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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________ Commission
File No. 1-2267
THE MEAD CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0535759
(State of Incorporation) (I.R.S. Employer Identification No.)
MEAD WORLD HEADQUARTERS
COURTHOUSE PLAZA NORTHEAST
DAYTON, OHIO 45463
(Address of principal executive offices)
Registrant's telephone number, including area code: 937-495-6323
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- ---------------------
Common Shares Without Par Value New York Stock Exchange
and Common Share Purchase Rights Chicago Stock Exchange
Pacific Stock Exchange
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
_________________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
_________________________
As of January 24, 1997, the aggregate market value of the voting shares
held by non-affiliates of the Registrant was approximately $3,148,633,552
determined by multiplying the highest selling price of a Common Share on the New
York Stock Exchange--Composite Transactions Tape on such date, times the amount
by which the total shares outstanding exceeded the shares beneficially owned by
directors and executive officers of the Registrant. Such determination shall
not, however, be deemed to be an admission that any person is an "affiliate" as
defined in Rule 405 under the Securities Act of 1933.
The number of Common Shares outstanding at February 25, 1997 was
52,236,180.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on April 24, 1997, are incorporated by
reference in Part III; definitive copies of said Proxy Statement were filed with
the Securities and Exchange Commission on March 12, 1997.
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PART I
Item 1. Business
Mead manufactures and sells paper, pulp, paperboard, lumber and other wood
products. Mead also manufactures and distributes school and office
supplies, and distributes paper and other industrial supplies.
Mead was incorporated in 1930 under the laws of the state of Ohio as the
outgrowth of a paper manufacturing business founded in 1846, and has its
principal executive offices at Mead World Headquarters, Courthouse Plaza
Northeast, Dayton, Ohio 45463, telephone (937) 495-6323. Except as otherwise
indicated by the context, the terms "Company" or "Mead" as used herein refer to
The Mead Corporation and its subsidiaries.
Segment Information
Segment information is also included in Note R on pages 50-52.
Paper
Mead's Fine Paper division manufactures coated and uncoated papers for
commercial printing; form bond and carbonless paper and papers for conversion by
others into business forms; cut-size copier paper; and other uncoated papers for
conversion by others into such products as greeting cards and bank checks.
Mead's Publishing Paper division manufactures web coated offset paper for use by
book, magazine, catalog and advertising brochure publishers. The Fine Paper
division sells papers manufactured by both divisions nationwide, both on a
direct basis to printers and converters and through paper merchants, including
merchants owned by Mead. Additionally, Escanaba Paper Company and Mead Oxford
Corporation, wholly-owned subsidiaries, sell output to the Publishing Paper
division of Mead, which resells the paper directly to publishers and printers.
The pulp mills adjacent to the paper mills of these divisions and the pulp mill
owned by an affiliate (see "Forest Products Affiliates") produce virtually all
of the pulp required for use in these paper mills.
The Company's Gilbert Paper division manufactures cotton content and
premium sulfite paper and premium recycled papers, including bond, banknote,
text and cover, and papers for ink jet and laser printers, and sells these
products principally through paper merchants, including merchants owned by Mead,
as well as retail stores.
Mead's Specialty Paper division manufactures and sells, primarily through
its own sales force, decorative laminating papers. This division also
manufactures and sells specialty papers used in industrial applications. The
division's principal customers include manufacturers that serve the building
materials, automotive and furniture industries.
The Mead Pulp Sales division sells market pulp worldwide manufactured by
Northwood Pulp and Timber Ltd. of Canada, Great Lakes Pulp and Fibre, Inc. in
Menominee, Michigan, and Mead Publishing Paper of Escanaba, Michigan and
Rumford, Maine. Mead Pulp Sales also represents MODO Paper AB, of Sweden, and
Votorantim Celulose e Papel, of Brazil, for the sale of pulp in North America.
Mead Pulp Sales also sells through its affiliates International Fibre Sales in
Europe and Pulp Asia Ltd. in Japan, and through independent agents in all major
pulp consuming areas of the world.
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Packaging and Paperboard
The Mead Packaging division designs and produces multiple packaging and
packaging systems primarily for the beverage take-home market. The division
operates through a network of subsidiaries, affiliates and licensees in the
United States, Canada, Europe, Japan, the Far East and Pacific Rim, Mexico and
Latin America. Demand for most beverage packaging is seasonal with inventories
being built from November to March for the peak soft drink and beer sales of
April through October.
Mead Coated Board, Inc., a wholly-owned subsidiary of Mead, operates a
coated paperboard mill near Phenix City, Alabama, sawmills in Cottonton, Alabama
and Greenville, Georgia, and owns various timberlands in Alabama and Georgia.
The subsidiary is engaged primarily in the manufacture of coated natural kraft
products used by the beverage packaging industry and by manufacturers of folding
cartons for soaps, food products, hardware and apparel. The entire output of the
Phenix City mill is sold by Mead Coated Board, Inc. to the Mead Coated Board
division. The division sells approximately 50% of the mill output to the Mead
Packaging division. The remainder is sold to a wide range of domestic and
foreign carton converters. The division's customers are most concerned about
physical strength properties of the paperboard and its quality for
reprographics.
The Mead Containerboard division sells standard and special purpose
corrugated shipping containers manufactured at eight converting plants located
in the Midwestern and Southeastern regions of the United States from raw
materials received from outside sources and from the division's Stevenson,
Alabama corrugating medium mill. The division also sells corrugated medium from
the Stevenson mill to unaffiliated manufacturers of containers.
Forest Products Affiliates
Northwood Forest Industries Ltd. ("Northwood"), which is owned 50% by Mead
and 50% by Noranda Forest Inc. ("Noranda"), manufactures bleached softwood kraft
pulp at its 1,650 short ton-per-day mill in Prince George, British Columbia. The
principal markets for its pulp are in North America, western Europe and the Far
East. Lumber and plywood products are also produced at Northwood's five sawmills
and its plywood plant in British Columbia. Northwood has the annual capacity to
produce over one billion board feet of lumber and 170 million square feet of
plywood (3/8-inch basis). Northwood's solid wood products operations provide
about 760,000 tons (Metric ODT) of wood chips or 70% of the fiber requirements
for the pulp mill. A wood preserving operation also treats lumber and custom
treats plywood from other sources.
Northwood Panelboard Company ("Panelboard"), a partnership owned 50% by
Mead and 50% by Noranda located in Bemidji, Minnesota, has the annual capacity
to produce approximately 370 million square feet of oriented structural board
("OSB") (3/8-inch basis).
All of the wood products produced by Northwood and Panelboard are
sold through a subsidiary of Noranda primarily in North America with
approximately 10% sold to export markets. All of the market pulp produced by
Northwood is sold by Mead Pulp Sales. Mead has a long-term contract with
Northwood pursuant to which Mead is entitled to purchase such of Northwood's
pulp production as it may require.
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Timberlands
Mead obtains most of its wood requirements from private contractors or
suppliers and from Company-owned timberlands. The annual wood requirement for
Mead's wholly-owned operations (including Rumford, Maine for two months) in 1996
was approximately 7,500,000 tons, of which approximately 19% was obtained from
timberlands owned or leased by Mead. The annual wood requirement for Mead's
wholly-owned operations (including Rumford, Maine for twelve months) expected in
1997 will be approximately 9,100,000 tons, of which approximately 22% will be
obtained from timberlands owned or leased by Mead.
The approximate annual requirement of wood for both Northwood and
Panelboard is 6,100,000 tons. At Northwood, the majority of wood is obtained
from Crown Lands through various types of cutting rights which are terminable or
renegotiable at the government's initiative and from third parties having
similar cutting rights. At Panelboard, wood is obtained from both private
landowners and various governmental sources (federal, state and county).
As of December 31, 1996, Mead owned or controlled approximately 2,050,000
acres of timberlands in the United States. Approximately 107,000 acres of land
are controlled by Mead under long-term agreements which expire at different
times through 2027.
Distribution and School and Office Products
Zellerbach, Mead's distribution division, is a national distributor of a
full line of printing papers, packaging materials and equipment, and industrial
supplies. These products are distributed through a network of wholesale
locations and printer-supply centers. The business units carry inventory or
order products against sales orders, depending upon the product and service
requirements. Zellerbach distributes not only products of Mead, but also those
of several hundred other manufacturers. In the distribution of paper and other
products, competing merchants frequently distribute products of the same
supplier.
The Mead School and Office Products division manufactures and distributes a
line of school supplies (including filler paper, wirebound notebooks, portfolios
and looseleaf binders) as well as a line of office supply products (including
envelopes, filing supplies and vinyl folders and binders). The division's
products are distributed primarily through mass market retailers, office supply
superstores and warehouse clubs. The school supply segment is highly seasonal
with inventories beginning to be built in the winter and spring for shipment in
late spring and summer, while the home and office products portion of the
business is generally less seasonal in nature. Manufacturing is done in six
facilities and distributed from seven distribution centers in the United States.
Internationally, one manufacturing facility and distribution center is located
in Canada and one manufacturing facility is located in Mexico.
International Sales and Operations
Outside of the United States and Canada, Mead and its affiliates operate a
paperboard sheeting facility and are engaged in the manufacture of multiple
systems and folding carton packaging in Europe, Asia and Latin America. Mead
also has sales subsidiaries, affiliates, agents or distributors in a number of
countries in Europe, Asia, Australia and Latin America.
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Competition
Mead competes on a world-wide basis in its product lines, and the markets
in which Mead sells its products are highly competitive. Several factors affect
Mead's competitive position, including quality, technology, product design,
customer service, price and cost. The Fine Paper and Publishing Paper divisions
compete with numerous other major paper manufacturers. The Specialty division
competes primarily with North American and European based decorative laminating
papermakers. The Gilbert division competes with a number of other manufacturers
of premium cotton, sulfite and recycled papers. The Coated Board division
competes with other boxboard producers, including manufacturers of all types of
coated recycled boxboard, coated solid bleached sulfate and folding boxboard.
The Packaging division competes with a number of carton suppliers and machine
manufacturers and other global systems-based multiple packaging suppliers, as
well as suppliers of other non-boxboard packaging systems. The Containerboard
division competes primarily with container producers, and corrugating and medium
producers in several market areas in the United States. The Zellerbach division
competes with national and regional merchant chains, as well as independent
local merchants. The School and Office Products division competes with national
and regional converters, some with broad product offerings and others focused on
narrow product segments.
Employee and Labor Relations
Mead employs approximately 14,100 persons within the United States and
2,000 persons outside the United States. Approximately 7,800 are production,
maintenance and clerical employees represented by labor unions. Mead's 50% owned
company, Northwood, employs approximately 2,500 persons. Mead and Northwood
together have approximately 50 labor agreements currently in force of which
approximately one-fifth are subject to renegotiation each year.
Mead's employee relation policies are based on mutual confidence and trust.
All Mead labor contract negotiations during 1996 were concluded without any
strikes.
Trademarks, Trade Names, Patents, and Franchises
Mead has a large number of trademarks and trade names under which it
conducts its business, including "Mead," "Mead Papers," "Mead Packaging,"
"Zellerbach," "Z," "Montag," "M and Design," "Trans/Rite," "Trans/Tab,"
"Duodozen," "Cluster-Pak," "Aria," "Cambridge," "Apex," "Info," "Trapper,"
"Trapper Keeper," "Neatbook," "Gilbert," "Oxford," "Gilcrest," "OPAS,"
"Signature," "CNK," "Five Star," "First Gear," "Neu-Tech," "Esse," "Organizer,"
"Spiral," "sig-NATURE," "Management Series," "Duraline," "Appli," "Duoply," and
many others. Mead also has a great number and variety of patents, patent rights
and licenses relating to its business. While, in the aggregate, the foregoing
are of material importance to Mead's business, the loss of any one or any
related group of such intellectual property rights would not have a material
adverse effect on the business of Mead.
Environmental Laws and Regulations
Mead's operations are subject to extensive regulation by various federal,
state, provincial and local environmental control statutes and regulations.
These regulations impose effluent and emission limitations, waste disposal and
other requirements upon the operations of Mead, and require Mead to obtain and
operate in compliance with the conditions of permits and similar authorizations
from the appropriate governmental authorities. Mead has obtained, has
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applications pending, or is making application for such permits and
authorizations. Mead does not anticipate that compliance with such statutes and
regulations will have a material adverse effect on its competitive position
since its competition is subject to the same statutes and regulations to a
relatively similar degree.
During the past five years (January 1, 1992 - December 31, 1996), Mead
(including its share of Northwood expenditures) constructed air and water
pollution control and other environmental facilities at a cost of approximately
$117 million. Significant environmental expenditures in the future are
anticipated to include long-term projects for maintenance and upgrade of
wastewater treatment plants, air emission controls and the construction of solid
waste disposal facilities. Due to changes in environmental laws and regulations,
the application of such laws and regulations and changes in environmental
control technology, it is not possible for Mead to predict with certainty the
amount of capital expenditures to be incurred for environmental purposes, though
management anticipates that these expenditures will increase as regulatory
requirements become more stringent. Taking these uncertainties into account,
Mead estimates that in the next five years it may be required to incur
expenditures of approximately $153 million.
A substantial portion of the expected increase in capital expenditures for
the next five years is related to new regulations under the Clean Air Act and
Clean Water Act, which are expected to be promulgated in final form by the
United States Environmental Protection Agency ("USEPA") in 1997. These
regulations, proposed in December 1993, are intended to reduce air and water
discharges of specific substances from pulp and paper mills in the United
States, and to require installation of additional pollution control equipment
based on best available technology. The American Forest and Paper Association
("AF&PA") has estimated these regulations, if implemented as proposed, could
cost the pulp and paper industry over $10 billion in capital expenditures, and
force the closing of approximately 30 plants and the loss of an estimated 19,000
mill jobs. However, Mead does not expect these regulations to be enacted as
presently proposed. Mead has included in its capital spending plans amounts
necessary to comply with the regulations in the form Mead expects them to be
enacted.
The USEPA issued proposed regulations implementing the Federal Great Lakes
Critical Programs Act of 1990 in 1993, which was enacted as a result of an
agreement between the United States and Canada in the 1970s to seek greater
consistency for water quality standards among the Great Lakes states (the Great
Lakes Initiative or "GLI"). The USEPA issued final regulations in 1995 which
establish minimum water quality criteria, anti-degradation policies and
implementation procedures. In 1995, several parties filed lawsuits challenging
the final regulations, including the AF&PA. Current industry estimates indicate
that compliance with these regulations may cost affected forest products
companies, in the aggregate, over $800 million. While the lawsuits remain
pending, various Great Lake states, including Michigan, have proceeded to
propose or adopt state regulations purporting to meet the requirements of the
federal GLI regulations. The Michigan regulations are substantially similar to
the federal regulations, and Mead has estimated that the cost of complying with
the proposed regulations, in respect of Mead's Escanaba facility, could range
from $100 million to $150 million in capital expenditures, with a significant
increase in annual operating costs. These costs are not included in Mead's
anticipated environmental expenditures discussed above. Mead opposes these
regulations because Mead believes they are unnecessary and most are
unreasonable. The State of Ohio has determined at this time that it will not
apply GLI regulations to facilities discharging into the Ohio River Basin.
Mead's Chillicothe, Ohio facility discharges into the Ohio River Basin.
Mead believes that most of the earlier expenditures for environmental
control have been beneficial. However, Mead and the trade associations of which
Mead is a member have challenged and are continuing to challenge in
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administrative and judicial proceedings, federal and state environmental control
regulations which they do not believe are beneficial to the environment or the
public. In some instances, those trade associations may also seek legislative
remedies to correct unnecessary or impractical requirements of existing laws.
Dioxin currently cannot be detected under normal operating conditions in
treated effluents from Mead's three U. S. bleached paper mills. Taking into
account current regulatory efforts and the process and control equipment
installed at Mead's bleached paper mills, management does not believe that any
required actions in response to dioxin concerns will have a material adverse
effect on the Company.
Mead has been notified by the USEPA or by various state or local
governments that it may be liable under federal environmental laws or under
applicable state or local laws with respect to the cleanup of hazardous
substances at 6 sites currently operated or used by Mead. Mead is also currently
named as a potentially responsible party ("PRP"), or has received third party
requests for contribution under federal, state or local laws with respect to at
least 12 sites sold by Mead over many years or owned by contractors used by Mead
for disposal purposes. Some of these proceedings are described in more detail in
Part I, Item 3, "Legal Proceedings." There are other former Mead facilities and
those of contractors which may contain contamination or which may have
contributed to potential superfund sites but for which Mead has not received any
notice or claim. Mead's potential liability for all these sites will depend upon
several factors, including the extent of contamination, the method of
remediation, insurance coverage and contribution by other PRPs. Although the
costs that Mead may be required to pay for remediation of all these owned and
unowned sites are not certain at this time, Mead has established reserves of
approximately $39 million relating to current environmental litigation and
proceedings which it believes are probable and reasonably estimable. These
reserves were established after considering the number of other PRPs, their
ability to pay their portion of the costs, the volumetric amount, if any, of
Mead's contribution, and other factors. Expenses to be charged to this reserve
are not included in the anticipated capital expenditures for the next five years
discussed above. Mead believes that it is reasonably possible that costs
associated with these owned and unowned sites may exceed current reserves by
amounts that may prove insignificant or by as much as approximately $50 million.
This estimate of the range of reasonably possible additional costs is less
certain than the estimate upon which reserves are based.
Item 2. Properties
Mead considers that its facilities are suitable and adequate for the
operations involved. With the exception of certain warehouses, general offices
and timberlands which are leased and certain warehouses which are owned or
leased and managed by third parties for Zellerbach, Mead owns all of the
properties described herein. For additional information regarding leases see
Note O on page 49. For additional information concerning Mead's timberlands and
properties of affiliates, see Part 1, Item 1. "Business".
Mead's corporate headquarters are in Dayton, Ohio and its principal
facilities are at the locations listed below:
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<TABLE>
<CAPTION>
Business Unit Facility Locations Principal Use
- ------------- ------------------- -------------
<S> <C> <C>
Fine Paper Chillicothe, Ohio Pulp mill, coated, uncoated and
carbonless paper mill
Indianapolis, Indiana Carbonless coating facility
Publishing Paper Escanaba, Michigan Pulp mill, coated paper mill
Rumford, Maine Pulp mill, coated, uncoated
and specialty paper mill
Gilbert Paper Menasha, Wisconsin Cotton and recycled content
and specialty paper mill
Specialty Paper South Lee, Massachusetts Decorative laminating and
specialty paper mill
Packaging Anniston, Alabama Paperboard packaging, multiple
Lanett, Alabama packaging systems for beverage
Atlanta, Georgia and food, packaging machinery
Buena Park, California manufacturing or repair
Chicago, Illinois facilities and ink manufacture
Ajax, Ontario, Canada
Chateauroux, France
Trento, Italy
Roosendaal, The Netherlands
Trier-Ehrang, Germany
Bristol, England
Shimada, Japan
Bilbao, Spain
Containerboard 8 plants within the United Corrugated container
States in midwest and manufacturing facilities
southern regions
Stevenson, Alabama Corrugating medium mill
Coated Board Phenix City, Alabama Coated paperboard mill,
Venlo, The Netherlands sheeting facilities and sawmills
Cottonton, Alabama
Greenville, Georgia
School and Office 6 manufacturing and 7 Home, office and school products
Products distribution locations manufacturing and distribution
throughout the United facilities
States, one manufacturing
and distribution location
in Toronto, Ontario, Canada
and one manufacturing
location in Nuevo Laredo,
Mexico
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Zellerbach 38 wholesale locations Paper, packaging equipment and
throughout the United supplies distribution facilities
States; one converting
operation; 41 printer-
supply centers; and 5
third party warehouses
</TABLE>
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Item 3. Legal Proceedings
In September 1993 Mead signed a Consent Order with USEPA under Section
3008(h) of the Resource Conservation and Recovery Act with respect to a landfill
(the Storage Depot Site) owned and operated by Mead Fine Paper division's
Chillicothe, Ohio, mill. Pursuant to the terms of that Order, Mead has performed
investigative and remedial work designed to control releases of hazardous
substances from the Site. USEPA has approved final reports for each of the tasks
required under the Order, and Mead is awaiting USEPA approval of a long-term
operation and monitoring program for the Site. Early in 1996, Mead and the U.S.
