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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________________
COMMISSION FILE NUMBER 1-11024
CLARCOR Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0922490
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 815-962-8867
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, par value $1.00 per share New York Stock Exchange
Preferred Stock Purchase Rights
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
----------------------------------------------------
(Title of Class)
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value (based on the closing price of registrant's Common
Stock on February 11, 1998 as reported on the New York Stock Exchange Composite
Transactions) of the voting stock held by non-affiliates of the registrant as at
February 11, 1998 is $452,317,264.
The number of outstanding shares of Common Stock, as of February 11, 1998 is
16,182,228 shares.
Certain portions of the registrant's 1997 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV. Certain portions of the
registrant's Proxy Statement dated February 18, 1998 for the Annual Meeting of
Shareholders to be held on March 24, 1998 are incorporated by reference in Part
III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business
CLARCOR Inc. ("CLARCOR") was organized in 1904 as an Illinois corporation
and in 1969 was reincorporated in the State of Delaware. As used herein, the
"Company" refers to CLARCOR and its subsidiaries unless the context otherwise
requires.
The Company's fiscal year ends on the Saturday closest to November 30. For
fiscal year 1997, the year ended on November 29, 1997 and for fiscal year 1996,
the year ended on November 30, 1996. In this Form 10-K, all references to fiscal
years are shown to begin on December 1 and end on November 30 for clarity of
presentation.
(i) Certain Significant Developments.
Acquisition of United Air Specialists, Inc. On February 28, 1997, the
Company completed the acquisition of United Air Specialists, Inc. ("UAS")
located in Cincinnati, Ohio. This transaction was structured as a statutory
merger and accounted for as a pooling of interests. As a result of the
acquisition, UAS became a wholly-owned subsidiary of the Company. The Company
issued 1,081,741 shares of its common stock in exchange for all the shares of
UAS stock. Additionally, up to 127,561 shares of CLARCOR stock will be issued
upon the exercise of options previously granted by UAS.
Under the requirements of pooling of interests accounting treatment, the
consolidated financial statements and accompanying notes and all amounts for the
periods presented in this Form 10-K have been restated (except for cash
dividends declared per share, which represent the historical dividends declared
by the Company) to include UAS. A one-time pre-tax charge of $3.0 million ($2.4
million net of tax) was recorded at February 28, 1997, to cover the costs of the
merger including legal and professional fees, non-compete agreements, and costs
to integrate the businesses of the two companies.
UAS is engaged in the design, manufacture and sale of commercial and
industrial air cleaning systems, electrostatic fluid contamination control
equipment and high precision spraying equipment. For the fiscal year ended
November 30, 1996, UAS had net sales of approximately $39.0 million and net
earnings of approximately $1.0 million.
Other. As reported previously, the Company sold its 5% interest in G.U.D.
Holdings Limited ("GUD") and recognized an after-tax gain on the sale of
approximately $1.1 million or $0.07 per share in the first quarter of 1997 and
$1.1 million or $0.07 per share in the fourth quarter of 1996. The Company
continues to market filtration products in Australia through a 50% joint venture
with GUD.
Other business acquisitions in fiscal 1997 included Airklean Engineering
Pte. Ltd. ("Airklean"), a Singapore-based distributor of products sold by the
Company's Airguard Industries, Inc. ("Airguard") subsidiary; Ohio Air Filter, a
distributor in Toledo, Ohio; and The Filtair Company, a distributor in
Arlington, Texas. In addition, through Airklean, a manufacturing facility for
Airguard products is being developed in Johor Bahru, Malaysia. This facility is
expected to be operational in early 1998. None of these transactions had a
significant impact on the results of the Company in 1997 and each was a cash
transaction.
In November 1997, the Company sold the assets of its Tube Division located
in Downers Grove, Illinois. The building in Downers Grove has not been sold, but
it is currently being offered for sale. The divestiture did not have a
significant impact on the results of the Company.
In December 1997, the Company's Board of Directors approved a plan to
purchase up to 1,000,000 shares of CLARCOR common stock. At this time, the
Company has no immediate plans to repurchase any shares, but may do so in the
future to offset shares issued under employee benefit plans and as market
conditions warrant.
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(ii) Summary of Business Operations.
During 1997, the Company conducted business in three principal industry
segments: (1) Engine/ Mobile Filtration, (2) Industrial/Environmental Filtration
and (3) Consumer Packaging.
Engine/Mobile Filtration. Engine/Mobile Filtration includes filters for
oil, air, fuel, coolants and hydraulic fluids for trucks, automobiles,
construction and industrial equipment, locomotives, marine and agricultural
equipment.
Industrial/Environmental Filtration. Industrial/Environmental Filtration
products are used primarily for commercial and industrial applications. The
segment's industrial and environmental products include air and antimicrobial
treated filters and high efficiency electronic air cleaners for commercial
buildings, factories, residential buildings, paint spray booths, gas turbine
systems, medical facilities, motor vehicle cabins, clean rooms, compressors and
dust collector systems.
Consumer Packaging. Consumer Packaging products include a wide variety of
custom styled containers and packaging items used primarily by the food, spice,
drug, toiletries and chemical specialties industries. The segment's products
include lithographed metal containers, flat sheet decorated metal, combination
metal and plastic containers, plastic closures, composite containers and various
specialties, such as spools for wire and cable, dispensers for razor blades and
outer shells for dry cell batteries and film canisters.
(b) Financial Information About Industry Segments
Business segment information for the fiscal years 1995 through 1997 is
included on page 34 of the Company's 1997 Annual Report to Shareholders (the
"Annual Report"), is incorporated herein by reference and is filed as part of
Exhibit 13(a)(vi) to this 1997 Annual Report on Form 10-K ("1997 Form 10-K").
(c) Narrative Description of the Business
ENGINE/MOBILE FILTRATION
The Company's engine/mobile filtration products business is conducted by
the following wholly-owned subsidiaries: Baldwin Filters, Inc.; Clark Filter,
Inc.; Hastings Filters, Inc.; Baldwin Filters N.V.; and Baldwin Filters Limited.
In addition, the Company owns (i) 50% of Baldwin Filters (Aust.) Pty. Ltd., (ii)
90% of Filtros Baldwin de Mexico ("FIBAMEX"), (iii) 70% of Baldwin-Weifang
Filters Ltd., and (iv) 70% of Baldwin-Unifil S.A.
The companies market a full line of oil, air, fuel, coolant and hydraulic
fluid filters. The Company's filters are used in a wide variety of applications
including engines and industrial equipment and in processes where effectiveness,
reliability and durability are essential. Impure air or fluid impinge upon a
paper, cotton, synthetic, chemical or membrane filter media with high absorption
characteristics which collects the impurities that are disposed of when the
filter is changed. The segment's filters are sold throughout the United States,
Canada and worldwide, primarily in the replacement market for trucks,
automobiles, locomotives, marine, construction, industrial and agricultural
equipment. In addition, some first-fit filters are sold to the original
equipment market.
INDUSTRIAL/ENVIRONMENTAL FILTRATION
The Company's industrial/environmental filtration products business is
conducted by the following wholly-owned subsidiaries: Airguard Industries, Inc.;
Airklean Engineering Pte. Ltd.; Airguard Asia Sdn. Bhd.; United Air Specialists,
Inc.; and United Air Specialists (U.K.) Ltd.
The companies market commercial and industrial air filters and systems,
electrostatic fluid contamination control equipment and high precision spraying
equipment. The air filters and systems remove contaminants from recirculated
indoor air and from process air which is exhausted outdoors. The products
represent a complete line of air cleaners with a wide range of uses for
maintaining high
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quality standards in interior air and exterior pollution control. These products
are sold throughout the United States, Canada and worldwide.
CONSUMER PACKAGING
The Company's consumer packaging products business is conducted by the
Consumer Packaging segment which includes the Company's wholly-owned subsidiary,
J. L. Clark, Inc. ("J. L. Clark").
In fiscal 1997 over 1,500 different types and sizes of containers and metal
packaging specialties were manufactured for the Company's customers. Flat sheet
decorating is provided by use of state-of-the-art lithography equipment. Metal,
plastic and paper containers, combination metal/plastic containers and plastic
closures manufactured by the Company are used in packaging a wide variety of dry
and paste form products, such as food specialties (tea, spices, dry bakery
products, potato chips, pretzels, candy and other confections); beverages and
juices; cosmetics and toiletries; drugs and pharmaceuticals; and chemical
specialties (hand cleaners, soaps and special cleaning compounds). Metal
packaging specialties include shells for dry batteries, film canisters,
dispensers for razor blades, spools for insulated and fine wire, and custom
decorated flat steel sheets.
Containers and metal packaging specialties are manufactured only upon
orders received from customers, and individualized containers and packaging
specialties are designed and manufactured, usually with distinctive decoration,
to meet each customer's marketing and packaging requirements and specifications.
DISTRIBUTION
Engine/Mobile Filtration and Industrial/Environmental Filtration products
are sold primarily through a combination of over 3,300 independent distributors
and dealers for original equipment manufacturers.
The engine/mobile segment also distributes filtration products worldwide
through each of its subsidiaries. Baldwin Filters N.V. and Baldwin Filters
Limited primarily serve the European markets. The Company's joint venture with
GUD, Baldwin Filters (Aust.) Pty. Ltd., markets heavy duty liquid and air
filters in Australia and New Zealand. FIBAMEX manufactures filters in Mexico
with distribution in Mexico and Central and South America. Through the Company's
investment in Baldwin-Weifang Filters Ltd., heavy duty filters are being
manufactured in China for distribution in China and Southeast Asia.
Additionally, through Baldwin-Unifil S.A., air filtration products are
manufactured in South Africa with distribution throughout South Africa, Great
Britain, Europe and the Middle East.
The industrial/environmental segment also distributes and services
filtration products through company-owned branches and wholly-owned
subsidiaries. The branches are located throughout the United States and in
Germany, and the segment's subsidiaries are located in Singapore, Malaysia and
England.
Consumer Packaging salespersons call directly on customers and prospective
customers for containers and packaging specialties. Each salesperson is trained
in all aspects of the Company's manufacturing processes with respect to the
products sold and as a result is qualified to consult with customers and
prospective customers concerning the details of their particular requirements.
CLASS OF PRODUCTS
The percentage of the Company's sales volume contributed by each class of
similar products within the Company's Consumer Packaging segment which
contributed 10% or more of sales is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
Containers............................................... 14% 15% 16%
</TABLE>
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No class of products within the Company's Engine/Mobile Filtration segment or
the Industrial/ Environmental Filtration segment accounted for as much as 10% of
the total sales of the Company.
RAW MATERIAL
Steel, filter media, aluminum sheet and coil, stainless steel, chrome
vanadium, chrome silicon, resins, roll paper, bulk and roll plastic materials
and cotton, wood and synthetic fibers and adhesives are the most important raw
materials used in the manufacture of the Company's products. All of these are
purchased or are available from a variety of sources. The Company has no
long-term purchase commitments. The Company did not experience shortages in the
supply of raw materials during 1997.
PATENTS
Certain features of some of the Company's products are covered by domestic
and, in some cases, foreign patents or patent applications. While these patents
are valuable and important for certain products, the Company does not believe
that its competitive position is dependent upon patent protection.
CUSTOMERS
The largest 10 customers of the Engine/Mobile Filtration segment accounted
for 18.3% of the $207,640,000 of fiscal year 1997 sales of such segment.
The largest 10 customers of the Industrial/Environmental Filtration segment
accounted for 18.2% of the $111,491,000 of fiscal year 1997 sales of such
segment.
The largest 10 customers of the Consumer Packaging segment accounted for
50.3% of the $75,133,000 of fiscal year 1997 sales of such segment.
No single customer accounted for 10% or more of the Company's consolidated
1997 sales.
BACKLOG
At November 30, 1997, the Company had a backlog of firm orders for products
amounting to approximately $43,400,000. The comparable backlog figure for 1996
was approximately $38,100,000. All of the orders on hand at November 30, 1997
are expected to be filled during fiscal 1998. The Company's backlog is not
subject to significant seasonal fluctuations.
COMPETITION
The Company encounters strong competition in the sale of all of its
products. The Company competes in a number of filtration products markets
against a variety of competitors. The Company is unable to state its relative
competitive position in all of these markets due to a lack of reliable
industry-wide data. However, in the replacement market for heavy duty liquid and
air filters used in internal combustion engines, the Company believes that it is
among the top five measured by annual sales. In the replacement market for
industrial and environmental filtration products, the Company believes that it
is among the top five measured by annual sales. In addition, the Company
believes that it is a leading manufacturer of liquid and air filters for diesel
locomotives.
In the Consumer Packaging segment, its principal competitors are
approximately 10 manufacturers whose specialty packaging segments are smaller
than the Company's and who often compete on a regional basis only. Strong
competition is also presented by manufacturers of paper, plastic and glass
containers. The Company's competitors generally manufacture and sell a wide
variety of products in addition to packaging products of the type produced by
the Company and do not publish separate sales figures relative to these
competitive products. Consequently, the Company is unable to state its relative
competitive position in those markets.
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The Company believes that it is able to maintain its competitive position
because of the quality and breadth of its products and services.
PRODUCT DEVELOPMENT
The Company's Technical Centers and laboratories test filters, containers,
filter components, paints, inks, varnishes, adhesives and sealing compounds to
insure high quality manufacturing results, aid suppliers in the development of
special finishes and conduct controlled tests of finishes and newly designed
filters, air cleaning systems and containers being perfected for particular
uses. Product development departments are concerned with the improvement of
existing filters, air cleaning systems, consumer products and the creation of
new and individualized filters, containers and consumer products, in order to
broaden the uses of these items, counteract obsolescence and evaluate other
products available in the marketplace.
During the fourth quarter of 1995, the Company added the Gas Turbine
Systems Business Unit for the development of inlet air filtration systems. In
1996, a new technical center was completed in Louisville, Kentucky to develop
new and redesigned environmental and industrial filtration products.
In fiscal 1997, the Company employed 57 professional employees on a
full-time basis on research activities relating to the development of new
products or the improvement or redesign of its existing products. During this
period the Company spent approximately $3,991,000 on such activities as compared
with $3,600,000 for 1996 and $3,255,000 for 1995.
ENVIRONMENTAL FACTORS
The Company is not aware of any facts which would cause it to believe that
it is in material violation of existing applicable standards respecting
emissions to the atmosphere, discharges to waters, or treatment, storage and
disposal of solid or hazardous wastes.
The Company is party to various proceedings relating to environmental
issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible
state agencies have designated the Company as a potentially responsible party
(PRP), along with other companies, in remedial activities for the cleanup of
waste sites under the federal Superfund statute.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of the environmental regulation and the continuing
advancement of remediation technology. Applicable federal law may impose joint
and several liability on each PRP for the cleanup. It is the opinion of
management, after consultation with legal counsel, that additional liabilities,
if any, resulting from these matters are not expected to have a material adverse
effect on the Company's financial condition or consolidated results of
operations.
The Company does anticipate, however, that it may be required to install
additional pollution control equipment to augment existing equipment in the
future in order to meet applicable environmental standards. The Company is
presently unable to predict the timing or the cost of such equipment and cannot
give any assurance that the cost of such equipment may not have an adverse
effect on earnings. However, the Company is not aware, at this time, of any
current or pending requirement to install such equipment at any of its
facilities.
EMPLOYEES
As of November 30, 1997, the Company had approximately 2,872 employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Financial information relating to export sales and the Company's operations
in the United States and other countries is set forth on Page 34 of the Annual
Report and is incorporated herein by reference and filed as Exhibit 13(a)(vi) to
this 1997 Form 10-K. The Company is not aware of any unusual risks attendant to
the conduct of its operations in other countries.
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ITEM 2. PROPERTIES.
(i) Location
The corporate office building located in Rockford, Illinois, houses the
Corporate offices and the Consumer Packaging segment headquarters offices in
22,000 square feet of office space.
Engine/Mobile Filtration. The following is a description of the principal
properties owned and utilized by the Company in conducting its Engine/Mobile
Filtration business:
The Baldwin Filters' Kearney, Nebraska plant contains 410,000 square feet
of manufacturing and warehousing space, 25,000 square feet of research and
development space, and 40,000 square feet of office space. It is located on a
site of approximately 40 acres. In addition, Baldwin has a capital lease for a
100,000 square foot manufacturing facility on a site of 20 acres in Gothenburg,
Nebraska.
The Company also manufactures filters in Lancaster, Pennsylvania at its
Clark Filter plant. The building, constructed about 1968 on an 11.4 acre tract
of land, contains 168,000 square feet of manufacturing and office space and is
owned by the Company.
Hastings Filters' manufacturing and distribution facilities are located in
Yankton, South Dakota and Knoxville, Tennessee. The Yankton facility has
approximately 100,000 square feet of floor space on a 21 acre tract and the
Knoxville facility has approximately 168,000 square feet of floor space on a 22
acre tract. An addition of 70,000 square feet to the Yankton facility was
completed in 1996. Both facilities are owned by the Company.
The Company leases various facilities in other countries for the
manufacture and distribution of filtration products.
Industrial/Environmental Filtration. The following is a description of the
principal properties owned and utilized by the Company in conducting its
Industrial/Environmental Filtration business:
Airguard Industries has four manufacturing and warehousing locations. It
leases 318,000 square feet in New Albany, Indiana, 84,000 square feet in Corona,
California and 44,500 square feet in Dallas, Texas. The Airguard High Efficiency
Filter plant, located in Jeffersontown, Kentucky on a 7.5 acre tract of land,
contains 100,000 square feet of manufacturing and office facilities.
Airguard sales outlets with warehousing are located in Louisville,
Kentucky; Cincinnati, Ohio; Toledo, Ohio; Nashville, Tennessee; Atlanta,
Georgia; Columbus, Ohio; Birmingham, Alabama; Arlington, Texas; Dallas, Texas;
and Corona, California. Airguard also has distribution centers in Wallingford,
Connecticut; New Albany, Indiana; Las Vegas, Nevada and Richmond, Virginia.
United Air Specialists ("UAS") has three owned facilities. The offices and
primary manufacturing facility is located in Blue Ash, Ohio (a suburb of
Cincinnati), on approximately 17 acres of land. This facility was built in 1978
and was expanded in 1991 and 1993 to a total of approximately 157,000 square
feet. UAS also has sales office and manufacturing facilities in Warwick, England
which total approximately 13,200 square feet. UAS leases sales and service
facilities in Wallau, Germany; Phoenix, Arizona; Fremont, California; Fullerton,
California; Louisville, Kentucky; Troy, Michigan; Jackson, Mississippi, and
Houston, Texas.
Consumer Packaging. The following is a description of the principal
properties owned by the Company in conducting its Consumer Packaging business:
The Company's J. L. Clark, Rockford, Illinois plant, located on 34 acres,
consists of one-story manufacturing buildings, the first of which was
constructed in 1910. Since then a number of major additions have been
constructed and an injection molding plant was constructed in 1972.
Approximately 429,000 square feet of floor area are devoted to manufacturing,
warehouse and office use. Of the 34 acres, approximately 12 are vacant. A 25,000
square foot addition to the injection molding facility was completed in January
1996.
A J. L. Clark plant is located in Lancaster, Pennsylvania on approximately
11 acres. It consists of a two-story office building containing approximately
7,500 square feet of floor space and a
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manufacturing plant and warehouse containing 236,000 square feet of floor space,
most of which is on one level. These buildings were constructed between 1924 and
1964.
J. L. Clark is marketing for sale the Tube Division's manufacturing plant
located in Downers Grove, Illinois which is on a 5-acre tract of land. The
one-story building contains 58,000 square feet of floor space.
The various properties owned by the Company are considered by it to be in
good repair and well maintained. All of the manufacturing facilities are
adequate for the current sales volume of the Company's products and can
accommodate expansion of production levels before significant plant additions
are required. However, in 1998 the Company expects to begin an expansion to its
Kearney, Nebraska facility.
(ii) Function
Engine/Mobile Filtration. Oil, air, fuel, hydraulic fluid and coolant
filters are produced at the Baldwin and Hastings facilities in Kearney, and
Gothenburg, Nebraska and Yankton, South Dakota. Much of the Baldwin plant
equipment has been built or modified by Baldwin. The various processes of
pleating paper, winding cotton and synthetic fibers, placing the filter element
in a metal or fiber container and painting the containers are mechanized, but
require manual assistance. The plants also maintain an inventory of special dies
and molds for filter manufacture.
Oil, air and fuel filters, primarily for use in the railroad industry, are
produced at Clark Filter in Lancaster, Pennsylvania.
Industrial/Environmental Filtration. Air filters for the industrial air
and environmental markets are produced in the Airguard facilities. Dust
collection systems, high efficiency electronic air cleaning systems and
precision spraying systems are designed and manufactured at the UAS facility in
Cincinnati, Ohio.
Consumer Packaging. The Company's metal and combination metal and plastic
packaging products are produced at J. L. Clark plants located in Rockford,
Illinois, and Lancaster, Pennsylvania. The Rockford and Lancaster plants are
completely integrated facilities which include creative and mechanical art
departments and photographic facilities for color separation, preparation of
multiple-design negatives and lithographing plates. Metal sheets are decorated
on high speed coating machines and lithographing presses connected with conveyor
ovens. Decorated sheets are then cut to working sizes on shearing equipment,
following which fabrication is completed by punch presses, can-forming and
can-closing equipment and other specialized machinery for supplementary
operations. Most tooling for fabricating equipment is designed and engineered by
the Company's engineering staffs, and much of it is produced in the Company's
tool rooms.
Plastic packaging capabilities include printing and molding of irregular
shaped plastic containers and customized plastic closures. J. L. Clark has the
capability to mold and offset lithograph a one-piece irregular shaped semi-rigid
plastic container with a living hinge cover. A growing area of specialty is
custom-designed plastic closures for products which have tamper-evidence as well
as convenience features. J. L. Clark's distinctive plastic closures include the
combiTop(R) and the SST Series(TM) products.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in legal actions arising in the normal course of
business. After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that their outcome will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
AGE AT YEAR ELECTED
NAME 11/30/97 TO OFFICE
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<S> <C> <C>
Lawrence E. Gloyd........................................... 65 1995
Chairman of the Board and Chief Executive Officer. Mr.
Gloyd was elected President and Chief Operating Officer in
1986, President and Chief Executive Officer in 1988,
Chairman, President and Chief Executive Officer in 1991, and
Chairman of the Board and Chief Executive Officer in 1995.
Norman E. Johnson........................................... 49 1995
President and Chief Operating Officer. Mr. Johnson has
been employed by the Company since 1990. He was elected
President-Baldwin Filters, Inc. in 1990, Vice
President-CLARCOR in 1992, Group Vice President-Filtration
Products Group in 1993, and President and Chief Operating
Officer in 1995.
Bruce A. Klein.............................................. 50 1995
Vice President-Finance and Chief Financial Officer. Mr.
Klein was employed by the Company and elected Vice
President-Finance and Chief Financial Officer on January 3,
1995.
David J. Anderson........................................... 59 1994
Vice President-International/Corporate Development. Mr.
Anderson has been employed by the Company since 1990. He was
elected Vice President Marketing & Business Development for
the CLARCOR Filtration Products subsidiary in 1991, Vice
President-Corporate Development in 1993 and Vice
President-International/Corporate Development in 1994.
David J. Lindsay............................................ 42 1995
Vice President-Administration and Chief Administrative
Officer. Mr. Lindsay has been employed by the Company in
various administrative positions since 1987. He was elected
Vice President-Group Services in 1991, Vice
President-Administration in 1994 and Vice President-
Administration and Chief Administrative Officer in 1995.
William F. Knese............................................ 49 1997
Vice President, Treasurer. Mr. Knese has been employed by
the Company since 1979. He was elected Vice President,
Treasurer and Controller in 1991 and Vice President,
Treasurer in 1997.
Peter F. Nangle............................................. 36 1997
Vice President-Information Services and Operations
Analysis, Chief Information Officer. Mr. Nangle has been
employed by the Company since 1993. He was elected Vice
President-Information Services in 1994 and Vice
President-Information Services and Operations Analysis,
Chief Information Officer in 1997.
Marcia S. Blaylock.......................................... 41 1997
Vice President, Controller and Corporate Secretary. Ms.
Blaylock has been an employee of the Company since 1974. She
was elected Assistant Secretary in 1994, Corporate Secretary
in 1995, Vice President and Corporate Secretary in 1996 and
Vice President, Controller and Corporate Secretary in 1997.
</TABLE>
Each executive officer of the Company is elected for a term of one year
which begins at the Board of Directors Meeting at which he or she is elected,
held following the Annual Meeting of Shareholders, and ends on the date of the
next Annual Meeting of Shareholders or upon the due election and qualification
of his or her successor.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange; it is
traded under the symbol CLC. The following table sets forth the high and low
market prices as quoted during the relevant periods on the New York Stock
Exchange and dividends paid for each quarter of the last two fiscal years.
