<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1999 Commission file number 1-7088
--------------- ------
AMERICAN BUSINESS PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-1030529
- ------------------------------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
2100 RiverEdge Parkway, Suite 1200, Atlanta, Georgia 30328
- ------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 953-8300
--------------
</TABLE>
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
--- ---
<TABLE>
<S> <C>
Common Stock, $2.00 par value 15,095,995 shares
- ----------------------------- ------------------------------
(Class) (Outstanding at June 30, 1999)
</TABLE>
Page 1 of 20
Exhibit Index on Page 20
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 116,724 $ 113,336
----------- -----------
COST AND EXPENSES
Cost of goods sold 83,918 79,021
Selling and administrative expenses 25,375 24,763
Other charges -- 5,155
----------- -----------
109,293 108,939
----------- -----------
OPERATING INCOME 7,431 4,397
Miscellaneous income (expense) - net 546 (512)
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES 7,977 3,885
INTEREST INCOME (EXPENSE)
Interest expense (1,533) (1,605)
Interest income 741 1,127
----------- -----------
(792) (478)
INCOME BEFORE INCOME TAXES 7,185 3,407
PROVISION FOR INCOME TAXES 2,561 1,488
----------- -----------
INCOME FROM CONTINUING OPERATIONS 4,624 1,919
DISCONTINUED OPERATION
Income from operations - net of income taxes of $37 -- 49
----------- -----------
NET INCOME $ 4,624 $ 1,968
=========== ===========
PER COMMON SHARE
Income from continuing operations
Basic $ 0.31 $ 0.12
Diluted $ 0.31 $ 0.12
Income from discontinued operation
Basic $ -- $ 0.00
Diluted $ -- $ 0.00
Net Income
Basic $ 0.31 $ 0.12
Diluted $ 0.31 $ 0.12
DIVIDENDS PER COMMON SHARE $ 0.165 $ 0.155
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,026,242 16,122,919
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 15,044,491 16,222,802
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 228,663 $ 232,430
----------- -----------
COST AND EXPENSES
Cost of goods sold 163,519 162,098
Selling and administrative expenses 50,357 51,559
Other charges -- 5,155
----------- -----------
213,876 218,812
----------- -----------
OPERATING INCOME 14,787 13,618
Miscellaneous income (expense) - net 888 (257)
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES 15,675 13,361
INTEREST INCOME (EXPENSE)
Interest expense (2,575) (2,940)
Interest income 1,429 2,198
----------- -----------
(1,146) (742)
INCOME BEFORE INCOME TAXES 14,529 12,619
PROVISION FOR INCOME TAXES 5,153 4,861
----------- -----------
INCOME FROM CONTINUING OPERATIONS 9,376 7,758
DISCONTINUED OPERATION
Income from operations - net of income taxes of $117 -- 156
Loss on disposal - net of income tax benefit of $542 (1,513) --
----------- -----------
NET INCOME $ 7,863 $ 7,914
=========== ===========
PER COMMON SHARE
Income from continuing operations
Basic $ 0.62 $ 0.48
Diluted $ 0.62 $ 0.48
Income (loss) from discontinued operation
Basic $ (0.10) $ 0.01
Diluted $ (0.10) $ 0.01
Net Income
Basic $ 0.52 $ 0.49
Diluted $ 0.52 $ 0.49
DIVIDENDS PER COMMON SHARE $ 0.33 $ 0.31
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,198,507 16,204,281
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 15,225,496 16,301,991
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 30,027 $ 60,034
Accounts receivable, less allowances of
$1,769 and $1,133 58,201 50,398
Inventories 31,168 32,044
Net assets of discontinued operation -- 15,000
Other 9,393 8,735
-------- --------
Total Current Assets 128,789 166,211
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 2,523 2,523
Buildings and improvements 38,560 38,115
Machinery, equipment and software 103,915 82,252
Construction in progress 3,878 12,091
-------- --------
148,876 134,981
Less accumulated depreciation 63,512 57,640
-------- --------
85,364 77,341
INTANGIBLE ASSETS FROM ACQUISITIONS
Goodwill, less amortization of $6,396 and $5,863 36,071 26,339
Other, less amortization of $5,519 and $5,328 655 619
-------- --------
36,726 26,958
DEFERRED INCOME TAXES 14,408 14,724
OTHER ASSETS 13,946 16,010
-------- --------
TOTAL ASSETS $279,233 $301,244
======== ========
CURRENT LIABILITIES
Accounts payable $ 35,657 $ 45,881
Salaries and wages 7,417 9,442
Profit sharing contributions 1,332 3,473
Current maturities of long-term debt 8,657 8,833
-------- --------
Total Current Liabilities 53,063 67,629
LONG-TERM DEBT 34,918 34,016
SUPPLEMENTAL RETIREMENT BENEFITS 19,723 20,418
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 13,995 16,441
STOCKHOLDERS' EQUITY
Common stock - $2 par value; authorized 50,000,000 shares,
issued 16,938,397 and 16,740,197 shares 33,877 33,480
Additional paid-in capital 10,857 8,169
Retained earnings 149,663 146,824
Unearned compensation (2,586) --
-------- --------
191,811 188,473
Less 1,842,402 and 1,330,102 shares of common
stock in treasury - at cost 34,277 25,733
-------- --------
157,534 162,740
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $279,233 $301,244
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Continuing operations
Income from continuing operations $ 9,376 $ 7,758
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 7,195 6,110
Loss on disposition of plant and equipment 36 3,904
Loss on sale of joint venture investment -- 1,849
Change in assets and liabilities, excluding
effects of acquisitions and dispositions:
Increase in accounts receivable (4,464) (204)
(Increase) decrease in inventories 1,896 (2,634)
Decrease in other current assets 1,316 1,539
(Increase) decrease in intangible and other assets 849 (591)
Decrease in accounts payable (11,461) (4,344)
Decrease in other current liabilities (2,569) (390)
Decrease in supplemental retirement benefits
and postemployment benefits (3,141) (443)
(Increase) decrease in deferred income taxes (1) 630
-------- --------
Total adjustments (10,344) 5,426
Net cash provided (used) by continuing operations (968) 13,184
Discontinued operation
Income (loss) from discontinued operation (1,513) 156
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 1,136 1,299
Write-down of assets to net realizable value 1,156 --
Gain on disposition of plant and equipment -- (83)
Change in assets and liabilities:
(Increase) decrease in accounts receivable 321 (505)
Decrease in inventories 267 334
Increase in other current assets (1,328) (224)
(Increase) decrease in intangible and other assets 42 (107)
Increase (decrease) in accounts payable (2,661) 391
Increase (decrease) in other current liabilities (209) 4
Decrease in supplemental retirement benefits and
postemployment benefits -- 59
(Increase) decrease in deferred income taxes 317 (93)
-------- --------
Total adjustments (959) 1,075
Net cash provided (used) by discontinued operation (2,472) 1,231
Net cash provided (used) by operating activities (3,440) 14,415
CASH FLOWS FROM INVESTING ACTIVITIES
Continuing operations
Decrease in and liquidation of cash value of life insurance 1,367 4,438
Net assets acquired (15,644) --
Additions to property, plant and equipment (9,788) (8,068)
Proceeds from sale of joint venture investment -- 4,446
Proceeds from disposition of property, plant and equipment 119 3,136
-------- --------
(23,946) 3,952
Discontinued operation
Additions to property, plant and equipment (2,328) (2,560)
Proceeds from disposition of property, plant and equipment 17 85
Proceeds from disposition of discontinued operation 12,033 --
-------- --------
9,722 (2,475)
Net cash provided (used) by investing activities (14,224) 1,477
CASH FLOWS FROM FINANCING ACTIVITIES
Continuing operations
Reductions of long-term debt (114) (115)
Issuance of long-term debt 1,016 --
Sales and exchanges of common stock 499 316
Repurchase of common stock (8,544) (10,291)
Dividends paid (5,024) (5,009)
-------- --------
(12,167) (15,099)
Discontinued operation
Reductions of long-term debt (176) (93)
-------- --------
Net cash used by financing activities (12,343) (15,192)
Net increase (decrease) in cash and cash equivalents (30,007) 700
Cash and cash equivalents at beginning of period 60,034 75,092
-------- --------
Cash and cash equivalents at end of period $ 30,027 $ 75,792
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
AMERICAN BUSINESS PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Condensed Consolidated Financial Statements
The condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles which in certain instances require
the use of management's estimates. The information contained in these condensed
consolidated financial statements and notes for the three and six month periods
ended June 30, 1999 and 1998 is unaudited but, in the opinion of management, all
adjustments necessary for a fair presentation of such information have been
made. All such adjustments are of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to applicable rules and regulations of the Securities and Exchange
Commission. The condensed consolidated financial statements included herein
should be read in conjunction with the audited financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. Consolidation Policy
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. Intercompany
balances and transactions have been eliminated.
3. Nature of Operations
The Company operates two businesses: specialty packaging and printed office
products. The Company's specialty packaging business is comprised of three
segments: the extrusion of polyethylene and other materials onto papers and
nonwovens used in packaging and other products, the manufacture of soft packages
including Tyvek(R) mailers, and the manufacture of labels. The Company's printed
office products business is comprised of a single segment which supplies
custom-printed envelopes and labels, digital document services and business
forms. The markets for these products are located principally throughout the
continental United States.
4. Earnings Per Common Share
Basic earnings per common share is based upon the weighted average number of
common shares outstanding during the respective periods. Diluted earnings per
share is based upon the weighted average number of common and common equivalent
shares outstanding during the respective periods. The only common equivalent
shares are those related to stock options outstanding during the respective
periods.
5. Inventories
Inventories consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
(Unaudited)
(in thousands)
<S> <C> <C>
Raw materials $ 15,889 $ 16,740
Work in process 4,055 3,712
Finished goods 13,636 14,021
-------- --------
33,580 34,473
Inventory obsolescence reserve (2,412) (2,429)
-------- --------
Net inventory $ 31,168 $ 32,044
======== ========
</TABLE>
6
<PAGE> 7
6. Comprehensive Income
Total comprehensive income for the three and six months ended June 30, 1999 and
1998 was as follows (unaudited):
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Net income $ 4,624 $ 1,968
Foreign currency translation adjustments -- (261)
------- -------
Comprehensive income $ 4,624 $ 1,707
======= =======
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1999 1998
------ -------
(in thousands)
<S> <C> <C>
Net income $7,863 $ 7,914
Foreign currency translation adjustments -- (261)
------ -------
Comprehensive income $7,863 $ 7,653
====== =======
</TABLE>
7. Acquisition
On April 30, 1999 the Company acquired substantially all of the property, rights
and assets of Tekkote Corp., a manufacturer of coated and printed products for
use in packaging and related fields. The transaction has been accounted for as a
purchase with the results of Tekkote Corp. included with those of the Company's
extrusion coating and laminating segment beginning May 1, 1999. The negotiated
purchase price was $14.3 million in cash and assumption of a note payable of
$1.0 million. The principal and interest, based on LIBOR, of the note are due
October 31, 2000.
The following are the components of net assets acquired of Tekkote Corp.:
<TABLE>
<CAPTION>
April 30, 1999
--------------
<S> <C>
(in thousands)
Accounts receivable $ 2,258
Inventory 1,019
Other current assets 10
Property, plant and equipment 5,875
Other long-term assets 152
Goodwill 10,264
Other intangible assets 229
Accounts payable (3,788)
Other current liabilities (375)
--------
Net assets acquired $ 15,644
</TABLE>
The acquired goodwill is being amortized on the straight-line basis
over 20 years.
8. Discontinued Operation
On May 28, 1999 the Company sold the business and assets of Bookcrafters USA,
Inc., its hardcover and softcover book manufacturing and distribution segment to
The Sheridan Group. Accordingly, the segment has been accounted for as a
discontinued operation and prior period financial statements were reclassified.
The Company assigned certain operating leases entered into by Bookcrafters USA,
Inc. prior to the sale. The Company guaranteed the payments on these leases
which expire between January 1, 2003 and January 1, 2004. At June 30, 1999, the
aggregate amount of guaranteed lease payments was $2,324,926.
7
<PAGE> 8
In the first quarter of 1999, the Company recorded a loss of $1,513,000 after
tax for the disposal of the segment. No adjustment was required to the loss on
disposal of the segment at the date of sale.
The following are the components of the net assets for discontinued operations
of BookCrafters USA, Inc.:
<TABLE>
<CAPTION>
(in thousands) December 31,
1998
--------
<S> <C>
Current net assets:
Accounts receivable $ 9,463
Inventory 2,483
Other assets 5
Accounts payable (3,730)
--------
Total net current assets 8,221
Long-term assets:
Property, plant and equipment, net of accumulated
depreciation of $20,719 6,682
Other long-term 97
--------
Total long-term assets 6,779
Net assets of discontinued operation $ 15,000
========
</TABLE>
Assets are shown at their net realizable values and liabilities are
shown at their face amounts.
Summarized income statement information for BookCrafters USA, Inc. is as follows
(unaudited):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Net sales $ 7,413 $ 11,801
Operating income $ -- $ 125
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in thousands)
Net sales $ 18,799 $ 23,779
Operating income (loss) $ (888) $ 290
</TABLE>
9. Compensation Plans
The Company adopted the American Business Products, Inc. 1999 Incentive
Compensation Plan (the "1999 Plan"), at the 1999 Annual Meeting of Shareholders
held on May 5, 1999. Future stock-based compensation will be made pursuant to
the 1999 plan which will replace the 1991 Stock Incentive Plan and the 1993
Directors' Stock Incentive Plan. Under the 1999 plan, options may be granted at
fair value to key employees. As of June 30, 1999, the Company has issued options
to purchase 317,000 shares of Common Stock pursuant to the 1999 Plan. The 1999
plan also provides for performance share awards. The Company issued 171,000
shares of restricted stock during the second quarter of 1999 pursuant to the
1999 Plan that may vest in whole or in part, or may be forfeited, based on the
Company's performance over the next three years. The fair value of these
restricted shares at date of grant was $2,586,375 which is recorded as unearned
compensation in the accompanying June 30, 1999 Condensed Consolidated Balance
Sheet. The Company also issued 100 shares of restricted stock pursuant to the
1999 Plan to each nonemployee director during the second quarter of 1999, for a
total of 1,000 shares, resulting in $15,125 of compensation expense recorded in
selling and administrative expenses in the accompanying condensed consolidated
income statements.
10. Shareholders' Rights Plan
On May 5, 1999, the Board of Directors adopted a Rights Plan which will expire
November 6, 2009. The Company's current Rights Plan adopted October 25, 1989
will expire November 6, 1999. Under the new rights plan, shareholders of record
on May 17, 1999, and shareholders who acquire the Company's common stock after
that date until the distribution date will receive rights to purchase six shares
of the Company's common stock
8
<PAGE> 9
(subject to adjustment) at a price equal to 20% of the then current market
price. In the event there is an insufficient number of authorized but unissued
shares of the Company to honor all of the rights, the Board of Directors may
substitute alternative securities or cash. The rights will be exercisable if a
person or group acquires beneficial ownership of 30% or more of the Company's
outstanding common stock, or begins a tender or exchange offer for 30% or more
of the Company's outstanding common stock. In addition, the rights will be
exercisable if an "adverse person", as determined by the Board of Directors,
acquires a beneficial ownership of 10% or more of the Company's outstanding
common stock. The Board of Directors may redeem the rights for $0.01 per right
at any time up to 20 days after the time they become exercisable. Until a
triggering event, the rights attach to and trade with the shares of the
Company's common stock. No separate rights certificate will be issued until an
event triggering the exercise of the rights occurs.
