SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number: 1-3203
_______________________
CHESAPEAKE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0166880
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 East Cary Street
Richmond, Virginia 23218-2350
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: 804-697-1000
The registrant's former fiscal year ended on
December 31 of each year.
(Former name, former address, and former fiscal year,
if changed since last report)
_______________________
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/. No / /.
The number of shares outstanding of each of the issuer's classes
of common stock as of April 30, 2000: 16,062,533 shares.
CHESAPEAKE CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2000
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings-
Quarters ended April 2, 2000
and March 31, 1999 3
Consolidated Balance Sheets
at April 2, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows-
Quarters ended April 2, 2000
and March 31, 1999 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature 26
-2-
PART I
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
(Unaudited)
Quarters Ended
April 2, March 31,
2000 1999
------ ------
Net sales $240.1 $239.1
Costs and expenses:
Cost of products sold 191.3 186.0
Selling, general and
administrative expenses 42.3 37.7
------ ------
Income from operations 6.5 15.4
Other income and expenses, net 0.1 3.7
Interest expense, net (5.6) (6.0)
------ ------
Income before taxes and extraordinary
item 1.0 13.1
Income tax (benefit) expense (1.4) 4.6
------ ------
Income before extraordinary item 2.4 8.5
Extraordinary item, net of income taxes
of $0.9 1.5 -
------ ------
Net income $ 0.9 $ 8.5
====== ======
Basic earnings per share:
Earnings before extraordinary item $ 0.14 $ 0.40
Extraordinary item, net of income taxes .09 -
------ ------
Basic earnings per share $ 0.05 $ 0.40
====== ======
Weighted average number of common shares 17.3 21.4
====== ======
Diluted earnings per share:
Earnings before extraordinary item $ 0.14 $ 0.39
Extraordinary item, net of income taxes .09 -
------ ------
Diluted earnings per share $ 0.05 $ 0.39
====== ======
Weighted average number of common shares and
equivalents outstanding, assuming dilution 17.5 21.7
====== ======
Cash dividends declared per share of
common stock $ 0.22 $ 0.22
====== ======
See accompanying notes to consolidated financial statements.
-3-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
April 2, Dec. 31,
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 16.3 $ 306.6
Accounts receivable (less allowance
of $4.2 and $4.1) 193.5 170.5
Inventories:
Finished goods 48.1 41.8
Work in process 28.3 28.2
Materials and supplies 40.3 36.7
------- ------
Total inventories 116.7 106.7
Deferred income taxes 22.4 22.4
Other 6.1 4.7
----------------
Total current assets 355.0 610.9
----------------
Property, plant and equipment, at cost 596.8 520.4
Less accumulated depreciation 143.3 164.7
----------------
453.5 355.7
----------------
Goodwill, net 541.4 296.4
Investment in affiliates 70.5 1.5
Other assets 85.0 108.7
----------------
Total assets $1,505.4$1,373.2
================
-4-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(In millions, except share data)
(Unaudited)
April 2, Dec. 31,
2000 1999
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 120.8$ 92.5
Accrued expenses 123.5 111.6
Current maturities of long-term debt 92.2 91.3
Dividends payable 3.9 3.9
Income taxes payable 19.5 20.6
----------------
Total current liabilities 359.9 319.9
----------------
Long-term debt 347.8 224.4
Other long-term liabilities 47.0 44.4
Postretirement benefits other than pensions 16.7 16.5
Deferred income taxes 225.3 216.3
----------------
Total liabilities 996.7 821.5
Stockholders' equity:
Preferred stock, $100 par value, issuable
in series; authorized, 500,000 shares;
issued, none
Common stock, $1 par value; authorized,
60,000,000 shares; outstanding 16,555,943
in 2000 and 21,473,622 shares in 1999,
respectively 16.6 17.5
Additional paid-in capital - -
Unearned compensation (3.9) (4.8)
Accumulated other comprehensive loss (22.7) (7.2)
Retained earnings 518.7 546.2
----------------
Total stockholders' equity 508.7 551.7
----------------
Total liabilities and stockholders'
equity $1,505.4$1,373.2
================
See accompanying notes to consolidated financial statements.
-5-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Quarters Ended
April 2, March 31,
2000 1999
------ -------
Operating activities
Net income $ 0.9 $ 8.5
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item 2.4 -
Depreciation, cost of timber harvested
and amortization of intangibles 16.7 18.0
Deferred income taxes (0.5) 0.8
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net 5.0 (4.8)
Inventories (11.1) (4.4)
Other assets (1.1) 2.6
Accounts payable 6.0 (0.7)
Accrued expenses 8.4 (1.9)
Income taxes payable (4.1) 1.6
Other (1.3) -
------ ------
Net cash provided by operating activities 21.3 19.7
------ ------
Investing activities
Purchases of property, plant and equipment (14.6) (19.7)
Acquisitions (338.0) (328.9)
Other, net 0.3 (4.2)
------ ------
Net cash used in investing activities (352.3) (352.8)
------ ------
-6-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In millions)
(Unaudited)
Quarters Ended
April 2, March 31,
2000 1999
------ -------
Financing activities
Net (repayment) borrowing on lines of credit (10.6) 0.8
Payments on long-term debt (1.6) (0.7)
Proceeds from long-term debt 84.3 303.5
Debt issuance costs (2.5) -
Purchases of outstanding common stock (25.2) -
Dividends paid (3.8) (4.7)
Other 0.1 -
------ ------
Net cash provided by financing
activities 40.7 298.9
------ ------
Decrease in cash and cash equivalents (290.3) (34.2)
Cash and cash equivalents at beginning of period 306.6 62.4
------ ------
Cash and cash equivalents at end of period $ 16.3 $ 28.2
====== ======
See accompanying notes to consolidated financial statements.
-7-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements of Chesapeake
Corporation and subsidiaries ("Chesapeake" or the "Company")
included herein are unaudited, except for the December 31, 1999,
consolidated balance sheet, and have been prepared by the Company
pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the
consolidated financial statements reflect all adjustments, all of
a normal recurring nature, necessary to present fairly the
Company's consolidated financial position and results of
operations for the interim periods presented herein. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included or incorporated by reference in the Company's latest
Annual Report on Form 10-K. The results of operations for the
2000 interim period should not be regarded as necessarily
indicative of the results that may be expected for the entire
year.
Effective January 1, 2000, the Company changed its fiscal
year end for financial statement purposes from a calendar year to
a 52/53 week fiscal year. Beginning with fiscal year 2000, the
Company's fiscal year will end on the Sunday closest to December
31. Additionally, the Company now reports its quarterly periods
on a 13-week basis ending on a Sunday. The effect of this change
was not material to the Company's financial condition or results
of operations.
Certain prior-year data have been reclassified to conform to
the 2000 presentation.
