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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997.
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file no. 1-7088
AMERICAN BUSINESS PRODUCTS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1030529
(State of Incorporation) (I.R.S. Employer Identification No.)
2100 RiverEdge Parkway, Suite 1200, Atlanta, Georgia 30328
(Address of principal executive offices, including zip code)
(770) 953-8300
(Registrant's telephone number , including area code)
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
<S> <C>
Common Stock, $2 par value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
- -
The aggregate market value of the registrant's outstanding Common Stock, $2.00
par value per share, held by non-affiliates of the registrant on March 2, 1998
was $305,016,887.
There were 16,162,521 shares of Common Stock outstanding on March 2, 1998.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE
Portions of the registrant's 1997 Annual Report for the fiscal year ended
December 31, 1997, are incorporated by reference in Parts I and II hereof.
Portions of the registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders to be held on May 8, 1998, are incorporated by reference in Part
III hereof.
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]
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PART I
ITEM 1 - BUSINESS
General
American Business Products, Inc. was incorporated under the laws of
Delaware in December 1967 to acquire the stock of Curtis 1000 Inc., a producer
of envelopes and forms which has operated since 1882. Hereinafter, American
Business Products, Inc. and its subsidiaries are collectively referred to as the
"Company." In April 1986, American Business Products, Inc. was reincorporated
under the laws of Georgia. The Company markets envelope products, business
forms, labels and other supplies for business and industry and except for
business forms, manufactures such supplies; manufactures and distributes
hardcover and softcover books for the publishing industry; and provides
extrusion coating and laminating of papers, films, and nonwoven fabrics for use
in medical, industrial and consumer packaging. The markets for these products
are located principally throughout the continental United States.
Sale of Subsidiary Assets
Effective on December 31, 1996, Vanier Graphics Corporation ("Vanier"),
a wholly owned subsidiary of American Business Products, Inc. sold substantially
all its assets to The Reynolds and Reynolds Company (the "Vanier Sale"). Vanier
was a manufacturer of business forms and a provider of forms management and
work-flow analysis.
Restructuring Program
In December 1997, the Company announced a profit improvement plan
focused primarily on a series of actions at Curtis 1000 Inc., the Company's
largest business supplies subsidiary and included management changes and
reorganization. Additionally, the Company will cease manufacturing at a Company
facility. In 1996 the Company announced a restructuring plan intended to reduce
operating costs by closing generally smaller plants and transferring their
production to larger, more efficient facilities. The Company planned to close 14
plants and transfer production to larger facilities. As of December 31, 1997 the
Company had closed all 14 of these plants.
Business Segments
The Company's product line is composed of three business segments:
business supplies printing, books manufacturing and extrusion of polyethylene
onto lightweight papers and non-wovens.
Business supplies printing consists principally of the distribution,
printing and manufacturing of a wide variety of stationary, envelopes, labels,
files and lightweight packaging, and other related products and services
including digital imaging or on-demand printing of various documents and
materials for businesses. The manufacture and distribution of customized
specialty labels is a rapidly growing part of this segment. The Company produces
a complete line of standard and specialized types and sizes of envelopes. Prior
to the Vanier Sale the Company also manufactured business forms. Business
supplies printing accounted for 66.7% of the Company's sales in 1997, 74.1% in
1996, and 75.2% in 1995.
Book manufacturing consists of the printing and binding of both hard
cover and soft cover books for the publishing industry. In addition, the Company
provides storage and order fulfillment services by shipping orders to
publishers' customers from two large distribution centers. This business segment
accounted for 9.8% of the Company's sales in 1997, 8.6% in 1996, and 9.2% in
1995.
Specialty extrusion coating and laminating consist of applying plastic
coatings in varying degrees of thickness to rolls of paper, film or fabric. The
Company also prints and metalizes certain of these products for customers. The
materials produced by this segment are used primarily for packaging
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consumer products such as individual servings of sugar, salt and pepper, sugar
substitutes, and candy and ice cream bars, as well as medical and pharmaceutical
products. These materials also are used for composite can liners and release
liner papers for pressure sensitive products such as labels and postage stamps.
This business segment accounted for 23.5% of the Company's sales in 1997, 17.3%
in 1996, and 15.6% in 1995.
Financial information regarding the Company's three business segments
is presented in the Notes to Consolidated Financial Statements under the heading
"Business Segment Information" of the Company's 1997 Annual Report, which
information is incorporated herein by reference. Portions of the 1997 Annual
Report are filed as Exhibit 13 to this Annual Report on Form 10-K.
Production
Substantially all of the Company's products, except business forms, are
manufactured by wholly owned subsidiaries of the Company in 14 manufacturing
facilities located throughout the United States. (See "Item 2 - Properties") The
principal raw materials used by the Company in the manufacture of its products
are paper, carbon, ink and poly-resins. All purchases of such materials are made
at competitive prices negotiated with suppliers. The Company believes that there
are sufficient alternative sources of supply to provide its raw material
requirements if for any reason its present suppliers are unable to do so.
Trademarks
The Company holds trademarks which management believes are sufficient
for the operation of its business without any substantial restrictions and
adequate for the operation of each business segment.
Backlog
As of January 31, 1998, the Company had backlogs believed to be firm of
approximately $27.8 million for business supplies printing, approximately $5.3
million for book manufacturing and approximately $14.6 million for extrusion
coating and laminating. Comparable backlogs as of January 31, 1997 were
approximately $30.4 million for business supplies printing, approximately $5.2
million for book manufacturing, and approximately $16.4 million for extrusion
coating and laminating. All present backlogs are expected to be filled during
1998.
Distribution and Customers
The Company's products are sold throughout the United States, and less
than 1% of the Company's sales in any year have been outside of the United
States. The Company's products are sold principally through approximately 400
sales representatives. No customer or related group of customers in 1997
accounted for 10% or more of the sales of the Company. Demand for the Company's
business supplies printing, book manufacturing and extrusion coating and
laminating generally is not seasonal.
Competition
Business supplies printing, book manufacturing, and specialty extrusion
coating are highly competitive industries. Principal methods of competition are
pricing and service.
The business supplies industry generally falls within the commercial
printing industry, which had estimated 1997 sales of $74 billion with projected
growth before inflation of 5.4% for 1998, according to the U.S. Department of
Commerce. Printed business supplies, such as envelopes, labels, forms and
document printing which the Company provides, are produced by an estimated
40,000 commercial printing enterprises, ranging from small family operations to
large multinational corporations. In an effort to improve its competitive
position, the Company's business supplies operations began a process in 1996 to
reconfigure production facilities with the objective of achieving greater
efficiency. This process was completed in early 1997. In marketing many of its
products, the Company competes with some larger
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nationwide firms with greater resources than the Company as well as the numerous
local and regional businesses, most of which are smaller than the Company. ABP
seeks to increase market share by (1) using to advantage its large direct-sales
force, (2) utilizing its ability to process numerous small orders efficiently,
(3) creating new products and modifying existing ones to meet market needs, and
(4) improving the processing and delivery of customer orders. Based on annual
revenues attributable to production of business supplies, the Company is a
significant U.S. producer of printed business supplies.
In the envelope industry, which had 1997 sales of approximately $4.3
billion in the United States, according to the U.S. Department of Commerce, the
Company's largest subsidiary, Curtis 1000 Inc., is believed to be the leading
direct-to-user marketer of business envelopes in the United States based on
annual revenues, yet has only a small share of the total market. ABP also holds
a strong competitive position in the sale of specialty envelopes, including
product lines manufactured from paper and a synthetic olefin, Tyvek(R), which
offers superior quality, lighter weight and postage savings to customers in
comparison with kraft paper envelopes of the same size. Specialty envelopes
comprise the strongest sector of this industry and continue to offer the most
favorable growth outlook compared to other envelope products.
Labels, a sector of the commercial printing industry, is grouped with
wrappers by the industry and this segment had 1997 sales of approximately $5.1
billion, the Department of Commerce estimates. This was an increase of
approximately 8% over 1996, and for 1998 the department has projected a growth
rate of 2% to 4%. Based on the annual revenues of its subsidiary, Discount
Labels, Inc., ABP believes that its subsidiary is the leading producer of
short-run custom labels in the United States. There is competition from numerous
commercial printers and label printers, but ABP has gained market share through
its subsidiary's fast turnaround of orders and highly efficient automated order
processing system.
In the business forms industry, strong pricing competition in recent
years has created essentially a commodity market for these products and
competition from electronic communications has contributed to a decline or
flattening of total industry sales. These were estimated at $8.5 billion for
1997 by the U.S. Department of Commerce. The Company's major business supplies
subsidiary, Curtis 1000 Inc., provides customized forms for its customers, and
this represents a substantial portion of its revenues. However, these products
are marketed as value-added products, usually as part of a total "business
solutions" plan, including other products such as envelopes and on-demand
printing, and are not positioned as a low-priced commodity. By using this
approach, the Company seeks competitive advantages, utilizing its large
direct-sales force and relationship selling.
Book printing, which had industry sales exceeding $6 billion in 1997,
according to the Department of Commerce, is also highly competitive. The Company
competes with numerous other book manufacturers, many of which are larger and
have substantially greater resources than the Company and therefore possible
advantages in production and marketing, economies of scale and efficiencies. The
Company has focused on providing complete order fulfillment services for the
customers of publishers and targeting certain segments of the industry with a
higher rate of growth than the industry in general. These include university
presses and publishers of religious books. The Company also seeks to gain
competitive advantage by specializing in short to medium runs of book printing
and utilizing advanced technology to provide high quality service and broaden
the product line.
Competitors are relatively few in the extrusion coating and laminating
business segment, which nationally had estimated 1997 sales of approximately $4
billion, according to industry sources. The Company's largest competitors
include Thilmany (division of International Paper), Rexam Coated Products,
Schoeller Technical Papers, Inc., Amgraph, Inc. and Twin Pack (Canada).
Management believes none of these competitors is superior to the Company's
subsidiary, Jen-Coat, Inc., in terms of quality and service, which together with
price form the basis of competition in this business segment. An advantage is
considered to be the entry barriers to the industry, including a significant
capital investment, which may deter smaller companies, and highly individual
market niches with relatively low sales volume, which generally deters larger
companies from entry into this industry.
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Within the combined markets of the Company, the Company's total share
of sales is relatively small, offering opportunities to increase market share
through innovative and creative products and effective marketing, which are
major elements of the Company's growth strategy.
Employees
At December 31, 1997, the Company had approximately 3,202 full time
employees. No significant number of employees is covered by any collective
bargaining agreement.
Federal, State or Local Regulations Regarding Environment
Federal, state, and local regulations relating to protection of the
environment have not had and are not expected to have a material adverse effect
upon the Company's capital expenditures, liquidity, earnings, or competitive
position. The Company's various operating units are subject to EPA, state and
local standards for air emissions, industrial storm water discharges, generation
of hazardous waste, heating oil underground storage tanks, release response,
hazardous chemicals use reporting, sewer use, and the like, and the Company
believes that it is in substantial compliance with the applicable standards.
None of these environmental standards has had or is expected to have a material
adverse effect upon the Company.
Soil and groundwater contamination has been detected at a discontinued
manufacturing facility of one of the Company's subsidiaries. The Company intends
to address the contamination in conformity with the requirements established by
the North Carolina Department of Environment, Health, and Natural Resources. The
Company currently cannot estimate the costs that it may incur investigating
and/or remediating the contamination, but the Company does not believe that such
costs will have a material adverse effect on the Company. The Company knows of
no significant environmental liabilities involving its operations.
International Operations
The Company has a European joint venture, Curtis 1000 Europe GmbH
("Curtis 1000 Europe"), which is 50% owned by the Company and has plants in four
countries: Germany, England, Luxembourg and Poland (See Part I - Item 2). Curtis
1000 Europe manufactures and sells envelopes of all kinds. The Company's share
of net income of Curtis 1000 Europe, which is not significant, is translated at
average exchange rates prevailing during the year, and is included in the
Consolidated Financial Statements of the Company and Notes to Consolidated
Financial Statements which are incorporated herein by reference. (See Part II,
Item 8 - Financial Statements and Supplementary Data.")
Year 2000 Compliance
The Company has reviewed all significant financial and manufacturing
systems to determine compliance with the Year 2000 and has developed a plan of
action intended to correct or replace those systems not in compliance. The cost
associated with correcting systems not in compliance has not been determined,
although based on preliminary management estimates the Company does not believe
these costs will have a material impact on the Company's financial position. The
Company plans to have all corrective action necessary completed by June 30,
1999. The Company is currently contacting external parties with which it
interacts to determine any Year 2000 compliance issues.
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ITEM 2 - PROPERTIES
PROPERTIES
The Company's executive offices are located in approximately 15,200
square feet of space at 2100 RiverEdge Parkway, Suite 1200, Atlanta, Georgia.
The offices are leased from an unrelated party under a lease expiring in 2003
which has a renewal option and annual cost of $252,000.
In addition to the executive offices, the Company owns 12 production
and distribution/warehouse facilities in the United States encompassing
approximately 1,216,000 square feet. The Company leases a production facility of
approximately 85,000 square feet in Houston, Texas with a lease expiration of
2000 and includes a renewal option and annual cost of $335,000. The Company
leases a production facility of approximately 150,000 square feet in Exton,
Pennsylvania with a lease expiration of 2007 and annual cost of $832,000. The
Company leases a production facility of approximately 65,000 square feet in
Santa Fe Springs, California with a lease expiration of 1999 and includes a
renewal option and annual cost of $340,000. The Company also leases a production
facility of approximately 38,000 square feet in Ontario, California with a lease
expiration of 2001 and includes a renewal option and annual cost of $170,500.
The Company's business supplies printing business and book
manufacturing business have nine other property leases, primarily sales and
administrative offices, with a total of approximately 51,000 square feet with
various maturities from 1998 to 2003. Management believes that suitable
replacement facilities can be obtained on comparable terms if lease extensions
are not negotiated.
The Company's joint venture, Curtis 1000 Europe, operates five
production facilities. Two of the facilities in Germany and one in Poland are
owned and one each in England and Luxembourg are leased.
Certain properties owned by the Company are held subject to mortgages.
See the information set forth under the heading "Long Term Debt" in the Notes to
Consolidated Financial Statements in the Company's 1997 Annual Report, which is
incorporated herein by reference.
All operating properties and equipment are believed to be in good
condition, adequately utilized and suitable for the purposes for which they are
used. As of March 1, 1998 the Company owned five properties which had been
rendered redundant to operating needs due to the Vanier Sale, the Curtis 1000
plant consolidation program and otherwise. The Company intends to sell all of
these properties.
ITEM 3 - LEGAL PROCEEDINGS
As of March 16, 1998, there were no material pending legal proceedings,
other than routine litigation incidental to the business, to which the Company
was a party or of which any of its properties were the subject, and none are
expected by management to materially affect the Company's financial position and
results of operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the shareholders of the Company
during the fourth quarter of 1997.
ITEM 4 (A) - EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information as of March 16, 1998 regarding the
executive officers of the Company:
THOMAS R. CARMODY, 64, has served as Chairman of the Board of Directors since
April 1994 and has served as interim President and Chief Executive Officer of
the Company since November 7, 1997. He previously served as Chief Executive
Officer of the Company from 1988 until December 31, 1995. He
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previously served as President of the Company from 1985 until April 1994, as
Executive Vice President of the Company from 1982 until 1985 and as Chief
Operating Officer of the Company from 1982 until 1988. Mr. Carmody was employed
by the Company or Curtis 1000 Inc., a wholly-owned subsidiary of the Company,
from 1955 until his retirement on June 30, 1996 and has served in his interim
capacity since November 7, 1997. He has been a director of the Company since
1983 and has served with the Company or its subsidiaries for over 42 years.
HENRY CURTIS, VII, 49, has been Vice President of the Company since April 1995.
He previously served as Vice President of Administration and Sales Support of
Curtis 1000 Inc., a subsidiary of the Company from 1992 to March 1995. He
previously served as Director of Administration and Sales Support of Curtis 1000
Inc. from 1990 to 1992. He served as Director of Employee Benefits of the
Company from 1983 to 1990 and held various positions with the Company and its
wholly-owned subsidiaries, Curtis 1000 Inc. and Vanier Graphics Corporation
since 1971. He has been a director of the Company since 1989 and has served with
the Company or its subsidiaries for over 27 years.
LARRY L. GELLERSTEDT, III, 41, will become President and Chief Executive Officer
of the Company on March 30, 1998. He was previously employed at Beers
Construction Company ("Beers") in Atlanta, Georgia from 1978 to 1997. He is
currently a non-employee Chairman of the Board of Beers. From November 1990
through December 1997, Mr. Gellerstedt served as Chairman, Chief Executive
Officer and President of Beers. Beers ranks among the top ten construction
companies in the nation operating in fourteen states with over $1 billion in
annual revenues. Mr. Gellerstedt is a Director of AGL Resources, Inc., ALLTEL
Corporation, Beers Construction Company, Rock Tenn Corporation and SunTrust
Bank, Atlanta.
DAWN M. GRAY, 53, has served as Secretary of the Company since July 1989. She
served as Assistant Secretary from October 1976 to June 1989. She has served
with the Company or Curtis 1000 Inc., a wholly-owned subsidiary of the Company,
for over 31 years.
JOHN H. KARR, 47, has served as Treasurer of the Company since July 23, 1997. He
was employed by Burnham Service Corporation, a $200 million provider of
transportation, distribution and logistics services to the technology industry,
from 1977 to 1996. From 1989 to 1996, he served as Secretary and Treasurer of
Burnham Service Corporation with responsibilities including capital structure,
risk management, employee benefit programs, acquisitions and divestitures and
general financial management. He has been employed by the Company since
June 30, 1997.
RICHARD G. SMITH, 49, has served as Vice President - Finance and Chief Financial
Officer of the Company since January 1996. He joined the Company as Vice
President - Corporate Development in September 1995. From August 1994 to August
1995, Mr. Smith was Senior Vice President of Brambles USA, Inc., the major U. S.
subsidiary of Brambles Industries Limited, an Australian based specialized
industrial services provider with annual revenues of approximately $2 billion.
From September 1992 to July 1994, he was Vice President and Chief Financial
Officer of Brambles Acquisition, Inc., the largest subsidiary of Brambles USA,
Inc. He was Vice President and Chief Financial Officer of Environmental Systems
Company, a New York Stock Exchange-listed hazardous waste company from June 1991
to August 1992. Environmental Systems Company was acquired by Brambles in March
1992. Prior to 1991 he served as Vice President of Corporate Development for
Laidlaw, Inc.
RAYMOND J. WILSON, 39, has served as Corporate Controller of the Company since
July 23, 1997. Prior to becoming an employee of the Company he was employed from
February 1997 to June 1997 as Vice President-Finance and Chief Financial Officer
for MEHL/Biophile International Corporation, a publicly held technology transfer
company recently concentrating on patented hair removal and cosmetic
dermatological products. From September 1985 to February 1997 he was employed at
Engraph, Inc., a $300 million international manufacturer of packaging and other
identification material for many of the world's most successful consumer
products companies. Engraph was a publicly traded company prior to being
purchased by Sonoco Products Company in October 1993. At Engraph, he served as
Vice President-
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Finance from April 1995 to February 1997; corporate Controller and Chief
Accounting Officer from August 1994 to April 1995; Corporate Controller from May
1992 to August 1994; Manager of Accounting and Control from April 1990 to May
1992; Internal Control Manager from September 1985 to April 1990. From June 1980
to September 1985 he was employed at Deloitte & Touche, formerly Touche Ross &
Company. He has been employed by the Company since June 30, 1997.
