himself in
a manner consistent with his status and is bound by the
disciplinary rules in force in relation to the Director from time
to time.
If the Director is dissatisfied with any disciplinary
decision, he may appeal to Thomas H. Johnson whose
decision shall be final.
(B) If the Director wishes to seek redress for any grievance
relating to his employment he should first discuss the matter
with Thomas A. Smith. If the matter is not then settled he
should submit his grievance to Thomas H. Johnson in writing whose
decision on such grievance shall be final.
19. CONTINUOUS EMPLOYMENT
The Director's employment since 20 July 1981 counts as part
of the Director's continuous period of employment with the
Company for the purpose of the Employment Rights Act 1996.
20. NOTICES
Any notice may be given personally to the Director or to the
Secretary of the Company (as the case may be) or may be
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posted to the Company (for the attention of its Secretary),
at its registered office for the time being or to the
Director either at his address given above or at his last
known address. Any such notice sent by post shall be deemed
served 48 hours after it is posted and in proving such
service it shall be sufficient to prove that the notice was
properly addressed and put in the post.
21. OTHER AGREEMENTS
The Director acknowledges and warrants that there are no
agreements or arrangements whether written, oral or implied
between the Company or any Associated Company and the
Director relating to the employment of the Director other
than those expressly set out or referred to in this
Agreement and that he is not entering into this Agreement in
reliance on any representation not expressly set out herein.
In particular, the Director acknowledges that this Agreement
is in substitution for the service agreement entered into
between the Company and the Director dated 1 April 1997 (the
"Former Agreement"). In consideration of the Company
entering into this Agreement, the Director renounces all his
right and interest in the Former Agreement and acknowledges
that he has no claim whatsoever against the Company in
respect of the waiver of his rights under the Former
Agreement.
22. GOVERNING LAW
This Agreement shall be governed by and construed under
English law.
IN WITNESS whereof this Agreement has been signed by or on
behalf of the parties hereto the day and year first before
written
SIGNED by Thomas H. Johnson /s/ Thomas H. Johnson
on behalf of the company -----------------------
in the presence of: Thomas H. Johnson
/s/ Susan H. Hairfield
-----------------------
Susan H. Hairfield
SIGNED by K. Gilchrist in /s/ Keith Gilchrist
the presence of: -----------------------
Keith Gilchrist
/s/ Marion Baker
-----------------------
Marion Baker
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EX 10.16
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of
September 13, 1999, is between FIELD GROUP PUBLIC LIMITED COMPANY
(registered in England No. 2586987) (the "Company"), CHESAPEAKE
CORPORATION, a Virginia corporation ("Chesapeake") and KEITH
GILCHRIST (the "Director").
WHEREAS, the Company, Chesapeake and the Director entered
into an employment agreement (the "Agreement") dated March 31,
1997, providing for the terms and conditions of the Director's
service as the Company's chief Executive; and
WHEREAS, Chesapeake has approved the terms of agreements
with selected officers of Chesapeake to provide certain
assurances to the officers regarding the terms applicable to
certain terminations of the officers' service and to provide
certain assurances to Chesapeake regarding the officers' conduct
during the term of the agreements and following the officers'
termination of service; and
WHEREAS, the Company, Chesapeake and the Director desire to
amend the Agreement to more nearly conform to the terms of the
agreements between Chesapeake and other officers of Chesapeake;
and
WHEREAS, the Director agrees to an extension of his covenant
not to solicit customers or employees of the Company or any
Associated Company following certain terminations of his
employment in consideration for the assurances provided to the
Director by the Company and Chesapeake;
NOW THEREFORE, the Agreement is hereby amended in the
following respects:
FIRST: The second sentence of clause 2(A) of the
Agreement is amended to read as follows:
The Company may give the Director not less than 36
months' notice in writing of by payment of 36 months'
salary and other contractual benefits in lieu thereof at
any time and the Director may give to the Company not
less than 12 months' notice in writing at any time or, in
accordance with clause 23, may resign for Good Reason (as
defined in clause 23).
SECOND: The first sentence of clause 12 of the Agreement
is amended by adding the following provision after the
words "one year after termination of his employment":
(or 13 months after termination of employment if the
Director's employment is terminated after a Change in
Control (as defined in clause 23) for a reason other than
as enumerated under clause 17)
THIRD: The Agreement is amended by adding clause 23 to
read as follows:
23. Special Severance Benefits
(A) The Director shall be entitled to receive the
severance and welfare benefits described in this clause 23
if, during the term of appointment described in clause 2,
(x) there is a Change in Control and the Director terminates
his employment with the Company, each Chesapeake Company and
each Associated Company and their successors thereafter with
Good Reason or (y) there is a sale or other divestiture of
the Company or substantially all of its assets by Chesapeake
and the Director terminates his employment with the Company,
Chesapeake, each Chesapeake Company and each Associated
Company and their successors thereafter with Good Reason.
(i) The severance benefit payable under
clause 23 is an amount equal to the sum of (x)
three times the Director's annual base salary
(as in effect on the date the Director ceases
to be employed by the Company, Chesapeake, each
Chesapeake Company and each Associated Company
and their successors or, if greater, the
highest annual rate of base salary as in effect
during the twelve months preceding such
cessation of employment) and (y) three times
the Director's annual incentive plan target for
the year in which the Director ceases to be
employed by the Company, Chesapeake, each
Chesapeake Company and each Associated Company
and their successors or, if greater, the year
preceding such cessation of employment. The
severance benefit described in the preceding
sentence shall be reduced by the amount of any
severance benefit payable to the Director under
the Chesapeake Corporation Salaried Employees'
Benefits Continuation Plan. The severance
benefit payable under this clause 23, less
applicable taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Director's
cessation of employment with the Company,
Chesapeake, each Chesapeake Company and each
Associated Company and their successors.
(ii) The welfare benefits provided under
this clause 23 are continued coverage of the
Director and the Director's eligible dependents
under all life, disability, medical and dental
benefit plans and programs in which the
Director participates immediately prior to the
Director's date of termination on such terms as
are then in effect. In the event that the
continued coverage of the Director or the
Director's eligible dependents in any such plan
or program is barred by its terms, the Company
shall arrange to provide the Director and the
Director's eligible dependents with benefits
substantially similar to those to which they
are entitled to receive under such plans or
programs. The continued coverage provided
under this clause 23 shall continue until the
earlier of (x) the third anniversary of the
Director's cessation of service to the Company,
Chesapeake, each Chesapeake Company and each
Associated Company and their successors and (y)
the date that the Director is eligible for
similar coverage under another employer's plan.
(B) The term "Change in Control" has the same
meaning, as of any applicable date, as set forth in the
Chesapeake Corporation Benefits Plan Trust (as in effect
on such date).
(C) The term "Good Reason" means (x) a material
reduction in the Director's duties or responsibilities;
(y) the failure by the Company or its successors to
permit the Director to exercise such responsibilities as
are consistent with the Director's position; (z) a
requirement that the Director relocate his principal
place of employment to a location that is at least fifty
miles farther from his principal residence than was his
former principal place of employment; (x) the failure by
the Company or its successor to award the Director annual
incentive, long-term incentive or stock option
opportunities consistent with those provided to similarly
situated executives and (y) the failure by the Company or
its successor to make a payment when due to the Director.
Except as provided above, the terms of the Agreement,
effective March 31, 1997, shall remain in effect.
IN WITNESS WHEREOF, the Company and Chesapeake have cause
this First Amendment to Employment Agreement to be duly executed
on their behalf and the Director has duly executed this First
Amendment to Employment Agreement, all as of the date first above
written.
SIGNED by Thomas H. Johnson ) /s/ Thomas H. Johnson
on behalf of the Company )
in the presence of: ) /s/ Thomas A. Smith
SIGNED by Thomas H. Johnson ) /s/ Thomas H. Johnson
on behalf of Chesapeake )
in the presence of: ) /s/ Thomas A. Smith
SIGNED by the Director ) /s/ Keith Gilchrist
in the presence of: ) /s/ Marion Baker
EX 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 13, 1999, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and Andrew J. Kohut (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Senior Vice President - Strategic Development of the
Company; and
WHEREAS, the Company recognizes that the Executive has made
substantial contributions to the Company and in the future is
expected to make substantial contributions to the success of the
Company; and
WHEREAS, the Company recognizes that, as with any publicly
traded corporation, a Change in Control of the Company is a
possibility; and
WHEREAS, the Company recognizes that the possibility of a
Change in Control of the Company or a negotiation of a
transaction that will result in a Change in Control of the
Company may cause the Executive uncertainty regarding his
continued service; and
WHEREAS, the Company desires to provide certain assurances
to the Executive regarding the terms applicable to certain
terminations of the Executive's service; and
WHEREAS, the Executive wishes to provide certain assurances
to the Company regarding his conduct during the Term of this
Agreement and following the Executive's termination of service;
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the Company and the
Executive covenant and agree as follows:
1. Term. The Term of this Agreement is the period
described in the following paragraph (a) and any period for which
the same may be extended as provided in the following paragraphs
(b) and (c).
(a) The Term includes the period
beginning on September 13, 1999, and ending on
December 31, 2002.
(b) The period described in paragraph (a)
shall be extended for an additional twelve
months unless the Company, before each
September 1 of any year, provides written
notice to the Executive that the period will
not be extended. The preceding sentence shall
first be effective to extend the period
described in paragraph (a) until
1
December 31, 2003, unless written notice to the
contrary is provided to the Executive by the
Company before September 1, 2000.
(c) The period described in paragraph (a)
shall be extended if there is a Control Change
Date during the Term of this Agreement. In
that event, the period described in paragraph
(a) shall be extended automatically until the
third anniversary of the Control Change Date.
The period described in paragraph (a) shall be
further extended by twelve months under this
paragraph (c) unless the Company, at least
ninety days prior to an anniversary of the
Control Change Date, provides written notice to
the Executive that the period will not be
extended. The preceding sentence shall first
be effective to extend the period described in
paragraph (a) (after giving effect to the
extension provided in the second sentence of
this paragraph (c)), until the fourth
anniversary of the Control Change Date unless
written notice to the contrary is provided to
the Executive at least ninety days prior to the
first anniversary of the Control Change Date.
2. Change in Control Benefits. The Executive shall be
entitled to receive the severance and welfare benefits and the
pension supplement described in this Section 2 if, during the
Term of this Agreement, (x) there is a Change in Control and the
Executive's employment with the Company and its successors is
terminated or terminates after the Control Change Date without
Cause or for Good Reason or (y) there is a sale or other
divestiture of the business unit of the Company or its successor
to which the Executive is assigned and the Executive's employment
with the Company and its successors is terminated or terminates
after such sale or divestiture without Cause or for Good Reason.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) three times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 2, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
2
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 2 shall continue until the
earlier of (x) the third anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 2 is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 2 shall
be reduced, but not below zero, by any benefit
that the Executive accrues during such period
under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 2, less applicable
income and employment taxes and other
authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 2 and any
offset or reductions for benefits provided by
the Company or its successor shall be made on
an actuarially equivalent basis using the
SERP's actuarial assumptions and methods.
3. Benefits Prior to a Change in Control. Subject to the
final sentence of this Section 3, the Executive shall be entitled
to receive the severance and welfare benefits described in this
Section 3 if, during the Term of this Agreement but prior to a
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
3
assigned, the Executive's employment with the Company and its
successors is terminated by the Company or its successor without
Cause.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) two times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) two times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 3, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 3 shall continue
until the earlier of (x) the second anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
No benefits will be payable or available under this
Section 3 unless the Executive executes a release and
waiver of the Company in a form satisfactory to the
Company and the Executive complies with Sections 4 and 5.
4. 4. Confidentiality. During the period of employment
with the Company, the Executive has had access to certain
confidential, non-public information concerning the Company (the
"Information"). The Executive agrees to maintain the Information
as confidential and not
4
disclose it to third parties or use it in the Executive's
employment with any direct or indirect competitor of the Company
or its successors during employment with the Company and its
successors and thereafter following a termination of employment
described in Section 3. The Executive agrees that compliance
with this confidentiality obligation is a condition precedent to
the Executive's right to receive the benefits described in
Section 3.
5. Covenant Not to Compete. The Executive agrees that he
will not take certain actions that would be damaging to the
competitive position of the Company or its successor. By making
this commitment, the Executive agrees that during Executive's
employment with the Company and its successors and for twelve
months thereafter if the Executive's employment ceases as
described in Section 3, the Executive will not (x) accept any
employment with, ownership interest in, or engagement as a
consultant, contractor or service provider to any business
engaged in a business that is competitive with the Company or its
successor or (y) on behalf of any such business solicit any
business that was a customer of the Company or its successor
during the preceding twelve months. The Executive understands and
agrees that each provision of this Agreement is a separate and
independent clause, and if any clause should be found
unenforceable, that will not affect the enforceability of the
other clauses. In the event that any of the provisions of this
Agreement should ever be deemed to exceed the time, geographic
area or activity limitations permitted by applicable law, the
Company and the Executive agree that such provisions must be and
are reformed to the maximum time, geographic area and activity
limitations permitted by applicable law, and expressly authorize
a court having jurisdiction to reform the provisions to the
maximum time, geographic area and activity limitations permitted
by applicable law.
6. Excise Tax, etc. Indemnity. One or more benefits
provided under this Agreement may constitute "parachute payments"
(as defined in Section 280G(b)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), but without regard to Code
section 280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the application of
the tax imposed by Code section 4999. To effect this
indemnification, the Company must pay the Executive an additional
amount that is sufficient to pay any excise tax imposed by Code
section 4999 on the payments and benefits to which the Executive
is entitled (whether payable under this Agreement or any other
plan, agreement or arrangement), plus the excise, employment and
income taxes on the additional amount. Such additional amount
shall be paid to the Executive at such times as may be necessary
for the Executive to satisfy any such tax obligation, including
the payment of estimated taxes.
7. Legal Fees. The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and costs that
the Executive may incur in connection with the enforcement of
this Agreement.
8. Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Cause" means the Executive's
conviction by a court of competent jurisdiction
for, or pleading no contest to, a felony.
5
(b) "Change in Control" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(c) "Control Change Date" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(d) "Good Reason" means (x) a material
reduction in the Executive's duties or
responsibilities; (y) the failure by the
Company or its successor to permit the
Executive to exercise such responsibilities as
are consistent with the Executive's position;
(z) a requirement that the Executive relocate
his principal place of employment to a location
that is at least fifty miles farther from his
principal residence than was his former
principal place of employment; (x) the failure
by the Company or its successor to award the
Executive annual incentive, long-term incentive
or stock option opportunities consistent with
those provided to similarly situated executives
and (y) the failure by the Company or its
successor to make a payment when due to the
Executive.
9. Successors. This Agreement shall inure to the benefit
of and be binding on 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 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.
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.
10. Modification, etc. 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 Executive and a duly authorized officer 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, other than its choice of laws
provision.
11. Enforceability. 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.
6
12. Non-Disparagement. The Company and the Executive
agree, that after the Executive's employment with the Company
terminates, to refrain from taking any action or making any
statements, written or oral, which are intended to disparage the
goodwill or reputation of the Company or the Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf and the Executive has duly
executed this Agreement, all as of the date first above written.
ANDREW J. KOHUT CHESAPEAKE CORPORATION
By: /s/ Andrew J. Kohut By: /s/ Thomas H. Johnson
Andrew J. Kohut Thomas H. Johnson
Date_12/30/99___________ President & CEO
7
EX 10.18
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 13, 1999, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and Octavio Orta (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Executive Vice President - Display & Packaging of the
Company; and
WHEREAS, the Company recognizes that the Executive has made
substantial contributions to the Company and in the future is
expected to make substantial contributions to the success of the
Company; and
WHEREAS, the Company recognizes that, as with any publicly
traded corporation, a Change in Control of the Company is a
possibility; and
WHEREAS, the Company recognizes that the possibility of a
Change in Control of the Company or a negotiation of a
transaction that will result in a Change in Control of the
Company may cause the Executive uncertainty regarding his
continued service; and
WHEREAS, the Company desires to provide certain assurances
to the Executive regarding the terms applicable to certain
terminations of the Executive's service; and
WHEREAS, the Executive wishes to provide certain assurances
to the Company regarding his conduct during the Term of this
Agreement and following the Executive's termination of service;
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the Company and the
Executive covenant and agree as follows:
1. Term. The Term of this Agreement is the period
described in the following paragraph (a) and any period for which
the same may be extended as provided in the following paragraphs
(b) and (c).
(a) The Term includes the period
beginning on September 13, 1999, and ending on
December 31, 2002.
(b) The period described in paragraph (a)
shall be extended for an additional twelve
months unless the Company, before each
September 1 of any year, provides written
notice to the Executive that the period will
not be extended. The preceding sentence shall
first be effective to extend the period
described in paragraph (a) until
1
December 31, 2003, unless written notice to
the contrary is provided to the Executive by
the Company before September 1, 2000.
(c) The period described in paragraph (a)
shall be extended if there is a Control Change
Date during the Term of this Agreement. In
that event, the period described in paragraph
(a) shall be extended automatically until the
third anniversary of the Control Change Date.
The period described in paragraph (a) shall be
further extended by twelve months under this
paragraph (c) unless the Company, at least
ninety days prior to an anniversary of the
Control Change Date, provides written notice to
the Executive that the period will not be
extended. The preceding sentence shall first
be effective to extend the period described in
paragraph (a) (after giving effect to the
extension provided in the second sentence of
this paragraph (c)), until the fourth
anniversary of the Control Change Date unless
written notice to the contrary is provided to
the Executive at least ninety days prior to the
first anniversary of the Control Change Date.
2. Change in Control Benefits. The Executive shall be
entitled to receive the severance and welfare benefits and the
pension supplement described in this Section 2 if, during the
Term of this Agreement, (x) there is a Change in Control and the
Executive's employment with the Company and its successors is
terminated or terminates after the Control Change Date without
Cause or for Good Reason or (y) there is a sale or other
divestiture of the business unit of the Company or its successor
to which the Executive is assigned and the Executive's employment
with the Company and its successors is terminated or terminates
after such sale or divestiture without Cause or for Good Reason.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) three times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 2, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
2
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 2 shall continue until the
earlier of (x) the third anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 2 is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 2 shall
be reduced, but not below zero, by any benefit
that the Executive accrues during such period
under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 2, less applicable
income and employment taxes and other
authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 2 and any
offset or reductions for benefits provided by
the Company or its successor shall be made on
an actuarially equivalent basis using the
SERP's actuarial assumptions and methods.
3. Benefits Prior to a Change in Control. Subject to the
final sentence of this Section 3, the Executive shall be entitled
to receive the severance and welfare benefits described in this
Section 3 if, during the Term of this Agreement but prior to a
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
3
assigned, the Executive's employment with the Company and its
successors is terminated by the Company or its successor without
Cause.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) three times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 3, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 3 shall continue
until the earlier of (x) the third anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
No benefits will be payable or available under this
Section 3 unless the Executive executes a release and
waiver of the Company in a form satisfactory to the
Company and the Executive complies with Sections 4 and 5.
4. Confidentiality. During the period of employment with
the Company, the Executive has had access to certain
confidential, non-public information concerning the Company (the
4
"Information"). The Executive agrees to maintain the
Information as confidential and not disclose it to third parties
or use it in the Executive's employment with any direct or
indirect competitor of the Company or its successors during
employment with the Company and its successors and thereafter
following a termination of employment described in Section 3.
The Executive agrees that compliance with this confidentiality
obligation is a condition precedent to the Executive's right to
receive the benefits described in Section 3.
5. Covenant Not to Compete. The Executive agrees that he
will not take certain actions that would be damaging to the
competitive position of the Company or its successor. By making
this commitment, the Executive agrees that during Executive's
employment with the Company and its successors and for twelve
months thereafter if the Executive's employment ceases as
described in Section 3, the Executive will not (x) accept any
employment with, ownership interest in, or engagement as a
consultant, contractor or service provider to any business
engaged in a business that is competitive with the Company or its
successor or (y) on behalf of any such business solicit any
business that was a customer of the Company or its successor
during the preceding twelve months. The Executive understands and
agrees that each provision of this Agreement is a separate and
independent clause, and if any clause should be found
unenforceable, that will not affect the enforceability of the
other clauses. In the event that any of the provisions of this
Agreement should ever be deemed to exceed the time, geographic
area or activity limitations permitted by applicable law, the
Company and the Executive agree that such provisions must be and
are reformed to the maximum time, geographic area and activity
limitations permitted by applicable law, and expressly authorize
a court having jurisdiction to reform the provisions to the
maximum time, geographic area and activity limitations permitted
by applicable law.
6. Excise Tax, etc. Indemnity. One or more benefits
provided under this Agreement may constitute "parachute payments"
(as defined in Section 280G(b)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), but without regard to Code
section 280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the application of
the tax imposed by Code section 4999. To effect this
indemnification, the Company must pay the Executive an additional
amount that is sufficient to pay any excise tax imposed by Code
section 4999 on the payments and benefits to which the Executive
is entitled (whether payable under this Agreement or any other
plan, agreement or arrangement), plus the excise, employment and
income taxes on the additional amount. Such additional amount
shall be paid to the Executive at such times as may be necessary
for the Executive to satisfy any such tax obligation, including
the payment of estimated taxes.
7. Legal Fees. The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and costs that
the Executive may incur in connection with the enforcement of
this Agreement.
8. Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
5
(a) "Cause" means the Executive's
conviction by a court of competent jurisdiction
for, or pleading no contest to, a felony.
(b) "Change in Control" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(c) "Control Change Date" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(d) "Good Reason" means (x) a material
reduction in the Executive's duties or
responsibilities; (y) the failure by the
Company or its successor to permit the
Executive to exercise such responsibilities as
are consistent with the Executive's position;
(z) a requirement that the Executive relocate
his principal place of employment to a location
that is at least fifty miles farther from his
principal residence than was his former
principal place of employment; (x) the failure
by the Company or its successor to award the
Executive annual incentive, long-term incentive
or stock option opportunities consistent with
those provided to similarly situated executives
and (y) the failure by the Company or its
successor to make a payment when due to the
Executive.
9. Successors. This Agreement shall inure to the benefit
of and be binding on 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 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.
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.
10. Modification, etc. 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 Executive and a duly authorized officer 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, other than its choice of laws
provision.
6
11. Enforceability. 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.
12. Non-Disparagement. The Company and the Executive
agree, that after the Executive's employment with the Company
terminates, to refrain from taking any action or making any
statements, written or oral, which are intended to disparage the
goodwill or reputation of the Company or the Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf and the Executive has duly
executed this Agreement, all as of the date first above written.