Revenue recognition
The Company recognizes revenue in the packaging businesses
upon passage of title to the customer, which is generally at the
time of product shipment. The Company recognizes sales of land
when all conditions, as set forth in Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real
Estate," have occurred.
Note 2. Adoption of Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 44, "Accounting of
Certain Transactions involving Stock Compensation," an
interpretation of APB Opinion No. 25 ("FIN 44"). FIN 44 clarifies
the application of APB Opinion No. 25 as to (a) the definition of
employee for purposes of applying APB Opinion No. 25, (b) the
-8-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements(Unaudited),continued
Note 2. Adoption of Accounting Pronouncements, continued
criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions cover specific
events that occur after either December 15, 1998, or January 12,
2000. The Company has not determined what effect, if any, FIN 44
will have on its financial statements.
In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulleting No. 101, "Revenue
Recognition in Financial Statements ("SAB 101")," which provides
guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue
recognition policies. The adoption of SAB 101 is required in the
second quarter of 2000 and is not expected to have a material
impact on the Company's financial statements.
The FASB has issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to
record derivative instruments on the balance sheet as assets or
liabilities, measured at fair market value. Statement of
Financial Accounting Standards No. 137, which was issued in July
1999, defers the Company's required adoption of SFAS 133 until
fiscal year 2001. The adoption of SFAS 133 is not expected to
have a material impact on the Company's financial statements.
Note 3. Comprehensive Income
Comprehensive income (loss) for the quarters ended April 2,
2000, and March 31, 1999, was $(14.6) million and $8.9 million,
respectively. The difference between net income and
comprehensive income is due to foreign currency translation.
Note 4. Acquisitions and Dispositions
On February 24, 2000, the Company completed its acquisition
of substantially all of the outstanding capital shares of Boxmore
International PLC ("Boxmore"), a European specialty packaging
company headquartered in Belfast, Northern Ireland. The
acquisition was effected through a tender offer by Chesapeake UK
Acquisitions II plc ("Chesapeake UK II"), a wholly-owned
subsidiary of Chesapeake, for all of the outstanding capital
shares of Boxmore at a purchase price of (pound)2.65 per share.
The tender offer represented a value of approximately US $315
million for Boxmore's outstanding share capital. Including
assumed debt of approximately $64 million, the tender offer
-9-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited), continued
Note 4. Acquisitions and Dispositions, continued
reflected a total enterprise value for Boxmore of approximately
US $379 million. The purchase price for Boxmore's capital shares
was paid in cash of $229.9 million, and $85.2 million in
unsecured loan notes ("Loan Notes") issued by Chesapeake UK II
and guaranteed by First Union National Bank, London Branch,
("First Union, London"). The Loan Notes bear interest at a
variable rate per annum equal to the LIBOR rate for six month
sterling deposits less one-half of one percent, are redeemable in
whole or part at the option of the holders on each biannual
interest payment date commencing February 28, 2001, and, if not
earlier redeemed, mature on February 28, 2005. Under the terms of
its current credit facility, Chesapeake is required to pay First
Union, London a two percent loan guarantee fee on the outstanding
loan note balance.
During the first quarter of 2000, the Company also completed
the acquisitions of Green Printing Company, Inc. a specialty
packaging producer and printer in Lexington, North Carolina, and
a corrugated container facility in Warren County, North Carolina,
and finalized the formation of a joint venture with Georgia-
Pacific Corporation, in which the two companies combined their
litho-laminated graphic packaging businesses.
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 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. The final purchase price of approximately
US $373 million was funded through a combination of approximately
$316 million in borrowings under a credit facility, $22 million
in unsecured loan notes issued to certain Field Group
shareholders, and $35 million in cash.
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 price allocation for the
Boxmore acquisition is based on preliminary estimates of fair
value for property, plant and equipment; however, the amounts
should not vary materially from this estimate. As of the
acquisition date of Boxmore, the Company began to develop plans
to eliminate duplicate functions and processes and restructure
capacity at certain acquired facilities. The estimated accrual
for severance, relocation and restructuring costs associated with
these facilities is in the range of $14 million to $24 million,
which will be recorded in the opening balance sheet. These plans
are expected to be completed by the end of the year.
-10-
CHESAPEAKE CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited), continued
The purchase price amounts for the acquisitions which
occurred during the quarters ending April 2, 2000, and March 31,
1999, have been allocated to the acquired net assets as
summarized below (in millions):
April 2, March 31,
2000 1999
------ ------
Fair value of assets acquired $475.6 $485.5
Liabilities assumed or created (132.2) (144.5)
Cash acquired (5.4) (12.1)
------ ------
Cash paid for acquisitions, net $338.0 $328.9
====== ======
Pro forma financial information reflecting the combined
results of the Company, Boxmore and Field Group as if these
acquisitions occurred on January 1, 1999, is as follows (in
millions, except per share amounts):
Quarter Ended
April 2, March 31,
------------------
2000 1999
------ ------
Net sales $274.7 $361.0
Income before extraordinary item 1.9 1.8
Net income 0.4 1.8
Earnings per share before
extraordinary item:
Basic $0.11 $0.08
Diluted $0.11 $0.08
Net income per share:
Basic $0.02 $0.08
Diluted $0.02 $0.08
Note 5. Restructuring/Special Charges
In the fourth quarter of 1999, the Company recognized a
restructuring/special charge of $38 million related to employment
reduction, the closure of one facility, impairment of assets in
the Company's French operations and defense fees incurred to
respond to an unsolicited proposal by Shorewood Packaging
Corporation ("Shorewood") to acquire Chesapeake. The cash portion
of the restructuring/special charges was $23 million. Announced
workforce reductions included approximately 300 employees in the
Merchandising and Specialty Packaging segment, 170 employees in
the European Specialty Packaging segment and 10 corporate
employees. Payments for employment reduction included
approximately 80 employees in the Merchandising and Specialty
Packaging segment, 50 employees in the European Specialty
-11-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited), continued
Note 5. Restructuring/Special Charges, continued
Packaging Segment and 10 corporate employees. The Company
anticipates completing the above restructuring activities as
planned by the end of the year.
An analysis of the restructuring reserve as of April 2, 2000
is as follows (in millions):
Employment Facility Defense
Reduction Closure Fees Total
Restructuring charge $12.6 $1.2 $9.2 $23.0
Cash payments in 1999 (1.1) - (2.5) (3.6)
----- ----- ----- -----
Balance, December
31, 1999 11.5 1.2 6.7 19.4
Cash payments in 2000 (2.2) (0.2) (4.1) (6.5)
Foreign currency
translation 0.4 - - 0.4
----- ----- ----- -----
Balance, April 2,
2000 $9.7 $1.0 $2.6 $13.3
===== ===== ===== =====
Ongoing annual operating savings of approximately $11
million upon full implementation of the program are expected in
the form of reduced salaries and benefits expenses(approximately
$7.5 million), manufacturing costs (approximately $1.0 million)
and depreciation expense (approximately $2.5 million). The
Company estimates that actions implemented under the plan
resulted in savings of approximately $1.3 million in the quarter
ended April 2, 2000.