The Board of Directors elects officers at their annual meeting for
one-year terms or until their successors are elected and qualified. Officers are
subject to removal by the Board of Directors at any time.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information relating to the market for, holders of and dividends paid
on the Company's Common Stock is set forth under the captions "1997 Quarterly
Data (Unaudited)" and "1996 Quarterly Data (Unaudited)," "Stock Exchange
Listing," and "Shareholders of Record," in the Company's 1997 Annual Report,
which information is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
Selected consolidated financial data for the Company for each year of
the five year period ended December 31, 1997 is set forth under the caption
"Eleven Year Financial Review" in the Company's 1997 Annual Report, which
information is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A discussion of the Company's financial condition and results of
operations at and for the dates and periods covered by the consolidated
financial statements set forth in the Company's 1997 Annual Report is set forth
under the caption "Management's Discussion and Analysis" in the Company's 1997
Annual Report. Such discussion is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and its
subsidiaries, together with the Independent Auditors' Report, which are set
forth in the Company's 1997 Annual Report, are incorporated herein by reference:
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1997
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1997
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997
Notes to Consolidated Financial Statements
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The supplementary consolidated financial information regarding the
Company which is required by Item 302 of Regulation S-K is set forth under the
caption "1997 Quarterly Data (Unaudited)" and "1996 Quarterly Data (Unaudited),"
in the Company's 1997 Annual Report. Such information is incorporated herein by
reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of or disagreements with independent
accountants by the Company in the past two fiscal years or subsequently.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company is set forth in
"Proposal 1 - Election of Directors" under the captions "Nominees," "Information
Regarding Nominees and Directors" and "Meetings and Committees of the Board of
Directors" in the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders to be held on May 8, 1998 (the "Proxy Statement"). Such
information is incorporated herein by reference. Pursuant to Instruction 3 of
Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K,
information relating to the executive officers of the Company is set forth in
Part I, Item 4(A) of this Report under the caption "Executive Officers of the
Registrant." Information regarding compliance by directors and executive
officers of the Company and owners of more than ten percent of the Company's
Common Stock with the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, is set forth in the Proxy Statement under the
caption "Section 16(a) of the Securities Exchange Act of 1934 Beneficial
Ownership Reporting." Such information is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information relating to compensation of the executive officers and
directors of the Company is set forth in "Proposal 1 - Election of Directors"
under the caption "Director Compensation" and in "Executive Compensation" in the
Proxy Statement. Such information is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's $2.00 par value
Common Stock by certain persons is set forth in "Voting" under the caption
"Principal Shareholders" and in "Proposal 1 Election of Directors" under the
caption "Information Regarding Nominees and Directors" and under the caption
"Executive Compensation" in the Proxy Statement. Such information is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships or transactions between the Company
and affiliates of the Company is set forth under the caption "Executive
Compensation - Certain Relationships and Related Transactions" in the Proxy
Statement referred to in Item 10 above. Such information is incorporated herein
by reference.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements
The Consolidated Financial Statements and the Independent
Auditors' Report thereon which are required to be filed as
part of this Report are included in the Company's 1997 Annual
Report and are set forth in and incorporated by reference in
Part II, Item 8 hereof. These Consolidated Financial
Statements are as follows:
Consolidated Statements of Income for each of the
three years in the period ended December 31, 1997
Consolidated Balance Sheets as of December 31, 1997
and 1996
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December
31, 1997
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
The financial statement schedule filed as part of this Report
pursuant to Article 12 of Regulation S-X and the Independent
Auditors' Report in connection therewith are contained in the
Index of Financial Statement Schedule on page S-1 of this
Report. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted because such schedules
are not required under the related instructions or are
inapplicable or because the information required is included
in the Consolidated Financial Statements or notes thereto.
3. Exhibits
The exhibits required to be filed as part of this Report are
set forth in the Index of Exhibits on page E-1 of this Report.
(b) Reports on Form 8-K:
On November 12, 1997, the Company filed a Current Report on Form 8-K to
report the resignation of Robert W. Gundeck.
(c) The exhibits required to be filed as part of this Report are set forth
in the Index of Exhibits on page E-1 of this report
(d) The financial statement schedule required to be filed as part of this
Report is set forth in the Index of Financial Statement Schedule on
page S-1 of this Report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN BUSINESS PRODUCTS, INC.
(Registrant)
Date: March 18, 1998 BY: /S/ Thomas R. Carmody
-------------------------------
Thomas R. Carmody
Chief Executive Officer,
President, Director and
Chairman of the Board
Date: March 18, 1998 /S/ Richard G. Smith
-------------------------------
Richard G. Smith
Vice President-Finance
and Chief Financial Officer
Date: March 18, 1998 /S/ Raymond J. Wilson
-------------------------------
Raymond J. Wilson
Controller
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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 date indicated.
Date: March 18, 1998 */s/ F. Duane Ackerman
---------------------------------
F. Duane Ackerman, Director
Date: March 18, 1998 */s/ W. J. Biggers
---------------------------------
W. J. Biggers, Director
Date: March 18, 1998 */s/ Henry Curtis VII
---------------------------------
Henry Curtis VII, Director
Date: March 18, 1998 */s/ Hollis L. Harris
---------------------------------
Hollis L. Harris, Director
Date: March 18, 1998 */s/ W. Stell Huie
---------------------------------
W. Stell Huie, Director
Date: March 18, 1998 */s/ Thomas F. Keller,
---------------------------------
Thomas F. Keller, Director
Date: March 18, 1998 */s/ James F. McDonald
---------------------------------
James F. McDonald, Director
Date: March 18, 1998 */s/ Daniel W. McGlaughlin
---------------------------------
Daniel W. McGlaughlin, Director
Date: March 18, 1998 */s/ C. Douglas Miller
---------------------------------
C. Douglas Miller, Director
Date: March 18, 1998 */s/ G. Harold Northrop
---------------------------------
G. Harold Northrop, Director
Date: March 18, 1998 */s/ William B. Stokely, III
---------------------------------
William B. Stokely, III, Director
* By: /s/ Dawn M. Gray
-----------------------
Dawn M. Gray,
Attorney-in-Fact
12
<PAGE> 13
AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report S-2
Schedule of the Company and Subsidiaries
II - Valuation Reserves S-3
</TABLE>
S-1
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Business Products, Inc.:
We have audited the consolidated financial statements of American Business
Products, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997, and
have issued our report thereon dated February 20, 1998; such financial
statements and report are included in your 1997 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedule of American Business Products, Inc.
and subsidiaries listed in Item 14 and on page S-1. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 20, 1998
S - 2
<PAGE> 15
SCHEDULE II
AMERICAN BUSINESS PRODUCTS, INC. AND SUBSIDIARIES
VALUATION RESERVES
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO OTHER CHARGES
DESCRIPTION BEGINNING COSTS AND ADD (DEDUCT) ENDING
BALANCE EXPENSES DESCRIBE (1) DEDUCTIONS(2) BALANCE
------- ---------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1995:
Allowance for doubtful accounts $2,379 $1,211 $ 753 $2,837
For the Year Ended December 31, 1996:
Allowance for doubtful accounts $2,837 $1,740 $(788) $1,904 $1,885
For the Year Ended December 31, 1997:
Allowance for doubtful accounts $1,885 $1,563 $1,327 $2,121
</TABLE>
(1) Sale of Vanier Graphics Corporation Assets on December 31, 1996.
(2) Deductions represent uncollectible accounts charged off, less recoveries.
S-3
<PAGE> 16
AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF EXHIBITS
Where an exhibit is filed by incorporation by reference to a previously
filed registration statement or report, such registration statement or report is
identified in parentheses.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Articles of Incorporation (Exhibit 3(a), Annual Report on Form
10-K for the fiscal year ended December 31, 1989).
3.2 Restated Bylaws, as amended and restated on December 11, 1996
(Exhibit 3.2 Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996).
4.1 Note Agreement dated as of October 1, 1990 among the Company
and the institutional investors listed on Schedule I thereto,
together with the form of 9.92% Senior Note to be used in
connection therewith (Exhibit 4, Annual Report on Form 10-K
for the fiscal year ended December 31, 1990).
4.2 Note Agreement dated as of December 1, 1993 among the Company
and the institutional investors listed on Schedule I thereto,
together with the form of 5.77% Senior Note to be used in
connection therewith. (Exhibit 4.2 Annual Report on Form 10-K
for the fiscal year ended December 31, 1993).
4.3 Form of Rights Agreement dated as of October 25, 1989 between
the Company and Citizens and Southern Trust Company (Georgia),
N.A. (Exhibit 4, Current Report on Form 8-K dated October 25,
1989).
4.4 First Amendment to Rights Agreement dated as of August 10,
1992 between the Company and Wachovia Bank of North Carolina,
N.A., as successor Rights Agent (Exhibit 4(c), Annual Report
on Form 10-K for the fiscal year ended December 31, 1992).
10.1 Executive Compensation Plans and Arrangements:
(a) Supplemental Retirement Income Plan (Exhibit 10(a),
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989).
(b) Deferred Compensation Investment Plan (Directors)
(Exhibit 10(b), Annual Report on Form 10-K for the
fiscal year ended December 31, 1989).
(c) Deferred Compensation Investment Plan (Executives)
(Exhibit 10(c), Annual Report on Form 10-K for the
fiscal year ended December 31, 1989).
(d) 1981 Stock Option Plan (Exhibit 10(d), Annual Report
on Form 10-K for the fiscal year ended December 31,
1989).
(e) Deferred Compensation Plan for Directors (Exhibit
10(e), Annual Report on Form 10-K for the fiscal year
ended December 31, 1989).
</TABLE>
E-1
<PAGE> 17
<TABLE>
<S> <C>
(f) American Business Products, Inc. Executive Retirement
Plan dated September 14, 1992 (Exhibit 10(h), Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992).
(g) 1991 Stock Option Plan, and First Amendment thereto.
(Exhibit 10(g), Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
(h) 1993 Directors Stock Incentive Plan (Exhibit 10(h),
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
(i) Special Nonqualified Deferred Compensation Plan and
related Trust Agreement (Exhibit 10.1(a) Quarterly
Report on Form 10-Q for the quarter ended September
30, 1995).
(j) Second Amendment to the 1991 Stock Option Plan
(Exhibit 10.1(a), Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995).
(k) First Amendment to the Deferred Compensation Plan for
Directors (Exhibit 10.1(a) Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
(l) First Amendment to the 1993 Directors Stock Incentive
Plan (Exhibit 10.1(l) Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1996).
(m) Second Amendment to the American Business Products,
Inc. Supplemental Retirement Income Plan (Exhibit
10.1(a)) Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
(n) Second Amendment to the American Business Products,
Inc. Deferred Compensation Plan (Executives) (Exhibit
10.1(b) Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
(o) Agreement, dated May 8 1997, between American
Business Products, Inc. and Raymond J. Wilson, filed
herewith.
(p) Agreement, dated June 26, 1997, between American
Business Products, Inc. and John H. Karr, filed
herewith.
(q) Agreement, dated October 30, 1997, between American
Business Products, Inc. and Thomas R. Carmody, filed
herewith.
(r) Separation Agreement, dated November 30, 1997,
between American Business Products, Inc. and Robert
W. Gundeck, filed herewith.
(s) Agreement, dated February 14, 1998, between American
Business Products, Inc. and Richard G. Smith, filed
herewith.
(t) Agreement, dated February 24, 1998, between American
Business Products, Inc. and Larry L. Gellerstedt,
III, filed herewith.
</TABLE>
E-2
<PAGE> 18
<TABLE>
<S> <C>
10.2 Agreement for the Purchase of Stock dated as of September 21,
1990 by and among the Company, Edward C. Leavy, Edward C.
Leavy, Executor under the will of Jean L. Leavy, and James B.
Kauffman relating to the purchase of Jen-Coat, Inc. (Exhibit
2, Current Report on Form 8-K, dated October 1, 1990).
10.3 (a) Stock Purchase Agreement dated September 1, 1993
among the Company, Home Safety Equipment Co., Inc.,
and William Frederick Conway, Sr., Betty Conway,
Allen C. Conway, Winifred Conway Arledge, William
Frederick Conway, Jr., Winifred B. Arledge, QSST
Trust #1, Winifred B. Arledge, QSST Trust #2, Allen
C. Conway, QSST Trust #1, Allen C. Conway, QSST Trust
#2, Allen C. Conway, QSST Trust #3, and William
Frederick Conway, Jr., QSST Trust #1, William
Frederick Conway, Jr., QSST Trust #2 (Exhibit 2,
Current Report on Form 8-K dated September 13, 1993).
(b) Non-Competition Agreement dated as of August 10, 1993
by and among William Frederick Conway, Sr., Betty
Conway, Allen C. Conway, Winifred Conway Arledge, Sol
A. Arledge, and William Frederick Conway, Jr. and the
Company (Exhibit 99.1, Current Report on Form 8-K,
dated September 13, 1993).
10.4 Revolving Credit Agreement dated as of April 22, 1996 by and
between American Business Products, Inc., and SunTrust Bank,
Atlanta, (Exhibit 10.4 Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.5 First Amendment dated August 1, 1997 to Revolving Credit
Agreement dated April 22, 1997 by and between American
Business Products, Inc. and SunTrust Bank, Atlanta, filed
herewith.
10.6 Second Amendment dated December 31, 1997 to Revolving Credit
Agreement dated April 22, 1997 by and between American
Business Products, Inc. and SunTrust Bank, Atlanta, filed
herewith.
13 Pages 10 through 31 of the Company's 1997 Annual Report which
are incorporated herein by reference.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
24 Power of Attorney.
27 Financial Data Schedules
</TABLE>
E-3
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.1(o) Agreement, dated May 8, 1997, between American Business Products,
Inc.and Raymond J. Wilson
10.1(p) Agreement, dated June 26, 1997, between American Business
Products, Inc.and John H. Karr
10.1(q) Agreement, dated October 30, 1997, between American Business
Products, Inc. and Thomas R. Carmody
10.1(r) Separation Agreement, dated November 30, 1997, between American
Business Products, Inc. and Robert W. Gundeck
10.1(s) Agreement, dated February 14, 1998, between American Business
Products, Inc. and Richard G. Smith
10.1(t) Agreement, dated February 24, 1998, between American Business
Products, Inc. and Larry L. Gellerstedt, III
10.5 First Amendment dated 8/1/97 to Revolving Credit Agreement
10.6 Second Amendment dated 12/31/97 to Revolving Credit agreement
13 Pages 10 through 31 of the 1997 Annual Report
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
24 Power of Attorney
27 Financial Data Schedules
Cover Letter
</TABLE>
<PAGE> 1
EXHIBIT 10.1(o)
AMERICAN BUSINESS PRODUCTS, INC.
POST OFFICE BOX 105684 ATLANTA, GEORGIA 30348
(770) 953-8300 Fax (770) 989-0220
May 8, 1997
Mr. Raymond J. Wilson
5372 Redfield Drive
Dunwoody, Georgia 30338
Dear Ray,
This letter will confirm our offer and your acceptance of employment as
Corporate Controller of American Business Products effective June 30, 1997, or
an earlier date if you are available sooner.
The key terms of your employment are as follows:
Subject to approval of the Company's Board of Directors, the Corporate
Controller will be appointed an Officer of the Company.
Your starting salary will be $140,000 per year. Your salary will be reviewed and
may be increased at the Company's discretion effective January 1, 1998, and
thereafter.
You will participate in the Company's management bonus plan. Your bonus for 1997
will be no less than 25% of the salary paid to you in 1997.
You will participate in the Company's stock option plan. Management will
recommend to the Board of Directors that you be granted options on 3,000 shares
of Company common stock for 1997.
You will be entitled to four weeks of paid vacation per year.
If the Company should terminate your employment for any reason except for cause,
it will pay you nine months salary as severance.
You will be eligible to participate in all other normal Company benefit programs
such as life insurance plans, medical and dental plans, profit sharing
retirement plan, 401(k) plan, disability plans, etc., according to their terms.
If you request it, in lieu of preexisting condition health care coverage under
the Company's plans, the Company will reimburse you your COBRA premiums to
maintain your family's present health care coverage under EnGraph/Sonoco's plans
for up to the first thirteen months of your employment by the Company.
<PAGE> 2
2
Ray, we are glad that you have agreed to join us and we look forward to a
productive and mutually beneficial association.
Sincerely,
AMERICAN BUSINESS PRODUCTS, INC.
/s/ Richard G. Smith
Richard G. Smith
Vice President and
Chief Financial Officer
AGREED:
/s/ Raymond J. Wilson 5/8/97
- ---------------------------------
Raymond J. Wilson Date
<PAGE> 1
EXHIBIT 10.1(P)
AMERICAN BUSINESS PRODUCTS, INC.
POST OFFICE BOX 105684 ATLANTA, GEORGIA 30348
(770) 953-8300 Fax (770) 989-0220
June 26, 1997
Mr. John H. Karr
1641 Summit Drive
Columbus, Georgia 31906
Dear John,
This letter will confirm our offer and your acceptance of employment by American
Business Products effective June 30, 1997. The key terms of your employment are
as follows:
Subject to approval of the Company's Board of Directors, you will be appointed
Treasurer and an Officer of the Company. Pending such approval you will serve as
Director of Treasury Operations.
Your starting salary will be $125,000 per year. Your salary will be reviewed and
may be increased at the Company's discretion effective January 1, 1998, and
thereafter.
You will participate in the Company's management bonus plan. Your bonus for 1997
will be no less than 25% of the salary paid to you in 1997.
You will participate in the Company's stock option plan. Management will
recommend to the Board of Directors that you be granted options on 2,500 shares
of Company common stock for 1997.
You will relocate your place of residence to Atlanta reasonably promptly. To
partially defray your related costs the Company will pay you a $25,000 special
bonus by July 15, 1997. If your employment by the Company terminates within 25
months of that date, upon termination you will repay the special bonus to the
Company less $1,000 for each month you are employed by the Company.
You will be entitled to four weeks of paid vacation per year.
If the Company should terminate your employment for any reason except for cause,
it will pay you nine months salary as severance, provide you outplacement
services at a cost not greater than $15,000 and, at the Company's election,
either vest any unvested Company contribution to your account in the Company's
Profit Sharing and 401(k) plans or add to your severance an amount equal to the
amount of any such unvested contribution.
<PAGE> 2
2
You will be eligible to participate in all other normal Company benefit programs
such as life insurance plans, medical and dental plans, profit sharing
retirement plan, 401(k) plan, disability plans, etc., according to their terms.