OCTAVIO ORTA CHESAPEAKE CORPORATION
By: /s/ Octavio Orta By /s/ Thomas H. Johnson
Octavio Orta Thomas H. Johnson
Date___12/21/99_________ President & CEO
Title
7
EX 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 13, 1999, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and Robert F. Schick (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Senior Vice President - Containers of the Company; and
WHEREAS, the Company recognizes that the Executive has made
substantial contributions to the Company and in the future is
expected to make substantial contributions to the success of the
Company; and
WHEREAS, the Company recognizes that, as with any publicly
traded corporation, a Change in Control of the Company is a
possibility; and
WHEREAS, the Company recognizes that the possibility of a
Change in Control of the Company or a negotiation of a
transaction that will result in a Change in Control of the
Company may cause the Executive uncertainty regarding his
continued service; and
WHEREAS, the Company desires to provide certain assurances
to the Executive regarding the terms applicable to certain
terminations of the Executive's service; and
WHEREAS, the Executive wishes to provide certain assurances
to the Company regarding his conduct during the Term of this
Agreement and following the Executive's termination of service;
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the Company and the
Executive covenant and agree as follows:
1. Term. The Term of this Agreement is the period
described in the following paragraph (a) and any period for which
the same may be extended as provided in the following paragraphs
(b) and (c).
(a) The Term includes the period
beginning on September 13, 1999, and ending on
December 31, 2002.
(b) The period described in paragraph (a)
shall be extended for an additional twelve
months unless the Company, before each
September 1 of any year, provides written
notice to the Executive that the period will
not be extended. The preceding sentence shall
first be effective to extend the period
described in paragraph (a) until
1
December 31, 2003, unless written notice to
the contrary is provided to the Executive by
the Company before September 1, 2000.
(c) The period described in paragraph (a)
shall be extended if there is a Control Change
Date during the Term of this Agreement. In
that event, the period described in paragraph
(a) shall be extended automatically until the
third anniversary of the Control Change Date.
The period described in paragraph (a) shall be
further extended by twelve months under this
paragraph (c) unless the Company, at least
ninety days prior to an anniversary of the
Control Change Date, provides written notice to
the Executive that the period will not be
extended. The preceding sentence shall first
be effective to extend the period described in
paragraph (a) (after giving effect to the
extension provided in the second sentence of
this paragraph (c)), until the fourth
anniversary of the Control Change Date unless
written notice to the contrary is provided to
the Executive at least ninety days prior to the
first anniversary of the Control Change Date.
2. Change in Control Benefits. The Executive shall be
entitled to receive the severance and welfare benefits and the
pension supplement described in this Section 2 if, during the
Term of this Agreement, (x) there is a Change in Control and the
Executive's employment with the Company and its successors is
terminated or terminates after the Control Change Date without
Cause or for Good Reason or (y) there is a sale or other
divestiture of the business unit of the Company or its successor
to which the Executive is assigned and the Executive's employment
with the Company and its successors is terminated or terminates
after such sale or divestiture without Cause or for Good Reason.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) three times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 2, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
2
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 2 shall continue until the
earlier of (x) the third anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 2 is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 2 shall
be reduced, but not below zero, by any benefit
that the Executive accrues during such period
under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 2, less applicable
income and employment taxes and other
authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 2 and any
offset or reductions for benefits provided by
the Company or its successor shall be made on
an actuarially equivalent basis using the
SERP's actuarial assumptions and methods.
3. Benefits Prior to a Change in Control. Subject to the
final sentence of this Section 3, the Executive shall be entitled
to receive the severance and welfare benefits described in this
Section 3 if, during the Term of this Agreement but prior to a
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
3
assigned, the Executive's employment with the Company and its
successors is terminated by the Company or its successor without
Cause.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) two times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) two times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 3, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 3 shall continue
until the earlier of (x) the second anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
No benefits will be payable or available under this
Section 3 unless the Executive executes a release and
waiver of the Company in a form satisfactory to the
Company and the Executive complies with Sections 4 and 5.
4. 4. Confidentiality. During the period of employment
with the Company, the Executive has had access to certain
confidential, non-public information concerning the Company (the
"Information"). The Executive agrees to maintain the Information
as confidential and not
4
disclose it to third parties or use it in the Executive's
employment with any direct or indirect competitor of the Company
or its successors during employment with the Company and its
successors and thereafter following a termination of employment
described in Section 3. The Executive agrees that compliance
with this confidentiality obligation is a condition precedent to
the Executive's right to receive the benefits described in
Section 3.
5. Covenant Not to Compete. The Executive agrees that he
will not take certain actions that would be damaging to the
competitive position of the Company or its successor. By making
this commitment, the Executive agrees that during Executive's
employment with the Company and its successors and for twelve
months thereafter if the Executive's employment ceases as
described in Section 3, the Executive will not (x) accept any
employment with, ownership interest in, or engagement as a
consultant, contractor or service provider to any business
engaged in a business that is competitive with the Company or its
successor or (y) on behalf of any such business solicit any
business that was a customer of the Company or its successor
during the preceding twelve months. The Executive understands and
agrees that each provision of this Agreement is a separate and
independent clause, and if any clause should be found
unenforceable, that will not affect the enforceability of the
other clauses. In the event that any of the provisions of this
Agreement should ever be deemed to exceed the time, geographic
area or activity limitations permitted by applicable law, the
Company and the Executive agree that such provisions must be and
are reformed to the maximum time, geographic area and activity
limitations permitted by applicable law, and expressly authorize
a court having jurisdiction to reform the provisions to the
maximum time, geographic area and activity limitations permitted
by applicable law.
6. Excise Tax, etc. Indemnity. One or more benefits
provided under this Agreement may constitute "parachute payments"
(as defined in Section 280G(b)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), but without regard to Code
section 280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the application of
the tax imposed by Code section 4999. To effect this
indemnification, the Company must pay the Executive an additional
amount that is sufficient to pay any excise tax imposed by Code
section 4999 on the payments and benefits to which the Executive
is entitled (whether payable under this Agreement or any other
plan, agreement or arrangement), plus the excise, employment and
income taxes on the additional amount. Such additional amount
shall be paid to the Executive at such times as may be necessary
for the Executive to satisfy any such tax obligation, including
the payment of estimated taxes.
7. Legal Fees. The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and costs that
the Executive may incur in connection with the enforcement of
this Agreement.
8. Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Cause" means the Executive's
conviction by a court of competent jurisdiction
for, or pleading no contest to, a felony.
5
(b) "Change in Control" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(c) "Control Change Date" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(d) "Good Reason" means (x) a material
reduction in the Executive's duties or
responsibilities; (y) the failure by the
Company or its successor to permit the
Executive to exercise such responsibilities as
are consistent with the Executive's position;
(z) a requirement that the Executive relocate
his principal place of employment to a location
that is at least fifty miles farther from his
principal residence than was his former
principal place of employment; (x) the failure
by the Company or its successor to award the
Executive annual incentive, long-term incentive
or stock option opportunities consistent with
those provided to similarly situated executives
and (y) the failure by the Company or its
successor to make a payment when due to the
Executive.
9. Successors. This Agreement shall inure to the benefit
of and be binding on 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 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.
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.
10. Modification, etc. 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 Executive and a duly authorized officer 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. Notwithstanding the foregoing, this Section 10 shall
in no way be construed to revoke or otherwise limit the benefits
provided to the Executive by Chesapeake Packaging Co. in the
Employment and Severance Benefits Agreement between the Executive
and Chesapeake Packaging Co. dated March 6, 1997 (attached),
which agreement shall remain in full force and effect. The
validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of
Virginia, other than its choice of laws provision.
6
11. Enforceability. 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.
12. Non-Disparagement. The Company and the Executive
agree, that after the Executive's employment with the Company
terminates, to refrain from taking any action or making any
statements, written or oral, which are intended to disparage the
goodwill or reputation of the Company or the Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf and the Executive has duly
executed this Agreement, all as of the date first above written.
ROBERT F. SCHICK CHESAPEAKE CORPORATION
By: /s/ Robert F. Schick By /s/ Thomas H. Johnson
Robert F. Schick Thomas H. Johnson
Date___12/31/99_________ President & CEO
Title
7
EX 10.20
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 13, 1999, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and Thomas A. Smith (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Vice President - Human Resources of the Company; and
WHEREAS, the Company recognizes that the Executive has made
substantial contributions to the Company and in the future is
expected to make substantial contributions to the success of the
Company; and
WHEREAS, the Company recognizes that, as with any publicly
traded corporation, a Change in Control of the Company is a
possibility; and
WHEREAS, the Company recognizes that the possibility of a
Change in Control of the Company or a negotiation of a
transaction that will result in a Change in Control of the
Company may cause the Executive uncertainty regarding his
continued service; and
WHEREAS, the Company desires to provide certain assurances
to the Executive regarding the terms applicable to certain
terminations of the Executive's service; and
WHEREAS, the Executive wishes to provide certain assurances
to the Company regarding his conduct during the Term of this
Agreement and following the Executive's termination of service;
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the Company and the
Executive covenant and agree as follows:
1. Term. The Term of this Agreement is the period
described in the following paragraph (a) and any period for which
the same may be extended as provided in the following paragraphs
(b) and (c).
(a) The Term includes the period
beginning on September 13, 1999, and ending on
December 31, 2001.
(b) The period described in paragraph (a)
shall be extended for an additional twelve
months unless the Company, before each
September 1 of any year, provides written
notice to the Executive that the period will
not be extended. The preceding sentence shall
first be effective to extend the period
described in paragraph (a) until
1
December 31, 2002, unless written notice to the
contrary is provided to the Executive by the
Company before September 1, 2000.
(c) The period described in paragraph (a)
shall be extended if there is a Control Change
Date during the Term of this Agreement. In
that event, the period described in paragraph
(a) shall be extended automatically until the
second anniversary of the Control Change Date.
The period described in paragraph (a) shall be
further extended by twelve months under this
paragraph (c) unless the Company, at least
ninety days prior to an anniversary of the
Control Change Date, provides written notice to
the Executive that the period will not be
extended. The preceding sentence shall first
be effective to extend the period described in
paragraph (a) (after giving effect to the
extension provided in the second sentence of
this paragraph (c)), until the third
anniversary of the Control Change Date unless
written notice to the contrary is provided to
the Executive at least ninety days prior to the
first anniversary of the Control Change Date.
2. Change in Control Benefits. The Executive shall be
entitled to receive the severance and welfare benefits and the
pension supplement described in this Section 2 if, during the
Term of this Agreement, (x) there is a Change in Control and the
Executive's employment with the Company and its successors is
terminated or terminates after the Control Change Date without
Cause or for Good Reason or (y) there is a sale or other
divestiture of the business unit of the Company or its successor
to which the Executive is assigned and the Executive's employment
with the Company and its successors is terminated or terminates
after such sale or divestiture without Cause or for Good Reason.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) two times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) two times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 2, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
2
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 2 shall continue until the
earlier of (x) the second anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 2 is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the second anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 2 shall
be reduced, but not below zero, by any benefit
that the Executive accrues during such period
under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 2, less applicable
income and employment taxes and other
authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 2 and any
offset or reductions for benefits provided by
the Company or its successor shall be made on
an actuarially equivalent basis using the
SERP's actuarial assumptions and methods.
3. Benefits Prior to a Change in Control. Subject to the
final sentence of this Section 3, the Executive shall be entitled
to receive the severance and welfare benefits described in this
Section 3 if, during the Term of this Agreement but prior to a
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
3
assigned, the Executive's employment with the Company and its
successors is terminated by the Company or its successor without
Cause.
(a) The severance benefit payable under
this Section 2 is an amount equal to two times
the Executive's annual base salary (as in
effect on the date the Executive ceases to be
employed by the Company and its successors or,
if greater, the highest annual rate of base
salary as in effect during the twelve months
preceding such cessation of employment). The
severance benefit described in the preceding
sentence shall be reduced by the amount of any
severance benefit payable to the Executive
under the Chesapeake Corporation Salaried
Employees' Benefits Continuation Plan. The
severance benefit payable under this Section 3,
less applicable income and employment taxes and
other authorized deductions, shall be paid in a
single sum as soon as practicable following the
Executive's cessation of employment with the
Company and its successors.
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 3 shall continue
until the earlier of (x) the second anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
No benefits will be payable or available under this
Section 3 unless the Executive executes a release and
waiver of the Company in a form satisfactory to the
Company and the Executive complies with Sections 4 and 5.
4. 4. Confidentiality. During the period of employment
with the Company, the Executive has had access to certain
confidential, non-public information concerning the Company (the
"Information"). The Executive agrees to maintain the Information
as confidential and not disclose it to third parties or use it in
the Executive's employment with any direct or indirect competitor
of the Company or its successors during employment with the
Company and its successors and thereafter following a termination
of employment described in Section 3. The
4
Executive agrees that compliance with this confidentiality
obligation is a condition precedent to the Executive's right to
receive the benefits described in Section 3.
5. Covenant Not to Compete. The Executive agrees that he
will not take certain actions that would be damaging to the
competitive position of the Company or its successor. By making
this commitment, the Executive agrees that during Executive's
employment with the Company and its successors and for twelve
months thereafter if the Executive's employment ceases as
described in Section 3, the Executive will not (x) accept any
employment with, ownership interest in, or engagement as a
consultant, contractor or service provider to any business
engaged in a business that is competitive with the Company or its
successor or (y) on behalf of any such business solicit any
business that was a customer of the Company or its successor
during the preceding twelve months. The Executive understands and
agrees that each provision of this Agreement is a separate and
independent clause, and if any clause should be found
unenforceable, that will not affect the enforceability of the
other clauses. In the event that any of the provisions of this
Agreement should ever be deemed to exceed the time, geographic
area or activity limitations permitted by applicable law, the
Company and the Executive agree that such provisions must be and
are reformed to the maximum time, geographic area and activity
limitations permitted by applicable law, and expressly authorize
a court having jurisdiction to reform the provisions to the
maximum time, geographic area and activity limitations permitted
by applicable law.
6. Excise Tax, etc. Indemnity. One or more benefits
provided under this Agreement may constitute "parachute payments"
(as defined in Section 280G(b)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), but without regard to Code
section 280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the application of
the tax imposed by Code section 4999. To effect this
indemnification, the Company must pay the Executive an additional
amount that is sufficient to pay any excise tax imposed by Code
section 4999 on the payments and benefits to which the Executive
is entitled (whether payable under this Agreement or any other
plan, agreement or arrangement), plus the excise, employment and
income taxes on the additional amount. Such additional amount
shall be paid to the Executive at such times as may be necessary
for the Executive to satisfy any such tax obligation, including
the payment of estimated taxes.
7. Legal Fees. The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and costs that
the Executive may incur in connection with the enforcement of
this Agreement.
8. Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Cause" means the Executive's
conviction by a court of competent jurisdiction
for, or pleading no contest to, a felony.
5
(b) "Change in Control" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(c) "Control Change Date" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(d) "Good Reason" means (x) a material
reduction in the Executive's duties or
responsibilities; (y) the failure by the
Company or its successor to permit the
Executive to exercise such responsibilities as
are consistent with the Executive's position;
(z) a requirement that the Executive relocate
his principal place of employment to a location
that is at least fifty miles farther from his
principal residence than was his former
principal place of employment; (x) the failure
by the Company or its successor to award the
Executive annual incentive, long-term incentive
or stock option opportunities consistent with
those provided to similarly situated executives
and (y) the failure by the Company or its
successor to make a payment when due to the
Executive.
9. Successors. This Agreement shall inure to the benefit
of and be binding on 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 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.
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.
10. Modification, etc. 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 Executive and a duly authorized officer 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, other than its choice of laws
provision.
11. Enforceability. 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.
6
12. Non-Disparagement. The Company and the Executive
agree, that after the Executive's employment with the Company
terminates, to refrain from taking any action or making any
statements, written or oral, which are intended to disparage the
goodwill or reputation of the Company or the Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf and the Executive has duly
executed this Agreement, all as of the date first above written.
THOMAS A. SMITH CHESAPEAKE CORPORATION
By: /s/ Thomas A. Smith By /s/ Thomas H. Johnson
Thomas A. Smith Thomas H. Johnson
Date___12/23/99_________ President & CEO
Title
7
EX 10.21
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 13, 1999, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and William T. Tolley (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Senior Vice President - Finance & Chief Financial
Officer of the Company; and
WHEREAS, the Company recognizes that the Executive has made
substantial contributions to the Company and in the future is
expected to make substantial contributions to the success of the
Company; and
WHEREAS, the Company recognizes that, as with any publicly
traded corporation, a Change in Control of the Company is a
possibility; and
WHEREAS, the Company recognizes that the possibility of a
Change in Control of the Company or a negotiation of a
transaction that will result in a Change in Control of the
Company may cause the Executive uncertainty regarding his
continued service; and
WHEREAS, the Company desires to provide certain assurances
to the Executive regarding the terms applicable to certain
terminations of the Executive's service; and
WHEREAS, the Executive wishes to provide certain assurances
to the Company regarding his conduct during the Term of this
Agreement and following the Executive's termination of service;
NOW THEREFORE, in consideration of the premises and mutual
covenants and agreements set forth herein, the Company and the
Executive covenant and agree as follows:
1. Term. The Term of this Agreement is the period
described in the following paragraph (a) and any period for which
the same may be extended as provided in the following paragraphs
(b) and (c).
(a) The Term includes the period
beginning on September 13, 1999, and ending on
December 31, 2002.
(b) The period described in paragraph (a)
shall be extended for an additional twelve
months unless the Company, before each
September 1 of any year, provides written
notice to the Executive that the period will
not be extended. The preceding sentence shall
first be effective to extend the period
described in paragraph (a) until
1
December 31, 2003, unless written notice to the
contrary is provided to the Executive by the
Company before September 1, 2000.
(c) The period described in paragraph (a)
shall be extended if there is a Control Change
Date during the Term of this Agreement. In
that event, the period described in paragraph
(a) shall be extended automatically until the
third anniversary of the Control Change Date.
The period described in paragraph (a) shall be
further extended by twelve months under this
paragraph (c) unless the Company, at least
ninety days prior to an anniversary of the
Control Change Date, provides written notice to
the Executive that the period will not be
extended. The preceding sentence shall first
be effective to extend the period described in
paragraph (a) (after giving effect to the
extension provided in the second sentence of
this paragraph (c)), until the fourth
anniversary of the Control Change Date unless
written notice to the contrary is provided to
the Executive at least ninety days prior to the
first anniversary of the Control Change Date.
2. Change in Control Benefits. The Executive shall be
entitled to receive the severance and welfare benefits and the
pension supplement described in this Section 2 if, during the
Term of this Agreement, (x) there is a Change in Control and the
Executive's employment with the Company and its successors is
terminated or terminates after the Control Change Date without
Cause or for Good Reason or (y) there is a sale or other
divestiture of the business unit of the Company or its successor
to which the Executive is assigned and the Executive's employment
with the Company and its successors is terminated or terminates
after such sale or divestiture without Cause or for Good Reason.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) three times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) three times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 2, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
2
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage available pursuant to Section 4980B of
the Internal Revenue Code of 1986, as amended
("COBRA"). The continued coverage provided
under this Section 2 shall continue until the
earlier of (x) the third anniversary of the
Executive's cessation of service to the Company
and its successors and (y) the date that the
Executive is eligible for similar coverage
under another employer's plan.
(c) The pension supplement payable under
this Section 2 is an amount equal to the
benefit that the Executive would have accrued
under the Chesapeake Corporation Executive
Supplemental Retirement Plan (the "ESRP") had
the Executive remained an employee of the
Company until the third anniversary of the
Executive's cessation of service to the Company
and its successors (i.e., recognizing as
service with the Company the months during such
period and the Executive's attained age as of
the end of such period). The pension
supplement payable under this Section 2 shall
be reduced, but not below zero, by any benefit
that the Executive accrues during such period
under any employee pension benefit plan
maintained by the Company or its successor.
The present value of the pension supplement
payable under this Section 2, less applicable
income and employment taxes and other
authorized deductions, shall be paid in a
single sum to the Executive as soon as
practicable following the cessation of the
Executive's employment with the Company and its
successors. The present value of the pension
supplement payable under this Section 2 and any
offset or reductions for benefits provided by
the Company or its successor shall be made on
an actuarially equivalent basis using the
SERP's actuarial assumptions and methods.
3. Benefits Prior to a Change in Control. Subject to the
final sentence of this Section 3, the Executive shall be entitled
to receive the severance and welfare benefits described in this
Section 3 if, during the Term of this Agreement but prior to a
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
3
assigned, the Executive's employment with the Company and its
successors is terminated by the Company or its successor without
Cause.
(a) The severance benefit payable under
this Section 2 is an amount equal to the sum of
(x) two times the Executive's annual base
salary (as in effect on the date the Executive
ceases to be employed by the Company and its
successors or, if greater, the highest annual
rate of base salary as in effect during the
twelve months preceding such cessation of
employment) and (y) two times the Executive's
annual incentive plan target for the year in
which the Executive ceases to be employed by
the Company and its successors or, if greater,
the year preceding such cessation of
employment. The severance benefit described in
the preceding sentence shall be reduced by the
amount of any severance benefit payable to the
Executive under the Chesapeake Corporation
Salaried Employees' Benefits Continuation Plan.
The severance benefit payable under this
Section 3, less applicable income and
employment taxes and other authorized
deductions, shall be paid in a single sum as
soon as practicable following the Executive's
cessation of employment with the Company and
its successors.
(b) The welfare benefits provided under
this Section 2 are continued coverage of the
Executive and the Executive's eligible
dependents under all life, disability, medical
and dental benefit plans and programs in which
the Executive participates immediately prior to
the Executive's date of termination on such
terms as are then in effect. In the event that
the continued coverage of the Executive or the
Executive's eligible dependents in any such
plan or program is barred by its terms, the
Company shall arrange to provide the Executive
and the Executive's eligible dependents with
benefits substantially similar to those to
which they are entitled to receive under such
plans or programs including, by way of example
and not of limitation, the reimbursement of the
Executive of the cost or premium for continued
coverage under COBRA. The continued coverage
provided under this Section 3 shall continue
until the earlier of (x) the second anniversary
of the Executive's cessation of service to the
Company and its successors and (y) the date
that the Executive is eligible for similar
coverage under another employer's plan.
No benefits will be payable or available under this
Section 3 unless the Executive executes a release and
waiver of the Company in a form satisfactory to the
Company and the Executive complies with Sections 4 and 5.
4. Confidentiality. During the period of employment with
the Company, the Executive has had access to certain
confidential, non-public information concerning the Company (the
"Information"). The Executive agrees to maintain the Information
as confidential and not
4
disclose it to third parties or use it in the Executive's
employment with any direct or indirect competitor of the Company
or its successors during employment with the Company and its
successors and thereafter following a termination of employment
described in Section 3. The Executive agrees that compliance
with this confidentiality obligation is a condition precedent to
the Executive's right to receive the benefits described in
Section 3.