Navy reached an agreement under which the U.S. Navy agreed to pay approximately
$1.1 million of past costs incurred and 60% of costs to be incurred under the
Order with USEPA, including future operation and monitoring costs for 25 years.
In May 1996, Mead received a notice from USEPA alleging that Mead was not
operating and maintaining the groundwater treatment system at the Site in
accordance with the terms of the Order and demanding stipulated penalties of
approximately $250,000. Mead denied the allegations and invoked the dispute
resolution provisions of the Order. Mead asserted that the groundwater treatment
system was down for extraordinary repairs and maintenance and that the non-
operation of the system did not constitute a violation of the Order. In January
1997, the penalty dispute was resolved in accordance with the terms of the
Order, and Mead was ordered to pay a penalty of $29,000.
In March 1991, Mead was served with a complaint entitled Beazer East Inc.
----------------
v. The Mead Corporation, C.A. No. 91-0408, filed in the United States District
- -----------------------
Court for the Western District of Pennsylvania. The complaint alleges that Mead
is liable to Beazer for contribution for past and future environmental
remediation costs to be incurred by Beazer as a result of any corrective
measures required at the Woodward Facility located in Dolomite, Alabama. Mead
acquired the Woodward Facility by merger in 1968, and in 1974 sold it to
Koppers, Inc., which was later acquired by Beazer. Proceedings continue in court
regarding Beazer's contribution claim. Although the extent of contamination and
the method of remediation to be required are not known at this time, based on
information currently available to Mead, after considering established reserves,
rights to contribution and potential insurance coverage, Mead does not expect
this proceeding will have a material adverse effect on the financial condition
or results of operations of the Company.
The Tennessee Department of Environment and Conservation ("TDEC") advised
Mead in September 1991 that a closed coke manufacturing facility located in
Chattanooga, Tennessee (the "Coke Plant Site") is a hazardous substance site
within the meaning of the Tennessee Hazardous Waste Management Act, and that
Mead may be a potentially responsible or liable party. In June 1994 Mead agreed
with TDEC to commence a removal action at the closed coke plant site to permit
demolition of structures, removal of asbestos, control of surface water ponding
and repairs to fencing. The removal action was completed by December 1994. In
August 1993, the federal Agency for Toxic Substances and Disease Registry
("ATSDR") issued a health advisory for a site identified as the Tennessee
Products Site, which included the coke manufacturing facility formerly owned by
Mead. In January 1994, the USEPA proposed adding the Tennessee Products Site to
the National Priorities List ("NPL"). Mead objected to the proposed listing on
several grounds, but in particular because of the inclusion of the coke facility
with non-contiguous, geographically distinct properties in the area, including
the Chattanooga Creek. In September 1995, the USEPA promulgated a final listing
of the Tennessee Products Site. In December 1995, Mead filed a notice of appeal
in the Court of Appeals for the District of Columbia challenging the USEPA's
listing action. In November 1996, the Court of Appeals ruled in Mead's favor and
vacated the inclusion of the Coke Plant Site as part of the Tennessee Products
Site. Jurisdiction over the coke plant property reverted back to the State of
Tennessee. The coke plant was owned by the Defense Plant Corporation during
World War II and sold by the War Assets Administration in 1946. Woodward Iron
Company, formerly a division of Mead, acquired the coke plant in 1964, and Mead
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sold the coke plant site to third parties in 1974. Although the extent of
contamination and the possible methods of remediation are not known at this
time, based on information currently available to Mead, after considering
established reserves, rights to contribution and potential insurance coverage,
Mead does not believe that this proceeding will have a material adverse effect
on the financial condition or results of operations of the Company.
In June 1996, USEPA announced plans to undertake an interim removal action
involving the excavation and treatment/disposal of bulk tar deposits located in
or near the Chattanooga Creek and certain waste piles located near the Coke
Plant Site. Costs of the proposed removal action were estimated by USEPA to be
approximately $5.1MM. In July 1996, several PRPs, including Mead and the U.S.
Department of Defense, received special notice letters from USEPA advising them
of their potential liability for the removal action. In December 1996, USEPA
issued Unilateral Administrative Orders under Section 106 of CERCLA to Mead and
two other private parties. In January 1997, Mead indicated its intent to not
comply with the 106 Order. Preliminary analyses by USEPA have indicated that
dumping in Chattanooga Creek occurred when the coke plant was doubled in size to
meet World War II government requirements. A party who, without sufficient
cause, refuses to comply with an order issued under Section 106 of CERCLA may be
subject to fines of up to $27,500 per day and punitive damages in an amount up
to three times the costs incurred by the USEPA as a result of the failure to
comply with such order. Mead believes, based on its review of the facts and the
law applicable to the matter, including the absence of findings by the USEPA,
that it has sufficient cause for its decision not to comply with the 106 Order.
However, if the USEPA decides to bring an enforcement action against Mead as a
result of its failure to comply with the 106 Order, there can be no assurance as
to the outcome of such action.
In 1996, Mead received proposed Findings and Orders from Ohio EPA in
connection with various alleged, unrelated air violations at the Mead Fine Paper
mill in Chillicothe, Ohio dating back to 1989. The alleged violations concerned
particulate emissions from a coal-fired boiler in 1989, the alleged absence of a
permit for the facility's chlorine unloading station and the delayed
installation of equipment to control odors. Mead has objected to the Findings
and Orders and is negotiating with the Agency. Mead does not believe that any
such proceeding will have a material adverse effect on the Company.
Additional information is included in Part I, Item 1, "Business--
Environmental Laws and Regulations," Note L on pages 44-45 and Note P on
page 50.
Mead is involved in various other litigation and administrative proceedings
arising in the normal course of business, which, in the opinion of management,
after considering established reserves, will not have a material adverse effect
on the financial condition or results of operations of Mead.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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Executive Officers of the Company
The Executive Officers of Mead as of February 1, 1997, their ages, their
positions and offices with Mead, and the principal occupation (unless otherwise
stated, position is with Mead) of such Executive Officers during the past five
years are as follows:
<TABLE>
<CAPTION>
Name Age Position and Office
---- --- -------------------
<S> <C> <C>
William R. Graber 53 Vice President and Chief Financial Officer
since December 1993; prior to that Vice
President and Treasurer since April 1993;
Treasurer since September 1992; Controller
since April 1991.
Elias M. Karter 56 Executive Vice President since April,
1996; prior to that Vice President,
Operating Officer since July 1994; prior to
that Vice President, Manufacturing &
Technology.
Raymond W. Lane 48 Executive Vice President since April, 1996;
prior to that Vice President, Operating
Officer since July 1994; prior to that
President of Mead School and Office Products
Division.
Steven C. Mason 60 Director; Chairman of the Board and Chief
Executive Officer since May 1992; prior to
that President from December 1994 to April
1996, and Vice Chairman from April 1991 to
May 1992.
Charles J. Mazza 54 Vice President, Human Resources.
Wallace O. Nugent 58 Vice President, Purchasing and Logistics
since January 1993; prior to that Vice
President, Marketing and Supply.
Thomas E. Palmer 57 Vice President, General Counsel and
Secretary since November 1996; prior to that
Vice President and General Counsel since
September 1991.
Jerome F. Tatar 50 Director; President and Chief Operating
Officer since April 1996; prior to that
Vice President, Operating Officer since July
1994; prior to that President of Mead Fine
Paper Division.
</TABLE>
All Executive Officers of Mead are elected annually by the Board of Directors.
11
<PAGE>
<TABLE>
<CAPTION>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Mead's Common Shares are listed on the New York, Chicago and Pacific Stock
Exchanges, trading under the symbol "MEA." Information on market prices and
dividends is set forth below:
MARKET PRICES PER COMMON SHARE
- ------------------------------
1996 1995
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter $57.625 $49.000 $55.500 $48.625
Second quarter 57.625 50.875 59.750 48.625
Third quarter 61.375 48.500 64.125 57.250
Fourth quarter 60.375 54.500 59.500 50.500
DIVIDENDS PAID PER COMMON SHARE
- -------------------------------
1996 1995
---- ----
First quarter $ .28 $ .25
Second quarter .30 .28
Third quarter .30 .28
Fourth quarter .30 .28
----- -----
Year $1.18 $1.09
===== =====
</TABLE>
The number of Common shareowners of record as of February 25, 1997, was
52,236,180. See Note H on pages 39-40 for information regarding the amount of
retained earnings available for dividends.
12
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
Five-Year Data on Operations, Liquidity, Financial Condition and Capital
Resources
(All dollar amounts in millions, except per share amounts)
- ------------------------------------------------------------------------------------------------
Year Ended December 31 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net sales $4,706.5 $5,179.4 $4,557.5 $4,239.0 $4,208.4
Earnings from continuing operations 189.9 342.5 89.6 95.7 13.7
Earnings from continuing operations per
common and common equivalent share 3.57 6.19 1.52 1.61 .23
Liquidity:
Working capital 431.6 545.5 806.5 380.3 375.2
Current ratio 1.6 1.7 1.7 1.6 1.6
Assets:
Property, plant and equipment-net 3,120.4 2,364.1 2,313.9 2,239.6 2,175.1
Total assets 4,985.9 4,372.8 4,862.6 4,073.3 3,934.4
Capital:
Borrowed capital-long-term debt 1,239.7 694.8 957.7 1,360.0 1,317.5
Equity capital 2,246.4 2,160.2 2,182.6 1,578.0 1,495.4
-------- -------- -------- -------- --------
Total capital $3,486.1 $2,855.0 $3,140.3 $2,938.0 $2,812.9
Borrowed capital as a
percent of total capital 35.6% 24.3% 30.5% 46.3% 46.8%
Cash dividends per common share $ 1.18 $ 1.09 $ 1.00 $ 1.00 $ 1.00
</TABLE>
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
REVIEW OF OPERATIONS
--------------------
OVERVIEW OF 1996
Sales volume increased for many of Mead's major products in 1996, but earnings
from operations did not reach the record level of 1995, as a general weakening
in market demand led to a decline in prices for pulp, paper and containerboard
from the levels reached in the prior year. Price declines were significant for
coated papers, corrugating medium and pulp. Pricing was relatively stable in
specialty papers, carbonless papers and coated paperboard. Mead's mills and
facilities operated well in 1996.
Earnings improved in 1996 over 1995 at Packaging, Specialty Paper, Coated Board
and Gilbert Paper. For 1996, earnings decreased at Publishing Paper,
Containerboard, Fine Paper, Zellerbach, School and Office Products and Mead's
Northwood affiliates.
Sales revenue of $4.707 billion declined from $5.179 billion in 1995 as a result
of lower pricing in many businesses and lower printing paper sales volume in
Mead's distribution business. Pricing had strengthened in 1994 and 1995,
especially for pulp, coated paper, corrugating medium and coated paperboard.
However, in the fourth quarter of 1995, prices for many grades started to weaken
as market demand softened. Prices continued to decline through much of 1996.
Within Mead's paper operations, sales volume of coated papers produced at
Escanaba, Michigan, and Chillicothe, Ohio, increased significantly during 1996
as customer orders increased during the second half of the year. Sales volume of
carbonless and specialty papers also increased in 1996. Lower prices for coated
papers, however, led to lower earnings for the paper segment. In the fourth
quarter of 1996, Mead acquired an integrated coated paper mill in Rumford,
Maine, which strengthened the company's position as a leading producer of a full
range of coated papers, and enhanced its position in specialty papers. The
acquisition included 667,000 acres of timberland which increased Mead's
integrated fiber supply.
At the Containerboard division, a steep drop in selling prices during the year
led to a significant decline in operating results from 1995, despite favorable
operating performance and increased sales volume of medium. The division
completed construction and started up a second paperboard machine in the third
quarter of 1996 ahead of schedule. Sales and earnings at Mead Packaging
continued to grow worldwide. At Coated Board, operating efficiencies led to
increased production, and earnings improved, despite a slight decline in sales
volume.
Sales and earnings for Mead's distribution business, Zellerbach, declined as
market weakness, especially in the commercial printing market, led to lower
pricing and sales volume. For School and Office Products, sales volume continued
to improve, although earnings were slightly below 1995's record level on lower
prices for paper-based products.
14
<PAGE>
<TABLE>
<CAPTION>
Earnings Per Share Analysis
- -----------------------------------------------------------------
1996 1995 1994
--------- ------- ---------
<S> <C> <C> <C>
Continuing operations
before significant items $3.57 $6.19 $ 2.29
Significant items (.77)
----- ----- ------
Continuing operations 3.57 6.19 1.52
Discontinued operations .10 .14 9.87
Extraordinary item (.18)
----- ----- ------
Net earnings $3.67 $6.33 $11.21
===== ===== ======
- -----------------------------------------------------------------
</TABLE>
In 1996, the company realized a gain of $5.4 million ($.10 per share) resulting
from the sale of a previously discontinued business, Mead Imaging. In 1996, the
company also completed the sale of its previously discontinued reinsurance
business with no impact on earnings.
In 1995, the company realized a gain of $7.5 million ($.14 per share) resulting
from adjustments related to the sale of its Electronic Publishing segment in
1994. In 1994, the company realized $9.87 per share from discontinued operations
which consisted of a gain on the sale of the Electronic Publishing segment, that
segment's operating earnings through the sale date, adjustments affecting Mead's
reinsurance business and charges related to environmental matters at the
company's discontinued Industrial Manufacturing segment. The extraordinary item
in 1994 of $.18 was for per share losses associated with the prepayment of debt.
The company also recorded significant items totaling $.77 per share. Those items
included charges for the estimated loss from the sale of the Kingsport,
Tennessee, paper mill, facilities consolidations and related severance primarily
at Zellerbach, the negative effect of an unusually large dollar amount of
pension settlement payments and other smaller matters. Also included in
significant items is the positive effect of an amount for Mead's share of
Northwood's earnings due to refunds of countervailing duties on lumber exports
from Canada in prior years.
Depreciation, amortization and depletion of property, plant and equipment
amounted to $203 million in 1996, compared to $191 million in 1995 and $188
million in 1994. Most of the increase in 1996 was a result of the acquisition of
the Rumford mill in November 1996.
PAPER
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Segment Summary (in millions) 1996 1995 1994
- --------------- -------- -------- ---------
<S> <C> <C> <C>
Sales $1,251.3 $1,243.3 $1,156.8
======== ======== ========
Earnings before
significant items
and income taxes 193.8 330.8 137.9
-------- -------- --------
Significant items (65.9)
Earnings before
income taxes $ 193.8 $ 330.8 $ 72.0
======== ======== ========
- --------------------------------------------------------------
</TABLE>
Sales in Mead's paper segment increased by 1% over 1995 on an 11% increase in
volume as a result of lower selling prices for coated and uncoated papers.
Earnings before income taxes were 41% below 1995 primarily because of lower
prices.
15
<PAGE>
Market weakness which began in the second half of 1995 continued through the
first half of 1996 as customers cut back orders and worked down the inventories
they had built during a period of rising paper prices in 1994 and 1995. Weaker
markets led to a sharp decline in selling prices for coated and uncoated papers.
The average price for coated publishing paper was about 20% lower in 1996 than
in 1995. The average price for other coated paper was about 10% lower in 1996
than in 1995. By mid-year 1996, customer order levels began to improve, and
sales volume strengthened. Prices, however, continued to weaken through the end
of the year. European coated paper capacity is expected to grow at a faster rate
than domestic capacity in 1997 and 1998, and the impact of that increase on the
U.S. market is uncertain. Demand and prices for carbonless and specialty grades
remained relatively stable in 1996.
Mead's paper mills operated well in 1996. Mill inventories increased during much
of the year but as orders strengthened and shipments increased in the second
half of the year, inventories began to decline late in the year. For the full
year 1996, both production and sales volume were ahead of 1995.
In 1995, paper segment sales improved 7% over 1994. Earnings before significant
items and income taxes improved 140% as a result of higher selling prices and
productivity gains from cost reductions and improved product mix.
Mead Publishing Paper
- ---------------------
The Publishing Paper division produces coated papers for book and magazine
publishers and catalog and commercial printers.
Division sales revenue declined, and earnings were much lower in 1996 than 1995
as a result of lower selling prices for coated paper. Despite the general market
weakness that was reflected in lower pricing, both mill production and sales
volume reached record levels. Inventories at the division's Escanaba, Michigan,
publishing paper mill rose during the first half of the year. The mill took
market-related downtime in the second and third quarters of the year. As
customer order rates improved in the second half of the year, inventories
declined, ending the year about 15% below where they began.
In November 1996, Mead acquired an integrated coated paper mill in Rumford,
Maine, including 600,000 acres of timberland. The mill adds about 600,000 tons
of annual capacity, primarily coated paper. The mill also produces high-value
specialty papers and some uncoated commodity papers. The purchase strengthens
Mead's position as a leading producer of a full range of coated papers and is
expected to result in increased efficiencies in pulp usage, manufacturing,
distribution and service. The mill will be managed as part of the Publishing
Paper division.
In 1995, the division's sales increased over 1994 and earnings improved
significantly as a result of a rapid rise in coated paper prices and strong
volume during much of the year.
Mead Fine Paper
- ---------------
Mead Fine Paper produces coated and uncoated papers for business and specialty
uses and is a leading producer of carbonless copy papers.
Division sales increased over 1995 as a result of increased sales volume of
coated, uncoated and carbonless papers. Earnings were below 1995, however, as
weaker overall market demand, which began in the second half of 1995, continued
during most of the year and led to lower selling prices for coated and uncoated
papers. The effect on earnings of lower selling prices was partially offset by
production efficiencies, improved sales mix and cost
16
<PAGE>
reductions. Paper mill production increased in 1996 for all grades. Mill
inventories increased during the first part of the year but were reduced in the
second half. The enhanced coated paper grade line introduced in 1995 was well
received in the marketplace in 1996. The grade line introduction was the result
of a $110 million mill upgrade. Coated paper shipments in 1996 were
significantly ahead of 1995 levels. Also during the year, distribution through
paper merchant channels was expanded in the western United States.