The Company will reimburse your "COBRA" premiums to continue your current
coverage under your prior employer's medical plan until the expiry of the thirty
day waiting period applicable to admission to the Company's insurance plans. The
Company will waive the one-year waiting period applicable to reimbursement of
certain physical examination costs if incurred by you in compliance with the
terms of the Company's executives physical examination reimbursement program.
Please indicate your acceptance of employment on the terms above by signing both
original copies of this letter and returning one to me.
John, we are glad that you have agreed to join us and we look forward to a
productive and mutually beneficial association.
Sincerely,
AMERICAN BUSINESS PRODUCTS, INC.
/s/ Richard G. Smith
Richard G. Smith
Vice President and
Chief Financial Officer
AGREED:
/s/John H. Karr 6/29/97
- ----------------------------------
John H. Karr Date
<PAGE> 1
EXHIBIT 10.1(Q)
AMERICAN BUSINESS PRODUCTS, INC.
POST OFFICE BOX 105684 ATLANTA, GEORGIA 30348
(770) 953-8300 Fax (770) 952-2343
October 30, 1997
As Chairman of the Ad Hoc Committee, I met with Thomas R. Carmody on Wednesday,
October 29, 1997 and offered him the position of Interim President and Chief
Executive Officer of American Business Products, Inc. as authorized by the Board
at the October 22 meeting. Terms and details as agreed upon at this meeting are
summarized below.
Thomas R. Carmody agrees to accept the appointment for an interim period
commencing November 7, 1997, until a new president and chief executive officer
is hired. This appointment is terminable at will by either party.
Salary for this part-time appointment shall be as follows:
- - $45,000 for the remainder of 1997. Such amount shall not be payable until
on or after January 15, 1998.
- - Effective January 1, 1998, the salary shall be $25,000 per month, prorated
in the final month of the appointment based on the number of days Mr.
Carmody fills the position of Interim President and CEO, divided by thirty
(30).
- - Mr. Carmody will be paid regular board fees as a director for the balance
of 1997.
/s/ G. Harold Northrop /s/ Thomas R. Carmody
- --------------------------------- ---------------------------
G. Harold Northrop Thomas R. Carmody
Chairman, Ad Hoc Committee
<PAGE> 1
EXHIBIT 10.1(R)
SEPARATION AGREEMENT
This SEPARATION AGREEMENT (the "Agreement") is made and entered into
this 30th day of November, 1997, ( the "Execution Date") to become effective as
of the eighth day after the Execution Date (the "Effective Date"), by and
between AMERICAN BUSINESS PRODUCTS, INC., a Georgia corporation (the "Company")
and ROBERT W. GUNDECK (the "Executive").
WITNESSETH:
WHEREAS, the Executive has been employed as the President and Chief
Executive Officer of the Company; and
WHEREAS, the Company and the Executive have agreed to end the
employment relationship and desire to enter into this Separation Agreement to
specify the terms and conditions of the termination of the Executive's
employment;
NOW, THEREFORE, in consideration of the above premises and mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
I. TERMINATION OF THE EXECUTIVE'S EMPLOYMENT.
The Executive and the Company agree and acknowledge that the
Executive's employment with the Company shall terminate as of the close of
business on Friday, November 7, 1997 (the "Employment Termination Date").
II. RESIGNATION FROM COMPANY POSITIONS.
As of the Employment Termination Date, the Executive agrees to tender
his resignation as a member of the Board of Directors of the Company and as an
officer and/or member of the Boards of Directors of any and all subsidiaries of
the Company. Also, effective as of the Employment Termination Date, the
Executive shall resign as a trustee of the Company's Profit Sharing Retirement
Plan, Employee Savings Plan and Group Health Insurance Trust, and as a trustee,
plan administrator and fiduciary for any other plan, trust or other arrangement
in which he currently holds such a position. The Executive also agrees to
resign, as of the Employment Termination Date, from any and all Company
positions in which the Executive was elected or appointed, including any and all
positions in which the Executive was charged with fiduciary responsibility.
<PAGE> 2
III. SEPARATION PACKAGE.
In addition to the compensation and benefits to which the Executive
would be entitled based upon his employment with the Company through the
Employment Termination Date, the Executive shall receive the following as
additional consideration, which the Executive acknowledges is significant and
substantial:
A. COMPENSATION.
1. Continuation of Salary. The Company shall continue
the salary of the Executive at a monthly base rate of
$37,500.00 (less any applicable taxes, authorized
deductions, and any amounts owed by Executive to the
Company), payable on the last business day of each
calendar month, through the last day of the calendar
month which is twelve (12) calendar months after the
Employment Termination Date (the "Severance Period").
If at any time during the Severance Period, the
Executive breaches his obligations under this
Agreement, the Company may, upon written notice to
the Executive, terminate the Severance Period and
cease to make any further payments or provide any
continuation of salary.
In the event of the Executive's death during the
Severance Period, payments under this Paragraph shall
continue to be made during the remainder of the
Severance Period to the Executive's surviving spouse,
or, if no spouse survives him, to the Executive's
estate.
2. Annual Incentive and Bonus Compensation. The
Executive shall not be eligible for consideration for
any awards under any annual incentive compensation or
bonus plan, program or arrangement of the Company for
1997 or any year thereafter. The Executive shall not
be eligible for any bonus for 1997 or any year
thereafter which is based on compensation not counted
for purposes of the Company's tax-qualified Profit
Sharing Retirement Plan or Employee Savings Plan due
to certain limitations imposed by the Internal
Revenue Service.
3. Long-term Incentive Compensation. Effective as of the
execution of this Agreement, the Executive shall not
be eligible for consideration for any new grants or
awards under any long-term incentive compensation
plan, program or arrangement of the Company,
including the 1991 Stock Option Plan or the special
performance-based compensation plan regarding stock
performance between 1995 and 1999.
2
<PAGE> 3
The Company agrees to arrange for the Committee of
the 1991 Stock Incentive Plan to immediately
accelerate the vesting on any outstanding options or
awards that the Executive holds on the date of
execution of this Agreement so that all such options
become immediately 100% exercisable. Further, the
Company agrees to arrange for the Committee to extend
the period for exercise of the Executive's
outstanding options until November 7, 1998. Any
outstanding incentive stock options granted to the
Executive by the Company shall convert to
nonqualified stock options if not exercised within
three months after the Employment Termination Date.
B. BENEFITS.
Except as specifically set forth to the contrary herein, the Executive
shall cease to be eligible to participate in all employee benefit plans
sponsored by, contributed to or maintained by the Company as of the
Employment Termination Date.
1. Group Health and Dental Insurance. Effective as of
the Employment Termination Date, the Executive and
his eligible dependents shall cease to be eligible to
participate in the Company's group health and dental
insurance plan or plans; provided, the Executive and
his covered dependents shall be eligible for COBRA
continuation coverage under any plan of the Company
which is a group health plan subject to the
provisions of part 6 of Title I of ERISA, with
premiums payable by the Executive at the Company's
continuation coverage rates.
2. Life Insurance.
a. Group Term Life and AD&D Insurance.
Effective as of the Employment Termination
Date, the Executive shall cease to be
eligible to participate in the Company's
group term life insurance and accidental
death and dismemberment coverages; provided,
that to the extent any conversion rights
exist under such coverages, those rights
shall be made available to the Executive.
b. Whole Life or Supplemental Life Insurance.
Effective as of the Employment Termination
Date, the Executive shall cease to be
eligible to participate in any whole life or
supplemental life insurance programs of the
Company in which he has previously
participated; provided, that to the extent
any conversion or transfer rights exist
under such coverages, those rights shall be
made available to the Executive.
3
<PAGE> 4
c. COLI or Key Man Insurance. Any and all
Company-owned life insurance or key man
insurance purchased by the Company on the
life of the Executive shall remain the
exclusive property of the Company.
3. Retirement Benefits.
a. Tax-Qualified Retirement Plans. During the
Severance Period, the Executive shall be
eligible to continue to participate in the
Company's Profit Sharing Retirement Plan and
Employee Savings Plan, based on the
continuation of his salary, to the extent
permitted under the terms of those plans.
b. Nonqualified Retirement Plans.
(1) Special Nonqualified Deferred
Compensation Plan. The Executive
shall immediately cease to make
contributions to the Special
Nonqualified Deferred Compensation
Plan as of the Effective Date of
this Agreement. The Company shall
authorize the Trustee of the Special
Nonqualified Deferred Compensation
Plan to make distribution to the
Executive of his account in the Plan
on or about June 1, 1998.
(2) Executive Retirement Plan. The
Executive shall immediately cease
participation in the Executive
Retirement Plan as of the Effective
Date of this Agreement. The parties
understand that the Executive
Retirement Plan is in the process of
being terminated, and the Executive
will be offered the same termination
options as any other covered
employee.
(3) Supplemental Retirement Income Plan.
The Executive is entitled to certain
payments under the terms of the
Supplemental Retirement Income Plan,
pursuant to that certain Joiner
Agreement signed by the Executive
and the Company on June 27, 1995.
The Company agrees to make payments
to the Executive pursuant to the
terms of the Supplemental Retirement
Income Plan and the Executive's
Joiner Agreement.
4. Accrued Vacation. As of the Employment Termination
Date, the Executive shall not be eligible for any
paid vacation days. In lieu of
4
<PAGE> 5
payment for accrued but unused vacation days, the
Company shall pay Severance Pay as described in
Paragraph 9 hereof.
5. Expense Reimbursement. The Company shall reimburse
the Executive for all reasonable business expenses
incurred prior to the Employment Termination Date in
the performance of his duties as an employee of the
Company in accordance with the Company's standard
travel and expense policy.
6. Automobile. The Executive has previously been
assigned a Company-leased BMW 740 automobile for his
use. The Company agrees to take all actions available
to transfer or assign the vehicle lease to the
Executive pursuant to the requirements of BMW
Financial Services, Inc. (the leasing corporation) as
soon as possible after the Effective Date, and the
Executive agrees to accept such lease transfer or
assignment. Upon a transfer or assignment of the
lease to Executive, the Executive agrees to become
solely and fully responsible for all future lease
payments and other obligations under the lease,
including but not limited to, service and maintenance
of the vehicle, excess mileage, insurance coverages
and premiums, ad valorem taxes, licensing and tags
and any and all liability for collision, property
damage and personal injury resulting from use of the
leased vehicle. In the event the Company is held
liable for any costs or damages related to
Executive's use of the leased vehicle after the
Executive assumes the vehicle lease, the Executive
agrees to indemnify the Company for any such costs or
damages.
7. Club Memberships. The Company has previously paid
various membership fees and dues for the Executive to
be a member of certain social and business clubs.
Effective as of the Employment Termination Date, the
Company will pay no further fees or dues related to
club memberships.
8. Other Employee Benefits. All other employee benefits
plans, programs or arrangements in which the
Executive is an eligible participant or beneficiary,
shall be administered in accordance with the terms of
each such individual plan, program or arrangement and
the provisions of such plan, program or arrangement
shall govern the Executive's rights to benefits
thereto following the Employment Termination Date.
9. Severance Pay. In addition to the amounts described
above, the Company agrees to pay the Executive a
single sum amount of Eighty Thousand Dollars
($80,000.00) as Severance Pay; provided, that if the
Executive does not accept transfer or assignment of
the lease for the vehicle described in Paragraph 6,
the amount of the Severance Pay under this Paragraph
shall
5
<PAGE> 6
be reduced to Sixty-Five Thousand Dollars
($65,000.00); and provided further, that any payment
of Severance Pay will be subject to applicable
withholding amounts. Upon the Executive's request for
tax reasons, the Company agrees to pay as much as
Twenty Thousand Dollars ($20,000.00) of the Severance
Pay directly to an outplacement company of the
Executive's choice. Unless otherwise requested by the
Executive, the Company shall pay the Severance Pay on
or about June 1, 1998. The Company agrees to pay this
Severance Pay to assist the Executive with certain
costs associated with his termination of employment,
including but not limited to, the costs of
continuation coverage under group health and dental
plans, assumption of the lease payments on the
vehicle, legal assistance, and outplacement services.
IV. STATUS AS AN AGENT.
The Executive agrees that as of the date of execution of this
Agreement, the Executive relinquishes all power as an agent of the Company and
acknowledges that he cannot bind the Company in any agreement, contract or
promise and agrees not to represent that he has such powers to third parties
without the express written consent of the Company.
V. COOPERATION AFTER EMPLOYMENT TERMINATION DATE.
The Executive agrees to cooperate fully with the Company during the
Severance Period and to reasonably assist the Company thereafter on all matters
relating to his employment and the conduct of the Company's business, including
any litigation, claim or suit in which the Company deems that the Executive's
cooperation is needed. The Executive also agrees that during the Severance
Period, the Executive will make himself available on reasonable notice to
furnish services in the nature of a consultant to the Company regarding any
issues arising from the Executive's employment and the conduct of the Company's
business, including but not limited to any litigation matters involving Company
as a party or witness and as to which the Executive possesses knowledge or
information which is relevant to the litigation. The Company agrees to reimburse
the Executive for all reasonable "out-of-pocket" expenses related to provision
of the services referenced in this Paragraph, provided the Executive receives
advance approval of such expenses by the Company's Chief Executive Officer and
provides the Company with receipts and invoices for all such expenses in
accordance with the Company's general expense reimbursement policy.
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VI. CONFIDENTIALITY OF AGREEMENT.
The Executive and the Company understand and agree that, due to the
sensitive nature of this matter, the terms of this Agreement are to be kept
private and confidential and that the terms of this Agreement shall not be
disclosed, unless the party(ies) is (are) required by law to do so. While not
limiting the generality of the foregoing, disclosure includes any statement,
written or oral, to any person, including, but not limited to, any current or
former employees of the Company. The parties to this Agreement acknowledge that
there will be circumstances under which some or all of the terms of this
Agreement will have to be made known to some individuals in the regular course
of conducting business and personal affairs. In keeping with that understanding,
the Company agrees that the Executive may discuss the terms of this agreement
with his attorneys, accountants, tax advisors and his immediate family. The
Executive agrees to advise such individuals of the confidentiality provisions of
this Agreement and will require that anyone so named shall keep the terms of
this Agreement confidential. Should the Executive disclose any of the terms of
this Agreement to persons (whether entities or individuals) other than those
specified in this Article, then such actions shall constitute a breach of the
terms of this Agreement on the part of the Executive. The Executive acknowledges
that the terms of this Agreement will become known to certain officials and
employees of the Company. The Company agrees that this information will be
disseminated only on a need-to-know basis, and that any individual who is made
aware of the terms and provisions of this Agreement shall be advised of the
confidentiality provisions of this Agreement. The Company's disclosure other
than as permitted in this paragraph to those who "need-to-know" the terms of the
Agreement will constitute a breach of this Agreement. Notwithstanding the
foregoing, the parties acknowledge that certain terms or conditions of the
Agreement may be required to be disclosed by the Company in its public filings
for compliance with SEC rules and regulations. Therefore, the parties agree that
any information disclosed by the Company in its press releases, public reports
and public filings shall be exempt from the provisions of this Confidentiality
Section at all times after such information has been made available to the
public. The parties further agree that it shall not be considered a breach of
this Section for the Executive to disclose to potential employers and others
that he resigned from his position with the Company to pursue other business
opportunities, that he has received a severance package from the Company, that
he and the Company have agreed that all terms and conditions of the severance
package are to remain confidential and that he may not discuss those terms and
conditions.
VII. NONDISPARAGEMENT.
The Executive agrees that he shall not make any untrue statement or
criticism, written or oral, nor take any action which is adverse to the
interests of the Company or that would cause the Company, its affiliates,
subsidiaries, divisions or its current and former officers, directors,
employees, agents, or shareholders embarrassment or humiliation or otherwise
cause or contribute to such persons being held in disrepute by the public or the
Company's clients, customers, or executives. The Company agrees that it shall
not make any untrue statement or criticism, written
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or oral, nor take any such action which is adverse to the interests of the
Executive or that would cause the Executive embarrassment or humiliation or
otherwise cause or contribute to the Executive being held in disrepute by the
public or the Company's clients, customers, or executives. The obligations under
this Section shall survive the termination of the Severance Period.
VIII. NEUTRAL REFERENCES.
The Executive acknowledges and agrees that the Company shall provide
the Executive, upon the request of the Executive, or any other prospective
employer of the Executive, upon the request of such prospective employer, with a
neutral reference letter which will contain no more than a factual recitation of
the Executive's employment history with the Company, and which will include
dates of hire and termination, positions held and similar factual information.
This neutral reference letter will contain no evaluation information as to the
Executive's job performance or job history. The Executive and the Company
acknowledge and agree that the Company shall be under no obligation to provide
anything other than such a neutral reference letter to the Executive or any
prospective employer of the Executive prior to, on or after the Employment
Termination Date. From and after the Employment Termination Date, the Executive
shall refrain from discussing the terms and conditions of the termination of the
Executive's employment with any employee, agent, client or customer of Company.
With the exception of those within the Company with a "need-to-know" and the
Company's legal counsel, the Company will refrain from discussing the terms and
conditions of the termination of the Executive's employment with any agent,
client or customer of the Company.
IX. COVENANT NOT TO SOLICIT.
Due to the Executive's extensive knowledge of the specifics of the
Company's business, and its customers and clients, the Executive agrees that
during the Severance Period and for a period of one year (1) year thereafter, he
will not, without the prior written consent of the Company, either directly or
indirectly, on his own behalf or in the service or on behalf of others, solicit,
divert or appropriate, or attempt to solicit, divert or appropriate, to any
business that competes with the Company's business any person or entity who
transacted business with the Company during the year preceding the Employment
Termination Date. This provision shall be specific and shall apply only to any
and all persons or entities with whom the Executive has (i) had direct contact,
(ii) been a party to marketing or sales strategies with regard to, or (iii) been
privy to marketing or sales strategies with regard to such persons or entities.
The Executive agrees that during the Severance Period and for a period
of one (1) year thereafter, he will not, either directly or indirectly, on his
own behalf or in the service or on behalf of others solicit, divert or hire
away, or attempt to solicit, divert or hire away to any business that competes
with Company's business any person then employed by the Company, or any person
not
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then employed by the Company but employed by the Company at any time and for any
period after the date which is one (1) year prior to the Employment Termination
Date.
X. COVENANT NOT TO DISCLOSE COMPANY PROPRIETARY INFORMATION.
During the Executive's employment with the Company, he has had access
to and become familiar with information that the parties acknowledge to be
confidential, valuable or uniquely proprietary information regarding the
Company, its products, customers and employees. For a period of three (3) years
from the date of this Agreement, the Executive shall neither use nor disclose
for any purpose any information relating to the financial condition, prospects,
capital stock, the manner of doing business, customer lists, pricing
information, inventory or any other property of the Company, its officers,
customers, or employees, or any other such confidential, valuable or uniquely
proprietary information. Information in the public domain or information that is
commonly known by or available to the public through the Company's press
releases, public documents, annual reports, SEC filings or other public filings
shall not be considered proprietary or confidential information.