5. Covenant Not to Compete. The Executive agrees that he
will not take certain actions that would be damaging to the
competitive position of the Company or its successor. By making
this commitment, the Executive agrees that during Executive's
employment with the Company and its successors and for twelve
months thereafter if the Executive's employment ceases as
described in Section 3, the Executive will not (x) accept any
employment with, ownership interest in, or engagement as a
consultant, contractor or service provider to any business
engaged in a business that is competitive with the Company or its
successor or (y) on behalf of any such business solicit any
business that was a customer of the Company or its successor
during the preceding twelve months. The Executive understands and
agrees that each provision of this Agreement is a separate and
independent clause, and if any clause should be found
unenforceable, that will not affect the enforceability of the
other clauses. In the event that any of the provisions of this
Agreement should ever be deemed to exceed the time, geographic
area or activity limitations permitted by applicable law, the
Company and the Executive agree that such provisions must be and
are reformed to the maximum time, geographic area and activity
limitations permitted by applicable law, and expressly authorize
a court having jurisdiction to reform the provisions to the
maximum time, geographic area and activity limitations permitted
by applicable law.
6. Excise Tax, etc. Indemnity. One or more benefits
provided under this Agreement may constitute "parachute payments"
(as defined in Section 280G(b)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), but without regard to Code
section 280G(b)(2)(A)(ii)). In that event, the Company shall
indemnify and hold the Executive harmless from the application of
the tax imposed by Code section 4999. To effect this
indemnification, the Company must pay the Executive an additional
amount that is sufficient to pay any excise tax imposed by Code
section 4999 on the payments and benefits to which the Executive
is entitled (whether payable under this Agreement or any other
plan, agreement or arrangement), plus the excise, employment and
income taxes on the additional amount. Such additional amount
shall be paid to the Executive at such times as may be necessary
for the Executive to satisfy any such tax obligation, including
the payment of estimated taxes.
7. Legal Fees. The Company or its successor will promptly
reimburse the Executive for reasonable legal fees and costs that
the Executive may incur in connection with the enforcement of
this Agreement.
8. Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Cause" means the Executive's
conviction by a court of competent jurisdiction
for, or pleading no contest to, a felony.
5
(b) "Change in Control" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(c) "Control Change Date" has the same
meaning, as of any applicable date, as set
forth in the Chesapeake Corporation Benefits
Plan Trust (as in effect on such date).
(d) "Good Reason" means (x) a material
reduction in the Executive's duties or
responsibilities; (y) the failure by the
Company or its successor to permit the
Executive to exercise such responsibilities as
are consistent with the Executive's position;
(z) a requirement that the Executive relocate
his principal place of employment to a location
that is at least fifty miles farther from his
principal residence than was his former
principal place of employment; (x) the failure
by the Company or its successor to award the
Executive annual incentive, long-term incentive
or stock option opportunities consistent with
those provided to similarly situated executives
and (y) the failure by the Company or its
successor to make a payment when due to the
Executive.
9. Successors. This Agreement shall inure to the benefit
of and be binding on 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 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.
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.
10. Modification, etc. 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 Executive and a duly authorized officer 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, other than its choice of laws
provision.
11. Enforceability. 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.
6
12. Non-Disparagement. The Company and the Executive
agree, that after the Executive's employment with the Company
terminates, to refrain from taking any action or making any
statements, written or oral, which are intended to disparage the
goodwill or reputation of the Company or the Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed on its behalf and the Executive has duly
executed this Agreement, all as of the date first above written.
WILLIAM T. TOLLEY CHESAPEAKE CORPORATION
By: /s/ William T. Tolley By: /s/ Thomas H. Johnson
William T. Tolley Thomas H. Johnson
Date__12/23/99 ________ President & CEO
Title
7
EX 11.1
CHESAPEAKE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
for the three years ended December 31, 1999
(Amounts in millions, except for per share amounts)
1999 1998 1997
---- ---- ----
Basic:
Weighted average number of common
shares outstanding 20.1 21.2 23.1
====== ====== ======
Income before extraordinary item $250.8 $ 34.0 $ 50.9
Extraordinary item - 13.3 (2.3)
------ ------ ------
Net income $250.8 $ 47.3 $ 48.6
====== ====== ======
Per share amount:
Earnings before extraordinary item $12.48 $ 1.60 $ 2.20
Extraordinary item - .63 (.10)
------ ------ ------
$12.48 $ 2.23 $ 2.10
====== ====== ======
Diluted:
Weighted average number of common
shares outstanding 20.1 21.2 23.1
Net additional common shares
issuable upon exercise of
dilutive options, determined
by treasury stock method using
the average price .3 .4 .3
------ ------ ------
Common shares, equivalents, and
other potentially dilutive
securities 20.4 21.6 23.4
====== ====== ======
Income before extraordinary item $250.8 $ 34.0 $ 50.9
Extraordinary item - 13.3 (2.3)
------ ------ ------
Net income $250.8 $ 47.3 $ 48.6
====== ====== ======
Per share amount:
Earnings before extraordinary
item $12.29 $ 1.57 $ 2.18
Extraordinary item - .62 (.10)
------ ------ ------
Earnings $12.29 $ 2.19 $ 2.08
====== ====== ======
-1-
EX 13.1
Portions of the
CHESAPEAKE CORPORATION
Annual Report to Stockholders
For the year ended December 31, 1999
-1-
BUSINESS SEGMENT HIGHLIGHTS
(dollar amounts in millions,
except per share amounts) 1999 1998 1997
---- ---- ----
Net sales:
Merchandising and
Specialty Packaging $ 486.6 42% $472.3 49% $416.8 41%
European Specialty
Packaging 312.9 27 - -
Tissue 319.6 27 433.3 46 410.7 40
Forest Products/
Land Development 42.9 4 44.8 5 38.0 4
Kraft Products - - 155.5 15
-------- ---- ------ ---- -------- ----
Consolidated net sales $1,162.0 100% $950.4 100% $1,021.0 100%
======== ==== ====== ==== ======== ====
EBIT (Earnings before
interest and taxes):
Merchandising and
Specialty Packaging $ 11.9 11% $13.3 13% $ 5.4 9%
European Specialty
Packaging 26.6 25 - -
Tissue 51.1 48 69.6 70 55.8 94
Forest Products/
Land Development 16.4 16 16.3 17 12.6 21
Kraft Products - - (14.3)(24)
------- ---- ------ ---- ------- ----
106.0 100% 99.2 100% 59.5 100%
------- ---- ------ ---- ------- ----
Corporate (18.1) (12.7) (19.7)
------- ------ -------
87.9 86.5 39.8
Gain on sale
of businesses 413.7 - 86.3
Restructuring/
special charges (38.0) (11.8) (18.9)
------- ------ --------
$463.6 $ 74.7 $ 107.2
======= ====== ========
Graph: 1999 1998 1997
---- ---- ----
Net Sales by Segment
(millions of dollars)
Merchandising and Specialty Packaging 486.6 472.3 416.8
European Specialty Packaging 312.9 - -
Forest Products/Land Development 42.9 44.8 38.0
Tissue 319.6 433.3 410.7
Kraft Products - - 155.5
-2-
Graph: 1999 1998 1997
---- ---- ----
Operating Income by Segment
(millions of dollars)
Merchandising and Specialty Packaging 11.9 13.3 5.4
European Specialty Packaging 26.6 - -
Forest Products/Land Development 16.4 16.3 12.6
Tissue 51.1 69.6 55.8
Kraft Products - - (14.3)
Graph: 1999 1998 1997
---- ---- ----
EBITDA by Segment
(millions of dollars)
Merchandising and Specialty Packaging 37.8 35.1 26.4
European Specialty Packaging 52.8 - -
Forest Products/Land Development 18.5 19.9 15.2
Tissue 76.0 105.1 88.8
Kraft Products - - 3.2
Corporate (16.0) (11.3) (18.0)
Graph: 1999 1998 1997
---- ---- ----
Capital Expenditures by Segment
(millions of dollars)
Merchandising and Specialty Packaging 24.3 34.5 14.6
European Specialty Packaging 23.5 - -
Forest Products/Land Development 3.1 7.8 4.7
Tissue 19.5 26.4 44.1
Kraft Products - - 0.5
Corporate 12.0 4.6 4.3
Graph: 1999 1998 1997
---- ---- ----
Identifiable Assets by Segment at Year-End
(millions of dollars)
Merchandising and Specialty Packaging 384.1 330.6 275.6
European Specialty Packaging 549.3 - -
Forest Products/Land Development 34.1 121.4 94.1
Tissue - 447.6 453.9
Corporate 405.7 79.8 98.3
-3-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CHESAPEAKE'S BUSINESS
During the past three years, Chesapeake Corporation (the
"Company" or "Chesapeake") has made significant progress in
implementing its strategy of shifting from a U.S.-based paper and
forest products manufacturer to a global supplier of specialty
packaging and merchandising services. This strategy shift has
resulted in substantial changes in our business portfolio through
strategic acquisitions and divestitures of businesses and
restructuring of operations. The Company operated in four
industry segments in 1999: Merchandising and Specialty Packaging;
European Specialty Packaging; Tissue; and Forest Products/Land
Development. The operations of these segments and the impact of
acquisition and divestiture activity are described below.
EARNINGS OVERVIEW
The Company reported net income of $250.8 million, or $12.29
per share, for 1999; $47.3 million, or $2.19 per share, for 1998;
and $48.6 million, or $2.08 per share, for 1997. Management
evaluates the Company's financial performance by excluding the
financial results of restructuring and other special charges,
gains on sales of businesses, extraordinary items, and changes in
accounting principles. Results for 1999, 1998 and 1997 include
such nonrecurring items that affect the comparability of reported
results as are described below. The term "income before
nonrecurring items" reflects those adjustments and will be used
throughout the following analysis. Earnings per share amounts are
on a diluted basis throughout this discussion.
Graph: 1999 1998 1997
---- ---- ----
Diluted Earnings per Share
(Dollars)
As reported 12.29 2.19 2.08
Before nonrecurring items 1.86 1.98 .56
Nonrecurring Items
Nonrecurring items affecting 1999's results include: i) an
after-tax gain of $242.0 million, or $11.86 per share, for the
sales of businesses, which included the contribution of
substantially all of the assets and liabilities of Wisconsin
Tissue Mills Inc. ("Wisconsin Tissue" or "WT") to a joint venture
with Georgia-Pacific Corporation (the "Tissue JV"), the sale of
the Company's Building Products business, and the sale of
approximately 278,000 acres of timberland (described in more
detail in Note 2 to the Consolidated Financial Statements); and
-4-
ii) after-tax charges of $29.2 million, or $1.43 per share, for
restructuring and other special charges (described in more detail
under the caption "Restructuring").
Nonrecurring items affecting 1998's results include: i) an
after-tax gain of $13.3 million, or $0.62 per share, resulting
from a change in accounting to capitalize certain timber
reforestation costs that were previously expensed, which the
Company believed was preferable because it achieved better
matching of reforestation costs with the revenues realized from
the eventual harvesting of the timber; and ii) an after-tax
restructuring charge of $8.8 million, or $0.41 per share, related
to Chesapeake's Tissue and Merchandising and Specialty Packaging
segments.
Nonrecurring items affecting 1997's results include: i) an
after-tax gain of $49.1 million, or $2.07 per share, from the
sale of the West Point, Virginia, kraft products mill (the "West
Point Mill") and related assets (collectively the "Kraft Products
business"); ii) after-tax restructuring and other special charges
of $10.8 million, or $0.45 per share, related primarily to
Chesapeake's Merchandising and Specialty Packaging businesses;
and iii) an after-tax extraordinary loss of $2.3 million, or
$0.10 per share, associated with the repurchase of long-term
debt.
Restructuring
1999
In light of the acquisition and divestiture activity that
occurred during 1999, the Company initiated a restructuring
program in the fourth quarter to rationalize its specialty
packaging businesses and corporate staff needs. The 1999
restructuring/special charges of $38.0 million before taxes
($29.2 million after tax, or $1.43 per share) were incurred as a
result of the following:
- - Employment reduction and facility closure. In the fourth
quarter of 1999, the Company reviewed its organization and cost
structures, including facility utilization. As a result of this
review, the Company eliminated a redundant facility in the
Merchandising and Specialty Packaging segment and announced
workforce reductions of approximately 300 employees in the
Merchandising and Specialty Packaging segment, 170 employees in
the European Specialty Packaging segment, and 10 Corporate staff
employees. Included in these costs was a revision to the 1998
restructuring cost estimate for plant closure costs in the
Merchandising and Specialty Packaging segment and $0.5 million
associated with employee severance.
-5-
- - Asset impairment. As part of the Company's annual assessment
of its operating plans, it was determined that operating losses
were expected to continue in the French operations acquired in
1996. As a result of this assessment, in the fourth quarter of
1999, the Company recorded an impairment charge relating to the
write-down of goodwill and other long-lived assets.
- - Defense fees. Defense fees represent costs incurred to
respond to an unsolicited proposal by Shorewood Packaging
Corporation to acquire Chesapeake.
The following table sets forth the details of the
restructuring and special charges recognized in the fourth
quarter of 1999 by segment:
Merchandising European
and Specialty Specialty
Packaging Packaging Corporate Total
(in millions) --------- --------- --------- -----
Employment reduction $ 7.5 $4.8 $0.3 $12.6
Facility closure 1.2 - - 1.2
Asset impairment 17.8 - - 17.8
Defense fees - - 9.2 9.2
Estimate revision - 1998 (2.3) - (0.5) (2.8)
--------- -------- -------- -----
Totals $24.2 $4.8 $9.0 $38.0
========= ======== ======== =====
1998
During 1998, management initiated a review of the Tissue and
the Merchandising and Specialty Packaging segments with the
objective of reducing costs and increasing productivity. This
review included organization and cost structures, facility
utilization, and product offerings. As a result of this review,
the Company formulated a restructuring plan that resulted in a
fourth quarter 1998 charge of $11.8 million before taxes ($8.8
million after tax, or $0.41 per share).
The 1998 restructuring program consisted primarily of a 5
percent reduction in the Company's global work force
(approximately 250 employees) through the elimination of
redundant and overlapping positions and facility consolidations.
The reductions occurred in Chesapeake's Tissue and Merchandising
and Specialty Packaging segments. Wisconsin Tissue implemented a
combination of early retirement and voluntary severance programs
that reduced its work force by approximately 70 positions.
Chesapeake Display and Packaging implemented a work force
reduction of approximately 60 positions and closed one facility.
At December 31, 1999, the restructuring liability established by
the 1998 plan, as adjusted for the revision in restructuring cost
estimate for plant closure costs, was completely utilized.
-6-
1997
During the second quarter of 1997, the Company recorded
restructuring and other special charges of $18.9 million before
taxes ($10.8 million after tax, or $0.45 per share) related
primarily to its Merchandising and Specialty Packaging segment.
The restructuring charge provided for the costs associated with
management reorganization and the closures of one point-of-sale
display facility and one graphic packaging facility. The intent
of these initiatives was to eliminate redundant overhead and
processes, improve geographic efficiency, and reduce fixed costs.
Execution of the 1997 restructuring plan was completed during
1998. The 1997 reserve for restructuring costs was completely
utilized by December 31, 1998.
RESULTS OF OPERATIONS
Overview
The following analysis of consolidated results highlights
major year-to-year changes in the Company's income statement.
More detail regarding these changes is found under the caption
"Segment Review."
1999 vs. 1998
Sales: Chesapeake's 1999 net sales were $1,162.0 million, up
22 percent from 1998's net sales of $950.4 million, primarily due
to the acquisition of Field Group plc ("Field Group") in March
1999 and increased corrugated container and display volumes,
offset in part by the absence of net sales for the Tissue
business after it was contributed to the Tissue JV on October 3,
1999.
Income: Net income for 1999 was $250.8 million, or $12.29
per share, over five times 1998 net income of $47.3 million, or
$2.19 per share. Earnings for 1999 included a gain of $413.7
million ($242.0 million after tax, or $11.86 per share) from the
sales of businesses. Net income for 1999 also included
restructuring and other special charges of $29.2 million after
tax, or $1.43 per share. Net income for 1999 before nonrecurring
items was $38.0 million, or $1.86 per share, down from net income
before nonrecurring items of $1.98 per share in 1998, due
primarily to the contribution of the Tissue business to the
Tissue JV early in the fourth quarter of 1999, and lower margins
in the Merchandising and Specialty Packaging segment.
The gross profit margin in 1999 decreased by one point
compared to 1998 due to lower margins in the corrugated container
and graphic packaging businesses, resulting from higher raw
-7-
material costs, and a 1 percent decline in average tissue prices
for the period prior to the formation of the Tissue JV.
Selling, general and administrative ("SG&A") expenses in
1999 increased $35.0 million, or 25 percent, compared to 1998
primarily due to the acquisition of Field Group. However, SG&A
expenses were held constant as a percent of net sales in 1999 and
1998, as the Company focused on controlling costs.
Earnings before interest and taxes ("EBIT") for 1999 before
nonrecurring items increased to $87.9 million from $86.5 million
in 1998, due primarily to the acquisition of Field Group, offset
in part by the impact of the contribution of the Tissue business
to the Tissue JV early in the fourth quarter of 1999 and
corporate information technology expenses.
1999 net interest expense increased by $11.5 million over
1998 due principally to increased debt levels during the first
three quarters of 1999, which were related to the Field Group
acquisition and the use of cash for common stock repurchases.
Graph:
1999 1998 1997
---- ---- ----
(Millions of $)
Interest Expense, net 30.4 18.9 22.0
The Company's effective income tax rate increased to 42.1
percent in 1999, from 39.1 percent in 1998, primarily due to
goodwill and other purchase accounting adjustments, and to non-
deductible write-offs associated with the 1999 restructuring
program.
1998 vs. 1997
Sales: Chesapeake's 1998 net sales were $950.4 million, down
7 percent from 1997's net sales of $1,021.0 million, due
primarily to the sale of the Kraft Products business in May of
1997. 1998 net sales were 10 percent higher than 1997 net sales,
excluding the Kraft Products business, of $865.5 million, due
primarily to higher Tissue and Specialty Packaging shipments.
Income: Net income for 1998 was $47.3 million, or $2.19 per
share, up 5 percent from net income of $48.6 million, or $2.08
per share, earned in 1997. Earnings for 1998 included an
extraordinary gain of $13.3 million after tax, or $0.62 per
share, from the cumulative effect of an accounting change. The
1998 results also included restructuring charges related to
Chesapeake's Tissue and Merchandising and Specialty Packaging
segments of $8.8 million after tax, or $0.41 per share. Net
income for 1998 excluding these nonrecurring items was $42.8
-8-
million, or $1.98 per share, up over three times net income
before nonrecurring items for 1997 of $12.6 million, or $.56 per
share, due primarily to higher EBIT in all segments and the sale
of the Kraft Products business in 1997.
1998 gross profit margin increased by 3.5 points compared to
the previous year, due primarily to the sale of the Kraft
Products business in 1997. 1998 gross profit margin compared to
1997 gross margin, excluding the Kraft Products business, dropped
by 0.5 point due to lower corrugated container and pine lumber
margins, partially offset by increased margins at WT and
Chesapeake Display and Packaging Company.
SG&A expenses in 1998 decreased $22.0 million, or 13
percent, compared to 1997, and were 15 percent of net sales in
1998 compared to 16 percent in 1997, as a result of controls on
spending.
EBIT for 1998 was $86.5 million, up $32.4 million, or 60
percent, compared to 1997 EBIT excluding the Kraft Products
business of $54.1 million, due primarily to higher shipments and
improved operating efficiencies.
Net interest expense decreased $3.1 million from 1997 due
primarily to lower average debt outstanding and interest earned
from the remaining cash proceeds from the sale of the Kraft
Products business in 1997.
The Company's effective income tax rate decreased to 39.1
percent in 1998 compared to 40.3 percent in 1997. The decrease
was primarily due to a reduction in goodwill amortization.
SEGMENT REVIEW
Merchandising and Specialty Packaging Segment
Chesapeake's Merchandising and Specialty Packaging segment
is composed of Chesapeake Display and Packaging Company ("CD&P"),
which designs and manufactures temporary and permanent point-of-
sale displays and graphic packaging in the United States, Canada,
and Europe; and Chesapeake Packaging Co. ("CP"), which produces
corrugated shipping containers in the United States. In October
1999, to enhance CD&P's product offerings, the Company completed
the acquisition of Consumer Promotions International Inc.
("CPI"), a designer and manufacturer of permanent point-of-sale
displays in the United States and Europe.
CD&P designs, manufactures and, in many cases, packs and
distributes display and promotional units that are used as
marketing tools in supermarkets, video stores, convenience
stores, and other retail locations. Point-of-sale displays are
freestanding and highlight or advertise a specific product, or
-9-
set of products, for customers. Most point-of-sale displays are
used to support a specific product, advertisement or rollout.
Design creativity, strength, print quality, and appearance are
critical performance features.
CD&P operates a network of design, manufacturing, assembly,
packaging, and distribution facilities throughout the United
States, Canada and Europe and provides its customers with a wide
range of products and services, including graphic and structural
design, in-house manufacturing, project management, assembly,
custom packing, distribution, and in-store service.
CD&P also designs and manufactures lightweight graphic
packaging that is used by consumer products companies to pack,
store, stack, and display retail products. This is a litho-
labeled, printed, corrugated product, which is preferred by mass
merchandisers because of its superior graphic appearance and
stacking strength. In the third quarter of 1999, the Company
announced the signing of a letter of intent with Georgia-Pacific
Corporation ("G-P") to establish a joint venture among the two
companies' litho-laminated graphic packaging businesses. The
joint venture was formed on February 18, 2000.
CP consists of 10 corrugated shipping container plants
located in seven states, which manufacture corrugated boxes and
specialty packaging primarily for customers within each plant's
regional area. The raw materials for the packaging plants include
linerboard and corrugating medium, which 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.
European Specialty Packaging Segment
Chesapeake's European Specialty Packaging segment consists
of Field Group, which is headquartered in the United Kingdom.
Field Group specializes in the design and production of cartons,
containers, printed leaflets, and labels. Field Group is focused
on three end-use sectors: Pharmaceutical and Healthcare;
International and Branded Products; and Food and Household.
Field Group operates 20 facilities in the United Kingdom,
Ireland, the Netherlands, Belgium, France and Spain. Field
Group's Pharmaceutical and Healthcare division offers pan-
European integrated manufacturing and distribution of cartons,
labels and leaflets. Its International and Branded Products
division produces packaging and labels primarily for the
beverage, tobacco and confectionery markets. Its Food and
Household division produces packaging for multinational consumer
products companies.