11. Business Segment Information
<TABLE>
<CAPTION>
(unaudited)
(in thousands) Net External Net Internal Operating
THREE MONTHS ENDED JUNE 30, 1999 Sales Sales Profit (Loss)
------------ ------------ -------------
<S> <C> <C> <C>
Extrusion Coating & Laminating $ 33,617 $ 504 $ 3,744
Soft Packaging 22,579 1,459 1,566
Labels 16,715 1,076 2,167
-------- ------ --------
Total Specialty Packaging Business 72,911 3,039 7,477
-------- ------ --------
Printed Office Products 43,813 -- 1,397
Corporate -- -- (897)
-------- ------ --------
Total $116,724 $3,039 $ 7,977
======== ====== ========
SIX MONTHS ENDED JUNE 30, 1999
Extrusion Coating & Laminating $ 62,473 $ 828 $ 6,070
Soft Packaging 45,829 3,043 3,449
Labels 31,945 2,689 4,343
-------- ------ --------
Total Specialty Packaging Business 140,247 6,560 13,862
-------- ------ --------
Printed Office Products 88,416 -- 3,406
Corporate -- -- (1,593)
-------- ------ --------
Total $228,663 $6,560 $ 15,675
======== ====== ========
THREE MONTHS ENDED JUNE 30, 1998
Extrusion Coating & Laminating $ 30,735 $ 143 $ 3,287
Soft Packaging 21,564 1,638 979
Labels 14,947 1,215 2,831
-------- ------ --------
Total Specialty Packaging Business 67,246 2,996 7,097
-------- ------ --------
Printed Office Products 46,090 7 (1,251)
Corporate -- -- (1,961)
-------- ------ --------
Total $113,336 $3,003 $ 3,885
======== ====== ========
SIX MONTHS ENDED JUNE 30, 1998
Extrusion Coating & Laminating $ 62,047 $ 331 $ 6,659
Soft Packaging 43,225 3,485 2,115
Labels 29,757 2,406 5,741
-------- ------ --------
Total Specialty Packaging Business 135,029 6,222 14,515
-------- ------ --------
Printed Office Products 97,401 7 1,451
Corporate -- -- (2,605)
-------- ------ --------
Total $232,430 $6,229 $ 13,361
======== ====== ========
</TABLE>
9
<PAGE> 10
In all material respects, the Company accounts for intercompany sales and
transfers as if the sales or transfers were to third parties.
Operating profit for each segment is adjusted income before interest and taxes ,
which is income before interest and taxes adjusted to include, in lieu of
corporate expense allocations, a capital charge equal to 2.5% of the invested
capital used in the business segment, which has been netted with Corporate.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's continuing operations are comprised of two businesses:
Specialty Packaging and Printed Office Products. The Company's Specialty
Packaging business is comprised of three segments: the extrusion of polyethylene
and other materials onto papers and nonwovens used in packaging and other
products, the manufacture of soft packages including Tyvek(R) mailers, and the
manufacture of labels. The Company's Printed Office Products business is
comprised of a single segment, which supplies custom-printed envelopes and
labels, digital document services and business forms.
Net sales from continuing operations for the second quarter of 1999
were $116.7 million, an increase of 3.0%, compared to $113.3 million in the
second quarter of 1998. Net sales from continuing operations for the six months
ended June 30, 1999 were $228.7 million, a decrease of 1.6% from the $232.4
million of net sales for the six months ended June 30, 1998. A more detailed
analysis of net sales is included in the discussion below of the Company's two
continuing businesses: Specialty Packaging and Printed Office Products.
The Company's gross profit margin from continuing operations was 28.1%
in the second quarter of 1999 compared to 30.3% in the second quarter of 1998.
The reduced margin in the second quarter of 1999 was due primarily to lower
margin in the Company's labels and printed office products segments partially
offset by increased margin in extrusion coating and laminating and soft
packaging. The lower margin in labels and printed office products was caused
primarily by changes in product mix in the case of labels and lower revenues in
the case of printed office products. The extrusion coating and laminating margin
increased due to an improved product mix during the second quarter of 1999. The
soft packaging margin increased due to increased sales of higher margin products
for use in the package delivery markets. The Company's gross margin from
continuing operations for the six months ended June 30, 1999 was 28.5% compared
to 30.3% for the six months ended June 30, 1998. The reduced margin in the first
six months of 1999 was due primarily to lower margin in the Company's extrusion
coating and laminating, labels and printed office products segments partially
offset by increased margin in soft packaging. The explanation of margin change
for soft packaging, labels and printed office products is the same as the second
quarter, discussed above. The lower margin in extrusion coating and laminating
for the six months ended June 30, 1999 was due to lower sales, and a less
favorable product mix in the first quarter of 1999.
Selling and administrative expenses from continuing operations (as a
percentage of net sales) were 21.7% in the second quarter of 1999 compared to
21.8% in the second quarter of 1998. Selling and administrative expenses from
continuing operations for the six months ended June 30, 1999 were 22.0% compared
to 22.2% for the six months ended June 30, 1998. Included in the results for the
six months ended June 30, 1998 were charges related to management changes and
reorganization at the Company's printed office products segment of $1.4 million.
Excluding these charges, selling and administrative expenses from continuing
operations (as a percentage of sales) for the six months ended June 30, 1998
would have been 21.3%. The higher selling and administrative expenses as a
percentage of net sales for the six months ended June 30, 1999 was due primarily
to higher expenses as a percentage of net sales in the printed office products
segment due primarily to lower sales, partially offset by a decline in the
labels segment due primarily to higher sales.
During the second quarter of 1998, the Company conducted a review of a
custom-designed software system that was being developed by the Company's
printed office products business. After extensive review, the Company decided to
discontinue the software development project. The Company recorded a pre-tax
charge in the second quarter of 1998 of approximately $5.2 million to write off
the Company's investment in the project.
Miscellaneous-net income was $0.5 million in the second quarter of 1999
compared to miscellaneous-net expense of $0.5 million in the second quarter of
1998. Miscellaneous-net income for the six months ended June 30, 1999 was $0.9
million, compared to $0.3 million of miscellaneous-net expense for the six
months ended June 30, 1998. The second quarter of 1998 and the six months ended
June 30, 1998 results included a loss on the sale of the Company's investment in
Curtis 1000 Europe GmbH of approximately $1.8 million and gains from asset
disposals of approximately $1.2 million. Excluding these items,
miscellaneous-net income for the second quarter of 1998 would have been $0.2
million and miscellaneous-net income for the six months ended June 30, 1998
would have been $0.4 million.
11
<PAGE> 12
Interest expense for the second quarter of 1999 was $1.5 million, a
decrease of 4.5% from $1.6 million in the second quarter of 1998. Interest
expense for the six months ended June 30, 1999 was $2.6 million, a decrease of
12.4% from the $2.9 million for the six months ended June 30, 1998. The decrease
in 1999 was due primarily to reduced long-term debt.
Interest income for the second quarter of 1999 was $0.7 million, a
decrease of 34.3% from the $1.1 million in the second quarter of 1998. Interest
income for the six months ended June 30, 1999 was $1.4 million, a decrease of
35.0% from the $2.2 million for the six months ended June 30, 1998. The decrease
in 1999 was due primarily to lower average investment balances.
The Company's effective income tax rate from continuing operations
decreased to 35.6% in the second quarter of 1999 compared to 43.7% in the second
quarter of 1998. The effective tax rate was 35.5% and 38.5% for the six month
periods ended June 30, 1999 and June 30, 1998, respectively. The lower effective
rate in 1999 resulted from state tax planning strategies. The higher effective
rate in 1998 was impacted by the non-deductible portion of the loss on the sale
of the Company's investment in Curtis 1000 Europe GmbH.
Specialty Packaging
The Company's Specialty Packaging business is composed of three
segments: extrusion coating and laminating of packaging and other products, soft
packaging including Tyvek(R) mailers, and printing of labels.
On April 30, 1999, the Company acquired substantially all of the
property, rights and assets of Tekkote Corp. ("Tekkote"), a manufacturer of
coated and printed products for use in packaging and related fields whose
revenues for 1998 were approximately $30 million. The negotiated purchase price
was $14.3 million in cash and a note payable of $1.0 million due October 31,
2000. This acquisition will enable the extrusion coating and laminating segment
to offer a broader line of release liner products used in pressure sensitive
applications and packaging. The acquisition has been accounted for as a purchase
with the results of Tekkote included with those of the Company's extrusion
coating and laminating segment beginning May 1, 1999.
In the second quarter of 1999, the Company's Specialty Packaging
business' net sales were $76.0 million, an increase of 8.1% compared to $70.2
million in the second quarter of 1998. Net sales for the six months ended June
30, 1999 were $146.8 million, an increase of 3.9% compared to $141.3 million for
the six months ended June 30, 1998. The sales increase in the second quarter of
1999 was due primarily to the inclusion of sales from the acquisition of
Tekkote, and to revenue gains in the soft packaging and labels segments. A more
detailed explanation of each of the segments' results is discussed below.
The Company measures each of its businesses' and segments' operating
profit, which the Company defines as income before interest and taxes less a
capital charge equal to 2.5% of the net assets used by that business or segment.
The capital charge is in lieu of any corporate expense allocation.
In the second quarter of 1999, the Company's Specialty Packaging
business' operating profit was $7.5 million, an increase of 5.4% compared to
$7.1 million in the second quarter of 1998. The operating profit for the six
months ended June 30, 1999 was $13.9 million, a decrease of 4.5% compared to
$14.5 for the six months ended June 30, 1998. The operating profit increase in
the second quarter of 1999 was due to increased gross margin in the extrusion
coating and laminating and soft packaging segments partially offset by decreased
gross margin in the labels segment. The operating profit decrease for the six
months ended June 30, 1999 was due to decreased sales in extrusion coating and
laminating and decreased gross margin in labels, partially offset by increased
sales and gross margin in soft packaging.
The Specialty Packaging business' extrusion coating and laminating
segment generated net sales of $34.1 million in the second quarter of 1999, a
10.5% increase compared to $30.9 million in the second quarter of 1998. Net
sales for the extrusion coating and laminating segment for the six months ended
June 30, 1999 were $63.3 million, an increase of 1.5% compared to $62.4 million
for the six months ended June 30, 1998. The sales increase was due primarily to
the inclusion of sales from the Tekkote acquisition, partially offset by reduced
demand for certain mature products.
12
<PAGE> 13
The extrusion coating and laminating segment reported operating profit
in the second quarter of 1999 of $3.7 million, an increase of 13.9%, compared to
operating profit of $3.3 million in the second quarter of 1998. Operating profit
for the extrusion coating and laminating segment for the first six months of
1999 was $6.1 million, a decrease of 8.8%, compared to $6.7 for the six months
ended June 30, 1998. The increase in the second quarter of 1999 was due
primarily to increased demand for certain higher margin products. The decrease
in the first six months of 1999 was due primarily to lower unit prices, lower
demand for certain mature products and inventory adjustments by customers in the
first quarter of 1999.
The Company is continuing to seek to accelerate the growth of its
extrusion coating and laminating segment by developing or acquiring
complementary technologies, capabilities, manufacturing plants and personnel. In
line with this objective, the Company completed the acquisition of Tekkote
during the second quarter of 1999, discussed above. In addition, the Company is
intensifying its programs to develop additional new products and markets.
The Specialty Packaging business' soft packaging segment generated net
sales of $24.0 million in the second quarter of 1999, an increase of 3.6%
compared to $23.2 million in the second quarter of 1998. Net sales for the six
months ended June 30, 1999 for the soft packaging segment were $48.9 million, an
increase of 4.6% compared to $46.7 million for the six months ended June 30,
1998. Sales growth in 1999 resulted primarily from increased demand from the
soft goods order fulfillment market, partially offset by a reduction in sales of
Priority Mail envelopes due to customer cost containment programs in the second
quarter of 1999.
The soft packaging segment reported operating profit in the second
quarter of 1999 of $1.6 million, an increase of 60.0%, compared to operating
profit of $1.0 million in the second quarter of 1998. Operating profit for the
soft packaging segment for the six months ended June 30, 1999 was $3.4 million,
an increase of 63.1% compared to $2.1 million for the six months ended June 30,
1998. The increase in 1999 operating profit resulted from increased sales as
well as improved margins from the expansion of higher value-added packaging
applications in the growing order fulfillment market.
The Specialty Packaging business' labels segment generated net sales of
$17.8 million in the second quarter of 1999, a 10.1% increase compared to $16.2
million in the second quarter of 1998. Net sales for the six months ended June
30, 1999 for the label segment were $34.6 million, an increase of 7.7% compared
to $32.2 million for the six months ended June 30, 1998. The increase in 1999
resulted primarily from increased sales of multi-color, higher quality labels,
partially offset by declining demand for single-color labels.
The Company's labels segment reported operating profit in the second
quarter of 1999 of $2.2 million, a decrease of 23.5%, compared to operating
profit of $2.8 million in the second quarter of 1998. Operating profit for the
label segment for the six months ended June 30, 1999 was $4.3 million, a
decrease of 24.4% compared to $5.7 million for the six months ended June 30,
1998. The decrease in 1999 profits resulted from declining sales of single-color
labels for office applications, which users may produce for themselves with
personal computers and inexpensive printers, partially offset by increased sales
of higher quality labels, sales through new distribution channels and sales of
labels to packaging markets which have yielded lower margins, in part due to
inefficiencies and other start-up costs incurred in entering these new markets.
Printed Office Products
The Company's Printed Office Products segment generated net sales of
$43.8 million in the second quarter of 1999, a 5.0% decrease compared to $46.1
million in the second quarter of 1998. Net sales for the six months ended June
30, 1999 for the Printed Office Products segment were $88.4 million, a decrease
of 9.2% compared to $97.4 million for the six months ended June 30, 1998. This
segment has experienced generally declining sales in recent quarters, which
continued in the first half of 1999. Comparisons with 1998 sales also reflect
larger backlogs in the first quarter of 1998 caused by production bottlenecks in
1997 and a large order from a single customer in the first quarter of 1998 which
was not repeated in 1999.
The Company's Printed Office Products segment reported operating profit
in the second quarter of 1999 of $1.4 million compared to an operating loss of
$1.3 million in the second quarter of 1998. Operating profit for the Printed
Office Segment for the six months ended June 30, 1999 was $3.4 million, an
increase of 74.6% compared to $1.5 million for the six months ended June 30,
1998. Included in the 1998 results are charges related to management
13
<PAGE> 14
changes and reorganization of $1.4 million in the first quarter of 1998, charges
from the write-off of the segment's former order entry systems project of $5.2
million in the second quarter of 1998 and gains from the sale of realty rendered
redundant by the 1996-1997 plant consolidation program of $0.7 million in the
second quarter of 1998. Exclusive of these charges and gains, the Printed Office
Products segment would have reported operating profit of $3.2 million in the
second quarter of 1998 and $7.3 million for the first six months of 1998. The
decrease in 1999 operating profit was due primarily to the reduced sales in this
segment.
In March, 1999, the Company appointed a new President for its Printed
Office Products business and has developed various programs intended to halt the
revenue decline and recover revenue growth. These programs include steps to
improve the effectiveness of the business' direct sales force to develop
national accounts and to focus on core product sales. Though there can be no
assurance such programs will be successful, the Company presently expects that
these programs will generate new revenues later this year.
Discontinued Operation
On May 28, 1999, the Company sold its hardcover and softcover book
manufacturing business to The Sheridan Group. The financial statements reflect
the operating results of this business as a discontinued operation and prior
period financial information have been appropriately restated. This initiative
is part of an overall corporate restructuring intended to enhance profitability
by focusing the Company on its Specialty Packaging and Printed Office Products
businesses. As a result of this disposition, the Company recorded an additional
after tax loss of approximately $1.5 million in the first quarter of 1999.
Pro Forma Financial Information
The Company incurred charges of $1.4 million before tax due to
management changes at its Printed Office Products business during the first
quarter of 1998, which are recorded in selling and administrative expenses in
the accompanying Condensed Consolidated Income Statements, charges of $5.2
million before tax to write-off the Company's investment in the software
development project in the Printed Office Products business in the second
quarter of 1998, which is recorded in other charges in the accompanying
Condensed Consolidated Income Statements, a loss of $1.8 million before tax on
the sale of the Company's investment in Curtis 1000 Europe GmbH in the second
quarter of 1998, which is recorded in miscellaneous-net in the accompanying
Condensed Consolidated Income Statements, and a gain of $0.7 million before tax
from the sale of realty rendered redundant by the Printed Office Products plant
consolidation program in the second quarter of 1998, which is recorded in
miscellaneous-net in the accompanying Condensed Consolidated Income Statements.
Excluding these amounts, the Company would have shown income from continuing
operations of $6.1 million, or $0.38 per diluted share, and net income of $6.2
million, or $0.38 per diluted share for the second quarter of 1998, and income
from continuing operations of $12.8 million, or $0.78 per diluted share, and net
income of $12.9 million, or $0.79 per diluted share for the six months ended
June 30, 1998.
Liquidity and Capital Resources
On April 20, 1999, the Board of Directors authorized the repurchase of
an additional 2.0 million shares pursuant to the Company's current stock
repurchase program. This new authorization represents an additional 13% of the
Common Stock outstanding, which may be purchased through negotiated transactions
and open market purchases. This increases the size of the Company's current
stock repurchase program to 3.7 million shares. Since inception of the program,
the Company has purchased 1,606,300 shares at a cost of approximately $30.7
million.