<TABLE>
<CAPTION>
MARKET PRICE
----------------
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ---- --- ---------
<S> <C> <C> <C>
March 1, 1997............................................... $25 1/2 $21 1/2 $.1625
May 31, 1997................................................ 24 7/8 20 .1625
August 30, 1997............................................. 27 5/16 23 1/2 .1625
November 29, 1997........................................... 31 3/16 26 1/16 .1650
------
Total Dividends............................................. $.6525
======
</TABLE>
<TABLE>
<CAPTION>
MARKET PRICE
----------------
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ---- --- ---------
<S> <C> <C> <C>
March 2, 1996............................................... $22 3/4 $19 $.1600
June 1, 1996................................................ 22 1/4 18 5/8 .1600
August 31, 1996............................................. 25 1/8 19 .1600
November 30, 1996........................................... 22 5/8 20 3/8 .1625
------
Total Dividends............................................. $.6425
======
</TABLE>
The approximate number of holders of record of the Company's Common Stock
at February 1, 1998 is 1,800. In addition, the Company believes that there are
approximately 6,000 beneficial owners whose shares are held in street names.
ITEM 6. SELECTED FINANCIAL DATA.
The information required hereunder is set forth on pages 36 and 37 of the
Annual Report under the caption "11-Year Financial Summary," is incorporated
herein by reference and is filed as Exhibit 13a(ix) to this 1997 Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information required hereunder is set forth on pages 17 through 20 of
the Annual Report under the caption "Financial Review," is incorporated herein
by reference and is filed as Exhibit 13a(x) to this 1997 Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, the Notes thereto and the report
thereon of Coopers & Lybrand L.L.P., independent accountants, required hereunder
with respect to the Company and its consolidated subsidiaries are set forth on
pages 21 through 35, inclusive, of the Annual Report, are incorporated herein by
reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to this 1997
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information required hereunder is set forth on pages 1 and 2 of the
Company's Proxy Statement dated February 18, 1998 (the "Proxy Statement") for
the Annual Meeting of Shareholders to be held on March 24, 1998 under the
caption "Election of Directors -- Nominees for Election to the Board" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required hereunder is set forth on pages 6 through 15
inclusive, of the Proxy Statement under the caption "Compensation of Executive
Officers and Other Information" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required hereunder is set forth on pages 4 and 5 of the
Proxy Statement under the caption "Beneficial Ownership of the Company's Common
Stock" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements
The following financial information is incorporated herein by reference to
the Company's Annual Report to Shareholders for the fiscal year ended November
30, 1997:
*Consolidated Balance Sheets at November 30, 1997 and 1996
*Consolidated Statements of Earnings for the years ended November 30, 1997,
1996 and 1995
*Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1997, 1996 and 1995
*Consolidated Statements of Cash Flows for the years ended November 30,
1997, 1996 and 1995
*Notes to Consolidated Financial Statements
*Report of Independent Accountants
*Management's Report on Responsibility for Financial Reporting
- ------------------------------
*Filed herewith as part of Exhibit 13(a) to this 1997 Form 10-K
The following items are set forth herein on the pages indicated:
Report of Independent Accountants.......................................... F-1
Financial Statement Schedules:
II. Valuation and Qualifying Accounts................................. F-2
Financial statements and schedules other than those listed above are
omitted for the reason that they are not applicable, are not required, or the
information is included in the financial statements or the footnotes therein.
(b) There were no Reports on Form 8-K filed during the fourth quarter of
the fiscal year ended November 30, 1997.
11
<PAGE> 12
(c) Exhibits
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of September 23, 1996,
among CLARCOR Inc., CUAC Inc. and United Air Specialists,
Inc. Incorporated by reference to Exhibit 2.1 to the
Company's registration statement on Form S-4 (registration
no. 333-19735) filed on January 14, 1997 (the "Registration
Statement").
3.1 The registrant's Restated Certificate of Incorporation.
Incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
November 30, 1983.
3.1(a) Amendment to ARTICLE NINTH of Restated Certificate of
Incorporation. Incorporated by reference to Exhibit 3.1(a)
to the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1988 (the "1988 10-K").
3.1(b) Amendment changing name of Registrant to CLARCOR Inc.
Incorporated by reference to Exhibit 3.1(b) to the 1988
10-K.
3.1(c) Amendment to ARTICLE FOURTH of the Restated Certificate of
Incorporation. Incorporated by reference to Exhibit 3.1(c)
to the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1990.
3.2 The registrant's By-laws, as amended. Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995.
3.3 Certificate of Designation of Series B Junior Participating
Preferred Stock of CLARCOR as filed with the Secretary of
State of the State of Delaware on April 2, 1996.
Incorporated by reference to Exhibit 4.5 to the Registration
Statement.
4.1 Stockholder Rights Agreement dated as of March 28, 1996
between the registrant and the First Chicago Trust Company
of New York. Incorporated by reference to Exhibit 4 to the
Company's Current Report on Form 8-K filed April 3, 1996.
4.2 The instruments defining the rights of holders of long-term
debt securities of CLARCOR and its subsidiaries are omitted
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
CLARCOR hereby agrees to furnish copies of these instruments
to the SEC upon request.
10.1* The registrant's Deferred Compensation Plan for Directors.
10.2* The registrant's Supplemental Retirement Plan.
10.2(a) The registrant's 1994 Executive Retirement Plan.
Incorporated by reference to Exhibit 10.2(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 3, 1994 ("1994 10-K").
10.2(b) The registrant's 1994 Supplemental Pension Plan.
Incorporated by reference to Exhibit 10.2(b) to the 1994
10-K.
10.2(c) The registrant's Supplemental Retirement Plan (as amended
and restated effective December 1, 1994). Incorporated by
reference to Exhibit 10.2(c) to the 1994 10-K.
10.3 The registrant's 1984 Stock Option Plan. Incorporated by
reference to Exhibit A to the Company's Proxy Statement
dated March 2, 1984 for the Annual Meeting of Shareholders
held on March 31, 1984.
10.4 Employment Agreements with certain officers. Incorporated by
reference to Exhibit 5 to the Company's Current Report on
Form 8-K filed July 25, 1989.
10.4(a) Form of Employment Agreement with each of David J. Anderson,
Marcia S. Blaylock, Bruce A. Klein and Peter F. Nangle.
Incorporated by reference to Exhibit 10.4(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1996.
10.4(b) Employment Agreement with Lawrence E. Gloyd dated July 1,
1997.
10.4(c) Employment Agreement with Norman E. Johnson dated July 1,
1997.
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
10.4(d) Trust Agreement dated December 1, 1997.
10.4(e) Executive Benefit Trust Agreement dated December 22, 1997.
10.5 The registrant's 1994 Incentive Plan. Incorporated by
reference to Exhibit A to the Company's Proxy Statement
dated February 24, 1994 for the Annual Meeting of
Shareholders held on March 31, 1994.
10.5(a) The registrant's First Amendment to the 1994 Incentive Plan.
Incorporated by reference to Exhibit A to the Company's
Proxy Statement dated February 18, 1998 for the Annual
Meeting of Shareholders to be held on March 24, 1998.
11 Computation of Per Share Earnings.
13 (a) The following items incorporated by reference herein from
the Company's 1997 Annual Report to Shareholders ("1997
Annual Report"), are filed as Exhibits to this Annual Report
Form 10-K:
(i) Business segment information for the fiscal years 1995
through 1997 set forth on page 34 of the 1997 Annual
Report (included in Exhibit 13(a)(vi) -- Note O of
Notes to Consolidated Financial Statements);
(ii) Consolidated Balance Sheets of the Company and its
Subsidiaries at November 30, 1997 and 1996 set forth on
page 21 of the 1997 Annual Report;
(iii) Consolidated Statements of Earnings of the Company and
its Subsidiaries for the years ended November 30, 1997,
1996 and 1995 set forth on page 22 of the 1997 Annual
Report;
(iv) Consolidated Statements of Shareholders' Equity for the
Company and its Subsidiaries for the years ended
November 30, 1997, 1996 and 1995 set forth on page 23
of the 1997 Annual Report;
(v) Consolidated Statements of Cash Flows of the Company
and its Subsidiaries for the years ended November 30,
1997, 1996 and 1995 set forth on page 24 of the 1997
Annual Report;
(vi) Notes to Consolidated Financial Statements set forth on
pages 25 through 34 of the 1997 Annual Report;
(vii) Report of Independent Accountants set forth on page 35
of the 1997 Annual Report;
(viii) Management's Report on Responsibility for Financial
Reporting set forth on page 35 of the 1997 Annual
Report;
(ix) Information under the caption "11-Year Financial
Summary" set forth on pages 36 and 37 of the 1997
Annual Report; and
(x) Management's Discussion and Analysis of Financial
Condition and Results of Operation set forth under the
caption "Financial Review" on pages 17 through 20 of
the 1997 Annual Report.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
- ------------------------------
* Incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1984, in which each Exhibit had the same number
as herein.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 18, 1998 CLARCOR Inc.
(Registrant)
By: /s/ LAWRENCE E. GLOYD
--------------------------------------
Lawrence E. Gloyd
Chairman of the Board
& Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: February 18, 1998 By: /s/ LAWRENCE E. GLOYD
------------------------------------------------
Lawrence E. Gloyd
Chairman of the Board &
Chief Executive Officer and Director
Date: February 18, 1998 By: /s/ BRUCE A. KLEIN
------------------------------------------------
Bruce A. Klein
Vice President -- Finance &
Chief Financial Officer
Date: February 18, 1998 By /s/ MARCIA S. BLAYLOCK
------------------------------------------------
Marcia S. Blaylock
Vice President, Controller, Corporate Secretary
& Chief Accounting Officer
Date: February 18, 1998 By /s/ J. MARC ADAM
------------------------------------------------
J. Marc Adam
Director
Date: February 18, 1998 By /s/ MILTON R. BROWN
------------------------------------------------
Milton R. Brown
Director
Date: February 18, 1998 By /s/ CARL J. DARGENE
------------------------------------------------
Carl J. Dargene
Director
Date: February 18, 1998 By /s/ DUDLEY J. GODFREY, JR.
------------------------------------------------
Dudley J. Godfrey, Jr.
Director
14
<PAGE> 15
Date: February 18, 1998 By /s/ NORMAN E. JOHNSON
------------------------------------------------
Norman E. Johnson
Director
Date: February 18, 1998 By /s/ STANTON K. SMITH, JR.
------------------------------------------------
Stanton K. Smith, Jr.
Director
Date: February 18, 1998 By /s/ DON A. WOLF
------------------------------------------------
Don A. Wolf
Director
15
<PAGE> 16
[This page intentionally left blank]
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
CLARCOR Inc.
Rockford, Illinois
Our report on the consolidated financial statements of CLARCOR Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from page 35
of the 1997 Annual Report to Shareholders of CLARCOR Inc. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed on page 11 (index of exhibits) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
January 9, 1998
F-1
<PAGE> 18
CLARCOR INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------- ---------- ----------------------- ---------- ----------
ADDITIONS
-----------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997:
Allowance for losses on accounts
receivable......................... $2,007 $696 $ 58(A) $655(B) $2,106
====== ==== ==== ==== ======
1996 (Restated)(C):
Allowance for losses on accounts
receivable......................... $1,846 $568 $ -- $407(B) $2,007
====== ==== ==== ==== ======
1995 (Restated)(C):
Allowance for losses on accounts
receivable......................... $1,722 $635 $ -- $511(B) $1,846
====== ==== ==== ==== ======
</TABLE>
NOTES:
(A) Due to acquisition addition in 1997.
(B) Bad debts written off during year, net of recoveries.
(C) Prior period amounts have been restated to reflect the results of United Air
Specialists, Inc. under the requirements of pooling of interests accounting.
F-2
<PAGE> 1
EXHIBIT 10.4(b)
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED AGREEMENT by and between CLARCOR Inc., a Delaware
corporation (the "Corporation") and LAWRENCE E. GLOYD(the "Executive") dated as
of July 1, 1997.
WHEREAS, Executive currently serves as Chairman of the Board of Directors
and Chief Executive Officer of the Corporation; and
WHEREAS, the Corporation desires to enter into this Agreement to assure
the benefits of Executive's future services to the Corporation, and Executive
is willing to postpone his retirement from the Corporation and to commit to
render such services, upon the terms and conditions set forth below.
It is therefore mutually agreed as follows:
1. Employment. The Corporation agrees to employ Executive as Chairman of
the Board of Directors and Chief Executive Officer and Executive agrees to
serve the Corporation in such capacities, upon the terms and conditions and for
the period of employment hereinafter set forth. Throughout the Employment
Period (as defined below), subject to the supervision of the Board of Directors
(the "Board"), Executive shall exercise such authority and perform such duties
as are commensurate with the authority being exercised and the duties being
performed by Executive immediately preceding the effective date of this
Agreement; provided, however, that Executive shall be responsible primarily for
strategic planning, mergers and acquisitions and the development and
implementation of a plan of executive succession within the Corporation which
shall include transferring the responsibilities of Chief Executive Officer to
Norman Johnson upon termination of the Employment Period. Executive shall
provide such services at the headquarters of the Corporation in Rockford,
Illinois, except as otherwise expressly provided herein. Throughout the
Employment Period, unless otherwise agreed in writing by Executive and the
Corporation, the Corporation shall neither demote Executive nor assign to
Executive any duties or responsibilities that are inconsistent with his
position, duties, responsibilities and status as Chairman of the Board and
Chief Executive Officer.
During the Employment Period, and excluding any periods of vacation and sick
leave to which Executive is entitled, Executive agrees to devote reasonable
attention and time during normal business hours to the business and affairs of
the Corporation and, to the extent necessary to discharge the responsibilities
assigned to Executive hereunder, to use Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for Executive to (i) serve
on corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (iii)
manage personal investments, so long as such activities do not significantly
interfere with the performance of Executive's responsibilities as an employee
of the Corporation in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by Executive prior to the effective date of this Agreement, the
continued conduct of such activities (or conduct of activities similar in
nature and scope thereto) subsequent to the effective date of this Agreement
shall not thereafter be deemed to interfere with the performance of Executive's
responsibilities to the Corporation.
Page 1
<PAGE> 2
EMPLOYMENT AGREEMENT
2. Employment Period. The term of Executive's employment under this
Agreement shall commence as of the date hereof, and shall expire, subject to
earlier termination of employment as hereinafter provided, upon the occurrence
of the annual meeting of the Board held in March, 2000 (the "Employment
Period".)
3. Compensation. Compensation Plans. Benefits and Perquisites. During the
Employment Period, Executive shall be compensated as follows:
(a) He shall receive an annual salary at a monthly rate at least equal
to the highest salary rate he has attained immediately preceding the
effective date of this Agreement on an annualized basis, with the
opportunity for increases, from time to time thereafter, which are in
accordance with the Corporation's regular practices. The term "salary" as
utilized in this Agreement shall refer to such annual salary as increased.
Notwithstanding the foregoing, the Compensation and Stock Option Committee
of the Board of Directors (the "Committee") shall review Executive's
salary on an annual basis and make any adjustments in Executive's salary
that it deems appropriate.
(b) He shall be eligible to participate on a reasonable basis in the
Corporation's 1994 Incentive Plan, Key Management Incentive Plan, Long
Range Performance Share Plan and other bonus and incentive compensation
plans (whether now or hereinafter in effect.) Except as provided below,
Executive's participation in the 1994 Incentive Plan, the Key Management
Incentive Plan and the Long Range Performance Share Plan shall be on the
same basis and terms as in effect immediately preceding the effective date
of this Agreement and Executive's participation in any hereinafter
established plans shall be on the same basis and terms as other executive
officers of the Corporation. No additional compensation provided under any
of such plans shall be deemed to modify or otherwise affect the terms of
this Agreement or any of Executive's entitlements hereunder.
(c) Throughout the Employment Period, pursuant to the terms of the 1994
Incentive Plan and the Key Management Incentive Plan, Executive shall
receive the following awards and incentives:
(i) If the Corporation's budgeted target for sales and net earnings
shall have been met for the fiscal year ended in 1997, Executive shall
receive a stock option grant of 120,000 shares of the Corporation's
common stock at the meeting of the Committee to be held in December of
1997, and no additional option grants shall be made during the
remainder of the Employment Period (except as may be provided under
Section 3(g) hereof). The options shall contain the provisions commonly
contained in executive options awarded by the Corporation, including an
exercise price equal to the fair market value of the Corporation's
common stock on the date of grant, ratable vesting over a six-year
period, and full vesting in the event of a Change of Control (as
defined in Section 10). Notwithstanding the foregoing, the options
shall become fully vested and exercisable on
Page 2
<PAGE> 3
EMPLOYMENT AGREEMENT
the last day of the Employment Period and shall remain exercisable for
a period of three years thereafter.
(ii) Executive's entry, target and maximum annual incentive under
the Key Management Incentive Plan shall be as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending in Entry Target Maximum
<S> <C> <C> <C>
1998 25 52.5 80
1999 30 60 90
</TABLE>
(d) He shall be entitled to participate in all employee benefit plans,
practices and programs maintained by the Corporation and made available
to employees generally, including, without limitation, all pension,
retirement, savings, medical, hospitalization, disability, dental, life,
or travel accident insurance benefit plans (collectively the "Benefit
Plans"). Executive's participation in such Benefit Plans shall be on the
same basis and terms as are applicable to employees of the Corporation
generally. Such Benefit Plans shall include, but shall not be limited to,
the following:
CLARCOR Inc. Pension Plan
Retirement Savings Plan and Trust (401 (k) Plan)
Monthly Investment Plan
Dental Plan
Health Care Plan
Life Insurance Plan/Supplemental Life Insurance Plan
(e) Executive shall be entitled to paid vacations in accordance with
the Corporation's vacation policy as in effect from time to time, and to
all paid holidays given by the Corporation to its executive officers.
Executive shall be credited with two additional weeks of paid vacation for
the Corporation's fiscal year ending in 1998 and four additional weeks of
paid vacation for the Corporation's fiscal year ending in 1999. Executive
agrees to use all of his accrued vacation days in the year with respect to
which such vacation days have accrued throughout the Employment Period.
(f) Executive shall be entitled to all fringe benefits and perquisites
made available by the Corporation to its executive officers, including but
not limited to, participation in the Automobile Plan and, subject to the
provisions of Section 4 hereof, the Supplemental Retirement Plan.
(g) In addition to the amounts of compensation provided elsewhere in
this Agreement, if during the Employment Period the Corporation shall
achieve both (i) quarterly revenues of at least $150,000,000 and (ii) net
profits after tax equal to 6.5% of sales (both as reported on any of the
Corporation's regular quarterly earnings statements prepared in accordance
with Generally Accepted Accounting Principles consistently applied), the
Committee shall perform a special review of Executive's compensation and
Page 3
<PAGE> 4
EMPLOYMENT AGREEMENT
shall pay to Executive a lump sum in such amount, if any, as it may
determine in good faith to be equitable. Further, in such circumstances
the Committee may, if it so determines, award to Executive one additional
grant of options under the 1994 Incentive Plan in such amount, if any, as
it may determine in good faith to be equitable. Any payment or grants of
options under this Section 3(g) may be made at any time within the
Employment Period.
4. Supplemental Retirement Plan. Executive is an active participant in the
Corporation's Supplemental Retirement Plan on the effective date of this
Agreement. The Corporation shall direct its actuarial advisory firm to compute
the lump sum present value of the benefit that would be payable to Executive
under the Supplemental Retirement Plan if he had retired on his Normal
Retirement Date, December 1, 1997, and elected to receive the lump sum present
value of his benefit as of such date, computed in accordance with the terms of
such plan (the "Lump Sum"). In the event any factor or element in the
computation of the Lump Sum cannot be definitively computed on that date, the
actuary shall use its best professional judgment to assume and estimate such
unknown factor or assumption. The Lump Sum shall be deposited by the
Corporation into an escrow account which shall be maintained by the Corporation
in a bank or other financial institution of the Corporation's choosing and
shall be credited with interest at the prime rate of the Corporation's primary
lending institution, as in effect at the beginning of each calendar year. The
amount in such escrow account shall be subject at all times to the claims of
the Corporation's creditors.
The balance in the escrow account shall be paid to Executive upon the earliest
of (i) his retirement at the expiration of the Employment Period, (ii) his
Disability prior to retirement, (iii) his death prior to retirement, (iv)
resignation of Executive for Good Reason (as defined in Section 6), or (v)
Executive's termination of employment during the Employment Period by the
Corporation with or without Cause or pursuant to a Change of Control. Not later
than 12 months prior to the expiration of the Employment Period, Executive may
file with the Corporation an irrevocable written election to receive the escrow
account in substantially equal monthly or quarterly installments over a
selected period, not to exceed ten years, with interest (at a rate to be
determined at such time) on the unpaid balance. In the event of the Executive's
Disability or termination as provided in (iv) or (v) above, the escrow account
shall be paid to Executive in a lump sum.
In the event of Executive's death prior to retirement, the escrow account shall
be paid in a lump sum to Executive's surviving spouse. If Executive dies before
full payment of the escrow account has been made, the unpaid amount shall be
paid in a lump sum (or installments shall be continued, as the case may be) to
Executive's surviving spouse.
Any payment due under this Section 4 shall be made or shall commence within 30
days after the occurrence of the applicable payment event specified herein.
Page 4
<PAGE> 5
EMPLOYMENT AGREEMENT
5. Post-retirement Relationship
(a) After the end of the Employment Period, Executive shall continue to
serve his term as a director of the Corporation. Executive's retirement
from the Corporation shall not affect his eligibility to be re-elected as
a director, subject to applicable maximum age limitations generally
applicable to Board members.
(b) The Corporation shall provide Executive with secretarial services
for work performed on behalf of the Corporation, his community efforts or
personal needs. If Executive's spouse accompanies him on travel for
matters related to the business of the Corporation, the Corporation shall
pay the costs of such travel.
(c) The Corporation shall pay the cost of financial planning, estate
planning and retirement planning services provided to Executive for two
years following Executive's retirement from the Corporation, provided that
the cost of such services shall not materially exceed the cost of similar
services as performed in prior years.
(d) Upon his retirement from the Corporation, the Corporation shall
present to Executive as a gift, the automobile being used by Executive at
such time pursuant to the Automobile Plan.
6. Termination. Executive's employment with the Corporation as Chief
Executive Officer and Chairman of the Board may be terminated by the
Corporation or Executive only under the circumstances described in this Section
6:
(a) Executive's employment hereunder terminates as of the end of the
Employment Period.
(b) Executive's employment hereunder will terminate upon his death.
(c) If Executive is Disabled, the Corporation may terminate Executive's
employment with the Corporation. For purposes of the Agreement, Executive
shall be deemed to have a "Disability" (and to be "Disabled") if he has
been determined by the Incumbent Board (as defined in Section 10), based
on competent medical evidence, to have a physical or mental disability
that renders him incapable, after reasonable accommodation by the
Corporation, of performing his duties under this Agreement.
(d) The Corporation may terminate Executive's employment hereunder at
any time for Cause. For purposes of this Agreement, the term "Cause" shall
mean fraud, misappropriation or intentional material damage to the
property or business of the Corporation, or commission of a felony.
(e) Executive may resign at any time for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean an adverse change in the nature
or scope of Executive's authority, duties or responsibilities from those
referred to in Section 1, a
Page 5
<PAGE> 6
EMPLOYMENT AGREEMENT
change in location that is more than 50 miles from that referred to in
Section 1, a reduction in total compensation, compensation plans, benefits
or perquisites from those provided in Section 3, or the breach by the
Corporation of any other provision of this Agreement, or a determination
by Executive that as a result of a Change of Control (as defined in
Section 10) and a change in circumstances thereafter significantly
affecting his position, he is unable to exercise the authorities, powers,
function or duties attached to his position and contemplated by Section 1
of the Agreement. For purposes of this Section 6, a reasonable
determination made by Executive in good-faith shall be conclusive.
7. Termination Payments. In the event of a termination of Executive's
employment with the Corporation and subject to the provisions of Section 6 of
this Agreement, the Corporation shall pay to Executive and provide him with the
following:
(a) If Executive's termination occurs due to death or Disability,
Executive (or his estate or beneficiaries, if applicable) shall be
entitled to any unpaid salary for days worked prior to his date of
termination and payment for unused vacation days (determined in accordance
with the policies of the Corporation as in effect at that time for
Corporate officers) earned prior to the date of termination, and to all
other benefits available to Executive or his estate and beneficiaries
under the Corporation's Benefit Plans as in effect on the date of such
termination of employment.
(b) If Executive's employment is terminated by the Corporation without
Cause or if Executive resigns for Good Reason, Executive shall be entitled
to the following:
(i) The Corporation shall pay to Executive the lump sum present
value of the salary, at the rate required by Section 3(a) as in effect
immediately prior to the date of such termination of employment, to
which he would have been entitled had he remained in the employ of the
Corporation for the remainder of the Employment Period. The Corporation
shall also pay to Executive the average amount of any incentive
compensation and bonuses earned by Executive in the three years
preceding Executive's termination of employment with the Corporation,
and the benefit provided to Executive under Section 4. Further,
Executive shall become fully vested in any stock options in which
Executive had not yet become vested.