In 1995, sales increased over 1994, and operating earnings improved as a result
of higher selling prices for paper and continued productivity improvements,
primarily in cost control at the Chillicothe, Ohio, mill. In May of 1995, Mead
completed the sale of the division's mill in Kingsport, Tennessee.
Mead Specialty Paper
- --------------------
Mead Specialty Paper manufactures a variety of decorative papers for both high
and low pressure laminates used in furniture, flooring, countertops and
cabinets, and specialty grades used in various industrial applications,
including automotive.
The division's sales and earnings improved in 1996 over 1995, driven by a
stronger sales mix, new product introductions and productivity improvements.
Overall production and sales volumes were up slightly from 1995. Costs remained
stable during the year as costs for purchased pulp moderated from high levels in
1995. Product growth continued in wear-resistant overlay papers used in flooring
applications.
Demand for decorative papers, which had weakened in the second half of 1995,
began to strengthen in mid-1996 as housing and remodeling markets improved.
Automotive markets remained strong throughout 1996.
In 1995, earnings improved over 1994, based on higher selling prices, a strong
sales mix and productivity improvements.
Gilbert Paper
- -------------
The Gilbert Paper division produces high-quality communications papers,
including cotton-content bonds, specialty text and cover papers and papers for
ink-jet and laser printers.
Sales increased over 1995 on higher sales volume, despite lower average selling
prices. Earnings were up slightly over 1995 as a result of higher sales volume
and lower costs for purchased wood pulp. Sales volume growth was driven by the
continued increase in retail sales of ink-jet and laser printing papers which
began in 1995, reflecting growing demand from small businesses and home offices.
During the year the division introduced a product line aimed at the growing
market for mid-priced text and cover papers, upgraded three product lines and
began construction of a converting and distribution facility to be completed in
the first half of 1997.
In 1995, sales increased over 1994 as a result of higher selling prices and
increased volume, but earnings declined slightly on higher costs for purchased
pulp and expenses related to capital improvements and market growth strategies.
17
<PAGE>
<TABLE>
<CAPTION>
PACKAGING AND PAPERBOARD
- -------------------------------------------------------------
Segment Summary (in millions) 1996 1995 1994
- --------------- -------- -------- --------
<S> <C> <C> <C>
Sales $1,371.4 $1,428.8 $1,254.5
======== ======== ========
Earnings before
significant items and
income taxes 138.6 184.9 130.7
Significant items (6.9)
-------- -------- --------
Earnings before
income taxes $ 138.6 $ 184.9 $ 123.8
======== ======== ========
- --------------------------------------------------------------
</TABLE>
Sales for the Packaging and Paperboard segment decreased 4% in 1996 despite 7%
higher sales volume. Earnings declined as a result of much lower selling prices
for corrugating medium. Near the end of 1995, prices for medium began to decline
from peak levels, falling sharply in 1996 following an increase in industry
capacity and a weakening in demand for corrugated containers. New U.S.
containerboard capacity is expected to grow at a more moderate rate in the next
two years than it did over the last several years. Market prices for medium
averaged almost 45% lower in 1996 than in 1995, and prices for containers
declined 10%.
1995 sales increased over 1994, and earnings improved on the strength of higher
prices for both corrugating medium and coated paperboard as well as productivity
improvements.
Mead Coated Board
- -----------------
Mead Coated Board manufactures coated unbleached kraft paperboard for use in
multiple beverage packaging and folding cartons. Customers include folding
carton manufacturers in North America and Europe, and Mead Packaging's worldwide
business.
Sales for the division were up slightly from 1995. Earnings improved slightly
from the prior year, as lower sales volume of paperboard was offset by cost
reductions and production efficiencies and higher sales volume and prices at the
division's sawmill operations. Sales of coated paperboard to Mead Packaging for
multiple beverage packaging increased during the year. Growth continued in sales
and earnings from coated paperboard sold to European folding carton
manufacturers. In the North American folding carton market, weak demand which
started in the fourth quarter of 1995 continued into 1996 and resulted in lower
sales volume and a decline in selling prices during the second half of the year.
In the division's sawmill operations, results improved in 1996 as sawlog costs
declined and a strengthening in the housing market led to an increase in sales
volume and selling prices for wood products.
Production at the division's Mahrt mill in Alabama continued to increase in
1996, moving up 3% from 1995. Inventories increased during the year, in part
because of a decline in sales volume, and also in preparation for a scheduled
shutdown and rebuild of the mill's #1 paperboard machine in 1997. The machine
rebuild includes extensive quality improvements and will increase machine
capacity by 35,000 tons annually beginning in 1998. The rebuild is expected to
be completed in mid-1997. During 1996, the rebuild of the mill's #2 paperboard
machine was completed. Both rebuilds are part of a $60 million capital
investment program begun in 1995 to improve quality.
18
<PAGE>
In 1995, division earnings improved over 1994 as a result of higher selling
prices for paperboard as well as productivity improvements that included
cost reductions, higher production volume and favorable sales mix.
Mead Packaging
--------------
Mead Packaging is a leading worldwide supplier of multiple beverage
packaging and packaging systems. It also provides multiple packaging for
food and other products. Customers include large and small brewers, soft
drink bottlers, and food and other consumer products companies.
Earnings improved over 1995 on increased sales volume, cost reductions and
productivity improvements from increased efficiencies in converting
operations. Selling prices for beverage cartons improved modestly overall,
but varied by market. Sales volume increased worldwide as a result of
strong demand in the North American market and the placement of new
packaging systems in Europe, South America, Asia and Australia.
International sales and earnings were ahead of 1995. During 1996, the
division consolidated some North American converting operations. It
completed construction and began operation of a new printing and converting
facility in Lanett, Alabama, closed a converting facility in Fairless
Hills, Pennsylvania, and announced the planned closing of another
converting facility in Godfrey, Illinois.
In 1995, earnings improved over 1994 on increased sales volume and
productivity improvements that resulted from cost reductions in converting
operations.
Mead Containerboard
-------------------
Mead Containerboard produces corrugating medium used in shipping containers
and operates eight corrugated container plants.
Sales and earnings declined significantly from 1995 as market weakness led
to much lower selling prices for corrugating medium and a decline in prices
and sales volume of shipping containers. Despite a slow recovery in demand
for containerboard in the second half of the year, selling prices for
medium remained depressed through the end of 1996.
During 1996, the division completed construction and started up a new
paperboard machine at its Stevenson, Alabama, mill for the production of
corrugating medium. The #2 paperboard machine, budgeted at $185 million and
scheduled for startup in the first quarter of 1997, began operation near
the end of the third quarter of 1996 and was completed for $176 million. As
a result of an early and efficient startup and increased production from
the #1 machine, overall mill production and sales volume increased
significantly in 1996. Production and sales volumes at Mead's corrugated
container plants were below 1995 levels.
In June 1996, Mead announced a capital investment program of $224 million
to expand the capacity of the new corrugating medium machine and to upgrade
the environmental systems at the mill. This second phase of construction
will add virgin pulp-making capabilities, a wood fuel boiler and additional
dryers to the new machine. It will increase annual capacity of the #2
machine from 225,000 tons to 390,000 tons and replace the mill's chemical
recovery system. Completion of the second phase of construction is expected
in 1999.
In 1995, the division's sales and earnings increased significantly over
1994 as a result of strong market demand and higher selling prices. Markets
which had been depressed in 1993, improved significantly in 1994 and the
first half of 1995 leading to improved prices for medium and containers.
19
<PAGE>
DISTRIBUTION AND SCHOOL AND OFFICE PRODUCTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Segment Summary (in millions) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales $2,083.8 $2,507.3 $2,146.2
======== ======== ========
Earnings before
significant items and
income taxes 69.3 77.3 37.8
Significant items (17.3)
-------- -------- --------
Earnings before
taxes $ 69.3 $ 77.3 $ 20.5
======== ======== ========
- ---------------------------------------------------------------
</TABLE>
Sales decreased 17% in 1996 in the Distribution and School and Office
Products segment on lower prices and volume in the distribution business.
Earnings decreased 10% for the segment as a result of declining sales at
Zellerbach, Mead's distribution business, and operating results in the
School and Office Products division that were slightly below last year's
record level. In 1995, sales and earnings increased over 1994 as a result
of strong markets and improved operations.
Zellerbach
----------
Zellerbach is a sales and marketing organization distributing value-added
solutions and services for business through its three units: printing
papers; packaging systems including equipment and supplies; and
industrial/commercial supplies.
Sales revenue declined from 1995 and 1994 levels as a result of declines in
prices in all three business units, particularly printing paper. Overall
prices for printing paper declined 15%, with prices for uncoated paper down
36% from the peak in 1995. At the end of 1996, printing paper prices
remained at low levels. In 1996, sales volume declined about 10% in the
three business units as a result of weaker market demand and the strategic
refocusing of the customer base.
Operating earnings decreased from 1995 as a result of lower prices and
volume, though margin rates improved as a result of lower product costs.
1996 operating earnings were above the 1994 level. During 1996, the
division continued to improve its processes and procedures in an effort to
increase operating efficiency and the organization's effectiveness in
serving customers.
In 1995, sales revenue increased over 1994 and operating earnings improved
significantly as a result of stronger markets, much higher selling prices
for printing papers and reduced operating expenses through operating
improvements and facility consolidations.
Mead School and Office Products
-------------------------------
Mead's School and Office Products division is a leading converter and
distributor of paper-based school supplies. It also provides stationery
products for home and office use and is the industry leader in fashion and
product design.
Division sales and earnings declined slightly from the record level of
1995, despite somewhat higher sales volume, as a result of lower selling
prices for paper-based products. Sales volume growth in the Canadian market
continued through Hilroy, the leading converter of paper-based school and
office products in Canada which Mead acquired in 1994. In 1995, division
sales and
20
<PAGE>
earnings increased over 1994 as a result of higher selling prices,
continued productivity improvement, an improved sales mix of value-added
products and the additional sales of Hilroy.
The growth in 1996 of value-added products was driven by the Five Star/R/
and Five Star/R/ First Gear/R/ lines. Strong plant operating performance
also contributed to productivity improvements in 1996.
INVESTEES
---------
Mead's primary investees are Northwood Forest Industries Limited, a large
producer of northern bleached softwood kraft (NBSK) pulp and solid wood
products in British Columbia, Canada, and Northwood Panelboard Company, an
oriented structural board (OSB) mill in Bemidji, Minnesota. Both are 50%-
owned by Mead and Noranda Forest Inc. of Canada. Pulp from Northwood is
sold throughout the world by Mead Pulp Sales. Sales of wood products,
including lumber, plywood, and OSB, are managed by Noranda Forest Sales
Inc. Additionally, as part of the purchase of the Rumford, Maine, paper
mill, Mead acquired a 30% ownership interest in a limited partnership which
operates the cogeneration facility located at the mill.
1996 sales of the Northwood companies were down 16% from 1995 as
significantly lower prices for pulp, lower sales volume for pulp and lower
OSB prices were only partially offset by stronger lumber prices. Mead's
share of all investees' earnings in 1996 of $4.3 million was well below
1995 earnings of $39.0 million. This decrease in earnings was due primarily
to lower pulp prices and reduced operating performance in pulp as a result
of lower production and market-related downtime. Mead's share of 1994
earnings was $59.8 million which included refunds of lumber export duties
related to prior years.
In the first half of 1996, worldwide demand for chemical paper-grade market
pulp declined 3% from the 1995 level as a result of a major reduction in
customer paper inventories and lower paper production. Northwood's NBSK
pulp list prices, which peaked in the domestic market at $985 per metric
ton (MT) in September of 1995, fell rapidly during the first quarter of
1996, bottoming out in April at $520/MT. Prices remained weak for the
balance of the year, ending marginally higher at $580/MT. Overall,
Northwood's pulp prices declined over 40% from the prior year. Pulp sales
volume declined 6% from the prior year, as a result of weaker market
demand.
Strong markets in housing, repair and remodeling in North America and
overseas led to increased consumption of solid wood products. Lumber prices
in 1996 averaged nearly 20% higher than the prior year. Lumber prices
improved in the second half of 1996 as demand strengthened following an
accord by the U.S. and Canadian governments which would impose duties on
lumber shipments to the U.S. above a specific level. The resulting
uncertainty surrounding supply led to an increase in lumber prices in 1996.
The effect on production and market prices in 1997 is uncertain. Plywood
prices were unchanged from the prior year, reflecting strong overseas
demand and tight supply due to mill closures. Despite strong OSB demand in
1996, the startup of new mills led to increased supply and lower prices in
the later part of the year. OSB prices for 1996 averaged over 20% lower
than 1995.
SELLING AND ADMINISTRATIVE EXPENSES
-----------------------------------
Selling and administrative expenses rose by 2.2% in 1996; the 1995 increase
over the prior year was 1.6%. As percentages of sales, such expenses were
12.0% in 1996, 10.7% in 1995 and 11.9% in 1994. General inflation drove
certain expenses above prior year levels, while sales-related costs were
lower due to reduced overall sales values. The 1995 dollar increase
resulted
21
<PAGE>
primarily from general inflationary pressures; however, prices for Mead's
products rose at a higher rate. Also, expenses for 1994 included
significant items related to costs associated with facilities
consolidations and related severance, the negative impact of an unusually
large dollar amount of pension settlements, and other smaller matters.
Excluding the effects of these significant items in 1994, selling and
administrative expenses increased by 6% in 1995. Most of the 1995 increase
was attributable to higher sales-related expenses at Packaging and School
and Office Products, and expenses related to new markets at those two
divisions.
INTEREST AND DEBT EXPENSE
-------------------------
Due primarily to lower average interest rates and higher amounts of
interest capitalized in 1996, interest and debt expense declined to $58
million in 1996, from $69 million in 1995. Lower average interest rates and
debt levels caused the reduction of expense in 1995 from the $101 million
level in 1994.
22
<PAGE>
FINANCIAL REVIEW
----------------
Mead acquired the net assets of a paper mill in Rumford, Maine, and related
timberlands from Boise Cascade on November 1, 1996. The acquisition, which
cost $640 million, was funded with available cash and $530 million of
borrowings.
During the year, Mead continued its stock buyback activities, repurchasing
1.1 million shares for $60 million. Stock repurchases amounted to $355
million (6.7 million shares) in 1995 and $44 million (.9 million shares) in
1994. The share repurchase and debt reduction program of the past two years
was a result of cash flows from operations and the cash flows from the late
1994 sale of Mead's Electronic Publishing segment, Mead Data Central. Cash
flows from operating and investing activities in 1994 were also
comparatively high due to the sale. Capital spending in 1996 amounted to
$433 million, up over spending levels of the past several years.
At the end of 1996, Mead's total debt aggregated $1.255 billion, up from
$768 million in 1995 and $974 million in 1994. In 1995, Mead retired $130
million of 9% debentures and $84 million of other debt. As a percentage of
total capital, Mead's total debt amounted to 35.8% at the end of 1996,
26.2% at the end of 1995 and 30.9% at the end of 1994. The ratio may change
as Mead continues its 1995 announced stock purchase program and, as
warranted, by borrowings for strategic opportunities. Mead has a $540
million bank credit agreement which extends until August 2001 and a $400
million bank credit agreement that expires October 1997.
Mead has filed a shelf registration with the Securities and Exchange
Commission that would permit the Company to offer up to $850 million of
debt securities. Up to $154 million of medium-term notes are currently
authorized to be issued as a part of that registered debt offering. In
February 1997 the Company issued $550 million of debt securities, due from
2002 through 2047, under the registration statement. As a result of the
issuance of this debt, the Company terminated the $400 million bank credit
agreement expiring in October 1997.
At the end of 1996, Mead paid a fixed or capped rate of interest on 41% of
its debt and paid a floating rate on the remainder. After giving effect to
the issuance of fixed-rate, long-term debt in February 1997, a 1% change in
the floating interest rate would result in a $.04 change in annual net
earnings per share. The estimated market value of Mead's long-term debt,
excluding capitalized leases, was $10.8 million higher than the book value
at the end of 1996.
Working capital at year-end 1996 amounted to $432 million compared with
1995 and 1994 year-end amounts of $546 million and $807 million,
respectively. A working capital reduction took place in 1996 as Mead
continued its stock buyback program and used available cash in payment of
part of the Rumford acquisition. The 1995 reduction was due to using cash
to fund the stock buyback program of early 1995. Mead's current ratios at
the end of 1996, 1995 and 1994 were 1.6, 1.7 and 1.7, respectively.
Due to several factors including the Rumford acquisition and inventory
builds in some products in 1996, company inventory levels rose to $509
million compared with $411 million in 1995 and $382 million in 1994. The
1995 growth was primarily the result of reduced demand late in the year.
The replacement value of inventories exceeded their LIFO value by $220
million at the end of 1996. Adjusted for LIFO, Mead's 1996 current ratio
would be 1.7 at year end.
23
<PAGE>
CAPITAL SPENDING
----------------
Capital spending in 1996 increased to $433 million from $263 million in
1995 and $316 million in 1994. Major projects in 1996 were the completion
of an expansion project adding a new paperboard machine at Mead's
Stevenson, Alabama, corrugating medium mill and the rebuilding of a
paperboard machine at the Mahrt coated paperboard mill in Alabama. During
1996, Mead also announced a $224 million project at Stevenson to expand the
capacity of the newly completed machine and to upgrade environmental
systems at the mill. This second phase of construction will add virgin
pulp-making capabilities, a wood fuel boiler and additional dryers to the
machine. This expansion will increase the annual capacity of the new
machine from 225,000 tons to 390,000 tons and will replace the mill's
chemical recovery system. Completion of this phase is expected in 1999.
Mead expects capital spending in 1997 will be in the range of $450 - $550
million, including approximately $30 million for timber and timberland.
Mead expects to fund this spending from 1997 operations, although some
external borrowing may be needed.
ENVIRONMENTAL PROCEEDINGS
-------------------------
Mead has been notified by the United States Environmental Protection Agency
("USEPA") or by various state or local governments that it may be liable
under federal environmental laws or under applicable state or local laws
with respect to the cleanup of hazardous substances at six sites currently
operated or used by Mead. Mead is also currently named a potentially
responsible party ("PRP"), or has received third-party requests for
contributions under federal, state or local laws with respect to at least
12 sites sold by Mead over many years or owned by contractors used by Mead
for disposal purposes. There are other former Mead facilities and those of
contractors which may contain contamination or which may have contributed
to potential Superfund sites but for which Mead has not received any notice
or claim. Mead's potential liability for all these sites will depend upon
several factors, including the extent of contamination, the method of
remediation, insurance coverage and contribution by other PRPs. Although
the costs that Mead may be required to pay for remediation of all these
owned and unowned sites are not certain at this time, Mead has reserves of
$39 million relating to current environmental litigation and proceedings
which it believes are probable and reasonably estimable.
Mead believes that it is reasonably possible that costs associated with
these sites may exceed current reserves by an amount that could range from
an insignificant amount to as much as $50 million. The estimate of this
range is less certain than the estimates upon which reserves are based.