XI. RETURN OF COMPANY DOCUMENTS AND PROPERTY.
The Executive hereby represents and warrants that, as of the Execution
Date of this Agreement, he has returned to the Company all documents (including
copies and computer records thereof) of any nature which relate to or contain
proprietary or confidential information concerning Company, its customers, or
employees, and any and all property of the Company which has been in his
possession, including any computers, computer programs or limited use software
licenses in his possession. The Executive confirms that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by the Executive relating to
the business of the Company shall be and remain the property of the Company,
except for such papers customarily deemed to be the personal copies of the
Executive. Information in the public domain or information that is commonly
known by or available to the public through the Company's press releases, public
documents, annual reports, SEC filings or other public filings shall not be
considered proprietary or confidential information.
XII. GENERAL RELEASE BY THE EXECUTIVE.
Except as specifically provided in Section XIII hereof, for and in
consideration of the additional consideration to be provided to the Executive by
the Company pursuant to this Agreement, the sufficiency of which is hereby
acknowledged, the Executive does hereby, for and on behalf of himself and the
Executive's related persons, fully and finally release, acquit and forever
discharge the Company, the Company's related entities and persons, all employee
benefit plans of the Company and all employee benefit plans of the Company's
related entities, and such plans' related entities and persons, of and from any
and all claims, counterclaims, actions, causes of action, demands, rights,
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<PAGE> 10
damages, costs, expenses or compensation which the Executive and/or the
Executive's related entities and persons now have, or may have, or may hereafter
claim to have had as of the Execution Date, whether developed or undeveloped,
anticipated or unanticipated, based on any acts, omissions, transactions or
occurrences whatsoever occurring prior to and/or up until the Execution Date,
and specifically, but not by way of limitation, from those claims which are, or
arise by reason of, or are in any way connected with, or which are or may be
based in whole or in part on the employment relationship which existed between
the Executive and the Company and the termination of that employment
relationship, including, without limitation, (i) those claims arising under any
foreign, federal, state, county or municipal fair employment practices act
and/or any law, ordinance or regulation promulgated by any foreign, federal,
state, county, municipality or other state subdivision; (ii) those claims for
breach of duty and/or implied covenant of good faith and fair dealing; (iii)
those claims for interference with and/or breach of contract (express or
implied, in fact or in law, oral or written); (iv) those claims for retaliatory
or wrongful discharge of any kind; (v) those claims for intentional or negligent
infliction of emotional distress or mental anguish; (vi) those claims for
outrageous conduct; (vii) those claims for interference with business
relationships, contractual relationships or employment relationships of any
kind; (viii) those claims for breach of duty, fraud, fraudulent inducement to
contract, breach of right of privacy, libel, slander, or tortious conduct of any
kind; (ix) those claims arising under Title VII of the Civil Rights Act of 1964
and/or the Civil Rights Act of 1991 and/or 42 U.S.C. ss.1981; (x) those claims
arising under the Age Discrimination in Employment Act of 1967, the Age
Discrimination Claims Assistance Act of 1988 and/or the Older Workers' Benefit
Protection Act; (xi) those claims arising under any state or federal handicap or
disability discrimination law or act, including but not limited to the
Rehabilitation Act of 1973 and the Americans with Disabilities Act; (xii) those
claims arising from any damages suffered at any time by reason of the effects or
continued effects of any alleged or actual discriminatory or wrongful acts;
(xiii) those claims arising under or in reliance upon any statute, regulation,
rule or ordinance (local, state or federal); (xiv) those claims arising under
Employment Retirement Income Security Act of 1974, as amended, and/or the Family
and Medical Leave Act; (xv) those claims arising under the workers' compensation
laws of any state or other jurisdiction; and (xvi) any and all other claims
arising under law or in equity in the United States of America or in any foreign
jurisdiction.
XIII. LIMITATION OF RELEASE BY THE EXECUTIVE.
Notwithstanding the provisions of Section XII hereof, it is understood
and agreed that the waiver of benefits and claims contained in Section XII does
not include a waiver of the right to payment of any vested, nonforfeitable
benefits to which the Executive or a beneficiary of the Executive may be
entitled under the terms and provisions of any employee benefit plan of the
Company which have accrued as of the Employment Termination Date, and does not
include a waiver of the right to benefits and payment of consideration to which
the Executive may be entitled under this Agreement. The Executive acknowledges
that he is only entitled to the additional benefits and compensation set forth
in this Agreement, and that all other claims for any other benefits or
compensation are hereby waived, except those expressly stated in the preceding
sentence.
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XIV. GENERAL RELEASE BY THE COMPANY.
The Company does hereby, for and on behalf of itself and its related
entities and persons, fully and finally release, acquit and forever discharge
the Executive of and from any and all claims, counterclaims, actions, causes of
action, demands, rights, damages, costs, expenses or compensation which the
Company and/or the Company's related entities and persons have knowledge of, as
of the Employment Termination Date, based on any acts, omissions, transactions
or occurrences whatsoever occurring prior to and/or up until the Employment
Termination Date, and specifically, but not by way of limitation, from those
claims which are, or arise by reason of, or are in any way connected with, or
which are or may be based in whole or in part on the employment relationship
which existed between the Executive and the Company and the termination of that
employment relationship.
XV. KNOWING AND VOLUNTARY WAIVER OF RIGHTS BY THE EXECUTIVE.
The Executive agrees and acknowledges that he has carefully reviewed,
studied and thought over the terms of this Agreement, and that all questions
concerning this Agreement have been answered to his satisfaction. The Executive
does further acknowledge and agree that he has had the opportunity to keep this
Agreement in his possession for at least twenty-one (21) days, and that he has
had the opportunity to consider and reflect upon the terms of this Agreement
before signing it, that he knowingly and voluntarily entered into and signed
this Agreement after deliberate consideration and review of all of its terms and
provisions, that he was not coerced, pressured or forced in any way by the
Company or anyone else to accept the terms of this Agreement, that the decision
to accept the terms of this Agreement was entirely his own, that HE WAS ADVISED
IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT AND
PRIOR TO THE EXECUTION DATE OF THIS AGREEMENT, AND THAT HE HAS HAD THE
OPPORTUNITY TO CONSULT WITH AN ATTORNEY THROUGHOUT THE NEGOTIATIONS CONCERNING
THIS AGREEMENT. The Executive also acknowledges that no promises or inducements
to enter into and execute this Agreement have been offered or made except those
which are specifically set out in this Agreement.
XVI. RIGHT OF REVOCATION BY THE EXECUTIVE.
From the Employment Termination Date until the Effective Date, the
Executive may revoke this Agreement by sending written notice of revocation by
Registered Mail within that period to:
Mr. G. Harold Northrop
5253 Highway 354
Pine Mountain, GA 31822
and, if he does so, this Agreement shall be null and void in its entirety, and
shall be of no force or effect. If not revoked within said period, this
Agreement will become effective, binding and irrevocable as of the Effective
Date.
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XVII. AMENDMENT.
It is expressly understood and agreed that this Agreement may not be
altered, amended, modified or otherwise changed in any respect or particular
whatsoever except in writing duly executed by the Executive and an authorized
representative of the Company acting on behalf of the Company.
XVIII. MISCELLANEOUS.
A. BINDING AGREEMENT. This Agreement shall be binding upon both
the Executive and the Executive's related entities and
individuals, and upon the Company and the Company's related
entities. Each party hereto agrees, understands, and
acknowledges that each party is responsible for their own
attorneys' fees, costs and all other expenses arising from, or
in any way related to claims released herein. The undersigned
parties, acting through their duly authorized officers or
individually, as the case may be, do hereby warrant that the
signatories hereto have express authority and have the legal
capacity to enter into this Agreement.
B. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants or conditions hereof shall not be deemed
a waiver of such term, covenant or condition, nor shall any
waiver or relinquishment of any right or power hereunder at
any time or times be deemed a waiver or relinquishment of such
right or power any other time or times.
C. CHOICE OF LAW. This Agreement is to be construed in accordance
with the laws of the State of Georgia without regard to any
conflict of law principles of such state.
D. REMEDIES FOR BREACH OF AGREEMENT. In the event of a material
or substantial breach of any provision of this Agreement or
conduct by either the Executive or any officer or director of
the Company which constitutes disparagement of the other or an
attempt to damage the other's business relations and
reputation, the parties agree that in addition to all legal
remedies to which each may result, the injured party may also
seek equitable relief, including injunctive relief, as the
parties acknowledge that there may be no adequate remedy at
law for such material and substantial breach(es). In addition,
in the event of a breach of any provision of this Agreement by
the Executive, or conduct by the Executive which constitutes
disparagement of the Company or an attempt by the Executive to
damage the Company's business relations and reputation, the
Company may immediately cease making any payments whatsoever
hereunder, and may seek to recover from the Executive all
payments made under this Agreement prior to the breach by the
Executive.
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E. MEDIATION AND ARBITRATION. The parties hereto agree that any
dispute or controversy arising out of, relating to or in
connection with this Agreement, or the interpretation,
validity, construction, performance, breach or termination
thereof, shall first be submitted to mediation. The mediation
shall be conducted within 45 days of either party notifying
the other party of a dispute or controversy regarding this
Agreement. The Company and the Executive shall each pay half
of the costs and expenses of the mediation.
In the event the dispute cannot be resolved through mediation,
the parties hereto agree that any dispute or controversy
arising out of, relating to or in connection with this
Agreement shall then be settled by arbitration to be held in
Atlanta, Georgia, in accordance with the Commercial rules of
the American Arbitration Association ("AAA") as then in
effect.
Either party may give written notice (by certified mail) to
the other party, demanding arbitration and specifying the
issue(s) to be decided. The demand must be made within 90 days
of the date on which the act or omission giving rise to the
demand occurred. The party demanding arbitration shall request
a list of not less than nine arbitrators to conduct an
arbitration hearing from the AAA. Each party shall have the
right to strike a name from the list until only three names
are remaining. The remaining named arbitrators shall be
selected to conduct the arbitration hearing. Notwithstanding
the foregoing, the parties shall make good faith efforts to
agree on a single arbitrator.
After the arbitrators are selected, the arbitrators will
notify all parties and will also specify a date, between 30
and 90 days from the selection date, for the arbitration
hearing. The timetable for the hearing may be postponed only
by agreement, or to allow for any court proceeding involving
this arbitration to be resolved prior to the arbitration
hearing taking place.
The arbitrators shall apply Georgia law to the merits of any
dispute of claim without reference to rules of conflict of
law. The arbitral award will be submitted to the Superior
Court of Fulton County, Georgia for enforcement under O.C.G.A.
ss.9-9-1, et seq. All parties agree to jurisdiction and venue
being proper before that court, and waive all objections each
may have to that jurisdiction and venue. The decision of the
arbitrators shall be final, conclusive and binding on the
parties to the arbitration.
The Company and the Executive agree that the arbitrator may,
in his discretion, award the costs and expenses of the
arbitration, including legal counsel fees and expenses, to the
prevailing party or divide such costs and expenses between the
parties, unless otherwise required by law.
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F. ENTIRE AGREEMENT BETWEEN PARTIES AND NO INDICATION OF
FAULT. This Agreement constitutes the entire agreement between
the Executive and the Company pertaining to the subjects
contained in it and supersedes any and all prior and/or
contemporaneous agreements, representations, or
understandings, written or oral. This Agreement is intended to
fully, completely, and forever resolve all disputes or
potential disputes based upon events, omissions or acts
occurring on or prior to the Employment Termination Date as
well as all other issues or claims in any way arising out of
or connected with the prior employment of the Executive with
the Company or the termination of that employment, and the
signing of this document is not to be construed as an
admission of any liability and/or fault by the Company or by
the Executive.
XIX. EFFECTIVE DATE AND EXECUTION DATE.
For purposes of this Agreement, the "Effective Date" of this Agreement
shall be the date on which this Agreement becomes effective, which shall be the
date which is exactly eight (8) days following the Execution Date, unless this
Agreement has been revoked by the Executive prior to such date in accordance
with the provisions of this Agreement. The Execution Date shall mean that date
on which this Agreement is executed by the parties.
[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY SO THAT ALL SIGNATURES
MAY BE ON THE SAME PAGE.]
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IN WITNESS WHEREOF, the undersigned has executed this Separation
Agreement on the day and year first above written.
EXECUTIVE:
/s/ Robert W. Gundeck
---------------------------------------
ROBERT W. GUNDECK
COMPANY:
AMERICAN BUSINESS PRODUCTS, INC.
By: /s/ G. Harold Northrop
---------------------------------------
Title: Director- Chairman of Compensation
Committee
This document has been signed in duplicate.
15
<PAGE> 1
EXHIBIT 10.1(S)
AMERICAN BUSINESS PRODUCTS, INC.
POST OFFICE BOX 105684 ATLANTA, GEORGIA 30348
(770) 953-8300 Fax (770) 989-0220
February 14, 1998
Mr. Richard G. Smith
303 Chase Lane
Marietta, GA 30068
Dear Richard,
In consideration of your service as Chief Financial Officer of American Business
Products, Inc. ("ABP"), ABP hereby agrees that if within five years of the date
of this letter ABP terminates your employment without "Cause" (as hereinafter
defined), ABP will pay you $18,333.33 per month for the first eighteen months
following the date of such termination. In addition, upon such a termination,
ABP's Committee for the ABP 1991 Stock Incentive Plan (or its successor plan)
will immediately accelerate the vesting on any outstanding stock options that
you may hold on the date of your termination and will extend the term of
exercisability of those options for twelve months following the date of your
termination.
For the purposes of this agreement, the term "Cause" shall mean your commission
of an act of fraud, embezzlement or theft against ABP, conviction of a felony or
engaging in activities which are in actual conflict of interest with ABP. ABP
also agrees that ABP will be deemed to have terminated your employment without
Cause upon your resignation of employment if ABP materially reduces your salary,
benefits (except for any benefit reductions generally applicable to ABP
employees), responsibilities, authority, or title or requires you to relocate
your usual place of employment to any location other than ABP's headquarters
office in Atlanta, Georgia. If ABP fails to comply with the terms of this
agreement, ABP will reimburse you all reasonable costs and expenses to enforce
your rights hereunder including, without limitation, fees and expenses of
attorneys and court costs.
You and ABP hereby agree that this letter agreement supersedes and revokes the
"Separation Agreement" provision in the letter from Thomas R. Carmody to you,
dated July 25, 1995, which confirmed your initial employment with ABP.
Sincerely,
AMERICAN BUSINESS PRODUCTS, INC.
/s/ G. Harold Northrop
G. Harold Northrop
Chairman, Executive Committee
AGREED:
/s/ Richard G. Smith February 14, 1998
- -----------------------------------------------
Richard G. Smith Date
<PAGE> 1
EXHIBIT 10.1(t)
AMERICAN BUSINESS PRODUCTS, INC.
POST OFFICE BOX 105684 ATLANTA, GA 30348
(770) 953-8300 FAX (770) 952-2343
February 24, 1998
Mr. Larry L. Gellerstadt, III
2485 West Wesley Road
Atlanta, GA 30327
Dear Larry:
On behalf of the Board of Directors of American Business Products,
Inc., I am pleased to extend this formal offer of employment to you relative to
the position of Chief Executive Officer and President of American Business
Products, Inc. ("ABP"). Please review the terms outlined below, and if these
terms are satisfactory to you, please sign the acceptance at the end of this
letter and return the original to me. When your acceptance of this offer becomes
effective, for securities laws disclosure purposes, ABP will immediately issue a
press release announcing your employment. This offer will remain open through
5:00 p.m. on Tuesday, February 24, 1998.
You will begin employment as Chief Executive Officer and President of
ABP effective as of March 30, 1998. You agree to meet with ABP's Board of
Directors, officers and employees, as well as representatives of the press, as
soon as possible after accepting this offer.
The Compensation & Nominating Committee of the Board will nominate you
for election to the Board at ABP's annual shareholders meeting on May 8, 1998,
the proxy for which will be mailed in March. We currently anticipate that Tom
Carmody will chair the annual meeting and will introduce you to the shareholders
at that time. Upon your election as a director, you will become Chairman of the
Board of Directors.
Below is a general discussion of the various components of the
compensation and benefits package we are offering you in this position:
<PAGE> 2
Mr. Larry L. Gellerstadt, III
February 24, 1998
Page 2
Signing Incentives: On March 30, 1998, ABP will make an award of
Restricted Shares of ABP common stock to you with a
value of $250,000.00, under the terms of the ABP 1991
Stock Incentive Plan, which shares shall become 100%
vested on December 31, 1998 (provided you are still
employed on that date).
On March 30, 1998, ABP will issue to you a stock
option for 50,000 shares of the ABP common stock,
with an exercise price equal to the fair market value
of the shares, under the terms of the ABP 1991 Stock
Incentive Plan. To the extent permitted by law, if
you desire, this option will be an incentive stock
option. This option will be immediately vested and
exercisable and shall have a term of ten years.
For the 1998 fiscal year, ABP will guarantee you a
minimum bonus of $100,000, payable in February 1999,
which $100,000 shall be credited toward any greater
bonus amount payable to you under the Executive
Compensation Plan for the 1998 fiscal year and shall
be in lieu of any lesser bonus amount payable to you
under the Executive Compensation Plan for the 1998
fiscal year.
Base Salary: The initial Base Salary will be $400,000 per year.
Upon your becoming Chairman of the Board of
Directors, your Base Salary will increase to $450,000
per year.
Annual Incentives: You will be eligible to participate in ABP's
Executive Compensation Plan which currently provides
for annual salary reviews, annual stock option
awards, and cash bonus incentives ranging up to 100%
of Base Salary, based on ABP's performance. The
Executive Compensation Plan is subject to change at
any time.
Long-Term Incentives: Within the coming months (but no later than 18 months
from your acceptance of this offer), you agree to
present to the Board your Business Plan for ABP. Upon
acceptance of your Business Plan by the Board, ABP
will provide to you a long-term incentive arrangement
(in the form of stock options and/or restricted stock
awards) designed to reward you for increases in stock
value over the term of implementation of your
Business Plan. While the Board will determine the
exact amount of such a long-term arrangement at that
time, we are currently contemplating (but not
<PAGE> 3
Mr. Larry L. Gellerstadt, III
February 24, 1998
Page 3
committing) that this long-term incentive arrangement
would, over time, provide potential ownership for you
of up to 2 to 2-1/2 percent of the outstanding shares
of ABP common stock.
BENEFITS
Executive Automobile: ABP will provide you with an automobile for your use
while in this position. We agree that this automobile
will be a Lexus (or equivalent) in the range of
$50,000 value and that lease payments will be in the
range of $600.00.
Employee Benefits
Plans: ABP maintains a broad base of employee benefits
plans, which includes coverages for medical, dental,
group term life insurance, and supplemental life
insurance. In addition, short-term and long-term
disability benefits are available. Further, ABP
currently provides a tax-qualified profit sharing
plan and a Code Section 401(k) plan for retirement
savings. Your participation in ABP's employee benefit
plans will be pursuant to the terms of those plans.
If you would like more information or to see copies
of any of the employee benefit plans, we will be
happy to make them available to you.
Club Dues: During your employment, ABP will pay your periodic
dues for membership in The Commerce Club and The
Capital City Club. In addition, ABP will pay your
dues or fees for the Young Presidents Organization of
which you are a member.