(ii) During the remainder of the Employment Period, Executive shall
continue to be treated as an employee under the provisions of the
Corporation's plans referred to in Section 3(b). In addition, Executive
shall continue to be entitled to all benefits and service credits for
benefits, programs and arrangements of the Corporation described in
Sections 3(d) and (f) as if he were still employed during such period
under this Agreement.
(iii) If, despite the provisions of subparagraph (ii) above,
benefits or service credits or the right to accrue further benefits or
service credits under any plan referred to in Section 3(b) or (d) shall
not be payable or provided under such
Page 6
<PAGE> 7
EMPLOYMENT AGREEMENT
plan to Executive, or his dependents, beneficiaries and estate because
he is no longer an employee of the Corporation, the Corporation itself
shall, to the extent necessary, pay or provide for payment of such
benefits and service credits for such benefits to Executive, his
dependents, beneficiaries and estate.
The amount of payments provided for in this Section 7(b) shall be determined by
the Accounting Firm (as defined in Section 12) and such payments shall be made
within 30 days after Executive's termination of employment with the
Corporation.
8. Non-Competition and Confidentiality. Executive agrees that:
(a) There shall be no obligation on the part of the Corporation to
provide any further payments or benefits (other than benefits or payments
already earned, accrued or paid) described in Section 7 or Section 11 if,
during the Employment Period, Executive shall be employed by (or become an
owner, director or officer of, or a consultant to) any business which
directly competes with any business of the Corporation or of any of its
subsidiaries at such time; provided, however, that Executive shall not be
deemed to have breached this undertaking if (i) his sole relationship with
such entity consists of his holding, directly or indirectly, an equity
interest in such entity not greater than five percent of such entity's
outstanding equity interest, and (ii) such employment or activity is not
likely to cause serious damage to the Corporation or any of its
subsidiaries at such time; and
(b) During and after the Employment Period, he shall retain in
confidence any confidential information known to him concerning the
Corporation and its subsidiaries and their respective businesses so long
as such information is not publicly disclosed. Notwithstanding the
foregoing, a breach by Executive of this Section 8(b) shall not be used to
set-off or delay amounts payable under this Agreement.
9. No Obligation to Mitigate Damages. Executive shall not be obligated to
seek other employment in mitigating of amounts payable or arrangements made
under the provisions of this Agreement and the obtaining of such other
employment shall in no event effect any reduction of the Corporation's
obligations under this Agreement.
10. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition (other than from the Corporation) by any person,
entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 15% or more of either the then outstanding shares of
common stock or the combined voting power of the Corporation's then
outstanding voting securities entitled to vote generally in the election
of directors; provided, however, no Change of Control shall be deemed to
have occurred for any acquisition by any corporation with respect to
which, following such acquisition, more
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<PAGE> 8
EMPLOYMENT AGREEMENT
than 60% of the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals or entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock or
the combined voting power of the Corporation's then outstanding voting
securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of
the Corporation's then outstanding common stock and then outstanding
voting securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office
is in connection with an actual or threatened election contest relating
to the election of the Directors of the Corporation, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; or
(c) Approval by the stockholders of the Corporation of a reorganization,
merger or consolidation, in each case, with respect to which persons who
were the stockholders of the Corporation immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own more than 60% of the combined voting power entitled to vote generally
in the election of directors of the reorganized, merged or consolidated
corporation's then outstanding voting securities, or a liquidation or
dissolution of the Corporation or of the sale of all or substantially all
of the assets of the Corporation.
11. Termination of Executive Following a Change of Control. In the event
the Corporation terminates Executive's employment with the Corporation during
the Employment Period pursuant to or following a Change of Control, Executive
shall be entitled to the salary, compensation and benefits provided to him
under Section 4 and Section 7(b)(i),(ii) and (iii).
12. Certain Additional Payments by the Corporation. The Corporation agrees
that:
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Corporation to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 12) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, and hereinafter collectively referred to
as the "Excise Tax"), then Executive shall be entitled to receive an
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<PAGE> 9
EMPLOYMENT AGREEMENT
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Executive of all taxes (including, without limitation, any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
(b)Subject to the provisions of Section 12(c), all determinations
required to be made under this Section 12, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Coopers & Lybrand L.L.P. (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Corporation and
Executive within 15 business days of the receipt of notice from Executive
that there has been a Payment, or such earlier time as is requested by the
Corporation. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the
Change of Control, Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Corporation. Any Gross-Up Payment, as determined pursuant to
this Section 12, shall be paid by the Corporation to Executive within five
days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by Executive, it
shall furnish Executive with a written opinion that failure to report the
Excise Tax on Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Corporation
and Executive. As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment
(or a portion thereof) will be paid which should not have been paid (an
"Overpayment") or a Gross-Up payment (or a portion thereof) which should
have been paid by the Corporation will not have been paid (an
"Underpayment").
(c) An Underpayment shall be deemed to occur upon a claim by the
Internal Revenue Service that the tax liability of Executive (whether in
respect of the then current taxable year of Executive or in respect of any
prior taxable year of Executive) may be increased by reason of the
imposition of the Excise Tax on a Payment or Payments with respect to
which the Corporation has failed to make a sufficient Gross-Up Payment. In
the event that the Corporation exhausts its remedies pursuant to this
Section 12(c) and Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Corporation to or for the benefit of Executive. Executive
shall notify the Corporation in writing of any claim by the Internal
Revenue Service. Such notification shall be given as soon as practicable
but no later than ten business days after Executive is informed in writing
of such claim and shall apprise the Corporation of the nature of such
claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day period
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<PAGE> 10
EMPLOYMENT AGREEMENT
following the date on which he gives such notice to the Corporation (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Corporation notifies Executive in
writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give the Corporation any information reasonably requested by the
Corporation relating to such claim,
(ii) take such action in connection with contesting such claim as the
Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Corporation,
(iii) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) permit the Corporation to participate in any proceedings
relating to such claim;
provided, however, that the Corporation shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 12(c), the
Corporation shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Corporation shall determine; provided, however, that if the
Corporation directs Executive to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to Executive, on an
interest-free basis and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to
which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Corporation's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder. Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
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<PAGE> 11
EMPLOYMENT AGREEMENT
(d) If, after the receipt by Executive of an amount advanced by the
Corporation pursuant to Section 12(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
the Corporation's complying with the requirements of Section 12(c),
promptly pay to the Corporation the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Corporation
pursuant to Section 12(c), a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the
Corporation does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
(e) An Overpayment shall be deemed to have occurred upon a "Final
Determination" (as defined below) that the Excise Tax shall not be
imposed upon a Payment or Payments with respect to which Executive had
previously received a Gross-Up Payment. A Final Determination shall be
deemed to have occurred when Executive has received from the Internal
Revenue Service a refund of taxes or other reduction in his tax liability
by reason of the Overpayment and upon either (i) the date a determination
is made by, or an agreement is entered into with, the Internal Revenue
Service which finally and conclusively binds Executive and the Internal
Revenue Service, or in the event that a claim is brought before a court of
competent jurisdiction, the date upon which a final determination has been
made by such court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (ii) the statute of
limitations with respect to Executive's applicable tax return has expired.
If an Overpayment occurs, the amount of the Overpayment shall be treated
as a loan by the Corporation to Executive and Executive shall, within ten
business days of the occurrence of such Overpayment, pay the Corporation
the amount of the Overpayment plus interest at an annual rate equal to the
rate provided for in Section 7872(f)(2)(A) of the Code from the date of
the Gross-Up Payment (to which the Overpayment related) was paid to
Executive.
(f) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined that an Excise Tax will be imposed
on any Payment or Payments, the Corporation shall pay to the Internal
Revenue Service as Excise Tax withholding, the amount of the Excise Tax
the Corporation has actually withheld from the Payment or Payments.
13. Deferral of Payments. Notwithstanding anything herein to the contrary,
the Corporation may defer any payment due under this Agreement to the earliest
date upon which the payment can be made and deducted by the Corporation in
light of the provisions of Section 162(m) of the Code.
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EMPLOYMENT AGREEMENT
14. Expenses. During the Employment Period, the Corporation shall promptly
pay or reimburse Executive for all reasonable expenses incurred by Executive in
the performance of duties hereunder.
15. Full Settlement. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Corporation may have against
Executive or others. The Corporation agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Corporation, Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about
the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
16. Payments to Beneficiaries. Any payments due under this Agreement as a
result of Executive's death shall be made to Executive's surviving spouse. If
Executive is not survived by a spouse, payment shall be made to the persons or
entities named by Executive as his beneficiary for payment in a written
document provided to the Corporation prior to his death. In the absence of a
surviving spouse or any such named beneficiary, payment shall be made to
Executive's estate.
17. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to Executive at 1734 Riverside Road, Belvidere, IL
61008, or at the last address he has filed in writing with the Corporation or,
in the case of the Corporation, at its principal executive offices.
18. Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by
operation of law, except by will or the laws of descent and distribution.
19. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Illinois.
20. Amendment. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person
and, so long as Executive lives, no person, other than the parties hereto,
shall have any rights under or interest in this agreement or the subject matter
hereof.
21. Successors.
(a) This Agreement is personal to Executive and without the prior
written consent of the Corporation shall not be assignable by Executive
otherwise than by will or
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EMPLOYMENT AGREEMENT
the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Corporation and its successors and assigns.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to
assume expressly and agree to perform this Agreement in the same manner
and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. Any
failure by the Corporation to comply with and satisfy this Section 21(c)
shall constitute a termination as provided in Section 6 of this Agreement,
provided that such successor has received at least ten days prior written
notice from the Corporation or Executive of the requirements of this
Section 21(c).
22. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Corporation has caused these
presents to be executed in its name on its behalf, and its corporate seal to be
hereunto affixed and attested by its Secretary, all as of the day and year
first above written.
/s/ Lawrence E. Gloyd
--------------------------
Lawrence E. Gloyd
CLARCOR Inc.
By /s/ Bruce A. Klein
-----------------------
Bruce A. Klein
ATTEST:
/s/ Marcia S. Blaylock
- ------------------------------
Marcia S. Blaylock
Secretary
Page 13
(SEAL)
<PAGE> 1
EXHIBIT 10.4 (c)
EMPLOYMENT AGREEMENT
AGREEMENT by and between CLARCOR Inc., a Delaware corporation (the
"Corporation") and NORMAN JOHNSON (the "Executive") dated as of July 1, 1997.
WHEREAS, Executive currently serves as President and Chief Operating
Officer of the Corporation; and
WHEREAS, the Corporation desires to enter into this Agreement to assure
the benefits of Executive's future services to the Corporation, and Executive
is willing to commit to render such services, upon the terms and conditions set
forth below.
It is therefore mutually agreed as follows:
1. Employment. The Corporation agrees to employ Executive as President
and Chief Operating Officer and Executive agrees to serve the Corporation
in such capacities, upon the terms and conditions and for the period of
employment hereinafter set forth. Throughout the Employment Period (as defined
below), subject to the supervision of the Board of Directors (the "Board")
and the Chief Executive Officer of the Corporation, Executive shall exercise
such authority and perform such duties as are commensurate with the authority
being exercised and the duties being performed by Executive immediately
preceding the effective date of this Agreement. Executive shall provide
such services at the headquarters of the Corporation in Rockford, Illinois,
except as otherwise expressly provided herein. Throughout the Employment
Period, unless otherwise agreed in writing by Executive and the Corporation,
the Corporation shall neither demote Executive nor assign to Executive any
duties or responsibilities that are inconsistent with his position, duties,
responsibilities and status as President and Chief Operating Officer.
During the Employment Period, and excluding any periods of vacation and sick
leave to which Executive is entitled, Executive agrees to devote reasonable
attention and time during normal business hours to the business and affairs of
the Corporation and, to the extent necessary to discharge the responsibilities
assigned to Executive hereunder, to use Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for Executive to (i) serve
on corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (iii)
manage personal investments, so long as such activities do not significantly
interfere with the performance of Executive's responsibilities as an employee
of the Corporation in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by Executive prior to the effective date of this Agreement, the
continued conduct of such activities (or conduct of activities similar in
nature and scope thereto) subsequent to the effective date of this Agreement
shall not thereafter be deemed to interfere with the performance of Executive's
responsibilities to the Corporation.
2. Employment Period. The term of Executive's employment under this
Agreement shall commence as of the date hereof, and shall expire, subject to
earlier termination of employment as hereinafter provided, upon the occurrence
of the annual meeting of the Board held in March, 2000; provided, however, that
unless the Board shall take affirmative action to the
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<PAGE> 2
EMPLOYMENT AGREEMENT
contrary and the Corporation shall give prior written notice thereof to
Executive, as of November 29, 1998, and as of the first day of each succeeding
fiscal year of the Corporation, the term of this Agreement shall be extended
automatically (for a period of approximately one additional year) to the date
of the annual meeting of the Board held in March 2001, and each year thereafter
(the "Employment Period").
3. Compensation, Compensation Plans, Benefits and Perquisites. During the
Employment Period, Executive shall be compensated as follows:
(a) He shall receive an annual salary at a monthly rate at least
equal to the highest salary rate he has attained immediately preceding
the effective date of this Agreement on an annualized basis, with the
opportunity for increases, from time to time thereafter, in the
discretion of the Compensation and Stock Option Committee of the Board
(the "Committee") in accordance with the Corporation's regular practices.
The term "salary" as utilized in this Agreement shall refer to such
annual salary as increased. Notwithstanding the foregoing, if in the
Committee's judgment, the Corporation is meeting its budgeted target for
sales and net earnings, Executive's salary shall be increased, at a
minimum. to the following amounts at the times provided below:
October, 1997 - $302,000
October, 1998 - $326,268
October, 1999 - $358,895
(b) He shall be eligible to participate on a reasonable basis in the
Corporation's 1994 Incentive Plan, Key Management Incentive Plan, Long
Range Performance Share Plan and other bonus and incentive compensation
plans (whether now or hereinafter in effect.) Except as provided below,
Executive's participation in the 1994 Incentive Plan, the Key Management
Incentive Plan and the Long Range Performance Share Plan shall be on the
same basis and terms as in effect immediately preceding the effective date
of this Agreement and Executive's participation in any hereinafter
established plans shall be on the same basis and terms as other executive
officers of the Corporation. No additional compensation provided under any
of such plans shall be deemed to modify or otherwise affect the terms of
this Agreement or any of Executive's entitlements hereunder.
(c) Throughout the Employment Period, pursuant to the terms of the
1994 Incentive Plan, the Key Management Incentive Plan and the Long Range
Performance Share Plan, Executive shall receive at least the following
awards and incentives:
(i) Executive shall receive a stock option grant of 60,000
shares of the Corporation's common stock at the meeting of the
Committee to be held in December of 1997 and additional stock option
grants of 30,000 shares at each of the meetings of the Committee to be
held in December of 1998 and 1999, provided that for the fiscal year
just ended, the Corporation's budgeted target for sales and net
earnings shall have
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EMPLOYMENT AGREEMENT
been met. The options shall contain the provisions commonly
contained in executive options awarded by the Corporation, including
an exercise price equal to the fair market value of the Corporation's
common stock on the date of grant and ratable vesting over a six-year
period. In the event of a Change of Control (as defined in Section 8),
all options shall become fully vested, and any options to which
Executive has become entitled pursuant to this provision but which
have not yet been granted by the occurrence of the Change of Control,
shall be granted immediately and shall be fully vested.
(ii) Executive's entry, target and maximum annual incentive
under the Key Management Incentive Plan shall be as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending in Entry Target Maximum
----------- ----- ------ -------
<S> <C> <C> <C>
1997 20 45 70
1998 25 52.5 80
1999 30 60 90
</TABLE>
(iii) The multiplier under the Long Range Performance Share Plan
shall be as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending in Multiplier
----------- ----------
<S> <C>
1997 36.67
1998 38.33
1999 40.00
</TABLE>
(d) He shall be entitled to participate in all employee benefit
plans, practices and programs maintained by the Corporation and made
available to employees generally, including, without limitation, all
pension, retirement, savings, medical, hospitalization, disability, dental,
life, or travel accident insurance benefit plans (collectively the "Benefit
Plans"). Executive's participation in such Benefit Plans shall be on the
same basis and terms as are applicable to employees of the Corporation
generally. Such Benefit Plans shall include, but shall not be limited to,
the following:
CLARCOR Inc. Pension Plan
Retirement Savings Plan and Trust (401(k) Plan)
Supplemental Retirement Plan
Monthly Investment Plan
Dental Plan
Health Care Plan
Life Insurance Plan/Supplemental Life Insurance Plan
Disability Plan
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<PAGE> 4
EMPLOYMENT AGREEMENT
(e) Executive shall be entitled to paid vacations in accordance with
the Corporation's vacation policy as in effect from time to time, and to
all paid holidays given by the Corporation to its executive officers.
(f) Executive shall be entitled to all fringe benefits and
perquisites made available by the Corporation to its executive officers,
including but not limited to, participation in the Automobile Plan.
(g) In addition to the amounts of compensation provided elsewhere in
this Agreement, if during the Employment Period the Corporation shall
achieve both (i) quarterly revenues of at least $150,000,000 and (ii) net
profits after tax equal to 6.5% of sales (both as reported on any of the
Corporation's regular quarterly earnings statements prepared in accordance
with Generally Accepted Accounting Principles consistently applied), the
Committee shall perform a special review of Executive's compensation and
shall pay to Executive a lump sum in such amount, if any, as it may
determine in good faith to be equitable. Further, in such circumstance the
Committee may, if it so determines, award to Executive one additional grant
of options under the 1994 Incentive Plan in such amount, if any, as it may
determine in good faith to be equitable. Any payment or grants of options
under this Section 3(g) may be made at any time within the Employment
Period.
4. Termination. Executive's employment with the Corporation may be
terminated by the Corporation or Executive only under the circumstances
described in this Section 4:
(a) Executive may voluntarily terminate his employment hereunder, but
only upon giving at least six months' prior written notice to the Board, in
which case the Employment Period shall terminate on the effective date of
such notice.
(b) Executive's employment hereunder will terminate upon his death.
(c) If Executive is Disabled, the Corporation may terminate
Executive's employment with the Corporation. For purposes of the
Agreement, Executive shall be deemed to have a "Disability" (and to be
"Disabled") if he has been determined by the Incumbent Board (as defined
in Section 8), based on competent medical evidence to have a physical or
mental disability that renders him incapable, after reasonable
accommodation by the Corporation, of performing his duties under this
Agreement.
(d) The Corporation may terminate Executive's employment hereunder at
any time for Cause. For purposes of this Agreement, the term "Cause" shall
mean fraud, misappropriation or intentional material damage to the property
or business of the Corporation or commission of a felony.
(e) Executive may resign at any time for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean an adverse change in the nature or
scope of
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<PAGE> 5
EMPLOYMENT AGREEMENT
Executive's authority, duties or responsibilities from those referred to
in Section 1, a change in location that is more than 50 miles from that
referred to in Section 1, a reduction in total compensation, compensation
plans, benefits or perquisites from those provided in Section 3, or the
breach by the Corporation of any other provision of this Agreement, Board
action to prevent the automatic extension of this Agreement as provided
in Section 2 hereof, or a determination by Executive that as a result of a
Change of Control (as defined in Section 8) and a change in circumstances
thereafter affecting his position, he is unable to exercise the
authorities, powers, function or duties attached to his position and
contemplated by Section 1 of the Agreement. For purposes of this Section
4, a reasonable determination made by Executive in good-faith shall be
conclusive.
5. Termination Payments. In the event of a termination of Executive's
employment with the Corporation and subject to the provisions of Section 4 of
this Agreement, the Corporation shall pay to Executive and provide him with the
following:
(a) If Executive's termination occurs due to death or Disability,
Executive (or his estate or beneficiaries, if applicable) shall be entitled
to any unpaid salary for days worked prior to his date of termination and
payment for unused vacation days (determined in accordance with the
policies of the Corporation as in effect at that time for Corporate
officers) earned prior to the date of termination, and to all other
benefits available to Executive or his estate and beneficiaries under the
Corporation's Benefit Plans as in effect on the date of such termination of
employment.
(b) If Executive's employment is terminated by the Corporation without
Cause or if Executive resigns for Good Reason, Executive shall be entitled
to the following:
(i) The Corporation shall pay to Executive the lump sum present
value of the salary, at the rate required by Section 3(a) as in effect
immediately prior to the date of such termination of employment, to
which he would have been entitled had he remained in the employ of the
Corporation for the remainder of the Employment Period. The
Corporation shall also pay to Executive the average amount of any
incentive compensation and bonuses earned by Executive in the three
years preceding Executive's termination of employment with the
Corporation. Further, Executive shall become fully vested in any stock
options in which Executive had not yet become vested.
(ii) During the remainder of the Employment Period, Executive
shall continue to be treated as an employee under the provisions of
the Corporation's plans referred to in Section 3(b). In addition,
Executive shall continue to be entitled to all benefits and service
credits for benefits, programs and arrangements of the Corporation
described in Sections 3(d) and (f) as if he were still employed during
such period under this Agreement.
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EMPLOYMENT AGREEMENT
(iii) If, despite the provisions of subparagraph (ii) above,
benefits or service credits or the right to accrue further benefits or
service credits under any plan referred to in Section 3(b) or (d)
shall not be payable or provided under such plan to Executive, or his
dependents, beneficiaries and estate because he is no longer an
employee of the Corporation, the Corporation itself shall, to the
extent necessary, pay or provide for payment of such benefits and
service credits for such benefits to Executive, his dependents,
beneficiaries and estate.
The amount of payments provided for in this Section 5(b) shall be
determined by the Accounting Firm (as defined in Section 10) and such
payments shall be made within 30 days after Executive's termination of
employment with the Corporation.
6. Non-Competition and Confidentiality. Executive agrees that:
(a) There shall be no obligation on the part of the Corporation to
provide any further payments or benefits (other than benefits or payments
already earned, accrued or paid) described in Section 5 or Section 9 if,
during the Employment Period, Executive shall be employed by (or become an
owner, director or officer of, or a consultant to) any business which
directly competes with any business of the Corporation or of any of its
subsidiaries at such time; provided, however, that Executive shall not be
deemed to have breached this undertaking if (i) his sole relationship with
such entity consists of his holding, directly or indirectly, an equity
interest in such entity not greater than five percent of such entity's
outstanding equity interest, and (ii) such employment or activity is not
likely to cause serious damage to the Corporation or any of its
subsidiaries at such time; and
(b) During and after the Employment Period, he shall retain in
confidence any confidential information known to him concerning the
Corporation and its subsidiaries and their respective businesses so long as
such information is not publicly disclosed. Notwithstanding the foregoing,
a breach by Executive of this Section 6(b) shall not be used to set-off or
delay amounts payable under this Agreement.
7. No Obligation to Mitigate Damages. Executive shall not be obligated to
seek other employment in mitigating of amounts payable or arrangements made
under the provisions of this Agreement and the obtaining of such other
employment shall in no event effect any reduction of the Corporation's
obligations under this Agreement.
8. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition (other than from the Corporation) by any person,
entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 15% or more of either the then outstanding shares of common stock
or the combined voting power of the Corporation's
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<PAGE> 7
EMPLOYMENT AGREEMENT
then outstanding voting securities entitled to vote generally in the
election of directors; provided, however, no Change of Control shall be
deemed to have occurred for any acquisition by any corporation with respect
to which following such acquisition, more than 60% of the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals or entities who were the beneficial owners, respectively,
of the then outstanding shares of common stock or the combined voting power
of the Corporation's then outstanding voting securities immediately prior
to such acquisition in substantially the same proportions as their
ownership, immediately prior to such acquisition, of the Corporation's
then outstanding common stock and then outstanding voting securities, as
the case may be; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office
is in connection with an actual or threatened election contest relating to
the election of the Directors of the Corporation, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board; or
(c) Approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to
which persons who were the stockholders of the Corporation immediately
prior to such reorganization, merger or consolidation do not, immediately
thereafter, own more than 60% of the combined voting power entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated corporation's then outstanding voting securities, or a
liquidation or dissolution of the Corporation or of the sale of all or
substantially all of the assets of the Corporation.
9. Termination of Executive Following a Change of Control. In the event
the Corporation terminates Executive's employment with the Corporation during
the Employment Period pursuant to or following a Change of Control, Executive
shall be entitled to the salary, compensation and benefits provided to him
under Section 5(b)(i),(ii) and (iii).
10. Certain Additional Payments by the Corporation. The Corporation
agrees that:
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Corporation to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 10) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the
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<PAGE> 8
EMPLOYMENT AGREEMENTS
"Code"), or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such
interest and penalties, and hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including, without limitation, any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(b) Subject to the provisions of Section 10(c), all determinations
required to be made under this Section 10, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be
made by Coopers & Lybrand L.L.P. (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Corporation and
Executive within 15 business days of the receipt of notice from Executive
that there has been a Payment, or such earlier time as is requested by the
Corporation. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of
Control, Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Corporation.