Note 6. Income Taxes
Excluding the nonrecurring impact of the Shorewood
transaction costs, the Company's effective income tax rate was
33% and 35.5% in the first quarter of 2000 and 1999,
respectively. The decrease in the Company's effective income tax
rate is primarily due to the acquisition of businesses in
countries that have lower effective income tax rates.
Note 7. Commitments and Contingencies
Environmental Matters
Chesapeake has a strong commitment to protecting the
environment. The Company has an environmental audit program to
monitor compliance with environmental laws and regulations. The
costs of compliance with existing environmental regulations are
not expected to have a material adverse effect on the Company's
financial condition or results of operations.
-12-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 7. Commitments and Contingencies, continued
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 Wisconsin Tissue Mills, Inc., now WTM I Company ("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.
-13-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 7. Commitments and Contingencies, continued
On June 18, 1997, the EPA announced that it was initiating
the process of listing the lower Fox River on the CERCLA National
Priorities List of hazardous waste sites. The EPA identified
several 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
WT 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. WT 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-
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, WT believes that
the ultimate clean-up/restoration costs associated with the
-14-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 7. Commitments and Contingencies, continued
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, WT 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.
WT 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. WT 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,
WT 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, WT 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
-15-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 7. Commitments and Contingencies, continued
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 subject to certain
limitations, including a cap of $50 million and, in certain
circumstances, a $2.0 million deductible. The Company and St.
Laurent have jointly responded to and are defending against the
matters alleged in the NOVs, and have presented an initial
settlement offer, consisting primarily of engineering measures,
to the EPA and DEQ. 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 vigorously defend against
the alleged violations. 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.
Litigation
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.
-16-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 8. Segment Disclosure
First Quarter
-------------
(In millions)
2000 1999
Net sales: ---- ----
European Specialty Packaging $ 120.8 $ 15.4
Merchandising and Specialty Packaging 107.1 113.1
Plastic Packaging 9.9 -
Tissue - 98.8
Forest Products/Land Development 2.3 11.8
-------- --------
$ 240.1 $ 239.1
======== ========
Earnings before interest and taxes
(EBIT):
European Specialty Packaging $ 8.9 $ 0.6
Merchandising and Specialty Packaging 1.7 2.0
Plastic Packaging 1.0 -
Tissue - 15.5
Forest Products/Land Development 2.0 4.7
Corporate/other (7.0) (3.7)
-------- --------
$ 6.6 $ 19.1
======== ========
Identifiable assets:
European Specialty Packaging $ 791.8 $ 485.5
Merchandising and Specialty Packaging 403.8 330.7
Plastic Packaging 200.7 -
Forest Products/Land Development 34.5 122.1
Tissue - 451.7
Corporate/other 74.6 40.4
-------- --------
$1,505.4 $1,430.4
======== ========
Chesapeake currently conducts its business in four segments.
The Company's European Specialty Packaging segment, which is
comprised of the Field Group operations and the paper-based
specialty packaging operations of Boxmore, produces folding
cartons, labels, and leaflets, primarily for consumer product and
pharmaceutical/healthcare companies. The results of operations of
Field Group and Boxmore are included in the consolidated segment
results since their respective acquisition dates of March 18,
1999, and February 24, 2000(see Note 4). The Merchandising and
Specialty Packaging segment produces and sells point-of-sale
displays, merchandising services, graphic packaging and
corrugated shipping containers. The Plastic Packaging segment is
comprised of the plastic-based specialty packaging operations of
Boxmore, which produces plastic containers for the food/drink and
agricultural/industrial markets. The Forest Products/Land
Development segment manages the Company's real estate holdings.
The Company's Tissue segment was composed of the commercial and
-17-
CHESAPEAKE CORPORATION AND ITS SUBSIDIARIES
Notes To Consolidated Financial Statements (Unaudited),continued
Note 7. Segment Disclosure, continued
industrial tissue operations of WT and Wisconsin Tissue de
Mexico, which were contributed to a joint venture with Georgia-
Pacific Corporation effective October 3, 1999. There were no
intersegment sales for the quarter ended April 2, 2000 and March
31, 1999.
-18-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
While net sales of $240.1 million for the quarter ended
April 2, 2000, were comparable to net sales of $239.1 million for
the first quarter of 1999, there was a significant shift in sales
from the former Tissue segment to the Company's recently acquired
European operations (European Specialty Packaging and Plastic
Packaging segments). Comparing the first quarter of 2000 with
the first quarter of 1999, sales related to the European
Specialty Packaging and Plastic Packaging segments represented
54% and 6% of total sales, respectively, and sales for the Tissue
segment represented 0% and 41% of total sales, respectively.
Net income for the quarter ended April 2, 2000, was $0.9
million, or $.05 per diluted share, compared with 1999 first
quarter net income of $8.5 million, or $.39 per diluted share.
Included in the first quarter of 2000's net income is an
extraordinary charge for the early extinguishment of debt of $1.6
million or $.09 per diluted share. The decrease in quarterly
operating results is primarily due to the change in Chesapeake's
business portfolio, which has resulted in a new seasonal
operating cycle where 70% to 85% of annual earnings are expected
to be generated in the second half of the year.
Other income and expenses, net, decreased to $0.1 million
for the quarter ended April 2, 2000, compared to $3.7 million
for the quarter ended March 31, 1999. During the first quarter
of 2000, the Company announced the expiration of its offer to
acquire Shorewood Packaging Corporation ("Shorewood") after
International Paper Company entered into a definitive agreement
to acquire Shorewood. The first quarter of 2000 other income
and expenses, net, includes nonrecurring expenses associated
with the Shorewood tender offer of $10.3 million, which were
largely offset by a $7.7 million gain on Chesapeake's sale of
4.1 million shares of Shorewood common stock.
The first quarter of 2000 tax benefit includes the tax
effect of the transaction costs associated with the Shorewood
tender offer and the reversal of an estimated tax provision on
the 1999 accrual of Shorewood defense costs that totaled $2.6
million. Excluding these nonrecurring items, the Company's
effective tax rate for the first quarter of 2000 was 33% (See
Note 5 to the consolidated financial statements).
Lower debt levels and increased cash balances, partially
offset by higher interest rates, during the first quarter of 2000
decreased net interest expense by $0.4 million compared to the
first quarter of 1999.