Severance Benefits: If, during the first two years of your employment,
you are terminated by ABP without "Cause" (as defined
below) or if you voluntarily quit with "Good Reason"
(as defined below), ABP will (i) pay you one times
your Base Salary then in effect plus your most recent
bonus under the Executive Compensation Plan
("Severance Pay"), payable on a regular payroll basis
for the next 12 months, and (ii) provide you with
coverage under the ABP group health insurance plan,
on the same employee/employer cost basis as while you
were employed, for the next 12 months following your
termination. These severance benefits will be in
addition to any accrued salary, bonus or other
benefits to which you would otherwise be entitled.
<PAGE> 4
Mr. Larry L. Gellerstadt, III
February 24, 1998
Page 4
You agree that upon the events described in this
section and prior to your receiving any Severance Pay
pursuant to this provision, you will execute an
agreement providing for restrictive covenants on
noncompetition, nonsolicitation of customers,
nonsolicitation of employees and nondisclosure of
confidential information and trade secrets of ABP,
which covenants shall restrict your activities for a
period of one year following your termination of
employment with ABP. If you fail to execute such an
agreement, no Severance Pay or other severance
benefits will be payable to you by ABP.
Prior to the end of your second year of employment,
you and the ABP Compensation & Nominating Committee
will negotiate whether this or any other severance
pay provision will apply beyond your second year of
employment.
Change in
Control Benefits: If (A) during your employment, a Change in Control
(as defined below) occurs, and (B) during the two
year-period immediately following the Change in
Control, you are terminated without "Cause" or you
voluntarily quit with "Good Reason," then ABP will
(i) pay you three times your Base Salary then in
effect plus your most recent bonus under the
Executive Compensation Plan, on a regular payroll
basis for the next 36 months (or on such other
payment terms as may be negotiated at that time)
("Change in Control Pay"), and (ii) provide you with
coverage under the ABP group health insurance plan,
on the same employee/employer cost basis as while you
were employed, for the next 36 months following your
termination. These Change in Control Benefits will be
in addition to any accrued salary, bonus or other
benefits to which you would otherwise be entitled,
but shall be in lieu of any benefits provided under
the Severance Benefits paragraph above.
The Change in Control Benefits will be limited to the
extent necessary to avoid the imposition of an excise
tax imposed by Section 4999 of the Internal Revenue
Code. If this becomes necessary, you will be entitled
to select the particular benefits to be limited or
reduced. The determination of whether an excise tax
would be imposed shall be made by an accounting firm
designated by you and at ABP's expense. Any
determination by such accounting firm will be binding
on all parties.
<PAGE> 5
Mr. Larry L. Gellerstadt, III
February 24, 1998
Page 5
You agree that upon the events described in this
section and prior to your receiving any Change in
Control Pay pursuant to this provision, you will
execute an agreement providing for restrictive
covenants on noncompetition, nonsolicitation of
customers, nonsolicitation of employees and
nondisclosure of confidential information and trade
secrets of ABP, which covenants shall restrict your
activities for a period of one year following your
termination of employment with ABP. If you fail to
execute such an agreement, no Change in Control Pay
or other Change in Control Benefits will be payable
to you by ABP.
Definitions: For purposes of this letter, the following
definitions shall apply:
"Cause" shall mean (i) your willful and continued
failure to perform any substantial duty of your
position with ABP and its affiliates (other than any
such failure resulting from incapacity due to
physical or mental injury or illness), within fifteen
(15) days after a written demand for substantial
performance from the Board to you which specifically
identifies the manner in which the Board believes
that you have not substantially performed your
duties; (ii) your willful engagement in any illegal
conduct or gross misconduct which is materially and
demonstrably injurious to ABP; or (iii) your
engagement in any activity that is in conflict of
interest of or competitive with ABP or its affiliates
(other than any isolated, insubstantial and
inadvertent action not taken in bad faith and which
is promptly remedied by you upon notice by the
Board).
"Good Reason" shall mean (i) the assignment of duties
inconsistent with your position as President and
Chief Executive Officer of ABP or any action by ABP
which results in a dimunition of your position,
authority, duties or responsibilities as in effect on
the date of your employment (other than any isolated,
insubstantial and inadvertent action not taken in bad
faith and which is promptly remedied by ABP upon
notice by you); (ii) a reduction in your base salary;
(iii) a material breach by ABP of its obligations
hereunder; (iv) ABP's requiring you to have your
office based at a location other than the Metro
Atlanta area; or (v) any failure by a successor to
ABP to assume and agree to perform ABP's obligations
hereunder.
"Change in Control" shall mean the occurrence of a
"Change in Control" described in Section 8 of the ABP
1991 Stock Incentive Plan.
<PAGE> 6
Mr. Larry L. Gellerstadt, III
February 24, 1998
Page 6
We understand that you have an employment agreement with your current
(soon to be former) employer that contains restrictive covenants. It is not our
intention or desire for you to breach any of those restrictive covenants by
accepting or fulfilling your duties in this position.
If these terms are satisfactory, please sign the acceptance below and
return the original of this letter to me by hand or by overnight courier.
Immediately upon your acceptance, ABP will issue a press release to announce
your employment.
All of us, of course, will continue to maintain the strict
confidentiality of our discussions and the terms of this conditional offer until
public disclosure. If you desire more detail on any aspect of the above, we will
be happy to provide it.
I want to relate to you how excited the Directors are at the prospect
of your leading our company into the future. The unanimous support of our Board,
coupled with your outstanding talents, would cause anyone to conclude that ABP
will have many years of success.
Very truly yours,
/s/ G. Harold Northrop
G. Harold Northrop
On Behalf of the ABP Board of Directors
The above offer is ACCEPTED
on the 24th day of February, 1998.
/s/ Larry L. Gellerstedt, III
- ---------------------------------
Larry L. Gellerstadt, III
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT dated as of
August 1, 1997 (the "Amendment"), by and between AMERICAN BUSINESS PRODUCTS,
INC., a Georgia corporation (the "Borrower"), and SUNTRUST BANK, ATLANTA, a
Georgia banking corporation, and its successors and assigns (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank executed and delivered that
certain Revolving Credit Agreement dated as of April 22, 1996 (as amended or
otherwise modified from time to time, the "Credit Agreement"); and
WHEREAS, the Bank and the Borrower, pursuant to Section 7.10
of the Credit Agreement, desire to amend the Credit Agreement on the terms and
conditions as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the above premises
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the Bank and the Borrower hereby
agree as follows:
SS.1. DEFINED TERMS. Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
SS.2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
as follows:
(a) Section 1.1, entitled "Definitions" is hereby amended by:
(i) deleting the existing definition of "Authorized Officer"
and substituting the following therefor:
"Authorized Officer" shall mean any Executive Officer
or any other Person who has been designated as an
Authorized Officer pursuant to Section 5.15(k)
hereof.
(ii) adding a new definition of "Executive Officer" in the
appropriate alphabetical order as follows:
"Executive Officer" shall mean the Person duly
authorized as the Chief Executive Officer, the Chief
Financial Officer or the Treasurer.
<PAGE> 2
(b) A new subsection (k) shall be added to Section 5.15, "Financial
Reports and Rights of Inspection," as follows:
(k) The Borrower may deliver a letter in writing to the Bank
duly signed by any two Executive Officers appointing any
Person as an Authorized Officer, together with an incumbency
certificate reflecting the signature of such Person. Such
Person shall remain as an Authorized Officer for all purposes
of this Agreement, including the giving of a Notice of
Borrowing pursuant to Section 2.3 hereof, until the Bank
receives a letter from any two Executive Officers revoking the
appointment of such Person as an Authorized Officer. Such
letter shall be sent to the Bank in accordance with Section
7.2 hereof.
SS.4. REPRESENTATIONS AND WARRANTIES.
(a) The execution and delivery by the Borrower of this Amendment and
the performance by the Borrower of its obligations and agreements under this
Amendment and the Credit Agreement are within the corporate authority of the
Borrower, have been duly authorized by all requisite corporate action of the
Borrower and do not and will not contravene any provision of law or the
Borrower's charter, by-laws or any stock provision or any amendment thereof or
any indenture, agreement, instrument or undertaking binding on the Borrower.
(b) The Credit Agreement, as amended by this Amendment, hereby
constitutes the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting generally the enforcement of creditor's rights.
(c) The representations and warranties contained in Article IV of the
Credit Agreement are true and correct on and as of the date hereof as if made on
the date hereof.
(d) No Default or Event of Default exists on the date hereof, both
before and after giving effect to this Amendment.
SS.5. MISCELLANEOUS PROVISIONS.
(a) Effect of Amendment. Except as set forth expressly hereinabove, all
terms of the Credit Agreement shall be and remain in full force and effect, and
shall constitute the legal, valid, binding and enforceable obligations of the
Borrower. The amendment contained herein shall be deemed to have prospective
application only, unless otherwise specifically stated herein.
(b) Ratification. The Borrower hereby restates, ratifies and reaffirms
each and every term, covenant and condition set forth in the Credit Agreement
effective as of the date hereof.
2
<PAGE> 3
(c) Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
(d) Governing Law. This Amendment shall be governed by and construed
and interpreted in accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Amendment to be duly executed, under seal, by their respective duly authorized
officers as of the day and year first above written.
AMERICAN BUSINESS PRODUCTS, INC.
By: /s/ Richard G. Smith
--------------------------------
Name: Richard G. Smith
Title: Chief Financial Officer
Attest: /s/ Dawn M. Gray
----------------------------
Name: Dawn M. Gray
Title: Secretary
[CORPORATE SEAL]
SUNTRUST BANK, ATLANTA
By: /s/ Jenna H. Kelly
--------------------------------
Name: Jenna H. Kelly
Title: Assistant Vice President
By: /s/ R. Michael Dunlap
--------------------------------
Name: R. Michael Dunlap
Title: Vice President
3
<PAGE> 1
EXHIBIT 10.6
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT dated as of
December 31, 1997 (this "Amendment"), by and between AMERICAN BUSINESS PRODUCTS,
INC., a Georgia corporation (the "Borrower"), and SUNTRUST BANK, ATLANTA, a
Georgia banking corporation, and its successors and assigns (the "Bank").
W I T N E S S T H:
WHEREAS, the Borrower and the Bank executed and delivered that certain
Revolving Credit Agreement dated as of April 22, 1996, as amended by that
certain First Amendment to Revolving Credit Agreement dated as of August 1, 1997
(as further amended or otherwise modified from time to time, the " Credit
Agreement"); and
WHEREAS, the Bank and the Borrower, pursuant to Section 7.10 of the
Credit Agreement, desire to amend the Credit Agreement on the terms and
conditions as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, the Bank and the Borrower hereby
agree as follows:
ss.I. DEFINED TERM. Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
ss.2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
as follows:
(a) Section 1.1, entitled "Definitions", is hereby amended by:
(i) deleting the existing definition of "Revolving Credit
Note" and substituting the following therefor:
"Revolving Credit Note" shall mean the amended and restated
promissory note of the Borrower payable to the order of the
Bank and dated December 31, 1997 in the original principal
amount of Fifty Million Dollars ($50,000,000), either as
originally executed or as it may be from time to time
supplemented, modified, amended, renewed or extended.
(ii) adding a new definition of "Applicable Percentage" in the
appropriate alphabetical order as follows:
"Applicable Percentage" shall mean with respect to a LIBOR
Advance and to the calculation of the Commitment Fee, the
percentage per annum determined by
<PAGE> 2
reference to the ratio of Consolidated Funded Debt to
Consolidated Net Capitalization in effect at such time, as set
forth below:
<TABLE>
<CAPTION>
Consolidated Funded
Debt/Consolidated Net Capitalization LIBOR Commitment
Ratio Advances Fee
------------------------------------ -------- ----------
<S> <C> <C>
< 30% 0.20% 0.10%
-
>30% but < 40% 0.275% 0.125%
-
>40% but <50% 0.325% 0.15%
-
</TABLE>
The Applicable Percentage shall be determined quarterly based
upon the officer's certificate required to be delivered by the
Borrower pursuant to Section 5.15(g) hereof. Any adjustment to
the Applicable Percentage shall be effective as of the first
day of the fiscal quarter immediately following the fiscal
quarter for which such officer's certificate was delivered
(the "Adjustment Date"); provided, that if the Borrower fails
to deliver such officer's certificate, the Applicable
Percentage shall automatically be adjusted on the applicable
Adjustment Date to 0.325% with respect to LIBOR Advances and
0.15% with respect to the Commitment Fee until the Borrower
has delivered such officer's certificate and the Applicable
Percentage can be determined in accordance therewith.
(b) Section 2.1 (a) shall be amended by deleting the existing language
in its entirety and substituting the following therefor:
(a) Subject to and upon the terms and conditions set forth in
this Agreement, the Bank agrees to make available to the
Borrower from time to time up to the Termination Date Advances
in aggregate principal amount at any one time outstanding
equal to $50,000,000 (the "Commitment"); provided, that the
Bank shall not be obligated to make available any Advance to
the extent that immediately after making any such Advance the
sum of (i) the outstanding principal balance of all Advances,
(ii) the outstanding Bond Obligations and (iii) the
outstanding Letter of Credit Obligations would exceed the
Commitment. Within the limits of the Commitment, the Borrower
may borrow, repay and reborrow under the terms of this
Agreement; provided, that the Borrower may neither borrow nor
reborrow if a Default or an Event of Default exists or would
result from the making of such Advance or from the application
of the proceeds therefrom.
(c) Section 2.2 (ii) shall be amended by deleting the existing language
in its entirety and substituting the following therefor:
<PAGE> 3
(ii) LIBOR for the Interest Period selected by the Borrower,
plus the Applicable Percentage with respect to LIBOR Advances.
(d) Section 2.10 shall be amended by deleting the existing language in
its entirety and substituting the following therefor:
SECTION 2.10. Commitment Fee. From and after the date hereof
up to and including the Termination Date, the Borrower shall
pay to the Bank a commitment fee equal to the Applicable
Percentage with respect to the Commitment Fee calculated on
the average daily amount of the unused Commitment (the
"Commitment Fee"). The Commitment Fee shall be payable by the
Borrower quarterly in arrears and on the Termination Date.
(e) Section 5.15 (g) shall be amended by adding the following language
at the end thereof:
; provided, that notwithstanding the foregoing and for the
purpose of determining the Applicable Percentage, the Borrower
shall deliver a certificate of an authorized financial officer
within ninety (90) days after the end of the last fiscal
quarter of each fiscal year setting forth the information and
computations (in sufficient detail) required in order to
determine the ratio of Consolidated Funded Debt to
Consolidated Net Capitalization on the last day of such fiscal
quarter.
(f) Section 7.10 shall be amended by deleting the existing language in
its entirety and substituting the following therefor:
SECTION 7.10. Amendments; Consents. No amendment,
modification, supplement, termination or waiver of any
provision of this Agreement or any other Loan Document, and no
consent to any departure by the Borrower therefrom, may in any
event be effective unless (i) in writing signed by the Bank
and (ii) in writing signed by two (2) Executive Officers of
the Borrower, which signatures may be in any such Executive
Officers primary or attesting capacity, and then only in the
specific instance and for the specific purpose given.
SS.3. CONDITIONS PRECEDENT TO CLOSING. This Amendment shall become effective
on the date (the"Effective Date") that the Bank receives, in form and substance
satisfactory to it, the following documents:
(a) duly executed counterparts of this Amendment;
(b) the duly executed Amended and Restated Revolving Credit Note in the
principal amount of $50,000,000;
<PAGE> 4
(c) the certificate of the Secretary or an Assistant Secretary dated as
of the Effective Date certifying the resolutions of the Board of Directors of
the Borrower in form and substance satisfactory to the Bank;
(d) a certificate of an Executive Officer dated the Effective Date with
respect to the effectiveness as of such Date of certain representations and
warranties of the Borrower that are set forth in Article IV of the Credit
Agreement and certifying that no Default or Event of Default exists on such
Date, both before and after giving effect to the Amendment, in form and content
satisfactory to the Bank; and
(e) a favorable written opinion of Long, Aldridge & Norman, counsel to
the Borrower, in form and content reasonably satisfactory to the Bank and
addressed to the Bank.
SS.4. APPLICABLE PERCENTAGE. From the Effective Date until April 1, 1998 the
Applicable Percentage with respect to LIBOR Advances shall be 0.20% and with
respect to the Commitment Fee shall be 0.10%. Thereafter, the Applicable
Percentage shall be determined in accordance with the definition thereof.
SS.5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as
follows:
(a) The execution and delivery by the Borrower of this Amendment and
the performance by the Borrower of its obligations and agreements under the
Credit Agreement, as amended by this Amendment, are within the corporate
authority of the Borrower, have been duly authorized by all requisite corporate
action of the Borrower and do not and will not contravene any provision of law
or the Borrower's articles of incorporation, bylaws or any stock provision or
any amendment thereof or any indenture, agreement, instrument or undertaking
binding on the Borrower.
(b) The Credit Agreement, as amended by this Amendment, remains in full
force and effect and constitutes the legal, valid and binding obligations of the
Borrower, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting generally the enforcement of creditor's rights.
SS.6. MISCELLANEOUS PROVISIONS.
(a) RATIFICATION. The Borrower hereby restates, ratifies and reaffirms
each and every term, covenant and condition set forth in the Credit Agreement
effective as of the date hereof.
(b) COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
counterparts, taken together, shall constitute but one and the same document.
<PAGE> 5
(c) GOVERNING LAW. This Amendment shall be governed by and construed
and interpreted in accordance with the law of the State of Georgia.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Amendment to be duly executed, under by their respective duly authorized
officers as of the day and year first above written.
AMERICAN BUSINESS PRODUCTS, INC.