Stockholders' equity decreased $5.2 million during the first six months
of 1999 due primarily to stock repurchases by the Company and totaled $157.5
million at June 30, 1999.
Cash and cash equivalents decreased $30.0 million during the first six
months of 1999 and totaled $30.0 million at June 30, 1999. Operating activities
used $3.4 million in cash during the first six months of 1999 due primarily to
reductions in current liabilities. The other significant uses of cash in 1999
were the purchase of Tekkote for $14.6 million, purchases of $12.1 million of
property, plant and equipment, repurchase of $8.5 million of Common Stock,
payment of $5.0 million in dividends and repayment of $0.3 million of debt. The
sale of the Company's book manufacturing segment provided $12.0 million in cash
during 1999. Sales and exchanges of Common Stock provided $0.5 million in cash
and proceeds from Company owned life insurance policies provided $1.4 million in
cash.
14
<PAGE> 15
The Company maintains a committed revolving credit agreement (the
"Credit Agreement") with a bank under which the Company may borrow up to $50
million through April 22, 2002, at interest rates related to prime and
Eurocurrency rates. At June 30, 1999 there were no borrowings under this Credit
Agreement. A wholly owned subsidiary of the Company 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 3.80% at June 30,
1999. 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.
Year 2000 Issue
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 99 for 1999). On January 1, 2000, any clock
or date recording mechanism, including date sensitive software which uses only
two digits to represent the year, may recognize a date incorrectly (e.g.,
interpret the two digits 00 as the year 1900 rather than the year 2000). This
could result in a system failure or miscalculations causing disruption of
operations, including among other things, a temporary inability to process
transactions, send invoices, or engage in similar activities.
The Company has undertaken a program to address Year 2000 compliance
with respect to the following: (i) the Company's information technology hardware
and software ("IT systems"); (ii) the Company's non-information technology
systems, such as buildings, plant, equipment, telephone systems, and other
infrastructure systems that may contain microcontroller technology ("non-IT
systems"); and (iii) exposure from third parties with which the Company does
business.
The Company's plan with regard to the Year 2000 issue for each of the
above involves the following phases: (i) assessment of systems to determine the
extent to which the Company may be vulnerable to the Year 2000 issue; (ii) the
development of remedies to address problems discovered in the assessment phase;
(iii) the testing of such remedies; and (iv) the preparation of contingency
plans to address potential worst case scenarios should the remedies not be
successful.
The Company has analyzed its IT systems in an effort to identify any
systems that may experience problems relating to the Year 2000 issue and
implement any changes required to remedy such problems. The result of the
analysis was that most of the IT systems used by the Company were vulnerable to
potential problems relating to the Year 2000 issue. A Company-wide enterprise
resource planning ("ERP") software solution was chosen as the primary means to
address the Year 2000 issue. The ERP software was selected not only to address
the Year 2000 issue, but also to add functionality and efficiency in the
business processes of the Company. The ERP software is being implemented in
stages at each of the Company's operating companies. The first stage was
comprised primarily of the financial modules. These implementations have been
completed. The second stage includes the manufacturing and distribution modules.
Current plans call for these modules to be installed in some but not all of the
operating companies. This stage is planned to be completed during the third
quarter of 1999. Remediation and testing of IT systems not replaced by the ERP
software solution was complete as of June 30, 1999.
The Company has assessed its significant non-IT systems that may
contain embedded microcontrollers to determine what remediation efforts may be
necessary. All non-IT systems tested have been evaluated as being not likely to
experience problems relating to the Year 2000 issue or it has been determined
that non-compliance will not likely affect the functionality of the equipment.
The Company is taking steps intended to assess the Year 2000 readiness
of certain third parties whose possible lack of Year 2000 readiness could, in
the Company's opinion, cause a materially adverse impact on the Company's
business, results of operations or financial condition. The Company has
identified and contacted all parties identified as critical suppliers of goods
and services. The Company has received responses from virtually all of these
critical suppliers and has reviewed their Year 2000 readiness based upon their
responses. On the basis of these reviews and the Company's evaluation of each
supplier's potential impact on its business, contingency plans
15
<PAGE> 16
have been developed. These contingency plans include accepting certain potential
risk from lack of Year 2000 readiness, identifying alternative suppliers of the
goods or services and increasing inventories.
In addition, contingency plans have been developed for critical
internal and external business processes. Contingency plans are in place to
address the most likely potential risks. Management considers contingency
planning to be an ongoing project and will continue to assess and revise the
Company's contingency plans up to and beyond December 31, 1999, as necessary.
Though essential to the operation of the Company's business, the software and
operating systems the Company utilizes may be supplemented by manual processing.
The total Year 2000 remediation project is estimated to cost
approximately $25 million, of which approximately $21 million has been spent to
date. All of the projected cost is expected to be funded from operating cash
flow. Approximately 80% of the estimated spending relates to the ERP software
solution. Costs associated with the ERP software solution are treated as period
expense or capitalized and amortized in accordance with applicable accounting
principles and Company policy. Costs associated with correcting existing systems
are expensed as incurred.
Failure to successfully execute the Company's Year 2000 readiness plans
on a timely basis or the failure of external parties to achieve Year 2000
readiness on a timely basis could have a material adverse impact on the
Company's financial position and results of operations.
Forward Looking Statements; Risks and Uncertainties
From time to time, the Company or its representatives have made or may
make forward-looking statements that reflect the Company's current expectations,
hopes, intentions, plans, or strategies, orally or in writing. The words or
phrases "is expected," "will continue," "anticipates," "estimates," "plans,"
"intends," or similar expressions in any of these communications are intended to
identify "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933,
as enacted by the Private Securities Litigation Reform Act of 1995. The Company
assumes no obligation to update any such forward-looking statements. Except for
historical information contained in this report, statements set forth in this
report are forward-looking statements.
There can be no assurance the Company's actual performance will not
differ materially from that projected in the Company's forward-looking
statements due to important factors including but not limited to those described
below. The Company's expectations with respect to future sales and profits
assume reasonable continued growth in the general economy, which affects demand
for the Company's products. However, the Company believes that future growth in
or contraction of the general economy cannot be forecasted with certainty. The
Company's Printed Office Products business has experienced generally declining
revenues since 1995 and while the Company has developed programs intended to
halt these revenue declines and to increase this business' future revenues, such
programs are new to the Company and there can be no assurance such programs will
be successful. Certain segments of the Company's Specialty Packaging business
have experienced a slowing of their historical revenue growth rates or margin
reduction primarily due to greater competition, a maturation of products, and a
maturation of certain markets in which these segments participate. The Company's
Specialty Packaging business is seeking more rapid growth through development of
new products and penetration of new, higher growth markets. However, the Company
may be less successful or it may take longer and cost more to develop new
products and distribution channels and penetrate new markets than the Company
currently anticipates. Loss of customers due to changes in customers'
manufacturing processes that reduce or eliminate their need for the Company's
products often cannot be predicted and may adversely affect the Company's
revenues and profits. The Company has been engaged in monetizing non-strategic,
redundant and low-productivity assets. The Company's ability to continue
monetizing such assets depends in part upon the Company's ability to identify
such assets as they become non-strategic or unproductive, the availability of
suitable conversion strategies, demand for such assets among other parties, and
market conditions generally. Further, the Company expects to develop programs
intended to increase the rate of growth of the Company, which may include plans
to acquire other companies, technologies, capabilities, manufacturing plants
and personnel. The Company's success in implementing an acquisition program will
depend, among other things, on the Company's ability to identify, evaluate,
negotiate, integrate and operate acquisitions; the availability of suitable
acquisitions to the Company, competition for such acquisitions, the cost and
availability of acquisition financing to the Company and others, and capital
market conditions generally, all of which are subject to uncertainty.
16
<PAGE> 17
Although the Company believes its plan to achieve timely Year 2000
readiness is reasonable based on known facts and circumstances it remains
possible that, dependant on factors and future events such as availability in
the labor force of information systems programmers and other information systems
personnel, the wide variety of information technology systems and components,
both hardware and software, that must be evaluated, the large number of external
parties with which the Company interacts, responsiveness of third parties beyond
the Company's control such as system vendors, service suppliers, and others with
whom the Company interacts, the capabilities of the information systems which
the Company intends to utilize, and the inability of available testing and
contingency planning procedures to identify and confirm with certainty the
resolution of all possible information technology or other Year 2000 problems,
achieving Year 2000 readiness may take longer, cost more, or be less complete
than the Company anticipates. Due to numerous uncertainties including those
listed above, no assurances can be given that the Company will achieve Year 2000
readiness on a timely basis, that third parties with whom the Company contracts
will achieve Year 2000 readiness on a timely basis, that the Company's Year 2000
project will be completed within current cost estimates, that the Year 2000
issue will not precipitate disruptions in financial markets or the economy
generally, which could materially, if indirectly, affect the Company, or that
the Year 2000 issue will not cause other consequences for the Company which
could be adverse and material.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The 1999 Annual Meeting of Shareholders of the Company was held on May 5, 1999,
and proxies were solicited under Regulation 14A of the Securities Exchange Act
of 1934.
The following nominees for director were elected to serve as directors until the
2002 Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
VOTES VOTES
DIRECTOR FOR WITHHELD
-------- --- --------
<S> <C> <C>
Henry Curtis VII 13,880,698 104,143
C. Douglas Miller 13,883,876 100,965
G. Harold Northrop 13,877,321 107,519
</TABLE>
The following directors continued in office as directors after the 1999 Annual
Meeting for the following terms:
<TABLE>
<CAPTION>
DIRECTORS TERM EXPIRES
--------- ------------
<S> <C>
Thomas F. Keller 2000
Daniel W. McGlaughlin 2000
Joe W. Rogers, Jr. 2000
William B. Stokely, III 2000
Larry L. Gellerstedt, III 2001
Hollis L. Harris 2001
W. Stell Huie 2001
James F. McDonald 2001
</TABLE>
The shareholders also voted upon and approved the adoption of the American
Business Products, Inc. 1999 Incentive Compensation Plan.
<TABLE>
<CAPTION>
VOTES VOTES
FOR AGAINST ABSTENTIONS
---------- --------- -----------
<S> <C> <C>
11,873,885 2,047,961 62,992
</TABLE>
With respect to each of the foregoing matters, there were no broker non-votes.
18
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1 Employment Agreement dated May 11, 1999, between American
Business Products, Inc. and Larry L. Gellerstedt, III, filed
herewith.
10.2 Rights Agreement, dated as of May 5, 1999, between American
Business Products, Inc. and Equiserve Trust Company, N.A.,
which includes the form of Rights Certificate as Exhibit A and
the Summary of Rights to Purchase Common Stock as Exhibit B.
(Incorporated herein by reference to Exhibit 1 to the Current
Report on Form 8-K dated May 5, 1999, SEC File No.1-7088.)
10.3 American Business Products, Inc. 1999 Incentive Compensation
Plan, filed herewith.
27 Financial Data Schedules for Second Quarter 1999 10-Q (for SEC
use only)
</TABLE>
b. Reports on Form 8-K.
On May 7, 1999 the Company filed a Current Report on Form 8-K, dated
May 5, 1999, to report the declaration of one common share purchase
right for each outstanding share of common stock of the Company payable
on May 17, 1999 to the shareholders of record as of the close of
business on that date.
On June 3, 1999 the Company filed a Current Report on Form 8-K, dated
June 1, 1999, to report the completion of the sale of its book
manufacturing business.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BUSINESS PRODUCTS, INC.
(Registrant)
Date: July 21, 1999 /s/ Richard G. Smith
--------------------------------
Richard G. Smith
Vice President
and Chief Financial Officer
/s/ Raymond J. Wilson
--------------------------------
Raymond J. Wilson
Corporate Controller
19
<PAGE> 20
AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1 Employment Agreement dated May 11, 1999, between American Business
Products, Inc. and Larry L. Gellerstedt, III, filed herewith.
10.2 Rights Agreement, dated as of May 5, 1999, between American Business
Products, Inc. and Equiserve Trust Company, N.A., which includes the
form of Rights Certificate as Exhibit A and the Summary of Rights to
Purchase Common Stock as Exhibit B. (Incorporated herein by reference
to Exhibit 1 to the Current Report on Form 8-K dated May 5, 1999, SEC
File No.1-7088.)
10.3 American Business Products, Inc. 1999 Incentive Compensation Plan,
filed herewith.
27 Financial Data Schedules for Second Quarter 1999 10-Q (for SEC use
only)
</TABLE>
20
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT, DATED MAY 11, 1999,
BETWEEN AMERICAN BUSINESS PRODUCTS, INC.
AND LARRY L. GELLERSTEDT, III
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into by and between LARRY L. GELLERSTEDT, III
(the "Executive") and AMERICAN BUSINESS PRODUCTS, INC. (the "Company").
WHEREAS, the Executive is currently employed by the Company, having been
hired under certain terms and conditions set forth in an offer letter dated
February 24, 1998; and
WHEREAS, the Company and the Executive desire to further set forth in a
written agreement the complete terms and conditions pursuant to which the
Executive shall continue to be employed by the Company; and
WHEREAS, the Company and the Executive intend that this Agreement will
supersede any and all previous oral or written employment agreements between
the Company and the Executive, including the offer letter.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1.
DEFINITIONS
As used in this Agreement, the following words and/or phrases shall have
the meanings set forth below unless a different meaning plainly is required by
the context:
1.1 Agreement shall mean this Employment Agreement between the Company
and the Executive.
1.2 Affiliate shall mean any parent, brother-sister or subsidiary
corporation of the Company, any joint venture in which the Company owns at
least a 50 percent interest, and any partnership, limited liability partnership
or limited liability corporation in which the Company or any of its
wholly-owned subsidiaries owns at least a 50 percent interest.
1.3 Board shall mean the Board of Directors of the Company.
1.4 Cause shall mean (i) the Executive's willful and continued failure to
perform any substantial duty of his position with the Company and its
affiliates (other than any such failure resulting from incapacity due to
Disability), within fifteen (15) days after a written demand for
<PAGE> 3
substantial performance from the Board to the Executive which specifically
identifies the manner in which the Board believes that he has not substantially
performed his duties; (ii) the Executive's willful engagement in any illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company; or (iii) the Executive's engagement in any activity that is in
conflict of interest or competitive with the Company or its affiliates (other
than any isolated, insubstantial and inadvertent action not taken in bad faith
and which is promptly remedied by the Executive upon notice by the Board). Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than a majority of the entire membership of
the Board (excluding the Executive) at a meeting called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in (i), (ii) or (iii) above.
1.5 Change in Control shall mean the occurrence of any one of the events
described in this Section 1.5(a)-(e). The terms used in this Section 1.5 with
an initial capital letter shall have the meanings set forth in Section 1.5(f),
unless otherwise defined in this Agreement.
(a) The acquisition by a Person, together with Affiliates and
Associates of such Person, whether by purchase, tender offer, exchange,
reclassification, recapitalization, merger or otherwise, of a sufficient
number of shares of Common Stock or Common Stock Equivalents to constitute
the Person an Acquiring Person; or
(b) The acquisition by a Person (other than the Curtis Investment
Company, LLC), together with Affiliates and Associates of such Person, of
a number of shares of Common Stock (but not less than 20 percent of the
shares of Common Stock) equal to or greater than the number of shares of
Common Stock held by any Person who or who, together with all Affiliates
and Associates of such Person, is the Beneficial Owner of 30 percent or
more of the shares of Common Stock as of the Effective Date; or
(c) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election of each
director who was not a director at the beginning of such period has been
approved in advance by a majority of the Continuing Directors then in
office; or
(d) Any merger or consolidation the result of which is that less
than 70 percent of the common stock, Voting Securities or other equity
interests of the surviving or resulting corporation or other Person shall
be owned in the aggregate by the former shareholders of the Company, other
than Affiliates or Associates of any party to such
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merger or consolidation, as the same shall have existed immediately prior
to such merger or consolidation; or
(e) The sale by the Company, in one transaction or a series of
related transactions, whether in liquidation, dissolution or otherwise, of
assets or earning power aggregating more than 50 percent of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to
any other Person or Persons.