-19-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
Segment Information
European Specialty Packaging
Increase/(Decrease)
(Dollars in millions) 2000 1999 $ %
- ----------------------------------------------------------------
Net sales $120.8 $15.4 * *
EBIT 8.9 0.6 * *
Operating margin 7.4% 3.9% 89.7%
================================================================
* Not meaningful
The European Specialty Packaging segment consists of the
results of Field Group and the paper-based specialty packaging
operations of Boxmore. These operations have been consolidated
since their respective acquisition dates. Sales and EBIT for
this segment were $120.8 million and $8.9 million, respectively,
for the first quarter of 2000. Net sales and earnings were not
material for this segment in the first quarter of 1999, as they
reflected only the results of Field Group following its
acquisition in March 1999. Operating margin improved by over 3
percentage points on a pro forma basis quarter over quarter due
primarily to improved volume and selling prices, particularly in
the luxury packaging markets and Field Group's Asian markets.
Merchandising and Specialty Packaging
Increase/(Decrease)
(Dollars in millions) 2000 1999 $ %
- ----------------------------------------------------------------
Net sales $107.1 $113.1 $(6.0) (5.3)%
EBIT 1.7 2.0 (0.3) (15.0)
Operating margin 1.6% 1.8% - (11.1)
================================================================
Net sales for the 2000 first quarter decreased compared to
the prior year quarter, primarily due to the deconsolidation of
the Company's litho-laminated operations, which were contributed
to a joint venture with Georgia-Pacific Corporation on February
18, 2000. The decrease in EBIT and operating margin quarter over
quarter was primarily due to lower-margin sales mix, start-up
costs at the Company's Warren County, North Carolina, corrugated
container facility acquired in February 2000, and the seasonality
of operating results at Consumer Promotions International, a
manufacturer of permanent point-of-sale displays, which was
acquired in October 1999.
Plastic Packaging
The Plastic Packaging segment is comprised of the plastic-
based specialty packaging operations of Boxmore. Net sales and
EBIT for the segment were $9.9 million and $1.0 million,
respectively, since the acquisition of Boxmore on February 24,
2000.
-20-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
Tissue
The tissue segment was eliminated from separate reporting
with the formation of the Georgia-Pacific Tissue joint venture
(the "Tissue JV") on October 4, 1999. The results of
Chesapeake's 5% equity interest in the Tissue JV have been
included in the Corporate/other segment.
Forest Products/Land Development
Increase/(Decrease)
(Dollars in millions) 2000 1999 $ %
- ----------------------------------------------------------------
Net sales $2.3 $11.8 $(9.5) 80.5%
EBIT 2.0 4.7 (2.7) 57.4
Operating margin 87.0% 39.9% - 118.0
================================================================
The decreases in quarter-over-quarter net sales and EBIT
reflect the impact of the sale of a substantial portion of the
Company's timberland and its Building Products business in the
third quarter of 1999.
Liquidity and Financial Position
Net cash provided by operating activities increased 8%, to
$21.3 million from $19.7 million in the quarter ended April 2,
2000, compared to the quarter ended March 31, 1999, primarily due
to decreases in working capital offset in part by a decrease in
EBITDA. 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, was
$25.9 million for the first quarter of 2000, compared to EBITDA
of $37.1 million for the first quarter of 1999. This decrease in
EBITDA was due primarily to a shift in the seasonal operating
profit pattern of the Company's new business portfolio.
Net cash used in investing activities for the first quarter
of 2000 was $352.4 million compared to $352.8 million in the
first quarter of 1999, which primarily reflects the cash utilized
for acquisitions in each period.
Net cash provided by financing activities in the first
quarter of 2000 was $40.7 million compared to $298.9 million in
the first quarter of 1999. This decrease in net cash provided by
financing activities quarter-over-quarter is primarily
due to the use of borrowings under the Company's lines of credit
to finance the 1999 acquisition of Field Group. Chesapeake's net
debt-to-capital ratio was 37 percent as of April 2, 2000,
compared to 54 percent as of March 31, 1999. The decrease in the
net debt-to-capital ratio was the result of applying cash
received from the formation of the Tissue JV to debt, partially
offset by the use of cash to partially fund the Company's
acquisitions in the fourth quarter of 1999 and the first quarter
of 2000.
-21-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
During the first quarter of 2000, the Company purchased
approximately 950,000 shares of its common stock in open market
transactions at an average price of $26.40 per share. As of April
30, 2000, the Company is authorized to purchased an additional
1.0 million shares in open market and negotiated transactions.
On February 23, 2000, Chesapeake terminated a commitment to
enter into a long-term $1.075 billion senior credit facility
(which it had obtained in connection with the anticipated
acquisition of Boxmore and 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 six-
month facility is initially at 200 points over LIBOR, with a
nominal facility fee to be paid on the unused amount. In
addition, the Company is required to pay a two percent loan
guarantee fee on the outstanding loan note balance issued in
connection with the Boxmore acquisition. 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. The Company believes that
its financial resources are adequate to support anticipated long-
term and short-term capital needs and commitments.
Outlook
The following statements reflect management's outlook for
the Company as of April 20, 2000. Except as otherwise indicated,
the following 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 the remainder of 2000. The following statements
are subject to certain risks and uncertainties, including those
listed under the caption "Forward-Looking Statements" on page 23
of this report:
- -The Company expects revenue for 2000 to be in the $1.1 billion
to $1.2 billion range, excluding unconsolidated affiliates.
- -Full year earnings improvements in all four business segments
(European Specialty Packaging, Merchandising and Specialty
Packaging, Plastic Packaging and Land Development) are expected
in 2000, compared to 1999.
- -The Company's effective income tax rate in 2000 is expected to
be 33.0 percent.
- -Capital spending, excluding acquisitions, for 2000 is expected
to be approximately $90 million.
-22-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
- -Depreciation and amortization is expected to be approximately
$85 million in 2000, compared to $54 million in 1999 for
continuing operations.
- -Earnings per share expectations, not including the potential
impact of future acquisitions, are in the range of $2.20 to $2.35
per share for 2000.
- -Full year 2000 EBITDA is expected to be in the range of $165
million to $185 million.
- -The Company's quarterly earnings pattern will be very seasonal,
with 70% to 85% of annual earnings expected to be generated
evenly during the third and fourth quarters of the year.
Year 2000
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.
Accounting Pronouncements
See Note 2 to Consolidated Financial Statements.
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 waste paper,
folding carton and corrugated box and display materials;
fluctuations in demand; governmental policies and regulations
affecting the environment; interest rates; currency translation
movements; Year 2000 compliance issues; and other risks that are
detailed from time to time in reports filed by the Company with
the Securities and Exchange Commission.
-23-
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET
RISK
There are no material changes to the disclosure on this
matter made in the Company's report on Form 10-K for the year
ended December 31, 1999.
PART II
Item 1. Legal Proceedings
Reference is made to Note 7 of the Notes to
Consolidated Financial Statements included herein.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on April 26,
2000, the following business was transacted:
(1)All nominees for election to the Board of Directors were
elected.