By: /s/ Richard G. Smith
------------------------------
Title: Chief Financial Officer
Attest: /s/ John H. Karr
-------------------------
Name: John H. Karr
Title: Treasurer
[CORPORATE SEAL]
SUNTRUST BANK, ATLANTA
By: /s/ R. Michael Dunlap
------------------------------
Name: R. Michael Dunlap
Title: Vice President
By: /s/ Willem Hattink
------------------------------
Name: Willem Hattink
----------------------------
Title: GVP
--------------------------
<PAGE> 1
EXHIBIT 13
[ABP LOGO]
ELEVEN-YEAR FINANCIAL REVIEW
YEAR ENDED DECEMBER 31
(In thousands, except per share and employee data)
<TABLE>
<CAPTION>
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Net Sales $511,716 $631,638 $633,955 $563,133
Cost of Goods Sold(A) 364,222 443,621 447,375 394,839
Earnings
Before Taxes(A) 29,913 34,039 41,502 33,007
After Taxes(A) 19,242 21,054 25,505 19,528(C)
Per Common Share - Basic(A) 1.17 1.28 1.57 1.22(C)
Per Common Share - Diluted(A) 1.16 1.28 1.57 1.21(C)
Dividends Paid
Common Stock 10,183 9,510 9,085 8,550
Per Common Share .620 .580 .560 .533
Interest Expense 5,965 7,525 8,243 8,711
Capital Expenditures - Net 20,794 28,407 16,933 14,208
Depreciation and Amortization 14,280 17,213 17,556 17,391
Salaries and Wages 105,238 149,671 143,474 139,238
Current Assets 175,915 193,555 168,819 152,712
Current Liabilities 71,377 76,863 75,218 63,419
Working Capital 104,538 116,692 93,601 89,293
Plant and Equipment 88,958 81,929 91,310 92,968
Total Assets 332,780 340,491 336,431 312,101
Long-Term Debt 42,850 54,958 61,761 75,144
Retained Earnings 145,062 136,003 124,459 118,095
Average Number of Common
Shares Outstanding 16,422 16,396 16,197 16,026
Stockholders' Equity 181,697 172,991 160,873 137,481
Book Value per Common Share 11.06 10.55 9.82 8.59
Return on Equity 10.9% 12.6% 17.1% 14.8%
Number of Employees 3,202 3,520 4,452 4,152
</TABLE>
1997 QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Net Sales $ 127,048 $ 128,068 $ 124,269 $ 132,331
Gross Margin 37,241 37,483 36,144 36,626
Net Income 7,375 6,070 4,644 1,153
Net Income per Share - Basic 0.45 0.37 0.28 0.07
Net Income per Share - Diluted 0.45 0.37 0.28 0.06
Dividends per Share 0.155 0.155 0.155 0.155
Price Range of Common Stock
(High - Low) $25.25-$22.00 $25.00-$22.50 $25.38-$21.88 $25.87-$19.06
</TABLE>
Per share figures have been adjusted to reflect a 5-for-4 stock split in 1989, a
3-for-2 stock split in 1991 and a 3-for-2 stock split in 1995.
(A) 1987 has been restated to eliminate discontinued operation
(B) Before change in accounting principles of $12,449 or $0.78 per share.
(C) Before change in accounting principles of $605 or $0.04 per share.
10
<PAGE> 2
[ABP LOGO]
ELEVEN-YEAR FINANCIAL REVIEW (CONT.)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C>
$ 486,139 $ 463,470 $ 446,533 $ 398,794 $ 387,140 $ 358,242 $ 325,768
399,746 322,402 307,656 272,376 265,549 246,555 221,953
26,643 30,487 26,736 22,465 22,101 21,510 19,864
16,683 19,582(B) 16,488 14,268 13,617 13,010 11,156
1.04 1.22(B) 1.03 .89 .85 .81 .69
1.04 1.22(B) 1.03 .89 .84 .81 .69
8,013 7,487 6,692 6,295 5,608 5,027 4,566
.500 .467 .418 .391 .349 .313 .285
6,604 6,270 5,784 3,313 2,165 1,563 1,435
15,981 17,277 14,556 10,053 12,794 11,787 12,010
14,661 12,897 12,041 9,650 8,806 7,632 6,701
123,747 121,572 116,936 112,778 110,353 101,416 96,718
141,768 121,938 115,735 107,418 95,088 90,987 84,415
55,330 44,509 42,809 39,825 36,451 35,983 32,563
86,438 77,429 72,926 67,593 58,637 55,004 51,852
94,448 77,926 73,350 72,040 62,767 58,197 54,077
302,192 237,238 218,086 207,003 164,140 152,257 141,036
85,580 40,005 41,673 43,339 11,277 8,858 10,088
107,728 99,117 99,585 97,055 89,082 83,532 75,549
16,024 16,036 16,006 16,076 16,092 16,067 16,052
127,093 118,819 119,783 109,875 103,264 95,145 87,117
7.93 7.41 7.47 6.87 6.41 5.92 5.43
13.6% 16.4% 14.4% 13.4% 13.7% 14.3% 13.2%
4,320 3,727 3,894 3,986 4,034 4,007 3,867
</TABLE>
1996 QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Net Sales $ 157,007 $ 157,394 $ 157,993 $ 159,244
Gross Margin 45,640 46,585 48,137 47,655
Net Income 3,899 5,895 6,379 4,881
Net Income per Share - Basic 0.24 0.36 0.39 0.29
Net Income per Share - Diluted 0.24 0.36 0.39 0.29
Dividends per Share 0.145 0.145 0.145 0.145
Price Range of Common Stock
(High - Low) $27.50-$21.63 $23.00-$19.25 $23.00-$19.13 $25.88-$21.88
</TABLE>
11
<PAGE> 3
[ABP LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESTRUCTURING, OTHER CHARGES AND OTHER GAINS
In December 1997 the Company announced a profit improvement plan and charges
against income. The profit improvement plan focused primarily on a series of
actions at Curtis 1000 Inc. ("Curtis"), the Company's largest business supplies
subsidiary. These actions were intended to improve customer service, eliminate
processing bottlenecks and reduce costs. The charges against 1997 results relate
to management changes and reorganization, estimated penalties associated with a
take or pay contract with the purchaser of the Company's former business forms
manufacturing business, the cessation of manufacturing at a Company facility and
certain information systems asset impairments. The before tax amount of such
charges was $1.4 million included in Selling and Administrative Expenses, $4.0
million included in Restructuring and Other Charges and $1.8 million included in
Miscellaneous - Net in the accompanying Consolidated Statements of Income.
During 1997, gains of $2.9 million before tax from the sale of realty rendered
redundant to operating needs by the Company's now completed plant consolidation
program were included in Miscellaneous - Net in the accompanying Consolidated
Statements of Income.
In February 1996, the Company announced a restructuring plan (the "1996 Plan")
to reduce operating costs. The Company planned to close 14 plants and transfer
production to other larger facilities. The Company closed 13 plants during 1996
and closed the final facility in the first quarter of 1997. As a result of the
1996 Plan, the Company recorded Restructuring and Other Charges to operations in
1996 of $8.3 million before tax, consisting of severance and other employee
related costs of $6.3 million, fixed asset write-downs of $0.4 million and lease
termination and other miscellaneous costs of $1.6 million.
As a result of the 1996 Plan and the sale of the Company's business forms
manufacturing business, the Company sold certain real estate assets resulting in
gains of $3.1 million before tax in 1996 which are included within Miscellaneous
- - Net in the accompanying Consolidated Statements of Income.
RESULTS OF OPERATIONS
Net sales in 1997 were $511.7 million compared with $631.6 million for 1996.
Included within 1996 sales are $130.3 million of revenues from Vanier Graphics
Corporation, which operated the Company's business forms manufacturing business
which was sold by the Company effective December 31, 1996. Without Vanier, the
Company's 1996 revenues would have been $501.3 million.
Business supplies segment sales decreased 27.0% from 1996 to 1997. Excluding
Vanier, the business supplies segment sales increased 1.1%. The increase
resulted from double-digit growth in custom labels and strong gains in the
specialty envelope business partially offset by lower sales due to continuing
order processing and production bottlenecks following the plant consolidation at
Curtis. As discussed above, the Company has initiated a profit improvement plan
to address the issues at Curtis.
The book manufacturing segment's sales decreased 7.9% in 1997, mirroring the
market situation in 1996 when demand was lower from customers. The book
manufacturing subsidiary reorganized its sales and marketing function and plans
to invest in new equipment in 1998 in an effort to increase sales, improve
efficiency and broaden its product lines.
The extrusion coating segment increased sales 10.0% in 1997, starting up a new
tandem extrusion production line and introducing new products to penetrate new
markets.
Net sales in 1996 were $631.6 million which represented a decrease of 0.4% from
the $634.0 million in 1995. Business supplies segment sales decreased 1.8% in
1996 compared to 1995 despite continued rapid growth in custom label sales. The
decrease was due to pass-through to customers of lower raw materials costs and
processing bottlenecks resulting from the restructuring program. The book
manufacturing segment's sales decreased 6.1% in 1996 from 1995 with lower
profits and profit margins, due primarily to lower demand from its customers.
The extrusion coating segment increased sales 10.1% in 1996 from 1995 with
significantly improved profits and profit margins due to introduction of new
products,
12
<PAGE> 4
[ABP LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)
penetration of new markets and generally high customer demand for this business'
products.
Net sales in 1995 were a record $634.0 million, an increase of 12.6% over 1994.
This increase resulted from a combination of growth of units sold and higher
selling prices obtained by passing through unusually high raw material costs.
Business supplies segment sales increased 11.0% for 1995, with the pass-through
of inflation in raw material costs accounting for more than 50% of the increase
and unit sales growth accounting for the balance. The book manufacturing segment
increased sales 17.7% also due to a combination of higher prices and unit growth
with accompanying higher profits and profit margins. This operation again added
to capacity, broadened its product line and expanded customer order fulfillment
capabilities. The extrusion coating segment increased sales 17.6% with strong
unit growth and improved profits and profit margins, benefiting from the ability
to pass through higher raw material costs, the moderation of competitive pricing
pressures, the introduction of new products and penetration of new markets.
In 1997 the Company derived 66.7% of revenues from envelope products, business
forms, labels, and related business supplies printing operations; 9.8% from book
manufacturing and order fulfillment operations; and 23.5% from extrusion coating
and laminating operations. Sales by business segments in 1996 were: 74.1% from
business supplies products; 8.6% from book manufacturing and order fulfillment
operations; and 17.3% from extrusion coating and laminating operations. In 1995,
the same segments had sales, respectively, of 75.2%, 9.2% and 15.6%.
The Company's gross profit margin percent was 28.8% in 1997 compared to 29.8% in
1996 and 29.4% in 1995. The decreased margin in 1997 is primarily attributable
to lower sales at Curtis and the Company's book manufacturing subsidiary and
continuing high costs and order processing and production bottlenecks at Curtis
following the plant consolidation.
Selling and administrative expenses (as a percentage of net sales) were 22.8% in
1997 compared to 22.5% in 1996 and 22.0% in 1995. The increase in 1997 resulted
primarily from the special charges discussed above. The lower level in 1995
resulted primarily from higher selling prices in that year.
As discussed above,the Company recorded restructuring and other expenses of
$4.0 million before tax in 1997 and $8.3 million before tax in 1996.
Interest expense for 1997 was $6.0 million, a decrease of 20.7% from $7.5
million in 1996. The decreased interest expense in 1997 resulted from interest
capitalized in conjunction with capital projects of $0.4 million and reduced
long term debt. Interest expense in 1996 decreased 8.7% from the $8.2 million in
1995. The decrease in 1996 resulted primarily from reduced long term debt.
Interest income for 1997 was $4.3 million, an increase of 191.3% from the $1.5
million in 1996. The increase in 1997 resulted primarily from interest income
earned on the proceeds from the Vanier sale. Interest income increased 42.4% in
1996 from the $1.0 million in 1995. The increase in 1996 resulted primarily from
an increase in funds to invest as well increased rates of return.
Miscellaneous-Net was $4.8 million in 1997, an increase of 81.2% from the $2.6
million in 1996. Miscellaneous-Net in 1996 increased 58.2% from the $1.7 million
in 1995. The increase in 1997 resulted primarily from benefits received from
Company owned life insurance policies as well as increased gains on sale of
equipment. The increase in 1996 resulted primarily from gains from the sale of
realty rendered redundant to operating needs by the Company's now completed
plant consolidation program.
The Company's income tax rate decreased to 35.7% in 1997 compared to 38.1% in
1996 and 38.5% in 1995. The decrease in 1997 resulted primarily from recognition
of the benefit of tax strategies developed by the Company and the identification
of certain recoverable tax overpayments in earlier years.
The effect of inflation on sales and operating income in 1997 was not
significant. In 1996 the effect was decreased by raw material costs and the need
to pass through lower prices to customers with resultant pressure on profit
margins, most evident in the business forms manufacturing business which was
divested at year end. By comparison, in 1995 inflation of raw material costs
positively affected profit margins for much of the year.
13
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MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)
PRO FORMA FINANCIAL INFORMATION
The 1997 results include special charges of $4.3 million after tax, or $0.26 per
share, related to management changes and reorganization, estimated penalties
associated with a take or pay contract with the purchaser of the Company's
former business forms manufacturing business, the cessation of manufacturing at
a Company facility, certain information system asset impairments and gains of
$1.7 million after tax, or $0.11 per share, from the sale of realty rendered
redundant to operating needs by the Company's now completed plant consolidation
program. Without the special charges and the realty gains, the Company would
have shown net income of $21.8 million, or $1.33 per share, for the year 1997.
The 1996 results included a restructuring charge of $4.8 million after tax, or
$0.29 per share, for the plant consolidation program, gains of $1.8 million
after tax, or $0.11 per share, from sales of redundant realty, a loss of $1.6
million after tax, or $0.10 per share, on the December 31, 1996 sale of the
Company's business forms manufacturing business formerly operated by the
Company's subsidiary, Vanier Graphics Corporation ("Vanier"), and Vanier's 1996
revenues of $130.3 million and after tax earnings contribution (expressed net of
the loss on the sale of the business, the part of the restructuring charge that
related to Vanier and interest income that would have been earned had the
proceeds from the sale of the business been invested in money market instruments
throughout 1996) of $2.1 million, or $0.13 per share. Without the restructuring
charge, the related realty gains, the loss on the sale of the business, and
Vanier's revenues and earnings, the Company would have shown net income of $23.5
million, or $1.43 per share, on sales of $501.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity increased $8.7 million during 1997 and totaled $181.7
million at December 31, 1997.
Cash and cash equivalents decreased $7.4 million during 1997 and totaled $75.1
million at December 31, 1997. Operating activities provided $29.9 million in
cash during 1997. The other significant source of cash during 1997 was $7.2
million of proceeds from the sale of property, plant and equipment. Cash was
used to purchase $20.8 million of property, plant and equipment, reduce
long-term debt by $12.1 million and pay $10.2 million in dividends.
Cash and cash equivalents increased $53.5 million in 1996 and totaled $82.5
million at December 31, 1996. Operating activities provided $39.3 million in
cash during 1996. The other significant sources of cash were $47.2 million of
proceeds from the Vanier sale discussed in Note 2 of the Notes to Consolidated
Financial Statements, $7.2 million of proceeds from the sale of property, plant
and equipment and $6.5 million from additional long term debt issued during
1996. Significant uses of cash in 1996 were $28.4 million for the purchase of
property, plant and equipment, $9.5 million for reduction of long term debt and
$9.5 million in dividend payments. The increased expenditures for property,
plant and equipment were due primarily to capital expenditures related to the
Company's plant consolidation and process reengineering programs.
The Company maintains a revolving credit agreement (the "Credit Agreement") with
a bank providing for loans up to $50 million at interest rates related to prime
and Eurocurrency rates. At December 31, 1997 there were no borrowings under this
Credit Agreement. During 1997 the amount of the Credit Agreement was increased
from $35 million and the term was extended until April 22, 2000. Curtis has
borrowed approximately $6.5 million through a variable interest rate industrial
revenue bond (the "Bond") due May 1, 2031. The interest rate on the Bond was
4.30% at December 31, 1997. The Bond is supported by a letter of credit issued
pursuant to the Credit Agreement which commensurately reduces the balance
available to the Company under the Credit Agreement.
The Company believes its liquid current assets, internal cash flow, availability
of additional borrowing under its existing loan agreements, and to the extent
necessary, additional external financing, should adequately meet the Company's
needs for the foreseeable future.
14
<PAGE> 6
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MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)
In December 1997 the Company announced plans to purchase up to 1.7 million
shares or approximately 10% of its outstanding Common Stock through negotiated
transactions and open market purchases. The Company acquired approximately
26,000 shares in 1997 at a cost of approximately $0.6 million. From January 1,
1998 through February 24, 1998, the Company purchased approximately 262,000
shares at a cost of approximately $5.3 million. A previous plan to repurchase up
to approximately 1.7 million shares had no activity in 1997 or 1996.
OTHER MATTERS
The Company has initiated a profit improvement plan focused primarily on a
series of actions at Curtis, the Company's largest business supplies subsidiary.
These actions are intended to improve customer service, eliminate processing
bottlenecks and reduce costs. Central to the plan is a restructuring of
management which is intended to reorganize Curtis into five regional profit
centers, move decision making closer to Curtis' customers, salespeople and the
shop floor, and strengthen management's accountability for results. Other
actions at Curtis are directed toward a range of operational improvements
including error reduction, materials cost reduction, sales force effectiveness,
eliminating unprofitable business, reducing head office overheads, and
redirecting a business process reengineering project to deliver more practical
solutions to operating needs. The costs and benefits associated with the profit
improvement plan and their magnitude and timing are uncertain and may vary from
the Company's expectations.
Federal, state and local regulations relating to protection of the environment
have not had and are not expected to have a material adverse effect upon the
Company's capital expenditures, liquidity, earnings or competitive position.
Soil and groundwater contamination is present at one of the Company's
discontinued manufacturing facilities. The Company intends to address the
contamination in conformity with applicable regulatory requirements. The Company
currently cannot estimate the costs that it may incur investigating and/or
remediating the contamination, but the Company does not believe that such
expenditures will have a material adverse effect on the Company.
The Company's various operating units are subject to EPA, state and local
standards for air emissions, industrial storm water discharges, generation of
hazardous waste, heating oil underground storage tanks, release response,
hazardous chemical use reporting, sewer use and the like, and the Company
believes that it is in substantial compliance with the applicable standards.
None of these environmental standards has had or is expected to have a material
adverse effect upon the Company.
The Company has reviewed all significant financial and manufacturing systems to
determine compliance with the Year 2000 and has developed a plan of action
intended to correct or replace those systems not in compliance. The cost
associated with correcting systems not in compliance has not been determined,
although based on preliminary management estimates the Company does not believe
these costs will have a material impact on the Company's financial position. The
Company plans to have all corrective action necessary completed by June 30,
1999. Costs associated with correcting existing systems will be expensed as
incurred. Costs associated with replacing systems with Year 2000 compliant
systems will be capitalized and amortized based on Company policy. The Company
also conducts business electronically with certain external partners, including
suppliers, customers and financial service organizations. The Company is
currently contacting external parties with which it interacts to determine any
Year 2000 compliance issues. Failure to successfully execute the Company's Year
2000 compliance plans or the failure of external parties to achieve Year 2000
compliance could have a material adverse impact on the Company's financial
position and results of operations.
Pursuant to amendments to the Internal Revenue Code of 1986 which were enacted
in 1996, the deductibility for income tax purposes of interest expense on
certain loans from life insurance companies that are secured by the cash values
of underlying life insurance policies is being phased out. The expense was 90%
deductible in 1997,
15
<PAGE> 7
[ABP LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)
and will be 80% deductible in 1998 and non-deductible thereafter. In 1997 the
deductibility of $2.3 million of interest expense of the Company was limited to
90% deductibility.