(f) The following definitions shall apply in determining when a
Change in Control has occurred:
(i) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall become
the Beneficial Owner of 30 percent or more of the shares of Common Stock
then outstanding, but shall not include the Company, any Subsidiary of the
Company, or any Person who or which, together with all Affiliates and
Associates of such Person, is the Beneficial Owner of 30 percent or more
of the shares of Common Stock as of the Effective Date, any employee
benefit plan of the Company or of any Subsidiary of the Company (if
approved by a majority of the Continuing Directors), or any Person or
entity organized, appointed or established by the Company for or pursuant
to the terms of any such plan.
(ii) "Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended and in effect on the Effective Date (the
"Exchange Act").
(iii) "Associate" shall mean:
(A) Any corporation or organization, or parent or
subsidiary of such corporation or organization, of which a Person is
an officer, director or partner or is, directly or indirectly, the
Beneficial Owner of 10 percent or more of any class of equity
securities;
(B) Any trust or other estate in which a Person has a
beneficial interest of 10 percent or more or as to which such Person
serves as trustee or in a similar fiduciary capacity; and
(C) Any brother or sister (whether by whole or half
blood), ancestor, lineal descendant or spouse of a Person, or any
such relative of such spouse.
(iv) "Beneficial Owner" shall mean, with respect to any
securities, any Person who, together with such Person's Affiliates and
Associates, directly or indirectly:
(A) Has the right to acquire such securities (whether
such right is exercisable immediately or only after the passage of
time) pursuant to any
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agreement, arrangement or understanding (whether or not in writing) or
upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise; provided, a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own:
(1) Securities acquired by participation in good
faith in a firm commitment underwriting by a Person
engaged in business as an underwriter of securities until
the expiration of 40 days after the date of such
acquisition; or
(2) Securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities
are accepted for purchase or exchange; or
(3) Securities issuable upon exercise of rights
issued to all shareholders generally, which rights are
only exercisable upon separation from the Common Stock, or
securities issuable upon exercise of rights that have
separated from the Common Stock upon the occurrence of
events specified in a rights agreement between the Company
and a rights agent;
(B) Has the rights to vote or dispose of or has
Beneficial Ownership (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act) of such
securities, including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, a Person shall
not be deemed the Beneficial Owner of, or to Beneficially Own, any
security under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding:
(1) Arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the
Exchange Act; and
(2) Is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(C) With respect to any securities which are
Beneficially Owned, directly or indirectly, by any other Person (or
any Affiliate or Associate thereof), has any agreement, arrangement
or understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as
described herein or disposing of any voting securities of the
Company.
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(vi) "Common Stock Equivalents" shall mean preferred stock or
other equity securities of the Company having the right to be converted by
the holders thereof into shares of Common Stock, or having the right to
vote generally for the election of directors and on other matters. For
purposes of determining the total amount of Common Stock and Common Stock
Equivalents owned by any Person, such Common Stock Equivalents shall be
equal to the number of shares into which they may be converted by the
holders thereof, or in the case of securities that are not convertible
having the right to vote, shall be equal to the number of votes they are
entitled to cast in elections for directors.
(vii) "Continuing Director" shall mean:
(A) Any member of the Board who is not an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or
Associate, and was a member of the Board prior to the Effective Date;
or
(B) Any Person who subsequently becomes a member of the
Board who is not an Acquiring Person, or an Affiliate or Associate of
an Acquiring Person, or a representative of an Acquiring Person or of
any such Affiliate or Associate, if such Person's nomination for
election or election to the Board is recommended or approved by a
majority of the Continuing Directors.
(viii) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(ix) "Subsidiary" shall mean any corporation, partnership,
joint venture, trust or other entity more than 50 percent of the Voting
Securities of which are Beneficially Owned, directly or indirectly, by a
Person.
(x) "Voting Securities" shall mean any class of then
outstanding shares of stock or other beneficial interests entitled to vote
in election of directors or other Persons charged with management of a
Person."
1.6 CODE shall mean the Internal Revenue Code of 1986, as amended.
1.7 COMPANY shall mean American Business Products, Inc., its successors and
assigns, and any other corporation, partnership, sole proprietorship or other
type of business entity into which the Company may be merged, consolidated or
otherwise combined.
1.8 DISABILITY shall mean a physical or mental impairment that prohibits
the Executive from performing the essential duties of his position, is expected
to be of a long and continued duration, and for which he becomes eligible to
receive benefits under the Company's long-term disability plan.
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1.9 Effective Date shall mean January 1, 1999.
1.10 Executive shall mean Larry L. Gellerstedt, III.
1.11 Erisa shall mean the Executive Retirement Income Security Act of
1974, as amended.
1.12 Good Reason shall mean (i)the assignment of duties inconsistent with
the Executive's position as President and Chief Executive Officer or Chairman
of the Board of the Company, or any action by the Company which results in
diminution of the Executive's position, authority, duties or responsibilities
as in effect on the Effective Date (other than any isolated, insubstantial and
inadvertent action not taken in bad faith and which is promptly remedied by the
Company upon notice by the Executive); (ii) a reduction in the Executive's base
salary or benefits (unless such reduction in benefits applies to all officers
of the Company); (iii) a material breach by the Company of its obligations
hereunder; (iv) the Company requiring the Executive to have his office based at
a location other than the metropolitan Atlanta area; or (v) any failure by a
successor to the Company to assume and agree to perform the Company's
obligations hereunder.
1.13 Proprietary Information shall mean information that meets the
definition of "trade secret" under the laws of the State of Georgia (i.e., the
Uniform Trade Secrets Act, O.C.G.A. s. 10-1-760, et seq.) as well as any
scientific or technical information, design, process, procedure, formula or
improvement that is secret and of value, information that the Company takes
reasonable efforts to protect from disclosure and from which the Company
derives actual or potential economic value due to its confidential nature,
including, but not limited to, technical or nontechnical data, formulas,
complications, programs, devices, methods, techniques, drawings, processes,
financial data, lists of actual or potential customers, price lists, business
plans, customer and vendor records, training and operations materials and
memoranda, personnel records, financial information relating to the business of
the Company, accounts, customers, vendors, employees and affairs of the
Company, and any information marked "confidential" by the Company.
1.14 Restricted Territory shall mean the geographic area described as
follows: the continental United States of America.
1.15 Termination Date shall mean the date specified as the Executive's
official termination of employment date.
1.16 Term shall mean the period during which this Agreement is wholly
effective, which shall be the period commencing on the Effective Date and
ending on the Termination Date.
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2.
DUTIES AND AUTHORITY
2.1 Duties and Authority. The Executive is engaged and agrees to perform
services for and on behalf of the Company as its President and Chief Executive
Officer and shall report directly to the Board. The Executive shall have such
duties and authority as may be assigned to him by the Company's bylaws or by the
Board. The Executive agrees to perform such duties diligently and efficiently
and in accordance with the reasonable directions of the Board. The Executive
shall conduct himself at all times in a business-like and professional manner as
appropriate for his position and shall represent the Company in all respects in
compliance with good business and ethical practices. In addition, the Executive
shall be subject to and abide by the policies and procedures of the Company
applicable to personnel of the Company, as may be adopted from time to time.
2.2 Best Efforts. During the term of this Agreement, the Executive shall
devote his full attention, energies and best efforts to rendering services on
behalf of the Company (or subsidiaries or affiliates thereof), and shall not
engage in any outside employment without the express written consent of the
Board. Notwithstanding the foregoing, the Executive is not prohibited from
investing or trading in stocks, bonds, commodities or other forms of investment,
including real property, so long as the Executive does not "participate" (within
the meaning of Treas. Reg. ss1.469-5(f) and 1.469-5T(f)) in such investments.
Further, the Executive may pursue personal interests as he may have so long
as such participation does not interfere with the Executive's performance of his
duties hereunder, and the Executive may participate in industry, civic and
charitable activities so long as such activities do not materially interfere
with the performance of his duties hereunder. The Executive may also participate
in any interest or activity which is approved in writing by the Board. At least
once each year during the term of this Agreement, and at any time upon the
Board's request, the Executive shall provide a full disclosure to the Executive
Committee of the Board of his participation in any industry, civic and
charitable activities (including service on corporate or charitable boards of
directors or trustees). Prior to pursuing or accepting any activity other than
those in which he is engaged on the Effective Date, the Executive agrees to
discuss such activity with the Executive Committee of the Board.
2.3 Term. The term of this Agreement shall commence on the execution date
hereof and shall continue until the close of business at the end of three (3)
years from the date hereof, subject to earlier termination as provided in this
Agreement. At least sixty (60) days prior to the end of the initial term hereof
and each subsequent year thereafter, this Agreement shall be deemed to be
extended automatically for an additional one-year term on the same terms and
conditions unless either the Company or the Executive gives contrary written
notice to the other party no less than sixty (60) days prior to the date on
which this Agreement would otherwise be extended.
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3.
COMPENSATION AND BENEFITS
3.1 Annual Base Salary. The Company shall pay to the Executive as
compensation for his services provided hereunder a base salary of $450,000 per
year ("Base Salary"), payable in accordance with the Company's normal payroll
procedures. The Compensation and Nominating Committee of the Board of Directors
of the Company shall review the Executive's Base Salary annually, and in its
sole discretion, subject to approval of the Board of Directors of the Company,
may increase the Executive's Base Salary from year to year. The annual review of
the Executive's salary by the Board will consider, among other things, the
Executive's own performance and the Company's performance.
3.2 Annual Incentive Compensation. The Executive shall participate in the
Company's annual incentive program for executives, which is subject to change at
any time.
3.3 Long-Term Incentives. The Executive shall participate in the Company's
long-term incentive program for executives, which is subject to change at any
time, or in any other long-term incentive arrangement that the Board may provide
for him.
3.4 Employee Benefit Plans and Policies. The Executive shall be entitled to
participate in each employee benefit plan, policy or arrangement which is
sponsored, maintained or contributed to by the Company and in which current
executive officers of the Company may participate, in accordance with the terms
and provisions of such plans. Contributions by the Executive to such plans shall
be required only to the extent required of other executive officers of the
Company.
3.5 Automobile Allowance. The Company shall provide the Executive with a
monthly allowance of $600 for his use in owning or leasing an automobile for
business purposes.
3.6 Vacation. Executive shall be entitled to such paid vacation time as is
generally provided to the Company's executive officers subject to the rules in
effect regarding such leave.
3.7 Expense Reimbursement. The Company shall reimburse the Executive for
reasonable and necessary travel and other business related expenses, including
entertainment expenses, incurred by him in performance of the business of the
Company in accordance with the Company's standard expense reimbursement
practices and policies in existence from time to time, subject to such dollar
limitations and verification and record keeping requirements as may be
established from time to time by the Company.
3.8 Withholding, FICA, FUTA, Etc. Any amount to be paid to the Executive
under the provisions of this Agreement which represents taxable income to him
shall be subject to, and reduced by, any applicable federal, state or local
taxes imposed by law, included, but not limited to, taxes imposed under Subtitle
C of the Code.
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3.9 Club Dues. For general business purposes (and not as compensation to
the Executive), the Company shall pay the Executive's periodic dues for
membership in The Commerce Club, The Capital City Club and the Young Presidents
Organization. The Company shall also pay (or reimburse the Executive for) all
expenses of his participation in the Young Presidents Organization.
4.
RESTRICTIVE COVENANTS
4.1 Use and Return of Documents and Property. Executive acknowledges that
in the course of his employment with the Company, he will have the opportunity
to inspect and use certain property, both tangible and intangible, of the
Company and its Affiliates. All such property shall remain the exclusive
property of the Company and its Affiliates, and Executive has and shall have no
right or interest in such property. Executive shall use Company property only
during employment and only in the performance of his job and to further the
Company's interests, and he will not remove Company property from the Company's
premises except to the extent necessary to perform his duties and to the extent
approved by the Company, either expressly or generally under its policies.
Promptly upon the Executive's Termination Date, Executive shall return to the
Company all of the Company's memoranda, notes, records, data, books, sketches,
computer programs, audio-visual materials, correspondence, lists, every piece of
information recorded in any form, and all other tangible property.
4.2 New Developments. Any discovery, invention, process or improvement
made or discovered by the Executive during the term of this Agreement in
connection with or in any way affecting or relating to the business of the
Company or any of its Affiliates (as then carried on or under active
consideration) shall forthwith be disclosed to the Company and shall belong to
and be the absolute property of the Company. The preceding sentence does not
apply to any invention for which no equipment, supplies, facility, trade secret
information of the Company was used and which was developed entirely on the
Executive's own time, unless the invention relates directly to the business of
the Company or its Affiliates or to its or their actual or demonstrably
anticipated research or development, or the invention results from any work
performed by the Executive for the Company.
4.3 Covenant Not to Compete. Executive agrees that, during the term of
his employment under this Agreement and for a period of one (1) year following
the Termination Date, regardless of the reasons for the Executive's termination
of employment, Executive will not, directly or indirectly, expressly or tacitly,
for himself or on behalf of any entity anywhere in the Restricted Territory, (i)
act as an officer, manager, advisor, executive, controlling shareholder, or
consultant to any business in which his duties at or for such business include
oversight of or actual involvement in providing services which are competitive
with the services or products being provided or which are being produced or
developed by the Company or its Affiliates, or are under investigation by
the Company or any of its Affiliates on the Termination
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Date, (ii) recruit investors on behalf of an entity which engages in activities
which are competitive with the services or products being provided or which are
being produced or developed by the Company or its Affiliates, or are under
investigation by the Company or any of its Affiliates on the Termination Date,
or (iii) become employed by such an entity in any capacity which would require
Executive to carry out, in whole or in part, the duties Executive has performed
for the Company which are competitive with the services or products being
provided or which are being produced or developed by the Company or any of its
Affiliates, or are under active investigation by the Company or any of its
Affiliates on the Termination Date. This covenant shall apply to any services
or products under investigation by the Company or any of its Affiliates on the
Termination Date only to the extent that the Executive initiated, promoted,
participated in, or otherwise had knowledge of such investigation. Executive
acknowledges that because of the nationwide nature of the Company's (including
its Affiliates) business, this restriction will prevent the Executive from
acting in any of the foregoing capacities for any competing entity wherever
located within the Restricted Territory and that this scope is reasonable in
light of the business of the Company and its Affiliates.
4.4 Nonsolicitation of Customers, Clients and Suppliers. Executive agrees
that during the term of his employment with the Company, he will not, directly
or indirectly, without the Company's prior written consent, contact any
customer, client or supplier of the Company or any of its Affiliates for
business purposes unrelated to furthering the business of the Company or its
Affiliates. Executive further agrees that for a period of one (1) year following
his Termination Date, he will not directly or indirectly, (i) contact, solicit
or divert, or attempt to contact, solicit, divert or take away, any customer,
client or supplier of the Company or its Affiliates for purposes of, or with
respect to, providing a customer, client or supplier to a competing business;
or (ii) take any affirmative action with a customer, client or supplier of the
Company or its Affiliates for purposes of providing a customer, client or
supplier to a business competing with the Company or its Affiliates. The
prohibitions of the preceding sentence shall apply only to customers, clients
and suppliers of the Company with whom the Executive had Material Contact on the
Company's behalf during the twelve months immediately preceding the Termination
Date. For purposes of this Agreement, the Executive had "Material Contact" with
a customer, client or supplier if (a) he had business dealings with the
customer, client or supplier on the Company's behalf; (b) he was responsible for
supervising or coordinating the dealings between the Company and the customer,
client or supplier; or (c) he obtained Proprietary Information about the
customer, client or supplier as a result of his association with the Company.
4.5 Nonsolicitation of Employees. The Executive agrees that during his
employment with the Company and for one (1) year after his Termination Date,
the Executive will not, directly or indirectly, solicit or attempt to recruit
or hire any employees of the Company or its Affiliates who were employed by the
Company or its Affiliates at any time during the last year of the Executive's
employment with the Company and who are actively employed by the Company or its
Affiliates at the time of the solicitation or attempted solicitation, to provide
services similar to those performed by the employee for the Company on behalf
of, or for the purpose of engaging in employment with, a competitor of the
Company.
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4.6 Nondisclosure of Trade Secrets and Proprietary Information. Except to
the extent reasonably necessary for Executive to perform his duties for the
Company, the Executive shall not, directly or indirectly, furnish or disclose
to any person, or use in any way, any trade secrets of the Company or its
Affiliates, for so long as such trade secrets remain "trade secrets" under
applicable state law. Except to the extent reasonably necessary for Executive
to perform his duties for the Company, Executive shall not, during the term of
his employment with the Company and for a period of one (1) year following the
Executive's Termination Date, directly or indirectly, furnish or disclose to
any person, or use in any way, for personal benefit or the benefit of others,
any Proprietary Information of the Company or its Affiliates.