Number Number
of of Shares
Shares Authority
For Withheld
---------- ---------
Sir David Fell 12,469,178 2,171,530
James E. Rogers 12,503,754 2,136,954
Wallace Stettinius 12,447,358 2,193,350
Joseph P. Viviano 12,447,560 2,193,148
Harry H. Warner 12,473,939 2,166,769
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
10.1 - Service Agreement with Mark Ennis, dated as of
March 8, 2000
10.2 - Executive Employment Agreement with John F. Gillespie,
dated as of March 1, 2000
27.1 - Financial Data Schedule - 2000
(b) Reports on Form 8-K:
(i)Current Report on Form 8-K, 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.
-24-
PART II, continued
Item 6. Exhibits and Reports on Form 8-K, continued
(b) Reports on Form 8-K:
(ii)Current Report on Form 8-K, dated March 30, 2000, filed April
17, 2000, reporting, under Item 8, the Company's change in
fiscal year.
(iii)Current Report on Form 8-K/A, dated February 24, 2000, filed
May 4, 2000, reporting, under Item 7 financial information
related to the acquisition of Boxmore International PLC.
-25-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CHESAPEAKE CORPORATION
(Registrant)
Date: May 15, 2000 BY: /s/ William T. Tolley
-----------------------
William T. Tolley
Senior Vice President -
Finance & Chief
Financial Officer
-26-
EXHIBIT INDEX
EXHIBIT
- -------
10.1 Service Agreement with Mark Ennis, dated as of March 8,
2000*
10.2 Executive Employment Agreement with John F. Gillespie,
dated as of March 1, 2000*
27.1 Financial Data Schedule - 2000*
* Filed herewith electronically
-27-
EX 10.1
Private & Confidential
DATED 8 March 2000
Boxmore International Plc (1)
- and -
Mark Ennis (2)
______________________
Service Agreement
______________________
Service Agreement
AN AGREEMENT made the eighth day of March 2000 between Boxmore
International Plc whose Registered Office is situated at Ennis
House, Enterprise Way, Hightown Industrial Estate,
Newtownabbey, BT36 4EW (hereinafter called "the Company")
which is a subsidiary of Chesapeake UK Acquisitions II Plc,
Badminton Court, Rectory Way, Old Amersham, Bucks, HP7 0DD
("Chesapeake") of the one part and Mark Ennis of 26 Old Cultra
Road, Cultra, Holywood, Co Down, BT18 0AE (hereinafter called
"the Director") of the other part.
WHEREBY IT IS AGREED as follows:-
1. DEFINITIONS
In this Agreement:
a) "the Board" constitutes the Board of Directors of the
Company.
b) "Group" shall mean the Company and any Group Companies.
c)"Group Company" means any Company which is for the time
being a subsidiary or holding Company of the Company or
any subsidiary of any such holding Company. For these
purposes the terms "subsidiary" and "holding company"
shall have the meanings ascribed to them by Article 4 and
Article 4A of the Companies Order 1990.
d)"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.
e)"Intellectual Property" includes letters, patent and
trade marks whether registered or unregistered,
registered or unregistered designs, utility models,
copyrights including design copyrights, applications for
any of the foregoing and the right to apply for them in
any part of the world, discoveries, creations, inventions
or improvements upon or additions to an invention,
confidential information, know-how and any research
effort relating to any of the above mentioned business
names whether registerable or not moral rights and any
similar rights in any country.
2. APPOINTMENT
a)The Company shall employ the Director and the Director
shall serve the Company as a Director. The Director's
employment shall commence on the date hereof and, subject
to Clause 15 shall continue unless or until terminated by
either the Company giving two years' notice or the
Director giving one year's notice in writing subject to
provisions of clause 19(a). The Director's period of
continuous employment began on 1 March 1988 the date the
Director commenced employment with Boxmore. The Director
represents and warrants that he is not bound by or
subject to any court order, agreement, arrangement or
undertaking which in any way restricts or prohibits him
from entering into this Agreement or from performing his
duties hereunder.
b)The Director's employment shall in any event terminate on
the date on which the Director reaches the age of 62.
-2-
3. SALARY
a)The Director's salary shall be L185,000 per annum or at
such increased rate as shall be notified to the Director
by the Company payable monthly on the last day of each
calendar month. The first review of such salary shall be
on 1st July 2001 and thereafter on 1st July in each year.
At this first review any salary increase will be
backdated to 1 January 2001. Such review will be at the
absolute discretion of the Company. In the event of any
increase in salary being so agreed or notified such
increase shall thereafter have effect as if it were
specifically provided for as a term of this agreement.
b)The Company hereby undertakes that the Company will
annually keep under review the Director's remuneration
package under this Agreement.
c)In addition to his salary the Director shall be entitled
to participate in and be entitled to receive any bonuses
as determined by the `Chesapeake Annual Incentive Plan'.
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.
4. POWERS AND DUTIES
As a Director of the Company the Director shall:
a)Undertake such duties and exercise such powers in
relation to the Company and its business as the Company
shall from time to time assign to or vest in him;
b)In the discharge of such duties and in the exercise of
such powers observe and comply with all resolutions,
regulations and directions from time to time made or
given by the Company;
c)In the absence of any specific directions from the
Company (but subject always to the memorandum and
articles of the Company) shall carry out the duties of
Director;
d)Devote the whole of his time and attention during
business hours (unless otherwise approved by the Company)
to the discharge of his duties hereunder and do all in
his power to promote, develop and extend the business of
the Company;
e)Conform to such hours of work as may from time to time
reasonably be required of him and not be entitled to
receive any additional remuneration for work outside
normal office hours.
f) In pursuance of his duties hereunder perform such
services for subsidiary and associated companies of the
Group and (without further remuneration unless otherwise
agreed) accept such offices in such subsidiary, fellow
subsidiary and associated undertakings as the Company may
from time to time reasonably require;
PROVIDED ALWAYS that if such additional duties managing
or otherwise involve significant or material change to
his employment, the Director shall not be required to
perform such services or accept such offices without his
consent;
-3-
g) Comply with:
i)Every rule of law; and
ii) The rules and regulations of any Stock Exchange;
and
iii) Every regulation of the Company for the time
being in force or relative to dealings in shares or
other securities of the Group.
h)The Director shall carry out his duties and exercise his
powers jointly with any other Director(s) or Executive
appointed by the company to act jointly with him.
i)The Director shall observe, perform and comply with all
rules and regulations of the Company or any statutory or
other competent authority regarding health and safety at
work and environmental legislation.
j)The Director shall not during the term of this Agreement
accept a seat on the Board of Directors of any other
company or companies outside the Group without first
obtaining the consent of the Board.