Except for historical information contained herein, the matters set forth in
this report including but not limited to statements regarding the Company's
expectations, hopes, intentions or strategies regarding the future, are forward
looking statements that involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements. The Company assumes no obligation to update any such forward looking
statements. The Company's expectations respecting future sales and profits
assume, among other things, reasonable continued growth in the general economy
which affects demand for the Company's products. Future profits may vary from
the Company's expectations due to factors such as possible future adjustments to
the Company's profit improvement plans, particularly at Curtis 1000 Inc., as the
effects of implementing these plans are realized. The costs and benefits of the
Company's plant consolidation and order processing redesign programs may vary
from the Company's expectations due to factors such as: the extent of
management's ability to control and ultimately eliminate duplication of costs,
inefficiencies, overheads, and operating bottlenecks associated with
transferring production from closing to continuing plants; the extent of the
Company's ability to complete the development and implementation of order entry
automation programs within expected time and cost constraints; and the
difficulties inherent in forecasting the operating results of an operating mode
different from that which exists at the time the forecast is made. Although the
Company believes its plan to achieve timely Year 2000 compliance is reasonable
based on known facts and circumstances it remains possible that, dependent on
future events such as availability in the labor force of information systems
programmers and other information systems personnel, responsiveness of third
parties beyond the Company's control such as system vendors, service suppliers,
and others with whom the Company interacts and the capabilities of the
information systems which the Company intends to utilize, achieving Year 2000
compliance may take longer or cost more than the Company presently anticipates.
ACCOUNTING STANDARDS
In June 1997 the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This statement, effective for fiscal
years beginning after December 15, 1997, would require the Company to report
components of comprehensive income in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive income is
defined by Concepts Statement No. 6, "Elements of Financial Statements" as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners.
In June 1997 the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial statements for periods beginning after
December 15, 1997, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company plans to change its current business segments
to ones reflecting the organizational structure of the Company.
16
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 511,716 $ 631,638 $ 633,955
COST AND EXPENSES
Cost of goods sold 364,222 443,621 447,375
Selling and administrative expenses 116.694 142,229 139,536
Restructuring and other charges 3,990 8,334 --
--------- --------- ---------
484,906 594,184 586,911
--------- --------- ---------
OPERATING INCOME 26,810 37,454 47,044
OTHER INCOME (EXPENSE)
Interest expense (5,965) (7,525) (8,243)
Interest income 4,288 1,472 1,034
Miscellaneous - net 4,780 2,638 1,667
--------- --------- ---------
INCOME BEFORE INCOME TAXES 29,913 34,039 41,502
PROVISION FOR INCOME TAXES
Current
Federal 9,317 10,958 14,347
State 2,311 2,966 3,202
Deferred (957) (939) (1,552)
--------- --------- ---------
10,671 12,985 15,997
--------- --------- ---------
NET INCOME $ 19,242 $ 21,054 $ 25,505
========= ========= =========
NET INCOME PER COMMON SHARE
Basic $ 1.17 $ 1.28 $ 1.57
Diluted $ 1.16 $ 1.28 $ 1.57
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE> 9
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CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(In thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 75,092 $ 82,516
Accounts receivable, less allowances of $2,121 and $1,885 58,522 60,082
Inventories 32,314 38,911
Other 9,987 12,046
-------- --------
Total Current Assets 175,915 193,555
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 2,954 3,114
Buildings and improvements 43,807 37,476
Machinery, equipment and software 108,665 97,796
Construction in progress 8,597 10,952
-------- --------
164,023 149,338
Less accumulated depreciation 75,065 67,409
-------- --------
88,958 81,929
INTANGIBLE ASSETS FROM ACQUISITIONS
Goodwill, less amortization of $4,970 and $4,077 27,232 28,125
Other, less amortization of $4,957 and $4,586 990 1,362
-------- --------
28,222 29,487
DEFERRED INCOME TAXES 13,945 12,987
OTHER ASSETS 25,740 22,533
-------- --------
TOTAL ASSETS $332,780 $340,491
======== ========
CURRENT LIABILITIES
Accounts payable $ 48,811 $ 49,142
Salaries and wages 7,789 11,957
Profit sharing contributions 2,730 3,717
Current maturities of long-term debt 12,047 12,047
-------- --------
Total Current Liabilities 71,377 76,863
LONG-TERM DEBT 42,850 54,958
SUPPLEMENTAL RETIREMENT BENEFITS 19,869 18,492
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 16,987 17,187
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock - $2 par value, authorized 50,000,000
shares, issued 16,676,932 and 16,620,848 shares 33,354 33,242
Additional paid-in capital 7,144 6,118
Retained earnings 145,062 136,003
Foreign currency translation adjustment 261 651
-------- --------
185,821 176,014
Less 261,659 and 213,256 shares
of common stock in treasury - at cost 4,124 3,023
-------- --------
181,697 172,991
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $332,780 $340,491
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
18
<PAGE> 10
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON STOCK PAID-IN RETAINED TRANSLATION TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 10,784,279 $ 21,569 $ 118 $ 118,095 $ 64 (121,478) $(2,365)
Net income 25,505
Dividends paid, $0.56 per share (9,085)
Exercise of stock options 48,579 96 514 (19,577) (451)
Shares issued in acquisition 323,304 647 5,353
Three-for-two stock split 5,406,897 10,814 (758) (10,056) (63,177)
Restricted stock awards 400 1 10
Performance award 18,750 37 464
Foreign currency translation 301
---------- -------- ------- --------- ----- -------- -------
BALANCE DECEMBER 31, 1995 16,582,209 33,164 5,701 124,459 365 (204,232) (2,816)
Net income 21,054
Dividends paid, $0.58 per share (9,510)
Exercise of stock options 38,039 77 405 (9,024) (207)
Restricted stock awards 600 1 12
Foreign currency translation 286
---------- -------- ------- --------- ----- -------- -------
BALANCE DECEMBER 31, 1996 16,620,848 33,242 6,118 136,003 651 (213,256) (3,023)
Net income 19,242
Dividends paid, $0.62 per share (10,183)
Exercise of stock options 55,084 110 1,004 (22,203) (535)
Restricted stock awards 1,000 2 22
Repurchase of common stock (26,200) (566)
Foreign currency translation (390)
---------- -------- ------- --------- ----- -------- -------
BALANCE DECEMBER 31, 1997 16,676,932 $ 33,354 $ 7,144 $ 145,062 $ 261 (261,659) $(4,124)
========== ======== ======= ========= ===== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
19
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CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,242 $ 21,054 $ 25,505
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,280 17,213 17,556
(Gain)/loss on disposition of plant and
equipment (3,631) (3,383) 627
Loss on disposition of Vanier assets -- 2,786 --
Change in assets and liabilities, excluding
effects of acquisitions and disposition:
(Increase) decrease in accounts receivable 1,560 9,121 (13,443)
(Increase) decrease in inventories 6,597 3,581 (734)
(Increase) decrease in other current assets (788) (5,996) 1,147
(Increase) decrease in intangible and other
assets (2,128) 449 (384)
(Increase) in deferred income taxes (958) (939) (1,552)
Increase (decrease) in accounts payable (331) 64 3,897
Increase (decrease) in other current liabilities (5,155) (4,726) 5,772
Increase in supplemental retirement,
postemployment and postretirement benefits 1,177 103 2,536
-------- -------- --------
Total adjustments 10,623 18,273 15,422
-------- -------- --------
Net cash provided by operating activities 29,865 39,327 40,927
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired -- -- (3,419)
Disposition of Vanier assets -- 47,211 --
(Increase) decrease in cash value of life insurance (1,472) 422 (826)
Additions to property, plant and equipment (20,794) (28,407) (16,933)
Proceeds from disposition of property, plant
and equipment 7,231 7,162 3,059
-------- -------- --------
Net cash (used) provided by investing activities (15,035) 26,388 (18,119)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term debt -- 6,460 --
Reductions of long-term debt (12,108) (9,460) (11,368)
Repurchase of common stock (566) -- --
Sales and exchanges of common stock 603 288 671
Dividends paid (10,183) (9,510) (9,085)
-------- -------- --------
Net cash (used) by financing activities (22,254) (12,222) (19,782)
Net (decrease) increase in cash and cash
equivalents (7,424) 53,493 3,026
Cash and cash equivalents at beginning of year 82,516 29,023 25,997
-------- -------- --------
Cash and cash equivalents at end of year $ 75,092 $ 82,516 $ 29,023
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) $ 6,825 $ 7,770 $ 7,768
Income taxes $ 11,099 $ 21,983 $ 15,405
Liabilities assumed in acquisitions -- -- $ 115
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 12
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION, ETC.: The consolidated financial statements include
the accounts of American Business Products, Inc. and its subsidiaries (the
"Company"). The Company's investment in a 50 percent owned affiliated company is
accounted for under the equity method. Intercompany balances and transactions
have been eliminated. These financial statements have been prepared in
accordance with generally accepted accounting principles which in certain
instances requires the use of management's estimates. Actual results could
differ from those estimates.
NATURE OF OPERATIONS: The Company markets envelope products, business forms,
labels and other supplies for business and industry and, except for business
forms, manufactures such supplies; manufactures and distributes hardcover and
softcover books for the publishing industry; and provides extrusion coating and
laminating of papers, films, and nonwoven fabrics for use in medical, industrial
and consumer packaging. The markets for these products are located principally
throughout the continental United States.
CASH AND CASH EQUIVALENTS: The Company invests cash in excess of daily operating
requirements in income producing investments. Such amounts, stated at cost which
approximates market, at December 31, 1997 and 1996 were $60,682,000 and
$68,136,000 respectively. All such investments have an original maturity of 90
days or less and are considered to be cash equivalents.
Amounts due banks upon the clearance of certain checks under the Company's cash
management program have been included in accounts payable. At December 31, 1997
and 1996 such amounts were $5,959,000 and $8,441,000, respectively.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
INTANGIBLE ASSETS: The excess of cost over amounts assigned to tangible assets
of purchased subsidiaries (goodwill) is being amortized on the straight-line
basis over periods of 15 to 40 years. The Company evaluates the net carrying
value of such assets based on expectations of nondiscounted cash flows of each
subsidiary for which such assets are recorded. The Company believes no material
impairment of such assets exists. Other acquired intangibles are principally
non-compete agreements and are being amortized on a straight-line basis over 3
to 8 years.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost.
Depreciation is computed using the straight-line method for financial reporting
purposes and was $13,016,000, $15,226,000 and $15,420,000 for 1997, 1996 and
1995, respectively. Accelerated depreciation methods are used for income tax
purposes.
ENVIRONMENTAL COSTS: Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Remediation costs of
existing conditions caused by past operations are accrued when it is probable
that a liability has been incurred and the cost can be reasonably estimated.
REVENUE RECOGNITION: Sales and related costs are generally recorded by the
Company upon shipment of products to its customers. Under contractual agreement
with customers, sales of certain custom products are recognized upon completion
of the order and invoiced under normal credit terms.
STOCK BASED COMPENSATION: As permitted under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock.
21
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NET INCOME PER COMMON SHARE: The Financial Accounting Standards Board's release
on Earnings per Share ("SFAS 128") is effective for financial statements issued
for periods ending after December 15, 1997. The Company has implemented SFAS 128
in the fourth quarter of 1997 and has restated prior years to reflect the new
Statement. Net income per common share is based upon the weighted average number
of common and common equivalent shares outstanding during the respective years.
The average number of common shares used in the calculation of basic net income
per common share was 16,421,808 in 1997, 16,395,851 in 1996, and 16,197,044 in
1995. The average number of common and common equivalent shares used in the
calculation of diluted net income per common share was 16,525,309 in 1997,
16,497,580 in 1996 and 16,265,137 in 1995. Options to purchase 58,887, 7,870 and
68,819 shares of common stock at prices ranging from $19.30 to $27.50 per share
were outstanding during 1997, 1996 and 1995, respectively but were not included
in the computation of diluted net income per share because the options' exercise
price was greater than the average market price of the common shares. The only
common equivalent shares are those related to stock options outstanding during
the respective years. All share amounts have been restated to reflect a
three-for-two stock split in June 1995.
FOREIGN CURRENCY TRANSLATION: The Company's investment in a 50 percent owned
foreign joint venture is translated at the rate in effect at the balance sheet
date. The Company's share of net income of the joint venture is translated at
average exchange rates prevailing during the year. Resulting translation
adjustments are reported separately as a component of stockholders' equity.
RECLASSIFICATIONS: Certain 1996 and 1995 amounts have been reclassified to
conform with the 1997 presentation.
2. VANIER GRAPHICS CORPORATION
On December 31, 1996 the Company sold substantially all of the assets of its
subsidiary Vanier Graphics Corporation ("Vanier") for $47,211,000 in cash (the
"Vanier Sale"). Vanier was a business forms manufacturer and provider of forms
management and work flow analysis. The loss on the sale was approximately
$1,588,000 net of tax. Vanier recorded sales of approximately $130,000,000 and
$138,000,000 in 1996 and 1995, respectively.
On June 1, 1995 the Company acquired certain assets of Electronic Form Systems,
Inc. ("EFS") for $9,650,000. The excess of the purchase price over the fair
value of the assets acquired was approximately $6,765,000. The acquisition was
recorded under the purchase method of accounting and the results of operations
have been included in the Company's consolidated financial statements since
acquisition. The assets of EFS were sold as part of the Vanier Sale.
3. RESTRUCTURING AND OTHER CHARGES
In December 1997, the Company announced a profit improvement plan and charges
against income. The profit improvement plan focused primarily on a series of
actions at Curtis 1000 Inc. ("Curtis 1000"), the Company's largest business
supplies subsidiary. The charges include amounts for management changes and
reorganization, estimated penalties associated with a take or pay contract with
the purchaser of the Company's former business forms manufacturing business, the
cessation of manufacturing at a Company facility and certain information systems
asset impairments. The before tax amount of such charges was $1,394,000 included
in Selling and Administrative Expenses, $3,990,000 included in Restructuring and
Other Charges and $1,800,000 included in Miscellaneous - Net.
The charge to Restructuring and Other Charges consisted of severance and other
employee related costs of $1,569,000, lease termination and other miscellaneous
costs of $100,000 and information systems and other fixed asset impairments of
$2,321,000.
Of the $1,669,000 restructuring charge, cash expenditures of $109,000 were made
against the accrual in 1997 with approximately $1,560,000 remaining in the
accrual at December 31, 1997. Severance costs related to 93 employees, primarily
production and administrative personnel located at the facility to be closed and
management employees at Curtis 1000. Of these, 7 employees' employment
terminated in 1997.
22
<PAGE> 14
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The information systems asset impairment charge was necessitated by a
realization by the Company that the planned benefits of the systems would not be
achieved. The impairment of the other fixed assets was caused by the decision to
cease manufacturing at a Company facility. The impairments were determined as
the recorded book value of the assets as the assets will no longer be used.
In February 1996, the Company announced a restructuring plan (the "1996 Plan")
intended to reduce operating costs. The Company planned to close 14 plants and
transfer production to larger facilities. As of December 31, 1997 the Company
had closed all 14 of these plants. As a result of the 1996 Plan, the Company
recorded restructuring and other charges to operations in 1996 of $8,334,000,
consisting of severance and other employee related costs of $6,320,000,
fixed-asset write-down of $427,000 and lease termination and other miscellaneous
costs of $1,587,000. Cash expenditures of $7,498,000 were made against the
restructuring accrual in 1996 with the balance of approximately $836,000 made in
1997. Severance costs related to approximately 509 employees, primarily
production and administrative personnel located at the closed plants. Of these,
478 employees' employment terminated in 1996, with the remaining terminated in
1997.
As a result of the 1996 Plan and the Vanier Sale (Note 2), the Company sold
certain real estate assets resulting in gains of $2,909,000 in 1997 and
$3,129,000 in 1996 which are included within Miscellaneous - Net on the
accompanying Consolidated Statements of Income. The Company also has
approximately $2.2 million in real estate assets held for sale at December
31, 1997 which are classified as other current assets. The Company plans to sell
these assets in 1998. In addition, the Company has one facility under lease
until November 30, 2000 classified as property, plant and equipment.
The lease contains a purchase provision at the option of the lessee.
4. INVENTORIES
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Products finished or in process $16,076 $17,308
Raw materials 15,628 20,930
Supplies 610 673
------- -------
$32,314 $38,911
======= =======
</TABLE>
5. LONG-TERM DEBT
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Senior notes, 9.92%, due 1996 to 2000 $ 5,357 $ 9,643
Senior notes, 5.77%, due 1997 to 2003 41,143 48,000
Note payable to bank, variable at LIBOR
plus 1.15%, principal due to 2000 552 781
Mortgage note, variable at 56% of bank's base rate
plus .25%, not to exceed 15%, principal due to 1999 1,000 1,500
Mortgage note, variable at 79.4% of prime rate
not to exceed 11.75%, principal due to 1999 351 527
Industrial revenue bonds due 2031, variable rate 6,460 6,460
Other 34 94
------- -------
54,897 67,005
Less current maturities 12,047 12,047
------- -------
$42,850 $54,958
======= =======
</TABLE>
23
<PAGE> 15
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The Company has an unsecured committed revolving credit agreement (the "Credit
Agreement") with a bank, under which the Company may borrow up to $50.0 million
through April 22, 2000. The Credit Agreement provides for borrowing at rates
related to prime and Eurocurrency rates, and for payment of commitment fees on
the unused portion of the credit facility. Currently, the Company has no
outstanding borrowing under the Credit Agreement. Curtis 1000 Inc. has borrowed
approximately $6.5 million through a variable interest rate industrial revenue
bond (the "Bond") due May 1, 2031. The interest rate on the Bond was 4.30% at
December 31, 1997. The Bond is supported by a letter of credit issued pursuant
to the Credit Agreement, which commensurately reduces the balance available to
the Company under the Credit Agreement. The Credit Agreement provides for
payment of fees of 2/10% per annum on the amount of the letter of credit
outstanding, which was $6.6 million at December 31, 1997.
The net carrying amount of plant, equipment and other assets assigned as
collateral to the Company's long-term debt obligations was approximately
$23,694,000 and $19,305,000 at December 31, 1997 and 1996 respectively. The
Company has agreed to certain restrictive covenants during the terms of some of
these agreements. Under the most restrictive of the covenants, the Company must
maintain tangible net worth not less than approximately $95,000,000 plus 25% of
net income earned after 1992, and must limit the amount of Senior Funded Debt to
not more than 40% of total capitalization. The aggregate amounts of long-term
debt maturing during the next five years are approximately: 1998 - $12,047,000;
1999 - $8,833,000; 2000 - $6,952,000; 2001 - $6,857,000; 2002 - $6,857,000;
thereafter - $13,351,000. Loans from life insurance companies aggregating
approximately $45,600,000 and $44,500,000 are secured by the cash values of the
underlying life insurance policies of $49,500,000 and $49,000,000 at December
31, 1997 and 1996, respectively. Such loans have been netted against the cash
values. Interest is payable annually at rates ranging from 8% to 13%.
The fair value of the Company's long-term debt is based on management's estimate
of current market prices for the same issues. Fair value is estimated to be
$54,088,000 at December 31, 1997 and $65,340,000 at December 31, 1996.
6. INCOME TAXES
Deferred income taxes have been established for the effects of differences in
the bases of assets and liabilities for financial reporting and income tax
purposes.