Any Gross-Up Payment, as determined pursuant to this Section 10, shall be
paid by the Corporation to Executive within five days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall furnish Executive with a
written opinion that failure to report the Excise Tax on Executive's
applicable federal income tax return would not result in the imposition of
a negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Corporation and Executive. As a result of the
uncertainty in the application of Sections 4999 and 280G of the Code, it is
possible that a Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Overpayment") or a Gross-Up payment (or a
portion thereof) which should have been paid by the Corporation will not
have been paid (an "Underpayment").
(c) An Underpayment shall be deemed to occur upon a claim by the
Internal Revenue Service that the tax liability of Executive (whether in
respect of the then current taxable year of Executive or in respect of any
prior taxable year of Executive) may be increased by reason of the
imposition of the Excise Tax on a Payment or Payments with respect to which
the Corporation has failed to make a sufficient Gross-Up Payment. In the
event that the Corporation exhausts its remedies pursuant to this Section
10(c) and Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Corporation to or for the benefit of Executive. Executive shall notify the
Corporation in writing of any claim by the Internal Revenue Service. Such
notification shall be given as soon as practicable but no later than
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<PAGE> 9
EMPLOYMENT AGREEMENT
ten business days after Executive is informed in writing of such claim
and shall apprise the Corporation of the nature of such claim and the date
on which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on
which he gives such notice to the Corporation (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Corporation notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim, Executive
shall:
(i) give the Corporation any information reasonably requested
by the Corporation relating to such claim,
(ii) take such action in connection with contesting such claim
as the Corporation shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Corporation,
(iii) cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) permit the Corporation to participate in any proceedings
relating to such claim;
provided, however, that the Corporation shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 10(c), the
Corporation shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Corporation shall determine; provided, however, that if the
Corporation directs Executive to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to Executive, on an
interest-free basis and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or
with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Corporation's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would
be
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EMPLOYMENT AGREEMENT
payable hereunder. Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Executive of an amount advanced by the
Corporation pursuant to Section 10(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to
the Corporation's complying with the requirements of Section 10(c),
promptly pay to the Corporation the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Corporation
pursuant to Section 10(c), a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the
Corporation does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
(e) An Overpayment shall be deemed to have occurred upon a "Final
Determination" (as defined below) that the Excise Tax shall not be imposed
upon a Payment or Payments with respect to which Executive had previously
received a Gross-Up Payment. A Final Determination shall be deemed to have
occurred when Executive has received from the internal Revenue Service a
refund of taxes or other reduction in his tax liability by reason of the
Overpayment and upon either (i) the date a determination is made by, or an
agreement is entered into with, the internal Revenue Service which finally
and conclusively binds Executive and the Internal Revenue Service, or in
the event that a claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by such court and
either all appeals have been taken and finally resolved or the time for all
appeals has expired or (ii) the statute of limitations with respect to
Executive's applicable tax return has expired. If an Overpayment occurs,
the amount of the Overpayment shall be treated as a loan by the Corporation
to Executive and Executive shall, within ten business days of the
occurrence of such Overpayment, pay the Corporation the amount of the
Overpayment plus interest at an annual rate equal to the rate provided for
in Section 7872(f)(2)(A) of the Code from the date of the Gross-Up Payment
(to which the Overpayment related) was paid to Executive.
(f) Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined that an Excise Tax will be imposed
on any Payment or Payments, the Corporation shall pay to the internal
Revenue Service as Excise Tax withholding, the amount of the Excise Tax the
Corporation has actually withheld from the Payment or Payments.
11. Deferral of Payments. Notwithstanding anything herein to the contrary,
the Corporation may defer any payment due under this Agreement to the earliest
date upon which the payment can be made and deducted by the Corporation in
light of the provisions of Section 162(m) of the Code.
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EMPLOYMENT AGREEMENT
12. Expenses. During the Employment Period, the Corporation shall promptly
pay or reimburse Executive for all reasonable expenses incurred by Executive in
the performance of duties hereunder.
13. Full Settlement. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Corporation may have against
Executive or others. The Corporation agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Corporation, Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about
the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
14. Payments to Beneficiaries. Any payments due under this Agreement as a
result of Executive's death shall be made to Executive's surviving spouse. If
Executive is not survived by a spouse, payment shall be made to the persons or
entities named by Executive as his beneficiary for payment in a written
document provided to the Corporation prior to his death. In the absence of a
surviving spouse or any such named beneficiary, payment shall be made to
Executive's estate.
15. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to Executive at 5114 Regents Park Road, Rockford,
Illinois 61107, or at the last address he has filed in writing with the
Corporation or, in the case of the Corporation, at its principal Executive
offices.
16. Non-Alienation. Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by
operation of law, except by will or the laws of descent and distribution.
17. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Illinois.
18. Amendment. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person
and, so long as Executive lives, no person, other than the parties hereto,
shall have any rights under or interest in this agreement or the subject matter
hereof.
19. Successors.
(a) This Agreement is personal to Executive and without the prior
written consent of the Corporation shall not be assignable by Executive
otherwise than by will or
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EMPLOYMENT AGREEMENT
the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors and assigns.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to
assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would be required to perform it if
no such succession had taken place. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise. Any
failure by the Corporation to comply with and satisfy this Section 19(c)
shall constitute a termination as provided in Section 4 of this Agreement,
provided that such successor has received at least ten days prior written
notice from the Corporation or Executive of the requirements of this
Section 19(c).
20. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Corporation has caused these
presents to be executed in its name on its behalf, and its corporate seal to be
hereunto affixed and attested by its Secretary, all as of the day and year
first above written.
/s/ Norman Johnson
------------------
Norman Johnson
CLARCOR Inc.
By /s/ Bruce A. Klein
--------------------
Bruce A. Klein
ATTEST:
/s/ Marcia S. Blaylock
- ----------------------
Marcia S. Blaylock
Secretary
(Seal)
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<PAGE> 1
EXHIBIT 10.4(d)
TRUST AGREEMENT
THIS TRUST AGREEMENT (this "Agreement") dated as of December 1, 1997,
between CLARCOR Inc., a Delaware corporation (the "Company"), and AMCORE
Investment Group, N.A. (the "Trustee"), as trustee,
WHEREAS, Mr. Lawrence E. Gloyd ("LEG") serves as Chairman of the Board of
Directors and Chief Executive Officer of the Company pursuant to an Employment
Agreement dated as of July 1, 1997 (the "Employment Agreement") between LEG and
the Company; and
WHEREAS, as provided in Section 4 of the Employment Agreement, the Company
has computed the present value (the "Lump Sum") on the date hereof of the
benefit that would be payable to LEG under the Company's Supplemental
Retirement Plan if LEG had retired on December 1, 1997 and if he had then
elected to receive the lump sum present value of his benefit computed as
provided in such plan at that date; and
WHEREAS, the Company wishes to establish a trust (hereinafter called the
"Trust") and to contribute to the Trust the Lump Sum, subject to the claims of
Company's creditors in the event of Company's Insolvency, as herein defined,
until such amount (plus interest thereon as hereinafter provided) is paid to
<PAGE> 2
LEG or his spouse in such manner and at such times as specified in Section 3
hereof and in the Employment Agreement;
NOW THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
1. Establishment of Trust. (a) The Company hereby deposits with Trustee in
trust the Lump Sum, which shall become the principal of the Trust to be held,
administered and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) the Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J. chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes (i) described in Section 3 hereof and in
the Employment Agreement and (ii) general creditors of the Company as herein
set forth. Neither LEG nor his spouse shall have any preferred claim on, or any
beneficial ownership interest in, any assets of the Trust.
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<PAGE> 3
Any rights created under the Employment Agreement and this Agreement shall be
mere unsecured contractual rights of LEG and his spouse against the Company.
Any assets held by the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of Insolvency, as
defined in Section 4(a) herein.
2. Investment of Trust Fund. Subject to Section 6 hereof, the Trustee
shall invest the Lump Sum and the earnings thereon (collectively, the "Trust
Fund") in accordance with the written instructions of the Company. The Trustee
shall have no responsibility whatsoever for interest earnings or investment
results (including loss of principal) on any funds held hereunder. The Company
shall be responsible for any shortfall in the amount or amounts to be delivered
to LEG hereunder whether arising from inadequate earnings on the Trust Fund or
loss of all or any portion of the principal thereof.
3. (a) Except as provided in 3(c) and 3(h), on the dates or at the time
specified below, the Trustee shall deliver to LEG an amount (the "Distribution
Amount") equal to the sum of the Trust Fund plus interest thereon at the prime
rate as announced at the beginning of each calendar year by Trustee (the "Prime
Rate") from the date hereof to the date of such payment. The capitalized terms
used in this Section 3 and not otherwise defined herein shall have the
respective meanings specified in the Employment Agreement.
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<PAGE> 4
(b) The Distribution Amount shall be paid by the Trustee to LEG (or his
spouse as provided below) within 30 days of the receipt by the Trustee of
written notice from the Company of
(i) LEG's retirement at the end of the Employment Period;
(ii) his death prior to the end of the Employment Period;
(iii) his resignation as Chairman of the Board of Directors and Chief
Executive Officer of the Company for Good Reason; or
(iv) the termination by the Company of his employment under the Employment
Agreement during the Employment Period with or without Cause or pursuant to
Change of Control.
(c) In the event that the Distribution Amount becomes payable to LEG for
one of the reasons specified in (b)(i) or (ii) above, LEG (or his executor or
administrator in the case of his death) may make an irrevocable written
election to the Trustee to receive the Distribution Amount in substantially
equal monthly or quarterly installments (the "Installments") over a selected
period not to exceed ten years with interest (at a rate to be determined at
such time) on the unpaid Distribution Amount from
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<PAGE> 5
the date of such election until the Distribution Amount has been paid in full.
(d) In the event of LEG's death prior to his receipt of the Distribution
Amount in a lump sum or prior to the distribution of all of the Installments,
the Distribution Amount shall be paid in a lump sum to Mrs. Lawrence E. Gloyd
(Delma Gloyd) or she shall receive when due and payable all of the remaining
unpaid Installments.
(e) Any funds remaining in the Trust created hereby after payment in full
to LEG or his spouse of all amounts payable pursuant to Section 3(a), (b), (c)
and (d) above shall be paid over to the Company upon its written demand.
(f) The Trustee shall make provision for the reporting and withholding of
any federal, state or local taxes that may be required to be withheld with
respect to the payment of amounts pursuant to this Section 3 and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(g) The entitlement of LEG or his spouse to payments pursuant to this
Section 3 shall be determined by the Company or such party as it shall
designate; provided that such determination shall be in conformance with the
provisions of this Section 3 and the Employment Agreement and nothing in this
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<PAGE> 6
subsection (g) shall excuse or permit any noncompliance by the Company with any
provision of this Agreement or the Employment Agreement.
(h) The Company may make payment directly to LEG or his spouse as they
become due under this Section 3 or the Employment Agreement. The Company shall
notify the Trustee of its decision to make payment directly prior to the time
amounts are payable to LEG or his spouse. In addition, if the Trust Amount, and
any earnings thereon, are not sufficient to make payments in accordance with
this Section 3 or the Employment Agreement, the Company shall make the balance
of each such payment as it falls due. The Trustee shall notify the Company when
principal and earnings are not sufficient.
Section 4. Responsibilities of the Trustee Regarding Payments to Trust
Beneficiaries when Company is Insolvent.
(a) The Trustee shall cease payment of benefits to LEG and his spouse if
the Company is Insolvent. The Company shall be considered "Insolvent" for
purposes of this Agreement if (i) the Company is unable to pay its debts as
they become due, or (ii) the Company is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section l(d) hereof, the principal and income of
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<PAGE> 7
the Trust shall be subject to claims of general creditors of the Company under
federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer of the Company
shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue payments to LEG and his spouse hereunder.
(2) Unless the Trustee has actual knowledge of the Company's Insolvency,
or has received notice from the Company or a person claiming to be a creditor
alleging that the Company is insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may in all events rely on
such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to LEG and his spouse and
shall hold the assets of the Trust for the benefit of the Company's general
creditors. Nothing in this Agreement shall in any way diminish any rights of
LEG or his spouse to pursue their rights as general creditors of Company
- 7 -
<PAGE> 8
with respect to amounts due under this Agreement or the Employment Agreement.
(4) The Trustee shall resume the payments to LEG or his spouse in
accordance with Section 3 of this Trust Agreement only after Trustee has
determined that the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payments from the Trust pursuant to Section 4(b) hereof and subsequently
resumes such payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to LEG or his spouse under the
terms of this Agreement or the Employment Agreement for the period of such
discontinuance, less the aggregate amount of any payments made to LEG or his
spouse by the Company in lieu of the payments provided for hereunder during any
such period of discontinuance.
Section 5. Payments to Company.
Except as provided in Section 4 hereof, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payments have been made to LEG and his spouse
pursuant to the terms of this Agreement and the Employment Agreement.
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<PAGE> 9
Section 6. Investment Authority
In no event shall the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company, other than a de
minimis amount held in common investment vehicles in which the Trustee invests.
All rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with LEG or his spouse.
Section 7. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested, except to the extent
that the same shall be distributed pursuant to Section 4 hereof.
Section 8. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated
by, and in conformity with, the terms of
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<PAGE> 10
this Trust and is given in writing by the Company. In the event of a dispute
between the Company and any other party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, Trustee shall
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<PAGE> 11
have no power to name a beneficiary of the policy other than the Trust, to
assign the policy (as distinct from conversion of the policy to a different
form) other than to a successor Trustee, or to loan to any person the proceeds
of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
The Company shall pay all administrative and Trustee's fees and expenses.
If not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 180 days after receipt of such notice unless the
Company and the Trustee agree otherwise.
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<PAGE> 12
(b) Subject to subsection (c) below, the Trustee may be removed by the
Company on 180 days written notice.
(c) Upon a Change of Control, as defined herein, the Trustee may not be
removed by the Company for 5 years following the date of such Change of
Control.
(d) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(e) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section. If no such appointment
has been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. Appointment of Successor.
If the Trustee resigns or is removed in accordance with Section l0(a) or
(b) hereof, the Company may appoint any third party, such as a bank trust
department or other party that has
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<PAGE> 13
corporate trustee powers under state law, as a successor to replace the Trustee
upon resignation or removal; provided that if the Trustee resigns or is removed
after a Change of Control such successor trustee shall be appointed by the
Trustee. Any such appointment shall be effective when accepted in writing by
the new Trustee, who shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the Company
or the successor Trustee to evidence the transfer.
Section 12. Amendment or Termination.
(a) This Agreement may be amended by a written instrument executed by the
Trustee and the Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of Section 3 hereof, the Employment Agreement or shall
make the Trust revocable.
(b) The Trust shall not terminate until the date on which LEG and his
spouse are no longer entitled to benefits pursuant to the terms of this
Agreement or the Employment Agreement. Upon termination of the Trust any assets
remaining in the Trust shall be returned to Company.
13. Definition of "Change of Control". As used in this Agreement the term
"Change of Control" shall have the same
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<PAGE> 14
meaning as specified in the Employment Agreement, as the same may be amended
from time to time.
14. Notices. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated by
personal delivery, or registered mail, return receipt requested, or overnight
courier or delivery service to the parties hereto at the address shown below or
at such other address as any of them may designate by notice to each of the
others:
(a) If to the Company at:
CLARCOR Inc.
2300 Sixth Street
P.O. Box 7007
Rockford, Illinois 61104
(b) If to the Trustee at:
AMCORE Investment Group, N.A.
P.O. Box 1537
Rockford, Illinois 61110
All notices given hereunder shall be effective and deemed received upon
personal delivery and subsequent confirmation thereof or, if by overnight
courier, (in which case a signed delivery receipt shall be required) on the day
of deposit with such courier or service, or, if mailed, upon the day of deposit
with the U.S. Postal Service; provided such notice was mailed to the proper
address as described above. It any such notice requires a response from the
receiving party, the applicable time period for response shall begin on the
date such
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<PAGE> 15
notice is actually received, unless delivery is not accepted by the receiving
party, in which case, the applicable time period shall begin on the date of
attempted delivery.
Section 15. Miscellaneous.
(a) Any provision of this Agreement prohibited by law shall be ineffective
to the extent of any such prohibition, without invalidating the remaining
provisions hereof.
(b) Amounts payable to LEG and his spouse under this Agreement may not be
anticipated, assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution or other
legal or equitable process.
(c) This Agreement shall be governed by and construed in accordance with
the laws of Illinois.
Section 16. Effective Date.
The effective date of this Agreement shall be December 1, 1997.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed on the day and year first above written.
CLARCOR INC.
By: /s/ Bruce A. Klein
----------------------------
Its: VP-Finance & CFO
----------------------------
AMCORE INVESTMENT GROUP, N.A.,
as Trustee
By: /s/ Thomas H. Scoville
----------------------------
Its: VP & Trust Officer
----------------------------
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<PAGE> 1
EXHIBIT 10.4(e)
CLARCOR INC.
EXECUTIVE BENEFIT TRUST
Dated as of December 22, 1997
<PAGE> 2
CLARCOR INC.
EXECUTIVE BENEFIT TRUST
TABLE OF CONTENTS
Page
----
ARTICLE I - TRUST, TRUSTEE AND TRUST FUND . . . . . . . . . . 2
Section 1.1. Trust . . . . . . . . . . . . . . . . 2
Section 1.2. Trustee . . . . . . . . . . . . . . . 2
Section 1.3. Trust Fund. . . . . . . . . . . . . . 3
Section 1.4. Irrevocability of Trust . . . . . . . 3
Section 1.5. Delivery of Funds . . . . . . . . . . 3
ARTICLE II - THE PLANS. . . . . . . . . . . . . . . . . . . . 5
ARTICLE III - AUTHORIZED COMPANY REPRESENTATIVES. . . . . . . 6
ARTICLE IV - CHANGE IN CONTROL. . . . . . . . . . . . . . . . 6
Section 4.1. Definition of Change in Control . . . 6
Section 4.2. Definition of Potential Change
of Control . . . . . . . . . . . . 9
Section 4.3. Notification of the Company . . . . . 9
ARTICLE V - RETURNS AND DISTRIBUTIONS FROM THE FUND . . . . . 10
Section 5.1. Return of Trust Assets to the
Company. . . . . . . . . . . . . . 10
Section 5.2. Distributions to Beneficiaries . . . 14
Section 5.3. Non-Duplication of Benefits . . . . . 15
Section 5.4. Withholding of Taxes. . . . . . . . . 16
Section 5.5. Interests Nonassignable . . . . . . . 16
ARTICLE VI - INVESTMENT OF FUND . . . . . . . . . . . . . . . 17
ARTICLE VII - POWERS AND RIGHTS OF TRUSTEE. . . . . . . . . . 19
Section 7.1. Trustee's Powers. . . . . . . . . . . 19
Section 7.2. Advice of Counsel . . . . . . . . . . 20
Section 7.3. Indemnification of Trustee. . . . . . 20
Section 7.4. Compensation and Expenses . . . . . . 21
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<PAGE> 3
ARTICLE VIII - ACCOUNTS AND REPORTS OF THE TRUSTEE. . . . . . 21
Section 8.l. Records and Accounts of the
Trustee. . . . . . . . . . . . . . 2l
Section 8.2. Cash Basis of Accounts. . . . . . . . 22
Section 8.3. Fiscal Year . . . . . . . . . . . . . 22
Section 8.4. Annual Report . . . . . . . . . . . . 22
Section 8.5. Approval of Reports . . . . . . . . . 22
ARTICLE IX - REMOVAL, RESIGNATION AND SUCCESSION OF
THE TRUSTEE. . . . . . . . . . . . . . . . . . 24
Section 9.l. Removal . . . . . . . . . . . . . . . 24
Section 9.2. Resignation . . . . . . . . . . . . . 24
Section 9.3. Appointment, Qualifications and
Powers of Successor Trustee. . . . 24
Section 9.4. Changes in Organization of
Corporate Trustee. . . . . . . . . 25
ARTICLE X - AMENDMENT OR TERMINATION. . . . . . . . . . . . . 26
Section l0.l. Authority to Amend or Terminate. . . 26
Section 10.2. Method of Making Amendment . . . . . 26
Section 10.3. Termination of Trust . . . . . . . . 27
ARTICLE XI - MISCELLANEOUS. . . . . . . . . . . . . . . . . . 27
Section ll.l. Protection of Persons Dealing
with Trustee . . . . . . . . . . . 27
Section ll.2. Tax Status of Trust. . . . . . . . . 27
Section ll.3. No Interest in Company Given
by Trust. . . . . . . . . . . . . 28
Section ll.4. Gender and Plurals. . . . . . . . . 28
Section ll.5. Governing Law. . . . . . . . . . . . 28
ARTICLE XII - EXECUTION . . . . . . . . . . . . . . . . . . . 28
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<PAGE> 4
CLARCOR INC.
EXECUTIVE BENEFIT TRUST
This TRUST AGREEMENT dated as of December 22, 1997 (this "Agreement")
is made between CLARCOR Inc., a Delaware corporation (the "Company"), and
AMCORE Investment Group, N.A., as Trustee (the "Trustee").
WHEREAS, the Company is or may hereafter become obligated under certain
plans or agreements identified herein, and any other plan or agreement as the
Company may from time to time designate in writing to the Trustee, to make
payments to certain of its officers, directors and key employees, or the
beneficiaries thereof (such officers, directors, key employees and
beneficiaries being hereinafter called the "Beneficiaries");
WHEREAS, the Company's obligations under such plans or agreements are not
funded or otherwise secured; and
WHEREAS, for purposes of assuring that payment of such Company obligations
will not improperly be withheld in the event of a Change of Control (as
hereinafter defined), the Company desires to deposit with the Trustee, subject
only to the claims of the Company's existing or future creditors, assets
sufficient
<PAGE> 5
to enable the Trustee to make such payments as they may become due and payable;
NOW THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
TRUST, TRUSTEE AND TRUST FUND
Section 1.1. Trust. This Agreement and the trust evidenced hereby, as
amended and supplemented from time to time, shall be known collectively as the
CLARCOR Inc. Executive Benefit Trust (the "Trust").
Section 1.2. Trustee. AMCORE Investment Group, N.A. is hereby designated
as the Trustee of the Trust, to receive, hold, invest, administer and
distribute the Fund (as hereinafter defined) in accordance with the provisions
of this Agreement for the exclusive purpose of providing benefits to the
Beneficiaries under the plans or agreements identified in Article II (the
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<PAGE> 6
"Plans") and paying the reasonable expenses of administering such Plans.
Section 1.3. Trust Fund. All cash and marketable securities delivered by
the Company to the Trustee hereunder, together with all other assets held in
the Trust by the Trustee, are hereinafter called the "Fund." Except as herein
otherwise provided, title to the Fund shall at all times be vested in the
Trustee, subject to the right of the Trustee to hold title to particular assets
in bearer form or in the name of a nominee or nominees, and the interest of the
Beneficiaries in the assets of the Fund shall be limited to the right to have
such assets received, held, invested, administered and distributed by the
Trustee in accordance with the provisions of the Trust.
Section 1.4. Irrevocability of Trust. The Trust shall not be subject to
revocation, amendment or modification except as provided in Section 10.1.
Section 1.5. Delivery of Funds. (a) Concurrently with the execution and
delivery of this Agreement, the Company has delivered to the Trustee the sum of
$1,000.00 in cash, to be held in the Fund. The Company, in its sole discretion,
may at any time, or from time to time, deliver additional amounts of cash or
property to the Trustee to be held in the Fund. Neither
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<PAGE> 7
the Trustee nor any Beneficiary shall have any right to compel the delivery of
such additional amounts.
(b) Not later than the fifth business day after the occurrence of a Change
in Control or a Potential Change in Control (as hereinafter defined in Article
IV), the Company shall deliver to the Trustee, to be held in the Fund, cash
or marketable securities having a fair market value (or any combination
thereof) equal to 125% or the sum of (i) the amount of the Company's
obligations to the Beneficiaries under the Plans and (ii) such additional
amount as is reasonably estimated to be necessary to pay the expenses and other
costs of maintaining the Trust (collectively the "Required Funding Amount").
(c) At the end of the six calendar month period beginning on the first day
of the calendar month commencing immediately after the date of a Potential
Change in Control or Change in Control, and at the end of each six calendar
months thereafter, the Company shall, unless the Fund shall theretofore have
been paid to the Company pursuant to Section 5.1(a), recalculate the Required
Funding Amount as of the end of the calendar month immediately preceding such
first-specified month-end as though such Potential Change in Control or Change
in Control were then occurring. If the Required Funding Amount, as so
recalculated, shall exceed the fair market value of the Fund,
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<PAGE> 8
the Company shall promptly notify the Trustee and the Company shall promptly
(and in no event later than seven days from the date of such notification)
deliver to the Trustee cash or marketable securities having a fair market value
(or any combination thereof) equal to such excess.