-10-
To continue to expand its global presence in specialty
packaging, on February 24, 2000, Chesapeake completed the
acquisition of substantially all of the outstanding shares of
Boxmore International PLC ("Boxmore"), a leading European
specialty packaging company headquartered in Belfast, Northern
Ireland (see "Capital Structure" for additional detail on this
transaction). Boxmore is a manufacturer of specialty folding
cartons, printed leaflets, labels, and plastic packaging products
for pharmaceutical and healthcare, food and beverage, and
agrochemical businesses.
Tissue Segment
Chesapeake's Tissue segment, which consisted of Wisconsin
Tissue Mills Inc., renamed WTM I Company, and Wisconsin Tissue de
Mexico, S.A. de C.V., produced tissue for industrial and
commercial markets, including full-menu and fast-food
restaurants, hotels, motels, clubs, healthcare facilities,
schools, office locations, and commercial airlines. Wisconsin
Tissue's products were sold throughout the United States, Canada
and Mexico using a dedicated sales force and independent
distributors. Effective October 3, 1999, WT completed the
formation of a joint venture with G-P through which the companies
combined their commercial tissue businesses. WT contributed
substantially all of the assets and liabilities of the Company's
tissue business to the joint venture, known as Georgia-Pacific
Tissue LLC, and received a 5 percent equity interest in the
Tissue JV and a tax-deferred cash distribution of approximately
$755.0 million. The Company's continuing interest in this
business is limited to its remaining 5 percent equity investment
in the Tissue JV.
Forest Products/Land Development Segment
Chesapeake's Forest Products/Land Development segment
consisted of Chesapeake Forest Products Company, Chesapeake
Building Products Company, Delmarva Properties, Inc., and
Stonehouse Inc. As part of the Company's strategy to divest
cyclical businesses and monetize land holdings, during 1999, the
Company disposed of its Building Products business, approximately
278,000 acres of timberland, and Stonehouse Inc.'s investment in
a joint venture with Dominion Capital Inc.
Chesapeake Forest Products owned and managed the timberland
sold, which was located in Virginia, Maryland, and Delaware.
Chesapeake Building Products operated three sawmills in Virginia
and Maryland, which manufactured pine lumber. Stonehouse Inc. was
a 50 percent partner in a joint venture with Dominion Capital,
Inc. to develop an initial phase of a planned community in James
City County, Virginia.
-11-
The retained business in this segment markets land that the
Company believes is more valuable when used as developed property
than as timberland. The Company currently owns approximately
45,000 acres in various stages of development. Land development
sales include large lots and acreage for third parties to develop
for both residential and commercial uses.
Merchandising and Specialty Packaging
1999 vs. 1998
Net sales of $486.6 million in 1999 increased 3 percent
compared to 1998 net sales, due primarily to higher corrugated
container and display volume. The Merchandising and Specialty
Packaging segment's 1999 EBIT of $11.9 million was down $1.4
million from 1998 EBIT of $13.3 million, and the EBIT return on
net sales ("operating margin") declined to 2.4 percent in 1999
from 2.8 percent in 1998. These decreases were driven by lower
corrugated and graphic packaging margins, resulting primarily
from higher raw material costs, partially offset by higher point-
of-sale display margins.
1999 1998 1997
---- ---- ----
(dollars in millions)
Net sales 486.6 472.3 416.8
EBIT 11.9 13.3 5.4
Operating margin % 2.4% 2.8% 1.3%
1998 vs. 1997
Net sales of $472.3 million in 1998 increased 13 percent
compared to 1997 net sales, due primarily to higher display and
graphic packaging volume and higher corrugated container prices.
The Merchandising and Specialty Packaging segment's 1998 EBIT of
$13.3 million was up $7.9 million from 1997 EBIT of $5.4 million,
while operating margins improved 1.5 points to 2.8 percent. These
improvements were due to volume growth, higher capacity
utilization, and operating cost reductions, partially offset by
slightly lower corrugated container margins.
European Specialty Packaging
The European Specialty Packaging segment, which is comprised
of Field Group, contributed $312.9 million of net sales since its
acquisition in March 1999. Pro forma full year 1999 sales were
$390.5 million, compared to pro forma full year 1998 sales
of $401.7 million. EBIT for this segment was $26.6 million in
1999. On a pro forma basis, 1999 full year EBIT was $28.9 million
compared to pro forma 1998 EBIT of $30.2 million. Pro forma sales
and EBIT decreases are the result of lower volume and selling
prices experienced early in 1999, particularly in Field Group's
Asian markets.
-12-
(dollars in millions)
1999* 1999** 1998**
---- ---- ----
Net sales $312.9 $390.5 $401.7
EBIT 26.6 28.9 30.2
Operating margin % 8.5% 7.4% 7.5%
*As reported, March 18, 1999 through December 31, 1999
**Pro forma, full year
Tissue
1999 vs. 1998
Net sales of $319.6 million and EBIT of $51.1 million in
1999 compare to net sales of $433.3 million and EBIT of $69.6
million in 1998. Full year net sales and EBIT declines for 1999
were primarily due to the contribution of the Tissue business to
the Tissue JV on October 3, 1999. Eliminating the results of the
fourth quarter, on a comparable year-over-year basis, net sales
and EBIT each declined approximately 3.5 percent, due to a 1
percent decline in average tissue selling prices and lower jumbo
roll sales, partially offset by modestly higher converted
products volume and productivity improvements.
(dollars in millions)
1999 1998 1997
---- ---- ----
Net sales $319.6 $433.3 $410.7
EBIT 51.1 69.6 55.8
Operating margin % 16.0% 16.1% 13.6%
1998 vs. 1997
Net sales of $433.3 million in 1998 were 6 percent higher
than 1997, due to growth in converted product volume and higher
sales of jumbo rolls, partially offset by modestly lower average
selling prices. 1998 EBIT of $69.6 million was up 25 percent
compared to EBIT of $55.8 million in 1997, while 1998 operating
margin rose by 2.5 points to 16.1 percent. The improvements in
EBIT and operating margin were the result of favorable product
mix and improved papermaking and tissue converting efficiencies.
Forest Products/Land Development
1999 vs. 1998
Net sales for 1999 were $42.9 million, down 4 percent from
1998's net sales of $44.8 million, while EBIT of $16.4 million
for 1999 was up 1 percent from 1998 EBIT, as higher margin bulk
land sales were offset in part by the impact of the sale of
-13-
timberland and the Building Products business in the third
quarter of 1999.
(dollars in millions)
1999 1998 1997
---- ---- ----
Net sales $42.9 $44.8 $38.0
EBIT 16.4 16.3 12.6
Operating margin % 38.2% 36.4% 33.1%
1998 vs. 1997
Net sales for 1998 were $44.8 million, up 18 percent from
1997's net sales of $38.0 million, while EBIT of $16.3 million
for 1998 was up 29 percent from 1997 EBIT, due to higher pine
lumber volume, the addition of external pulpwood shipments after
the sale of the Kraft Products business in 1997, and higher land
sales, partially offset by lower pine lumber prices.
Kraft Products
The Kraft Products business was comprised of the West Point
Mill, four corrugated container plants, and a building products
facility sold to St. Laurent Paperboard (U.S.), Inc. on May 23,
1997. This business contributed $155.5 million in net sales and
recorded an EBIT loss of $14.3 million in 1997. In the first
half of 1997, the corrugated container and building products
facilities were profitable, while the West Point Mill, which
operated in a highly cyclical industry, recorded a loss due to
unfavorable pricing conditions.
LIQUIDITY AND CAPITAL RESOURCES
Management assesses the Company's liquidity in terms of its
overall ability to generate cash to fund its operating and
investing activities. Significant factors affecting the
management of liquidity are cash flows from operating activities,
capital expenditures, adequate bank lines of credit, and
financial flexibility to attract long-term capital with
satisfactory terms.
Capital Structure
Chesapeake uses financial markets worldwide for its
financing needs. The Company is a party to various bank credit
facilities, which are discussed in Note 6 to the Consolidated
Financial Statements. These credit facilities give Chesapeake the
financing flexibility it needs to take advantage of investment
opportunities and to satisfy future funding requirements.
-14-
Chesapeake's total capitalization (consisting of total debt
net of cash, deferred taxes, and stockholders' equity) was $777.1
million at the end of 1999, compared to $731.4 million at the end
of 1998. The year-end ratio of total debt net of cash to total
capital was 1.2 percent for 1999, down significantly from 29.2
percent for 1998, as the Company is in the process of redeploying
the cash received from the sale of its timberland and the tax-
deferred cash distribution received from the Tissue JV.
Chesapeake's target long-term debt-to-total-capital ratio is in
the range of 40 percent to 50 percent.
Graph: 1999 1998 1997
---- ---- ----
Capital Structure
(Millions of $)
Total Debt, net of cash 9.1 213.8 191.6
Deferred Taxes 216.3 74.3 67.3
Stockholders' Equity 551.7 443.3 423.1
------- ----- -----
777.1 731.4 682.0
======= ===== =====
During 1999, the Company paid cash dividends of $0.88 per
share, compared to dividends of $0.80 per share in each of 1998
and 1997. Outstanding common stock at year-end 1999 totaled 17.5
million shares, a decrease of 3.9 million shares from year-end
1998, as purchases of 4.2 million shares by the Company during
the year were slightly offset by the number of shares issued for
employee benefit plans. (See Note 10 to the Consolidated
Financial Statements for more details on capital stock and
additional paid-in capital.) Year-end 1999 stockholders' equity
was $551.7 million, or $31.53 per share, up $10.82 per share
compared to year-end 1998, due primarily to the gains on sales of
businesses. The market price for Chesapeake's common stock ranged
from a low of $25.75 per share to a high of $38.63 per share in
1999, with a year-end price of $30.50 per share.
Graph: 1999 1998 1997
---- ---- ----
Common Stock Price Range & Stockholders'
Equity
(Dollars)
Equity Per Share 31.53 20.71 19.84
Common Stock Price Range
High 38.63 41.75 36.75
Low 25.75 31.75 27.13
On November 26, 1999, Chesapeake entered into a stock
purchase agreement with an institutional investor of Shorewood
Packaging Corporation ("Shorewood"), pursuant to which the
institutional investor agreed to sell to Chesapeake approximately
4.1 million Shorewood common shares, representing approximately
-15-
14.9% of Shorewood's outstanding common shares, at a purchase
price of $17.25 per share, or approximately $70.8 million
(subject to adjustment in the event Shorewood is acquired by
Chesapeake or a third party to reflect one-half of the excess of
the third-party purchase price over $17.25 per share). The
closing of the transaction occurred on February 25, 2000. On
December 3, 1999, the Company commenced a tender offer for the
remaining outstanding Shorewood common shares. On February 17,
2000, Shorewood announced that it had reached a definitive
agreement to be acquired by International Paper Co. at a price of
$21.00 per share. Chesapeake subsequently announced that it would
permit its tender offer to expire, while reserving its right to
renew its efforts to acquire Shorewood if circumstances
warranted. The Company expects that its net gain on the sale of
the Shorewood shares purchased from the institutional investor
will substantially offset the transaction expenses incurred in
connection with Chesapeake's attempt to acquire Shorewood.
On February 18, 2000, the Company completed the formation of
a joint venture with G-P, in which the two companies combined
their litho-laminated graphic packaging businesses.
On February 23, 2000, Chesapeake terminated its effort to
enter into a $1.075 billion senior credit facility (commitment
for which it had obtained in connection with its efforts to
acquire Shorewood), and entered into a six-month $250 million
senior credit facility to satisfy short-term liquidity
requirements. Pricing on the facility is initially at 200 points
over LIBOR, with a nominal facility fee to be paid on the unused
amount. The facility has customary covenants, including debt and
capital spending limits, a minimum net worth requirement, and a
$20 million annual limitation on dividend payments. Chesapeake's
obligations under this facility are secured by a pledge of the
stock of its principal UK subsidiaries. The Company expects to
enter into a replacement long-term credit facility prior to the
expiration of the six-month senior credit facility.
On February 24, 2000, Chesapeake completed the acquisition
of substantially all of the outstanding shares of Boxmore, a
leading European specialty packaging company, headquartered in
Belfast, Northern Ireland. Boxmore is a manufacturer, distributor
and seller of specialty folding cartons, printed leaflets,
labels, and plastic packaging products for pharmaceutical and
healthcare, food and beverage, and agrochemical businesses. The
acquisition was funded through available cash and is valued at
approximately $377.0 million, including the assumption of
approximately $64.0 million of debt.
As a result of formation of the Tissue JV and due to the
uncertainty and potential leverage of the Shorewood and Boxmore
tender offers, in the fourth quarter of 1999 Standard and Poor's
lowered its rating on Chesapeake senior debt from BBB to BB+, and
-16-
Moody's lowered its rating from Baa3 to Ba1. The Company believes
that its financial resources are adequate to support anticipated
capital needs and commitments.
Chesapeake's long-term financing strategy targets a capital
structure that is consistent with an "investment grade" senior
debt rating. This capital structure allows Chesapeake's
stockholders to enjoy the benefits of prudent financial leverage,
while protecting debtholder interests and ensuring ready access
to capital markets. The Company expects to improve its capital
structure by applying cash flows from operations to reduce debt.
Cash Flow
Net cash used by operating activities in 1999 of $8.1
million was down significantly from net cash provided by
operating activities of $90.4 million in 1998, but less than the
$31.4 million used by operations in 1997. The decrease in 1999
net cash flow from operations compared to 1998 is due primarily
to income tax payments related to the gain on the sale of
timberland, payments made for divestiture costs, and an increase
in working capital.
EBITDA, a measure of internal cash flow which combines
earnings before interest, income taxes and non-cash charges for
depreciation, cost of timber harvested, and amortization, and
excludes the effects of restructuring charges and accounting
changes, was $169.1 million for 1999, 14 percent higher than
1998's EBITDA of $148.8 million, due primarily to the acquisition
of Field Group, offset in part by the contribution of the Tissue
business to the Tissue JV.
Graph:
1999 1998 1997
---- ---- ----
EBITDA
(Millions of $)
EBIT (not including one-time gains,
restructuring/special charges,
accounting changes, or
extraordinary items) 87.9 86.5 39.8
Non-cash charges for depreciation,
cost of timber harvested, and amortization
of intangibles 81.2 62.3 75.8
----- ----- -----
169.1 148.8 115.6
===== ===== =====
Cash provided by investing activities in 1999 of $414.2
million increased $501.2 million from the prior year's cash used
in investing activities of $87.0 million. The increase in cash
provided by investing activities in 1999 was primarily the result
of proceeds received from the sale of businesses in excess of
cash used for acquisitions.
-17-
Cash used in financing activities in 1999 was $161.9 million
compared to $14.3 million in 1998. This increase was due to the
use of certain of the proceeds from the sale of businesses in
1999 to purchase approximately 4.2 million shares of the
Company's common stock at a net cost of $137.1 million and to
reduce debt by $15.3 million. The Company used $6.9 million to
purchase 197,300 shares of its common stock during 1998. (See
Note 6 to the Consolidated Financial Statements for additional
information regarding long-term debt.)
Acquisitions
1999: On October 22, 1999, the Company completed the
acquisition of CPI, a designer and manufacturer of permanent
point-of-sale displays. CPI, based in Mount Vernon, New York,
has operations in the United States, the United Kingdom and
France, and has annual sales of approximately $50.0 million.
On March 18, 1999, Chesapeake completed its acquisition of
substantially all of the outstanding capital shares of Field
Group. The acquisition was effected through a tender offer by
Chesapeake UK Acquisitions PLC, a wholly-owned subsidiary of
Chesapeake, for all of the outstanding capital shares of Field
Group at a purchase price of L3.60 per share. The purchase price
of approximately $373.0 million was funded through a combination
of approximately $316.0 million in borrowings under a credit
facility, $22.0 million in unsecured loan notes issued to certain
Field Group shareholders, and $35.0 million in cash.
During 1999, Field Group acquired Berry's (Holding) Limited,
one of Ireland's largest suppliers of printed pharmaceutical
leaflets and self-adhesive labels, and formed a joint venture
with one of Spain's leading printing groups, Mateu Cromo Artes
Graphicas S.A.
1998: Acquisition expenditures in 1998 were $18.1 million
and included the purchase of all of the outstanding capital stock
of Capitol Packaging Corporation in Denver, Colorado, and
substantially all of the assets and assumption of certain
liabilities of Rock City Box Co., Inc. in Utica, New York.
1997: There were no business acquisitions completed during
1997.
2000 Outlook
These forward-looking statements reflect management's view
of the Company's outlook for 2000 as of February 25, 2000. Except
as otherwise indicated, the forward-looking statements do not
reflect the potential impact of any acquisitions, divestitures or
other structural changes in the Company's business that may be
completed during 2000. However, the outlook reflects the expected
-18-
impact of the litho-laminated packaging joint venture with G-P
and the acquisition of Boxmore. The following statements are
subject to certain risks and uncertainties, including those
listed under the caption "Forward-Looking Statements".
- - The Company expects revenue for 2000 to be in the $1.1
billion to $1.2 billion range.
- - Full year earnings improvements in all three business
segments (European Specialty Packaging, Merchandising and
Specialty Packaging, and Land Development) are expected in 2000
compared to 1999.
- - The Company's effective income tax rate in 2000 is expected
to be 33 percent.
- - Capital spending, excluding acquisitions, for 2000 is
expected to be approximately $90.0 million.
- - Depreciation and amortization is expected to be
approximately $85.0 million in 2000, compared to $54.0 million in
1999 for continuing operations.
- - Earnings per share expectations, not including the potential
accretive impact of future acquisitions, are in the range of
$2.20 to $2.35 per share for 2000.
- - The Company's quarterly earnings pattern will remain very
seasonal, with 70 percent to 85 percent of annual earnings
expected to be generated evenly during the third and fourth
quarters of the year.
There are no individually significant planned capital
spending initiatives in 2000. Projected 2000 capital expenditures
are expected to be funded with internally generated cash. All
2000 capital projects are expected to be consistent with
Chesapeake's strategy of expanding the Merchandising and
Specialty Packaging business and the European Specialty Packaging
business, reducing costs and focusing on projects that are
expected to generate a return on investment that exceeds the
Company's cost of capital.
Seasonality
Due to the shift in the Company's business portfolio, the
Company's earnings stream has become increasingly seasonal. The
specialty packaging based businesses generally experience peak
operational activity during the months of August through
November. Accordingly, the Company expects to generate between
70 percent to 85 percent of annual earnings evenly during the
third and fourth quarters of the year.
-19-
Risk Management
Chesapeake continually evaluates risk retention and
insurance levels for product liability, property damage and other
potential exposures to risk. The Company devotes significant
effort to maintaining and improving safety and internal control
programs, which are intended to reduce its exposure to certain
risks. Management determines the amount of insurance coverage to
purchase and the appropriate amount of risk to retain based on
the cost and availability of insurance and the likelihood of a
loss. Management believes that the current levels of risk
retention are consistent with those of comparable companies in
the industries in which Chesapeake operates. There can be no
assurance that Chesapeake will not incur losses beyond the limits
of, or outside the coverage of, its insurance. However, the
Company's liquidity, financial position and profitability are not
expected to be materially affected by the levels of risk
retention that the Company accepts.
Chesapeake's financial results could be affected by changes
in foreign currency exchange rates or weak economic conditions in
the foreign markets in which its products are manufactured or
sold. The Company's currency exposures are cash, debt and
foreign currency transactions denominated primarily in the
British pound, Belgian franc, French franc, the Canadian dollar,
and the Euro. Chesapeake manages its foreign currency exposures
primarily by funding certain foreign currency denominated assets
with liabilities in the same currency and, as such, certain
exposures are naturally offset.
As part of managing its foreign currency exposures,
Chesapeake enters into foreign currency forward exchange
contracts. These agreements are generally used to fix the local
currency cost of purchased goods or services or selling prices
denominated in currencies other than the local currency. The use
of these agreements allows Chesapeake to reduce its overall
exposure to exchange rate fluctuations, as the gains and losses
on the agreements substantially offset the gains and losses on
the liabilities being hedged. Forward exchange agreements are
viewed as risk management tools, involve little complexity, and,
in accordance with Company policy, are not used for trading or
speculative purposes. Chesapeake is not a party to any leveraged
derivatives. As of December 31, 1999, Chesapeake had no foreign
currency derivative contracts outstanding.
At December 31, 1999, the Company's debt portfolio consists
mostly of fixed rate instruments. At year-end 1999 the Company
did not hold any significant interest rate derivative contracts.
The Company's cash position includes amounts denominated in
foreign currencies. The Company manages its worldwide cash
requirements considering available funds among its subsidiaries
and the cost effectiveness with which these funds can be
-20-
accessed. The repatriation of cash balances from some of the
Company's subsidiaries could have adverse tax consequences.
Year 2000 Readiness Disclosure
Until recently, many computer systems and software products
used only two digit entries to define a year. As a result,
computer programs that have date sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000.
Unless remedied, this "Year 2000 problem" could result in
disruptions of normal business operations due to system failures,
miscalculations, or the inability to process necessary
transactions. In addition to computer systems, any equipment
using embedded chips with date sensitive functions, such as
switchgear, machinery and process control systems, and telephone
exchanges, could also be at risk.
In 1997, Chesapeake began a Year 2000 date conversion
project to identify and remediate non-compliant systems, test
mission critical systems, and develop business continuity and
contingency plans for both internal systems and facilities, as
well as for its key suppliers and customers.
Most of the Company's mission critical business systems
utilize packaged applications, which were purchased from third
party software vendors. By the end of 1999, as part of its
overall business strategy and as a principal element of the Year
2000 remediation plan, the Company completed the installation of
new integrated Enterprise Resource Planning ("ERP") software that
is providing enhanced reporting and operational benefits. In
addition to the installation of Year 2000 compliant ERP software,
the Company's remediation efforts included the upgrading or
replacement of proprietary computer software systems (primarily
in the Tissue segment), and the upgrading or replacement of
computer hardware, machinery and equipment, process control
systems, security systems, and telecommunications equipment.
The cost of installing the new ERP software, no material
portion of which related specifically to achieving Year 2000
compliance, was approximately $23.0 million. Of this amount,
approximately $17.0 million was capitalized, with $9.0 million
capitalized during the Company's 1999 fiscal year. Other
specifically identifiable costs related to Year 2000 compliance
were $4.0 million, approximately $3.0 million of which was
incurred in 1999. The Company funded the costs associated with
its Year 2000 compliance program with cash generated from
operations.
Additionally, because of the interdependence of information
systems, the Company contacted substantially all of its critical
suppliers for Year 2000 compliance. The responses received from
these parties indicated that no significant potential problems
existed.
-21-
With the passage of the critical January 1, 2000, date,
Chesapeake and, to management's knowledge, its suppliers and its
customers, have not experienced any significant business
disruptions as a result of the Year 2000 date change. The
Company will continue to monitor its systems and communicate with
its suppliers for ongoing Year 2000 compliance until it is
reasonably assured that no significant business interruptions are
likely to occur. Based on the actions taken as outlined above and
the experience to date, the Company does not believe that its
operations will be materially impacted by the Year 2000 issue.