In 1993, USEPA issued proposed regulations under the Clean Air Act and
Clean Water Act (the "Cluster Rules") intended to reduce air and water
discharges of specific substances from U.S. paper and pulp mills. At
present, these Cluster Rules are in the proposal stage, and are expected to
be finalized in 1997. In 1995, USEPA issued final regulations implementing
the Federal Great Lakes Critical Programs Act (the "GLI"). The GLI
regulations require the Great Lakes states to develop regulatory programs
for the protection and enhancement of the water quality of the Great Lakes,
consistent with USEPA's promulgated guidelines. Implementation of the GLI
regulations by the affected states is expected in 1997. If the Cluster
Rules are enacted in their present form and if the states implement
regulations identical to the USEPA regulations under GLI, these regulations
would significantly increase Mead's capital spending and operating costs
over the next five years. However, Mead does not expect the Cluster Rules
to be enacted as proposed in their present form. Mead has included in its
capital spending plans amounts necessary to comply with the
24
<PAGE>
Cluster Rules in the form that Mead expects to be enacted. Michigan has
proposed regulations substantially similar to the federal GLI regulations.
Mead has not included in its capital spending plans amounts necessary to
comply with these regulations. Ohio has determined at this time to not
apply its GLI regulations in the Ohio River Basin, including Mead's
Chillicothe facility.
EFFECTS OF INFLATION
Inflation remained at a moderate rate during 1996 and is not expected to
have a significant effect in the near term.
25
<PAGE>
<TABLE>
<CAPTION>
Item 8. Financial Statements and Supplementary Data
Financial Statements Page
----
<S> <C>
Financial Statements:
Independent Auditors' Report ........................ 27
Statements of earnings .............................. 28
Balance sheets ...................................... 29-30
Statements of shareowners' equity ................... 31
Statements of cash flows ............................ 32
Notes to financial statements ....................... 33-52
</TABLE>
Supplementary Data
Selected quarterly financial data .................... 53
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Mead Corporation
Dayton, Ohio
We have audited the accompanying balance sheets of The Mead Corporation and
consolidated subsidiaries as of December 31, 1996 and 1995, and the related
statements of earnings, shareowners' equity and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)2. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Mead Corporation and consolidated
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Dayton, Ohio
January 23, 1997
27
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
<S> <C> <C> <C>
Year Ended December 31 1996 1995 1994
(All amounts in millions,
except per share amounts)
Net sales $4,706.5 $5,179.4 $4,557.5
Cost of products sold 3,803.9 4,104.0 3,805.8
-------- -------- --------
Gross profit 902.6 1,075.4 751.7
Selling and administrative expenses 564.0 552.0 543.1
-------- -------- --------
Earnings from operations 338.6 523.4 208.6
Other revenues (expenses) - net (Note J) 13.7 33.7 (55.1)
Interest and debt expense (57.7) (69.4) (101.1)
-------- -------- --------
Earnings from continuing operations before
income taxes 294.6 487.7 52.4
Income taxes (Note K) 109.0 184.2 22.6
-------- -------- --------
Earnings from continuing operations before
equity in net earnings of investees 185.6 303.5 29.8
Equity in net earnings of investees (Note D) 4.3 39.0 59.8
-------- -------- --------
Earnings from continuing operations 189.9 342.5 89.6
Discontinued operations (Note L) 5.4 7.5 617.4
-------- -------- --------
Earnings before extraordinary item 195.3 350.0 707.0
Extraordinary item (Note F) (11.3)
-------- -------- --------
Net earnings $ 195.3 $ 350.0 $ 695.7
======== ======== ========
Per common and common equivalent share (Note A):
Earnings from continuing operations $ 3.57 $ 6.19 $ 1.52
Discontinued operations .10 .14 9.87
-------- -------- --------
Earnings before extraordinary item 3.67 6.33 11.39
Extraordinary item (.18)
-------- -------- --------
Net earnings $ 3.67 $ 6.33 $ 11.21
======== ======== ========
Average common and common equivalent
shares outstanding 53.2 55.3 62.6
======== ======== ========
</TABLE>
See notes to financial statements.
28
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
BALANCE SHEETS
ASSETS
<S> <C> <C>
December 31 1996 1995
(All dollar amounts in millions)
Current assets:
Cash and cash equivalents $ 20.6 $ 292.6
Accounts receivable, less allowance for
doubtful accounts of $28.0 in 1996 and
$26.8 in 1995 578.2 585.7
Inventories (Note C) 509.3 410.5
Deferred tax asset (Note K) 36.6 29.5
Other current assets 44.6 49.0
-------- --------
Total current assets 1,189.3 1,367.3
Investments and other assets:
Investees (Note D) 154.9 141.0
Other assets (Note E) 521.3 500.4
-------- --------
676.2 641.4
Property, plant and equipment, at cost (Note O):
Land and land improvements 154.0 130.5
Buildings 585.7 524.5
Machinery and equipment 3,929.7 3,309.3
Construction in progress 162.9 120.7
-------- --------
4,832.3 4,085.0
Less accumulated amortization and depreciation (2,078.1) (1,954.6)
-------- --------
2,754.2 2,130.4
Timber and timberlands, net of timber depletion 366.2 233.7
-------- --------
Property, plant and equipment, net 3,120.4 2,364.1
-------- --------
Total assets $4,985.9 $4,372.8
======== ========
</TABLE>
See notes to financial statements.
29
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
LIABILITIES AND SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
(All dollar amounts in millions)
Current liabilities:
Accounts payable:
Trade $ 271.1 $ 242.3
Affiliated companies 34.9 52.1
Outstanding checks 52.9 86.1
Accrued wages 99.7 96.6
Taxes, other than income 46.0 44.1
Other current liabilities (Note P) 238.0 227.6
Current maturities of long-term debt 15.1 73.0
-------- --------
Total current liabilities 757.7 821.8
Long-term debt (Note F) 1,239.7 694.8
Commitments and contingent liabilities
(Notes O and P)
Deferred items:
Income tax liability (Note K) 514.2 449.7
Postretirement benefits (Note N) 126.9 117.0
Other 101.0 129.3
-------- --------
Total deferred items 742.1 696.0
Shareowners' equity (Notes H and I):
Common shares 155.5 157.8
Additional paid-in capital 13.2
Foreign currency translation adjustment (2.4) (.8)
Retained earnings 2,080.1 2,003.2
-------- --------
2,246.4 2,160.2
-------- --------
Total liabilities and shareowners' equity $4,985.9 $4,372.8
======== ========
</TABLE>
See notes to financial statements.
30
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF SHAREOWNERS' EQUITY
(All dollar amounts in millions, except per
share amounts; all share amounts in thousands)
<TABLE>
<CAPTION>
Foreign Net
Common Shares Additional Currency Unrealized
--------------- Paid-In Translation Gain on Retained
Shares Amount Capital Adjustment Securities Earnings
--------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 59,185 $176.5 $ 26.3 $(7.7) $9.1 $1,373.8
Net earnings 695.7
Stock option
activity - net 363 1.1 12.8
Shares issued 28 .1 1.2
Shares purchased (927) (2.8) (40.3) (1.3)
Cash dividends -
$1.00 a common
share (59.4)
Change in net
unrealized gain
on securities (5.4)
Foreign currency
translation
adjustment 2.9
------ ------ ---- --- ---- --------
December 31, 1994 58,649 174.9 (4.8) 3.7 2,008.8
Net earnings 350.0
Stock option
activity - net 936 2.8 38.3
Shares issued 9 .1 .4
Shares purchased (6,697) (20.0) (38.7) (296.0)
Cash dividends -
$1.09 a common
share (59.6)
Change in net
unrealized gain
on securities (3.7)
Foreign currency
translation
adjustment 4.0
------ ------ ----- --- ---- --------
December 31, 1995 52,897 157.8 (.8) 2,003.2
Net earnings 195.3
Stock option
activity - net 334 .9 13.3
Shares issued 2 .1
Shares purchased (1,097) (3.2) (.2) (56.5)
Cash dividends -
$1.18 a common
share (61.9)
Foreign currency
translation
adjustment (1.6)
------ ------ ----- ----- ---- ---------
December 31, 1996 52,136 $155.5 $13.2 $(2.4) $2,080.1
====== ====== ===== ===== ==== =========
</TABLE>
See notes to financial statements.
31
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(All dollar amounts in millions)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 195.3 $ 350.0 $ 695.7
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, amortization and depletion
of property, plant and equipment 203.0 190.7 188.1
Depreciation and amortization of
other assets 47.4 46.0 37.4
Deferred income taxes 54.2 89.1 (7.3)
Investees - earnings and dividends 7.1 (29.5) (46.8)
Discontinued operations (5.4) (7.5) (617.4)
Extraordinary item 11.3
Other (16.2) (65.1) 47.5
Change in assets and liabilities, excluding
effects of acquisitions and dispositions:
Accounts receivable 49.0 20.9 (109.4)
Inventories (25.8) (52.7) 65.0
Other current assets 6.6 (23.4) 3.7
Accounts payable and accrued liabilities (49.2) (325.8) 62.1
Cash (used in) discontinued operations (40.5) (5.8) (2.9)
--------- ------- --------
Net cash provided by operating
activities 425.5 186.9 327.0
--------- ------- --------
Cash flows from investing activities:
Capital expenditures (433.4) (263.0) (315.6)
Additions to equipment rented to others (40.6) (56.0) (49.0)
Payments for acquired businesses (640.4) (22.0)
Proceeds from sale of businesses 19.6 39.8 1,500.0
Restricted funds 461.0 (461.0)
Other 19.2 20.1 (18.8)
--------- ------- --------
Net cash provided by (used in)
investing activities (1,075.6) 201.9 633.6
--------- ------- --------
Cash flows from financing activities:
Additional borrowings 561.1 6.0 175.6
Payments on borrowings (75.5) (213.5) (572.9)
Cash dividends paid (61.9) (59.6) (59.4)
Common shares issued 14.3 41.6 15.2
Common shares purchased (59.9) (354.7) (44.4)
--------- ------- --------
Net cash provided by (used in)
financing activities 378.1 (580.2) (485.9)
--------- ------- --------
Increase (decrease) in cash and cash
equivalents (272.0) (191.4) 474.7
Cash and cash equivalents at beginning of year 292.6 484.0 9.3
--------- ------- --------
Cash and cash equivalents at end of year $ 20.6 $ 292.6 $ 484.0
========= ======= ========
</TABLE>
See notes to financial statements.
32
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A - Significant Accounting Policies
CONSOLIDATION. The accompanying statements include the accounts of the
Company and its wholly-owned subsidiaries. Investments in investees are
stated at cost plus the Company's equity in their undistributed net
earnings since acquisition. All significant intercompany transactions are
eliminated.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with an original maturity of three months or less when
purchased to be cash equivalents.
INVENTORIES. The inventories of finished and semi-finished products and
raw materials are stated at the lower of cost or market, determined on the
last-in, first-out (LIFO) basis. Stores and supplies are stated at cost
determined on the first-in, first-out (FIFO) basis.
OTHER ASSETS. Included in other assets are goodwill and other intangibles
which are being amortized using the straight-line method over their
estimated useful lives of 10 to 40 years. The Company periodically reviews
goodwill balances for impairment based on the expected future cash flows of
the related businesses acquired.
DEPRECIATION AND DEPLETION. Depreciation of property, plant and equipment
and amortization of capital leases and land improvements are calculated
using the straight-line method over the estimated useful lives of the
properties. The rates used to determine timber depletion are based on
projected quantities of timber available for cutting and are calculated
annually.
INTEREST RATE AND FOREIGN EXCHANGE FINANCIAL INSTRUMENTS. Amounts
currently due to or from interest rate swap counterparties are recorded in
interest expense in the period in which they accrue. The premiums paid to
purchase interest rate caps, as well as gains or losses on terminated
interest rate swap and cap agreements, are included in long-term
liabilities or assets and amortized to interest expense over the shorter of
the original term of the agreements or the life of the financial
instruments to which they are matched. Gains or losses on foreign currency
forward contracts are recognized currently through income and generally
offset the transaction losses or gains on the foreign currency cash flows
which they are intended to hedge.
ENVIRONMENTAL LIABILITIES. The Company records accruals for environmental
costs based on estimates developed in consultation with environmental
consultants and legal counsel in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 5. The estimated
costs to be incurred in closing existing landfills, based on current
environmental requirements and technologies, are accrued over the expected
useful lives of the landfills.
ESTIMATES AND ASSUMPTIONS. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported revenues and expenses
during a period. Estimates and assumptions are also used in the disclosures
of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
33
<PAGE>
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE. Net earnings per
common and common equivalent share are computed by dividing net earnings by
the weighted average number of common shares and the dilutive effect, if
any, of common share equivalents (convertible subordinated debentures and
stock options) outstanding during each year. Net earnings have been
adjusted by adding back interest expense (net of tax) on the debentures
when dilutive. Fully diluted net earnings per share data are substantially
the same as primary net earnings per share.
STOCK OPTIONS. The Company measures compensation cost for stock options
issued to employees using the intrinsic value based method of accounting in
accordance with Accounting Principles Board Opinion No. 25.
B - Acquisition
In November 1996, the Company acquired an integrated coated paper mill, and
related accounts receivable and inventories, in Rumford, Maine, 667,000
acres of timberlands and a partnership interest in a cogeneration facility
associated with the mill from Boise Cascade Corporation for $640.4 million
in cash. The mill primarily produces several grades of coated paper and
some specialty and commodity grades. The acquisition has been accounted for
as a purchase, and the results of its operations are reflected in the
accompanying financial statements from the date of acquisition.
To comply with disclosures required by generally accepted accounting
principles related to acquisitions, the following unaudited pro forma
financial information is presented as though the acquisition occurred at
the beginning of 1995. The expected synergy of this acquisition after
integration with existing businesses is not permitted to be reflected in
the pro forma results. Therefore, pro forma results are not indicative of
results of operations in the future or in the periods presented below.
The following pro forma information includes adjustments for income taxes,
interest expense and depreciation and depletion expense to reflect the
accounting bases used to record the acquisition:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995
<S> <C> <C>
(All dollar amounts in millions,
except per share amounts)
(Unaudited)
Net sales $5,005.2 $5,705.3
======== ========
Earnings from continuing operations $ 176.5 $ 400.0
======== ========
Net earnings $ 181.9 $ 407.5
======== ========
Per common and common equivalent share:
Earnings from continuing operations $ 3.32 $ 7.23
======== ========
Net earnings $ 3.42 $ 7.37
======== ========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
C - Inventories
December 31 1996 1995
(All dollar amounts in millions)
<S> <C> <C>
Finished and semi-finished products $ 337.8 $ 270.4
Raw materials 91.2 86.9
Stores and supplies 80.3 53.2
------- -------
$ 509.3 $ 410.5
======= =======
</TABLE>
For purposes of comparison to non-LIFO companies, inventories valued at
current replacement cost would have been $220.0 million and $229.3 million
higher than reported at December 31, 1996 and 1995, respectively.
D - Investees
The Company's principal investee is the 50%-owned Northwood Forest
Industries Ltd., which manufactures bleached softwood kraft pulp, lumber
and plywood. Under an agreement with Northwood, Mead is entitled to
purchase the pulp it requires. Additionally, as part of the purchase of the
Rumford, Maine, paper mill, the Company acquired a 30% ownership interest
in a limited partnership which operates the cogeneration facility located
at the mill.
Total investments in investees are as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
(All dollar amounts in millions)
<S> <C> <C>
Investments, at cost $ 46.9 $ 25.5
Foreign currency translation adjustment (10.5) (10.0)
Equity in undistributed net earnings 118.5 125.5
------ ------
Total investments in investees (equal to
Mead's share of investees' equity) $154.9 $141.0
====== ======
The summarized operating data for all investees
is presented in the following table:
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Revenues:
Sales to Mead $ 21.6 $ 45.8 $ 38.6
Sales to other customers 647.2 730.2 692.6
------ ------ ------
$668.8 $776.0 $731.2
====== ====== ======
Gross profit $ 49.5 $160.0 $215.6
====== ====== ======
Net earnings $ 14.0 $ 86.8 $131.1
====== ====== ======
Mead's share of net earnings, after
elimination of intercompany
transactions and reduction for Mead's
income taxes on partnership earnings $ 4.3 $ 39.0 $ 59.8
====== ====== ======
Dividends and partnership
distributions received $ 13.4 $ 13.8 $ 18.9
====== ====== ======
</TABLE>
35
<PAGE>
The summarized balance sheet data for all investees is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31 1996 1995
(All dollar amounts in millions)
Current assets $ 248.3 $ 268.0
Noncurrent assets 801.6 650.0
Current liabilities (127.2) (122.9)
Long-term debt and deferred items (589.6) (513.1)
-------- --------
Shareholders' equity $ 333.1 $ 282.0
======== ========
E - Other Assets
December 31 1996 1995
(All dollar amounts in millions)
Pension asset $ 222.5 $ 214.8
Equipment rented to others, at cost
(net of accumulated depreciation
of $242.1 in 1996 and $218.3 in 1995) 103.9 106.7
Goodwill and other intangibles (net of
accumulated amortization of $40.6 in
1996 and $37.3 in 1995) 73.8 77.1
Cash surrender value of life insurance,
less policy loans of $35.0 in 1996 and
$30.4 in 1995 75.7 57.9
Miscellaneous 45.4 43.9
-------- --------
$ 521.3 $ 500.4
======== ========
F - Long-Term Debt
December 31 1996 1995
(All dollar amounts in millions)
Capital lease obligations $ 162.7 $ 131.4
Variable-rate Industrial Development Revenue
Bonds, due from 2001 through 2023, average
effective rate approximately 3.4% 163.4 163.4
8-1/8% debentures, face amount of $150.0,
due 2023 (effective rate approximately 8.4%) 147.7 147.6
7-1/8% debentures, face amount of $150.0,
due 2025 (effective rate approximately 7.4%) 146.9 146.8
Medium-term notes, 7.3% to 9.8%,
face amount of $78.5 in 1996 and $86.0
in 1995, due from 2000 through 2020
(effective rate approximately 10.0%) 73.8 80.1
Short-term borrowings to be refinanced,
average effective rate approximately
6.2% at December 31 530.3
Other 14.9 25.5
-------- --------
$1,239.7 $ 694.8
======== ========
</TABLE>
36
<PAGE>
Capital lease obligations consist primarily of Industrial Revenue Bonds and
Notes with an average effective rate of approximately 3.9%. The variable-
rate Industrial Development Revenue Bonds are supported by letters of
credit. The interest rates on the variable-rate tax-exempt bonds closely
follow the tax-exempt commercial paper rates.
A loss on extinguishment of debt, net of $6.9 million income tax benefit,
is included in the 1994 statement of earnings as an extraordinary item and
represents call premiums on the early retirement of debentures and the
write-off of the related financing expenses.
The 8-1/8% and 7-1/8% debentures are callable by the Company at
approximately 103% beginning in 2003.
The Company has an unused $540 million bank credit agreement that extends
until August 2001 and an unused $400 million bank credit agreement that
expires October 27, 1997. These agreements contain restrictive covenants
and require commitment fees in accordance with standard banking practice.