4.7 Reasonableness. Executive has carefully considered the nature and
extent of the restrictions upon his and the rights and remedies conferred on
the Company under this Agreement, and Executive hereby acknowledges and agrees
that:
(a) the restrictions and covenants contained herein, and the rights
and remedies conferred upon the Company, are necessary to protect the
goodwill and other value of the business of the Company;
(b) the restrictions places upon Executive hereunder are fair and
reasonable in time and territory, will not prevent him from earning a
livelihood, and place no greater restraint upon the Executive than is
reasonably necessary to secure the business and goodwill of the Company;
(c) the Company is relying upon the restrictions and covenants
contained herein in continuing to make available to Executive information
concerning the business of the Company;
(d) Executive's employment hereunder places him in a position of
confidence and trust with the Company and its employees, customers and
suppliers; and
(e) the provisions of this section shall be interpreted so as to
protect the Proprietary Information, and to secure for the Company the
exclusive benefits of the work performed on behalf of the Company by the
Executive under this Agreement, and not to unreasonably limit his ability
to engage in employment and consulting activities in noncompetitive areas
which do not endanger the Company's legitimate interests expressed in this
Agreement.
4.8 Remedy for Breach. Executive acknowledges and agrees that his breach
of any of the covenants contained in this Article of this Agreement will cause
irreparable injury to the Company and that remedies at law available to the
Company for any actual or threatened breach by the Executive of such covenants
will be inadequate and that the Company shall be entitled to specific
performance of the covenants in this Article or injunctive relief against
activities in violation of this Article by temporary or permanent injunction or
other appropriate judicial remedy, writ or order, without the necessity or
proving actual damages. This provision with respect to injunctive relief shall
not diminish the right of the Company to claim and recover
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monetary damages against the Executive for any breach of this Agreement, in
addition to injunctive relief. The Executive acknowledges and agrees that the
covenants contained in this Article shall be construed as agreements
independent of any other provision of this or any other contract between the
parties hereto, and that the existence of any claim or cause of action by the
Executive against the Company, whether predicated upon this or any other
contract, shall not constitute a defense to the enforcement by the Company of
said covenants.
5.
TERMINATION OF EMPLOYMENT
It is the intent of the parties that the relationship between the parties
remain one of at-will employment. The Company shall have the right to terminate
the Executive's employment under this Agreement at any time, with or without
Cause, and with or without prior written notice to the Executive. The Executive
shall have the right to voluntarily terminate his employment for any reason,
including Good Reason, at any time, upon 30 days' prior written notice to the
Board.
6.
SEVERANCE BENEFITS
6.1 Severance Obligations as of Termination Date.
(a) Termination by the Company Without Cause or Voluntary
Termination by Executive for Good Reason. In the event the Company
terminates the Executive's employment without Cause or if the Executive
voluntarily terminates his employment for Good Reason, then in
consideration of the Executive's services rendered prior to such
termination:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Termination Date the sum of (1) the
Executive's Base Salary through the Termination Date to the extent
not theretofore paid, and (2) the product of (x) the Executive's
target annual incentive bonus for the year in which the Termination
Date occurs and (y) a fraction, the numerator of which is the number
of days in the current fiscal year through the Termination Date, and
the denominator of which is 365 (the sum of the amounts described in
clauses (1) and (2) shall be hereinafter referred to as the "Accrued
Obligations"); and
(ii) the Company shall pay to the Executive, on a regular
payroll basis during the 24-month period following the Termination
Date, the amount equal to two times the sum of (A) the Executive's
Base Salary in effect as of the
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Termination Date, and (B) the Executive's most recent annual bonus (the
"Severance Payment"); provided, however, that if the Termination Date
occurs within two years after or otherwise in connection with the
occurrence of a Change of Control, the Severance Payment shall be the
amount equal to three times the sum of the amounts described in clauses
(A) and (B) above and such amount shall be payable in a lump sum in cash
within 30 days after the Termination Date; and
(iii) for two years after the Executive's Termination Date (or three
years in the event that the Termination Date occurs within two years after
or otherwise in connection with a Change of Control), the Company shall
continue medical, dental, life insurance, and accidental death and
dismemberment insurance benefits to the Executive and/or the Executive's
covered dependents at least equal to those which would have been provided
to them if the Executive's employment had not been terminated; provided,
that such two-year period shall offset any period of continuation coverage
provided under COBRA applicable to such benefits; provided further,
however, that if the Executive becomes employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during
such applicable period of continued eligibility; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice of the Company (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Termination by Reason of Death or Disability. If the Executive's
employment is terminated by reason of his death or Disability, this Agreement
shall terminate without further obligations to the Executive, the Executive's
estate, heirs or other legal representatives under this Agreement, other than
for payment of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive, the Executive's
estate or designated beneficiary, as applicable, in a lump sum in cash within 30
days of the Termination Date.
(c) Termination by the Company for Cause or Voluntary Termination by the
Executive without Good Reason. If the Executive's employment shall be
terminated for Cause, or if the Executive voluntarily terminates employment
without Good Reason (other than during the 30-day window period described in
Section 6.1(d) below), this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued Obligations
(excluding the pro-rata bonus described in clause 2 of Section 6.1(a)) and the
timely payment or provision of Other Benefits.
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(d) Voluntary Termination by the Executive During Limited Window Period.
If the Executive voluntarily terminates employment without Good Reason during
the 30-day period beginning on the first anniversary of a Change in Control of
the Company, this Agreement shall terminate without further obligations to the
Executive, other than for the payment of Accrued Obligations, the timely payment
or provision of Other Benefits and the timely payment or provision of the
following severance benefits:
(i) a lump sum amount, payable in cash within 30 days after the
Termination Date, equal to the sum of (A) the Executive's Base Salary in
effect as of the Termination Date, and (B) the Executive's most recent
annual bonus; and
(ii) for one year the Executive's Termination Date, the Company
shall continue medical, dental, life insurance, and accidental death and
dismemberment insurance benefits to the Executive and/or the Executive's
covered dependents at least equal to those which would have been provided
to them if the Executive's employment had not been terminated; provided,
that such one-year period shall offset any period of continuation coverage
provided under COBRA applicable to such benefits; provided further,
however, that if the Executive becomes employed with another employer and
is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during
such one-year period of continued eligibility.
6.2 Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 6.2) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments; provided, however,
that the total amount of the Gross-Up Payment made by the Company under this
provision shall not exceed $1,000,000; and provided further, that no Gross-Up
Payment shall be made by the Company to the Executive with regard to any
payments or benefits provided to the Executive pursuant to the provision of
Section 6.1(d) hereof.
Gellerstedt Employment Agreement
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(b) All determinations required to be made under this Section 6.2,
including whether and when a Gross-Up Payment is required, the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the Company's regular independent
accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is servicing as accountant or auditor for
the individual, entity or group effecting the Change in Control, the
Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 6.2, shall be paid
by the Company to the Executive within 15 days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
6.3 Other Benefits After Termination Date. Except for the payments and
benefits, if any, provided under this Article 6, no other benefits, compensation
or other remuneration of any type, whether taxable or nontaxable, shall be
payable to the Executive after his Termination Date, except as required by law
or by the applicable terms and provisions of any employee benefit plan or
arrangement applicable to the Executive.
7.
MISCELLANEOUS PROVISIONS
7.1 Invalidity of Any Provision. It is the intention of the parties hereto
that the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws of each state and jurisdiction in which such
enforcement is sought, but that the unenforceability (or the modification to
conform with such laws) of any provision hereof shall not render unenforceable
or impair the remainder of this Agreement which shall be deemed amended to
delete or modify, as necessary, the invalid or unenforceable provisions. The
parties further agree to alter the balance of this Agreement in order to render
the same valid and unenforceable. The terms of the restrictive covenant
provisions of this Agreement shall be deemed modified to the extent necessary to
be unenforceable and, specifically, without limiting the foregoing, if the term
of
Gellerstedt Employment Agreement
Page 15
<PAGE> 17
the applicable restrictive covenant is too long to be enforceable, it shall be
modified to encompass the longest term which is enforceable and, if the scope
of the geographic area of the applicable restrictive covenant is too great to
be enforceable, it shall be modified to encompass the greatest area that is
enforceable.
7.2 COSTS OF ENFORCEMENT. In any action taken in good faith relating to the
enforcement of this Agreement or any provision herein, the Executive shall be
entitled to be paid any and all costs and expenses incurred by him in enforcing
or establishing his rights thereunder, including, without limitation, reasonable
attorneys' fees, whether suit be brought or not, and whether or not incurred in
arbitration, trial, bankruptcy or appellate proceedings, but only if the
Executive is successful on at least one material issue raised in the enforcement
proceeding; provided, that the total amount of any and all costs and expenses
payable by the Company to the Executive under this provision shall be limited to
$100,000.
7.3 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
7.4 ARBITRATION. Any claim or dispute arising under this Agreement shall be
subject to arbitration, and prior to commencing any court action, the parties
agree that they shall arbitrate all controversies. The arbitration shall be
conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules
of the American Arbitration Association and the Federal Arbitration Act, 9
U.S.C. ss. 1, et. seq. The arbitrator(s) shall be authorized to award both
liquidated and actual damages, in addition to injunctive relief, but no punitive
damages. The arbitrator(s) may also award attorney's fees and costs, without
regard to any restriction on the amount of such award under Georgia or other
applicable law. Such an award shall be binding and conclusive upon the parties
hereto, subject to 9 U.S.C. ss. 10. Each party shall have the right to have the
award made the judgment of a court of competent jurisdiction.
7.5 WAIVER OF BREACH. The waiver of a breach of any provision of this
Agreement by a party hereto shall not operate or be construed as a wavier of any
subsequent breach by the other party hereto.
7.6 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the Company and its Affiliates, and their respective successors and assigns.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's estate and/or legal representatives.
7.7 ASSIGNMENT OF AGREEMENT. This Agreement is not assignable by the
Executive, but shall be freely assignable by the Company to any successor with
the written consent of the Executive. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
Gellerstedt Employment Agreement
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7.8 NOTICES. All notices, demands and other communications hereunder shall
be in writing and shall be delivered in person or deposited in the United States
mail, certified or registered, with return receipt requested, as follows:
(a) if to Executive: Mr. Larry L. Gellerstedt, III
2485 West Wesley Road
Atlanta, GA 30327
(b) if to Company: AMERICAN BUSINESS PRODUCTS, INC.
Attention: Board of Directors
2100 RiverEdge Parkway
Suite 1200
Atlanta, GA 30328
(with a copy to the Chairman of each Board
Committee)
7.9 ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof. All understanding and
agreements heretofore made between the parties hereto with respect to the
subject matter of this Agreement are merged into this document which alone fully
and completely expresses their agreement. This Agreement may not be changed
orally but only by an agreement in writing signed by both parties.
7.10 SURVIVAL OF PROVISIONS. The provisions of Article 4 -- Restrictive
Covenants shall survive termination of this Agreement.
7.11 CAPTIONS. The captions appearing in this Agreement are inserted only
as a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any provisions of this Agreement or in any way affect this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of this 11th day of May, 1999.
EXECUTIVE:
/s/ Larry L. Gellerstedt, III
------------------------------------
LARRY L. GELLERSTEDT, III
[signatures continued on next page]
Gellerstedt Employment Agreement
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COMPANY:
AMERICAN BUSINESS PRODUCTS, INC.
By: /s/ W. Stell Huie
------------------------------
W. Stell Huie
Title: Chairman, Compensation Committee
[THIS AGREEMENT HAS BEEN EXECUTED IN DUPLICATE.]
Gellerstedt Employment Agreement
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<PAGE> 1
Exhibit 10.3
AMERICAN BUSINESS PRODUCTS, INC.
1999 INCENTIVE COMPENSATION PLAN
SECTION 1
PLAN INFORMATION
1.1 Purpose. American Business Products, Inc. (the "Company") has
established the American Business Products, Inc. 1999 Incentive Compensation
Plan (the "ICP") to further the growth and development of the Company. The ICP
encourages the employees and nonemployee directors of the Company and its
Related Companies to obtain a proprietary interest in the Company by owning its
stock. The ICP shall also provide employees and nonemployee directors with an
added incentive to stimulate their efforts in promoting the growth, efficiency
and profitability of the Company and its Related Companies and may also help to
attract outstanding employees and nonemployee directors to the service of the
Company and its Related Companies. Further, the ICP may encourage employees and
nonemployee directors to continue in the employ or service of the Company or a
Related Company.
1.2 Awards Available Under the ICP. The ICP permits Awards of
Stock Options, Restricted Stock, Performance Shares and Performance-Based Cash
Awards. The types of Stock Options permitted under the ICP are incentive stock
options ("ISOs"), nonqualified stock options ("NSOs") and Reload Options. The
Company intends that ISOs granted under the ICP qualify as incentive stock
options under Code ss.422. NSOs are options that do not qualify as ISOs and are
subject to taxation under Code ss.83. Awards of Restricted Stock and/or
Performance Shares are subject to taxation under Code ss.83. Awards of
Performance-Based Cash Awards are subject to ordinary income taxation under Code
ss.61.
1.3 Effective Date and Term of the ICP. The Board of Directors of
the Company adopted the ICP at its meeting on December 9, 1998, to become
effective as of February 15, 1999 ("the Effective Date"), contingent upon the
approval of the shareholders of the Company at the May 5, 1999 annual
shareholders meeting. Unless earlier terminated by the Company, the ICP shall
remain in effect until the tenth anniversary of the date the shareholders
approve the ICP. If the ICP is terminated earlier, then it shall remain in
effect as long as any Awards are outstanding.
1.4 Operation, Administration and Definitions. The operation and
administration of the ICP is subject to the provisions of this plan document.
Capitalized terms used in the ICP are defined in Section 2 below or may be
defined within the ICP.
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SECTION 2
PLAN DEFINITIONS
For purposes of the ICP, the terms listed below are defined as follows:
2.1 "1933 Act" means the Securities Act of 1933, as amended.
2.2 "1934 Act" means the Securities Exchange Act of 1934, as
amended.
2.3 "Agreement" means a Stock Option Agreement, a Restricted Stock
Agreement, a Performance Share Agreement or a Performance-Based Cash Award
Agreement, as applicable, the terms and conditions of which have been
established by the Committee, and which has been entered into between the
Company and an individual Key Employee or Nonemployee Director of the Company.
2.4 "Award" means any award or benefit granted to any Participant
under the ICP, including, without limitation, the grant of Stock Options and the
award of Restricted Stock, Performance Shares and/or Performance-Based Cash
Awards.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Cause" means
(a) willful and continued failure to substantially
perform his duties with the Company within seven (7) days after a
written demand for substantial performance is delivered to the Key
Employee which identifies the manner in which the Company believes that
the Key Employee has not substantially performed his duties;
(b) unlawful or willful misconduct which is economically
injurious to the Company or to any entity in control of, controlled by
or under common control with the Company (and its successors);
(c) indictment for, conviction of, or plea of guilty or
nolo contendere to a felony; or
(d) habitual drug or alcohol abuse which impairs the Key
Employee's ability to perform the essential duties of his position.
2.7 "Change in Control" means:
(a) For purposes of the Plan, a "Change in Control" shall
mean the occurrence of any one of the following events (for purposes of this
subsection, the terms with an initial capital letter shall have the meanings set
forth in subsection (b) hereof unless otherwise defined in the ICP):
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(i) The acquisition by a Person, together with
Affiliates and Associates of such Person, whether by purchase, tender
offer, exchange, reclassification, recapitalization, merger or
otherwise, of a sufficient number of shares of Common Stock or Common
Stock Equivalents to constitute the Person an Acquiring Person; or
(ii) The acquisition by a Person (other than the
Curtis Investment Company, LLC), together with Affiliates and
Associates of such Person, of a number of shares of Common Stock (but
not less than 20 percent of the shares of Common Stock) equal to or
greater than the number of shares of Common Stock held by any Person
who or who together with all Affiliates and Associates of such Person,
is the Beneficial Owner of 30 percent or more of the shares of Common
Stock as of the effective date of the ICP; or
(iii) During any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning
of such period has been approved in advance by a majority of the
Continuing Directors then in office; or
(iv) Any merger or consolidation the result of
which is that less than 70 percent of the common stock, Voting
Securities or other equity interests of the surviving or resulting
corporation or other Person shall be owned in the aggregate by the
former shareholders of the Company, other than Affiliates or Associates
of any party to such merger or consolidation, as the same shall have
existed immediately prior to such merger or consolidation; or
(v) The sale by the Company, in one transaction
or a series of related transactions, whether in liquidation,
dissolution or otherwise, of assets or earning power aggregating more
than 50 percent of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons.