5. CONFIDENTIAL INFORMATION
a) The Director shall not during or after the termination of
this Agreement use for his own purposes, or any purposes
other than those of the Company, Group or Chesapeake
Corporation divulge or communicate to any person or
persons and shall use his best endeavours to prevent the
divulgence or communication to any person or persons
except to those officials of the Group or other proper
persons whose province it is to know the same, any of the
Group's or any other Chesapeake Company's secrets or any
other information which he may receive or obtain in
relation to the Group's or any other Chesapeake Company's
internal or external affairs or to the working of any
patented process or invention which is carried on or used
in the Group's or any other Chesapeake Company's
workshops or connected with its business affairs. This
restriction shall cease to apply to any information or
knowledge, which may come into the public domain
otherwise than through the default of the Director.
The Director shall not at any time, except as is
necessary for the purposes of his employment hereunder:
(i) Use, adopt or employ or be party to the use,
adoption or employment of or disclose, divulge or
communicate to any person or persons, company or
corporation any information obtained or acquired by
him during his employment in relation to:
(1) Any process, method, formulae, drawings,
recipes, appliances, machinery, apparatus or
plant of a private character (that is to say
which are not known to and used by the trade
generally) belonging to the Group which at any
time during his employment by the Company may
have been used by the Group or with which the
Director may have become acquainted during and
in the course of his employment by the Group.
(2) The results of any investigations or experiments
which may have been made by the Group during his
employment or by their respective predecessors
-4-
in business or by any person or persons by or
under the order or direction or for the benefit
of the Group or their respective predecessors
with which the Director may have become
acquainted during and in the course of his
employment by the Company which would be
prejudicial to the business or interests of the
Group and which have not appeared in any journal
or literature published for the information of
persons unconnected with the Group.
(ii)Disclose, divulge or communicate to any person or
persons, company or corporation any information
confidential to the Company obtained or acquired by
him during his employment hereunder the disclosure of
which may be prejudicial to the business or interests
of the Group and which is not available from a source
accessible to the general public.
All notes, memorandums, records, lists of customers,
suppliers and employees, correspondence, documents,
computer and other discs and tapes, data listings,
codes, designs and drawings and other documents and
material whatsoever (whether made by the Director or
otherwise) relating to the business of the Company or
any Group Company (and any copies of the same) shall
be and remain the property of the Company or the
relevant Group Company.
6. NON-SOLICITATION/NON-COMPETITION
a)The Director shall not during the currency of this
Agreement and for a period of 12 months from the
termination of this Agreement in any case without the
previous written consent of the Company either personally
or by his agent whether on his own behalf or whether
alone or jointly with or as a director, manager, partner,
shareholder, employee or consultant of any other person,
firm or company:
(i) Canvas or solicit orders from or endeavour to
entice away from the Company or any Group Company, any
person, persons or company who shall at any time during
the year immediately preceding such termination have
been a customer of the Company or the Group or any
member thereof and with whom during such period the
Director or someone under his direct supervision had
personal dealings in the 12 months immediately
preceding the date of such termination of employment;
(ii) Engage on his own account or as a director,
principal or manager of any company in direct
competition with the Company and/or the Group any
person who has at any time during the year immediately
preceding such termination been employed or engaged by
the Group and who by reason of such employment or
engagement is in possession of any trade secrets or
confidential information of the Company and/or the
Group or who has acquired influence over its customers;
(iii) Within the UK, Ireland, Belgium, Holland, Germany
Spain and France, either on his own account or for any
other person, firm or company and in competition with
the Group, directly carry on or be engaged or concerned
or interested in any business of a kind carried on by
the Group at the date of termination of the Director's
employment hereunder and in which the Director shall
have been actively involved and obtained knowledge
within the period of one year preceding the date of
termination of employment.
-5-
b)This 12-month period of non-solicitation/non-competition
will be reduced to six months if the Company invokes
clause 15i) and requires a period of `Garden Leave' in
excess of six months.
c)While the restrictions in this Clause 6 are considered by
both parties to be reasonable in all the circumstances it
is recognised that restrictions of the nature in question
may fail for technical reasons unforeseen and accordingly
it is agreed that if any of such restrictions shall be
adjudged to be void or ineffective if part or parts of
the wording thereof were deleted the said restrictions
shall apply with such deletions as may be necessary to
make them valid and effective.
7. INTELLECTUAL PROPERTY
a) The parties foresee that the Director may make,
discover or create Intellectual Property in the course of
his duties under this agreement and agree that in this
respect the Director has a special obligation to further
the interests of the Company.
b)If at any time during his employment under this agreement
the Director makes or discovers or participates in the
making or discovery of any Intellectual Property relating
to or capable of being used in the business for the time
being carried on by the Group and whether or not made or
discovered by the Director in the course of his
employment hereunder, full details of the Intellectual
Property shall immediately be communicated by him to the
Company and shall be the absolute property of the
Company. At the request and expense of the Company the
Director shall give and supply all such information,
data, drawings and assistance as may be requisite to
enable the Company to exploit the Intellectual Property
to the best advantage and shall execute all documents and
do all things which may be necessary or desirable for
obtaining patent or other protection for the Intellectual
Property in such parts of the world as may be specified
by the Company and for vesting the same in the Company or
as it may direct.
c)The Director irrevocably appoints the Company to be his
attorney in his name and on his behalf to sign, execute
or do any such instrument or thing and generally to use
his name for the purpose of giving to the Company (or its
nominee) the full benefit of the provisions of this
clause and in favour of any third party a certificate in
writing signed by any director or the secretary of the
Company that any instrument or act falls within the
authority conferred by this clause shall be conclusive
evidence that such is the case.
d)If the Intellectual Property is not the property of the
Company the Company have the right to acquire for itself
or its nominee the Director's rights in the Intellectual
Property within 3 months after disclosure pursuant to the
clause 7 (b) on fair and reasonable terms to be agreed or
settled by a single arbitrator.
e)Rights and obligations under this clause shall continue
in force after termination of this agreement in respect
of Intellectual Property made during the Director's
employment under this agreement and shall be binding upon
his representatives.
-6-
8. PENSIONS
The Director shall be eligible to be a member of the Boxmore
Group Pension Scheme Chief Executive Category, or any
successor plan which maintains similar benefits and operates
on similar terms, subject to the rules of the Scheme from
time to time. Alternative pension scheme arrangements, may
be agreed between the Director and the Company at any time
by mutual agreement.
9. OTHER BENEFITS
a)Subject to age and medical examination, the results of
which are reasonably satisfactory to the Company and its
insurers, the Company undertakes to provide life
assurance cover equal to four times salary if and to the
extent that such cover is not provided by the Director's
pension arrangements referred to in clause 8 and to
procure that the Director will join Boxmore's prolonged
disability insurance arrangements.
b)The Company will provide contributions on the national
scale of B.U.P.A. Company Care Scheme or such other
agreed medical care scheme as approved by the Company on
behalf of the Director and his wife and children under
eighteen years of age.