Conversion to the Euro Currency
On January 1, 1999, certain member countries of the European
Union established fixed conversion rates between their existing
sovereign currencies and adopted the European Union's common
currency ("Euro") as their new common legal currency. For a
three-year transition period, transactions can be conducted in
both the Euro and the legacy currencies. After June 30, 2002,
the Euro will be the sole legal tender of the participating
countries. Issues facing the Company as a result of the Euro
include converting information technology systems, reassessing
currency risk, negotiating and amending contracts, and processing
tax and accounting records. The Company is addressing these
issues and does not expect the conversion to the Euro to have a
material effect on the Company's financial condition or results
of operations.
Accounting Developments
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair market value.
SFAS 137, which was issued in July 1999, defers the Company's
required adoption of SFAS 133 until 2001. The adoption of SFAS
133 is not expected to have a material impact on the Company's
financial condition or results of operations.
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. Each
expansion project has been planned to comply with applicable
environmental regulations and to enhance environmental protection
at existing facilities. Compliance with existing environmental
regulations is not expected to have a material adverse effect on
the Company's financial condition or results from operations.
-22-
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 ("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 PRP.
Except for the Fox River matter, the Company has not been
identified as a 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 condition or results of operations.
In June 1994, the United States Department of Interior,
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 notices 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 have engaged in discussions with the
parties asserting trusteeship of the natural resources concerning
the damage assessment and the basis for resolution of the 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. Under an interim agreement with the
-23-
State of Wisconsin, the PRPs provided funds for an interim phase
of resource damage assessment and restoration work in 1998 and
1999. WT's obligation under the agreement was not material to
the Company's financial condition or results of operations.
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 PRPs, including WT.
On February 26, 1999, the Wisconsin Department of Natural
Resources ("DNR") released for public comment a draft remedial
investigation/feasibility study ("RI/FS") for the lower Fox River
site. In the draft RI/FS, the DNR reviewed and summarized
several categories of possible remedial alternatives for the
site, estimated to cost in the range of $143.0 million to $721.0
million, but did not identify a preferred remedy. (As required
by applicable regulations, the draft RI/FS also includes a "no
action" alternative that does not entail remediation costs, but
the Company does not believe that the "no action" alternative
will be selected). There can be no assurance that many of the
cost estimates in the draft RI/FS will not differ significantly
from actual costs. The Company submitted timely comments on the
draft RI/FS both individually and in conjunction with other PRPs.
After finalizing the RI/FS, the DNR and the EPA are expected to
announce a preferred remedial alternative in a Proposed Remedial
Action Plan. The Proposed Remedial Action Plan will be subject to
a public comment period, and enforcement of any definitive
Remedial Action Plan may be subject to judicial review.
The largest components of the costs of the more expensive
clean-up alternatives presented in the draft RI/FS are
attributable to large-scale sediment removal, treatment, and
disposal. Based on current information and advice from its
environmental consultants, WT believes that an aggressive effort
to remove substantial amounts of PCB-contaminated sediments (most
of which are buried under cleaner material or are otherwise
unlikely to move), as contemplated by certain alternatives
presented in the draft RI/FS, would be environmentally
detrimental and therefore inappropriate. Instead, WT believes
that less intrusive alternatives are more environmentally
appropriate, cost effective and responsible methods of managing
risks attributable to sediment contamination.
The ultimate cost to WT associated with this matter cannot
be predicted with certainty at this time, due to uncertainties
with respect to: which, if any, of the remedial alternatives
presented in the draft RI/FS will be implemented, and
uncertainties associated with the actual costs of each of the
potential alternatives; the outcome of the federal and state
natural resource damage assessments; WT's share of any multi-
party clean-up/restoration expenses; the timing of any clean-
-24-
up/restoration; the evolving nature of clean-up/restoration
technologies and governmental regulations; 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. While such costs
cannot be predicted with certainty at this time, the Company
believes that the ultimate clean-up/restoration costs associated
with the lower Fox River site may exceed $100.0 million for all
PRPs in the aggregate. Under CERCLA, each PRP generally will be
jointly and severally liable for the full amount of the clean-up
costs, subject to a right of contribution from the other PRPs.
In practice, PRPs generally negotiate among themselves to
determine their respective contributions to any multi-party
cleanup/restoration, based upon factors including their
respective contributions to the alleged contamination and their
ability to pay. Based on presently available information, the
Company believes that several of the named PRPs will be able to
pay substantial shares toward remediation and restoration, and
that there are additional parties, some of which have substantial
resources, that may also be jointly and severally liable.
The Company also believes that it is entitled to substantial
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 Company believes that
the prior owner intends to, and has the financial ability to,
honor its indemnification obligation under the stock purchase
agreement.
Pursuant to the Joint Venture Agreement for the Tissue JV,
the Company has retained liability for, and the third party
indemnity rights associated with, the discharge of PCBs and other
hazardous materials in the Fox River and Green Bay System. Based
on presently available information, the Company believes that if
any remediation/restoration is done in an environmentally
appropriate, cost effective, and responsible manner, the matter
is unlikely to have a material adverse effect on the Company's
financial condition or results of operations. However, because
of the uncertainties described above, there can be no assurance
that WT's ultimate liability with respect to the lower
Fox River site will not have a material adverse effect on the
Company's financial condition or results of operations.
On April 19, 1999, the EPA and the Virginia Department of
Environmental Quality ("DEQ") each issued Notices of Violation
("NOVs") under the Clean Air Act Amendments of 1990 ("CAA")
against St. Laurent Paper Products Corp. ("St. Laurent") (and, in
the case of EPA's NOV, Chesapeake) relating to the West Point
Mill, which was formerly owned and operated by Chesapeake Paper
Products, L.L.C. Chesapeake Paper Products, L.L.C. was sold by
Chesapeake to St. Laurent Paperboard (U.S.) Inc. ("St. Laurent
(U.S.)") in May 1997, pursuant to a Purchase Agreement dated
-25-
as of April 30, 1997, by and among Chesapeake, St. Laurent
Paperboard, Inc. and St. Laurent (U.S.) (the "Purchase
Agreement"). In general, the NOVs allege that from 1984 to the
present the West Point Mill installed certain equipment and
modified certain production processes without obtaining required
permits. Under applicable law, the EPA and DEQ may commence a
court action with respect to the matters alleged in the NOVs
seeking injunctive relief to compel compliance with the CAA, and
a court may impose civil penalties of up to $25,000 per day of
violation ($27,500 per day for violations after January 30, 1997)
for violations of the CAA (provided that a court, in determining
the amount of any penalty to be assessed, shall take into
consideration, among other things, the size of the business, the
economic impact of the penalty on the business, the business'
compliance history and good faith efforts to comply, the economic
benefit to the business of noncompliance and the seriousness of
the violation). The Purchase Agreement provides that Chesapeake
Corporation will indemnify St. Laurent against any violations of
applicable environmental laws (including the CAA) that existed at
the West Point Mill as of the date of the Purchase Agreement and
as of the May 1997 closing date (and any other such violations
that existed prior to such dates as to which Chesapeake had
"knowledge," as defined in the Purchase Agreement). Chesapeake's
indemnification obligation to St. Laurent with respect to such
matters is capped at $50.0 million and, in certain circumstances,
is subject to a $2.0 million deductible. The Company and St.
Laurent have jointly responded to and are defending against the
matters alleged in the NOVs. Based upon a review of the NOVs and
an analysis of the applicable law and facts, the Company believes
that both it and St. Laurent have substantial defenses against
the alleged violations and intend to defend against the alleged
violations vigorously. The Company and St. Laurent are
negotiating with EPA, the United States Department of Justice,
and DEQ to address the matters that are the subject of the NOVs.
The ultimate cost, if any, to the Company relating to matters
alleged in the NOVs cannot be determined with certainty at this
time due to the absence of a determination whether any violations
of the CAA occurred and, if any violations are ultimately found
to have occurred, a determination of (i) any required remediation
costs and penalties and (ii) whether St. Laurent would be
entitled to indemnification from the Company under the Purchase
Agreement.
Other Litigation
The Company is a party to various legal actions, including
those which are ordinary and incidental to its business. (See
Note 13 to the Consolidated Financial Statements.)
-26-
Forward-Looking Statements
Forward-looking statements in the foregoing Management's
Discussion and Analysis of Financial Condition and Results of
Operations include statements that are identified by the use of
words or phrases including, but not limited to, the following:
"will likely result," "expected to," "will continue," "is
anticipated," "estimated," "project," "believe," and words or
phrases of similar import. Changes in the following important
factors, among others, could cause Chesapeake's actual results to
differ materially from those expressed in any such forward-
looking statements: competitive products and pricing; production
costs, particularly for raw materials such as corrugated box,
folding carton, 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.
-27-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions)
December 31,
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 306.6 $ 62.4
Accounts receivable (less allowance
of $4.1 and $4.1) 170.5 127.6
Inventories 106.7 102.7
Deferred income taxes 22.4 12.4
Other 4.7 8.3
-------- ------
Total current assets 610.9 313.4
-------- ------
Property, plant and equipment:
Plant sites and buildings 101.0 167.6
Machinery and equipment 407.3 692.1
Construction in progress 12.1 12.7
-------- ------
520.4 872.4
Less accumulated depreciation 164.7 385.9
-------- ------
355.7 486.5
Timber and timberlands(less accumulated cost
of timber harvested of $33.9) - 56.7
-------- ------
Net property, plant and equipment 355.7 543.2
-------- ------
Goodwill (less accumulated
amortization of $9.8 and $17.8) 296.4 50.3
-------- ------
Other assets 110.2 72.5
-------- ------
$1,373.2 $979.4
======== ======
-28-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
(In millions, except share data)
December 31,
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 92.5 $ 57.4
Accrued expenses 111.6 87.7
Current maturities of long-term debt 91.3 5.8
Dividends payable 3.9 4.7
Income taxes payable 20.6 -
-------- ------
Total current liabilities 319.9 155.6
-------- ------
Long-term debt 224.4 270.4
-------- ------
Other long-term liabilities 44.4 16.3
-------- ------
Postretirement benefits other than pensions 16.5 19.5
-------- ------
Deferred income taxes 216.3 74.3
-------- ------
Total liabilities 821.5 536.1
Stockholders' equity:
Common stock, $1 par value; authorized,
60 million shares; outstanding,17.5 million
and 21.4 million shares 17.5 21.4
Additional paid-in capital - 28.7
Unearned compensation (4.8) (6.7)
Accumulated other comprehensive loss (7.2) (8.7)
Retained earnings 546.2 408.6
-------- ------
Total stockholders' equity 551.7 443.3
-------- ------
Total liabilities and stockholders'equity $1,373.2 $979.4
======== ======
The accompanying Notes to Consolidated Financial Statements are
an integral part of the financial statements.
-29-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME,
(In millions, except per share data)
For the years ended December 31,
1999 1998 1997
---- ---- ----
Income:
Net sales $1,162.0 $950.4 $1,021.0
Cost of products sold 907.2 732.8 822.1
Selling, general, and
administrative expenses 177.2 142.2 164.2
Restructuring/special charges 38.0 11.8 18.9
------- ------- -------
Income from operations 39.6 63.6 15.8
Gain on sale of businesses 413.7 - 86.3
Other income, net 10.3 11.1 5.1
------- ------- ------
Income before interest, taxes,
cumulative effect of accounting
change, and extraordinary item 463.6 74.7 107.2
Interest expense, net (30.4) (18.9) (22.0)
------- ------- -------
Income before taxes, cumulative
effect of accounting change, and
extraordinary item 433.2 55.8 85.2
Income taxes 182.4 21.8 34.3
------- ------- -------
Income before cumulative effect of
accounting change and
extraordinary item 250.8 34.0 50.9
Cumulative effect of accounting
change, net of income taxes of
$8.4 - 13.3 -
Extraordinary item, net of income
taxes of $1.7 - - (2.3)
------- ------- -------
Net income $ 250.8 $ 47.3 $ 48.6
======= ======= =======
-30-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME,
Continued
(In millions, except per share data)
For the years ended December 31,
1999 1998 1997
Basic earnings per share: ---- ---- ----
Earnings before cumulative effect
of accounting change and
extraordinary item $12.48 $ 1.60 $ 2.20
Cumulative effect of accounting
change, net of income taxes - .63 -
Extraordinary item, net of income
taxes - - (.10)
------ ------ ------
Basic earnings per share $12.48 $ 2.23 $ 2.10
====== ====== ======
Diluted earnings per share:
Earnings before cumulative effect
of accounting change and
extraordinary item $12.29 $ 1.57 $ 2.18
Cumulative effect of accounting
change, net of income taxes - .62 -
Extraordinary item, net of income
taxes - - (.10)
------ ------ ------
Diluted earnings per share $12.29 $ 2.19 $ 2.08
====== ====== ======
Comprehensive income:
Net income $250.8 $ 47.3 $ 48.6
Other comprehensive income (loss),
net of income taxes:
Minimum pension liability (net of
taxes of $1.5 and $3.4) 2.9 (5.7) -
Foreign currency translation (net
of taxes of $0.8, $0.9
and $1.1) (1.4) (1.3) (1.7)
------ ------ ------
Comprehensive income $252.3 $ 40.3 $ 46.9
====== ====== ======
The accompanying Notes to Consolidated Financial Statements are
an integral part of the financial statements.
-31-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
For the years ended December 31,
1999 1998 1997
---- ---- ----
Operating activities:
Net income $250.8 $47.3 $48.6
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Depreciation, cost of timber
harvested, and amortization of
intangibles 81.2 62.3 75.8
Deferred income taxes 108.4 9.2 (59.8)
Gain on sale of businesses (413.7) - (86.3)
Noncash restructuring/special
charges 17.5 1.3 5.5
Cumulative effect of accounting
change - (21.7) -
Changes in operating assets and
liabilities, net of acquisitions
and dispositions:
Accounts receivable, net (22.0) (13.0) (6.3)
Inventories (12.6) 4.5 (2.6)
Other assets 1.7 (17.2) (27.7)
Accounts payable and accrued
expenses (27.1) 17.4 18.3
Income taxes payable 16.8 (2.2) 1.2
Other (9.1) 2.5 1.9
----- ----- -----
Net cash (used in) provided by
operating activities (8.1) 90.4 (31.4)
----- ----- -----
Investing activities:
Purchases of property, plant and
equipment (82.4) (73.3) (68.2)
Acquisitions (416.1) (18.1) -
Proceeds from sales of property,
plant and equipment 1.1 2.8 1.7
Proceeds from sale of businesses 940.5 - 491.0
Other (28.9) 1.6 -
----- ----- -----
Net cash provided by (used in)
investing activities 414.2 (87.0) 424.5
----- ----- -----
-32-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
(In millions)
For the years ended December 31,
1999 1998 1997
---- ---- ----
Financing activities:
Net (payments) borrowings on
credit lines (6.9) 7.7 (179.0)
Payments on long-term debt (30.8) (1.8) (66.7)
Proceeds from long-term debt 22.4 0.7 8.5
Debt issuance costs (2.9) - -
Proceeds from issuance of common
stock 4.0 1.3 1.5
Purchases of outstanding common
stock (137.1) (6.9) (79.4)
Dividends paid (17.8) (17.1) (18.7)
Other 7.2 1.8 4.2
------ ----- -----
Net cash (used in)
financing activities (161.9) (14.3) (329.6)
------ ----- -----
Increase (decrease) in cash and
cash equivalents 244.2 (10.9) 63.5
Cash and cash equivalents at
beginning of year 62.4 73.3 9.8
------ ----- -----
Cash and cash equivalents at
end of year $306.6 $62.4 $73.3
====== ===== =====
The accompanying Notes to Consolidated Financial Statements are
an integral part of the financial statements.
-33-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions, except per share data)
For the years ended December 31,
1999 1998 1997
---- ---- ----
Common stock:
Balance, beginning of year $ 21.4 $ 21.3 $ 23.4
Purchases of common stock (4.2) (0.2) (2.3)
Issuance for employee stock plans 0.3 0.3 0.2
------ ------ ------
Balance, end of year 17.5 21.4 21.3
Additional paid-in capital:
Balance, beginning of year 28.7 26.4 97.2
Purchases of common stock (36.7) (6.7) (77.1)
Issuance for employee stock plans 5.5 10.0 6.3
Other 2.5 (1.0) -
------ ------ ------
Balance, end of year - 28.7 26.4
Unearned compensation:
Balance, beginning of year (6.7) (1.7) -
Compensation expense 3.7 2.4 0.2
Issuance for employee stock plans (1.8) (7.4) (1.9)
------ ------ ------
Balance, end of year (4.8) (6.7) (1.7)
Accumulated other comprehensive
loss:
Balance, beginning of year (8.7) (1.7) -
Currency translation adjustment (1.4) (1.3) (1.7)
Pension liability adjustment 2.9 (5.7) -
------ ------ ------
Balance, end of year (7.2) (8.7) (1.7)
Retained earnings:
Balance, beginning of year 408.6 378.8 348.5
Net income 250.8 47.3 48.6
Cash dividend declared (17.0) (17.5) (18.3)
Purchases of common stock (96.2) - -
------ ------ ------
Balance, end of year 546.2 408.6 378.8
------ ------ ------
Stockholders' equity, end of year $551.7 $443.3 $423.1
====== ====== ======
The accompanying Notes to Consolidated Financial Statements are
an integral part of the financial statements.
-34-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Financial Statement Presentation
The consolidated financial statements include the accounts
and operations of Chesapeake Corporation and all of its
subsidiaries (the "Company" or "Chesapeake"). During the year
ended December 31, 1999, Chesapeake conducted its operations in
four business segments - Merchandising and Specialty Packaging,
European Specialty Packaging, Tissue and Forest Products/Land
Development. All significant intercompany accounts and
transactions are eliminated. Certain prior-year amounts have been
reclassified to conform to current presentations.
The Company is not dependent on any single customer, group
of customers, market, geographic area or supplier of materials,
labor or services. The financial statements include, where
necessary, amounts based on the judgments and estimates of
management. These estimates include allowances for bad debts,
inventory obsolescence, environmental remediation costs, loss
contingencies for litigation, self-insured medical and workers
compensation insurance, income taxes, and determinations of
discount and other assumptions for pension and postretirement
benefit expenses. Actual results could differ from these
estimates.
In the fourth quarter of 1998, the Company changed its
accounting policy to capitalize certain timber reforestation
costs that were previously expensed in order to achieve a better
matching of these costs with the revenues realized from the
eventual harvesting of timber. The Company believed that this
change was more consistent with industry practice and was
preferable because it achieved better matching of reforestation
costs with the revenues realized from the eventual harvesting of
the timber. Costs related to premerchantable and merchantable
timber that were capitalized included a portion of real estate
taxes, insect control, fertilization and salaries and fringe
benefits for certain land management personnel.
The new capitalization policy was applied retroactively as
of January 1, 1998, and resulted in restating first quarter 1998
results for the cumulative effect of the accounting change
through December 31, 1997. This restatement increased 1998 net
income by $13.3 million (net of an $8.4 million reduction for
income taxes), or $0.62 per diluted share. Implementation of the
new accounting method increased 1998 earnings before the
cumulative effect of the accounting change by approximately
$0.7 million, or $0.03 per diluted share. Assuming the change in
accounting was applied retroactively, 1997 earnings before
extraordinary item would have been increased by $0.8 million, or
$.03 per diluted share.
-35-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
1. Financial Statement Presentation, continued
SIGNIFICANT ACCOUNTING POLICIES APPEAR CAPITALIZED AS AN
INTEGRAL PART OF THE NOTES TO THE FINANCIAL STATEMENTS TO WHICH
THE POLICIES RELATE.
2. Acquisitions and Divestitures
1999
On October 22, 1999, the Company completed the acquisition
of Consumer Promotions International, Inc. ("CPI"), a designer
and manufacturer of point-of-sale displays. CPI, based in Mount
Vernon, New York, has operations in the United States, the United
Kingdom and France, and has annual sales of approximately $50.0
million.
Effective October 3, 1999, Wisconsin Tissue Mills Inc.,
renamed WTM I Company ("WT"), a wholly-owned subsidiary of
Chesapeake, completed the formation of a joint venture with
Georgia-Pacific Corporation ("G-P") through which the companies
combined their commercial tissue businesses. WT contributed
substantially all of the assets and liabilities of the Company's
tissue business to the joint venture, known as Georgia-Pacific
Tissue LLC (the "Tissue JV") and received a 5 percent equity
interest in the Tissue JV and a tax-deferred cash distribution of
approximately $755.0 million (the "Special Distribution"). G-P
contributed certain of its commercial tissue assets and related
liabilities to the Tissue JV in return for a 95 percent equity
interest. The respective net values of WT's and G-P's
contributed businesses were based on a multiple of each
businesses' 1998 earnings before interest, income taxes,
depreciation and amortization ("EBITDA"), which valuation
principle was negotiated on an arms' length basis. Chesapeake
used a portion of the proceeds to reduce debt and repurchase its
common stock.
In connection with the receipt of the Special Distribution,
WT entered into an Indemnity Agreement pursuant to which it
agreed to indemnify G-P, under certain circumstances, against
principal payments G-P may make under a guaranty of the Tissue
JV's debt that was incurred to finance the Special Distribution
(the "Tissue JV Debt"). G-P will control and manage the Tissue
JV, subject to obtaining WT's consent in connection with certain
actions. As a result of WT's continued interest in the Tissue
JV, the remaining 5 percent interest has been recorded using the
equity method of accounting. During 1999, the results of
operations included an after-tax gain of approximately $194.1
million, or $9.51 per diluted share, related to the formation of
the Tissue JV.
-36-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Acquisitions and Divestitures, Continued
The WT assets contributed to the Tissue JV include
production facilities located in Bellemont and Flagstaff,
Arizona; Alsip, Illinois; Greenwich, New York; Menasha and
Neenah, Wisconsin; and Toluca, Mexico. The Tissue JV has assumed
substantially all of WT's liabilities that relate primarily to
its contributed business, including any liabilities associated
with certain alleged violations of antitrust laws, but
specifically excluding most tax liabilities related to the
contributed assets for periods prior to formation of the Tissue
JV and certain liabilities associated with the discharge of
polychlorinated-biphenyls ("PCBs") and other hazardous materials
in the Fox River and Green Bay System (see Note 13).
At any time on or after the third anniversary of the October
4, 1999, closing date, WT will have up to three "put" rights to
sell to G-P, or cause the Tissue JV to redeem, all or any portion
of WT's equity interest in the Tissue JV. At any time after the
tenth anniversary of the closing date, G-P will have the right to
"call" all, but not less than all, of WT's equity interest in the
Tissue JV. The purchase and sale price of WT's equity interest
for both the put and call will be based on the Tissue JV's EBITDA
for the immediately preceding four fiscal quarters and the same
multiple used to value WT's and G-P's initial contributions to
the Tissue JV.