(b) The following definitions shall apply in determining
when a Change in Control has occurred:
(i) "Acquiring Person" shall mean any Person who
or which, together with all Affiliates and Associates of such Person,
shall become the Beneficial Owner of 30 percent or more of the shares
of Common Stock then outstanding, but shall not include the Company,
any Subsidiary of the Company, or any Person who or which, together
with all Affiliates and Associates of such Person, is the Beneficial
Owner of 30 percent or more of the shares of Common Stock as of the
effective date of the ICP, any employee benefit plan of the Company or
of any Subsidiary of the Company [if approved by a majority of the
Continuing Directors], or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such
plan.
(ii) "Affiliate" shall have the meaning ascribed
to such term in Rule 12b-2 of the General Rules and Regulations under
the 1934 Act, as in effect on the
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effective date of the ICP.
(iii) "Associate" shall mean:
(A) Any corporation or organization, or parent or
subsidiary of such corporation or organization, of which a Person is
an officer, director or partner or is, directly or indirectly, the
Beneficial Owner of 10 percent or more of any class of equity
securities;
(B) Any trust or other estate in which a Person has
a beneficial interest of 10 percent or more or as to which such Person
serves as trustee or in a similar fiduciary capacity; and
(C) Any brother or sister (whether by whole or half
blood), ancestor, lineal descendant or spouse of a Person, or any such
relative of such spouse.
(iv) "Beneficial Owner" shall mean, with respect to any
securities, any Person who, together with such Person's Affiliates and
Associates, directly or indirectly:
(A) Has the right to acquire such securities
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, a Person shall not be deemed the Beneficial Owner
of, or to Beneficially Own:
(1) Securities acquired by participation in
good faith in a firm commitment underwriting by a Person
engaged in business as an underwriter of securities
until the expiration of 40 days after the date of such
acquisition; or
(2) Securities tendered pursuant to a tender
or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange; or
(3) Securities issuable upon exercise of
rights issued to all shareholders generally, which
rights are only exercisable upon separation from the
Common Stock, or securities issuable upon exercise of
rights that have separated from the Common Stock upon
the occurrence of events specified in a rights agreement
between the Company and a rights agent;
(B) Has the right to vote or dispose of or has
Beneficial Ownership (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the 1934 Act) of such securities,
including pursuant to any 4
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agreement, arrangement or understanding, whether or not in writing;
provided, a Person shall not be deemed the Beneficial Owner of, or to
Beneficially Own, any security under this subparagraph (ii) as a
result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding:
(1) Arises solely from a revocable proxy given
in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under
the 1934 Act; and
(2) Is not also then reportable by such Person
on Schedule 13D under the 1934 Act (or any comparable or
successor report); or
(C) With respect to any securities which are
Beneficially Owned, directly or indirectly, by any other Person (or
any Affiliate or Associate thereof), has any agreement, arrangement or
understanding (whether or not in writing), for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as
described herein or disposing of any voting securities of the Company.
(vi) "Common Stock Equivalents" shall mean preferred stock or
other equity securities of the Company having the right to be converted by
the holders thereof into shares of Common Stock, or having the right to
vote generally for the election of directors and on other matters. For
purposes of determining the total amount of Common Stock and Common Stock
Equivalents owned by any Person, such Common Stock Equivalents shall be
equal to the number of shares into which they may be converted by the
holders thereof, or in the case of securities that are not convertible
having the right to vote, shall be equal to the number of votes they are
entitled to cast in elections for directors.
(vii) "Continuing Director" shall mean:
(A) Any member of the Board who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person,
or a representative of an Acquiring Person or of any such Affiliate or
Associate, and was a member of the Board prior to the effective date
of the ICP; or
(B) Any Person who subsequently becomes a member of
the Board who is not an Acquiring Person, or an Affiliate or Associate
of an Acquiring Person, or a representative of an Acquiring Person or
of any such Affiliate or Associate, if such Person's nomination for
election or election to the Board is recommended or approved by a
majority of the Continuing Directors.
(viii) "Person" shall mean any individual, firm, corporation,
partnership
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or other entity.
(ix) "Subsidiary" shall mean any corporation, partnership,
joint venture, trust or other entity more than 50 percent of the Voting
Securities of which are Beneficially Owned, directly or indirectly, by a
Person.
(x) "Voting Securities" shall mean any class of then
outstanding shares of stock or other beneficial interests entitled to vote
in election of directors or other Persons charged with management of a
Person.
2.8 "Code" means the Internal Revenue Code of 1986, as amended. A
reference to any provision of the Code includes reference to any successor
provision of the Code.
2.9 "Committee" means the Compensation and Nominating Committee of
the Board of Directors of the Company.
2.10 "Common Stock" means the common stock, $2.00 par value per
share, of the Company.
2.11 "Company" means American Business Products, Inc.
2.12 "Disability" means a Participant's eligibility to receive
long-term disability benefits under a plan sponsored by the Company or one of
its Related Companies, or if no such plan is applicable, a Participant's
inability to engage in the essential functions of his or her duties due to a
medically-determinable physical or mental impairment, illness or injury, which
can be expected to result in death or to be of long-continued and indefinite
duration.
2.13 "Effective Date" means February 15, 1999, subject to shareholder
approval.
2.14 "Exercise Price" means the purchase price of the shares of Common
Stock underlying a Stock Option.
2.15 "Fair Market Value" means, as of any date of determination, the
closing sale price per share of the Common Stock as published in the Eastern
Edition of The Wall Street Journal report on the New York Stock Exchange
Composite Transactions (or other established exchange on which the Common Stock
is listed).
2.16 "ICP" means this American Business Products, Inc. 1999 Incentive
Compensation Plan.
2.17 "Incentive Stock Option" or "ISO" means an incentive stock option
within the meaning of Code ss.422.
2.18 "Key Employee" means any common law key employee of the Company
or a Related Company who is actively employed at the time Awards are made.
However, only employees of the Company and any "parent" or "subsidiary" of the
Company (as those terms are defined in Code ss.424) are eligible to receive
ISOs.
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2.19 "Nonemployee Director" means any individual serving as a member
of the Board of Directors of the Company or any of its Related Companies.
2.20 "Nonqualified Stock Option" or "NSO" means an option which is not
an incentive stock option within the meaning of Code ss.422(b).
2.21 "Optionee" means a Key Employee or Nonemployee Director who is
granted a Stock Option.
2.22 "Participant" means an Optionee or a Recipient.
2.23 "Performance-Based Cash Award" means an award of the right,
subject to such conditions, restrictions and contingencies as the Committee
determines, including specifically the satisfaction of specified Performance
Measures, to receive a cash payment.
2.24 "Performance-Based Cash Award Agreement" means a written
agreement or other document signed and dated by the Committee (or its designee)
and a Recipient that specifies the terms and conditions of an Award of a
Performance-Based Cash Award.
2.25 "Performance Measures" means any one or more of the criteria or
measurements by which specific performance goals may be established and
performance may be measured, as determined by the Committee in its discretion,
pursuant to the provisions of Section 5.2.
2.26 "Performance Share" means an award of the right, subject to such
conditions, restrictions and contingencies as the Committee determines,
including specifically the satisfaction of specified Performance Measures, to
receive one share of Common Stock in the future.
2.27 "Performance Share Agreement" means a written agreement signed
and dated by the Committee (or its designee) and a Recipient that specifies the
terms and conditions of an Award of Performance Shares.
2.28 "Pricing Date" means the date on which a Stock Option is granted.
However, the Committee may specify as the Pricing Date in the Option Agreement
of an NSO the date on which the Optionee is hired or promoted (or some similar
event).
2.29 "Recipient" means a Key Employee or Nonemployee Director who is
awarded Restricted Stock, Performance Shares or Performance-Based Cash Awards.
2.30 "Related Company" means any member within the Company's
controlled group of corporations, as that term is defined in Code ss.1563(a), in
addition to any partnerships, joint ventures, limited liability companies,
limited liability partnerships or other entities in which the Company owns more
than a 50 percent interest.
2.31 "Reload Option" means a Stock Option granted to an active
employee who is an Optionee who exercises a previously-held Stock Option by
tendering Common Stock for part or all of the Exercise Price or withholding
amounts, pursuant to the provisions of the ICP.
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2.32 "Reporting Person" means a Key Employee or Nonemployee Director
who is subject to the reporting requirements of Section 16 of the 1934 Act.
2.33 "Restricted Stock" means an Award of Common Stock subject to such
conditions, restrictions and contingencies as the Committee determines,
including the satisfaction of specified Performance Measures.
2.34 "Restricted Stock Agreement" means a written agreement signed and
dated by the Committee (or its designee) and a Recipient that specifies the
terms and conditions of an Award of Restricted Stock.
2.35 "Stock Option" means an ISO, NSO or Reload Option, as applicable,
granted to a Key Employee or Nonemployee Director, as applicable, under the ICP.
2.36 "Stock Option Agreement" means a written agreement signed and
dated by the Committee (or its designee) and an Optionee that specifies the
terms and conditions of a Stock Option or Reload Option.
SECTION 3
PLAN ADMINISTRATION
3.1 Administration. The Compensation Committee of the Board of
Directors of the Company (the "Committee") shall control and manage the
operation and administration of the ICP.
(a) The Committee may make one or more Awards under the ICP to
a Key Employee or a Nonemployee Director, who shall become a
Participant in the ICP. In addition, the Committee may make one or more
Awards under the ICP to an individual who has accepted an offer of
employment from the Company but who has not yet become a Key Employee,
providing that the Committee shall designate appropriate restrictions
on such Awards in the event the individual does not actually become a
Key Employee. The Committee shall decide to whom and when to grant an
Award, the type of Award that it shall grant and the number of shares
of Common Stock covered by the Award. The Committee shall also decide
the terms, conditions, performance criteria, restrictions and other
provisions of the Award. The Committee may grant a single Award or an
Award in combination with another Award(s) to a Participant. The
Committee may grant an Award as an alternate to or replacement of an
existing award under the ICP or under any other compensation plan or
arrangement of the Company or a Related Company, including a plan of
any entity acquired by the Company or a Related Company, but the
Committee may not increase or decrease the exercise price of any
existing Awards. In making Award decisions, the Committee may take into
account the nature of services rendered by the individual, the
individual's present and potential contribution to the Company's
success
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and such other factors as the Committee, in its sole discretion, deems
relevant.
(b) The Committee shall decide whether and to what extent
Awards under the ICP shall be structured to conform with Code ss.162(m)
requirements for the exemption applicable to performance-based
compensation. The Committee may take any action, establish any
procedures and impose any restrictions that it finds necessary or
appropriate to conform with Code ss.162(m). If every member of the
Committee does not meet the definition of "outside director" as defined
in Code ss.162(m), the Committee shall form a subcommittee of those
members who do meet that definition, and that subcommittee shall have
all authority and discretion to act as the Committee to make Awards
that conform with Code ss.162(m).
(c) The Committee shall interpret the ICP, establish and
rescind any rules and regulations relating to the ICP, decide the terms
and provisions of any Agreements made under the ICP, and determine how
to administer the ICP. The Committee shall also decide administrative
methods for the exercise of Stock Options. Each Committee decision
shall be final, conclusive and binding on all parties.
(d) The Committee shall act by a majority of its then
members, at a meeting of the Committee or by unanimous written consent.
The Committee shall keep adequate records concerning the ICP and the
Committee's proceedings and acts in such form and detail as the
Committee may decide.
3.2 Delegation by Committee. Unless prohibited by applicable law
or the applicable rules of a stock exchange, the Committee may allocate all or
some of its responsibilities and powers to any one or more of its members. The
Committee may also delegate all or some of its responsibilities and powers to
any person or persons it selects. The Committee may revoke any such allocation
or delegation at any time.
3.3 Information to be Furnished to Committee. So that the
Committee may discharge its duties, it may require the Company, its Related
Companies, Participants and other persons entitled to benefits under the Plan to
provide it with certain data and information.
3.4 Indemnification. In addition to such other rights of
indemnification that they have as members of the Board or the Committee, the
Company shall indemnify the members of the Committee (and any designees of the
Committee, as permitted under Section 3.2), to the extent permitted by
applicable law, against reasonable expenses (including, without limitation,
attorney's fees) actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the ICP or any Award awarded
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved to the extent required by and in the manner provided
by the articles of incorporation or the bylaws of the Company relating to
indemnification of the members of the Board) or paid by them in satisfaction of
a judgment in any such action, suit or proceeding,
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except in relation to such matters as to which it is adjudged in such action,
suit or proceeding that such Committee member or members (or their designees)
did not act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Company.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Stock Subject to Awards.
Stock subject to Awards and other provisions of the ICP shall consist
of the following:
(a) authorized but unissued shares of Common Stock;
(b) shares of Common Stock held by the Company in its
treasury; or
(c) shares of Common Stock purchased by the Company in
the open market.
4.2 Shares of Common Stock Subject to Awards.
Subject to adjustment in accordance with the provisions of Section 7,
the maximum number of shares of Common Stock that may be issued under the ICP
shall equal the sum of:
(a) 609,076 shares of Common Stock, which represents the
remaining available shares under the American Business Products, Inc.
1981 Stock Option Plan (the "1981 Plan") , the American Business
Products, Inc. 1991 Stock Incentive Plan (the "1991 Plan") and the
American Business Products, Inc. 1993 Directors Stock Incentive Plan
(the "Directors Plan"), as of the Effective Date;
(b) the number of shares of Common Stock subject to Options
and Performance Shares awarded under the ICP which are forfeited,
canceled or expired without the issuance of Common Stock;
(c) the number of shares of previously-held Common Stock
tendered to the Company in payment of the Exercise Price and/or in
satisfaction of income tax or other withholding obligations under the
ICP, the 1981 Plan, the 1991 Plan or the Directors Plan, other than
Common Stock tendered by any Reporting Person;
(d) the number of shares of Common Stock subject to option
grants (but not restricted stock awards) under the 1981 Plan, the 1991
Plan and the Directors Plan which are forfeited, canceled or expired
without the issuance of Common Stock; and
(e) the number of shares of Common Stock, to the extent
authorized by the
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Board for purposes of the ICP, which are repurchased by the Company in
the open market or in a private transaction after the Effective Date.
4.3 Maximum Number of Shares for Certain Types of Awards. Unless
increased by amendment to the ICP and approved by the shareholders of the
Company, the maximum number of shares that may be issued under ISOs is 600,000
shares and the maximum number of shares that may be issued as Restricted Stock
is 400,000 under the provisions of the ICP.
SECTION 5
PERFORMANCE-BASED COMPENSATION
5.1 Awards of Performance-Based Compensation. At its discretion,
the Committee may make Awards to Participants intended to comply with the
"performance-based" compensation provisions of Code Section 162(m). Therefore,
the number of option shares vesting or becoming transferable or amounts payable
with respect to grants of Stock Options, awards of Restricted Stock, Performance
Shares and/or Performance-Based Cash Awards may be determined based on the
attainment of written performance goals approved by the Committee for a
performance period. The performance goal shall state, in terms of an objective
formula or standard, the method of computing the amount of compensation payable
to the Participant if the goal is attained. The performance goals must be
established by the Committee in writing no more than 90 days after the
commencement of the performance period or, if less, the number of days which is
equal to 25% of the relevant performance period. Performance goals will be based
on the attainment of one or more Performance Measures. To the degree consistent
with Code ss.162(m), the performance goals may be calculated without regard to
extraordinary items.
5.2 Performance Measures. The Performance Measures, upon which the
written performance goals shall be based, include one or more (or combinations)
of the following: (i) earnings per share; (ii) consolidated earnings before or
after interest, taxes, depreciation and/or amortization, (iii) net operating
profit before or after interest, taxes, depreciation and/or amortization, (iv)
net operating income, (v) book value per share, (vi) return on shareholders'
equity, (vii) return on assets, (viii) return on capital, (ix) capital
structure, (x) profitability of an identifiable business unit or product, (xi)
maintenance or improvement of profit margins, (xii) stock price, (xiii) market
share, (xiv) gross or net revenues or sales, (xv) costs, (xvi) cash flow, (xvii)
working capital, (xviii) gross or net profit, (xix) expense management or (xx)
economic profit. The foregoing Performance Measures may relate to the Company,
one or more of its subsidiaries, one or more of its divisions or units or any
combination of the foregoing and may be applied on an absolute basis, growth or
decline basis, or be relative to one or more peer group companies or indices, or
any combination thereof, all as the Committee determines. To the degree
consistent with Code ss.162(m), the performance goals may be calculated without
regard to extraordinary items.