The Company has classified $530.3 million of short-term borrowings as long-
term based on management's intent to refinance the short-term debt on a
long-term basis. The Company has filed shelf registration statements to
issue up to $850 million in debt securities and intends to issue a total of
$550 million of these securities with maturities from 5 years to 50 years
in February 1997. The weighted-average interest rate paid on short-term
borrowings for 1996 was approximately 5.5%.
Maturities of long-term debt for the next five years, after giving effect
to the planned refinancing of the short-term borrowings on a long-term
basis, are $15.1 million in 1997, $2.3 million in 1998, $8.3 million in
1999, $35.5 million in 2000 and $13.0 million in 2001.
The Company has guaranteed obligations of certain affiliated operations and
others totaling approximately $41.4 million at December 31, 1996. In
addition, the Company has a 50% interest in a partnership with Kimberly-
Clark Corporation (successor to Scott Paper Company), which has borrowed
$300 million under a loan agreement with The Sumitomo Bank, Limited, New
York Branch, which matures in 1998. The loan, one-half of which has been
guaranteed by the Company, may be prepaid at any time either in cash or by
delivery of notes receivable from Georgia-Pacific Corporation held by the
partnership as part of the consideration from the 1988 sale of Brunswick
Pulp and Paper Company, a former affiliate. It is not practicable to
estimate the fair value of the above guarantees, however, the Company does
not expect to incur losses as a result of these guarantees.
G - Financial Instruments
The Company uses various derivative financial instruments as part of an
overall strategy to manage the Company's exposure to market risks
associated with interest rate and foreign currency exchange rate
fluctuations. The Company uses foreign currency forward contracts to
manage the foreign currency exchange rate risks associated with its
international operations. The Company utilizes interest rate swap and cap
agreements to manage its interest rate risks on its debt instruments,
including the reset of interest rates on variable rate debt. The Company
does not hold or issue derivative financial instruments for trading
purposes.
The risk of loss to the Company in the event of nonperformance by any
counterparty under derivative financial instrument agreements is not
significant. All counterparties are rated A or higher by Moody's and
Standard and Poor's. Although the derivative financial instruments expose
the Company to market risk, fluctuations in the value of the derivatives
are mitigated by expected offsetting fluctuations in the matched
instruments.
37
<PAGE>
As part of an overall strategy to maintain an acceptable level of exposure to
the risk of interest rate fluctuation, the Company has developed a targeted mix
of fixed-rate and cap-protected debt versus variable-rate debt. To efficiently
manage this mix, the Company utilizes interest rate swap, cap and option
agreements to effectively convert the debt portfolio into an acceptable fixed-
rate, capped-rate and variable-rate mix.
Under interest rate swap agreements, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
variable-rate interest amounts calculated by reference to an agreed-upon
notional principal amount. The fair value of the interest rate swap agreements
is estimated using quotes from brokers and represents the cash requirement if
the existing agreements had been settled at year end.
Selected information related to the Company's interest rate swap agreements is
as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
(All dollar amounts in millions)
Notional amount $180.0 $180.0
====== ======
Fair value $ (5.4) $ (7.4)
Carrying amount (5.7) (6.6)
------ ------
Net unrecognized gain (loss) $ .3 $ (.8)
====== ======
</TABLE>
In addition, the Company has entered into forward-starting interest rate swaps
in order to fix the interest rate on a portion of the long-term debt anticipated
to be issued in early 1997. The swaps have a total notional amount of $374
million and maturities from 10 years to 30 years and effectively fix $384
million of long-term debt with maturities from 10 years to 50 years at a
weighted-average interest rate of 7.2%. Upon the issuance of the debt, any gain
or loss realized on the swaps will be amortized to interest expense over the
term of the related debt. As of December 31, 1996, the fair value of these swaps
was $(2.6) million with a carrying amount of $1.8 million, resulting in a net
deferred loss of $(4.4) million. Any gain (loss) on the swaps will be offset by
higher (lower) interest rates on the related debt.
The Company utilizes interest rate cap agreements to limit the impact of
increases in interest rates on its floating rate debt. The interest rate cap
agreements require premium payments to counterparties based upon a notional
principal amount. Interest rate cap agreements entitle the Company to receive
from the counterparties the amounts, if any, by which the selected market
interest rates exceed the strike rates stated in the agreements. The fair value
of the interest rate cap agreements is estimated by obtaining quotes from
brokers and represents the cash requirement if the existing contracts had been
settled at year end.
38
<PAGE>
Selected information related to the Company's interest rate cap agreements is as
follows:
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
(All dollar amounts in millions)
Notional amount $150.0 $200.0
====== ======
Fair value $ .1 $ .2
Carrying amount .6 .9
------ ------
Net unrecognized gain (loss) $ (.5) $ (.7)
====== ======
</TABLE>
The Company utilizes foreign currency forward contracts to reduce exposure to
exchange rate risks primarily associated with transactions in the regular course
of the Company's international operations. The forward contracts establish the
exchange rates at which the Company will purchase or sell the contracted amount
of local currencies for specified foreign currencies at a future date. The
Company utilizes forward contracts which are short-term in duration (generally
one month) and receives or pays the difference between the contracted forward
rate and the exchange rate at the settlement date. The major currency exposures
hedged by the Company include the German mark, Canadian dollar, Dutch guilder,
French franc and British pound. The contract amount of foreign currency forwards
at December 31, 1996 and 1995, is $119.9 million and $130.7 million,
respectively. The carrying amount and fair value of these contracts are not
significant.
The fair value of the Company's long-term debt is estimated based on quoted
market prices for the same or similar issues or on current rates offered to the
Company for debt of the same remaining maturities. The fair value of long-term
debt, excluding capital leases, was $1,087.8 million and $600.1 million at
December 31, 1996 and 1995, respectively, and the related carrying amounts were
$1,077.0 million and $563.4 million, respectively.
At December 31, 1996 and 1995, the Company held short-term investments which are
included in cash and cash equivalents. The carrying amount of these short-term
investments is a reasonable estimate of fair value.
H - Shareowners' Equity
The Company has authorized 300 million no par common shares. The Company has
outstanding authorization from the Board of Directors to repurchase up to five
million common shares of which 2.0 million have been repurchased as of December
31, 1996. A total of 14.1 million and 13.0 million common shares were held in
treasury at December 31, 1996 and 1995, respectively.
In 1996, the Board of Directors approved a Rights Agreement to replace the
Rights Agreement that expired in 1996. Each outstanding common share presently
has one right attached which trades with the common share. Generally, the rights
become exercisable and trade separately ten days after a third party acquires
20% or more of the common shares or commences a tender offer for a specified
percentage of the common shares. In addition, the rights become exercisable if
any party becomes the beneficial owner of 10% or more of the outstanding common
shares and is determined by the Board of Directors to be an adverse party. Upon
the occurrence of certain additional triggering events specified in the Rights
Agreement, each right would entitle its holder (other than, in certain
instances, the holder of 20% or more of the common shares) to purchase common
shares of the Company (or, in certain circumstances, cash, property or other
securities of the Company) having a value of $400 for $200, the initial exercise
price. The rights expire in 2006
39
<PAGE>
and are presently redeemable at $.01 per right. At December 31, 1996, there were
75.1 million common shares reserved for issuance under this plan.
The Board of Directors has approved termination benefits for certain key
executives and a severance plan for all other salaried employees and established
a Benefit Trust in connection with the Company's unfunded supplemental
retirement plan, deferred compensation plan, directors retirement plan and
excess benefits plan to preserve the benefits earned thereunder in the event of
a change in control of the Company.
The Company has preferred shares authorized but unissued as follows: 61,500
undesignated cumulative preferred, par value $100; 20 million undesignated
voting cumulative preferred, without par value; 20 million cumulative preferred,
without par value; and 295,540 cumulative second preferred, par value $50.
At December 31, 1996, there is $1.3 billion available for common dividends which
represents the maximum amount of additional indebtedness that can be incurred
solely to pay common dividends while remaining in compliance with certain debt
covenants.
I - Stock-Based Compensation Plans
Officers and key employees have been granted stock options under various plans.
Options as to 1.5 million shares are accompanied by limited rights which may be
exercised in lieu of the option under certain circumstances. The exercise price
of all options equals the market price of the Company's stock on the date of the
grant. The options and rights have a maximum term of ten years and vest after
one year or three years. Under the 1996 Stock Option Plan, additional options
(reload options) can be granted upon the exercise of the original incentive
stock option at the then current market price. The option holder must hold the
shares acquired for three years in order to vest in the reload options. There
are 7.8 million shares reserved for issuance under these plans.
A Restricted Stock Plan provides for the issuance of restricted common shares to
certain employees and to directors who are not officers or employees of the
Company. These shares are restricted for periods of six months to five years. As
of December 31, 1996, 39,000 common shares are issued and outstanding under the
plan. There are 402,000 shares reserved for issuance under this plan. There were
2,000 and 9,000 shares granted in 1996 and 1995, respectively, at a weighted-
average price of $54.46 and $53.94, respectively.
40
<PAGE>
The following table summarizes activity in the Company's stock-based
compensation plans:
<TABLE>
<CAPTION>
(All share amounts
in thousands) 1996 1995 1994
------------------------ -------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 3,264 $41.94 3,516 $38.28 2,991 $35.69
Granted 872 53.21 721 54.40 935 44.75
Exercised (361) 37.70 (960) 37.64 (378) 33.32
Canceled (40) 51.73 (13) 53.72 (32) 44.02
----- ----- -----
Outstanding at end of year 3,735 $44.88 3,264 $41.94 3,516 $38.28
===== ===== =====
Exercisable at year end 2,889 $42.44 2,566 $38.55 2,608 $36.03
===== ===== =====
Weighted-average fair value
of options granted during
the year using the extended
binomial option-pricing
model $13.42 $16.06
Weighted-average assumptions
used for grants:
Expected dividend yield 2% 2%
Expected volatility 22% 22%
Risk-free interest rate 5.6% 7.2%
Expected life of option 5.5 5.5
(in years)
</TABLE>
41
<PAGE>
The following table shows various information about stock options outstanding at
December 31, 1996:
(All share amounts in thousands)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- --------------------------
Weighted-
Average
Number Remaining Weighted- Number Weighted-
Outstanding Contractual Average Exercisable at Average
Range of at December Life Exercise December 31, Exercise
Exercise Prices 31, 1996 (in years) Price 1996 Price
<S> <C> <C> <C> <C> <C>
$26.63 - $36.63 968 3.8 $ 32.51 968 $32.51
39.25 - 44.94 1,249 6.1 43.75 1,249 43.75
49.69 - 56.50 1,518 8.8 53.70 672 54.30
----- -----
$26.63 - $56.50 3,735 6.6 $ 44.88 2,889 $42.44
===== =====
</TABLE>
Total compensation costs charged to earnings from continuing operations before
income taxes for all stock-based compensation awards were less than $1 million
in each of 1996, 1995 and 1994. Had compensation costs been determined based on
the fair value method of SFAS No. 123 for all plans, the Company's net earnings
and earnings per common and common equivalent share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
Year ended December 31 1996 1995
<S> <C> <C>
Net earnings (in millions):
As reported $195.3 $350.0
====== ======
Pro forma $188.8 $344.3
====== ======
Earnings per common and common
equivalent share:
As reported $ 3.67 $ 6.33
====== ======
Pro forma $ 3.55 $ 6.23
====== ======
</TABLE>
J - Other Revenues (Expenses) - Net
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Investment income $ 6.2 $ 18.1 $ 6.5
Provision for (loss) on sale of facility (60.0)
Other 7.5 15.6 (1.6)
------ ------ ------
$ 13.7 $ 33.7 $(55.1)
====== ====== ======
</TABLE>
In 1994, the Company recorded a charge to earnings to reflect the estimated loss
on sale of its Kingsport, Tennessee, facility. The Company completed the sale of
the facility in the second quarter of 1995.
The Company incurred a $12.1 million loss in 1994 on derivatives used to manage
the Company's exposure to interest rate risks, including the termination of
certain leveraged interest rate options, which did not qualify for hedge
accounting, entered into in conjunction with swap transactions.
42
<PAGE>
K - Income Taxes
The principal current and non-current deferred tax assets and (liabilities) are
as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
(All dollar amounts in millions)
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation for tax purposes $(439.9) $(396.9)
Nontaxable pension asset (84.6) (81.1)
Deferred installment gain (47.5) (47.5)
Other (60.7) (63.2)
------- -------
(632.7) (588.7)
Deferred tax assets:
Compensation and fringe benefits accruals 53.0 42.4
Postretirement benefit accrual 48.2 43.8
Loss provisions and other expenses not
currently deductible 27.0 51.2
Other 26.9 31.1
------- -------
155.1 168.5
------- -------
Net deferred liability $(477.6) $(420.2)
======= =======
Included in the balance sheets:
Current assets - deferred tax asset $ 36.6 $ 29.5
Deferred items - income tax liability (514.2) (449.7)
------- -------
Net deferred liability $(477.6) $(420.2)
======= =======
</TABLE>
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Currently payable:
Federal $ 36.9 $ 86.3 $358.0
State and local 6.8 6.9 17.0
Foreign 13.1 8.5 5.2
------ ------ ------
56.8 101.7 380.2
Change in deferred income taxes 57.4 91.3 61.7
------ ------ ------
114.2 193.0 441.9
Allocation to partnership earnings (2.0) (4.3) (5.9)
Allocation to discontinued
operations (3.2) (4.5) (420.3)
Allocation to extraordinary item 6.9
------ ------ ------
$109.0 $184.2 $ 22.6
====== ====== ======
</TABLE>
43
<PAGE>
The following table summarizes the major differences between the actual income
tax provision attributable to continuing operations and taxes computed at the
federal statutory rates:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Federal taxes computed at
statutory rate of 35% $103.1 $170.7 $18.4
State and local income taxes,
net of federal benefit 6.5 12.9 .2
Impact related to difference in tax
rates for foreign operations (1.3) 3.2 3.8
Other .7 (2.6) .2
------ ------ -----
Income taxes $109.0 $184.2 $22.6
====== ====== =====
Effective tax rate 37.0% 37.8% 43.1%
====== ====== =====
</TABLE>
At December 31, 1996, no domestic income taxes have been provided on Mead's
share of the undistributed net earnings of corporate investees and overseas
operations. Those earnings totaled $250.6 million, including foreign currency
translation adjustments. The aggregate amount of unrecognized deferred tax
liability is approximately $13 million at December 31, 1996.
<TABLE>
<CAPTION>
L - Discontinued Operations
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Gain on sale of Imaging business,
net of income tax of $3.2 $5.4 $ $
Earnings from operations of
Electronic Publishing segment,
net of income tax of $27.8 37.9
Gain on sale of Electronic Publishing
segment, net of income tax of $4.5
and $420.2 7.5 628.8
Provision for loss in Insurance
operations, net of income tax
benefit of $18.2 (33.8)
Provision for losses in Industrial
Manufacturing segment, net of
income tax benefit of $9.5 (15.5)
---- ------ ------
Discontinued operations $5.4 $ 7.5 $617.4
==== ====== ======
</TABLE>
In December 1994, the Company sold its Electronic Publishing segment (Mead Data
Central) for $1.5 billion in cash. The additional gain on sale recognized in the
fourth quarter of 1995 resulted primarily from the adjustment of certain items
related to this sale. Revenues of the Electronic Publishing segment were $565.2
million for the period January 1, 1994 through November 30, 1994.
44
<PAGE>
In 1986, the Company adopted a plan to discontinue the insurance business which
had been conducted through its wholly-owned insurance subsidiaries and wrote off
its investment. These subsidiaries were put in a "runoff" position whereby they
ceased underwriting activities but continued to settle claims. During the fourth
quarter of 1994, the Company revised its runoff strategy in view of the long-
term nature of the payout for claim settlements, sold one subsidiary and settled
a significant portion of the outstanding claims liability. The revised strategy
included the disposition of the remaining insurance operations. During the
fourth quarter of 1996, the Company completed the sale of the insurance
operations. The result of this sale had no impact on the Company's earnings in
the current year.
The provision for losses in 1994 in the previously discontinued Industrial
Manufacturing segment is a result of environmental liabilities. Late in 1994,
the U.S. Court of Appeals for the Third Circuit reversed the opinion of a
District Court which had found the Company not responsible to the current owners
for environmental liabilities at a former plant. At another former plant, the
Company was named, in the fourth quarter of 1994, a potentially responsible
party with regard to alleged contamination of a nearby creek.
During the first quarter of 1996, the Company sold its previously discontinued
Imaging business. The sale resulted in a gain of $5.4 million, net of income tax
of $3.2 million.
M - Pension Plans
The Company has pension plans that cover substantially all employees. Pension
benefits for bargaining employees are primarily based upon years of credited
service. Benefits for salaried and other non-bargaining employees are based upon
years of service and the employee's average final earnings. Mead's funding
policy is to contribute amounts to the plans sufficient to meet or exceed the
minimum requirements of the Employee Retirement Income Security Act.
45
<PAGE>
Summary information on the Company's funded plans is as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
(All dollar amounts in millions)
<S> <C> <C>
Financial status of plans:
Plan assets at fair value (primarily
common stocks and fixed income
securities) $888.7 $874.1
Actuarial present value of accumulated
benefit obligation:
Vested (546.8) (563.6)
Non-vested (53.3) (47.5)
Estimated effect of future salary
increases at 1% over expected inflation (62.2) (61.3)
------ ------
Projected benefit obligation (662.3) (672.4)
------ ------
Plan assets in excess of projected
benefit obligation 226.4 201.7
Reconciliation of financial status of
plans to amounts recorded in Mead's
balance sheets:
Unamortized plan assets in excess of
plan liabilities (overfunding) at
January 1, 1986 - to be recognized
as a reduction of future years'
pension expense (40.7) (48.9)
Unrecorded effect of net loss arising
from differences between actuarial
assumptions used to determine periodic
pension expense and actual experience 5.0 50.2
Unamortized prior service cost 31.8 11.8
------ ------
Pension asset $222.5 $214.8
====== ======
Benefit obligation discount rate 7.75% 7.25%
====== ======
</TABLE>
The projected benefit obligation for the Company's unfunded plans was $30.1
million and $25.0 million at December 31, 1996 and 1995, respectively, of which
$22.6 million and $17.3 million represent the accumulated benefit obligation. Of
the projected benefit obligation, $19.2 million and $16.3 million at December
31, 1996 and 1995, respectively, is subject to later amortization. Unfunded
accrued pension cost is $10.9 million and $8.7 million at December 31, 1996 and
1995, respectively.
46
<PAGE>
The components of net pension (income) expense for all plans are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Service cost, benefits earned
during the year $ 20.4 $ 15.5 $ 22.7
Interest cost on projected benefit
obligation 49.6 46.4 48.7
Actual return on plan assets (99.2) (181.2) (10.0)
Net amortization and deferral 21.7 114.4 (52.0)
------ ------ ------
Net pension (income) expense (7.5) (4.9) 9.4
Less - net pension expense allocated
to discontinued operations (3.9)
------ ------ ------
Net pension (income) expense -
continuing operations $ (7.5) $ (4.9) $ 5.5
====== ====== ======
</TABLE>
The expected long-term rate of return on plan assets used in determining net
pension income was 9% in 1996 and 1995 and 9.5% in 1994. Included in net pension
expense for 1994 is a charge of $11.5 million related to the retirement of a
number of personnel, including several senior personnel, who opted for lump sum
settlements.