Certain events, including exercise of a put or call,
reduction of the principal amount of the Tissue JV Debt, or the
Tissue JV's sale of some or all of the assets contributed to it
by WT, may trigger recognition of all or a portion of WT's
deferred tax liability related to the transaction. Under
certain circumstances, the Tissue JV or G-P may be obligated to
fund all or a portion of WT's deferred tax liability.
On September 10, 1999, the Company completed the sale of
approximately 278,000 acres of timberland in Virginia, Maryland
and Delaware, and on July 30, 1999, the Company completed the
sale of its Building Products business (two sawmills, a lumber
processing plant, and a wood chip mill) for combined cash
proceeds of approximately $185.0 million. The results of
operations include a non-recurring after-tax gain on the sales of
these businesses of $47.9 million, or $2.35 per diluted share,
net of a revision of $11.7 million after tax for costs associated
with the 1997 disposal of the Kraft Products business segment.
On March 18, 1999, Chesapeake completed its acquisition of
substantially all of the outstanding capital shares of Field
Group plc ("Field Group"), a European specialty packaging
company headquartered in the United Kingdom. The acquisition
-37-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Acquisitions and Divestitures, Continued
was effected through a tender offer by Chesapeake UK
Acquisitions PLC, a wholly-owned subsidiary of Chesapeake, for
all of the outstanding capital shares of Field Group at a
purchase price of (pound) 3.60 per share. As of April 30,
1999, Chesapeake acquired compulsorily all remaining
outstanding shares of Field Group. The purchase price of
approximately $373.0 million was funded through a combination
of approximately $316.0 million in borrowings under a credit
facility, $22.0 million in unsecured loan notes issued to
certain Field Group shareholders, and $35.0 million in cash.
During 1999, Field Group acquired Berry's (Holding) Limited,
one of Ireland's largest suppliers of printed pharmaceutical
leaflets and self-adhesive labels, and formed a joint venture
with one of Spain's leading printing groups, Mateu Cromo Artes
Graphicas S.A.
1998
On November 20, 1998, Chesapeake Corporation acquired all of
the outstanding capital stock of Capitol Packaging Corporation, a
specialty packaging company located in Denver, Colorado. On
February 2, 1998, Chesapeake Packaging Co. purchased
substantially all of the assets, and assumed certain liabilities,
of Rock City Box Company, Inc. located in Utica, New York. This
operation manufactures corrugated containers, trays, and pallets,
as well as wood and foam packaging products.
1997
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. ("St.
Laurent")(Toronto and Montreal: SPI), of: (i) the sole membership
interest in Chesapeake Paper Products Company L.L.C. (successor
to Chesapeake Paper Products Company), a wholly-owned subsidiary
of the Company which, as of the closing date, owned and operated
the Company's kraft products mill located in West Point, Virginia
(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 the Company'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, Virginia; Roanoke, Virginia;
Baltimore, Maryland; and North Tonawanda, New York.
-38-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Acquisitions and Divestitures, Continued
The sales price of approximately $500.0 million was paid in
cash at closing, with a post-closing adjustment of approximately
$10.0 million paid to the buyer. The transaction resulted in an
after-tax gain of $49.1 million, or $2.07 a share, which was
recorded in the second quarter of 1997. Chesapeake used
approximately $250.0 million of the net after-tax proceeds to
reduce debt and $79.0 million of the net after-tax proceeds to
repurchase its common stock. Chesapeake has agreed to indemnify
St. Laurent and St. Laurent (U.S.) against losses incurred by
them which are attributable to certain environmental matters and
breaches of representations, warranties or covenants made by
Chesapeake in the Purchase Agreement, provided notice is given to
Chesapeake or losses are paid or incurred within the applicable
survival periods specified therein.
Summary
Each of the acquisitions has been accounted for using the
purchase method and is included in the results of operations
since the purchase date. The purchase prices have been allocated
to the assets acquired and liabilities assumed based on their
estimated market values at the respective dates of acquisition.
The purchase prices for the acquired companies exceeded the fair
value of net assets acquired by approximately $278.3 million in
1999 and $8.8 million in 1998, which is being amortized on a
straight line basis over 40 years. The purchase price amounts for
acquisitions have been allocated to the acquired net assets as
summarized below (in millions):
1999 1998 1997
------ ------ ------
Acquisitions:
Fair value of assets acquired $620.8 $24.6 -
Liabilities assumed or created (187.3) (6.5) -
Cash acquired (17.4) - -
------ ----- ------
Cash paid for acquisitions, net $416.1 $18.1 -
====== ===== ======
Dispositions:
Fair value of assets sold $941.7 - $491.0
Non-cash consideration received (1.2) - -
------ ----- ------
Cash received from sale of
businesses $940.5 - $491.0
====== ===== ======
-39-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2. Acquisitions and Divestitures, Continued
Pro Forma Operating Data
Pro forma financial information reflecting the combined
results of the Company and Field Group as if the acquisition
occurred on January 1, 1998, is as follows (in millions, except
per share amounts):
Acquisition of Field Group: Year Ended
December 31,
-------------------
1999 1998
-------- --------
Net sales $1,241.4 $1,360.9
Income before cumulative
effect of accounting change $247.0 $37.1
Net income $247.0 $50.4
Earnings per share before
cumulative effect of
accounting change:
Basic $12.29 $1.75
Diluted $12.11 $1.72
Net income per share:
Basic $12.29 $2.38
Diluted $12.11 $2.34
3. Restructuring/Special Charges
1999
The following table sets forth the details of the
restructuring/special charge recognized in the fourth quarter of
1999:
Merchandising European
and Specialty Specialty
Packaging Packaging Corporate Total
(in millions) --------- --------- --------- -----
Employment reduction $ 7.5 $4.8 $0.3 $12.6
Facility closure 1.2 - - 1.2
Asset impairment 17.8 - - 17.8
Defense fees - - 9.2 9.2
Estimate revision - 1998 (2.3) - (0.5) (2.8)
--------- -------- -------- -----
Totals $24.2 $4.8 $9.0 $38.0
========= ======== ======== =====
-40-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
3. Restructuring/Special Charges, continued
The 1999 restructuring/special charges before income taxes
of $38.0 million consisted of the following:
- - Employment reduction and facility closure. In December 1999,
the Company reviewed its organization and cost structures,
including facility utilization. As a result of this review, the
Company eliminated a redundant facility in the Merchandising and
Specialty Packaging segment and announced work force reductions
of approximately 300 employees in the Merchandising and Specialty
Packaging segment, 170 employees in the European Specialty
Packaging segment and 10 corporate employees. Included in these
costs was a revision to the 1998 restructuring cost estimate for
plant closure costs in the Merchandising and Specialty Packaging
segment of $2.3 million and $0.5 million associated with employee
severance.
- - Asset impairment. As part of the Company's annual assessment
of operating plans, it was determined that operating losses were
expected to continue in the French operations acquired in 1996.
As a result of this assessment, in the fourth quarter of 1999,
the Company recorded an impairment charge relating to the write-
down of goodwill and other long-lived assets.
- - Defense fees. Defense fees represent costs incurred to
respond to an unsolicited proposal by Shorewood Packaging
Corporation to acquire Chesapeake (see Note 14).
At December 31, 1999, the restructuring liability
established by the 1998 plan, as adjusted for the revision in
restructuring cost estimate for plant closure costs, was
completely utilized. Additionally, at December 31, 1999,
payments of approximately $4.6 million had been made primarily
related to business defense costs under the 1999 restructuring
plan.
1998
During 1998, management initiated a review of its Tissue and
Specialty Packaging segments in an effort to reduce costs and
increase productivity. This review included organization and
cost structures, facility utilization and product offerings. As a
result of this review, the Company formulated a restructuring
plan which resulted in a one-time fourth quarter 1998 charge of
$11.8 million before taxes ($8.8 million after tax).
The 1998 restructuring program consisted primarily of a 5
percent reduction in the Company's global work force
-41-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
3. Restructuring/Special Charges, continued
(approximately 250 employees) through the elimination of
redundant and overlapping positions and facility consolidations.
The reductions occurred in Chesapeake's Tissue and Merchandising
and Specialty Packaging segments. WT implemented a combination of
early retirement and voluntary severance programs that reduced
its work force by approximately 70 positions. Chesapeake Display
and Packaging has implemented a work force reduction of
approximately 60 positions and closed one facility during 1999.
1997
During the second quarter of 1997, the Company recorded
restructuring and other special charges of $18.9 million before
taxes ($10.8 million after tax) related primarily to its
Merchandising and Specialty Packaging segment. The restructuring
charge provided for the costs associated with management
reorganization and the closures of one point-of-sale display
facility and one graphic packaging facility. The intent of these
initiatives was to eliminate redundant overhead and processes,
improve geographic efficiency, and reduce fixed costs. The
restructuring liability, which was established in 1997, was
completely utilized by December 31, 1998.
4. Inventories
INVENTORIES ARE VALUED AT THE LOWER OF COST OR MARKET. THE
COST OF CERTAIN DOMESTIC 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.
Year-end inventories consist of:
(in millions) 1999 1998
---- ----
Finished goods $ 41.8 $ 34.5
Work in-process 28.2 27.0
Materials and supplies 36.7 41.2
------ ------
Total $106.7 $102.7
====== ======
Inventories determined by the LIFO method, included in the
preceding chart, totaled $10.9 million for 1999 and $42.3 million
for 1998, or $2.4 million and $1.8 million less than the
respective amounts of such inventories stated at the lower of
cost or market.
-42-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
5. Long-term Assets
PROPERTY, PLANT AND EQUIPMENT, IS STATED AT COST, LESS
ACCUMULATED DEPRECIATION. 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. THE COSTS OF SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE ARE CAPITALIZED. 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. DEPRECIATION FOR FINANCIAL REPORTING PURPOSES IS
COMPUTED PRINCIPALLY BY THE STRAIGHT-LINE METHOD OVER THE
ESTIMATED USEFUL ASSET LIVES, WHICH RANGE FROM 10 TO 40 YEARS FOR
BUILDINGS AND IMPROVEMENTS AND GENERALLY 5 TO 20 YEARS FOR
MACHINERY AND EQUIPMENT.
TIMBER AND TIMBERLANDS ARE STATED AT COST LESS THE ACCUMULATED
COST OF TIMBER HARVESTED. THE COST OF TIMBER HARVESTED IS
COMPUTED ON QUANTITIES CUT FROM INDIVIDUAL COMPANY-OWNED TRACTS
BASED ON COSTS AND ESTIMATED VOLUMES OF RECOVERABLE TIMBER.
THE COST IN EXCESS OF THE ESTIMATED FAIR VALUE OF IDENTIFIABLE
ASSETS OF ACQUIRED BUSINESSES IS BEING AMORTIZED ON A STRAIGHT-
LINE BASIS OVER 40 YEARS OR LESS.
The Company reviews goodwill and long-lived assets annually
for impairment by comparing the carrying amount to estimated
future undiscounted cash flows. If this review indicates that
goodwill is not recoverable, the carrying amount is reduced to
fair value. During 1999, goodwill was reduced by $0.7 million
for asset write-offs and $23.0 million due to the sales of
businesses. During 1997, goodwill was reduced by $5.5 million
for restructuring write-offs and by $5.4 million due to sales of
businesses.
-43-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt
Long-term debt at year-end consists of:
(in millions) 1999 1998
---- ----
Notes payable - banks (unsecured):
Credit lines, interest 3.36% to 6.50% $ 40.5 $ 16.4
Term loan, interest 5.15% - 8.9
Unsecured notes:
10.375% notes, due 2000 55.0 55.0
9.875% notes, due 2003 33.6 33.6
7.20% notes, due 2005 85.0 85.0
Loan notes, interest 5.25% due 2006 22.1 -
Industrial development authority
obligations:
5.04% to 6.875% notes, due 1999-2003 4.5 8.2
6.25% to 6.375% notes, due 2019 50.0 50.0
5.55% notes, due 2021 10.0 10.0
Other debt 15.0 9.1
------ ------
Totals 315.7 276.2
Less current maturities 91.3 5.8
------ ------
$224.4 $270.4
====== ======
Principal payments on long-term debt for the next five years
are: 2000, $91.3 million; 2001, $11.5 million; 2002, $3.2
million; 2003, $36.3 million; and 2004, $1.1 million.
The Company maintains credit lines with several banks,
domestically and internationally, maturing in 2000-2002, under
which it can borrow up to $226.1 million, substantially all of
which were terminated upon completion of the $250.0 million
senior credit facility (see Note 14). Nominal facility fees are
paid on the credit lines and interest is charged primarily at
LIBOR plus 375 basis points. Other lines of credit totaling
$119.6 million are maintained with several banks on an
uncommitted basis.
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 (see Note 14), requiring the Company to
maintain a ratio of long-term debt to total capital not in excess
of 60 percent and to meet an annual cash flow test.
-44-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
6. Long-Term Debt, continued
The Company has estimated the fair value of long-term debt
for 1999 and 1998 to be $213.5 million and $285.7 million,
respectively, compared to book values of $224.4 million and
$270.4 million, respectively. 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.
7. Financial Instruments and Risk Concentrations
CASH AND CASH EQUIVALENTS INCLUDE HIGHLY LIQUID, TEMPORARY
CASH INVESTMENTS WITH ORIGINAL MATURITIES OF THREE MONTHS OR
LESS. THE CARRYING AMOUNTS OF TEMPORARY CASH INVESTMENTS, TRADE
RECEIVABLES, AND TRADE PAYABLES APPROXIMATE FAIR VALUE BECAUSE OF
THE SHORT MATURITIES OF THE INSTRUMENTS.
FINANCIAL INSTRUMENTS THAT POTENTIALLY SUBJECT THE COMPANY
TO CONCENTRATIONS OF CREDIT RISK CONSIST PRINCIPALLY OF TEMPORARY
CASH INVESTMENTS AND TRADE RECEIVABLES. THE COMPANY PLACES ITS
TEMPORARY CASH INVESTMENTS IN HIGH QUALITY FINANCIAL INSTRUMENTS
AND, BY POLICY, LIMITS THE AMOUNTS OF CREDIT EXPOSURE RELATED TO
ANY ONE INSTRUMENT. CONCENTRATIONS OF CREDIT RISK IN REGARD TO
TRADE RECEIVABLES ARE LIMITED DUE TO THE LARGE NUMBER OF
CUSTOMERS AND THEIR DISPERSION ACROSS DIFFERENT INDUSTRIES AND
GEOGRAPHIC AREAS.
ASSETS AND LIABILITIES FROM FOREIGN OPERATIONS ARE
TRANSLATED AT THE EXCHANGE RATE IN EFFECT AT EACH YEAR-END.
REVENUES AND EXPENSES ARE TRANSLATED AT THE AVERAGE RATES OF
EXCHANGE PREVAILING DURING THE YEAR. GAINS AND LOSSES RESULTING
FROM FOREIGN CURRENCY TRANSACTIONS ARE INCLUDED IN INCOME.
The Company had no material derivative instruments or
transactions outstanding as of the end of 1999 and 1998.
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair market value.
SFAS 137, which was issued in July 1999, defers the Company's
required adoption of SFAS 133 until 2001. The adoption of SFAS
133 is not expected to have a material impact on the Company's
financial condition or results of operations.
-45-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. Income Taxes
The provision for income taxes consists of:
(in millions) 1999 1998 1997
Currently payable: ---- ---- ----
Federal $ 57.3 $17.9 $85.7
State 6.6 - 8.6
Foreign 10.1 (0.3) 0.1
------ ----- -----
Total current 74.0 17.6 94.4
------ ----- -----
Deferred:
Federal 94.4 3.5 (52.9)
State 18.7 0.3 (7.1)
Foreign (4.7) 0.4 (0.1)
------ ----- -----
Total deferred 108.4 4.2 (60.1)
------ ----- -----
Total income taxes $182.4 $21.8 $34.3
====== ===== =====
Significant components of the year-end deferred income tax
assets and liabilities are:
(in millions) 1999 1998
----- -----
Postretirement medical benefits $ 4.2 $ 7.5
Accrued liabilities 10.5 4.3
Foreign exchange losses 2.8 -
Inventory reserves 0.9 1.3
Tax carryforward benefits 12.2 7.1
Valuation allowance (11.0) (5.1)
Other 10.4 9.7
------- ------
Deferred tax assets 30.0 24.8
------- ------
Accumulated depreciation/depletion (36.9) (81.6)
Deferred gain on contribution of assets
to Tissue JV (182.1) -
Pension accrual (2.4) (2.7)
Other (2.5) (2.4)
------- ------
Deferred tax liabilities (223.9) (86.7)
------- ------
Net deferred taxes $(193.9) $(61.9)
======= ======
-46-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. Income Taxes, Continued
The valuation allowance relates to state and foreign income
tax net operating loss carryforwards and credits that expire from
2001 through 2010. The deferred gain on the contribution of
assets relates to the formation of the Tissue JV (see Note 2).
The differences between the Company's effective income tax
rate and the statutory federal income tax rate are:
1999 1998 1997
---- ---- ----
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of
federal income tax benefit 3.8 0.2 0.8
Goodwill and other purchase
accounting adjustments 2.3 0.7 4.7
Foreign tax rate difference (0.6) - -
Foreign losses not benefited 0.7 3.4 0.6
Other, net 0.9 (0.2) (0.8)
----- ----- -----
Consolidated effective income
tax rate 42.1% 39.1% 40.3%
===== ===== =====
The Company's intention is to permanently reinvest the
undistributed earnings of its foreign subsidiaries, thus no
United States income taxes have been provided.
9. Employee Retirement and Postretirement Benefits
The Company maintains several noncontributory defined
benefit retirement plans covering substantially all U.S. and
certain foreign employees. Pension benefits are based primarily
on the employees' compensation and/or years of service. Annual
pension costs have been actuarially determined as of October 1,
1999 and 1998. The net periodic cost includes amortization of
prior service costs over periods of the greater of 15 years or
the average remaining employee service period.
The Company also provides certain healthcare 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.
-47-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
9. Employee Retirement and Postretirement Benefits, continued
The following schedules present the changes in the plans'
benefit obligations and fair values of assets for 1999 and 1998:
Postretirement
Pensions Benefits Other
Benefits Than Pensions
-------------- --------------
(in millions) 1999 1998 1999 1998
---- ---- ---- ----
Benefit obligation at
beginning of year $120.7 $102.8 $ 21.9 $ 21.2
Acquisitions (divestitures) 182.6 - (5.9) -
Service cost 9.5 3.6 0.6 0.7
Interest cost 14.8 7.3 1.4 1.5
Plan participants'
contributions 2.2 0.1 0.1 0.1
Amendments 0.1 0.8 (0.6) -
Actuarial (gain) loss (24.2) 11.4 1.5 0.2
Curtailments (4.9) (0.1) (1.1) -
Settlements (31.5) - - -
Special termination
benefits 0.5 1.2 - -
Exchange rate changes (1.0) - - -
Benefits paid (11.4) (6.4) (1.7) (1.8)
------ ------ ------ ------
Benefit obligation at
end of year 257.4 120.7 16.2 21.9
------ ------ ------ ------
Fair value of plan assets
at beginning of year 110.9 113.3 - -
Acquisition 181.1 - - -
Actual return on
plan assets 9.3 - - -
Employer contributions 8.0 3.9 1.6 1.7
Plan participants'
contributions 2.2 0.1 0.1 0.1
Settlements (30.8) - - -
Exchange rate change (0.7) - - -
Benefits paid (11.4) (6.4) (1.7) (1.8)
------ ------ ------ ------
Fair value of plan assets
at end of year 268.6 110.9 - -
------ ------ ------ ------
-48-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
9. Employee Retirement and Postretirement Benefits, Continued
Funded status at
December 31 11.2 (9.8) (16.2) (21.9)
Unrecognized actuarial
Loss 5.7 19.6 0.1 2.4
Unrecognized transition
obligation (1.7) (3.1) - -
Unrecognized prior
service cost 1.7 5.5 (0.4) -
Contribution made
between measurement
date and fiscal year end 0.1 0.5 - -
------ ------ ------ ------
Net amount recognized $ 17.0 $ 12.7 $(16.5) $(19.5)
====== ====== ====== ======
The fair value of plan assets and benefit obligations for
pensions in 1999 reflects the acquisition of Field Group and the
contribution of substantially all of the assets and liabilities
of WT to the Tissue JV. The benefit obligations for
postretirement benefits reflect the contribution of substantially
all of the assets and liabilities of WT to the Tissue JV as a
divestiture and the elimination of certain postretirement
benefits for the employees as a curtailment.
The following table provides the amounts recognized in the
statement of financial position as of December 31 of each year:
Postretirement
Pensions Benefits Other
Benefits Than Pensions
-------------- --------------
(in millions) 1999 1998 1999 1998
----- ----- ----- -----
Prepaid benefit cost $28.1 $23.6 $ - $ -
Accrued benefit liability (16.2) (23.7) (16.5) (19.5)
Intangible asset 0.8 3.7 - -
Accumulated other
comprehensive income 4.3 9.1 - -
----- ----- ------ ------
Net amount recognized $17.0 $12.7 $(16.5) $(19.5)
===== ===== ====== ======
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for plans with
accumulated benefit obligations in excess of plan assets were
$22.3 million, $21.2 million, and $6.4 million, respectively, at
the end of 1999, and $48.3 million, $45.7 million, and $21.9
-49-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
9. Employee Retirement and Postretirement Benefits, Continued
million, respectively, at the end of 1998. Postretirement
benefit obligations have no plan assets. The aggregate benefit
obligation for those plans was $16.2 million at the end of 1999
and $21.9 million at the end of 1998.
The following table provides the components of net periodic
benefit cost for the plans:
Postretirement
Pensions Benefits Other
Benefits Than Pensions
-------------- --------------
(in millions) 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Service cost $ 9.5 $3.6 $4.0 $0.6 $0.7 $1.1
Interest cost 14.8 7.3 8.3 1.4 1.5 1.8
Expected return on plan assets(19.7)(9.0)(10.7) - - -
Amortization of unrecognized
transition obligation (0.7)(0.7) (1.0) - - -
Prior service cost recognized 0.4 0.5 0.4 - - -
Recognized actuarial loss 0.7 0.6 0.2 - - -
----- ---- ---- ---- ---- ----
Net periodic benefit cost 5.0 2.3 1.2 2.0 2.2 2.9
(Gain)loss due to curtailment (2.9) 1.2 4.4 - - -
----- ---- ---- ---- ---- ----
Net periodic benefit cost
after curtailments $ 2.1 $3.5 $5.6 $2.0 $2.2 $2.9
===== ==== ==== ==== ==== ====
During 1999, the Company contributed substantially all of
its WT operations to the Tissue JV (see Note 2) and sold certain
of its timberland and its Building Products business, resulting
in a net pre-tax curtailment gain of approximately $2.9 million.