ARTICLE II
THE PLANS
Benefits payable pursuant to the CLARCOR Inc. 1994 Incentive Plan, the
CLARCOR Inc. 1994 Supplemental Retirement Plan, and the individual employment
agreements listed on Exhibit I hereto, and any other plan or agreement,
including any individual employment agreement, as the Company may, from time to
time designate in writing to the Trustee, as each may be amended or
supplemented from time to time (collectively the "Plans"), copies of which are
attached hereto, shall be payable from the Trust.
The Company shall provide to the Trustee any and all amendments,
supplements or other documentation with regard to the Plans, including any
successor plan, and copies of any additional plans or agreements which the
Company designates in writing to the Trustee as providing benefits payable from
the Trust. The
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<PAGE> 9
Company further agrees to provide to the Trustee any and all pertinent
information regarding the Obligations of the Trustee to the Beneficiaries
hereunder. The Trustee's duties and responsibilities shall be defined by this
Trust Agreement without any reference to any Plan or other agreement.
ARTICLE III
AUTHORIZED COMPANY REPRESENTATIVES
The Company shall furnish the Trustee the name and specimen signature of
each person upon whose certification of any calculation, decision or direction
of the Company the Trustee is authorized to rely. Until notified of a change
in the identity of such person or persons, the Trustee shall act upon the
assumption that there has been no such change.
ARTICLE IV
CHANGE IN CONTROL
Section 4.l. Definition of Change in Control. For the purpose of this
Agreement, a "Change of Control" of the Company shall mean:
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<PAGE> 10
(a) The acquisition (other than from the Company) by any person, entity or
"group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of
either the then outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors; provided, however, no Change of Control
shall be deemed to have occurred for any acquisition by any corporation with
respect to which, following such acquisition, more than 60% of the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
or entities who were the beneficial owners, respectively, of the then
outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Company's then outstanding common
stock and then outstanding voting securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to
- 7 -
<PAGE> 11
constitute at least a majority of the Board, provided that any person becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority or the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose Initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the Directors or the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
(c) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own more than 60% of
the combined voting power entitled to vote generally in the election of
directors of the recognized, merged or consolidated corporation's then
outstanding voting securities, or a liquidation or dissolution of the Company
or of the sale of all or substantially all of the assets of the Company.
- 8 -
<PAGE> 12
Section 4.2. Definition of Potential Change of Control. For the purposes
of this Agreement, a "Potential Change of Control" of the Company shall mean
the occurrence or existence of any action, event or condition, including any
public announcement of an intention to commence a tender or exchange offer or
an election contest, the consummation or continuation of which would result in
a Change of Control of the Company, which the Board of Directors of the Company
shall, by resolution adopted by a majority of the non-officer directors then in
office, determine to constitute a Potential Change of Control.
Section 4.3. Notification by Company. The Company shall notify the Trustee
of the occurrence of a Potential Change of Control and the Company shall notify
the Trustee of the occurrence of a Change of Control, and the Trustee may rely
on such notice or any other actual notice, satisfactory to the Trustee, of such
a change or potential Change of Control which the Trustee may receive. The
Trustee shall have no obligation to make an independent determination as to the
occurrence of a Potential Change of Control or Change of Control.
- 9 -
<PAGE> 13
ARTICLE V
RETURNS AND DISTRIBUTIONS FROM THE FUND
Section 5.1. Return of Trust Assets to the Company. (a) If a Potential
Change in Control shall have occurred but a Change in Control shall not have
occurred by the end of the twelfth calendar month period beginning on the first
day of the calendar month commencing immediately after the date of such
Potential Change in Control, the Trustee shall deliver the Fund to the Company
as soon as practicable thereafter; provided, however, that if, within such
period, one or more subsequent Potential Changes in Control shall have
occurred, no such delivery shall be made until the end of the twelfth calendar
month period beginning on the first day of the calendar month commencing
immediately after the date the latest Potential Change in Control shall have
occurred. The Company shall notify the Trustee in writing of the occurrence of
a Potential Change in Control or a Change in Control. The Trustee may rely on
such notice or on any other notice or knowledge, satisfactory to the Trustee,
as to whether a Potential Change in Control or a Change in Control shall have
occurred. The Trustee also may from time to time request that the Company
confirm or deny in writing to the Trustee that a Potential Change in Control or
Change in Control shall have occurred, to which the Company shall respond in
writing within 30 business days after its receipt. The
- 10 -
<PAGE> 14
Company's failure to respond within 30 business days after such request is
delivered to the Company shall be deemed to constitute confirmation of the
occurrence of a Potential Change in Control or a Change in Control, as the
case may be.
(b) The Trust is intended to constitute a grantor trust within the meaning
of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal
Revenue Code of 1986, as amended (the "Code"), and, except as hereinafter
provided, all interest and other income earned on the investment of the Fund
shall be the property of the Company and shall not constitute a part of the
Fund. Such interest and other income earned in any calendar year shall be paid
over by the Trustee to the Company as promptly as practicable after each
recalculation of the Required Funding Amount pursuant to Section l.5(c);
provided, however, that such interest and other income shall be distributed to
the Company at least annually; and provided further that such interest and
other income shall not be distributed to the Company to the extent that any
Required Funding Amount is then owing to the Trustee.
Any loss or expense (including any expense of the Trustee) incurred by the
Trustee in investing the Fund shall be for the account of the Company, and the
Company shall promptly upon written notice from the Trustee, reimburse the Fund
for any
- 11 -
<PAGE> 15
such loss or expense, except to the extent, if any, that any such loss or
expense constitutes, in the case of an expense, a payment to a Beneficiary
pursuant to a Payment Schedule (as hereinafter defined) or has been applied to
reduce an amount payable to the Company pursuant to Section 1.5(b) or 1.5(c).
(c) If the Company shall become insolvent, the Trustee shall immediately
cease distributions from the Fund pursuant to Section 5.2 and shall hold the
Fund for the benefit of the Company's general creditors. For purposes of the
Trust, the Company shall be deemed to be insolvent if:
(i) the Company shall (A) be generally not paying its debts as they become
due, (B) file, or consent by answer or otherwise to the filing against it of,
or fail to controvert in a timely manner, a petition for relief,
reorganization or arrangement under, or any other petition in bankruptcy or
for liquidation under, or to take advantage of, any bankruptcy or insolvency
law of any jurisdiction, (C) make an assignment for the benefit of its
creditors, (D) consent to the appointment of a custodian, receiver, trustee or
other officer with similar powers of itself or of any substantial part of its
property, (E) be adjudicated insolvent or be liquidated in any insolvency
proceeding or (F) take corporate action for the purpose of any of the
foregoing; or
(ii) a court or governmental authority of competent jurisdiction shall
enter an order appointing, without consent by the Company, a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property; or an order for relief
shall be entered in any case or proceeding for liquidation or reorganization
or otherwise to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation of the
Company; or if any petition for any such relief
- 12 -
<PAGE> 16
shall be filed against the Company and such petition shall not be dismissed
within 30 days.
The Trustee shall, if ordered by a court of competent jurisdiction, distribute
the assets of the Trust as such court may direct to pay the claims of creditors
without regard to the amount of other assets of the Company available to pay
such claims.
The Company shall notify the Trustee immediately after the occurrence of
any event of insolvency, as specified in the preceding paragraph. If the
Trustee shall receive any written allegation (other than from the Company) that
the Company is insolvent, it shall immediately suspend distributions from the
Fund pursuant to Section 5.2 and shall, within five days of the receipt of such
allegation, request a written confirmation or denial by the Company, under
oath, of such allegation. The Trustee shall not resume such distributions if
the Company is insolvent, but the Trustee shall resume such distributions if
the Company confirms that it is not insolvent. In the absence of such
notification or allegation, the Trustee shall be entitled, but shall not be
required, to make its own determination as to whether the Company has become
insolvent based on information available to it, but the Trustee shall not be
under any duty to make any investigation as to the insolvency or financial
status of the Company.
- 13 -
<PAGE> 17
If at any time the Company shall satisfy the Trustee that all benefits
under the Plans shall have been paid or otherwise duly provided for, the
Trustee shall return the Fund to the Company.
Section 5.2. Distributions to Beneficiaries. (a) The Company shall deliver
to the Trustee a schedule (the "Payment Schedule") that indicates the amounts
payable in respect of each Beneficiary, that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plans), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Beneficiaries
in accordance with such Payment Schedule. The Trustee shall make provision for
the reporting and withholding of any federal, state or local taxes as described
in Section 5.4.
(b) The entitlement of a Beneficiary to benefits under the Plan shall be
determined by the Company or such party as it shall designate under the Plan,
and any claim for such benefits shall be considered and reviewed under the
procedures set out in the Plans.
- 14 -
<PAGE> 18
(c) The Company may make payment of benefits directly to Beneficiaries as
they become due under the terms of the Plans. The Company notify the Trustee of
its decision to make payment of benefits directly prior to the time amounts are
payable to Beneficiaries. In addition, if the principal of the Trust, and any
earnings thereof, are not sufficient to make payments of benefits in accordance
with the terms of the Plan, the Company shall make the balance of each such
payment as it falls due. The Trustee shall notify the Company where principal
and earnings are not sufficient.
Section 5.3. Non-Duplication of Benefits. Neither the creation of the
Trust nor the transfer of cash or marketable securities by the Company to the
Trustee shall to any extent release the Company from its obligation to pay or
cause to be paid all benefits to which any person is entitled under the Plans,
except any payment of benefits by the Trustee to any person shall be deemed to
constitute payment by the Company and shall satisfy the obligation of the
Company to pay the benefits so paid by the Trustee. The Trustee and the Company
shall each advise the other in writing of the payment of any benefits paid
pursuant to any Benefit Plan to the end that there shall be no duplicate
payment.
- 15 -
<PAGE> 19
Section 5.4. Withholding of Taxes. The Trustee shall upon written
direction from the Company withhold from any distribution which it is required
to make hereunder such sum as the Company may reasonably estimate to be
necessary to cover any taxes for which the Company may be liable with respect
to such distribution. The Trustee shall forward any withheld amounts to the
Company, and the Company shall be responsible for (i) paying to the appropriate
taxing authority all income and employment taxes so withheld; (ii) furnishing
to each person receiving a distribution from the Trust appropriate tax
information respecting such distribution and withholding (if any); and (iii)
preparing and filing all information reports or returns required to be filed.
Upon discharge or settlement of such tax liability the Trustee shall distribute
the balance of such sum, if any, to the distributee from whose distribution it
was withheld, or if such distributee is then deceased, to such other person as
the Company shall direct. Prior to making any distribution hereunder the
Trustee may require such releases or other documents from any taxing authority,
or may require such indemnity and surety bond, as the Trustee shall reasonably
deem necessary for its protection.
Section 5.5. Interests Nonassignable. No right or interest of any
Beneficiary or distributee to receive distributions from the Trust shall be
assignable or transferable
- 16 -
<PAGE> 20
in whole or in part, either directly, by operation of law or otherwise,
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge or bankruptcy, but excluding devolution by death or mental
incompetency; and no right or interest of any Beneficiary or distributee to
receive distributions from the Trust shall be liable for, or subject to, any
obligation or liability of such Beneficiary or distributee, including claims for
alimony or the support of any spouse.
ARTICLE VI
INVESTMENT OF FUND
Contributions by the Company to the Trust may be in the form of cash,
marketable securities, life insurance policies, or other property acceptable to
the Trustee. Assets transferred to the Trust by the Company in the form of life
insurance policies or other property may be held by the Trustee in kind, or, if
the Company determines that funds are needed to make payments hereunder, may be
sold by the Trustee. The Trustee is expressly empowered to borrow (as directed
by the Company) against the cash surrender value of any life insurance policy
for the purpose of paying premiums on life insurance policies or for the
payment of benefits, whether or not such premiums or benefit payments are
- 17 -
<PAGE> 21
for the benefit of the individual insured by such policy. Cash paid to the
Trustee shall be invested in the following:
(i) any open market commercial paper maturing within 270 days after the
issuance thereof which, on the date of acquisition, has a rating of
"A-2" or better by Standard & Poor's Corporation, "P-2" or better by Moody's
Investors Services, Inc. or an equivalent rating by any other nationally
recognized credit rating agency of similar standing;
(ii) any marketable direct obligations of the United States of America or
marketable obligations of any agency or instrumentality thereof which is
fully guaranteed by the United States of America, in any case maturing within
12 months after the date of acquisition thereof; and
(iii) any certificates of deposit maturing within 12 months after the date
of issuance thereof issued by a bank or trust company organized under the laws
of the United States of America or any state thereof, including the Trustee's
banking department, the deposits or long term debt of which is rated "A" or
better by Standard & Poor's Corporation or Moody's Investor Services, Inc.
and which has capital, surplus and undivided profits aggregating at least
$50,000,000;
(iv) If investments in either one or a combination of (i), (ii) and (iii)
above do not offer the short term liquidity necessary to meet the cash
requirements of the Trust, then the Trustee in accordance with guidelines
approved by the Company may invest in short-term money market mutual funds
managed by AMCORE Financial Inc. or any of its affiliates or subsidiaries, and
provided, further, that the Trustee shall not be liable for any failure to
maximize the income earned on that portion of the Trust Corpus as is from time
to time invested or reinvested as set forth above, nor for any loss of income
due to liquidation of any investment which the Trustee believes necessary to
make payments or to reimburse expenses under the terms of this Trust.
- 18 -
<PAGE> 22
The Trustee shall not be liable as a result of its retaining any investment,
nor for any loss to or diminution of the Trust assets resulting from any such
action.
ARTICLE VII
POWERS AND RIGHTS OF TRUSTEE
Section 7.1. Trustee's Powers. The Trustee shall have the following powers
and rights, in addition to those vested in it elsewhere in this Agreement or by
law:
(i) to retain any marketable securities transferred to the Trustee,
irrespective of the extent of diversification or any law or rule of court
concerning trust investments, or to sell any such securities;
(ii) to cause any assets to be held or registered in the Trustee's name
individually, in the name of a nominee or in such other form as the Trustee
deems best, in each case without disclosing the Trust relationship and
without retaining possession and control of the assets so held or registered;
(iii) to vote in person or by general or limited proxy, or refrain from
voting, any securities for any purpose in the event that such securities
shall be entitled to vote with respect to any matter; to exercise or sell any
conversion rights; to consent to and join in or oppose any reorganization,
consolidation, merger, recapitalization, spin-off, combination or any other
change in the corporate structure of the issuer of any securities held by the
Trustee or any exchange of such securities for other securities or cash, and
in connection therewith to deposit and accept and hold other securities or
cash received therefor;
- 19 -
<PAGE> 23
(iv) to employ agents, attorneys, accountants, actuaries, brokers,
custodians and proxies and to delegate to them such powers as the Trustee
deems advisable;
(v) to contest, prosecute, compromise or abandon claims or other charges
in favor of or against the Trust, and the Company shall indemnify the Trustee
against all expenses and liabilities sustained or anticipated by it by reason
thereof;
(vi) to perform other acts necessary or appropriate for the proper
administration of the Trust, execute and deliver necessary instruments and
give full receipts and discharges; and
(vii) to interpret the terms and provisions of the Trust, to establish and
revise rules and regulations relating to the Trust and to make any other
determinations that it believes are necessary or advisable for the
administration of the Trust.
Section 7.2. Advice of Counsel. The Trustee may consult with legal
counsel, who may be counsel for the Company, independent actuaries, who may be
regularly retained by the Company, independent public accountants who may be
regularly retained by the Company, or other experts in respect of any of its
rights, powers, duties or obligations hereunder.
Section 7.3. Indemnification of Trustee. The Trustee shall be indemnified
and held harmless by the Company from and against any and all liability to
which the Trustee shall be subjected by reason of carrying out its duties and
obligations under the Trust, including all expenses reasonably incurred in its
defense if the Company shall fail to provide such defense,
- 20 -
<PAGE> 24
other than any liability arising out of the Trustee's negligence or willful
misconduct. The Trustee shall be fully protected in relying upon any notice
given hereunder which it in good faith believes to be genuine and executed and
delivered in accordance with this Agreement.
Section 7.4. Compensation and Expenses. The Trustee shall be entitled to
such reasonable compensation as may be agreed upon from time to time by the
Company and the Trustee. The Trustee is authorized and directed to pay from the
Fund all costs and expenses incurred in administering the Fund, including the
compensation, fees and expenses of the Trustee, the fees of counsel for the
Trustee and other administrative expenses to the extent such expenses are not
paid by the Company.
ARTICLE VIII
ACCOUNTS AND REPORTS OF THE TRUSTEE
Section 8.1. Records and Accounts of the Trustee. The Trustee shall
maintain accurate and detailed records and accounts of all transactions of the
Trust and make them available at all reasonable times for inspection or audit
by any person designated by the Company. At the direction of the Company, the
Trustee shall submit to the independent accountants for the Company and
- 21 -
<PAGE> 25
to others designated by the Company such valuations, reports or other
information as any of them may reasonably require.
Section 8.2. Cash Basis of Accounts. All accounts of the Trustee shall be
kept on a cash basis.
Section 8.3. Fiscal Year. The fiscal year of the Trust shall be the same
as the fiscal year of the Company; and if the Company shall notify the Trustee
that the Company has changed its fiscal year, the Trustee shall take the
necessary steps to change the fiscal year of the Trust to correspond therewith.
Section 8.4. Annual Report. As soon as practicable after the end of each
fiscal year of the Trust and after the effective date of the removal or
resignation of the Trustee, the Trustee shall file with the Company a written
report setting forth all transactions with respect to the Fund during such
fiscal year or during the period from the end of the last fiscal year to the
date of such removal or resignation and listing the assets of the Fund and the
market values thereof as of the last business day of the period covered by such
report.
Section 8.5. Aporoval of Reports. Upon the receipt by the Trustee of the
Company's written approval of any report delivered pursuant to Section 8.4, or
upon the expiration of
- 22 -
<PAGE> 26
three months after delivery of any such report to the Company, such report (as
originally filed if no objection shall have been timely made by the Company, or
as adjusted pursuant to agreement between the Company and the Trustee) shall be
deemed to be final, except as to such matters, if any, specified by written
objections theretofore delivered to the Trustee by the Company regarding which
the Trustee has not yet given an explanation or made adjustments satisfactory
to the Company, and the Trustee shall be released and discharged as to all
matters set forth in such report (other than any unresolved matters set forth
in such written objections) to the same extent as though such report has been
settled and allowed by a decree of a court having competent jurisdiction
regarding such report, the Trustee and the Company. The Trustee, nevertheless,
shall have the right to have its accounts and reports settled by judicial
proceedings if it so elects, in which event the Company and the Trustee shall
be the only necessary parties (although the Trustee may also join such other
parties as it may deem appropriate).
- 23 -
<PAGE> 27
ARTICLE IX
REMOVAL, RESIGNATION AND SUCCESSION OF THE TRUSTEE
Section 9.1. Removal. The Company, by resolution of its board of
directors, may remove the Trustee at any time, such removal to take effect upon
the effective date of the appointment of a successor Trustee as hereinafter
provided by giving 30-days' prior written notice to the Trustee.
Section 9.2. Resignation. The Trustee may resign by delivering to the
Company a written resignation to take effect upon the effective date of the
appointment of a successor Trustee as hereinafter provided.
Section 9. 3. Appointment, Qualifications and Powers of Successor Trustee.
The Company shall appoint as a successor Trustee, by resolution of its board of
directors, a bank or trust company having the requisite corporate trust powers
to act as the Trustee, provided such bank or trust company shall have capital
stock and surplus at the time of such appointment of not less than $200,000,000.
Each successor Trustee shall have all the rights, powers, title, discretion,
obligations, duties and immunities given to, or acquired by, the original
Trustee. The legal title to the assets of the Fund shall be and remain vested
in the Trustee from time to time acting hereunder without any
- 24 -
<PAGE> 28
transfer or conveyance to, by or from any succeeding or retiring Trustee. No
successor Trustee shall be liable for the acts or omissions of any prior
Trustee or be obligated to examine the accounts, acts or omissions of any prior
Trustee. Upon the appointment of a successor Trustee, the removed or resigning
Trustee shall transfer and deliver the assets of the Trust Fund to such
successor after reserving such reasonable amounts as it shall deem necessary to
provide for any expenses, fees, taxes then or thereafter chargeable against the
Trust Fund.
Section 9.4. Changes in Organization of Corporate Trustee. In the event
that any Trustee hereunder shall be converted into, shall merge or consolidate
with, or shall sell or transfer substantially all of its corporate trust
business to, another bank or trust company qualified to act hereunder, the bank
or trust company resulting from such conversion, merger or consolidation, or to
which such sale or transfer shall be made, shall thereupon become and be the
Trustee hereunder with the same effect as though originally named herein.
- 25 -
<PAGE> 29
ARTICLE X
AMENDMENT OR TERMINATION
Section 10.1. Authority to Amend or Terminate. The Company shall have the
right at any time and from time to time to amend the Trust in any manner, in
whole or in part, or to terminate the Trust; provided, however, that no such
amendment shall change the duties or liabilities of the Trustee without its
written consent; and provided further, that no amendment or termination shall
be made which would in any manner diminish or otherwise adversely affect the
rights or Beneficiaries or Claimants under Article V or provide for the
distribution of the Fund to the Company under circumstances other than those
described in Article V.
Section 10.2 Method of Making Amendment. Each amendment of the Trust shall
be made by delivery to the Trustee of a written instrument setting forth such
amendment duly executed by the Company, together with a certified copy of a
resolution of the Board of Directors of the Company authorizing the execution
of such written instrument. Such written instrument (with the consent to the
Trustee endorsed thereon, if its duties or liabilities are changed thereby)
shall constitute the instrument of amendment.
- 26 -
<PAGE> 30
Section 10.3. Termination of Trust. Termination of the Trust shall occur
when the Trustee shall cease to hold any assets hereunder.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Protection of Persons Dealing with Trustee. No person, other
than the Company, dealing with the Trustee shall be required or entitled to see
to the application of any money paid or property delivered to the Trustee, or
to determine whether or not the Trustee is acting pursuant to authority granted
to it hereunder or to authorizations or directions herein required.
Section 11.2. Tax Status of Trust. The Trust is intended to be a trust the
assets of which are deemed to be owned for federal income tax purposes by the
Company as grantor pursuant to subpart E, part I, subchapter J, chapter 1,
subtitle A of the Code. Until advised otherwise, the Trustee may conclusively
assume that the Trust is not subject to federal income tax.
- 27 -
<PAGE> 31
Section 11.3. No Interest in Company Given by Trust. Neither the creation
of the Trust nor anything contained in this Agreement shall be construed as
giving any person or employee of the Company any equity or interest in any
assets (other than the Fund), business or affairs of the Company or any right
to continue in the employ of the Company.
Section 11.4. Gender and Plurals. Words in the masculine gender shall
include the feminine gender, and, unless the context otherwise requires, words
in the singular shall include the plural and words in the plural shall include
the singular.
Section 11.5. Governing Law. This Agreement and the Trust shall be
governed by, and construed in accordance with, the internal laws (as opposed to
conflict of law provisions) of the State of Illinois.
ARTICLE XII
EXECUTION
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
- 28 -
<PAGE> 32
IN WITNESS WHEREOF, the Company and the Trustee, to evidence the
establishment of the Trust, have each caused the Trust to be signed and their
respective corporate seals hereto affixed by their authorized officers, all on
this 22nd day of December 1997.
CLARCOR INC.
By /s/ Bruce A. Klein
---------------------------
Title V.P. - Finance & CFO
-------------------------
ATTEST:
/s/ Marcia S. Blaylock
- --------------------------
Title V.P.- Secretary
---------------------
AMCORE Investment Group, N.A.
By /s/ Thomas H. Scoville
---------------------------
Title V.P. & Trust Officer
-------------------------
ATTEST:
/s/ Mary D. Baer
- --------------------------
Title V.P. & Trust Officer
---------------------
- 29 -
<PAGE> 1
EXHIBIT 11
CLARCOR INC.
EXHIBIT 11--COMPUTATION OF PER SHARE EARNINGS
FOR THE FIVE YEARS ENDED NOVEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30,
--------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 1997 1996 1995 1994 1993
- -------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1. Average number of shares
outstanding................ 16,088,981 15,938,421 15,900,415 15,869,463 15,887,373
2. Net additional shares
resulting from assumed
exercise of stock
options*................... 312,563 221,223 256,346 226,022 201,999
---------- ---------- ---------- ---------- ----------
3. Adjusted average shares
outstanding for fully
diluted computation (1 plus
2)......................... 16,401,544 16,159,644 16,156,761 16,095,485 16,089,372
========== ========== ========== ========== ==========
Earnings per share of common
stock:
Primary...................... $1.67 $1.63 $1.48 $1.35 $1.09
========== ========== ========== ========== ==========
Assuming full dilution....... $1.64 $1.61 $1.45 $1.33 $1.07
========== ========== ========== ========== ==========
</TABLE>
- ------------------------------
* Assumes proceeds from exercise of stock options used to purchase treasury
shares at the greater of the year-end or the average market price during the
period.