The Company's pension plans require the allocation of excess plan assets to plan
members if the plans are terminated, merged or consolidated following a change
in control (as defined) of the Company opposed by the Board of Directors of the
Company. Amendment of these provisions after such a change in control would
require approval of plan participants.
N - Postretirement Benefits Other than Pensions
The Company funds certain health care benefit costs principally on a pay-as-you-
go basis, with retirees paying a portion of the costs. Certain retired employees
of businesses acquired by the Company are covered under other health care plans
that differ from current plans in coverage, deductibles and retiree
contributions.
47
<PAGE>
Summary information on the Company's plans is as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
(All dollar amounts in millions)
<S> <C> <C>
Financial status of plans:
Accumulated postretirement benefit obligation:
Retirees $ (64.5) $ (69.5)
Fully eligible, active plan participants (19.9) (23.8)
Other active plan participants (29.9) (39.8)
------- -------
(114.3) (133.1)
Less plan assets at fair value 8.2 8.5
------- -------
Accumulated postretirement benefit obligation in
excess of plan assets (106.1) (124.6)
Reconciliation of financial status of plans to amounts
recorded in Mead's balance sheets -
Unrecorded effect of net (gain) loss arising from
differences between actuarial assumptions used
to determine periodic postretirement benefit
expense and actual experience (20.8) 7.6
------- -------
Accrued postretirement benefit cost $(126.9) $(117.0)
======= =======
Benefit obligation discount rate 7.75% 7.25%
======= =======
</TABLE>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Service cost, benefits attributed to employee
service during the year $ 2.4 $ 2.3 $ 3.9
Interest cost on accumulated postretirement
benefit obligation 8.6 9.6 11.2
Actual return on plan assets (1.0) (1.1) (.7)
Net amortization and deferral .3 .5 1.7
------ ------ ------
Net periodic postretirement benefit cost 10.3 11.3 16.1
Less - net periodic postretirement benefit cost
allocated to discontinued operations (.8)
------ ------ ------
Net periodic postretirement benefit cost -
continuing operations $ 10.3 $ 11.3 $ 15.3
====== ====== ======
</TABLE>
48
<PAGE>
The expected long-term rate of return on plan assets used in determining the net
periodic postretirement benefit cost was 8% in each year. The assumed health
care cost trend rate used in measuring the accumulated postretirement benefit
obligation in 1996 was 9%, declining by .8% per year to an ultimate rate of 5%.
The assumed health care trend rates used in 1995 and 1994 were 12% and 13%,
respectively, declining by 1% per year to an ultimate rate of 6%.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1996, would be
increased by 9%. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1996
would be an increase of 10%.
O - Leases
At December 31, 1996, future minimum annual rental commitments under
noncancelable lease obligations are as follows:
<TABLE>
<CAPTION>
Capital Operating
(All dollar amounts in millions) Leases Leases
<S> <C> <C>
Year Ending December 31:
1997 $ 7.5 $ 34.6
1998 7.6 28.5
1999 8.3 19.5
2000 8.7 13.7
2001 7.2 11.3
Later years through 2028 318.3 63.5
------- ------
Total minimum lease payments 357.6 $171.1
======
Less amount representing interest (194.4)
-------
Present value of net minimum lease payments 163.2
Less current maturities of capital lease obligations (.5)
-------
Capital lease obligations $ 162.7
=======
</TABLE>
Capital leases are for manufacturing facilities, equipment and warehouse and
office space. Capital lease property included in property, plant and equipment
is as follows:
<TABLE>
<CAPTION>
December 31 1996 1995
<S> <C> <C>
(All dollar amounts in millions)
Land and buildings $ 4.5 $ 5.2
Machinery and equipment 170.6 138.6
------ ------
175.1 143.8
Less accumulated amortization (73.4) (68.3)
------ ------
$101.7 $ 75.5
====== ======
</TABLE>
The majority of rent expense is for operating leases which are for office,
warehouse and manufacturing facilities and delivery, manufacturing and computer
equipment. A number of these leases have renewal options. Rent expense was $54.9
million, $49.3 million and $52.8 million in 1996, 1995 and 1994, respectively.
49
<PAGE>
P - Litigation and Other Proceedings
The Company is involved in various litigation generally incidental to normal
operations, as well as proceedings regarding equal employment opportunity
matters, among others. The Company has also been identified as a potentially
responsible party in at least 18 environmental proceedings. It is not possible
to determine the ultimate liability, if any, in all these matters. The Company
has established reserves of $39 million relating to environmental liabilities,
including those related to discontinued operations, which it believes are
probable and reasonably estimable. The Company believes that it is reasonably
possible that costs associated with these sites may exceed current reserves by
an amount that could range from an insignificant amount to as much as $50
million. The estimate of this range is less certain than the estimates upon
which reserves are based. In order to establish this range, assumptions less
favorable to the Company among those outcomes that are considered reasonably
possible were used. In the opinion of management, after consultation with legal
counsel and after considering established reserves, the resolution of pending
litigation and proceedings is not expected to have a material effect on the
financial condition, results of operations or liquidity of the Company.
Q - Additional Information on Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(All dollar amounts in millions)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $69.0 $ 69.4 $98.4
Less amount capitalized (6.9) (2.0) (5.7)
----- ------ -----
Interest, net of amount capitalized $62.1 $ 67.4 $92.7
===== ====== =====
Income taxes $58.8 $417.4 $59.5
===== ====== =====
</TABLE>
R - Segment Information
Industry Segments
The Company classifies its businesses into three industry segments. A comparison
of the operations of the Company's businesses based on sales, earnings from
continuing operations before income taxes and identifiable assets is shown
below. The PAPER operations manufacture and sell printing, writing, carbonless
copy, publishing and specialty paper primarily to domestic publishers, printers
and converters. The PACKAGING AND PAPERBOARD operations manufacture and sell
beverage and food packaging materials, corrugated shipping containers and
paperboard to those markets primarily located in the United States with other
operations conducted in Europe, Latin America and the Pacific Rim. The
DISTRIBUTION AND SCHOOL AND OFFICE PRODUCTS operations are predominantly
domestic and market a full line of paper products to users of printing papers,
industrial supplies and packaging materials. These operations also manufacture
and distribute school and office paper related products to retailers.
50
<PAGE>
<TABLE>
<CAPTION>
(All dollar amounts in millions)
Sales (1)
-----------------------------------------------------------------
Year Ended December 31 1996 1995 1994
-----------------------------------------------------------------
Unaffil- Inter- Unaffil- Inter- Unaffil- Inter-
iated segment iated segment iated segment
<S> <C> <C> <C> <C> <C> <C>
Industry segments:
Paper $1,251.3 $ 197.5 $1,243.3 $ 217.7 $1,156.8 $ 206.4
Packaging and Paperboard 1,371.4 4.6 1,428.8 7.0 1,254.5 8.3
Distribution and School and Office Products 2,083.8 8.9 2,507.3 9.3 2,146.2 10.3
Intersegment elimination (211.0) (234.0) (225.0)
-------- -------- --------
Total $4,706.5 $5,179.4 $4,557.5
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Earnings from
Continuing Operations Depreciation,
Before Income Taxes (2)(3) Depletion and Amortization
------------------------------- -----------------------------
Year Ended December 31 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Industry segments:
Paper $ 193.8 $ 330.8 $ 72.0 $ 84.3 $ 72.3 $ 69.6
Packaging and Paperboard 138.6 184.9 123.8 141.4 139.4 131.9
Distribution and School and Office Products 69.3 77.3 20.5 13.4 13.0 12.9
Corporate and other (107.1) (105.3) (163.9) 11.3 12.0 11.1
------- ------- ------- ------ ------ ------
Total $ 294.6 $ 487.7 $ 52.4 $250.4 $236.7 $225.5
======= ======= ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets (4) Capital Expenditures
-------------------------------- --------------------------
Year Ended December 31 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Industry segments:
Paper $2,149.4 $1,425.6 $1,432.1 $101.5 $ 73.7 $175.7
Packaging and Paperboard 1,782.7 1,631.6 1,457.9 294.9 165.0 111.8
Distribution and School and Office Products 473.4 471.0 541.9 15.4 8.3 8.0
Intersegment elimination (19.2) (21.7) (29.5)
Corporate and other 599.6 866.3 1,460.2 21.6 16.0 20.1
-------- -------- -------- ------ ------ ------
Total $4,985.9 $4,372.8 $4,862.6 $433.4 $263.0 $315.6
======== ======== ======== ====== ====== ======
</TABLE>
51
<PAGE>
(1) Intersegment sales are made at substantially the same prices and on
the same terms as to unaffiliated customers.
(2) Earnings from continuing operations before income taxes in 1994
include the provision for loss on the sale of a facility, costs of
severance and closing costs for certain warehouses and office
facilities and costs of pension settlements. The effect of the above
charges by segment is Paper - $65.9, Packaging and Paperboard - $6.9,
Distribution and School and Office Products - $17.3 and Corporate and
other - $2.7.
(3) Earnings from continuing operations before income taxes for "Corporate
and other" includes the following:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Other revenues $ 10.7 $ 25.9 $ (2.5)
Interest expense (57.7) (69.4) (101.1)
Other expenses (60.1) (61.8) (60.3)
------- ------- -------
$(107.1) $(105.3) $(163.9)
======= ======= =======
</TABLE>
(4) The assets of "Corporate and other" consist primarily of cash and cash
equivalents, property, plant and equipment, investments in investees
and net assets of discontinued operations.
Geographic Areas
The Company has sales from foreign subsidiaries primarily in Canada,
Europe, Latin America and the Pacific Rim. No individual foreign
geographic area is significant to the Company relative to total net sales,
earnings from continuing operations before taxes or identifiable assets.
Net sales to unaffiliated customers from the Company's foreign subsidiaries
were $528.5 million, $495.3 million and $389.6 million in 1996, 1995 and
1994, respectively. Earnings from operations for foreign subsidiaries were
$45.1 million, $33.8 million and $7.0 million in 1996, 1995 and 1994,
respectively. Foreign identifiable assets were $383.2 million, $427.9
million and $350.8 million in 1996, 1995 and 1994, respectively.
S - Fourth Quarter Operations (Unaudited)
During the fourth quarter of 1994, the Company recorded several significant
transactions, including the sale of the Electronic Publishing segment, a
charge for additional losses in its discontinued insurance operations and a
provision for environmental remediation costs at two sites formerly part of
Mead's previously discontinued Industrial Manufacturing segment.
The Company recorded a charge to earnings in 1994 of $60.0 million to
reflect the estimated loss on the sale of its Kingsport, Tennessee,
facility. The Company announced its intent to sell the facility in October
1994. In addition, the Company recorded charges to earnings in 1994 of
$21.3 million, principally for severance and closing costs for certain
warehouses and office facilities at its Coated Board and Zellerbach
operations; a charge for settlements of pension liabilities of $11.5
million and an extraordinary loss on the extinguishment of debt of $11.3
million (after-tax).
Reflected in earnings of equity investees in 1994 is $9.1 million (after-
tax) of refunds from duties levied on lumber exported from Canada by
Northwood Forest Industries Ltd. in prior years.
52
<PAGE>
Selected Quarterly Financial Data (unaudited)
(All dollar amounts in millions, except per share data)
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Year
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales:
1996 $1,067.2 $1,258.5 $1,231.1 $1,149.7 $4,706.5
1995 1,240.8 1,442.2 1,352.4 1,144.0 5,179.4
1994 1,007.6 1,165.9 1,208.2 1,175.8 4,557.5
Gross profit:
1996 204.0 258.1 236.0 204.5 902.6
1995 221.9 312.2 299.1 242.2 1,075.4
1994 162.5 204.3 201.6 183.3 751.7
Earnings (loss) from
continuing operations:
1996 30.9 67.1 62.7 29.2 189.9
1995 61.7 102.2 104.5 74.1 342.5
1994 15.9 44.7 41.6 (12.6) 89.6
Earnings before
extraordinary item:
1996 36.3 67.1 62.7 29.2 195.3
1995 61.7 102.2 104.5 81.6 350.0
1994 27.6 52.4 53.2 573.8 707.0
Net earnings:
1996 36.3 67.1 62.7 29.2 195.3
1995 61.7 102.2 104.5 81.6 350.0
1994 27.6 52.4 53.2 562.5 695.7
Per common and common
equivalent share:(1)
Earnings (loss) from
continuing operations:
1996 .58 1.26 1.18 .55 3.57
1995 1.07 1.87 1.91 1.37 6.19
1994 .27 .74 .68 (.18) 1.52
Earnings before
extraordinary item:
1996 .68 1.26 1.18 .55 3.67
1995 1.07 1.87 1.91 1.51 6.33
1994 .46 .86 .87 9.18 11.39
Net earnings:
1996 .68 1.26 1.18 .55 3.67
1995 1.07 1.87 1.91 1.51 6.33
1994 .46 .86 .87 9.00 (2) 11.21
Cash dividends per common share:
1996 .28 .30 .30 .30 1.18
1995 .25 .28 .28 .28 1.09
1994 .25 .25 .25 .25 1.00
</TABLE>
(1) The number of shares used in the calculation of per share data varies
from period to period since stock options and convertible debentures are
included in the calculations only for the periods in which they are
dilutive; therefore, the sum of individual quarterly earnings per share may
not equal the annual computation.
(2) Includes a charge of $.92 per share related to asset impairments,
restructuring and related severance charges and pension settlement charges;
a $.15 per share gain on refund of countervailing duties; a gain of $10.04
per share on sale of Mead Data Central; a $.79 per share charge related to
discontinued insurance operations and environmental matters; and a charge
of $.18 per share for extinguishment of debt.
53
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information pursuant to this item is incorporated herein by reference
to pages 3 through 6 and 22 of the Company's Proxy Statement, definitive
copies of which were filed with the Securities and Exchange Commission
("Commission") on March 12, 1997. Information concerning executive
officers is also included in Part I of this report following Item 4.
Item 11. Executive Compensation
Information pursuant to this item is incorporated herein by reference
to pages 10 through 22 of the Company's Proxy Statement (excluding the
"Report of Compensation Committee on Executive Compensation" on pages 11
through 13 and the "Performance Graph" on page 20), definitive copies of
which were filed with the Commission on March 12, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information pursuant to this item is incorporated herein by reference
to pages 9 through 11 of the Company's Proxy Statement, definitive copies
of which were filed with the Commission on March 12, 1997.
Item 13. Certain Relationships and Related Transactions
Information pursuant to this item is incorporated herein by reference
to pages 22 and 23 of the Company's Proxy Statement, definitive copies of
which were filed with the Commission on March 12, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements of The Mead Corporation and consolidated
subsidiaries are included in Part II, Item 8.
54
<PAGE>
2. Financial Statement Schedule
Page
----
Schedule II --Valuation and Qualifying Accounts......... 63
The information required to be submitted in Schedules I and III
through V for The Mead Corporation and consolidated subsidiaries has either
been shown in the financial statements or notes thereto, or is not
applicable or required under rules of Regulation S-X, and, therefore, those
schedules have been omitted.
3. Exhibits
(3) Articles of Incorporation and Bylaws:
(i) Amended Articles of Incorporation of the Registrant adopted
May 28, 1987.
(ii) Regulations of the Registrant, as amended April 25, 1996
(incorporated by reference to Exhibit (3)(ii) of Registrant's
Quarterly Report on Form 10-Q for the Quarterly Period ended March
31, 1996).
(4) Instruments defining the rights of security holders, including
indentures:
(i) Credit Agreement dated as of November 15, 1989 with Bankers
Trust Company, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York and fifteen other banks (incorporated by
reference to Exhibit (4)(i) of Registrant's Annual Report on Form
10-K for the year ended December 31, 1989); Amendment No. 1 thereto
dated as of November 30, 1991 (incorporated by reference to Exhibit
(4)(i) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991); Amendment No. 2 thereto dated as of May
1, 1994 (incorporated by reference to Exhibit (10)(1) to
Registrant's Quarterly Report on Form 10-Q for the Quarterly Period
ended July 3, 1994); Amendment No. 3 thereto dated as of August
31, 1995 (incorporated by reference to Exhibit (4)(1) to
Registrant's Quarterly Report on Form 10-Q for the Quarterly Period
ended October 1, 1995); and Amendment No. 4 thereto dated as of
August 31, 1996 (incorporated by reference to Exhibit (4)(i) to
Registrant's Quarterly Report on Form 10-Q for the Quarterly Period
ended September 29, 1996).
(ii) Indenture dated as of July 15, 1982 between the Registrant
and Bankers Trust Company, as Trustee, First Supplemental Indenture
dated as of March 1, 1987 (incorporated by reference to Exhibit
(4)(iv) of Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1987), Second Supplemental Indenture dated as of
October 15, 1989 (incorporated by reference to Exhibit (4) to
Registrant's Current Report on Form 8-K dated October 11, 1989) and
Third Supplemental Indenture dated as of November 15, 1991
(incorporated by reference to Exhibit (4)(ii) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).
(iii) Indenture dated as of February 1, 1993 between Registrant
and The First National Bank of Chicago, as Trustee (incorporated by
reference to Exhibit (4)(iii) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992).
55
<PAGE>
(iv) 364 Day Revolving Credit Line dated as of October 17, 1996
with The First National Bank of Chicago and Morgan Guarantory Trust
Company of New York and ten other banks.
The total amount of securities authorized under other long-term debt
instruments does not exceed 10% of the total assets of the Registrant and
its subsidiaries on a consolidated basis. A copy of each such instrument
will be furnished to the Commission upon request.
(10) Material Contracts:
(i) Agreement dated as of April 24, 1964 between Northwood
Mills Limited, Canamead, Inc., the Registrant and Noranda Mines,
Limited and Supplemental Agreements relating thereto dated as of
July 2, 1964, April 5, 1965, March 15, 1966, February 1, 1967,
December 15, 1970 and April 1, 1974 (incorporated by reference to
Exhibit (10)(v) of Registrant's Annual Report on Form 1O-K for the
year ended December 31, 1980 included in File No. 1-2267 in the
Public Reference Room of the Securities and Exchange Commission in
Washington, D.C.).
(ii) Pulp Purchase Agreement dated as of April 1, 1965 among
Northwood Pulp Limited, the Registrant, Northwood Mills Ltd. and
Noranda Mines Limited (incorporated by reference to Exhibit
(10)(vi) of Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1980 included in File No. 1-2267 in the Public
Reference Room of the Securities and Exchange Commission in
Washington, D.C.).
(iii) Rights Agreement dated as of November 9, 1996 between
Registrant and First National Bank of Boston, as Rights Agent,
(incorporated herein by reference to Registrant's Form 8-A, dated
November 13, 1996).
(iv) Amended Board Purchase Agreement dated as of January 4,
1988 among the Registrant, Georgia Kraft Company and Inland
Container Corporation (incorporated by reference to Exhibit
(1O)(xviii) of Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1987).