During 1998, WT implemented an enhanced retirement program for
certain salaried employees, which resulted in a pre-tax
curtailment loss of approximately $1.2 million related to pension
plans. The 1997 curtailment loss primarily included the 1997 sale
of the West Point Mill and four box plants and the implementation
of an enhanced retirement program for hourly employees at WT.
-50-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
9. Employee Retirement and Postretirement Benefits, Continued
Assumptions used in determining the net domestic pension
credit (based on beginning-of-the-year assumptions) for 1999 and
1998, and related pensions and postretirement benefits
obligations (based on year-end assumptions) as of October 1 were:
Postretirement
Pensions Benefits Other
Benefits Than Pensions
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Discount rate 7.50% 6.75% 7.25% 7.50% 6.75% 7.25%
Expected return
on plan assets 9.25% 9.50% 9.25% N/A N/A N/A
Rate of compensation
increase 4.50% 4.75% 4.75% 4.50% 4.75% 4.75%
===== ===== ===== ===== ===== =====
For the year ended December 31, 1999, the assumptions used in
the determination of the net foreign pension charges for the
discount rate, expected return of plan assets, and rate of
compensation increase for foreign plans was 5.5%, 7.5%, and 4.0%,
respectively, and the corresponding assumptions used for the
determination of the foreign plan pension obligations was 6.0%,
8.0%, and 4.0%, respectively.
For measurement purposes, a 7.5% annual rate of increase in
the per capita cost of covered healthcare benefits was assumed
for 1999. The rate was assumed to decrease gradually each year to
a rate of 5.5% for 2002 and remain at that level thereafter.
In regards to postretirement benefits, a 1% change in
assumed healthcare cost trend rates would have the following
effects:
(in millions) 1% Increase 1% Decrease
----------- -----------
Effect on total of service
and interest cost $0.1 $(0.1)
Effect on postretirement
benefit obligation 0.6 (1.4)
==== ======
-51-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10. Stockholders' Equity
Chesapeake Corporation currently has 60 million authorized
shares of common stock, $1.00 par value, of which 17,509,064
shares were outstanding as of December 31, 1999. During 1999 and
1998, in accordance with board of directors authorizations, the
Company repurchased and immediately retired 4.2 million and 0.2
million shares of its common stock, respectively, for aggregate
purchase prices of $137.1 million and $6.9 million, respectively.
In addition to its common stock, the Company's authorized
capital includes 500,000 shares of preferred stock ($100.00 par),
of which 100,000 shares are designated as Series A Junior
Participating Preferred Stock ("Series A Preferred"). No
preferred shares were outstanding during the three years ended
December 31, 1999.
Shareholder Rights Plan
Under the terms of a shareholder rights plan approved
February 10, 1998, 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 (0.001 of a share)
of Series A Preferred at an exercise price of $120.00 per share,
subject to adjustment. The rights will separate from the common
stock and become exercisable only if a person or group acquires
or announces a tender offer for 15 percent or more of
Chesapeake's common stock. When the rights are 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 15 percent or more of the Company's common
stock, each right shall 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 percent of its earnings 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 expire on
March 15, 2008, and may be redeemed by the Company at any time
prior to the tenth day after an announcement that a 15 percent
position has been acquired, unless such period has been extended
by the board of directors.
-52-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10. Stockholder's Equity, continued
Earnings Per Share ("EPS")
Basic EPS is calculated using the weighted-average number of outstandi
ng common shares for the period, which were 20,147,593 in 1999;
21,202,801 in 1998; and 23,148,978 in 1997. Diluted EPS reflects
the potential dilution that could occur if securities are
exercised or converted into common stock or result in the
issuance of common stock that would then share in earnings.
Shares used in the diluted EPS calculation were 20,435,662 in
1999; 21,567,908 in 1998; and 23,360,129 in 1997.
11. Stock Option and Award Plans
At December 31, 1999, the Company had three stock
compensation plans for employees and officers. Under the 1997
Incentive Plan, the Company may grant stock options, 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 options outstanding were awarded
under the Company's 1993 and 1997 Incentive Plans and the 1987
Stock Option Plan. Up to 4,074,638 shares may be issued pursuant
to these plans; however, the board of directors has stated that
all future grants will be made only from those shares available
under the 1997 Incentive Plan, which has 1,855,728 shares
issuable at December 31, 1999.
The Company has a Directors' Stock Option and Deferred
Compensation Plan that provides for annual grants of stock
options to nonemployee directors. Up to 350,000 shares may be
issued pursuant to the directors' plan.
Stock options
Stock options are generally granted with an exercise price
equal to the market value of the common stock, expire 10 years
from the date they are granted, and generally vest over a three-
year service period.
-53-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. Stock Option and Award Plans, Continued
The following schedule summarizes stock option activity for
the three years ended December 31, 1999:
Weighted-
Average
Number of Exercise
Stock Options Price
------------- ---------
Outstanding, January 1, 1997 1,043,603 $25.28
Granted 226,900 33.15
Exercised (112,233) 21.72
Forfeited/expired (133,073) 26.20
---------
Outstanding, December 31, 1997 l,025,197 27.29
Granted 245,450 38.11
Exercised (79,866) 22.75
Forfeited/expired (21,765) 29.96
---------
Outstanding, December 31, 1998 1,169,016 29.82
Granted 389,200 28.32
Exercised (128,181) 23.63
Forfeited/expired (147,446) 31.99
---------
Outstanding, December 31, 1999 1,282,589 $29.73
=========
Exercisable:
December 31, 1997 635,814
December 31, 1998 746,831
December 31, 1999 813,713
Weighted-average fair value of
options granted during the year:
1997 $ 9.18
1998 $10.36
1999 $ 7.14
The Black-Scholes option pricing model was used to estimate
fair value as of the date of grant using the following
assumptions:
1999 1998 1997
---- ---- ----
Dividend yield 2.8% 2.1% 2.3%
Risk-free interest rates 5.3% 5.6% 5.9%
Volatility 27.8 26.6 26.9
Expected option term 6.0 6.0 6.0
==== ==== ====
-54-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. Stock Option and Award Plans, Continued
THE COMPANY USES THE INTRINSIC-VALUE-BASED METHOD OF
ACCOUNTING FOR ITS STOCK OPTIONS PLANS. UNDER THE INTRINSIC VALUE
METHOD, COMPENSATION COST IS THE EXCESS, IF ANY, OF THE QUOTED
MARKET PRICE OF THE STOCK AT GRANT DATE OVER THE AMOUNT AN
EMPLOYEE MUST PAY TO ACQUIRE THE STOCK.
Had the compensation cost for the Company's stock option
plans been determined based on the fair value at the grant date,
the Company's pro forma net income and earnings per share amounts
would be as follows:
(in millions, except per share data) 1999 1998 1997
---- ---- ----
Net income
As reported $250.8 $47.3 $48.6
Pro forma 249.3 45.8 47.4
Earnings per share
As reported
Basic $12.48 $2.23 $2.10
Diluted 12.29 2.19 2.08
Pro forma
Basic $12.40 $2.16 $2.05
Diluted 12.22 2.12 2.03
===== ===== =====
Pro forma disclosures for stock option accounting may not be
representative of the effects on reported net income for future
years.
-55-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. Stock Option and Award Plans, Continued
Information about options outstanding at December 31, 1999,
is summarized below:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life(Years) Price Exercisable Price
-------- ----------- ----------- --------------------------
$15.00-$20.00 89,655 2.7 $19.21 89,655 $19.21
$20.00-$25.00 200,872 5.0 23.68 200,872 23.68
$25.00-$30.00 401,969 8.0 27.76 124,835 27.76
$30.00-$35.00 376,885 6.8 32.96 306,389 33.05
$35.00-$40.00 213,208 8.5 37.89 91,962 37.75
--------- -------
1,282,589 6.9 29.73 813,713 29.83
========= =======
Restricted stock
During 1999 and 1998, the executive compensation committee
of the board of directors made grants of restricted stock to the
Company's officers and certain managers for the 1998-2001
Performance Cycle of the Long-term Incentive Program under the
1997 Incentive Plan. In order to receive these awards, the
participants were required to place shares of stock, of which at
least one-half were required to be newly acquired shares, on
deposit with the Company. For each share of stock placed on
deposit, the participant received up to two shares of time-based
restricted stock, and up to one and one-half shares of
performance-based restricted stock. The time-based restricted
stock granted in 1998 will vest in 25 percent installments at the
end of each year from 1998 to 2001, and the 1999 grants will vest
in one-third installments at the end of each year from 1999 to
2001. The performance-based restricted stock will be earned any
time after June 30, 1999, that the Company's return on equity
("ROE") over the prior five calendar quarters meets the goals set
by the executive compensation committee. This performance-based
restricted stock will be forfeited if the ROE goals are not
achieved. During 1999, the first ROE target was achieved and a
related percentage of performance-based restricted stock vested.
-56-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. Stock Option and Award Plans, Continued
Information about restricted stock and stock units is shown
below:
1999 1998 1997
---- ---- ----
Outstanding grants January 1 228,958 64,690 47,502
New shares granted 78,930 203,811 63,000
Converted performance shares - - 9,067
Shares forfeited (3,845) (3,455) (535)
Shares vested (123,771) (36,088) (54,344)
------- ------- -------
Outstanding grants December 31 180,272 228,958 64,690
======= ======= =======
Performance Shares
During 1996, the executive compensation committee of the
board of directors granted incentive opportunities and
performance shares to the Company's officers and certain managers
for the 1996-2000 Performance Cycle of the Long-term Incentive
Program under the 1993 Incentive Plan. During 1999, due to the
contribution of the Tissue business to the Tissue JV, the
compensation committee replaced a portion of the potential
incentive opportunity for the 1996-2000 Performance Cycle with
additional performance shares. A portion of the performance
shares were earned and converted to restricted stock in 1997 when
Chesapeake's common stock price exceeded $35.00 per share, and
additional amounts will be earned when the price equals or
exceeds each $5.00 per share increment in excess thereof up to
$60.00 per share.
Information about performance shares is shown below:
1999 1998 1997
---- ---- ----
Outstanding grants January 1 57,800 79,308 95,448
New shares granted 43,600 - 6,550
Shares forfeited (1,015) (21,508) (13,623)
Shares converted to restricted
stock units - - (9,067)
------- ------- -------
Outstanding grants December 31 100,385 57,800 79,308
======= ======= =======
Stock Purchase Plans
The Company has stock purchase plans for certain eligible
salaried and hourly employees. Shares of Chesapeake common stock
are purchased based on participant and Company contributions. At
December 31, 1999, 843,455 shares remain available for issuance
under these plans.
-57-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. Stock Option and Award Plans, Continued
401(k) Savings Plans
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.
Participants' contributions are matched up to designated
contribution levels by the Company. Contributions are invested in
several investment options, which may include Chesapeake
common stock, as selected by the participating employee. At
December 31, 1999, 300,000 shares of Chesapeake common stock are
reserved for issuance under these programs.
The charges to income for all stock option and award plans
approximated $8.2 million in 1999, $6.1 million in 1998, and $3.7
million in 1997.
12. Supplemental Balance Sheet and Cash Flow Information
Balance Sheet Information
(in millions) 1999 1998
---- ----
Accrued expenses:
Compensation and employee benefits $ 44.3 $ 45.6
Restructuring 19.4 8.8
Interest 6.6 5.9
Other 41.3 27.4
------ ------
Totals $111.6 $ 87.7
====== ======
Cash Flow Information
(in millions) 1999 1998 1997
---- ---- ----
Cash paid for:
Interest, net $35.3 $24.8 $23.1
Income taxes, net of refunds 50.6 19.3 92.4
Supplemental investing and
financing non-cash transactions:
Issuance of common stock
for employee benefit plans $2.7 $3.6 $5.0
Dividends declared not paid 3.9 4.7 4.3
Real estate transactions 0.3 - 0.5
Assets obtained by capital lease - 4.5 -
-58-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. Commitments and Contingencies
Lease Obligations
The Company leases certain assets (principally
manufacturing, office space, transportation, and information
processing equipment) generally for three- to five-year terms.
Rental expense for operating leases totaled $21.8 million for
1999, $16.5 million for 1998, and $15.3 million for 1997. As of
December 31, 1999, aggregate minimum rental payments in future
years on noncancelable operating leases approximated $38.1
million. The amounts applying to future years are: 2000, $10.4
million; 2001, $8.0 million; 2002, $6.0 million; 2003, $5.1
million; 2004, $4.0 million; and thereafter, $4.6 million.
Legal and Environmental Matters
WT 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. Pursuant to the
Joint Venture Agreement for the Tissue JV, the Company has
retained liability for, and the third party indemnity rights
associated with, the discharge of PCBs and other hazardous
materials in the Fox River and Green Bay System.
The Company may have an indemnification obligation to St.
Laurent (see Note 2) with regard to notices of alleged
environmental violations issued by the United States
Environmental Protection Agency ("EPA") and the Virginia
Department of Environmental Quality ("DEQ") in April 1999. The
Company's indemnification obligation with respect to such matters
is capped at $50.0 million and, in certain circumstances, is
subject to a $2.0 million deductible. The Company and St. Laurent
have jointly responded to and are defending against the matters
alleged in the notice of violations, and have presented an
initial settlement offer, consisting primarily of engineering
measures, to the EPA and DEQ. The ultimate cost, if any, to the
Company relating to the alleged environmental violations cannot
be determined with certainty at this time due to the absence of a
determination that any violations of applicable laws occurred
and, if any violations are ultimately found to have occurred, a
determination of (i) any required remediation costs and penalties
subsequent to negotiation with the EPA and DEQ, and (ii) whether
St. Laurent would be entitled to indemnification from the
Company.
-59-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. Commitments and Contingencies, Continued
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 material adverse effect on its
consolidated financial position or results of operations.
14. Subsequent Events
On November 26, 1999, Chesapeake entered into a stock
purchase agreement with an institutional investor of Shorewood
Packaging Corporation ("Shorewood"), pursuant to which the
institutional investor agreed to sell to Chesapeake approximately
4.1 million Shorewood common shares, representing approximately
14.9 percent of Shorewood's outstanding common shares, at a
purchase price of $17.25 per share, or approximately $70.8
million (subject to adjustment in the event Shorewood is acquired
by Chesapeake or a third party to reflect one-half of the excess
of the third-party purchase price over $17.25 per share). The
closing of the transaction occurred on February 25, 2000. On
December 3, 1999, the Company commenced a tender offer for the
remaining outstanding Shorewood common shares. On February 17,
2000, Shorewood announced that it had reached a definitive
agreement to be acquired by International Paper Co. at a price of
$21.00 per share. Chesapeake subsequently announced that it would
permit its tender offer to expire, while reserving its right to
renew its efforts to acquire Shorewood if circumstances
warranted. The Company expects that its net profit on the sale of
the Shorewood shares purchased from the institutional investor
will substantially offset the transaction expenses incurred in
connection with Chesapeake's attempt to acquire Shorewood.
On February 18, 2000, the Company completed the formation of
a joint venture with G-P, in which the two companies combined
their litho-laminated graphic packaging businesses.
On February 23, 2000, Chesapeake terminated its effort to
enter into a $1.075 billion senior credit facility (commitment
for which it had obtained in connection with its efforts to
acquire Shorewood), and entered into a six-month $250 million
senior credit facility to satisfy short-term liquidity
requirements. Pricing on the facility is initially at 200 points
over LIBOR, with a nominal facility fee to be paid on the unused
amount. The facility has customary covenants, including debt and
capital spending limits, a minimum net worth requirement, and a
-60-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
14. Subsequent Events, Continued
$20 million annual limitation on dividend payments. Chesapeake's
obligations under this facility are secured by a pledge of the
stock of its principal UK subsidiaries. The Company expects to
enter into a replacement long-term credit facility prior to the
expiration of the six-month senior credit facility.
On February 24, 2000, Chesapeake completed the acquisition
of substantially all of the outstanding shares of Boxmore
International PLC ("Boxmore"), a leading European specialty
packaging company, headquartered in Belfast, Northern Ireland.
Boxmore is a manufacturer, distributor and seller of specialty
folding carton and plastic packaging products for pharmaceutical
and healthcare, food and beverage, and agro-chemical businesses.
The acquisition was funded through available cash and is valued
at approximately $377.0 million, including the assumption of
$64.0 million of debt.
15. Business Segment Information
During 1999, Chesapeake conducted its business in four
segments. The Company's Merchandising and Specialty Packaging
segment produces and sells point-of-sale displays, graphic
packaging, and corrugated shipping containers. The European
Specialty Packaging segment, which is comprised of the Field
Group operations, produces folding cartons and plastic packaging
products for food/consumer and pharmaceutical/healthcare
companies. The results of operations of Field Group are included
in the consolidated segment results since March 18, 1999, the
acquisition date (see Note 2). The Company's Tissue segment was
composed of the commercial and industrial tissue operations of
Wisconsin Tissue and Wisconsin Tissue de Mexico, which were
contributed to the Tissue JV effective October 3, 1999 (see Note
2). The Forest Products/Land Development segment manages the
Company's timberlands and real estate holdings (see Note 2).
General corporate expenses are shown as Corporate.
Segments are determined by the "management approach" as
described in SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which the Company adopted in
1998. Management assesses operations based on earnings before
interest and taxes ("EBIT") derived from similar groupings of
products and services. In line with management's assessment of
performance, gain on the sale of businesses and
restructuring/special charges are excluded from operating income.
Certain businesses that have the same or similar products,
production processes, customers, performance expectations, or
other economic characteristics have been aggregated for segment
presentation.
-61-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
15. Business Segment Information, Continued
Intersegment sales not included in the following table are:
the divested Kraft Products business sales to Specialty Packaging
of $6.9 million in 1997; and the Forest Products/Land Development
segment sales to the divested Kraft Products business of $22.7
million in 1997. There were no intersegment sales in 1999 and
1998. No one customer represented more than 10 percent of total
net sales. Net sales are attributed to geographic areas based on
the location of the segments geographically managed operations.
Segment identifiable assets are those that are directly used in
segment operations. Timberlands and real estate are included in
the Forest Products/Land Development segment. Corporate assets
are cash, certain nontrade receivables, and other assets. Long-
lived assets are primarily property, plant and equipment, real
estate held for development and goodwill.
Financial information by business segment:
(in millions) 1999 1998 1997
---- ---- ----
Net sales:
Merchandising and Specialty $ 486.6 $472.3 $ 416.8
Packaging
European Specialty Packaging 312.9 - -
Tissue 319.6 433.3 410.7
Forest Products/Land Development 42.9 44.8 38.0
Kraft Products - - 155.5
-------- ------ --------
Consolidated net sales $1,162.0 $950.4 $1,021.0
======== ====== ========
EBIT (Earnings before interest
and taxes):
Merchandising and Specialty $ 11.9 $13.3 $ 5.4
Packaging
European Specialty Packaging 26.6 - -
Tissue 51.1 69.6 55.8
Forest Products/Land Development 16.4 16.3 12.6
Kraft Products - - (14.3)
Corporate (18.1) (12.7) (19.7)
------- ------ -------
87.9 86.5 39.8
Gain on sale of businesses 413.7 - 86.3
Restructuring/special charges (38.0) (11.8) (18.9)
------- ------ --------
Income before interest, taxes,
cumulative effect of accounting
change, and extraordinary item $463.6 $ 74.7 $ 107.2
======= ====== ========
-62-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
15. Business Segment Information, Continued
Identifiable assets:
Merchandising and Specialty
Packaging $ 384.1 $330.6 $275.6
European Specialty Packaging 549.3 - -
Tissue - 447.6 453.9
Forest Products/Land Development 34.1 121.4 94.1
Corporate 405.7 79.8 98.3
-------- ------ --------
Consolidated assets $1,373.2 $979.4 $ 921.9
======== ====== ========
Capital expenditures:
Merchandising and Specialty
Packaging $24.3 $34.5 $14.6
European Specialty Packaging 23.5 - -
Tissue 19.5 26.4 44.1
Forest Products/Land Development 3.1 7.8 4.7
Kraft Products - - 4.3
Corporate 12.0 4.6 0.5
-------- ------ --------
Totals $82.4 $ 73.3 $ 68.2
======== ====== ========
Depreciation, amortization and
cost of timber harvested:
Merchandising and Specialty
Packaging $25.9 $21.8 $21.0
European Specialty Packaging 26.2 - -
Tissue 24.9 35.5 33.0
Forest Products/Land Development 2.1 3.6 2.6
Kraft Products - - 17.5
Corporate 2.1 1.4 1.7
-------- ------ --------
Totals $81.2 $ 62.3 $ 75.8
======== ====== ========
Geographic information:
Net sales:
United States $751.4 $856.3 $ 931.8
United Kingdom 239.2 - -
Other 171.4 94.1 89.2
-------- ------ --------
Total $1,162.0 $950.4 $1,021.0
======== ====== ========
-63-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
15. Business Segment Information, Continued
Long-lived assets:
United States $322.4 $636.0 $ 585.1
United Kingdom 336.1 - -
Other 103.8 30.0 28.5
-------- ------ --------
Total $762.3 $666.0 $ 613.6
======== ====== ========
-64-
RECENT QUARTERLY RESULTS
Income
Before
Cumulative
Effect of
Net Gross Accounting Net
Quarter Sales Profit Change Income
- ------------------------------------------------------------
(dollar amounts in millions except per share amounts)
- ------------------------------------------------------------
1998:
First(a) $ 216.8 $ 49.3 $ 8.0 $ 21.3
Second 237.0 52.0 10.6 10.6
Third 260.7 59.2 13.2 13.2
Fourth(b) 235.9 57.1 2.2 2.2
-------- ------ ------ ------
Year(a,b) $ 950.4 $217.6 $ 34.0 $ 47.3
======== ====== ====== ======
1999:
First $ 239.1 $ 53.1 $ 8.5 $ 8.5
Second 327.5 69.0 8.4 8.4
Third(c) 350.2 80.0 65.8 65.8
Fourth(d)(e) 245.2 52.7 168.1 168.1
-------- ------ ------ ------
Year(c,d,e) $1,162.0 $254.8 $250.8 $250.8
======== ====== ====== ======
-65-
RECENT QUARTERLY RESULTS, CONTINUED
Per Share
----------------------------------------------------
Income Before
Cumulative Effect
of Accounting
Change Net Income Dividends Stock Price
Quarter Basic Diluted Basic Diluted Declared High Low
- ----------------------------------------------------------------
(dollar amounts in millions except per share amounts)
- ----------------------------------------------------------------
1998:
First(a) $ 0.38 $ 0.37 $ 1.00 $ 0.99 $0.20 $35.63 $31.75
Second 0.50 0.49 0.50 0.49 0.20 39.13 33.63
Third 0.62 0.61 0.62 0.61 0.20 41.75 32.06
Fourth(b) 0.10 0.10 0.10 0.10 0.22 36.88 32.75
-----
Year(a,b) $ 1.60 $ 1.57 $ 2.23 $ 2.19 $0.82
=====
1999:
First $ 0.40 $0.39 $0.40 $0.39 $0.22 $37.88 $25.75
Second 0.39 0.39 0.39 0.39 0.22 38.63 26.38
Third(c) 3.21 3.16 3.21 3.16 0.22 37.50 29.19
Fourth(d,e) 9.66 9.50 9.66 9.50 0.22 34.44 27.38
-----
Year(c,d,e)$12.48 $12.29 $12.48 $12.29 $0.88
======
(a) Includes an after-tax gain of $13.3 million, or $.62 per
diluted share, on the cumulative effect of a change in accounting
for certain timber reforestation costs that were previously
expensed.