Note: Prior period amounts have been restated to reflect the results of United
Air Specialists, Inc. under the requirements of pooling of interests accounting.
<PAGE> 1
EXHIBIT 13(a)ii
CONSOLIDATED BALANCE SHEETS
November 30, 1997 and 1996 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
===============================================================================
<TABLE>
<CAPTION>
Restated
ASSETS 1997 1996
===============================================================================
<S> <C> <C>
Current assets:
Cash and short-term cash investments .................... $ 30,324 $ 18,827
Accounts receivable, less allowance for losses
of $2,106 for 1997 and $2,007 for 1996 ............... 62,387 58,739
Inventories ............................................. 58,282 56,887
Prepaid expenses and other .............................. 3,917 2,391
Deferred income taxes ................................... 5,617 3,882
------------------
Total current assets ....................... 160,527 140,726
------------------
Marketable securities, at fair value ....................... -- 3,292
Investment in affiliate, at cost ........................... 1,899 530
Plant assets, at cost less accumulated depreciation ........ 82,905 84,525
Excess of cost over fair value of assets acquired,
less accumulated amortization ........................... 15,777 15,503
Pension assets ............................................. 13,897 12,453
Other assets ............................................... 7,514 9,990
------------------
Total assets ............................... $282,519 $267,019
==================
LIABILITIES
===============================================================================
Current liabilities:
Current portion of long-term debt ....................... $ 1,140 $ 7,625
Accounts payable and accrued liabilities ................ 48,153 39,688
Income taxes ............................................ 4,944 3,984
------------------
Total current liabilities .................. 54,237 51,297
------------------
Long-term debt, less current portion ....................... 37,656 43,449
Postretirement health care benefits ........................ 1,941 2,009
Long-term pension liabilities .............................. 7,556 6,607
Deferred income taxes ...................................... 9,070 8,068
Minority interests ......................................... 897 908
Contingencies
SHAREHOLDERS' EQUITY
===============================================================================
Capital stock:
Preferred, par value $1, authorized 1,300,000
shares, none issued .................................. -- --
Common, par value $1, authorized 30,000,000 shares,
issued 16,162,402 in 1997 and 15,955,784 in 1996 ..... 16,162 15,956
Capital in excess of par value .......................... 2,857 1,276
Foreign currency translation adjustments ................ (2,700) (1,753)
Unrealized holding gain on marketable
securities, net of taxes ............................. -- 992
Retained earnings ....................................... 154,843 138,210
------------------
Total shareholders' equity ................. 171,162 154,681
------------------
Total liabilities and shareholders' equity . $282,519 $267,019
==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 1
EXHIBIT 13(a)iii
CONSOLIDATED STATEMENTS OF EARNINGS
for the years ended November 30, 1997, 1996 and 1995 (DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
===============================================================================
<TABLE>
<CAPTION>
Restated Restated
1997 1996 1995
===============================================================================
<S> <C> <C> <C>
Net sales ............................ $394,264 $372,382 $330,110
Cost of sales ........................ 273,702 263,597 234,452
-----------------------------------
Gross profit ................... 120,562 108,785 95,658
Selling and administrative expenses .. 73,166 66,189 56,930
Merger-related costs ................. 2,972 -- --
-----------------------------------
Operating profit ............... 44,424 42,596 38,728
-----------------------------------
Other income (expense):
Interest expense .................. (2,759) (3,822) (3,418)
Interest and dividend income ...... 1,020 1,132 1,104
Gain on sale of marketable
securities ...................... 1,706 1,675 --
Other, net ........................ (199) (176) 217
-----------------------------------
(232) (1,191) (2,097)
-----------------------------------
Earnings before income taxes
and minority interests ...... 44,192 41,405 36,631
Provision for income taxes ........... 17,164 15,315 13,060
-----------------------------------
Earnings before
minority interests .......... 27,028 26,090 23,571
Minority interests in earnings
of subsidiaries ................... (110) (145) (71)
-----------------------------------
Net earnings ......................... $26,918 $25,945 $23,500
===================================
Net earnings per common share ........ $1.67 $1.63 $1.48
===================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 1
EXHIBIT 13(a)iv
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended November 30, 1997, 1996 and 1995 (DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
===============================================================================
<TABLE>
<CAPTION>
Common Stock
--------------------------------------
Issued In Treasury Foreign
------------------ ----------------- Capital in Currency Unrealized
Number Number Excess of Translation Holding Retained
of Shares Amount of Shares Amount Par Value Adjustments Gain Earnings
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1994,
as previously reported .... 14,803,788 $14,804 42,900 $ 840 $183 $ (609) $ 911 $103,013
Merger accounted for as a
pooling of interests ...... 1,055,606 1,055 -- -- (105) (556) -- 4,946
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1994,
as restated ............... 15,859,394 15,859 42,900 840 78 (1,165) 911 107,959
Net earnings .................. -- -- -- -- -- -- -- 23,500
Retirement of treasury stock .. (42,900) (43) (42,900) (840) (351) -- -- (446)
Stock options exercised ....... 49,267 50 -- -- 537 -- -- 70
Issuance of stock under
award plans ............... 36,832 37 -- -- 742 -- -- --
Cash dividends -- $.6325
per common share .......... -- -- -- -- -- -- -- (9,330)
Unrealized holding gain on
marketable securities ..... -- -- -- -- -- -- 374 --
Translation adjustments ....... -- -- -- -- -- (638) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1995 .... 15,902,593 15,903 -- -- 1,006 (1,803) 1,285 121,753
Net earnings .................. -- -- -- -- -- -- -- 25,945
Purchase of treasury stock .... -- -- 21,900 22 -- -- -- --
Retirement of treasury stock .. (21,900) (22) (21,900) (22) (408) -- -- --
Stock options exercised ....... 62,159 62 -- -- 336 -- -- 24
Issuance of stock under
award plans ............... 12,932 13 -- -- 342 -- -- --
Cash dividends -- $.6425
per common share .......... -- -- -- -- -- -- -- (9,512)
Unrealized holding gain on
marketable securities ..... -- -- -- -- -- -- 653 --
Realized gain on sale of
marketable securities ..... -- -- -- -- -- 72 (946) --
Translation adjustments ....... -- -- -- -- -- (22) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1996 .... 15,955,784 15,956 -- -- 1,276 (1,753) 992 138,210
Net earnings .................. -- -- -- -- -- -- -- 26,918
Stock options exercised ....... 195,977 196 -- -- 1,380 -- -- 5
Issuance of stock under
award plans ............... 10,641 10 -- -- 201 -- -- --
Cash dividends -- $.6525
per common share .......... -- -- -- -- -- -- -- (10,290)
Realized gain on sale of
marketable securities ..... -- -- -- -- -- 180 (992) --
Translation adjustments ....... -- -- -- -- -- (1,127) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1997 .... 16,162,402 $16,162 -- $ -- $2,857 $(2,700) $ -- $154,843
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 1
EXHIBIT 13(a)v
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended November 30, 1997, 1996 and 1995 (DOLLARS IN THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
Restated Restated
1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ....................................................... $ 26,918 $ 25,945 $ 23,500
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation ................................................... 11,001 10,150 8,594
Amortization ................................................... 599 554 551
Gain on sale of marketable securities .......................... (1,706) (1,675) --
Minority interests in earnings of subsidiaries ................. 110 145 71
Net gain on dispositions of plant assets ....................... (512) (243) (177)
Changes in assets and liabilities, net of business acquisitions:
Accounts receivable ....................................... (3,224) (1,591) (9,302)
Inventories ............................................... (1,058) (6,486) (7,849)
Prepaid expenses .......................................... 1,028 211 409
Accounts payable and accrued liabilities .................. 7,247 (3,991) 5,887
Pension assets and liabilities, net ....................... (443) 185 (1,713)
Income taxes .............................................. 1,771 1,411 1,031
Deferred income taxes ..................................... (99) 2,060 90
------------------------------
Net cash provided by operating activities ............. 41,632 26,675 21,092
------------------------------
Cash flows from investing activities:
Additions to plant assets .......................................... (11,349) (22,230) (14,471)
Proceeds from sale of marketable securities ........................ 3,322 3,067 --
Business acquisitions, net of cash acquired ........................ (1,522) (1,358) (14,125)
Investments in affiliate ........................................... (811) (530) --
Dividends from marketable securities ............................... -- (302) (246)
Dispositions of plant assets ....................................... 2,100 2,419 173
Other, net ......................................................... 67 -- (375)
------------------------------
Net cash (used in) investing activities ............... (8,193) (18,934) (29,044)
------------------------------
Cash flows from financing activities:
Borrowings under long-term debt .................................... 1,123 9,870 25,206
Reduction of long-term debt ........................................ (13,988) (9,147) (9,012)
Sales of capital stock under stock option plan ..................... 1,305 445 362
Purchases of treasury stock ........................................ -- (430) --
Cash dividends paid ................................................ (10,290) (9,512) (9,330)
------------------------------
Net cash provided by (used in) financing activities ... (21,850) (8,774) 7,226
------------------------------
Net effect of exchange rate changes on cash ............................ (92) 69 42
------------------------------
Net change in cash and short-term cash investments ..................... 11,497 (964) (684)
Cash and short-term cash investments, beginning of year ................ 18,827 19,791 20,475
------------------------------
Cash and short-term cash investments, end of year ...................... $ 30,324 $ 18,827 $ 19,791
==============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 1
EXHIBIT 13(a)vi
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
===============================================================================
On February 28, 1997, CLARCOR Inc. completed its acquisition of United Air
Specialists, Inc. (UAS), a manufacturer of air quality equipment based in
Cincinnati, Ohio. (See Note B.) The transaction has been structured as a
statutory merger accounted for as a pooling of interests. As a result of the
acquisition, UAS became a subsidiary of CLARCOR Inc. Under the requirements of
pooling of interests accounting treatment, the consolidated financial
statements and accompanying notes for the periods presented have been restated
(except for cash dividends declared per share, which represent the historical
dividends declared by CLARCOR Inc.) to include the results of operations, cash
flows, and financial positions of UAS. CLARCOR Inc. and its subsidiaries are
hereinafter collectively referred to as the "Company" or CLARCOR.
A. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include all domestic and foreign
subsidiaries which are more than 50% owned and controlled.
Minority interests represent an outside shareholder's 10% ownership of the
common stock of Filtros Baldwin de Mexico (FIBAMEX), outside shareholders' 30%
ownership of Baldwin-Unifil S.A., and an outside shareholder's 50% ownership of
Baldwin Filters (Aust.) Pty. Limited.
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates, except that revenues, costs and expenses are
translated at average current rates during each reporting period. Net exchange
gains or losses resulting from the translation of foreign financial statements
and the effect of exchange rate changes on intercompany transactions of a
long-term investment nature are accumulated and credited or charged directly to
a separate component of shareholders' equity.
Plant Assets
Depreciation is provided by the straight-line and accelerated methods for
financial statement purposes and by the accelerated method for tax purposes.
The provision for depreciation is based on the estimated useful lives of the
assets. It is the policy of the Company to capitalize renewals and betterments
and to charge to expense the cost of current maintenance and repairs.
Excess of Cost Over Fair Value of Assets Acquired
The excess of cost over fair value of assets acquired is being amortized
over a forty-year period, using the straight-line method subject to impairment
write-offs determined by underlying cash flows. Accumulated amortization was
$7,192 and $6,802 at November 30, 1997 and 1996, respectively.
Statements of Cash Flows
All highly liquid investments that are readily saleable are considered to
be short-term cash investments. The carrying amount approximates fair value.
The Company has certain noncash transactions related to stock option and award
plans that are described in Note M.
Concentrations of Credit
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short-term cash
investments and trade receivables. The Company places its short-term cash
investments with high credit quality financial institutions and in high-grade
municipal securities. At November 30, 1997 and 1996, the Company held
short-term municipal securities with a total cost of $27,620 and $15,780,
respectively, with an original maturity of three months or less. Cost
approximates market for these securities. Concentrations of credit risk with
respect to trade receivables are limited due to the Company's large number of
customers and their dispersion across many different industries and locations.
Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax basis of assets
and liabilities.
Stock-Based Compensation
On November 30, 1997, the Company adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation." SFAS 123 encourages, but does not require,
companies to adopt a fair value based method for determining expense related to
stock-based compensation. The disclosures are presented in Note M. The
Company continues to account
25
<PAGE> 2
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
===============================================================================
for stock-based compensation using the intrinsic value method as prescribed
under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations.
Revenue Recognition
Revenue is recognized upon shipment of goods to customers.
Net Earnings Per Common Share
Net earnings per common share is based on the weighted-average number of
common shares outstanding during the respective years.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per
Share" (EPS), which requires dual presentation of basic EPS and diluted EPS,
simplifies existing computational guidelines, and increases the comparability
of earnings per share on an international basis. SFAS 128 is effective for
periods ending after December 15, 1997 and requires restatement of all prior
period EPS data presented. The Company will adopt SFAS 128 in its first
quarter of fiscal year 1998. Adoption of SFAS 128 will not have a material
impact on the Company's EPS other than the additional disclosure of diluted
EPS.
Use of Management's Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Accounting Period
The Company's fiscal year ends on the Saturday closest to November 30.
Each of the fiscal years ended November 29, 1997, November 30, 1996, and
December 2, 1995, was comprised of fifty-two weeks. In the consolidated
financial statements, all fiscal years are shown to begin as of December 1 and
end as of November 30 for clarity of presentation.
Reclassification
Certain reclassifications have been made to conform prior years' data to
the current presentation. These reclassifications had no effect on reported
earnings.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenue, expenses, gains, and losses)
in a full set of general-purpose financial statements. The Company will adopt
SFAS 130 in its fiscal year 1999.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and Related
Information," which changes the way public companies report information about
operating segments. SFAS 131, which is based on the management approach to
segment reporting, establishes the requirement to report selected segment
information quarterly and to report entity-wide disclosures about products and
services, major customers, and the material countries in which the entity holds
assets and reports revenue. The Company will adopt SFAS 131 in its fiscal year
1999. Management does not expect the adoption of SFAS 131 to change the way it
currently reports the Company's segment information.
B. BUSINESS COMBINATIONS, INVESTMENTS IN AFFILIATES, AND DIVESTITURE
On February 28, 1997, the Company completed its acquisition of UAS, a
manufacturer of air quality equipment based in Cincinnati, Ohio. The Company
issued 1,081,741 shares of its common stock in exchange for all the shares of
UAS stock. Additional shares of the Company's common stock will be issued upon
exercise of UAS options. (See Note M for a discussion of the additional shares
to be issued.) The transaction has been structured as a statutory merger
accounted for as a pooling of interests. As a result of the acquisition, UAS
became a subsidiary of the Company.
Under the requirements of the pooling of interests accounting treatment,
the consolidated financial statements for the periods presented have been
restated (except for cash dividends declared per share, which represent the
historical dividends declared by the Company) to include the results of
operations, cash flows, and financial positions of UAS. UAS' fiscal year-end
for all periods presented has been changed to the Saturday closest to November
30. Therefore, the Company's restated consolidated financial statements for
fiscal 1997, 1996, and 1995 include UAS for the period beginning December 1 and
ending on November 30 of the following year. Certain prior period amounts for
UAS have been reclassified to conform with the presentation of such data by the
Company. UAS' net sales and net earnings for the fiscal years ended November
30, 1996 and 1995 were $38,994 and $39,916, and $967 and $1,546, respectively.
26
<PAGE> 3
===============================================================================
No intercompany transactions existed between the two companies during the
periods presented. A one-time pre-tax charge of $2,972 ($2,390 net of tax)
covering the costs of the merger includes legal and professional fees,
non-compete agreements, and costs to integrate the businesses of the two
companies.
Other business acquisitions in fiscal 1997 included Airklean Engineering
Pte. Ltd., an Airguard distributor in Singapore; a distribution facility in
Toledo, Ohio; and The Filtair Company in Arlington, Texas; each purchased for
cash. None of these acquisitions had a significant impact on the results of
the Company.
Also during 1997, the Company sold the assets of its Tube division located
in Downers Grove, Illinois. The divestiture did not have a significant impact
on the results of the Company.
During fiscal 1996, Baldwin-Unifil S. A., in which the Company owns a 70%
equity interest, was incorporated in South Africa. Baldwin-Unifil S. A.
acquired certain assets from Unifil (Pty.) Ltd. for $1,298 in cash. The
Company also entered into a joint venture in China, called Baldwin-Weifang
Filters Ltd., and accounts for its investment on a cost basis.
The Company purchased certain assets comprising the filtration business of
Hastings Manufacturing Company on September 4, 1995 for $14,125 in cash,
including acquisition expenses. The business is a manufacturer of automotive
and light-duty filter products. The acquisition has been accounted for by the
purchase method of accounting and the operating results of the business are
included in the Company's consolidated statements of earnings from the date of
the acquisition.
The following unaudited pro forma amount is presented as if the Hastings
acquisition had occurred at the beginning of the period presented immediately
preceding the acquisition and does not purport to be indicative of what would
have occurred had the acquisition been made as of that date or of results which
may occur in the future. Unaudited pro forma net sales for the Company would
have been $360,110 for the year ended November 30, 1995. Net earnings and
earnings per share for this period would not have been significantly affected.
C. INVESTMENT IN MARKETABLE SECURITIES
In November 1996, the Company sold 50% of its 5% interest in G.U.D.
Holdings Limited, an Australian company, recognizing a pretax gain on the sale
of $1,675 in fiscal 1996. The Company sold its remaining 2.5% investment in
December 1996 recognizing a pretax gain on the sale of $1,706 in fiscal 1997.
The investment, with an average cost basis, had been classified as available
for sale under the provisions of Statement of Financial Accounting Standards
No. 115, (SFAS 115) "Accounting for Certain Investments in Debt and Equity
Securities." The quoted market value of the investment was $3,292 as of
November 30, 1996, which included unrealized holding gains, net of deferred
income taxes, of $992 and $1,285 as of November 30, 1996 and 1995,
respectively. The 1996 and 1995 unrealized holding gains, net of deferred
income taxes, have been included as a component of shareholders' equity at
November 30.
D. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 61% and 58% of the
Company's inventories at November 30, 1997 and 1996, respectively, and by the
first-in, first-out (FIFO) method for all other inventories. The FIFO method
approximates current cost. Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Raw materials ........................................... $ 20,890 $ 20,713
Work-in-process ......................................... 9,341 12,473
Finished products ....................................... 30,585 26,648
--------------------
Total at FIFO ......................................... 60,816 59,834
Less excess of FIFO
over LIFO ............................................. 2,534 2,947
--------------------
$ 58,282 $ 56,887
====================
</TABLE>
E. PLANT ASSETS
Plant assets at November 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Land .................................................... $ 2,566 $ 2,563
Buildings and building fixtures ......................... 53,442 49,824
Machinery and equipment ................................. 119,644 114,726
Construction-in-process ................................. 4,967 8,837
--------------------
180,619 175,950
Less accumulated depreciation ........................... 97,714 91,425
--------------------
$ 82,905 $ 84,525
====================
</TABLE>
27
<PAGE> 4
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
===============================================================================
F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at November 30, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Accounts payable ........................................ $ 22,168 $ 20,366
Accrued salaries, wages and commissions ................. 8,773 6,375
Compensated absences .................................... 3,742 3,127
Accrued pension liabilities ............................. 996 996
Other accrued liabilities ............................... 12,474 8,824
--------------------
$ 48,153 $ 39,688
====================
</TABLE>
G. LONG-TERM DEBT
Long-term debt at November 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Promissory note, interest payable quarterly at 9.71% ...... $ - $ 6,416
Promissory note, interest payable semi-annually at 6.69% .. 25,000 25,000
Industrial Revenue Bonds, at 2.65% to 4.80% interest rates. 10,958 11,127
Borrowings under domestic lines of credit, prime .......... - 4,865
Note payable to bank, denominated in Deutsche
marks, interest payable quarterly at FIBOR plus 2.75% ... 362 768
Other obligations, at 7% to 10% interest rates ............ 2,476 2,898
--------------------
38,796 51,074
Less current portion ...................................... 1,140 7,625
--------------------
$ 37,656 $ 43,449
====================
</TABLE>
The 9.71% promissory note was paid at maturity on March 31, 1997. The
6.69% promissory note matures July 25, 2004, but the Company is required to
prepay, without premium, certain principal amounts as stated in the agreement.
A fair value estimate of $40,080 and $51,238 for the long-term debt in 1997 and
1996, respectively, is based on the current interest rates available to the
Company for debt with similar remaining maturities. Under the note agreements,
the Company must meet certain restrictive covenants. The primary covenants
include maintaining minimum consolidated net worth at $100,000, limiting new
borrowings, and restricting certain changes in ownership as stipulated in the
agreement.
On February 1, 1996, the Company, in cooperation with the South Dakota
Economic Development Finance Authority, issued $8,410 of Industrial Revenue
Bonds. The bonds are due February 1, 2016, with a variable rate of interest
that is reset weekly. In conjunction with the issuance of the Industrial
Revenue Bonds, the Company holds in trust certain investments restricted and
committed for the acquisition of plant equipment. At November 30, 1997 and
1996, the restricted asset balance of $1,525 and $2,780 is included in other
long-term assets.
UAS has $2,547 and $2,717 of outstanding Industrial Revenue Bonds as of
November 30, 1997 and 1996, respectively. These mature in 2005 and are backed
by a letter of credit that requires an annual fee of 1.25% of the outstanding
balance. This letter of credit expires in May 2001.
Other obligations include a 15 year capital lease for a manufacturing
facility acquired in 1991 from the Community Development Authority of the City
of Gothenburg, Nebraska, and debt acquired through the merger with UAS and the
acquisition of Airguard Industries including an industrial revenue bond due in
2003.
The Company has a $25,000 revolving credit facility with a financial
institution, against which $9,995 and $9,421 letters of credit have been issued
at November 30, 1997 and 1996, respectively. The agreement related to this
obligation includes certain restrictive covenants that are similar to the 6.69%
promissory note. The agreement expires in 2000.
Principal maturities of long-term debt for the next five fiscal years
ending November 30 approximates: $1,140 in 1998, $676 in 1999, $5,508 in 2000,
$5,555 in 2001, $5,600 in 2002, and $20,317 thereafter.
Interest paid totaled $2,870, $3,987, and $2,930 during 1997, 1996, and
1995, respectively.
H. RETIREMENT PLANS
The Company has defined benefit pension plans covering certain employees.
Plan benefits are principally based upon years of service, compensation, and
social security benefits. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes.
28
<PAGE> 5
===============================================================================
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheet at November 30:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
-----------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit
obligation, including
vested benefits of
$51,615 and $47,269
in 1997 and 1996,
respectively ................... $52,755 $ 8,552 $48,628 $ 7,603
==========================================
Plan assets at fair value ....... $78,046 $ - $66,857 $ -
Less projected benefit
obligation for service
rendered to date ............... 58,818 10,218 54,266 8,785
------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation ............. 19,228 (10,218) 12,591 (8,785)
Unrecognized net loss (gain) from
past experience different
from that assumed ............. (2,163) 2,425 4,214 1,988
Unrecognized net asset
being recognized over
approximately 15 years ........ (3,168) - (4,352) -
Recognition of additional
minimum liability ............. - (759) - (806)
------------------------------------------
Accrued pension asset (liability) for
defined benefit plans ......... $13,897 $ (8,552) $12,453 $(7,603)
==========================================
</TABLE>
In addition to the plan assets related to qualified plans, the Company has
funded approximately $3,002 and $2,829 at November 30, 1997 and 1996,
respectively, in a restricted trust for its nonqualified plans. This trust is
included in other long-term assets in the Company's consolidated balance
sheets.
The defined benefit pension plan covering the Company's non-employee
directors was terminated as of December 1, 1996. The payment of the net
present value of the Company's obligation for directors' retirement benefits
was deferred and will be paid to the directors at their normal retirement date.
The net pension expense includes the following components for the three
years ended November 30:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during
the period .................................. $ 2,029 $ 1,986 $ 1,789
Interest cost on projected benefit obligation. 4,558 4,394 4,139
Actual return on assets ...................... (14,630) (7,232) (8,791)
Net amortization and deferral ................ 8,506 1,062 3,208
-------------------------------
Net pension expense .......................... $ 463 $ 210 $ 345
===============================
</TABLE>
The projected benefit obligation has been determined with a
weighted-average discount rate of 7.25% and 7.5% in 1997 and 1996,
respectively, and a rate of increase in future compensation of primarily 5.0%
in both years. The expected weighted-average long-term rate of return was 9.0%
in both 1997 and 1996. Plan assets consist of group annuity insurance
contracts, corporate stocks, bonds and notes, certificates of deposit and U.S.