(v) Indemnification Agreement dated as of January 4, 1988 among
the Registrant, Mead Coated Board, Inc., Temple-Inland Inc., Inland
Container Corporation I, Inland Container Corporation, GK Texas
Holding Company and Georgia Kraft Company (incorporated by
reference to Exhibit (1O)(xix) of Registrant's Annual Report on
Form 1O-K for the year ended December 31, 1987).
(vi) Lease Agreement between The Industrial Development Board
of the City of Phenix City, Alabama and Mead Coated Board, Inc.,
dated as of December 1, 1988, as amended (incorporated by reference
to Exhibit (10)(xviii) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989 and Exhibit (10)(xviii) to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991).
(vii) Lease Agreement between The Industrial Development Board
of the City of Phenix City, Alabama and Mead Coated Board, Inc.,
dated as of June 1, 1993 (incorporated by reference to Exhibit
(10)(3) to Registrant's Quarterly Report on Form 10-Q for the
Quarterly Period ended April 3, 1994).
56
<PAGE>
(viii) Acquisition Agreement dated September 28, 1996 among Boise Cascade
Corporation, Oxford Paper Company, Mead Oxford Corporation and The Mead
Corporation (incorporated by reference to Exhibit (c) 2 to the Registrant's Form
8-K dated November 1, 1996).
The following are compensatory plans and arrangements in which directors or
executive officers participate:
(ix) 1984 Stock Option Plan of the Registrant, as amended and restated
through November 9, 1996.
(x) 1991 Stock Option Plan of the Registrant, as amended through
November 9, 1996.
(xi) 1996 Stock Option Plan of the Registrant as amended through
November 9, 1996.
(xii) Incentive Compensation Election Plan of the Registrant as amended
November 17, 1987 (incorporated by reference to Exhibit (10)(viii) to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1987),
as amended October 29, 1988 (incorporated by reference to Exhibit (10)(vi) to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1988).
(xiii) 1985 Supplement to Registrant's Incentive Compensation Election
Plan, as amended November 17, 1987 (incorporated by reference to Exhibit
(1O)(xi) to Registrant's Annual Report on Form 10-K for the year ended December
31, 1985 and Exhibit (10)(ix) of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1987), and as further amended October 29, 1988
(incorporated by reference to Exhibit (10)(vii) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988).
(xiv) Excess Benefit Plan of the Registrant dated January 1, 1996
(incorporated by reference to Exhibit (10)(3) to Registrant's Quarterly Report
on Form 10-Q for the Quarterly Period ended March 31, 1996).
(xv) Excess Earnings Benefit Plan of the Registrant dated January 1,
1996 (incorporated by reference to Exhibit (10)(4) to Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period ended March 31, 1996).
(xvi) Supplemental Executive Retirement Plan (formerly The Mead
Management Income Parity Plan) effective January 1, 1985, as amended and
restated as of July 1, 1992 (incorporated by reference to Exhibit (10)(xiii) to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
(xvii) Form of Indemnification Agreement between Registrant and each of
John C. Bogle, John G. Breen, Vincent L. Gregory, Jr., William E. Hoglund, James
G. Kaiser, John A. Krol, Susan J. Kropf, Steven C. Mason, Charles S. Mechem,
Jr., Paul F. Miller, Jr., Thomas B. Stanley, Jr., Lee J. Styslinger, Jr. and
Jerome F. Tatar (incorporated herein by reference to Exhibit (10)(xiv) of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1986).
(xviii) Form of Severance Agreement between Registrant and Steven C. Mason
(incorporated herein by reference to Exhibit (10)(xvi) of Registrant's Annual
Report on Form 10-K for the year
57
<PAGE>
ended December 31, 1986 and Exhibit (10)(xii) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988).
(xix) Form of Severance Agreement between Registrant and each of William
R. Graber, Elias M. Karter, Raymond W. Lane, Thomas E. Palmer, Jerome F. Tatar
and other key employees (incorporated by reference to Exhibit (10)(xiii) of
Registrant's Annual Report on Form 10-K for the year ended December 31, 1988).
(xx) Benefit Trust Agreement dated January 9, 1987 between Registrant
and Society Bank, National Association (incorporated herein by reference to
Exhibit (1O)(xviii) to Registrant's Annual Report on Form 1O-K for the year
ended December 31, 1986), as amended October 29, 1988 (incorporated by reference
to Exhibit (10)(xiv) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988) and January 24, 1991 (incorporated by reference to
Exhibit (10)(xiii) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990), as restated August 27, 1996 (incorporated by reference to
Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period ended September 29, 1996).
(xxi) Restricted Stock Plan effective December 10, 1987, as amended
through November 9, 1996.
(xxii) Deferred Compensation Plan for Directors of the Registrant, as
amended through October 29, 1988 (incorporated by reference to Exhibit (10)(xix)
of Registrant's Annual Report on Form 10-K for the year ended December 31,
1989).
(xxiii) 1985 Supplement to Registrant's Deferred Compensation Plan for
Directors, as amended through October 29, 1988 (incorporated by reference to
Exhibit (10)(xx) of Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989).
(xxiv) Directors Capital Accumulation Plan (incorporated by reference to
Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period ended June 30, 1996).
(xxv) Directors Retirement Plan, effective October 27, 1990 (incorporated
by reference to Exhibit (10)(xx) of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990).
(xxvi) Form of Executive Life Insurance Policy for Key Executives
(incorporated by reference to Exhibit (10) of Registrant's Quarterly Report on
Form 10-Q for the Quarterly Period Ended March 31, 1991).
(xxvii) Long Term Incentive Plan effective 1996 (incorporated by reference
to Exhibit (10)(2) of Registrant's Quarterly Report on Form 10-Q for the
Quarterly Period ended March 31, 1996).
(xxviii) Annual Incentive Plan for 1996 (incorporated by reference to
Exhibit (10)(1) of Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period ended March 31, 1996).
(xxix) Form of Mead Executive Capital Accumulation Plan effective January
1, 1995 (incorporated by reference to Exhibit (10)(1) of Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period ended July 2, 1995.)
58
<PAGE>
(11) Statement re Computation of per Share Earnings.
(12) Statements re Computation of Ratios.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule
(b) Reports on Form 8-K
(1) A Form 8-K was filed on October 11, 1996 reporting under Item 5
Registrant's execution of an agreement to acquire an integrated coated paper
mill located in Rumford, Maine from Boise Cascade for approximately $650
million.
(2) A Form 8-K was filed on November 5, 1996 reporting under Item 2
the completion of the acquisition of the paper mill located in Rumford, Maine
from Boise Cascade. Also filed as an exhibit was a copy of the Acquisition
Agreement.
(3) A Form 8-K was filed on November 13, 1996 reporting under Item 5
Registrant's extension of a Shareholder Rights Plan. Also filed as an exhibit
was a copy of the Rights Agreement.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE MEAD CORPORATION
Date: February 27, 1997 By STEVEN C. MASON
----------------------------------
Steven C. Mason
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: February 27, 1997 By STEVEN C. MASON
----------------------------------
Steven C. Mason
Director, Chairman of the Board and
Chief Executive Officer
Date: February 27, 1997 By WILLIAM R. GRABER
----------------------------------
William R. Graber
Vice President and Chief
Financial Officer (principal
financial officer)
Date: February 27, 1997 By GREGORY T. GESWEIN
----------------------------------
Gregory T. Geswein
Controller (principal
accounting officer)
Date: February 27, 1997 By JOHN C. BOGLE
----------------------------------
John C. Bogle
Director
Date: February 27, 1997 By JOHN G. BREEN
----------------------------------
John G. Breen
Director
Date: February 27, 1997 By WILLIAM E. HOGLUND
----------------------------------
William E. Hoglund
Director
60
<PAGE>
Date: February 27, 1997 By JAMES G. KAISER
----------------------------------
James G. Kaiser
Director
Date: February 27, 1997 By JOHN A. KROL
----------------------------------
John A. Krol
Director
Date: February 27, 1997 By SUSAN J. KROPF
----------------------------------
Susan J. Kropf
Director
Date: February 27, 1997 By CHARLES S. MECHEM, JR.
----------------------------------
Charles S. Mechem, Jr.
Director
Date: February 27, 1997 By PAUL F. MILLER, JR.
----------------------------------
Paul F. Miller, Jr.
Director
Date: February 27, 1997 By THOMAS B. STANLEY, JR.
----------------------------------
Thomas B. Stanley, Jr.
Director
Date: February 27, 1997 By LEE J. STYSLINGER, JR.
----------------------------------
Lee J. Styslinger, Jr.
Director
Date: February 27, 1997 By JEROME F. TATAR
-----------------------------------
Jerome F. Tatar
Director, President and
Chief Operating Officer
61
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE FURNISHED PURSUANT TO
REQUIREMENTS OF FORM 10-K
Years Ended December 31, 1996, 1995 and 1994
62
<PAGE>
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------- ---------- ---------------------- ---------- -----------
Additions
--------------------
<S> <C> <C> <C> <C> <C>
Charged Charged Balance
Balance at to to Other at
Beginning Costs & Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- ----------------------------------- ---------- ---------------------- ---------- -----------
Year Ended December 31, 1996:
Allowance for doubtful accounts $26.8 $ 7.1 $-0- $ 5.9 (A) $28.0
===== ===== ==== ====== =====
Accumulated amortization of good-
will and other intangibles $37.3 $ 3.3 $-0- $ -0- $40.6
===== ===== ==== ====== =====
Year Ended December 31, 1995:
Allowance for doubtful accounts $23.9 $10.2 $-0- $ 7.3 (A) $26.8
===== ===== ==== ====== =====
Accumulated amortization of good-
will and other intangibles $34.0 $ 3.3 $-0- $ -0- $37.3
===== ===== ==== ====== =====
Reserve for asset impairment $60.0 $ -0- $-0- $ 60.0 (B) $ -0-
===== ===== ==== ====== =====
Year Ended December 31, 1994:
Allowance for doubtful accounts $22.5 $ 8.9 $-0- $ 7.5 (A) $23.9
===== ===== ==== ====== =====
Accumulated amortization of good-
will and other intangibles $31.0 $ 3.0 $-0- $ -0- $34.0
===== ===== ==== ====== =====
Reserve for asset impairment $ -0- $60.0 $-0- $ -0- $60.0
===== ===== ==== ====== =====
</TABLE>
(A) Accounts charged off, net of recoveries.
(B) Reserve of sold business.
63
<PAGE>
THE MEAD CORPORATION
EXHIBITS TO FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1996
64
<PAGE>
EXHIBIT 3.1
CERTIFICATE
OF
AMENDED ARTICLES OF INCORPORATION
OF
THE MEAD CORPORATION
--------------------
STEVEN C. MASON, President, and GEORGE J. MALY, JR., Secretary, of THE MEAD
CORPORATION, a corporation for profit under the Ohio General Corporation Law,
with its principal office located at Dayton, Montgomery County, Ohio, do hereby
certify that a meeting of the Board of Directors of said Corporation was duly
called and held on the 28th day of May, 1987, at which meeting a quorum of such
Directors was present, and at such meeting there were duly adopted the
resolutions set forth below adopting Amended Articles of Incorporation as
permitted by Section 1701.72(B) of the Ohio Revised Code:
"Resolved, That the Articles of Incorporation be, and they hereby are,
amended to read as set forth in the following Amended Articles of Incorporation:
AMENDED ARTICLES OF INCORPORATION
FIRST: The name of said corporation is "THE MEAD CORPORATION."
SECOND: The place in Ohio where the principal office of said corporation
is located is Dayton, Montgomery County.
THIRD: The purpose or purposes for which it is formed are:
(a) To produce, mine, quarry, manufacture or otherwise acquire or exploit
and to hold, own, sell or otherwise dispose of, trade in and deal in natural
resources of every kind or character and the by-products or derivatives of such
natural resources.
(b) To manufacture, purchase or otherwise acquire and to hold, own, sell or
otherwise dispose of, trade in and deal in paper, pulp, paper materials,
paperboard and paper products of every kind and description, plastic and other
paper substitute materials and products of every kind and description, lumber,
plywood, shingles and newsprint.
(c) To manufacture, purchase, or otherwise acquire and to hold, own, sell
or otherwise dispose of, trade in and deal in looseleaf binders, fillers,
posters and construction paper, social stationery, office products, gift items,
specialty tableware and party items, art materials, institutional aids and
teaching guides, and other educational and consumer products of every kind and
description.
(d) To manufacture, purchase, or otherwise acquire and to hold, own, sell
or otherwise dispose of, trade in and deal in cement, cement-asbestos, rubber,
plastics, lime, coal, coke, iron, steel, and metals and metal products of every
kind or description.
(e) To manufacture, purchase, or otherwise acquire and to hold, own, sell
or otherwise dispose of, trade in and deal in drapery and upholstery fabrics,
hardwood veneer and upholstered household and institutional furniture, and other
interior furnishings of every kind and description.
<PAGE>
(f) To engage in applied research, development, product improvement,
evaluation of reconnaissance and intelligence systems, and in general to engage
in and deal with all types of data handling systems, precision optics,
photographic process control and specialized photography of every kind and
description.
(g) To manufacture, buy, sell and deal in goods, wares and merchandise and
personal property of every kind and description.
(h) To purchase or otherwise acquire and to hold or maintain, work,
develop, sell, lease, exchange, convey, mortgage, transfer, or in any manner to
dispose of and deal in, within and without the State of Ohio, wherever situated,
lands, leaseholds, and any interest, estate and right in real property, and any
personal or mixed property, including the shares of stock and other securities
of other corporations, and any franchises, rights, licenses, or privileges,
necessary, convenient or appropriate for any of the purposes herein expressed.
(i) To enter into, make and perform contracts of every kind for any lawful
purpose, with any person, firm, association or corporation, municipality, state
or government, or any political subdivision of any of the same.
(j) To apply for, purchase, register, or in any manner to acquire and to
hold, own, use, operate and introduce, and to sell, lease, assign, pledge, or in
any manner to dispose of, and in any manner deal with patents, patent rights,
licenses, copyrights, trademarks, trade names, and to acquire, own, use, or in
any manner dispose of, any and all inventions, improvements and processes,
labels, designs, brands, or other rights, and to work, operate or develop the
same, and to carry on any business, manufacturing or otherwise which may
directly or indirectly effectuate these objects or any of them.
(k) To purchase or otherwise acquire the whole or any part of the property,
assets, business, goodwill and rights, and to undertake and assume the whole or
any part of the liabilities and obligations, of any person, firm, association or
corporation, and to pay for the same in cash or in shares of any class or
series, or in bonds, debentures, notes or other obligations of the Corporation,
or otherwise; to hold or in any manner to dispose of the whole or any part of
the property or assets so acquired, and to conduct the whole or any part of the
business so acquired, and to exercise all the powers necessary or convenient in
and about the conduct, management and carrying on of any such business.
(l) To do any and all things necessary, convenient or expedient for the
accomplishment of any of the purposes, or the furtherance of any of the powers
hereinbefore set forth, either alone or in association with other corporations,
firms or individuals; and, in general, to carry on any other business not
forbidden by the General Corporation Law of the State of Ohio.
FOURTH: The maximum number of shares which the Corporation is authorized to
have outstanding is 340,357,040 shares which shall be classified as follows:
61,500 Cumulative Preferred Shares of the par value of $100 per share
(hereinafter called "Preferred Shares");
20,000,000 Voting Cumulative Preferred Shares without par value
(hereinafter called "Voting Preferred Shares");
20,000,000 Cumulative Preferred Shares without par value (hereinafter
called "No Par Preferred Shares");
295,540 Cumulative Second Preferred Shares of the par value of $50 per
share (hereinafter called "Second Preferred Shares"):
300,000,000 Common Shares without par value (hereinafter called
"Common Shares").
SECTION 1. For the purposes of this section and the express terms and
provisions hereinafter set forth:
I. "Affiliate" shall, as of any date, mean any corporation of which more
than 50%, but less than 90%, of the outstanding shares entitling the holders
thereof to elect a majority of the directors
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(either at all times or so long as there shall be no default in the payment of
dividends or otherwise in respect of any other class of shares of such
corporation) shall on such date be owned by the Corporation; and "Subsidiary"
shall, as of any date, mean any corporation of which 9O% or more of such
outstanding voting shares shall on such date be owned by the Corporation.
II. "Funded Indebtedness" shall mean any indebtedness which by its terms
or at the option of the debtor will mature more than 12 months from the date as
of which the computation is made.
III. "Consolidated Funded Indebtedness" shall mean the aggregate of all
Funded Indebtedness (other than any owned by the Corporation or any Subsidiary)
created, issued, re-issued, assumed or guaranteed by the Corporation or by any
Subsidiary, or secured by lien or charge on, or pledge of any property of, the
Corporation or a Subsidiary; subject, however, to subsection VII of this Section
1.
IV. "Consolidated Net Earnings" shall mean the aggregate net earnings of
the Corporation and its Subsidiaries, determined as provided in subsection VIII
of this Section 1, before deductions for interest charges on Consolidated Funded
Indebtedness, for outstanding stock interests in Subsidiaries not owned by the
Corporation or other Subsidiaries, and for taxes on income, with due allowance
for any losses sustained.
V. "Consolidated Net Income" shall mean Consolidated Net Earnings, after
deductions for all taxes on income, for interest charges on Consolidated Funded
Indebtedness, and for such portion of Consolidated Net Income as shall be
applicable to stock interests in Subsidiaries not owned by the Corporation or
other Subsidiaries; all determined as provided in subsection VIII of this
Section 1. Except as otherwise hereinafter specified, deductions for the
aforesaid interest charges and portion of Consolidated Net Income applicable to
stock interests in Subsidiaries not owned by the Corporation or other
Subsidiaries shall be based, respectively, upon interest actually paid or
accrued during the period in question and upon stock outstanding during such
period.
VI. "Consolidated Net Assets" shall mean the excess of all assets of the
Corporation and its Subsidiaries (excluding organization expenses, unamortized
bond discount and expense, patents, trademarks, copyrights, trade names, good
will, and other like intangibles) over the sum of current liabilities and
reserves of the Corporation and its Subsidiaries (other than reserves deducted
from assets or included in current liabilities, reserves for contingencies the
expenditures chargeable to which are within the control of the Corporation or a
Subsidiary, and the amount of self-insurance reserves in excess of current
claims), all as shown by a consolidated balance sheet of the Corporation and its
Subsidiaries, as of a date within 9O days of the consummation of the transaction
with respect to which the computation of Consolidated Net Assets is made,
prepared in accordance with generally accepted accounting principles, with
appropriate adjustments for (a) the estimated anticipated results of normal
operations between such date and the date of consummation of such transaction,
and (b) all transactions occurring during such period out of the course of
normal operations.
VII. In any computation of Consolidated Funded Indebtedness or
Consolidated Net Assets, there shall be excluded (a) all obligations with
respect to which an amount sufficient to discharge the same in full shall have
been deposited, in trust for the payment thereof, and (b) all moneys so
deposited for the payment of such obligations or deposited, in trust, for the
retirement of shares of stock.