10. EXPENSES
There shall be paid or refunded to the Director such sums as
shall cover all vouched, authorised and reasonable out of
pocket expenses incurred by him on the Group's business
including inter alia expenses of entertainment subsistence
and travelling in accordance with the Company guidelines.
11. CAR
During the continuance of this Agreement the Company shall
provide, maintain, tax and insure for the Director a motor
vehicle on terms in line with the Company's policy from time
to time as laid down. The car is provided for the use of
the Director in the performance of his duties. The Director
may use the said motor vehicle for his private purposes
which shall include occasional use by his immediate family.
The Company shall reimburse the Director the fuel and
running expenses including all fuel and running expenses
incurred by reasonable private use. The Company may provide
the choice to take up the option of a discretionary car
allowance as an alternative to the provision of a company
car. If this option is chosen the Director is required to
use a suitable personal vehicle to fulfil his normal duties
and associated travel requirements. If the Director shall
be convicted of any offence (under the Road Traffic Acts) or
become involved in any accident involving the motor car, he
shall forthwith notify the Company and supply such
information in connection therewith as the Company may
request.
12. HOLIDAYS
a)The Director shall be entitled in addition to the normal
public holidays to twenty five days annually accrued on a
pro rata basis per month at full salary to be taken at
such time or times as agreed by the company.
b)In the respective holiday years in which this agreement
commences or terminates the Director's entitlement to
holiday shall accrue on a pro rata basis for each month
of service during the relevant year which is normally the
Company accounting year.
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c)Holiday entitlement for one year may not be taken in
subsequent holiday year unless otherwise agreed by the
Company.
13. LOCATION
During the continuance of this Agreement, the Director's
place of work shall initially be the Company's office at
Ennis House, Enterprise Way, Hightown Industrial Estate,
Newtownabbey, BT36 4EW or such other location that may be
mutually agreed between the Company and the Director. The
Director shall be expected to travel within Europe and
Overseas if necessary, but not on an unreasonable basis, in
the performance of his duties.
14. SICKNESS/INCAPACITY
Without prejudice to Clause 15 (d) hereof, in the event of
the Director being unable to carry out his duties hereunder
because of ill health or accident and provided that the
Director produced such medical evidence of incapacity as may
be required by the Company, the Company shall continue to
pay to the Director the salary and provide the benefits
determined in accordance with these provisions for the
period of up to 12 months from the date of his incapacity
(including any period of paid notice in accordance with
clause 15 (d)) or for such longer period as the Company
shall in their absolute discretion think fit. Provided that
the Company shall be at liberty to deduct the amount of any
social security benefits and prolonged disability insurance
received by the Director and the Director shall use his best
endeavours to obtain any social security benefits and
prolonged disability insurance to which he may be entitled.
PROVIDED THAT if the incapacity shall be or appear to be
occasioned by actionable negligence of a third party in
respect of which damages are or may be recoverable the
Director shall forthwith notify the Company of that fact and
of any claim, compromise settlement or judgement made or
awarded in connection therewith and shall give to the
Company all such particulars of such matters as the Company
may reasonably require and shall if so required refund to
the Company such sum (not exceeding the amount of damages
recovered by him under such compromise settlement or
judgement less any costs in or in connection with or under
such claim compromise settlement or judgement borne by the
Director and not exceeding the aggregate of the remuneration
paid to him by way of salary in respect of the period of the
incapacity) as the Company may determine.
15. TERMINATION OF EMPLOYMENT
a)If this Agreement is terminated by the Director he shall
be entitled only to any arrears of gross salary and
expenses outstanding at the date of termination.
b)If this Agreement is terminated as a result of the death
of the Director his personal representative shall be
entitled to:-
(i) any arrears of gross salary and expenses
outstanding at the date of termination and also,
(ii) a proportionate part of any bonus entitlement and
all other benefits hereunder payable hereunder for the
then current financial year of the Company up to the
date of such termination.
-8-
c)If before the expiration of the Agreement the employment
of the Director hereunder shall be terminated by reason
of the liquidation of the Company for the purpose of
amalgamation or reconstruction or as part of any
arrangement for the amalgamation of the undertaking of
the Company not involving liquidation and the Director
shall be offered employment with the amalgamated or
reconstructed company for a period not less than the
unexpired term of this Agreement and on terms not less
favourable than the terms of this Agreement, the Director
shall have no claim against the Company or any member or
members of the Group or the amalgamated or reconstructed
company or any one or more of them in respect of the
termination of his employment by the Company hereunder.
d)Without prejudice to the provisions of clause 14 above
and the Director's rights at common law or at statute
this Agreement may be terminated by the Company:
By six months notice in writing given at any time after
the Director has been permanently incapacitated by
accident or ill health from performing his duties for six
consecutive months. Under this Agreement and for the
purposes of this sub-clause incapacity for an aggregate
period of nine months in any period of 24 months or for
an aggregate period of 24 months in any 5 year period
shall be deemed to be permanent incapacity. A period of
continuous incapacity of more than three months or in
aggregate of more than six months but less than nine
months in any year shall at the discretion of the Company
be referred to an independent medical consultant approved
by the Director and the Company who shall be asked to
state whether in his opinion the incapacity should be
considered a permanent incapacity. For the avoidance of
doubt, the Company may terminate the Director's
employment hereunder notwithstanding that this will not
effect the Director's entitlement to benefits under the
prolonged disability insurance scheme referred to in
Clause 9 above.
e)Without prejudice to the provisions of clause 14 above
and the Director's rights at common law or at statute
this Agreement may be determined by the Company, by
summary notice in writing to the Director upon the
happening of any of the following events after the date
of this Agreement namely:
(i) If he shall be guilty in the opinion of the
Company of any gross misconduct in connection with the
Company's affairs or after having been given adequate
written notice of any serious breach or persistent non-
observance of any of the conditions of this Agreement
on his part to be performed or observed or shall
neglect or refuse to carry out any of his duties
hereunder.
Gross misconduct offences, will render the Director
liable to summary dismissal (ie dismissal without
notice).
(ii) If he shall have been guilty of misconduct other
than specified in (i) above after having received
appropriate verbal and final written warnings.
(iii) If he should fail to perform his duties to a
satisfactory standard in the opinion of the Company
after having received appropriate verbal and final
written warnings.
(iv) If he shall become bankrupt or make any
arrangement or composition with his creditors.
-9-
(v) If he shall be convicted of a criminal offence
other than an offence under the Road Traffic Laws,
which in the reasonable opinion of the Company
prejudicially affects his position as a Director as
aforesaid of the Company.