(b) Includes an after-tax restructuring charge of $8.8 million,
or $.41 per diluted share.
(c) Includes an after-tax gain on the sale of the building
products business and approximately 278,000 acres of timberland,
net of a revision of estimated costs associated with the 1997
sale of the kraft products business segment, of $51.7 million, or
$2.52 and $2.48 per basic and diluted share for the third
quarter, respectively, and $2.57 and $2.53 per basic and diluted
share for the year, respectively.
(d) Includes an after-tax gain primarily related to the
contribution of the tissue segment to the Georgia-Pacific tissue
joint venture of $190.3 million, or $10.94 and $10.75 per basic
and diluted share for the fourth quarter, respectively, and $9.47
and $9.33 per basic and diluted share for the year, respectively.
(e) Includes an after-tax restructuring/special items charges of
$29.2 million, $1.64 per diluted share for the quarter or $1.43
per diluted share for the year.
-66-
REPORT OF MANAGEMENT
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
include amounts based on informed judgments and estimates made by
management.
To fulfill its responsibilities, Chesapeake maintains and
continues to refine a system of internal accounting controls.
This system provides reasonable, but not absolute, assurance at
appropriate cost 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. The concept of reasonable
assurance is based on the recognition that the cost of
maintaining a system of internal accounting controls should not
exceed related benefits. Chesapeake's internal controls system
is supported by written policies and procedures, the Company's
internal audit function, and the selection and training of
qualified personnel. Chesapeake's financial managers are
responsible for implementing effective internal control systems
and monitoring their effectiveness.
As indicated in the report from our independent accountants,
PricewaterhouseCoopers LLP 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. The independent accountants are appointed
annually by Chesapeake's board of directors based upon a
recommendation by the audit committee.
The audit committee of the board of directors, on behalf of
the Company's stockholders, oversees management's financial
reporting responsibilities. The audit committee is composed
solely of outside directors, and 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 and
senior management.
/s/ Thomas H. Johnson /s/ William T. Tolley
- --------------------- ---------------------
Thomas H. Johnson William T. Tolley
President & Senior Vice President-
Chief Executive Officer Finance & Chief Financial
Officer
January 28, 2000
-67-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Chesapeake Corporation:
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of income and
comprehensive income, of cash flows, and of changes in
stockholders' equity present fairly, in all material respects,
the financial position of Chesapeake Corporation and its
subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
certain timber reforestation costs in 1998.
/s/ PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Richmond, Virginia
January 28, 2000, except as to information in Notes 6 and 14, for
which the date is February 25, 2000
-68-
FIVE-YEAR COMPARATIVE RECORD
(Dollar amounts in millions, except per share data)
1999(2) 1998(3) 1997(4) 1996 1995
------ ------ ----- ---- ------
Operating Results
Net sales $1,162.0 $950.4$1,021.0$1,158.6 $1,233.7
Net costs and expenses
except depreciation,
cost of timber
harvested, and
interest expense 624.4 816.0 841.5 990.5 987.7
Depreciation and cost
of timber harvested 74.0 59.7 72.3 87.1 73.6
Interest expense, net 30.4 18.9 22.0 33.9 30.8
Income before taxes,
extraordinary item, and
cumulative effect of
accounting changes 433.2 55.8 85.2 47.1 141.6
Income taxes 182.4 21.8 34.3 17.0 48.2
Income before
extraordinary item and
cumulative effect of
accounting changes 250.8 34.0 50.9 30.1 93.4
Extraordinary item, net
of income taxes - - (2.3) - -
Cumulative effect of
accounting changes, net
of income taxes - 13.3 - - -
Net income 250.8 47.3 48.6 30.1 93.4
Cash dividends declared
on common stock 17.0 17.5 18.3 18.8 18.6
Net cash (used in)
provided by operating
activities (8.1) 90.4 (31.4) 131.2 143.7
Percent of recurring
Income(1)
To net sales 3.3% 4.8% 1.2% 2.6% 7.6%
To stockholders'equity 8.6 10.1 2.7 6.4 23.7
To total assets 2.8 4.6 1.0 2.6 9.2
------ ----- ----- ----- -----
Common Stock
Number of stockholders
of record at year-end 6,369 6,741 6,564 7,567 7,456
Shares outstanding at
Year-end (`000s) 17,509 21,439 21,330 23,398 23,792
Per Share
Basic earnings before
extraordinary item and
cumulative effect of
accounting changes $ 12.48 $ 1.60 $ 2.20 $ 1.28 $ 3.92
Basic earnings 12.48 2.23 2.10 1.28 3.92
Diluted earnings before
extraordinary item and
cumulative effect of
accounting changes $ 12.29 $ 1.57 $ 2.18 $ 1.27 $ 3.88
Diluted earnings 12.29 2.19 2.08 1.27 3.88
Dividends declared .88 .82 .80 .80 .78
Year-end stockholders'
Equity 31.53 20.71 19.84 20.05 19.68
Financial Position at Year-end
Working capital $ 291.0 $ 155.8 $ 166.0 $ 161.3 $ 142.3
Property, plant and
Equipment, net 355.7 543.2 508.3 863.5 780.9
Total assets 1,373.2 979.4 921.9 1,290.2 1,146.3
Total capital 992.4 788.0 754.7 1,095.4 980.5
Long-term debt 224.4 270.4 264.3 499.4 393.6
Deferred income taxes 216.3 74.3 67.3 126.9 118.6
Stockholders' equity 551.7 443.3 423.1 469.1 468.3
Percent of long-term debt
To total capital 22.6% 34.3% 35.0% 45.6% 40.1%
To stockholders'
Equity 40.7 61.0 62.5 106.5 84.0
Additional Data
Capital expenditures and
acquisitions $ 498.5 $ 91.4 $ 68.2 $ 176.0 $ 227.4
Number of employees at
year-end 6,616 5,557 5,184 6,914 5,305
-69-
Notes to Five-Year Comparative Record:
Accounting policies are stated in the 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. Additional
information that may affect the comparability of the information
in the Five Year Comparative Record is set forth under the
captions "Nonrecurring Items," "Restructuring" and "Acquisitions"
in Management's Discussion and Analysis of Financial Position and
Results or Operations.
1. Recurring income is defined as income before gain on sale of
businesses, restructuring/special charges, extraordinary item,
and cumulative effect of accounting change.
2. Includes after-tax restructuring/special charges of $29.2
million, or $1.43 per diluted share, and an after-tax gain on the
sale of businesses of $242.0 million, or $11.86 per diluted
share.
3. Includes an after-tax restructuring charge of $8.8 million,
or $0.41 per diluted share, and an after-tax gain on the
cumulative effect of an accounting change of $13.3 million, or
$0.62 per diluted share.
4. Includes an after-tax gain of $49.1 million, or $2.07 per
diluted share, on the sale of the Kraft Products segment to St.
Laurent (U.S.), and after-tax restructuring/special charges of
$10.8 million, or $0.45 per diluted share.
-70-
OPERATING LOCATIONS
EUROPEAN SPECIALTY PACKAGING
Field Group plc
Belgium - Bornem, Ghent; England - Bedford, Bourne, Bradford,
Newcastle, Nottingham, Old Amersham, Portsmouth*, Tewkesbury,
Thatcham, Yatton; France - Angouleme, Avallon, Bordeaux*, Ezy sur
Eure, Migennes, St. Pierre des Corps, Ussel*; Republic of Ireland
- - Dublin*, Westport; Netherlands - Oss; Scotland - Bellshill,
East Kilbride; Spain - Madrid*
Boxmore International PLC
Belgium - Brussels; China - Kunshan; England - Crewe*,
Greenford*, Leicester, Loughborough, Southampton; France - Paris,
St. Etienne; Germany - Frankfurt*; Republic of Ireland - Cavan,
Limerick; Northern Ireland - Belfast, Lisburn*, Lurgan; South
Africa - Harrismith*; Wales - Wrexham
CORPORATE HEADQUARTERS
1021 East Cary Street, Box 2350
Richmond, Virginia 23218-2350*
(804) 697-1000
www.cskcorp.com
MERCHANDISING & SPECIALTY PACKAGING
Chesapeake Display & Packaging Company
California - Visalia*; Canada - Toronto, Ontario; China - Hong
Kong*; England - Leicester; France - Migennes, Noisy-le-Grand*,
Paris*, Rosny sous Bois*; Indiana - Richmond; Iowa - Marion;
Kentucky - Erlanger; Mississippi - Pelahatchie; New Jersey -
Cinnaminson*; New York - Mount Vernon*; North Carolina - Rural
Hall*, Winston-Salem; Ohio - Cincinnati*
Chesapeake Packaging Co.
Colorado - Denver*; Indiana - St. Anthony; Kentucky - Louisville;
New York - Binghamton, Buffalo, Scotia, Utica; Ohio - Madison;
Pennsylvania - Scranton; Virginia- Richmond*
LAND DEVELOPMENT
Delmarva Properties, Inc.: Virginia - Richmond*
Stonehouse Inc.: Virginia - Williamsburg*
SHARED SERVICES
Virginia - Richmond*
*leased real property
-71-
EX 21.1
SUBSIDIARY CORPORATIONS OF
CHESAPEAKE CORPORATION
December 31, 1999
State or Nation
Name of Incorporation
---- ----------------
Cary St. Company Delaware
Capitol Packaging Company Colorado
Chesapeake Display and Packaging Company Iowa
Chesapeake Forest Products Company LLC Virginia
Chesapeake Packaging Co. Virginia
Chesapeake Trading Company, Inc. U.S. Virgin Islands
Sheffield, Inc. Delaware
Delmarva Properties, Inc. Virginia
Stonehouse, Inc. Virginia
WTM I Company Delaware
Chesapeake International Holding Company Virginia
Chesapeake Display and Packaging (Canada)
Limited Ontario, Canada
Chesapeake Europe SA France
Chesapeake Display and Packaging Europe France
Consumer Promotions International, Inc. New York
CPI UK Holdings Limited United Kingdom
Consumer Promotions International (France) France
Chesapeake UK Holdings Limited United Kingdom
Chesapeake UK Acquisitions plc United Kingdom
Chesapeake UK Acquisitions plc II United Kingdom
-1-
SUBSIDIARY CORPORATIONS OF
CHESAPEAKE CORPORATION
December 31, 1999
State or Nation
Name of Incorporation
---- ----------------
Field Group plc United Kingdom
EF Taylor Ltd-UK United Kingdom
Ethical Print & Pkg Ltd-UK United Kingdom
Field, Sons & Co Ltd United Kingdom
Field Packaging France SA France
Field Packaging Belgium NV Belgium
PH. Bourgeot & Cie SA France
SCI Eglantine SA France
Engelhard SA France
Mareen NV Belgium
Press Pharma NV Belgium
Field Group Pension Trustee Ltd United Kingdom
Drukkerij Vans OS BV Holland
Tudor Labels (Holdings) Ltd United Kingdom
Tudor Labels Ltd United Kingdom
Avery Label Ltd Ireland
Avery Systems Ltd Ireland
Label Access Holdings Ltd Ireland
Label/Access Ltd United Kingdom
Label/Access Ltd Ireland
Berry Holdings Ltd Ireland
-2-
SUBSIDIARY CORPORATIONS OF
CHESAPEAKE CORPORATION
December 31, 1999
State or Nation
Name of Incorporation
---- ----------------
Berry's of Westport Ltd Ireland
Berry's Printing Works Ireland
BPG Healthcare Ltd Ireland
Lesbats SA France
Field Mateu SL Spain
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 306,600,000
<SECURITIES> 0
<RECEIVABLES> 170,500,000
<ALLOWANCES> 4,100,000
<INVENTORY> 106,700,000
<CURRENT-ASSETS> 610,900,000
<PP&E> 520,400,000
<DEPRECIATION> 164,700,000
<TOTAL-ASSETS> 1,373,200,000
<CURRENT-LIABILITIES> 319,900,000
<BONDS> 224,400,000
0
0
<COMMON> 17,500,000
<OTHER-SE> 534,200,000
<TOTAL-LIABILITY-AND-EQUITY> 1,373,200,000
<SALES> 1,162,000,000
<TOTAL-REVENUES> 1,162,000,000
<CGS> 907,400,000
<TOTAL-COSTS> 1,122,400,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 900,000
<INTEREST-EXPENSE> 30,400,000
<INCOME-PRETAX> 433,200,000
<INCOME-TAX> 182,400,000
<INCOME-CONTINUING> 250,800,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250,800,000
<EPS-BASIC> 12.48
<EPS-DILUTED> 12.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 62,400,000
<SECURITIES> 0
<RECEIVABLES> 127,600,000
<ALLOWANCES> 4,100,000
<INVENTORY> 102,700,000
<CURRENT-ASSETS> 313,400,000
<PP&E> 872,400,000
<DEPRECIATION> 385,900,000
<TOTAL-ASSETS> 979,400,000
<CURRENT-LIABILITIES> 155,600,000
<BONDS> 270,400,000
0
0
<COMMON> 21,400,000
<OTHER-SE> 421,900,000
<TOTAL-LIABILITY-AND-EQUITY> 979,400,000
<SALES> 950,400,000
<TOTAL-REVENUES> 950,400,000
<CGS> 732,800,000
<TOTAL-COSTS> 886,800,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 700,000
<INTEREST-EXPENSE> 18,900,000
<INCOME-PRETAX> 55,800,000
<INCOME-TAX> 21,800,000
<INCOME-CONTINUING> 34,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 13,300,000
<NET-INCOME> 47,300,000
<EPS-BASIC> 2.23
<EPS-DILUTED> 2.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 73,300,000
<SECURITIES> 0
<RECEIVABLES> 111,800,000
<ALLOWANCES> 5,900,000
<INVENTORY> 98,800,000
<CURRENT-ASSETS> 308,300,000
<PP&E> 858,400,000
<DEPRECIATION> 350,100,000
<TOTAL-ASSETS> 921,900,000
<CURRENT-LIABILITIES> 142,300,000
<BONDS> 264,300,000
0
0
<COMMON> 21,300,000
<OTHER-SE> 401,800,000
<TOTAL-LIABILITY-AND-EQUITY> 921,900,000
<SALES> 1,021,000,000
<TOTAL-REVENUES> 1,021,000,000
<CGS> 822,100,000
<TOTAL-COSTS> 1,005,200,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,600,000
<INTEREST-EXPENSE> 22,000,000
<INCOME-PRETAX> 85,200,000
<INCOME-TAX> 34,300,000
<INCOME-CONTINUING> 50,900,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,300,000
<CHANGES> 0
<NET-INCOME> 48,600,000
<EPS-BASIC> 2.10
<EPS-DILUTED> 2.08
</TABLE>
EX 99.1
U. S. 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, 1999
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
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"). At November 30, 1999,
the Committee members were:
Name Address
Thomas A. Smith* (1) Richmond, Virginia 23218
J. P. Causey Jr. (2) Richmond, Virginia 23218
William T. Tolley (3) Richmond, Virginia 23218
(1) Mr. Smith is Vice President - Human Resources
of the Corporation.
(2) Mr. Causey is Senior Vice President, Secretary
& General Counsel of the Corporation.
(3) Mr. Tolley is Senior Vice President - Finance &
Chief Financial Officer of the Corporation.
*Committee Chairman
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:
Statements of Financial Condition
Statements 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, 1999 for consent of independent
accountants.
-1-
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
February 18, 2000
-2-
Report of Independent Accountants
To the Hourly Employees' Stock
Purchase Plan Committee:
In our opinion, the accompanying statements of financial
condition and the related statements of changes in plan
equity present fairly, in all material respects, the
financial position of the Hourly Employees' Stock Purchase
Plan (the "Plan") as of November 30, 1999 and 1998 and the
changes in plan equity for each of the three years in the
period ended November 30, 1999, in conformity with
accounting principles generally accepted in the United
States. 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 of these statements in
accordance with auditing standards generally accepted in
the United States which require that we plan and perform the
audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion
expressed above.
By: /s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Richmond, Virginia
February 18, 2000
-3-
HOURLY EMPLOYEES' STOCK PURCHASE PLAN
STATEMENTS OF FINANCIAL CONDITION
November 30, 1999 and 1998
1999 1998
------ ------
Asset:
Funds held by Chesapeake Corporation and
participating subsidiaries (Note 3) $3,797 $5,199
======== ========
Plan Equity $3,797 $5,199
======== ========
STATEMENTS OF CHANGES IN PLAN EQUITY
For the years ended November 30, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Contributions:
Employees, net of refunds $317,213 $325,114 $301,928
Employer: $92,296 in 1999, $105,007
in 1998 and $144,964 in 1997; less
withheld taxes of $37,610, $42,753
and $59,132, respectively 54,686 62,254 85,832
------ ------ ------
371,899 387,368 387,760
Deductions:
Purchase and distribution to
participants at year end of 11,297
shares in 1999 ($30.63 per share),
10,876 shares in 1998 ($35.45 per
share), and 11,764 shares in 1997
($32.89 per share) of common stock of
Chesapeake Corporation (Note 1) 346,043 385,551 386,907
Net transfers to Salaried Employees'
Stock Purchase Plan 10,607 1,216 516
Net distribution due to sale of
Chesapeake Building Products
Company (Note 6) 16,651 - -
Net transfer due to sale to St.
Laurent Paperboard Inc. (Note 7) - - 7,961
------ ------ ------
373,301 386,767 395,384
------ ------ ------
(Decrease) increase in plan equity (1,402) 601 (7,624)
Plan equity, beginning of year 5,199 4,598 12,222
------ ------ ------
Plan equity, end of year $3,797 $5,199 $4,598
====== ====== ======
The accompanying notes are an integral part of these
financial statements.
-4-
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, as defined, of the
Corporation and participating subsidiaries (the
"Employer").
The Plan is administered by a committee (the
"Committee") appointed by the Corporation's Board of
Directors. Participants in the Plan, which became
effective in December 1982, are permitted to invest
between one and five percent of their basic
compensation, as defined. The Employer contributes to
the Plan, as of the end of the Plan Year (see Note 3), a
percentage (determined by the Committee of the Plan,
generally 30% to 50%) of the participant's contribution
reduced by amounts required to be withheld under income
tax, Federal Insurance Contributions Act tax 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. The funds held by the Employer at the end of the
year represent the remaining amounts in participants'
accounts after the purchase of whole shares as the Plan
does not provide for the purchase of fractional shares.
A participant may terminate his participation in the
Plan at any time. Upon termination, the Employer will
return his contributions and the participant will
forfeit all rights to any contribution which would have
been made at the end of the plan year.
As of November 30, 1999, 695,155 shares (11,297 shares
in the current year and 683,858 in prior years) of the
Corporation's common stock had been issued under the
Plan and 204,845 shares were available for future
issuance.
Hourly paid employees of certain divisions of Chesapeake
Display and Packaging Company, Chesapeake Packaging Co.,
and Chesapeake Building Products Company were eligible
to become participants in the Hourly Employees' Stock
Purchase Plan provided that such employees otherwise
meet the requirements for participation set forth in the
Plan.
2. Plan Year:
The fiscal year of the Plan 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.
-5-
NOTES TO FINANCIAL STATEMENTS, Continued
4. Taxes and Expenses:
The Plan is not qualified under Section 401(a) of the
Internal Revenue Code and is not subject to the
provisions of the Employee Retirement Income Security
Act of 1974. 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.
5. Contributions to the Plan:
Contributions (net of withheld taxes and refunds) were
as follows:
1999 1998 1997
------------------ ------------------ ------------------
Employer Employees Employer Employees Employer Employees
Chesapeake
Corporation
Subsidiaries:
Chesapeake
Display and
Packaging
Company $47,224 $276,150 $46,623 $262,825 $69,759 $236,640
Chesapeake
Packaging Co. 4,958 27,352 11,284 37,521 11,067 36,869
Chesapeake
Building
Products
Company 2,504 13,711 4,347 24,768 5,006 28,419
------- -------- ------- -------- ------- --------
Totals $54,686 $317,213 $62,254 $325,114 $85,832 $301,928
======= ======== ======= ======== ======= ========
6. Sale of Chesapeake Building Products Company:
On July 30, 1999, the Corporation completed the sale of
its Building Products business. The Corporation
distributed the accumulated 1998 carryover employee and
employer contributions and 1999 employee and employer
contributions which were made to the Plan to the
Building Products participants prior to the date of the
sale.
7. Sale to St. Laurent Paperboard Inc.:
On May 22, 1997, the Corporation sold certain kraft and
packaging facilities to St. Laurent Paperboard Inc.
("St. Laurent"). The Corporation transferred the
accumulated 1996 carryover employee and employer
contributions and 1997 employee contributions made to
the Plan prior to the date of the sale to St. Laurent.
-6-
NOTES TO FINANCIAL STATEMENTS, Continued
8. Subsequent Events:
On February 18, 2000, the Company contributed its litho-
laminated business of Chesapeake Display and Packaging
Company to a joint-venture with Georgia-Pacific
Corporation. The Corporation will distribute the
accumulated employee and employer contributions as of
March 31, 2000, to the applicable participants.
-7-
EX 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (File Nos. 2-71595, 33-14926,
2-79636, 33-14925, 33-14927, 33-26150, 33-53478, 33-67384, 33-
56487 and 333-30763) of Chesapeake Corporation of our report
dated January 28, 2000, except as to information in Notes 6 and
14, for which the date is February 25, 2000, which appears in the
Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K.
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 2-79636) of the Hourly
Employees' Stock Purchase Plan of our report dated February 18,
2000 appearing in Form 11-K (Exhibit 99.1).
/s/ PricewaterhouseCoopers LLC
------------------------------
PricewaterhouseCoopers LLC
Richmond, Virginia
March 22, 2000
-1-