5.3 Shareholder Approval. For Awards to constitute
performance-based
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compensation under Code ss.162(m), the material terms of Performance Measures on
which the performance goals are to be based must be disclosed to and
subsequently approved by the Company's shareholders prior to payment of the
compensation. Shareholder approval of the ICP is necessary for the Awards to
meet the Code ss.162(m) exemption.
5.4 Code ss.162(m) Committee and Committee Certification. Awards
intended to qualify for exemption as performance-based compensation shall be
granted by a committee of "outside directors" as defined in Code ss.162(m).
Pursuant to the provisions of Section 3.1(b) hereof, the Committee may establish
a Code ss.162(m) subcommittee, if necessary, to make such grants. Any payment of
compensation with respect to an Award which is intended to be performance-based
compensation will be subject to the written certification of the Code ss.162(m)
Committee that the Performance Measures were satisfied prior to the payment of
the performance-based compensation. This written certification may include the
approved minutes of the Committee meeting in which the certification is made.
SECTION 6
STOCK OPTIONS
6.1 Stock Option Agreement. When the Committee grants a Stock
Option hereunder, it shall prepare (or cause to be prepared) a Stock Option
Agreement that specifies the following terms:
(a) the name of the Optionee;
(b) the total number of shares of Common Stock to which
the Stock Option pertains;
(c) the Exercise Price of the Stock Option;
(d) the date as of which the Committee granted the Stock
Option;
(e) the type of Stock Option granted;
(f) the requirements for the Stock Option to become
exercisable, such as continuous service, time-based schedule, period
and goals for Performance Measures to be satisfied, etc.; and
(g) whether Reload Options are available with respect to
the Stock Option and if so, any limitations on the granting of or
number of successive Reload Options that may be granted with regard to
the Stock Option and any Reload Options under the Stock Option.
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6.2 Maximum Award Per Year. Subject to readjustment pursuant to
Section 10.1 of the ICP, the maximum number of shares that may be awarded under
Stock Options to any individual during any one calendar year is 500,000 shares.
6.3 Exercise Price.
(a) Unless the Committee determines to grant a Stock
Option at a higher Exercise Price, the Exercise Price of each Stock
Option shall be 100% of the Fair Market Value of a share of Common
Stock as of the Pricing Date (110% of the Fair Market Value of a share
of Common Stock as of the Pricing Date for an ISO optionee who owns
more than ten percent of the voting power of all classes of stock of
either the Company or any "parent" or "subsidiary" of the Company as
defined in Code ss.424).
(b) Notwithstanding any other provision of the ICP to the
contrary (other than the provisions of Section 10.1 relating to
adjustments due to certain corporate transactions), (i) the Exercise
Price of a Stock Option may not be changed subsequent to the date of
grant of the Stock Option, and (ii) a Stock Option may not be replaced,
regranted or substituted subsequent to the date of grant if such action
shall have the effect of a "repricing" of the Stock Option.
6.4 Exercisability.
(a) General Schedule. Unless the Committee specifies
otherwise in the Stock Option Agreement, each Stock Option shall become
exercisable according to the following schedule:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AS OF THE FOLLOWING ANNIVERSARY OF THE THE STOCK OPTION SHALL BECOME
STOCK OPTION'S DATE OF GRANT: EXERCISABLE IN THE FOLLOWING PERCENTAGES:
- -----------------------------------------------------------------------------------------------------------
<S> <C>
One-year anniversary 25%
- -----------------------------------------------------------------------------------------------------------
Two-year anniversary 25%
- -----------------------------------------------------------------------------------------------------------
Three-year anniversary 25%
- -----------------------------------------------------------------------------------------------------------
Four-year anniversary 25%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Before the one-year anniversary of the date of grant, no part of the
Stock Option is exercisable. Once a portion of a Stock Option is
exercisable, that portion continues to be exercisable until the Stock
Option expires (as described in Section 6.5 hereof).
(b) Other Vesting Requirements. The Committee may impose
any other conditions, restrictions and contingencies on awards of Stock
Options. Such conditions,
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<PAGE> 14
restrictions and contingencies may consist of a requirement of
continuous service and/or the satisfaction of specified Performance
Measures. The Committee may designate a single goal criterion or
multiple goal criteria for performance measurement purposes.
(c) Accelerated Exercisability. The Committee shall
always have the power to accelerate the exercisability of any Stock
Option granted under the ICP. In the event of one of the following
events, any outstanding Stock Options shall immediately become fully
exercisable and shall remain exercisable until the expiration date of
the Stock Option (as described in Section 6.5 hereof):
(i) the Optionee's death;
(ii) the Optionee's Disability;
(iii) the Optionee's retirement after attainment
of age 60; or
(iv) a Change of Control of the Company.
6.5 Expiration Date.
(a) Latest Expiration Date. Unless the Committee
specifies otherwise in the Stock Option Agreement, subject to section
(b) below, the term of a Stock Option granted under the ICP begins on
the date of grant and ends ten years after the date of grant (or five
years from the date of grant for an ISO optionee who owns more than ten
percent of the voting power of all classes of stock of either the
Company or any "parent" or "subsidiary" of the Company as defined in
Code ss.424).
(b) Accelerated Expiration Date. Unless the Committee
specifies otherwise in the Stock Option Agreement, the Expiration Date
of any Stock Option shall be the earliest to occur of the following:
(i) The date ten years from the date of grant of
the Stock Option;
(ii) The date three (3) months following the date
of the Optionee's termination of employment
with the Company and all Related Companies
for any reason other than death, Disability,
retirement after attainment of age 60 or
discharge for Cause;
(iii) The date of the Optionee's termination of
employment with the Company and all Related
Companies due to discharge for Cause;
(iv) The two-year anniversary of the Optionee's
termination of employment with the Company
and all Related Companies due to death;
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<PAGE> 15
(v) The two-year anniversary of the Optionee's
termination of employment with the Company
and all Related Companies due to Disability;
or
(vi) The two-year anniversary of the Optionee's
termination of employment with the Company
and all Related Companies due to retirement
after attainment of age 60.
If all or part of an ISO is not exercised within three (3)
months after the date of the Optionee's termination of
employment for any reason except death and disability, but
remains exercisable, the unexercised portion thereof shall
automatically be treated as an NSO for the remainder of the
term of the Option. Similarly, if all or part of an ISO is not
exercised within one (1) year after the date of the Optionee's
termination of employment due to death or disability, but
remains exercisable, the unexercised portion thereof shall
automatically be treated as an NSO for the remainder of the
term of the Option.
The Committee shall always have the authority and discretion to extend
the Expiration Date of any Stock Option as long as the extended
Expiration Date is not later than the tenth anniversary of the date of
grant. To the extent the Committee extends the Expiration Date of an
ISO beyond any legal period for ISO tax treatment, the ISO shall
automatically convert to a NSO for the remainder of the extended
exercise period.
6.6 Minimum Exercise Amount. Unless the Committee specifies
otherwise in the Stock Option Agreement, an Optionee may exercise a Stock Option
for less than the full number of shares of Common Stock subject to the Stock
Option. However, such exercise may not be made for less than 100 shares or the
total remaining shares subject to the Stock Option. The Committee may in its
discretion specify other Stock Option terms, including restrictions on frequency
of exercise and periods during which Stock Options may not be exercised.
6.7 Payment of Exercise Price. The Optionee must pay the full
Exercise Price for shares of Common Stock purchased upon the exercise of any
Stock Option at the time of such exercise by one of the following forms of
payment:
(a) cash;
(b) by tendering previously-held shares of Common Stock
which have a value equal to the Exercise Price at the time of exercise.
The Optionee must have held the tendered shares of Common Stock for at
least six months prior to their tender. The Optionee may tender shares
of Common Stock either by attestation or by the delivery of a
certificate or certificates for shares duly endorsed for transfer to
the Company with medallion level signature guarantee by a member firm
of a national stock exchange, by a national or state bank (or
guaranteed or notarized in such other manner as the Committee
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<PAGE> 16
may require);
(c) broker-assisted cashless exercise; or
(d) any combination of the above forms or any other form
of payment permitted by the Committee.
6.8 Reload Options. Unless otherwise designated by the Committee
in the applicable Stock Option Agreement, each Stock Option shall be subject to
one Reload Option. The Committee may specify any limitations that shall apply to
the granting of the Reload Option. If it so desires, the Committee may permit
multiple, successive Reload Options for a Stock Option, and may designate such
in the Stock Option Agreement. Notwithstanding the terms of any Stock Option
Agreement, the Committee shall grant Reload Options only to Participants who are
actively employed in good standing by the Company or a Related Company at the
time the grant of the Reload Option is to be made. If the Committee has
designated a Stock Option as having an accompanying Reload Option, the Committee
shall grant a Reload Option for the same number of shares as is tendered by the
Optionee in payment of the Exercise Price and/or tax or other withholding
obligations upon exercise of the Stock Option. The Reload Option shall have the
same terms and conditions as the related original Stock Option, including the
expiration date of the original Stock Option, except that (i) the Exercise Price
for a Reload Option shall be the Fair Market Value of the Common Stock as of the
date of grant of such Reload Option, and (ii) the Reload Option shall become
fully exercisable six months after its date of grant.
6.9 Transferability. Unless the Committee specifies otherwise in
the Stock Option Agreement, an Optionee may transfer Stock Options under the ICP
only by the laws of descent and distribution. After the death of an Optionee,
only the executor or administrator of the Optionee's estate may exercise an
outstanding Stock Option.
6.10 Rights as a Shareholder. An Optionee shall first have rights
as a shareholder of the Company with respect to shares of Common Stock covered
by a Stock Option only when the Optionee has paid the Exercise Price in full and
the shares have been issued to the Optionee.
SECTION 7
RESTRICTED STOCK
7.1 Restricted Stock Agreement. When the Committee awards
Restricted Stock hereunder, it shall prepare (or cause to be prepared) a
Restricted Stock Agreement that specifies the following terms:
(a) the name of the Recipient;
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<PAGE> 17
(b) the total number of shares of Common Stock to which
the Award of Restricted Stock pertains;
(c) a description of any restrictions applicable to the
Restricted Stock; and
(d) the date as of which the Committee awarded the
Restricted Stock.
7.2 Maximum Award Per Year. Subject to readjustment pursuant to
Section 10.1 of the ICP, the maximum number of shares that may be awarded as
Restricted Stock to any individual during any one calendar year is 250,000
shares.
7.3 Vesting. Unless the Committee specifies in the Restricted
Stock Agreement that an alternative vesting schedule shall apply, that other
vesting requirements shall apply or that no vesting requirements shall apply, an
Award of Restricted Stock shall become vested and nonforfeitable on the fourth
anniversary of the date of grant, and before the fourth anniversary of the date
of the Award, no portion of the Restricted Stock shall be vested.
7.4 Other Vesting Requirements. The Committee may impose any other
conditions, restrictions and contingencies on awards of Restricted Stock. Such
conditions, restrictions and contingencies may consist of a requirement of
continuous service and/or the satisfaction of specified Performance Measures.
The Committee may designate a single goal criterion or multiple goal criteria
for performance measurement purposes.
7.5 Accelerated Vesting. The Committee shall always have the right
to accelerate vesting of any Restricted Stock awarded under this ICP.
(a) In the event of one of the following events, any
outstanding Awards of Restricted Stock which remain subject to vesting
requirements shall immediately become vested pursuant to the provisions
of subsection (b) hereof:
(i) the Recipient's death;
(ii) the Recipient's Disability;
(iii) the Recipient's retirement after attainment
of age 60; or
(iv) a Change in Control of the Company.
(b) If an outstanding Award of Restricted Stock remains
subject only to a time-based vesting schedule (i.e., one that requires
only that the Recipient remain employed for the passage of a specified
time period), then such Award shall immediately become fully vested and
nonforfeitable upon one of the events in subsection (a) above. If an
outstanding Award of Restricted Stock remains subject to any other type
of vesting
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<PAGE> 18
schedule or requirement (e.g., a performance-based schedule), then upon
one of the events in subsection (a) above, a proportion of the shares
subject to such Award shall become vested and nonforfeitable, equal to
the proportion of the time completed through the date of the applicable
event to the performance measurement period for the Award, with target
performance level deemed to be achieved as of the date of the
applicable event. In the event an Award was originally scheduled
without a designated target performance level (e.g., a single
performance level or minimum and maximum performance levels), then the
performance level that, if met, would have resulted in the least number
of shares becoming vested shall be treated as the target level.
7.6 Termination of Employment. Unless the Committee decides
otherwise, all shares of Restricted Stock which remain subject to restriction
upon the Recipient's termination of employment for any reason other than the
events listed in Section 7.5(a) shall lapse and be forfeited by the Recipient.
7.7 Formula Awards to Nonemployee Directors. Each Nonemployee
Director shall receive an Award of Restricted Stock, according to the following
terms and conditions:
(a) Number of Shares. Shares of Restricted Stock shall be
awarded to the Nonemployee Directors according to the following
formula:
(i) As of the date of his initial election to
the Board, each Nonemployee Director shall
be awarded 200 shares of Restricted Stock;
(ii) As of the date of the annual shareholders
meeting which follows an employee director's
retirement after age 60 as an employee of
the Company and continuance of his role as a
Nonemployee Director, such Nonemployee
Director shall be awarded 200 shares of
Restricted Stock; and
(iii) As of the date of the annual shareholders
meeting at the beginning of each year for
which a Nonemployee Director is reelected or
continues to serve as a director of the
Company, the Nonemployee Director shall be
awarded 100 shares of Restricted Stock.
(b) Limitation on Awards under Formula. Each Nonemployee
Director shall receive no more than a total of 2,000 shares of
Restricted Stock under the formula provisions of this Section 7.6 of
the ICP and under the Company's 1993 Directors Stock Incentive Plan
(which has been replaced by the ICP).
(c) Vesting of Formula Awards. Any shares of Restricted
Stock awarded to a Nonemployee Director under the provisions of this
Section 7.6 shall become vested and nonforfeitable on the earlier of:
(A) the first anniversary of the date of the Award; (B) the
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date on which the Board determines, on the basis of medical evidence,
that the Nonemployee Director has become totally and permanently
disabled; (C) the date the Nonemployee Director has attained age 70 and
retired from service on the Board; (D) the date of death of the
Nonemployee Director; (E) the date the Nonemployee Director ceases to
serve on the Board for any reason; or (F) a Change in Control of the
Company.
7.8 Delivery of Restricted Stock.
(a) Issuance. The Company shall issue the shares of
Restricted Stock within a reasonable period of time after execution of
the Restricted Stock Agreement; provided, if any law or regulation
requires the Company to take any action (including, but not limited to,
the filing of a registration statement under the 1933 Act and causing
such registration statement to become effective) with respect to such
shares before the issuance thereof, then the date of delivery of the
shares shall be extended for the period necessary to take such action.
(b) Legend. Unless the certificate representing shares of
the Restricted Stock are deposited with a custodian (as described in
subparagraph (c) hereof), each certificate shall bear the following
legend (in addition to any other legend required by law):
"The transferability of this certificate and the
shares represented hereby are subject to the
restrictions, terms and conditions (including
forfeiture and restrictions against transfer)
contained in the American Business Products, Inc.
1999 Incentive Compensation Plan and a Restricted
Stock Agreement dated __________, ____, between
________________ and American Business Products, Inc.
The Plan and the Restriction Agreement are on file in
the office of the Corporate Secretary of American
Business Products, Inc."
Such legend shall be removed or canceled from any certificate
evidencing shares of Restricted Stock as of the date that such shares
become nonforfeitable.
(c) As an alternative to delivering a stock certificate
to the Recipient, the Committee may deposit or transfer such shares
electronically to a custodian designated by the Committee. The
Committee shall cause the custodian to issue a receipt for the shares
to the Recipient for any Restricted Stock so deposited. The custodian
shall hold the shares and deliver the same to the Recipient in whose
name the Restricted Stock evidenced thereby are registered only after
such shares become nonforfeitable.
7.9 Transferability. Unless the Committee specifies otherwise in
the Restricted Stock Agreement, a Recipient may not sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of shares of Restricted Stock awarded
under this ICP while such shares are still subject to restriction.