(vi) If he shall not perform in an acceptable manner
and in particular if this is borne out by the poor
performance against pre-determined and agreed budgeted
financial performance for the Company.
f) Upon the termination of this Agreement for whatsoever
reason the Director shall upon the request of the
Company resign without claim for compensation from all
offices held by him in the Company and Group and in the
event of this failure to do so the Company is hereby
irrevocably authorised to appoint some person in his
name and on his behalf to execute any documents and to
do all things requisite to give effect thereto.
g) If during his employment under this Agreement the
Director voluntarily resigns as a Director of the
Company, his employment hereunder will terminate
automatically by reason of that resignation.
h) If the Director ceases to be a Director other than as
provided in Clause 15g above his employment shall
nevertheless continue unless determined by the Company
or the Director in accordance with the provisions of
clauses 2 or 19 of this Agreement.
i) During any period of notice of termination (whether
given by the Company or the Director) the Company shall
be under no obligation to assign any duties to the
Director and shall be entitled to exclude him from its
premises provided that this shall not affect the
Director's entitlement to receive his normal salary and
other contractual benefits.
16. RETURN OF PAPERS, ETC
On the expiration or sooner determination of this Agreement
howsoever the Director shall forthwith surrender -
a)All documents, books, papers and other things whatsoever
in his possession by reason of his Directorship in the
Company, and
b)All property of the Group in his possession or control
including the motor car, car keys and any other property.
17. NOTICES
Any notice hereunder shall be in writing and shall be
sufficiently served in the case of the Director by being
served personally on him or either being left at his usual
or last known place of abode or posted by recorded delivery
post to his usual or last known place of abode and in the
case of the Company by being delivered to or sent by
recorded delivery post to the registered office of the
Company. Any notices posted by recorded delivery post shall
be deemed to have been received seventy-two hours after the
time of posting.
-10-
18. PREVIOUS AGREEMENTS
This Agreement shall be deemed to be in substitution for all
existing agreements of service between the Company and the
Director which shall be deemed to have been cancelled with
effect from the date hereof.
19. TERMINATION FOLLOWING CHANGE OF OWNERSHIP
a)If this Agreement is terminated (for whatever reason) by
written notice and such notice is given either:-
(1) by the Director to the Company any time up to and
including the date 12 months from the date of
commencement of this Agreement; or
(2) by the Company to the Director any time up to and
including the date 18 months from the date of
commencement of this Agreement,
then the Company and the Director will agree an effective
date of termination ("EDT") and on the EDT the Director
shall receive a payment of compensation equivalent to 3
years' Gross Remuneration. Gross remuneration for the
purposes of this clause 19 means basic salary and the
monetary value of all benefits-in-kind (based on the
previous year's benefits) together with pension
contributions but excludes bonus entitlements.
b)With effect from 12 months from the date of commencement
of this Agreement (and in the event notice has not been
given in accordance with clause 19 (a) above) the period
of notice to be given by the Director to the Company will
be 12 months (in accordance with clause 2 (a) of this
Agreement).
With effect from 18 months from the date of commencement
of this Agreement (and in the event notice has not been
given in accordance with clause 19 (a) above) the period
of notice to be given by the Company to the Director will
be 24 months (in accordance with clause 2 (a) of this
Agreement) or upon such termination, subject to the
provisions of clause 19 (c), the Director shall be
entitled to compensation, including payment in lieu of
notice, equivalent to two years' gross remuneration.
c)Following the expiry of the periods referred to in clause
19(a) after the commencement date of this Agreement,
where employment terminates in the event of a successful
bid for the Company or a change in control of Chesapeake
Corporation (as defined in the Chesapeake Corporation
Benefits Plan Trust), the following provisions should
apply:
(i) If following a Takeover the Company or a change in
control of Chesapeake Corporation the Director's
employment is terminated, except as set forth under
Clause 14 or 15, or the Director resigns following
the occurrence of:
1) a material adverse alteration in the nature of
the Director's responsibilities or a material
diminution in the Director's status; or
2) a material breach by the Company of any of the
Terms herein; or
3) the assignment to the Director of any duties
inconsistent with the position held by the
Director immediately before the Takeover.
-11-
4) a requirement that the Director relocate his
principal place of employment to a location
that is at least 50 miles farther from his
principal residence than his former principal
place of employment.
The Company shall forthwith compensate the Director
by paying to him and he will accept as liquidated
damages in full and final settlement of all the
Director's claims arising from such termination a
sum equivalent to three years average total gross
remuneration, including salary, bonus, pension
contributions and benefits in kind.
(ii) For the purposes of this clause a Takeover is
defined as arising if any person acquires, by a
series of transactions or otherwise, shares of the
Company which together with shares held or acquired
by persons acting in consert (being the meaning or
similar given to this expression in the City Code of
Takeovers and Mergers) with that person carrying
more than 50% of the voting rights.
20. GRIEVANCE PROCEDURE
If the Director wishes to obtain redress of any grievance
relating to his Employment, or is dissatisfied with any
reprimand, suspension, or other disciplinary step taken by
the Company, he shall apply in writing to the Executive Vice
President - Human Resources setting out the nature and
details of any such grievance of dissatisfaction. There are
no special disciplinary rules which apply to the Director
and any disciplinary matters affecting him will be dealt
with by the Company's nominated officers.
21. GOVERNING LAW/ARBITRATION
This Agreement is governed by and shall be construed in
accordance with the laws of Northern Ireland and the parties
hereby submit to the jurisdiction of the Northern Ireland
courts.
IN WITNESS whereof this Agreement has been signed by or on
behalf of the parties hereto the day and year first herein
written.
Signed by Thomas H Johnson
On behalf of the Company
In the presence of:
Signed by Mark Ennis
In the presence of:
-12-
EX 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of March 1, 2000, is between
CHESAPEAKE CORPORATION, a Virginia corporation (the "Company")
and John F. Gillespie (the "Executive").
WHEREAS, the Executive is currently the duly elected and
qualified Senior Vice President - Human resources & Organization
Development of the Company; and
WHEREAS, the Company recognizes that the Executive 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 March 1, 2000, 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 December 31,
-1-
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
-3-
Change in Control or the sale or divestiture of the business unit
of the Company or its successor to which the Executive is
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
-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.
/s/ JOHN F. GILLESPIE CHESAPEAKE CORPORATION
- ---------------------
JOHN F. GILLESPIE
By: /s/ Thomas H. Johnson
-------------------------
Thomas H. Johnson
Date 3/1/00 President & CEO
Title
-7-
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-2000
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<RECEIVABLES> 193,500,000
<ALLOWANCES> 4,200,000
<INVENTORY> 116,700,000
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<DEPRECIATION> 143,300,000
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0
0
<COMMON> 16,600,000
<OTHER-SE> 492,100,000
<TOTAL-LIABILITY-AND-EQUITY> 1,505,400,000
<SALES> 240,100,000
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<CGS> 191,300,000
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<EXTRAORDINARY> 1,500,000
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