Government securities.
The Company also sponsors various defined contribution plans that provide
substantially all employees with an opportunity to accumulate funds for their
retirement. The Company matches the contributions of participating employees
based on the percentages specified in the respective plans. The Company
recognized expense related to these plans of $941, $786, and $552 in 1997,
1996, and 1995, respectively.
I. POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides certain health care benefits for certain of the
Company's retired employees. These employees become eligible for benefits if
they meet minimum age and service requirements and are eligible for retirement
benefits. The Company has the right to modify or terminate these benefits.
29
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
===============================================================================
The following table sets forth the plan's obligation and cost at November
30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ............................................... $ 2,136 $ 2,158
Fully eligible active plan participants................. 19 13
Other active plan participants ......................... 276 147
-------------------
Accumulated postretirement benefit obligation ........... 2,431 2,318
Unrecognized (loss) ..................................... (210) -
-------------------
Accrued postretirement benefit liability ............... 2,221 2,318
Less current portion, included in accrued liabilities ... 280 309
-------------------
$ 1,941 $ 2,009
===================
</TABLE>
The net periodic postretirement benefit cost includes the following
components for the three years ended November 30:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------
<S> <C> <C> <C>
Service cost - benefits attributed to service during the period ..................... $ 7 $ 11 $ 25
Interest cost on accumulated postretirement benefit obligations ..................... 162 236 218
-------------------
Net periodic postretirement benefit cost ............................................ $169 $247 $243
===================
</TABLE>
During 1996, the Company entered into an irrevocable agreement with the
Healthcare Financing Administration (HCFA), the Federal agency that oversees
Medicare, whereby certain employees and retirees of the Company's locations in
Pennsylvania relinquished their rights to receive Medicare and accepted
healthcare insurance from an insurance carrier. The HCFA entered into a
contract with the insurance carrier to administer the healthcare claims and
Medicare for these employees and retirees. This agreement terminated the
Company's primary responsibility to provide for the postretirement benefit
obligation and eliminated significant risks related to the obligation and plan
assets related to those employees and retirees. The Company recognized a
pretax gain of $672 on the curtailment of its postretirement healthcare plan
for certain employees and retirees as defined above.
Substantially all future health care benefit cost increases will be
assumed by the participants, and therefore, future increases in health care
costs will not increase the postretirement benefit obligation or cost to the
Company. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% and 7.5% in 1997 and
1996, respectively.
J. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Current:
Federal .......................... $15,095 $11,596 $11,592
State ............................ 2,356 1,432 1,407
Foreign .......................... 446 423 214
Deferred ........................... (733) 1,864 (153)
----------------------------------
$17,164 $15,315 $13,060
==================================
</TABLE>
Income taxes paid, net of refunds, totaled $15,112, $11,230, and $11,939
during 1997, 1996, and 1995, respectively.
The components of the net deferred tax liability as of November 30, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation .......................... $ 1,984 $ 1,566
Other postretirement benefits .................. 777 855
Foreign net operating loss carryforwards ....... 626 939
Loss allowance on receivables .................. 1,229 1,007
Other items .................................... 2,280 1,958
-------------------------
Total gross deferred tax assets ................. 6,896 6,325
-------------------------
Deferred tax liabilities:
Pensions ....................................... (2,151) (2,107)
Plant assets ................................... (7,766) (6,503)
Other items .................................... (432) (1,901)
-------------------------
Total gross deferred tax liabilities ............ (10,349) (10,511)
-------------------------
Net deferred tax liability ...................... $ (3,453) $ (4,186)
=========================
</TABLE>
Deferred tax assets, including foreign net operating loss carryforwards,
are expected to be realized through reversal of taxable temporary differences
and future earnings.
Earnings before income taxes and minority interests included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Domestic income ......................... $42,874 $40,224 $35,314
Foreign income .......................... 1,318 1,181 1,317
-------------------------------------
Total ................................... $44,192 $41,405 $36,631
=====================================
</TABLE>
30
<PAGE> 7
===============================================================================
The provision for income taxes resulted in effective tax rates that differ
from the statutory federal income tax rates. The reasons for these differences
are as follows:
<TABLE>
<CAPTION>
Percent of
Pretax Earnings
-----------------------
1997 1996 1995
-----------------------
<S> <C> <C> <C>
Statutory U.S. tax rates ........................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit ......... 3.2 2.6 3.0
Merger-related costs ............................... 0.8 - -
Foreign tax credit (utilization) ................... - - (0.1)
Foreign net operating loss (utilization) ........... - (0.3) (3.6)
Other, net ......................................... (0.2) (0.3) 1.4
-----------------------
Consolidated effective income tax rate ............. 38.8% 37.0% 35.7%
=======================
</TABLE>
K. CONTINGENCIES
The Company is involved in legal actions arising in the normal course of
business. Additionally, the Company is party to various proceedings relating
to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or
other responsible state agencies have designated the Company as a potentially
responsible party (PRP), along with other companies, in remedial activities for
the cleanup of waste sites under the federal Superfund statute.
Environmental and related remediation costs are difficult to quantify for
a number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of the environmental regulation and the continuing
advancement of remediation technology. Applicable federal law may impose joint
and several liability on each PRP for the cleanup. It is the opinion of
management, after consultation with legal counsel, that liabilities, if any,
resulting from these matters are not expected to have a material adverse effect
on the Company's financial condition or consolidated results of operations.
L. PREFERRED STOCK PURCHASE RIGHTS
In March 1996, the Board of Directors of CLARCOR adopted a Shareholder
Rights Plan to replace an existing plan that expired on April 25, 1996. Under
the terms of the Plan, each shareholder received rights to purchase shares of
CLARCOR Series B Junior Participating Preferred Stock. The rights become
exercisable only after the earlier to occur of (i) 10 business days after the
first public announcement that a person or group (other than a CLARCOR related
entity) has become the beneficial owner of 15% or more of the outstanding
shares of CLARCOR Common Stock, or (ii) 10 business days (unless extended by
the CLARCOR Board in accordance with the Rights Agreement) after the
commencement of, or the intention to make, a tender or exchange offer the
consummation of which would result in any person or group (other than a CLARCOR
related entity) becoming such a 15% beneficial owner. Each right entitles the
holder to buy one-hundredth of a share of such preferred stock at an exercise
price of $80.
Once the rights become exercisable, each right will entitle the holder,
other than the acquiring individual or group, to purchase a number of CLARCOR
common shares at a 50% discount to the then-market price of CLARCOR Common
Stock. In addition, under certain circumstances, if the rights become
exercisable, the holder will be entitled to purchase the stock of the acquiring
individual or group at a 50% discount. The Board may also elect to redeem the
rights at $.01 per right. The rights expire on April 25, 2006.
The authorized preferred stock includes 300,000 shares designated as
Series B Junior Participating Preferred Stock.
M. INCENTIVE PLAN
In 1994, the shareholders of CLARCOR adopted the 1994 Incentive Plan,
which allows the Company to grant stock options, restricted stock and
performance awards to officers, directors and key employees. The 1994
Incentive Plan incorporates the various incentive plans in existence prior to
March 1994, including the 1984 Stock Option Plan, the 1987 Long Range
Performance Share Plan, and the 1990 Directors' Restricted Stock Compensation
Plan. In addition, the Company has, in connection with the acquisition of UAS,
assumed the stock option plans of UAS. The Company has reserved 127,590 shares
of the Company's common stock for issuance under the assumed UAS stock option
plans.
At the inception of the 1994 Incentive Plan there were 1,000,000 shares
authorized for future grants. At November 30, 1997 and 1996, respectively,
there were 306,089 and 494,349 shares reserved for future grants, of which
306,043 and 183,260 shares were granted in December 1997 and 1996,
respectively. The remaining ungranted shares expire in December 2003.
The following is a description and a summary of key provisions related to
this plan.
31
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
===============================================================================
STOCK OPTIONS
Nonqualified stock options may, at the discretion of the Board of
Directors, be granted at the fair market value at the date of grant or an
exercise price less than the fair market value at the date of grant. Options
granted to key employees vest 25% per year beginning at the end of the third
year; therefore, they become fully exercisable at the end of six years.
Options granted to nonemployee directors vest immediately. All options expire
ten years from the date of grant unless otherwise terminated.
The following table summarizes the activity under the nonqualified stock
option plans.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ..................... 1,334,800 $17.16 1,252,906 $16.16 1,112,269 $15.56
Granted .............................................. 193,750 21.94 208,500 20.88 195,250 18.79
Exercised/surrendered ................................ (265,159) 15.59 (126,606) 13.47 (54,613) 13.30
------------------------------------------------------------------------
Outstanding at end of year ........................... 1,263,391 $18.22 1,334,800 $17.16 1,252,906 $16.16
========================================================================
Options exercisable at end of year ................... 737,954 $16.69 744,175 $15.35 726,000 $13.83
========================================================================
</TABLE>
The following table summarizes information about the options at November
30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Exercise Remaining Exercise
Prices Number Price Life in Years Number Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.55 - $18.50 671,891 $16.145 4.30 611,516 $15.93
$18.875 - $25.50 591,500 $20.573 7.97 126,438 $20.38
</TABLE>
In addition, stock options outstanding at November 30, 1997 and 1996
assumed as part of the UAS acquisition were 42,714 and 127,590, respectively.
Substitute stock options exercisable under the UAS plans were 42,714 and
119,579. These substitute options have an exercisable price range per share of
$3.60 to $11.34 at November 30, 1997 and expire between 2002 and 2005. No
grants were made under these plans in 1996 or 1997 and no future additional
awards will be granted.
LONG RANGE PERFORMANCE AWARDS
Officers and key employees may be granted target awards of Company shares
of common stock and performance units, which represent the right to a cash
payment. The awards are earned and shares are issued only to the extent that
the Company achieves performance goals determined by the Board of Directors
during a three-year performance period. The Company granted 12,010 and 11,758
performance shares on December 1, 1996 and 1995, respectively. As of November
30, 1997, none of these shares have been cancelled. The shares vest at the end
of three years.
During the performance period, officers and key employees are permitted to
vote the restricted stock and receive compensation equal to dividends declared
on common shares. The Company accrues compensation expense for the performance
opportunity ratably during the performance cycle. Compensation expense for the
plan totaled $547, $522, and $446 in 1997, 1996, and 1995, respectively.
Distribution of Company common stock and cash for the performance periods ended
November 30, 1997, 1996, and 1995 were $341, $291, and $312, respectively.
DIRECTORS' RESTRICTED STOCK COMPENSATION
The 1994 Incentive Plan grants all nonemployee directors, in lieu of cash,
shares of common stock equal to five years directors' annual retainer. The
directors' rights to the shares vest 20% on date of grant and 20% annually
during the next four years. The directors are entitled to receive dividends
and exercise voting rights with respect to all shares prior to vesting. Any
unvested shares are forfeited if the director ceases to be a nonemployee
director for any reason.
Compensation expense for the plan totaled $121, $165, and $104 in 1997,
1996, and 1995, respectively. During 1996, 4,575 shares of Company common
stock (or $5) were issued under the plan. No shares were granted in 1997.
FAIR VALUE ACCOUNTING (SFAS 123)
In 1997, the Company adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." SFAS 123 encourages, but does not require,
companies to recognize compensation cost for stock-based compensation plans
over the vesting period based upon the fair value of awards on the date of
grant. However, the statement allows the alternative of the continued use of
the intrinsic value method as prescribed under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Therefore, as
32
<PAGE> 9
===============================================================================
permitted, the Company will continue to apply APB No. 25 and related
Interpretations in accounting for its stock-based compensation plans.
Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method of SFAS 123, the Company's pro forma net earnings and earnings per share
would have been $26,702 and $1.66, and $25,782 and $1.62 for 1997 and 1996,
respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1997 and 1996. Adjustments for forfeitures
are made as they occur.
<TABLE>
<CAPTION>
1997 1996
--------------
<S> <C> <C>
Risk free interest rate ....................................... 5.98% 5.61%
Expected dividend yield ....................................... 3.05% 3.04%
Expected volatility factor .................................... 26.10% 27.90%
Expected option term (in years) ............................... 7.00 7.00
</TABLE>
The weighted-average fair value per option at the date of grant for
options granted in 1997 and 1996 was $6.03 and $5.88, respectively.
The above pro forma disclosures may not be representative of the effects
on reported net income and earnings per share for future years because
compensation cost under SFAS 123 is amortized over the options' vesting period
and compensation cost for options granted prior to fiscal year 1996 is not
considered.
N. UNAUDITED QUARTERLY FINANCIAL DATA
The unaudited quarterly data for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997:
Net sales .............................. $86,958 $96,684 $104,636 $105,986 $394,264
Gross profit ........................... 24,508 29,866 32,111 34,077 120,562
Net earnings ........................... 3,017 7,048 8,085 8,768 26,918
Net earnings per common share .......... $ 0.19 $ 0.44 $ 0.50 $ 0.54 $ 1.67
1996:
Net sales .............................. $81,014 $91,540 $99,134 $100,694 $372,382
Gross profit ........................... 23,101 27,387 28,544 29,753 108,785
Net earnings ........................... 3,752 6,277 6,943 8,973 25,945
Net earnings per common share .......... $ 0.24 $ 0.39 $ 0.44 $ 0.56 $ 1.63
</TABLE>
In the first quarter of 1997, the Company incurred merger-related costs of
$2,972 ($2,390 after-tax or $0.15 per share) as discussed in Note B and
realized a gain from the sale of securities of $1,706 ($1,092 after-tax or
$0.07 per share). In the fourth quarter of 1996, the Company realized a gain
from the sale of securities of $1,675 ($1,072 after-tax or $0.07 per share).
The realized gains are discussed in Note C.
O. SEGMENT INFORMATION
The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/Environmental Filtration and Consumer Packaging.
Engine/Mobile Filtration manufactures and markets a complete line of filters
used in the filtration of internal combustion engines, and lubrication oils,
air, fuel, coolant, hydraulic and transmission fluids in both the domestic and
international markets, including Europe, Australia, Canada, Mexico, South
Africa, Latin America and Asia. Industrial/Environmental Filtration
manufactures and markets a complete line of filters and systems used in the
filtration of commercial and industrial buildings, residences, and clean rooms
in both the domestic and international markets, including Europe, Australia,
Mexico, Canada, South Africa, Latin America and Asia. Consumer Packaging
manufactures and markets plastic closures and custom designed lithographed
metal and metal/plastic containers in both domestic and international markets,
including Canada and Germany.
Net sales represent sales to unaffiliated customers, as reported in the
consolidated statements of earnings. Intersegment sales were not material.
Assets are those assets used in each business segment. Corporate assets
consist of cash and short-term cash investments, deferred income taxes, world
headquarters facility, pension assets and various other assets that are not
specific to an industry segment.
33
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
===============================================================================
The segment data for the years ended November 30, 1997, 1996, and 1995
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Engine/Mobile Filtration........... $207,640 $195,223 $158,969
Industrial/Environmental
Filtration ....................... 111,491 103,388 101,981
Consumer Packaging................. 75,133 73,771 69,160
--------------------------------------
$394,264 $372,382 $330,110
======================================
- -------------------------------------------------------------------------------
Operating profit:
Engine/Mobile Filtration .......... $ 34,536 $ 31,169 $ 28,940
Industrial/Environmental
Filtration ....................... 4,188 4,046 3,121
Consumer Packaging ................ 8,672 7,381 6,667
--------------------------------------
47,396 42,596 38,728
Merger-Related Costs ................ (2,972) - -
--------------------------------------
$ 44,424 $ 42,596 $ 38,728
======================================
- -------------------------------------------------------------------------------
Assets:
Engine/Mobile Filtration .......... $121,804 $120,584 $104,022
Industrial/Environmental
Filtration ....................... 60,706 56,272 56,658
Consumer Packaging ................ 36,824 41,334 39,853
Corporate ......................... 63,185 48,829 45,164
--------------------------------------
$282,519 $267,019 $245,697
======================================
- -------------------------------------------------------------------------------
Additions to plant assets:
Engine/Mobile Filtration .......... $ 7,382 $ 11,386 $ 6,140
Industrial/Environmental
Filtration ....................... 2,570 1,829 2,563
Consumer Packaging ................ 1,127 4,275 5,591
Corporate ......................... 270 4,740 177
--------------------------------------
$ 11,349 $ 22,230 $ 14,471
======================================
- -------------------------------------------------------------------------------
Depreciation:
Engine/Mobile Filtration .......... $ 5,262 $ 4,533 $ 3,327
Industrial/Environmental
Filtration ....................... 2,249 2,310 2,273
Consumer Packaging ................ 2,994 2,946 2,787
Corporate ......................... 496 361 207
--------------------------------------
$ 11,001 $ 10,150 $ 8,594
======================================
</TABLE>
The following details sales volume by class of product for the Consumer
Packaging segment for those classes of products that contributed 10% or more to
total Corporate revenue.
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Containers .......................... 14% 15% 16%
</TABLE>
No class of products within the Engine/Mobile Filtration or the
Industrial/Environmental Filtration segment accounted for as much as 10% of the
total sales of the Company.
Financial data relating to the geographic areas in which the Company
operates are shown for the years ended November 30, 1997, 1996, and 1995. Net
sales by geographic area are based on sales to final customers within that
segment.
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Sales within the
United States .................... $325,361 $310,611 $278,018
Export Sales to
Other Countries .................. 43,266 37,171 29,471
Sales within
Other Countries ................. 25,637 24,600 22,621
--------------------------------------
$394,264 $372,382 $330,110
======================================
- -------------------------------------------------------------------------------
Operating profit:
On Sales within the
United States .................... $ 37,730 $ 35,530 $ 34,620
On Export Sales to
Other Countries .................. 8,043 5,649 2,817
On Sales within
Other Countries ................. 1,623 1,417 1,291
--------------------------------------
47,396 42,596 38,728
Merger-Related Costs ................ (2,972) - -
--------------------------------------
$ 44,424 $ 42,596 $ 38,728
======================================
- -------------------------------------------------------------------------------
Identifiable Assets:
United States ...................... $262,739 $249,505 $229,207
Other Countries .................... 19,780 17,514 16,490
--------------------------------------
$282,519 $267,019 $245,697
======================================
</TABLE>
34
<PAGE> 1
EXHIBIT 13(a)vii
REPORT OF INDEPENDENT ACCOUNTANTS
===============================================================================
The Board of Directors and Shareholders
CLARCOR Inc.
Rockford, Illinois
We have audited the accompanying consolidated balance sheets of CLARCOR
Inc. and Subsidiaries as of November 30, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended November 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CLARCOR Inc.
and Subsidiaries as of November 30, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended November 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Chicago, Illinois
January 9, 1998
35
<PAGE> 1
EXHIBIT 13(a)viii
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
===============================================================================
The management of CLARCOR is responsible for the preparation, integrity
and objectivity of the Company's financial statements and the other financial
information in this report. The financial statements were prepared in
conformity with generally accepted accounting principles and reflect, in all
material respects, the results of operations and the Company's financial
position for the periods shown. The financial statements are presented on the
accrual basis of accounting and, where appropriate, reflect estimates based
upon judgments of management.
In addition, management maintains a system of internal controls designed
to assure that Company assets are safeguarded from loss or unauthorized use or
disposition. Also, the controls system provides assurance that transactions
are authorized according to the intent of management and are accurately
recorded to permit the preparation of financial statements in accordance with
generally accepted accounting principles. For the periods covered by the
financial statements in this report, management believes this system of
internal controls was effective concerning all material matters. The
effectiveness of the controls system is supported by the selection and training
of qualified personnel, an organizational structure that provides an
appropriate division of responsibility, a strong budgetary system of control
and a comprehensive internal audit program.
The Audit Committee of the Board of Directors, which is composed of three
outside directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The Committee meets
periodically with representatives of management and the independent and
internal auditors to review matters of a material nature related to financial
reporting and the planning, results and recommendations of audits. The
independent and internal auditors have free access to the Audit Committee. The
Committee is also responsible for making recommendations to the Board of
Directors concerning the selection of the independent auditors.
/s/ Lawrence E. Gloyd /s/ Bruce A. Klein /s/ Marcia S. Blaylock
- ----------------------- ------------------------ ----------------------
Lawrence E. Gloyd Bruce A. Klein Marcia S. Blaylock
Chairman of the Board & Vice President-Finance & Vice President,
Chief Executive Officer Chief Financial Officer Controller &
Corporate Secretary
January 9, 1998
35
<PAGE> 1
EXHIBIT 13(a)ix
11-YEAR FINANCIAL SUMMARY
(RESTATED TO INCLUDE UNITED AIR SPECIALISTS, INC.)
===============================================================================
<TABLE>
<CAPTION>
1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE
Equity .................................... $ 10.59 $ 9.69 $ 8.69 $ 7.76
Earnings from Continuing Operations ....... 1.67 1.63 1.48 1.31
Net Earnings .............................. 1.67 1.63 1.48 1.35
Dividends ................................. 0.6525 0.6425 0.6325 0.6225
Price: High ............................... 31.19 25.13 27.00 22.38
Low ................................ 20.00 18.63 18.13 15.88
- ---------------------------------------------------------------------------------------
EARNINGS DATA ($000)
Net Sales ................................. $394,264 $372,382 $330,110 $300,450
Operating Profit .......................... 44,424 42,596 38,728 33,188
Interest Expense .......................... 2,759 3,822 3,418 3,298
Pretax Income ............................. 44,192 41,405 36,631 31,886
Income Taxes .............................. 17,164 15,315 13,060 12,057
Income from Continuing Operations ......... 26,918 25,945 23,500 20,786
Income from Discontinued Operations ....... - - - -
Cumulative Effect of Accounting Changes ... - - - 630
Net Earnings .............................. 26,918 25,945 23,500 21,416
Average Shares Outstanding ................ 16,089 15,938 15,900 15,869
- ---------------------------------------------------------------------------------------
EARNINGS ANALYSIS
Operating Margin .......................... 11.3% 11.4% 11.7% 11.0%
Pretax Margin ............................. 11.2% 11.1% 11.1% 10.6%
Effective Tax Rate ........................ 38.8% 37.0% 35.7% 37.8%
Net Margin-Continuing Operations .......... 6.8% 7.0% 7.1% 6.9%
Net Margin ................................ 6.8% 7.0% 7.1% 7.1%
Return on Beginning Assets ................ 10.1% 10.6% 11.4% 11.2%
Return on Beginning Shareholders' Equity .. 17.4% 18.8% 19.1% 19.4%
Dividend Payout to Net Earnings ........... 38.2% 36.7% 39.7% 43.0%
- ---------------------------------------------------------------------------------------
BALANCE SHEET DATA ($000)
Current Assets ............................ $160,527 $140,726 $133,286 $109,992
Plant Assets, Net ......................... 82,905 84,525 73,047 58,787
Total Assets .............................. 282,519 267,019 245,697 206,928
Current Liabilities ....................... 54,237 51,297 49,841 43,926
Long-Term Debt ............................ 37,656 43,449 41,860 25,090
Shareholders' Equity ...................... 171,162 154,681 138,144 122,801
- ---------------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS ($000)
Debt to Capitalization .................... 18.0% 21.9% 23.3% 17.0%
Working Capital ........................... $106,290 $ 89,429 $ 83,445 $ 66,066
Current Ratio ............................. 3.0:1 2.7:1 2.7:1 2.5:1
- ---------------------------------------------------------------------------------------
CASH FLOW DATA ($000)
From Operations ........................... $ 41,632 $ 26,675 $ 21,092 $ 25,670
For Investment ............................ (8,193) (18,934) (29,044) (1,159)
From/(For) Financing ...................... (21,850) (8,774) 7,226 (18,656)
Change in Cash & Equivalents .............. 11,497 (964) (684) 5,912
Capital Expenditures ...................... 11,349 22,230 14,471 12,119
Depreciation .............................. 11,001 10,150 8,594 7,600
Dividends Paid ............................ 10,290 9,512 9,330 9,201
Interest (Income)/Expense ................. 1,739 2,991 2,560 2,750
Income Taxes Paid ......................... 15,112 11,230 11,939 10,194
- ---------------------------------------------------------------------------------------
CASH FLOW ANALYSIS ($000)
Operating Cash Flow (1) ................... $ 58,483 $ 40,896 $ 35,591 $ 38,614
Net Cash Flow (2) ......................... 47,134 18,666 21,120 26,495
Elective Cash Flow (3) .................... 19,993 (5,067) (2,709) 4,350
- ---------------------------------------------------------------------------------------
</TABLE>
(1) From operations before interest income/expense and taxes paid.
(2) Operating Cash Flow less capital expenditures.
(3) Net Cash Flow less dividends +(-) interest income/expense and less taxes
paid.