7.10 Effect of Restricted Stock Award. A Recipient of Restricted
Stock shall have
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immediate rights of ownership in the shares of Restricted Stock, including the
right to vote the shares and the right to receive dividends with respect to the
shares.
SECTION 8
PERFORMANCE SHARES
8.1 Performance Share Agreement. When the Committee awards
Performance Shares hereunder, the Committee shall prepare (or cause to be
prepared) a Performance Share Agreement that specifies the following terms:
(a) the name of the Recipient;
(b) the total number of Performance Shares awarded;
(c) the period over which performance is to be measured;
(d) the Performance Measures upon satisfaction of which
the Performance Shares are to become vested and
nonforfeitable; and
(e) the date as of which the Committee awarded the
Performance Shares.
8.2 Maximum Award Per Year. Subject to readjustment pursuant to
Section 10.1 of the ICP, the maximum number of shares that may be awarded as
Performance Shares to any individual during any one calendar year is 250,000
shares.
8.3 Performance Share Account. When the Committee awards
Performance Shares hereunder, the Company shall establish a bookkeeping account
for the Recipient which shall accurately reflect the number of Performance
Shares awarded to the Recipient.
8.4 Dividends. On each date on which a dividend is distributed by
the Company on shares of Common Stock (whether paid in cash, Common Stock or
other property), the Recipient's Performance Share account shall be credited
with an additional whole or fractional number of Performance Shares. The number
of additional Performance Shares to be credited shall be determined by dividing
the product of the dividend value times the number of Performance Shares
standing in the Recipient's account on the dividend record date by the Fair
Market Value of the Common Stock on the date of the distribution of the dividend
(i.e., dividend amount x number of whole and fractional Performance Shares as of
the dividend record date / Fair Market Value of Common Stock as of dividend
distribution date). Accounts shall be maintained and determinations shall be
calculated to three decimal places.
8.5 Vesting. The Committee shall specify in the Performance Share
Agreement the manner in which Performance Shares shall vest and become
nonforfeitable, as well as any
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conditions, restrictions and contingencies to which the Performance Shares are
subject. Such conditions, restrictions and contingencies may consist of a
requirement of continuous service and the satisfaction of specified Performance
Measures. The Committee may designate a single goal criterion or multiple goal
criteria for performance measurement purposes.
8.6 Accelerated Vesting. The Committee shall always have the right
to accelerate vesting of any Performance Shares awarded under this ICP.
(a) In the event of one of the following events, any
outstanding Awards of Performance Shares which remain subject to
vesting requirements shall immediately become vested pursuant to the
provisions of subsection (b) hereof:
(i) the Recipient's death;
(ii) the Recipient's Disability;
(iii) the Recipient's retirement after attainment
of age 60; or
(iv) a Change in Control of the Company.
(b) If an outstanding Award of Performance Shares remains
subject to performance criteria, then upon one of the events in
subsection (a) above, a proportion of the shares subject to such Award
shall become vested and nonforfeitable, equal to the proportion of the
time completed through the date of the applicable event to the
performance measurement period for the Award, with target performance
level deemed to be achieved as of the date of the applicable event. In
the event an Award was originally scheduled without a designated target
performance level (e.g., a single performance level or minimum and
maximum performance levels), then the performance level that, if met,
would have resulted in the least number of shares becoming vested shall
be treated as the target level.
8.7 Termination of Employment. Unless the Committee decides
otherwise, all shares of Performance Shares which remain subject to restriction
upon the Recipient's termination of employment for any reason other than the
events listed in Section 8.6(a) shall lapse and be forfeited by the Recipient.
8.8 Delivery of Common Stock. Upon vesting, Performance Shares
shall be converted into Common Stock and the Common Stock shall be issued to the
Recipient. Any fractional Performance Share which becomes vested shall be paid
to the Recipient in cash based upon the Fair Market Value of an equivalent
fraction of a share of the Common Stock on such date.
8.9 Transferability. A Recipient may not sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of Performance Shares awarded under
this ICP.
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8.10 Waiver of Restrictions. The Committee may elect, in its sole
discretion, to waive any or all restrictions with respect to an award of
Performance Shares.
SECTION 9
PERFORMANCE-BASED CASH AWARDS
9.1 Performance-Based Cash Awards. When the Committee awards
Performance-Based Cash Awards hereunder, the Committee shall prepare (or cause
to be prepared) a Performance-Based Cash Award Agreement or other document(s)
that specifies the following terms:
(a) the name of the Recipient;
(b) the amount or range of amounts of the
Performance-Based Cash Award;
(c) the period over which performance is to be measured,
which may be of a short-term or long-term duration;
(d) the Performance Measures upon satisfaction of which
the Performance-Based Cash Award is to become vested and payable to
the Recipient; and
(e) the date as of which the Committee awarded the
Performance-Based Cash Award.
9.2 Maximum Award Per Year. The maximum dollar amount that may be
payable to any individual during any one calendar year under Performance-Based
Cash Awards is $2,500,000.
9.3 Vesting. The Committee shall specify in the Performance-Based
Cash Award or other document communicated to the Recipient the manner in which
the award shall vest and become payable, as well as any conditions, restrictions
and contingencies to which the award is subject. Such conditions, restrictions
and contingencies may consist of a requirement of continuous service and the
satisfaction of specified Performance Measures. The Committee may designate a
single goal criterion or multiple goal criteria for performance measurement
purposes.
9.4 Accelerated Vesting. The Committee shall always have the right
to accelerate vesting of any Performance-Based Cash Awards awarded under this
ICP.
(a) In the event of one of the following events, any
outstanding Performance-Based Cash Awards which remain subject to
vesting requirements shall become vested pursuant to the provisions of
subsections (b) and (c) hereof:
(i) the Recipient's death;
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(ii) the Recipient's Disability;
(iii) the Recipient's retirement after attainment
of age 60; or
(iv) a Change in Control of the Company.
(b) In the event of one of the events in subparagraphs
(i), (ii) or (iii) of subsection (a) above, if an outstanding
Performance-Based Cash Award remains subject to performance criteria,
but the performance measurement period for such Award ends during the
year in which such event occurs, then a proportion of the cash amount
subject to such an Award may become vested and nonforfeitable if the
performance measures are met, as measured at the end of the performance
measurement period. The proportion of the cash amount which shall
become vested if the performance criteria is met is equal to the
proportion of the time completed through the date on which such event
occurs to the performance measurement period for the Award. [Example:
Award granted on December 31, 2002 with performance measurement period
ending December 31, 2005; Recipient dies on July 1, 2005; performance
is measured at end of 2005, and if met, Recipient's estate shall
receive 30/36 of the cash award at whichever level determined by the
performance achieved.] If an outstanding Performance-Based Cash Award
remains subject to performance criteria and the performance period for
such Award does not end in the year in which an event in subparagraphs
(i), (ii) or (iii) occurs, then such Award shall lapse and be forfeited
by the Recipient. [Example: If the Award granted with performance
measurement period ending December 31, 2005, and Recipient dies in
December, 2004, the entire Award is forfeited.]
(c) If an outstanding Performance-Based Cash Award
remains subject to performance criteria, but the performance
measurement period for such Award ends during the year in which a
Change in Control of the Company occurs, then a proportion of the cash
amount subject to such Award shall become immediately vested and
nonforfeitable, equal to the proportion of the time completed through
the date of the Change in Control to the performance measurement period
for the Award, with target performance level deemed to be achieved as
of the date of the Change in Control. In the event an Award was
originally scheduled without a designated target performance level
(e.g., a single performance level or minimum and maximum performance
levels), then the performance level that, if met, would have resulted
in the least amount of cash becoming vested shall be treated as the
target level. If an outstanding Performance-Based Cash Award remains
subject to performance criteria and the performance period for such
Award does not end in the year in which a Change in Control of the
Company occurs, then such Award shall lapse and be forfeited by the
Recipient.
9.5 Termination of Employment. Unless the Committee decides
otherwise, upon the Recipient's termination of employment due to any reason
other than those listed in Section 9.4(a), the Recipient shall forfeit all
rights under any outstanding Performance-Based Cash Awards.
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9.6 Timing and Form of Payment. Upon completion of the time period
and satisfaction of the Performance Measures specified for the Performance-Based
Cash Award, the Recipient shall be entitled to payment of the amount specified
in the award (or a pro rata portion as determined by the Committee under the
provisions of Section 9.3 and 9.4), determined as a function of the satisfaction
of the level of Performance Measures which has been achieved. All
Performance-Based Cash Awards shall be payable in cash as soon as practicable
following the end of the performance period.
9.7 Transferability. A Recipient may not sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of a Performance-Based Cash Award
awarded under this ICP.
9.8 Waiver of Restrictions. The Committee may elect, in its sole
discretion, to waive any or all restrictions with respect to an award of a
Performance-Based Cash Award.
SECTION 10
PLAN OPERATION
10.1 Certain Corporate Transactions.
(a) Recapitalization. If the Company is involved in a
corporate transaction (including, without limitation, any
recapitalization, reclassification, reverse or forward stock split,
stock dividend, extraordinary cash dividend, merger, consolidation,
split-up, spin-off, combination or exchange of shares) which
constitutes a Change of Control, then the Committee shall adjust Awards
to preserve the benefits or potential benefits of the Awards as
follows:
(i) The Committee shall take action to adjust
the number and kind of shares of Common
Stock that are issuable under the ICP;
(ii) The Committee shall take action to adjust
the number and kind of shares of Common
Stock subject to outstanding Awards;
(iii) The Committee shall take action to adjust
the Exercise Price of outstanding Stock
Options; and
(iv) The Committee shall make any other equitable
adjustments.
Only whole shares of Common Stock shall be issued in making the above
adjustments. Further, the number of shares available under the ICP or
the number of shares of Common Stock subject to any outstanding Awards
shall be the next lower number of shares, so that fractions are rounded
downward. Any adjustment to or assumption of ISOs under this Section
shall be made in accordance with Code ss.424. If the Company issues any
rights or warrants to subscribe for additional shares pro rata to
holders of outstanding shares of the class or classes of stock then set
aside for the ICP, then each
24
<PAGE> 25
Optionee shall be entitled to the same rights or warrants on the same
basis as holders of outstanding shares with respect to such portion of
the Optionee's Stock Option as is exercised on or prior to the record
date for determining shareholders entitled to receive or exercise such
rights or warrants.
(b) Reorganization. If the Company is part of any
reorganization involving merger, consolidation, acquisition of the
stock or acquisition of the assets of the Company which requires
shareholder approval but does not constitute a Change of Control, the
Committee, in its discretion, may decide that:
(i) any Stock Option granted but not yet
exercised shall pertain to and apply, with
appropriate adjustment as determined by the
Committee, to the securities of the
resulting corporation to which a holder of
the number of shares of the Common Stock
subject to such Stock Option would have been
entitled;
(ii) any or all outstanding Stock Options granted
hereunder shall become immediately fully
exercisable (to the extent permitted under
federal or state securities laws);
(iii) any or all Stock Options granted hereunder
shall become immediately fully exercisable
(to the extent permitted under federal or
state securities laws) and shall be
terminated after giving at least 30 days'
notice to the Participants to whom such
Stock Options have been granted; and/or
(iv) any or all awards of Restricted Stock,
Performance Shares and Performance-Based
Cash Awards hereunder shall become
immediately fully vested, nonforfeitable
and/or payable.
(c) Limits on Adjustments. Any issuance by the Company of
stock of any class other than the Common Stock, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares of the Common Stock subject to any Stock Option,
except as specifically provided otherwise in this ICP. The grant of
Awards pursuant to the ICP shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to
merge, consolidate or dissolve, or to liquidate, sell or transfer all
or any part of its business or assets. All adjustments the Committee
makes under this ICP shall be conclusive.
10.2 Compliance with Other Laws and Regulations. Distribution of
shares of Common Stock under the ICP shall be subject to the following:
(a) Notwithstanding any other provision of the ICP, the
Company shall not be required to issue any shares of Common Stock under
the ICP unless such issuance
25
<PAGE> 26
complies with all applicable laws (including, without limitation, the
requirements of the 1933 Act and Section 16 of the 1934 Act) and the
applicable requirements of any securities exchange or similar entity.
For Reporting Persons, the Company believes that the ICP and all
transactions under the ICP comply with all applicable conditions of
Rule 16b-3 under the 1934 Act. If any provision of the ICP, or action
by the Committee, fails to so comply, then the Committee shall declare
such provision or action null and void ab initio.
(b) When the ICP provides for issuance of Common Stock,
the Company may issue shares of Common Stock on a noncertificated basis
as long as it is not prohibited by applicable law or the applicable
rules of any stock exchange.
(c) The Company may require a Participant to submit
evidence that the Participant is acquiring shares of Common Stock for
investment purposes.
10.3 Tax Withholding. The Participant must pay to the Company an
amount necessary to cover all applicable income tax and other withholdings
before the Company shall issue Common Stock under the ICP. The Participant may
satisfy the withholding requirements by any one or combination of the following
methods:
(a) cash;
(b) tendering shares of Common Stock which are part of
the Award; or
(c) tendering previously-held shares of Common Stock
which the Participant has owned for at least six months.
10.4 Limitation of Implied Rights. The ICP is not a contract of
employment. A Key Employee selected as a Participant shall not have the right to
be retained as an employee of the Company or any Related Company and shall not
have any right or claim under the ICP, unless such right or claim has
specifically accrued under the terms of the ICP.
10.5 Conditions of Participation in the ICP. When the Committee
makes an Award, it shall require a Participant to enter into an Agreement in a
form specified by the Committee, agreeing to the terms and conditions of the
Award and to such additional terms and conditions, not inconsistent with the
terms and conditions of the ICP, as the Committee may, in its sole discretion,
prescribe. If there is a conflict between any provision of an Agreement and the
ICP, the ICP shall control.
10.6 Evidence. Anyone required to give evidence under the ICP may
give such evidence by certificate, affidavit, document or other information
which the person acting on the evidence considers pertinent, reliable and
signed, made or presented by the proper party or parties.
10.7 Amendment and Termination of the ICP and Agreements. The Board
may amend or terminate the ICP at any time. No such amendment or termination
shall adversely affect, in
26
<PAGE> 27
any way, the rights of individuals who have outstanding Awards unless such
individuals consent to such amendment or termination. The Committee may amend
any Agreement which it previously has authorized under the ICP if the amended
Agreement is signed by the Company and the applicable Participant; provided,
however, that the Committee may not amend any Stock Option Agreement in any
manner that would constitute an increase or decrease of the exercise price per
share or otherwise constitute a "repricing" of the Stock Option.
10.8 Action by Company or Related Company. The board of directors
of the Company or any Related Company shall take any action required or
permitted to be taken by resolution.
10.9 Gender and Number; Headings. Words in any gender shall include
any other gender, words in the singular shall include the plural and the plural
shall include the singular. The headings in this ICP are for convenience of
reference. Headings are not a part of the ICP and shall not be considered in the
construction hereof.
10.10 Legal References. Any reference in this ICP to a provision of
law which is later revised, modified, finalized or redesignated, shall
automatically be considered a reference to such revised, modified, finalized or
redesignated provision of law.
10.11 Notices. In order for a Participant or other individual to
give notice or other communication to the Committee, the notice or other
communication shall be in the form specified by the Committee and delivered to
the location designated by the Committee in its sole discretion.
10.12 Governing Law. The ICP is governed by and shall be construed
in accordance with the laws of the State of Georgia.
ADOPTED BY BOARD OF DIRECTORS ON DECEMBER 8, 1998
APPROVED BY SHAREHOLDERS ON MAY 5, 1999
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN BUSINESS PRODUCTS, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 30,027
<SECURITIES> 0
<RECEIVABLES> 59,970
<ALLOWANCES> 1,769
<INVENTORY> 31,168
<CURRENT-ASSETS> 128,789
<PP&E> 148,876
<DEPRECIATION> 63,512
<TOTAL-ASSETS> 279,233
<CURRENT-LIABILITIES> 53,063
<BONDS> 0
0
0
<COMMON> 33,877
<OTHER-SE> 123,657
<TOTAL-LIABILITY-AND-EQUITY> 279,233
<SALES> 228,663
<TOTAL-REVENUES> 228,663
<CGS> 163,519
<TOTAL-COSTS> 213,876
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,575
<INCOME-PRETAX> 14,529
<INCOME-TAX> 5,153
<INCOME-CONTINUING> 9,376
<DISCONTINUED> (1,513)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,863
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.52
</TABLE>