The provision for income taxes is reconciled with the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Income tax at Federal statutory rate $ 10,469 $ 11,914 $ 14,526
State income taxes net of Federal
income tax benefit 1,502 1,926 2,010
Non-taxable life insurance proceeds
and increase in cash value (1,527) (1,078) (1,285)
Other 227 223 746
-------- -------- --------
$ 10,671 $ 12,985 $ 15,997
======== ======== ========
</TABLE>
24
<PAGE> 16
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Components of the net deferred income tax asset at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Postretirement and postemployment benefits $ 15,459 $ 14,607
State net operating loss carryforward,
net of Federal benefit 1,415 1,243
Other 4,759 3,726
-------- --------
Gross deferred tax asset 21,633 19,576
Valuation allowance (461) (461)
-------- --------
21,172 19,115
DEFERRED INCOME TAX LIABILITY
Property plant and equipment 7,227 6,128
-------- --------
NET DEFERRED INCOME TAX ASSET $ 13,945 $ 12,987
======== ========
</TABLE>
During 1996, the Company reduced its deferred tax asset valuation allowance by
$1,119,000 due to the availability of tax planning strategies to utilize state
net operating loss carryforwards and state deferred tax assets for
postretirement and postemployment benefits. Management believes it is more
likely than not that future taxable income will be sufficient to realize fully
the net deferred tax asset.
7. EMPLOYEE RETIREMENT PLANS
The Company has profit sharing and other retirement plans covering its
employees. The Company's contributions, which are principally discretionary,
were approximately $2,667,000 in 1997, $4,520,000 in 1996, and $5,460,000 in
1995.
The Company has entered into agreements with certain directors and key officers
of the Company and its subsidiaries which provide for nonfunded supplemental
retirement benefits. The Company has made current provisions for future payments
due under these agreements. The amounts charged to operations in 1997, 1996 and
1995 were approximately $1,479,000, $2,143,000 and $3,939,000, respectively. In
January 1997, the Company entered into a springing note payable whereby upon a
change in control of the Company, amounts sufficient to discharge the Company's
obligations under these plans becomes due.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for
eligible retired employees. Substantially all of the Company's employees may
become eligible for benefits if, after ten or more years of service, they reach
normal retirement age while working for the Company. The health care plan is
contributory and is adjusted periodically based on actual experience while the
life insurance plan is noncontributory. Neither plan is funded. The Company
accounts for these arrangements in accordance with Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions."
25
<PAGE> 17
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
As of January 1, 1993, the Company made modifications to the above plans which
reduced its obligations for prior service costs by approximately $13,900,000.
The Company made an additional modification during 1996 which became effective
January 1, 1997 that increased its obligations for prior service costs by
approximately $472,000. Such amounts are being amortized over the remaining
active service periods of employees.
The following table presents a reconciliation of the plan's funded status at
December 31:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retired employees $ 4,884 $ 4,772 $ 4,572
Fully eligible active employees 351 343 458
Other active employees 3,585 3,503 3,776
-------- -------- --------
8,820 8,618 8,806
-------- -------- --------
Unrecognized prior service cost reduction 7,194 7,665 11,394
Unrecognized net gain 410 566 503
-------- -------- --------
Postretirement benefits $ 16,424 $ 16,849 $ 20,703
======== ======== ========
NET PERIODIC BENEFIT COST:
Service cost $ 308 $ 320 $ 194
Interest cost 621 647 647
Net amortization (471) (822) (859)
-------- -------- --------
$ 458 $ 145 $ (18)
======== ======== ========
</TABLE>
In addition to the net postretirement benefit expense, the Company recognized a
net curtailment gain in 1996 of $3,359,000 related to employee terminations due
to the Vanier Sale, which is included in the net loss on the sale.
The assumed health care cost trend rate for 1998 is 8.5% decreasing annually by
1% to a rate of 5.5% in 2001 and beyond. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% at
December 31, 1997, 1996 and 1995.
If the health care cost trend rate were increased by one percent for all future
years, the impact on the accumulated postretirement benefit obligation as of
December 31, 1997 and the aggregate of service and interest cost for 1997 would
have been insignificant.
9. COMMITMENTS AND CONTINGENCIES
Rental expense under operating leases was approximately $4,539,000 in 1997,
$5,359,000 in 1996 and $5,053,000 in 1995. Minimum rental commitments under
noncancelable leases other than capital leases are approximately: 1998 -
$3,590,000; 1999 - $3,101,000; 2000 - $2,727,000; 2001 - $2,311,000; 2002 -
$1,575,000 and $938,000 thereafter.
The Company has committed to purchase miscellaneous plant and equipment. As of
December 31, 1997, the Company has signed contracts requiring remaining future
payments of $5,586,000 once the equipment is delivered and installed according
to the terms of the contracts.
In connection with the Vanier Sale, Vanier agreed to indemnify the purchaser
against certain potential liabilities and losses, including environmental. The
Company has agreed to guarantee Vanier's indemnification obligations and certain
other obligations entered into in connection with the Vanier Sale. Based on
information currently available, management does not expect the resolution of
the contingencies related to the Vanier Sale to have a material effect on its
financial statements.
In the opinion of management, no litigation or claims are pending against the
Company which are likely to have an adverse material effect on its financial
statements.
26
<PAGE> 18
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
10. STOCK COMPENSATION PLANS
The Company currently has two stock compensation plans: the 1991 Stock Incentive
Plan, which was adopted in 1991 ("1991 Plan"), and the 1993 Director's Stock
Incentive Plan, which was adopted in 1994 ("1993 Plan").
The 1991 Plan is a nonqualified plan which replaced the expiring 1981 Stock
Option Plan ("1981 Plan"). Under both the 1991 and 1981 Plans, options could be
granted at fair market value to key employees. The weighted average fair value
at date of grant for options granted under the 1991 Plan during 1997 and 1996
was $4.38 and $4.47, respectively. Twenty-five percent of each grant becomes
exercisable in each succeeding year and the maximum term of the options is ten
years. The weighted average fair value at date of grant for reload options
granted under the 1981 Plan during 1997 and 1996 was $3.49 and $3.37,
respectively. Reload grants carry the same vesting schedule and term as the
original grant. The board of directors may grant options which include a stock
appreciation feature under which employees may elect to receive cash in lieu of
Common Stock for up to 25% of the option exercised. The Company has reserved
1,317,023 and 1,379,516 shares of Common Stock for issuance under the 1991 and
1981 Plans at December 31, 1997 and 1996, respectively.
The 1993 Plan is a nonqualified plan which currently provides stock options to
directors who elect to forego all or a portion of the director's retainer fee
for the following year in exchange for an option to purchase Common Stock. The
number of options to be issued is determined by dividing the foregone director's
fee by one-half of the fair market value of the Common Stock on the date of
grant. The exercise price is equal to one-half of the fair market value of the
Common Stock on the date of grant and these options are fully vested at the date
of grant. The weighted average fair value at date of grant for options granted
under the 1993 Plan during 1997 and 1996 was $11.53 and $11.15, respectively.
The Board of Directors has adopted an amendment to the 1993 Plan, subject to
shareholder approval at the 1998 Annual Meeting which would eliminate the
ability of directors to receive options in lieu of fees, permit the committee
administering the plan to grant options in its discretion and make other
operative changes.
The 1993 Plan also provides for restricted stock awards. In general, each
director was issued 300 shares of Common Stock upon adoption of the plan and new
directors will be issued 200 shares upon election. Additional awards of 100
shares will be made to each director annually, but no director will receive more
than 2,000 shares of restricted stock. The Company issued 1,000 shares of
restricted stock in 1997 and 600 shares of restricted stock in 1996. The
weighted average fair market value per share at the date of grant of shares
issued in 1997 and 1996 was $23.50 and $21.54, respectively. The Company had
issued 4,900 and 3,900 shares of restricted stock at December 31, 1997 and 1996,
respectively.
The Company has reserved 212,918 and 217,509 shares of Common Stock for issuance
under the 1993 Plan at December 31, 1997 and 1996, respectively. The proposed
amendment would increase the aggregate number of shares authorized for issuance
under the 1993 Plan from 225,000 to 425,000 shares.
The following table summarizes activity adjusted for stock splits in the
Company's stock option plans for each of the last three years:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ---------------------
WTD-AVG WTD-AVG WTD-AVG
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 505,647 $ 17.61 394,881 $ 15.93 278,300 $ 13.52
Issued at fair value 310,612 20.49 159,532 20.86 165,018 18.86
Issued at less than fair value 6,385 11.75 6,740 11.13 10,092 8.92
Exercised (66,084) 15.61 (38,039) 12.67 (54,329) 11.24
Canceled (14,850) 18.35 (17,467) 17.63 (4,200) 15.38
------- ------- -------
Outstanding at December 31 741,710 18.93 505,647 17.61 394,881 15.93
======= ======= =======
Exercisable at December 31 348,934 17.82 208,302 15.63 161,045 14.29
</TABLE>
27
<PAGE> 19
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The following table summarizes information about stock options at December 31,
1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 7.33 - $16.17 124,251 5.28 $ 12.54 112,616 $ 12.55
$17.67 - $19.50 135,172 5.94 $ 18.64 100,818 $ 18.75
$19.81 - $19.81 257,500 9.94 $ 19.81 -- --
$20.75 - $20.75 163,519 4.74 $ 20.75 106,332 $ 20.75
$22.25 - $27.50 61,268 7.56 $ 23.92 29,168 $ 24.24
------- -------
$ 7.33 - $27.50 741,710 7.09 $ 18.93 348,934 $ 17.82
======= =======
</TABLE>
Compensation cost charged to operations was $98,500 in 1997, $87,900 in 1996 and
$85,700 in 1995. Had compensation cost been determined on the basis of fair
value pursuant to FASB Statement No. 123, net income and earnings per share
would have been reduced as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income
As reported $ 19,242 $ 21,054 $ 25,505
Pro forma 18,958 20,810 25,416
Basic earnings per share
As reported 1.17 1.28 1.57
Pro forma 1.15 1.27 1.57
Diluted earnings per share
As reported 1.16 1.28 1.57
Pro forma 1.15 1.26 1.56
</TABLE>
The effect on 1997, 1996 and 1995 net earnings is not representative of the
effect on net earnings in future years because it does not take into
consideration compensation expense related to grants made prior to 1995. The
fair value of options at date of grant was estimated using the Black-Scholes
Model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Expected life (years) 3.56 5 5
Interest rate 5.83% 6.40% 5.63%
Volatility 30.0% 28.0% 26.0%
Dividend yield 3.67% 3.25% 3.34%
</TABLE>
11. STOCKHOLDERS' EQUITY
The Company has authorized 500,000 shares of Preferred Stock without par value.
No shares have been issued.
On October 25, 1989 the Board of Directors adopted a Share Rights Plan and
declared a dividend of one Right for each outstanding share of Common Stock on
November 6, 1989. Such Rights become exercisable or transferable apart from the
Common Stock, twenty days after a person or group (Acquiring Person) has
acquired beneficial
28
<PAGE> 20
[ABP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
ownership of 20% of the Common Stock or after a person or group has acquired
beneficial ownership of 10% of the Common Stock and, after reasonable inquiry
and investigation, has been declared by the Board of Directors to be an "Adverse
Person." Each Right then may be exercised to acquire a number of shares of
Common Stock equal to one share of Common Stock multiplied by a fraction, the
numerator of which is the number of shares of Common Stock outstanding on the
date that an Acquiring Person or an Adverse Person was first determined to be
such (Stock Acquisition Date) and the denominator of which is the number of
Rights outstanding on the Stock Acquisition Date that are not owned by the
Acquiring Person or Adverse Person. The price to be paid for each share of
Common Stock acquired by exercise of Rights is 20% of market value on the Stock
Acquisition Date. In general, the Rights may be redeemed by the Company at a
price of $0.01 at any time until twenty days following the Stock Acquisition
Date. The Rights will expire on November 6, 1999.
12. BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
DEPRECIATION & CAPITAL IDENTIFIABLE OPERATING
(In thousands) SALES AMORTIZATION EXPENDITURES ASSETS PROFIT
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Business supplies printing $341,345 $ 8,445 $ 9,725 $139,150 $ 20,664
Book manufacturing 50,349 2,584 3,710 26,154 1,652
Extrusion coating and laminating 120,022 2,977 7,301 60,032 14,431
Corporate -- 274 58 107,444 (9,937)
-------- ------- -------- -------- --------
$511,716 $14,280 $ 20,794 $332,780 $ 26,810
======== ======= ======== ======== ========
YEAR ENDED DECEMBER 31, 1996
Business supplies printing $467,865 $11,789 $ 19,400 $157,583 $ 26,492
Book manufacturing 54,642 2,370 4,206 27,003 4,591
Extrusion coating and laminating 109,131 2,703 4,584 55,084 15,519
Corporate -- 351 217 100,821 (9,148)
-------- ------- -------- -------- --------
$631,638 $17,213 $ 28,407 $340,491 $ 37,454
======== ======= ======== ======== ========
YEAR ENDED DECEMBER 31, 1995
Business supplies printing $476,604 $12,327 $ 10,834 $214,196 $ 37,432
Book manufacturing 58,207 2,113 4,041 26,715 6,781
Extrusion coating and laminating 99,144 2,814 1,910 47,828 11,639
Corporate -- 302 148 47,692 (8,808)
-------- ------- -------- -------- --------
$633,955 $17,556 $ 16,933 $336,431 $ 47,044
======== ======= ======== ======== ========
</TABLE>
The Company's three operating business segments are as follows: the printing of
business supplies, consisting principally of business forms, labels and envelope
products; the manufacture of books; and the extrusion of polyethylene onto
lightweight papers and non-wovens.
Operating profit for each segment is sales less operating expenses. In computing
operating profit for each segment, the following items have not been added or
deducted: general corporate expenses, interest expense, income from investments
and income taxes.
Identifiable assets are those assets used in each segment's operation. Corporate
assets consist of cash and cash equivalents and other noncurrent assets not used
in the operation of a segment.
29
<PAGE> 21
[ABP LOGO]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
American Business Products, Inc.
We have audited the accompanying consolidated balance sheets of American
Business Products, Inc. and subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 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, such consolidated financial statements present fairly, in all
material respects, the financial position of American Business Products, Inc.
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 20, 1998
30
<PAGE> 22
[ABP LOGO]
CORPORATE INFORMATION
STOCK EXCHANGE LISTING EQUAL OPPORTUNITY EMPLOYER
American Business Products, Inc.'s Common American Business Products, Inc.,
Stock is listed on the New York Stock and its subsidiaries are equal
Exchange. Ticker Symbol: ABP. opportunity employers.
ANNUAL MEETING DIVIDEND REINVESTMENT/
The Annual Meeting of Shareholders will STOCK PURCHASE PLAN
be held May 8, 1998 at 11:00 a.m. at the Registered shareholders may
Cobb Galleria Centre, Two Galleria participate in the Company's
Parkway, Atlanta, Georgia 30339. Dividend Reinvestment/Stock
Purchase Plan to acquire additional
shares. The Company pays commission
FORM 10-K ANNUAL REPORT charges on purchases made by the
The Form 10-K filed with the Securities Plan. A booklet describing the
and Exchange Commission is available to Plan and enrollment procedures is
shareholders and may be obtained without available upon request from
charge upon written request to the Wachovia Bank of North Carolina,
Secretary of the Company. N.A., P.O. Box 3001, Winston-
Salem, NC 27102-3001.
SHAREHOLDERS OF RECORD DIVIDENDS
On March 1, 1998, there were approximately Cash dividends on ABP Common Stock
5,000 shareholders of record including have been increased for the last 40
dividend reinvestment participants. years through 1997. Since ABP's
initial public offering in 1969,
dividends per share have been
AUDITORS increased by more than 50 times.
Deloitte & Touche LLP, Atlanta Dividends are generally declared on
a quarterly basis, with holders of
record date entitled to receive the
GENERAL COUNSEL cash dividend on the payable date.
Long Aldridge & Norman LLP Anticipated record and payable
dates for the year 1998 are listed
below:
TRANSFER AGENT AND REGISTRAR
Wachovia Bank of North Carolina, N.A. RECORD PAYMENT
Winston-Salem March 2 March 15
Shareholder Services: 1-800-633-4236 June 1 June 15
September 1 September 15
December 1 December 15
31
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF AMERICAN BUSINESS PRODUCTS, INC.
The subsidiaries of the Company as of March 16, 1998, all of which are
wholly-owned, are set forth below:
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
BookCrafters USA, Inc. Michigan
Curtis 1000 Inc. Georgia
Discount Labels, Inc. Indiana
International Envelope Company Delaware
Jen-Coat, Inc. Massachusetts
Vanier Graphics Corporation California
</TABLE>
The results of operations of all subsidiaries described above are
included in the Consolidated Financial Statements incorporated by reference in
this Annual Report on Form 10-K.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our reports dated February 20,
1998, appearing in and incorporated by reference in this Annual Report on Form
10-K of American Business Products, Inc. for the year ended December 31, 1997 in
the following Registration Statements of American Business Products, Inc.:
<TABLE>
<CAPTION>
FORM FILE NO.
<S> <C>
S-3 33-60567
S-8 33-53627
S-8 33-59271
S-8 33-61359
S-8 33-39314
</TABLE>
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 18, 1998
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints RICHARD G. SMITH, JOHN H. KARR, AND DAWN
M. GRAY, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign the Annual Report on Form 10-K of American
Business Products, Inc., for the fiscal year ended December 31, 1997, and any
and all amendments to such Annual report on Form 10-K and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and the New York Stock Exchange, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, lawfully may
do or cause to be done by virtue thereof.
This 11th day of February, 1998.
/S/ F. Duane Ackerman /S/ James F. McDonald
- ------------------------ ---------------------------
F. Duane Ackerman James F. McDonald
/S/ W. Joseph Biggers /S/ Hollis L. Harris
- ------------------------ ---------------------------
W. Joseph Biggers Hollis L. Harris
/S/ Thomas R. Carmody /S/ W. Stell Huie
- ------------------------ ---------------------------
Thomas R. Carmody W. Stell Huie
/S/ Henry Curtis VII /S/ Thomas F. Keller
- ------------------------ ---------------------------
Henry Curtis VII Thomas F. Keller
/S/ Daniel W. McGaughlin /S/ William B. Stokely, III
- ------------------------ ---------------------------
Daniel W. McGaughlin William B. Stokely, III
/S/ C. Douglas Miller /S/ G. Harold Northrop
- ------------------------ ---------------------------
C. Douglas Miller G. Harold Northrop
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN BUSINESS PRODUCTS, INC. FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 75,092
<SECURITIES> 0
<RECEIVABLES> 60,643
<ALLOWANCES> 2,121
<INVENTORY> 32,314
<CURRENT-ASSETS> 175,915
<PP&E> 164,023
<DEPRECIATION> 75,065
<TOTAL-ASSETS> 332,780
<CURRENT-LIABILITIES> 71,377
<BONDS> 0
0
0
<COMMON> 33,354
<OTHER-SE> 148,343
<TOTAL-LIABILITY-AND-EQUITY> 332,780
<SALES> 511,716
<TOTAL-REVENUES> 511,716
<CGS> 364,222
<TOTAL-COSTS> 484,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,965
<INCOME-PRETAX> 29,913
<INCOME-TAX> 10,671
<INCOME-CONTINUING> 19,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,242
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.16
</TABLE>