36 CLARCOR
<PAGE> 2
11-YEAR SUMMARY
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
Equity .................................... $ 6.95 $ 6.58 $ 6.39 $ 5.60 $ 4.89 $ 6.86 $ 6.20
Earnings from Continuing Operations ....... 1.09 1.00 1.17 1.21 0.69 0.98 0.89
Net Earnings .............................. 1.09 0.85 1.19 1.28 0.44 1.12 0.97
Dividends ................................. 0.6100 0.6000 0.5500 0.5200 0.4800 0.4530 0.4310
Price: High ............................... 20.00 22.50 22.67 17.83 18.92 14.59 16.89
Low ................................ 16.00 15.00 13.00 11.83 11.75 9.75 9.25
- --------------------------------------------------------------------------------------------------------------------
EARNINGS DATA ($000)
Net Sales ................................. $253,211 $218,172 $213,999 $197,917 $181,837 $171,354 $165,146
Operating Profit .......................... 29,960 27,810 32,204 31,407 23,969 28,408 29,440
Interest Expense .......................... 3,979 4,438 4,402 4,189 1,710 415 401
Pretax Income ............................. 27,221 24,930 28,778 30,325 23,572 29,809 30,543
Income Taxes .............................. 9,944 8,941 10,095 11,008 11,008 10,951 13,240
Income from Continuing Operations ......... 17,277 15,989 18,683 19,317 12,564 18,858 17,303
Income from Discontinued Operations ....... - - 297 1,200 (4,493) 2,412 1,672
Cumulative Effect of Accounting Changes ... - (2,370) - - - 115 -
Net Earnings .............................. 17,277 13,619 18,980 20,475 8,071 21,385 18,975
Average Shares Outstanding ................ 15,887 16,020 15,943 15,954 18,192 19,153 19,472
- --------------------------------------------------------------------------------------------------------------------
EARNINGS ANALYSIS
Operating Margin .......................... 11.8% 12.7% 15.0% 15.9% 13.2% 16.6% 17.8%
Pretax Margin ............................. 10.8% 11.4% 13.4% 15.3% 13.0% 17.4% 18.5%
Effective Tax Rate ........................ 36.5% 35.9% 35.1% 36.3% 46.7% 36.7% 43.3%
Net Margin-Continuing Operations .......... 6.8% 7.3% 8.7% 9.8% 6.9% 11.0% 10.5%
Net Margin ................................ 6.8% 6.2% 8.9% 10.3% 4.4% 12.5% 11.5%
Return on Beginning Assets ................ 9.5% 7.6% 11.6% 14.0% 5.1% 14.6% 14.1%
Return on Beginning Shareholders' Equity .. 16.4% 13.4% 21.3% 26.0% 6.2% 17.7% 17.3%
Dividend Payout to Net Earnings ........... 52.3% 65.8% 43.0% 37.6% 102.7% 38.0% 41.2%
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA ($000)
Current Assets ............................ $97,569 $105,067 $ 87,322 $ 83,988 $ 68,860 $ 79,215 $ 75,330
Plant Assets, Net ......................... 53,839 42,324 52,324 47,498 48,231 46,026 43,122
Total Assets .............................. 191,657 181,660 179,337 164,294 145,982 157,193 146,229
Current Liabilities ....................... 37,647 30,559 25,977 25,783 26,415 17,859 19,082
Long-Term Debt ............................ 32,650 38,534 45,406 44,363 36,253 4,992 3,911
Shareholders' Equity ...................... 110,299 105,460 102,000 89,076 78,860 130,646 120,614
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS ($000)
Debt to Capitalization .................... 22.8% 26.8% 30.8% 33.2% 31.5% 3.7% 3.1%
Working Capital ........................... $59,922 $ 74,508 $ 61,345 $ 58,205 $ 42,445 $ 61,356 $ 56,248
Current Ratio ............................. 2.6:1 3.4:1 3.4:1 3.3:1 2.6:1 4.4:1 3.9:1
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW DATA ($000)
From Operations ........................... $20,727 $ 23,456 $ 19,012 $ 25,109 $ 18,547 $ 19,463 $ 22,743
For Investment ............................ (74) (7,737) (15,848) (9,689) (8,918) (2,605) (16,801)
From/(For) Financing ...................... (22,772) (9,929) (8,059) (5,577) (24,279) (10,492) (8,641)
Change in Cash & Equivalents .............. (2,197) 5,811 (4,895) 9,843 (14,650) 6,366 (2,699)
Capital Expenditures ...................... 10,776 8,290 10,804 9,685 9,037 7,566 5,767
Depreciation .............................. 6,653 7,881 7,248 7,094 6,883 6,863 6,567
Dividends Paid ............................ 9,036 8,958 8,165 7,708 8,290 8,121 7,814
Interest (Income)/Expense ................. 3,104 4,140 3,280 3,657 436 (682) (686)
Income Taxes Paid ......................... 10,059 11,200 9,693 10,811 11,643 13,434 14,621
- --------------------------------------------------------------------------------------------------------------------
CASH FLOW ANALYSIS ($000)
Operating Cash Flow (1) ................... $33,890 $ 38,796 $ 31,985 $ 39,577 $ 30,626 $ 32,215 $ 36,678
Net Cash Flow (2) ......................... 23,114 30,506 21,181 29,892 21,589 24,649 30,911
Elective Cash Flow (3) .................... 915 6,208 43 7,716 1,220 3,776 9,162
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
CLARCOR 37
<PAGE> 1
EXHIBIT 13(a)x
FINANCIAL REVIEW
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
CLARCOR's 1997 results from operations and financial condition were at
record levels and reflect increased sales and operating profit from each of the
Company's segments. On February 28, 1997, the Company completed the
acquisition of United Air Specialists, Inc. (UAS). This transaction was
structured as a statutory merger accounted for as a pooling of interests. As a
result, all of the financial information provided in this Financial Review and
throughout this 1997 Annual Report has been restated (except for cash
dividends) to include the results of operations, cash flows, and financial
positions of UAS for all periods presented.
The information presented in this financial review should be read in
conjunction with other financial information presented throughout this 1997
Annual Report.
OPERATING RESULTS
Sales
Record net sales of $394.3 million resulted in the eleventh consecutive
year of sales growth. The 5.9% sales growth in 1997 over 1996 resulted from
increased sales for each business segment. International sales in 1997
increased 11.5% to 17.5% of total sales. Strong volume of international
shipments was partially offset by a strong U.S. dollar. In addition to the
acquisition of UAS in 1997, the Company acquired several distributors of
industrial and environmental filter products. The additional sales recorded
from these distributors did not have a material effect on sales growth in 1997.
Sales increased 12.8% in 1996 over the 1995 level; however, 1996 included a
full year of sales from the 1995 Hastings Filters acquisition, compared to one
quarter of Hastings sales included in fiscal 1995. Excluding Hastings sales,
the Company's net sales increased 4.5% in 1996, which included growth from each
business segment.
Comparative net sales information related to CLARCOR's operating segments is
shown in the tables below.
<TABLE>
<CAPTION>
1997 vs. 1996
Change
-----------------
NET SALES 1997 % Total $ %
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Engine/Mobile Filtration $207.7 52.7% $12.5 6.4%
Industrial/Environmental
Filtration ............ 111.5 28.3% 8.1 7.8%
Consumer Packaging ..... 75.1 19.0% 1.3 1.8%
--------------------------------------------
Total ................ $394.3 100.0% $21.9 5.9%
============================================
</TABLE>
<TABLE>
<CAPTION> 1996 vs. 1995
Change
Restated ----------
NET SALES 1996 % Total $ %
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Engine/Mobile Filtration $195.2 52.4% $36.3 22.8%
Industrial/Environmental
Filtration ............ 103.4 27.8% 1.4 1.4%
Consumer Packaging ..... 73.8 19.8% 4.6 6.7%
--------------------------------------
Total ................ $372.4 100.0% $42.3 12.8%
======================================
</TABLE>
The Engine/Mobile Filtration segment's 1997 sales rose 6.4% from 1996.
Although the segment's heavy-duty filter sales increased over the prior year,
sales of the light-duty Hastings' brand were lower largely due to the
elimination of low and negative margin business as planned. Sales of the
segment's railroad locomotive filtration products increased at nearly a
double-digit rate on the strength of traditional liquid filtration products and
from additional sales of air filtration products. The 1996 sales increase of
22.8% for the segment resulted primarily from the inclusion of a full year of
sales from Hastings Filters compared to three months of sales included in 1995.
Sales also increased in 1996 over 1995 for both heavy-duty filtration products
and railroad locomotive filter products.
The Industrial/Environmental Filtration segment recorded sales of $111.5
million, an increase of 7.8% over 1996. This segment is growing at a faster
rate than the Company's other segments as a result of investments in product
development and distribution, and due to increased customer demand for indoor
air filtration products. The segment's 1996 sales level of $103.4 million
increased 1.4% from $102.0 million in 1995, a year that included an unusually
strong level of UAS shipments.
Sales for the Consumer Packaging segment increased 1.8% in 1997 to $75.1
million. Sales of plastic closures and containers increased over 20% in 1997.
Although sales of metal packaging products in 1997 were nearly equal to the
prior year's level, higher sales are expected in 1998 as a result of a
forecasted increase in flat sheet decorating and sales of new product concepts
introduced throughout 1997, such as sports collectibles and combination
metal/plastic promotional containers. The segment's Tube Division recorded
sales of approximately $7.0 million in 1997, which was a lower level than in
1996. In November 1997 the Tube Division was sold, and although this
divestiture did not have a significant impact on the operating results of the
Company, the sales level for the segment will be reduced in 1998. The
segment's sales increased 6.7% in 1996 over 1995 and included increases in both
plastics and metals of 9.0% and 7.9%, respectively.
CLARCOR 17
<PAGE> 2
FINANCIAL REVIEW
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
Operating Profit
On the strength of increased sales from each business segment, CLARCOR's
operating profit improved for the fifth consecutive year. Operating profit of
$44.4 million was reduced by $3.0 million of costs related to the UAS merger.
Excluding the impact of the merger costs, operating profit was $47.4 million,
an 11.3% increase over the 1996 level. Gross margin increased by 1.4% in 1997
from 1996. This increase in margins resulted from an increased volume of
shipments, material cost containment, and higher productivity levels in each of
the Company's manufacturing facilities. Selling and administrative expenses
increased by 0.8% as a result of higher distribution and marketing costs.
Operating margins, excluding the impact of the merger costs, increased to 12.0%
from 11.4% in 1996. Profitability on international sales increased in 1997,
although operating profit was reduced by unfavorable currency translation
adjustments which were not material in amount compared to consolidated
operating profit. The 1996 operating profit of $42.6 million increased 10.0%
over the prior year as a result of higher sales levels and increased
productivity from each business segment.
Comparative operating profit information related to the Company's business
segments is as follows.
<TABLE>
<CAPTION>
1997 vs. 1996
Change
OPERATING PROFIT BEFORE -----------------
MERGER-RELATED COSTS 1997 % Total $ %
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Engine/Mobile Filtration $34.5 72.9% $3.3 10.8%
Industrial/Environmental
Filtration ............ 4.2 8.8% 0.2 3.5%
Consumer Packaging ..... 8.7 18.3% 1.3 17.5%
---------------------------------------
Total ................ $47.4 100.0% $4.8 11.3%
=======================================
</TABLE>
<TABLE>
<CAPTION>
1996 vs. 1995
Change
Restated -----------------
OPERATING PROFIT 1996 % Total $ %
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Engine/Mobile Filtration $31.2 73.2% $2.3 7.7%
Industrial/Environmental
Filtration ............ 4.0 9.5% 0.9 29.6%
Consumer Packaging ..... 7.4 17.3% 0.7 10.7%
---------------------------------------
Total ................ $42.6 100.0% $3.9 10.0%
=======================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE
MERGER-RELATED COSTS AS Restated Restated
A PERCENT OF NET SALES 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Engine/Mobile Filtration 16.6% 16.0% 18.2%
Industrial/Environmental
Filtration ............ 3.8% 3.9% 3.1%
Consumer Packaging ..... 11.5% 10.0% 9.6%
---------------------------------------
Total ................ 12.0% 11.4% 11.7%
=======================================
</TABLE>
Operating profit for the Engine/Mobile Filtration segment was favorably
impacted in 1997 by the higher sales level, material cost containment,
manufacturing cost reduction, improvements to manufacturing, distribution and
administration of the light-duty filter line, and overall productivity
improvements. Profit margins for the segment improved to 16.6% of net sales,
compared to 16.0% in 1996. The segment's profit in 1996, the first full year
after the purchase of the Hastings light-duty filter line in 1995, was
negatively impacted by costs incurred at the light-duty filter manufacturing
facility. The productivity of this facility improved throughout 1997 and it is
now operating near expected levels.
The Industrial/Environmental Filtration segment improved operating profit
3.5% over the prior year. Although sales were up 7.8% for the year,
profitability was impacted by additional costs related to the investment in
additional distribution, marketing, product development and manufacturing
processes. These investments are expected to positively benefit the operating
results for this segment beginning in 1998. Operating profit in 1996 increased
29.6% over the 1995 level as a result of significantly improved operations at
Airguard Industries, offset by reduced profit from UAS due to costs related to
expanding distribution and new product introductions.
Operating profit for the Consumer Packaging segment increased 17.5% from
the 1996 level as a result of significantly higher sales of plastics products
and continued productivity improvement for the metals business. The segment's
operating margin improved to 11.5% from 10.0% in 1996 and 9.6% in 1995.
Other Income & Expense
Other expense totaled $0.2 million in 1997. Interest expense was reduced
to $2.8 million in 1997 from a level of $3.8 million in 1996 due to a lower
level of debt throughout 1997. Interest expense was higher in 1996 than the
$3.4 million in 1995 due to additional long-term debt borrowed to finance the
Hastings Filters acquisition. Total interest and dividend income of $1.0
million in 1997 resulted from higher cash and short-term cash investment
balances offset by lower interest rates. In both the first quarter of 1997 and
fourth quarter of 1996, the Company recorded a $1.7 million gain on the sale of
G.U.D. Holdings Ltd. shares, an Australian company. These gains resulted from
the sale of all the shares owned by the Company in G.U.D. Holdings Ltd.
18 CLARCOR
<PAGE> 3
================================================================================
Provision for Income Taxes
The provision for income taxes in 1997 of $17.2 million resulted in an
effective tax rate of 38.8%. This effective rate is higher than both 1996 and
1995 due to merger costs that were not fully deductible for tax purposes. In
addition, the effective tax rates of 37.0% in 1996 and 35.7% in 1995 were
reduced due to the utilization of foreign net operating loss carryforwards.
Net Earnings and Earnings Per Share
Record net earnings of $26.9 million, or $1.67 per share, reflect the
after-tax impact of the merger-related costs of $2.4 million, or $0.15 per
share, and the gain on sale of securities of $1.1 million, or $0.07 per share.
Net earnings and earnings per share, excluding these unusual items, were $28.2
million or $1.75 per share. Net earnings in 1996 were $25.9 million, or $24.8
million excluding the impact of the gain on sale of securities recorded in 1996
of $1.1 million, or $0.07 per share. Excluding the gain in 1996 and the 1997
gain and merger-related charge, CLARCOR's fiscal 1997 net earnings increased
13.4% and earnings per share 12.2%. These increases resulted from the higher
sales level, productivity improvements and cost reductions, offset by higher
marketing and product distribution costs. Earnings per share in 1996 were
$1.63, including $0.07 from the sale of securities, and in 1995 were $1.48.
The 1996 earnings per share, excluding the 1996 gain, increased 5.4% over the
1995 level.
Average shares outstanding for fiscal 1997 were 16,088,981 compared to
15,938,421 for fiscal 1996. These amounts include the additional shares issued
in connection with the merger of UAS.
YEAR 2000
For several years the Company has been reviewing Year 2000 issues related
to the impact on its computer systems. Project teams have been reviewing all
computer operated machinery and related software to assure that key financial,
information and operational systems have been assessed. Information processing
related to the Company's major customers and suppliers has also been reviewed.
Plans have been developed to address systems modifications required by December
31, 1999, and some of these modifications have already been implemented. The
financial impact of making the required systems changes is not expected to be
material to the Company's consolidated financial position, results of
operations or cash flows.
FINANCIAL CONDITION
Corporate Liquidity
The Consolidated Statements of Cash Flows are shown on page 24, and the
discussion of corporate liquidity should be read in conjunction with
information presented in those statements.
Cash and short-term cash investments increased to $30.3 million at
year-end 1997 principally as a result of record levels of cash provided by
operating activities. The cash provided by operating activities, $41.6
million, included higher net earnings, depreciation and amortization and a
lower level of investment in working capital. The Company's emphasis on
measuring CLARCOR Value Added (CVA) resulted in significantly improved working
capital management. The cash provided by operations was primarily used for
additions to plant assets of $11.3 million, payments on long-term debt of $14.0
million, and $10.3 million for cash dividend payments to shareholders.
Net cash used in investing activities of $8.2 million in 1997 was
primarily for plant asset additions of $11.3 million offset by cash proceeds
from the sale of securities of $3.3 million. Similarly, the 1996 net cash used
in investing activities of $18.9 million included $3.1 million from the sale of
securities in fourth quarter 1996. The higher level of additions to plant
assets in 1996 of $22.2 million included the Hastings' plant expansion and
related new equipment, completion of a new plastics facility at J.L. Clark, and
additional capital expenditures at Corporate. Cash used in investing
activities in 1995 of $29.0 million included $14.5 million for plant asset
additions and $14.1 million primarily for the acquisition of Hastings Filters.
Net cash used in financing activities totaled $21.9 million in 1997 and
included $14.0 million for long-term debt payments and $10.3 million for
dividend payments. In 1996 and 1995, payments on long-term debt totaled
approximately $9 million and cash dividends were $9.5 million and $9.3 million,
respectively. In 1996 and 1995, additional long-term borrowings of $9.9
million and $25.2 million, respectively, were related primarily to industrial
revenue bonds for the Hastings Filters building expansion in 1996 and for the
acquisition of Hastings Filters in 1995.
CLARCOR continues to generate sufficient cash to maintain current
operating levels, to pay dividends, to provide for the addition and replacement
of necessary plant assets, and to service and repay long-term debt.
CLARCOR 19
<PAGE> 4
FINANCIAL REVIEW
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
Sufficient lines of credit remain available to fund the Company's current
operations and planned future growth. As additional investment in facilities
and equipment is expected in 1998, the Company anticipates that total capital
expenditures will be approximately $20.0 million. In 1998, principal payments
on long-term debt will be lower than in 1997 and are expected to total $1.1
million based on scheduled payments per the debt agreements.
Capital Resources
The Company's financial position at November 30, 1997 continued to be
solid and sufficiently liquid to support current operations. Total assets
increased to $282.5 million at November 30, 1997 from $267.0 million at
year-end 1996. Cash and short-term cash investments totaled $30.3 million, an
increase of $11.5 million from the year-end 1996 balance of $18.8 million.
Total current assets increased to $160.5 million from $140.7 million in 1996
and reflects the increased level of sales and operating activities in 1997 and
inventory for customer requirements in fiscal 1998. The current ratio was 3.0
at year-end 1997 and 2.7 at year-end 1996.
Long-term debt of $37.7 million at year-end 1997 reflects payments made
during 1997 which reduced the balance from $43.4 million at year-end 1996. In
addition to making the required payments on long-term debt during 1997, the
Company also paid off certain high-cost debt assumed in the UAS merger.
Shareholders' equity increased to $171.2 million from $154.7 million at
November 30, 1996. Total debt was 18.0% of total capitalization at year-end
1997 compared to 21.9% at year-end 1996.
At November 30, 1997, CLARCOR had 16,162,402 shares of common stock
outstanding at $1.00 par value, compared to 15,955,784 shares outstanding at
the end of 1996. The increase in shares outstanding from the prior year is
primarily due to additional shares issued upon exercise of stock options.
OUTLOOK
Operating results and the Company's financial condition are expected to
continue to increase and strengthen. Each business segment is expected to
improve sales and operating profit in 1998. Improved productivity levels are
expected as the investments made by the Company during 1996 and 1997 have
already enhanced the operating performance of each segment. Additional
investments will be made in 1998 to expand distribution and manufacturing,
develop new products, further improve productivity and enhance employee
development programs. As a result, selling and administrative expenses are
expected to grow faster than sales in 1998. The Company expects these efforts
to accelerate sales growth, particularly in 1999 and 2000. At the same time,
continuing efforts to achieve greater productivity and further cost reductions
are expected to maintain operating margins at current levels. The Company will
continue to expand distribution worldwide for its products through
company-owned locations and additional sales coverage.
The Company continues to look at acquisition opportunities, especially in
related filtration businesses. It is expected that these acquisitions would
expand the Company's distribution and product offerings further.
The Company is aware of current concerns over economic growth in the
United States in 1998 and 1999 due to recent events in Asia, the unusually long
duration of the current economic expansion, the strength of the U.S. dollar
compared to most other currencies, and the continuing trend toward
consolidation in many mature manufacturing industries. Though no significant
impact is expected on CLARCOR at this time, Company management remains watchful
and sensitive to these and other events. If necessary, the Company is prepared
to adjust its growth plans quickly to maintain the high standard of performance
expected by its shareholders.
FORWARD-LOOKING STATEMENTS
Certain statements quoted in this Annual Report are forward-looking.
These statements involve risk and uncertainty. Actual future results and
trends may differ materially depending on a variety of factors, including the
volume and timing of orders received during the year, the mix of changes in
distribution channels through which the Company's products are sold, the timing
and acceptance of new products and product enhancements by the Company or its
competitors, changes in pricing, product life cycles, purchasing patterns of
distributors and customers, competitive conditions in the industry, business
cycles affecting the markets in which the Company's products are sold,
extraordinary events, such as litigation or acquisitions, including related
charges, and economic conditions generally or in various geographic areas. All
of the foregoing are difficult to forecast. The future results of the Company
may fluctuate as a result of these and the other risk factors detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.
Due to the foregoing items, it is possible that, in the future, the
Company's operating results will be below the expectations of stock market
analysts and investors. In such event, the price of CLARCOR common stock could
be materially adversely affected.
20 CLARCOR
<PAGE> 1
EXHIBIT 21
CLARCOR INC. SUBSIDIARIES
AS OF FEBRUARY 18, 1998
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR PERCENT OF
NAME ORGANIZATION OWNERSHIP
- ------------------------------------ ---------------- ----------
<S> <C> <C>
CLARCOR Consumer Products, Inc. Delaware 100%
J.L. Clark, Inc. Delaware 100%
Clark Europe, Inc. Delaware 100%
CLARCOR Filtration Products, Inc. Delaware 100%
Airguard Industries, Inc. Kentucky 100%
Airklean Engineering Pte. Ltd. Singapore 100%
Airguard Asia Sdn. Bhd. Malaysia 100%
Baldwin Filters, Inc. Delaware 100%
Baldwin Filters N.V. Belgium 100%*
Baldwin Filters Limited United Kingdom 100%*
Baldwin South Africa, Inc. Delaware 100%
Baldwin-Unifil S.A. South Africa 70%
Hastings Filters, Inc. Delaware 100%
Hastings Filters Ltd. Canada Canada 100%
Baldwin Filters (Aust.) Pty.
Limited Australia 50%
Clark Filter, Inc. Delaware 100%
Filtros Baldwin de Mexico Mexico 90%
United Air Specialists, Inc. Ohio 100%
United Air Specialists (U.K.) Ltd. United Kingdom 100%
CLARCOR International, Inc. Delaware 100%
Baldwin-Weifang Filters Ltd. China 70%
CLARCOR Foreign Sales Corporation Virgin Islands 100%
CLARCOR Trading Company Delaware 100%*
</TABLE>
- ------------------------------
* Direct or indirect
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in each Registration Statement
of CLARCOR Inc. on Form S-8 (file numbers 33-5456, 33-38590, 33-39374, 33-53763
and 33-53899) of our reports dated January 9, 1998, on our audits of the
consolidated financial statements of CLARCOR Inc. and Subsidiaries as of
November 30, 1997 and 1996 and for the years ended November 30, 1997, 1996 and
1995, and the financial statement schedule for the years ended November 30,
1997, 1996, and 1995, which reports are included or incorporated by reference in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-29-1997
<EXCHANGE-RATE> 1.0
<CASH> 30,324
<SECURITIES> 0
<RECEIVABLES> 64,493
<ALLOWANCES> 2,106
<INVENTORY> 58,282
<CURRENT-ASSETS> 160,527
<PP&E> 180,619
<DEPRECIATION> 97,714
<TOTAL-ASSETS> 282,519
<CURRENT-LIABILITIES> 54,237
<BONDS> 37,656
0
0
<COMMON> 16,162
<OTHER-SE> 155,000
<TOTAL-LIABILITY-AND-EQUITY> 282,519
<SALES> 394,264
<TOTAL-REVENUES> 394,264
<CGS> 273,702
<TOTAL-COSTS> 273,702
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 696
<INTEREST-EXPENSE> 2,759
<INCOME-PRETAX> 44,192
<INCOME-TAX> 17,164
<INCOME-CONTINUING> 26,918
<DISCONTINUED> 0
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</TABLE>