VIII. In any computation of Consolidated Net Income or Consolidated Net
Earnings (a) all inter-company items shall be eliminated, (b) no deduction shall
be made from earnings for any costs or changes incident to the redemption after
June 1, 1946, of shares of Cumulative Preferred Stock of the Corporation
outstanding on said date, and (c) such computation shall be made in accordance
with generally accepted accounting principles and, when required to be made up
to the date of consummation of a proposed transaction, may be made as of a
period ending not earlier than 90 days prior to
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the consummation of such transaction, but in any such case such computation
shall be adjusted by taking into consideration the estimated anticipated
results from operations from the close of the period as of which such
computation shall have been made up to the date of consummation of such proposed
transaction.
SECTION 2. The express terms and provisions of the Preferred Shares are as
follows:
I. Preferred Shares may be issued in series from time to time. Within the
limitations and restrictions set forth in this Article FOURTH, the Board of
Directors is expressly authorized, at one time or from time to time, to adopt
amendments to the Articles of Incorporation in respect of any authorized and
unissued Preferred Shares to fix or alter the division of such shares into
series, the designation and number of shares of each series, the dividend rates,
redemption rights, redemption prices, liquidation prices, sinking fund
requirements, conversion rights, and restrictions on issuance of shares of the
same series or of any other class or series. The express terms and provisions of
Preferred Shares of different series shall be identical except that there may be
variations in respect of any or all of the particulars hereinbefore set forth in
this subsection I. In case the stated dividends or the amounts payable on
dissolution, liquidation, or sale of assets of the Corporation are not paid in
full, all Preferred Shares of all series shall participate ratably in the
payment of dividends, including accumulations, if any, in proportion to the sums
which would be payable thereon if all dividends thereon were paid in full, and,
in any distribution of assets other than by way of dividends, in proportion to
the sums which would be payable on such distribution if all sums payable thereon
to holders of Preferred Shares were discharged in full.
II. The holders of Preferred Shares shall be entitled to receive when and
as declared out of the surplus of the Corporation, subject to any limitations
prescribed by statute, cash dividends at the respective rates fixed as aforesaid
by the Board of Directors for the shares of the several series of Preferred
Shares, and no more. Dividends on the Preferred Shares shall be payable
quarterly on the first days of March, June, September and December in each year.
Dividends on each Preferred Share shall be cumulative from the first day of the
dividend period in which such share is issued, except that if any share is
issued after the record date fixed for determining the holders of Preferred
Shares of such series entitled to the dividend for such period, dividends on
such share shall be cumulative from the first day of the dividend period next
following the date of issuance of such share, and except that dividends on any
share of a particular series issued prior to the first dividend payment date for
shares of such series shall be cumulative from such date as shall be fixed by
the Board of Directors prior to the issuance thereof, but not earlier than the
beginning of the current dividend period.
The Preferred Shares shall rank pari passu with the Voting Preferred Shares
and the No Par Preferred Shares with respect to the payment of dividends.
Subject to the provisions of this Article FOURTH, the holders of all shares
ranking junior to the Preferred Shares with respect to the payment of dividends
shall be entitled to receive such dividends as may from time to time be declared
thereon by the Board of Directors.
III. Except as may be otherwise expressly provided in this Article FOURTH,
the Corporation shall have the right to redeem the Preferred Shares of any one
or more series at any time, either in whole or in such portions, as, from time
to time, the Board of Directors may determine, upon the payment to the
respective holders thereof of the "General Redemption Price" thereof. The
General Redemption Price for shares of each series shall be an amount equal to
the sum of (a) the redemption price fixed by the Board of Directors for the
shares of such series prior to the initial issuance of the first shares of such
series; and (b) an amount equivalent to all accumulated and unpaid dividends on
the shares to be redeemed to the date fixed for redemption (hereinafter referred
to as the "Redemption Date"), whether or not such dividends shall have been
earned or declared. In lieu of such payment the Corporation may deposit the
General Redemption Price of the shares to be redeemed on or prior to the
Redemption Date, with such responsible bank or trust company or bank and trust
company in the Borough of
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Manhattan, in the City of New York, State of New York, having a capital and
surplus of not less than $5,000,000, as may be designated by the Board of
Directors, in trust, for payment on or after the date of such deposit (without
awaiting the Redemption Date) to the holders of the Preferred Shares then to be
redeemed. If less than the whole amount of outstanding Preferred Shares of any
particular series shall be redeemed at any time, the shares thereof to be
redeemed shall be selected by lot.
Notice of any such redemption, in whole or in part, and of any such deposit
made or to be made of such General Redemption Price, shall be mailed to each
holder of Preferred Shares so to be redeemed, at his address registered with the
Corporation, not less than thirty days prior to the Redemption Date, and, if
less than all of the said shares owned by such shareholder are to be redeemed,
the notice shall specify the number of shares thereof which are to be redeemed.
Such notice having been so given, or irrevocable written authority to the
depositary having been given at the time of making the deposit provided for
herein forthwith to give such notice, all rights of the respective holders of
the said shares as shareholders of the Corporation by reason of the ownership of
such shares, except the right to receive the General Redemption Price of such
shares upon presentation and surrender of their respective certificates
representing the said shares, shall cease from and after the Redemption Date
(unless default shall be made by the Corporation in providing moneys for the
payment of the General Redemption Price), or, if the General Redemption Price
shall have been deposited on or prior to the Redemption Date as above permitted,
from and after the date of such deposit; provided, however, that in lieu of the
right to receive the General Redemption Price, any rights of conversion or
exchange may be exercised up to the close of business on the Redemption Date. If
after such deposit any Preferred Shares so called shall be converted or
exchanged, the amount theretofore deposited with the depositary for the
redemption thereof shall forthwith be paid over by it to the Corporation. Any
other moneys so deposited which shall remain unclaimed by the holders of
Preferred Shares so called for redemption at the end of two years after the
Redemption Date shall be paid by such depositary to the Corporation, after which
the holders of such Preferred Shares shall look only to the Corporation for
payment of the General Redemption Price thereof, without interest.
IV. Upon the dissolution, liquidation or sale of all or substantially all
the assets of the Corporation, the holders of Preferred Shares shall be entitled
to receive the following sums, before any payment shall be made to any other
class of shares ranking junior to the Preferred Shares with respect to payment
upon dissolution, liquidation or sale of assets:
(a) in case of any involuntary dissolution or liquidation or forced
sale of all or substantial1y all the assets of the Corporation, each
Preferred Share of each series shall be entitled to receive the sum of
$100, together with a sum, whether or not earned or declared, equivalent to
all accumulated and unpaid dividends thereon to the date of such payment;
or
(b) in case of any voluntary dissolution or 1iquidation or voluntary
sale of all or substantially all the assets of the Corporation, each
Preferred Share of each series shall be entitled to receive the amount
fixed for such contingency by the Board of Directors for the shares of such
series prior to the initial issuance of the first shares of such series,
together with a sum, whether or not earned or declared, equivalent to all
accumulated and unpaid dividends thereon to the date of such payment.
The Preferred Shares shall rank pari passu with the Voting Preferred Shares and
the No Par Preferred Shares with respect to payment upon dissolution,
liquidation, or sale of assets. After all sums payable on the Preferred Shares
as herein provided upon a particular contingency shall have been paid in full,
but not prior thereto, the other classes of shares ranking junior to the
Preferred Shares with respect to payment upon dissolution, liquidation, or sale
of assets shall be entitled to payment of all other sums then distributable,
subject to the respective terms and provisions (if any) applying to such class
or classes of shares, respectively. For the purposes of this subsection IV, a
consolidation or merger of the Corporation with or into any other corporation,
or a consolidation or merger of any other corporation with or into the
Corporation shall not be deemed a dissolution, liquidation, or sale of assets.
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V. Except as herein or by law expressly provided to the contrary, the
holders of Preferred Shares shall have no right as such holders to vote at or
participate in any meeting of shareholders of the Corporation or to receive any
notice of any such meeting. If, however, dividends on any of the Preferred
Shares shall be in arrears in an amount equal to the annual dividends thereon,
the holders of all of the Preferred Shares shall be entitled to vote at all
meetings of shareholders of the Corporation and to receive notice of all such
meetings. Such voting rights of the holders of Preferred Shares shall continue
until all accumulated and unpaid dividends on all Preferred Shares shall have
been paid, whereupon all such voting rights shall cease, subject to being
revived from time to time upon the reoccurrence of the conditions above
described as giving rise thereto.
At any meeting at which the holders of the Preferred Shares shall be
entitled to vote, each vote cast pursuant to the provisions of this subsection V
on behalf of the holder of a Preferred Share shall be counted as such number of
votes as shall equal the quotient derived from dividing the number of Preferred
Shares of all series then outstanding into the total number of votes to which at
such time all outstanding shares ranking junior to the Preferred Shares with
respect to the payment of dividends or distributions in liquidation may be
collectively entitled, except that so long as any Second Preferred Shares shall
be outstanding, the number of votes to which each Preferred Share shall be
entitled shall be one-half the number of votes to which each Preferred Share
would be entitled under the above provisions. For the purposes of the above
computation, shares held by the Corporation or by any Subsidiary or Affiliate
shall not be deemed to be outstanding, and such shares shall have no right
whatsoever to vote at or to receive notice of any meeting other than such rights
as may be expressly granted by law.
VI. So long as any of the Preferred Shares shall remain outstanding, no
dividend (other than dividends payable in shares ranking junior to the Preferred
Shares with respect to the payment of dividends and distributions in
liquidation) shall be paid, nor shall any distribution (by purchase, redemption,
payment to any sinking fund, or otherwise) be made, on any shares ranking junior
to the Preferred Shares with respect to the payment of dividends or
distributions in liquidation, unless:
(a) all dividends on all outstanding Preferred Shares, Voting
Preferred Shares and No Par Preferred Shares shall have been paid, and full
dividends thereon for the then current quarterly dividend period shall have
been declared and a sum sufficient for the payment thereof set apart
therefor;
(b) the Corporation shall not be in arrears in respect of any sinking
fund obligation in respect of any series of Preferred Shares, Voting
Preferred Shares, or No Par Preferred Shares;
(c) after giving effect to the payment of the proposed dividend or
distribution, the aggregate of all such dividends and distributions paid,
subsequent to December 29, 1945, shall not exceed the sum of (i)
Consolidated Net Income earned after said date less the aggregate of all
dividends paid on the Preferred Shares, Voting Preferred Shares and No Par
Preferred Shares, all sinking fund payments with respect thereto, and all
amounts credited against such payments for the voluntary purchase or
redemption of Preferred Shares, Voting Preferred Shares or No Par Preferred
Shares, (ii) the net proceeds of the sale subsequent to September 1, 1946,
of shares ranking junior to the Preferred Shares with respect to the
payment of dividends and distributions in liquidation, (iii) the principal
amount of indebtedness converted, subsequent to April 1, 1967, and the
stated capital of shares ranking equal with or prior to the Preferred
Shares with respect to the payment of dividends and distributions in
liquidation converted, subsequent to April 1, 1967, into shares ranking
junior to the Preferred Shares with respect to the payment of dividends and
distributions in liquidation, and (iv) $1,000,000; and
(d) if such dividend or distribution be on the Common Shares, after
giving effect to the payment of the proposed dividend or distribution,
Consolidated Net Assets shall be at least 175% of the sum of (i)
Consolidated Funded Indebtedness, (ii) the aggregate par value of (and/or,
in the case of shares without par value, stated capital applicable to) the
outstanding Preferred Shares
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of all series and all other outstanding shares of the Corporation ranking
equally with or prior to the Preferred Shares with respect to the payment
of dividends or distributions in liquidation, including shares owned by the
Corporation, and (iii) capital and surplus of Subsidiaries applicable to or
represented by shares owned by others than the Corporation or its
Subsidiaries.
The purchase or other acquisition by a Subsidiary or Affiliate of shares of the
Corporation shall be deemed a purchase or acquisition of such shares by the
Corporation within the meaning of this subsection VI.
VII. Without the affirmative vote at a meeting, or the written consent with
or without a meeting, of the holders of at least two-thirds of the Preferred
Shares at the time outstanding, as a class, the Corporation shall not:
(a) increase the number of authorized Preferred Shares to an amount
in excess of l00,000;
(b) increase the number of authorized Voting Preferred Shares to an
amount in excess of 20,000,000;
(c) increase the number of authorized No Par Preferred Shares to an
amount in excess of 20,000,000;
(d) authorize or issue any shares other than Preferred Shares, Voting
Preferred Shares, No Par Preferred Shares or shares ranking junior to the
Preferred Shares with respect to the payment of dividends and distributions
in liquidation;
(e) adopt or effect any amendment to its Articles of Incorporation
which would be substantially prejudicial to the holders of Preferred
Shares; provided, however, that if such amendment would be substantially
prejudicial to the holders of Preferred Shares of one or more series, but
less than all of the several series of Preferred Shares, or would unequally
affect two or more series in a substantially prejudicial manner, the
affirmative vote at a meeting, or the written consent with or without a
meeting, of the holders of at least two-thirds of the shares of each series
so affected at the time outstanding, voting as a sub-class, shall be
required in addition to the said vote or written consent of the holders of
at least two-thirds of the Preferred Shares of all series at the time
outstanding, voting as a class; and provided, further, that any such
amendment, when effected upon such vote or consent, shall not confer upon
dissenting holders of Preferred Shares any right to payment for their
shares;
(f) sell, convey, lease or otherwise part with all or substantially
all of its assets, property or business, or consolidate or merge with or
into any other corporation, or merge any other corporation into itself;
provided, however, that this restriction shall not apply to a consolidation
or merger to which the Corporation is a party if none of the rights or
preferences of the Preferred Shares shall be adversely affected thereby; or
(g) give any guarantee or similar obligation for the payment of any
share or dividend by any other corporation or person; provided, however,
that this restriction shall not apply to any guarantee or similar
obligation for the payment of any share or dividend by any corporation
which at the time the guarantee or similar obligation is given is a
Subsidiary.
For the purpose of determining whether such affirmative vote or written consent
required by this subsection VII has been obtained, Preferred Shares held by the
Corporation or by any Subsidiary or Affiliate shall not be deemed to be
outstanding or entitled to participate in any such vote or consent.
VIII. So long as any dividend on any Preferred Shares shall be in arrears
and unpaid, the Corporation shall not redeem any Preferred Shares (unless all
outstanding Preferred Shares shall be redeemed) or purchase any Preferred
Shares, or permit any Subsidiary or Affiliate to make any such purchase, unless
such redemption or purchase shall be accomplished not earlier than 30 days and
not later than 90
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days after the mailing of a written purchase offer to each holder of record of
Preferred Shares at the address of such shareholder registered with the
Corporation. Any such purchase offer shall be made upon terms that will result
in holders of Preferred Shares of the several series being offered prices in
proportion to the several dividend rates applicable thereto.
IX. Preferred Shares acquired by the Corporation through the exercise by
the holders thereof of any conversion privilege shall not be re-issued except as
hereinafter provided. Such shares and any other Preferred Shares acquired by the
Corporation otherwise than through the operation of any sinking fund and not
used to reduce the amount of any sinking fund instalment shall, upon compliance
with such provisions of law relating to the retirement of shares as may be
applicable, have the status of authorized and unissued Preferred Shares which
are unclassified into any series. Preferred Shares acquired by the Corporation
through the operation of any sinking fund or which have been used to reduce the
amount of any sinking fund instalment shall be cancelled and not re-issued, and
the Corporation shall from time to time take appropriate corporate action to
reduce the authorized number of Preferred Shares accordingly.
X. No holder of Preferred Shares of any series shall, as such holder, have
any preemptive rights in, or preemptive rights to purchase or subscribe to, any
shares of the Corporation, or any bonds, debentures, or other securities
convertible into any shares of the Corporation, other than such rights of
conversion or exchange as shall be expressly granted by the Board of Directors
prior to the initial issuance of the first shares of the series of which such
Preferred Shares shall constitute a part; and, except as aforesaid, each and
every holder of Preferred Shares, by accepting the same, thereby waives and
releases any and all preemptive rights which he might otherwise have to purchase
any shares which may at any time be issued by the Corporation.
SECTION 3. The express terms and provisions of the Voting Preferred Shares
are as follows:
I. Voting Preferred Shares may be issued in series from time to time.
Within the limitations and restrictions set forth in this Article Fourth, the
Board of Directors is expressly authorized, at one time or from time to time, to
adopt amendments to the Articles of Incorporation in respect of any authorized
and unissued Voting Preferred Shares to fix or alter the division of such shares
into series, the designation and number of shares of each series, the dividend
rates, redemption rights, redemption prices, liquidation prices, sinking fund
requirements, conversion rights, and restrictions on issuance of shares of the
same series or of any other class or series. Voting Preferred Shares may, if
authorized by such amendments to the Articles of Incorporation, be convertible
at the option of the holder thereof into full paid and nonassessable Common
Shares of the Corporation during such period or periods at such rate or rates
(which rate or rates of some or all series may be determinable in whole or in
part by the payment of money to the Corporation by the holder exercising the
option to convert), as may be determined by such amendments. The express terms
and provisions of Voting Preferred Shares of different series shall be identical
except that there may be variations in respect of any or al1 of the particulars
hereinbefore set forth in this subsection I. In case the stated dividends or the
amounts payable on dissolution, liquidation, or sale of assets of the
Corporation are not paid in full, all Voting Preferred Shares of all series
shall participate ratably in the payment of dividends, including accumulations,
if any, in proportion to the sums which would be payable thereon if all
dividends thereon were paid in full, and, in any distribution of assets other
than by way of dividends, in proportion to the sums which would be payable on
such distribution if all sums payable thereon to holders of Voting Preferred
Shares were discharged in full.
II. The holders of Voting Preferred Shares shall be entitled to receive
when and as declared out of the surplus of the Corporation, subject to any
limitations prescribed by statute, cash dividends at the respective rates fixed
as aforesaid by the Board of Directors for the shares of the several series of
Voting Preferred Shares, and no more. Dividends on the Voting Preferred Shares
shall be payable quarterly on the first days of March, June, September and
December in each year. Dividends on each
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Voting Preferred Share shall be cumulative from the first day of the dividend
period in which such share is issued, except that if any share is issued after
the record date fixed for determining the holders of Voting Preferred Shares of
such series entitled to the dividend for such period, dividends on such share
shall be cumulative from the first day of the dividend period next following the
date of issuance of such share, and except that dividends on any share of a
particular series issued prior to the first dividend payment date for shares of
such series shall be cumulative from such date as shall be fixed by the Board of
Directors prior to the issuance thereof, but not earlier than the beginning of
the current dividend period.
The Voting Preferred Shares shall rank pari passu with the Preferred Shares
and the No Par Preferred Shares with respect to the payment of dividends.
Subject to the provisions of this Article FOURTH, the holders of all shares
ranking junior to the Voting Preferred Shares with respect to the payment of
dividends shall be entitled to receive such dividends as may from time to time
be declared thereon by the Board of Directors.
III. Except as may be otherwise expressly provided in this Article FOURTH,
the Corporation shall have the right to redeem the Voting Preferred Shares of
any one or more series at any time, either in whole or in such portions, as,
from time to time, the Board of Directors may determine, upon the payment to the
respective holders thereof of the "General Redemption Price" thereof. The
General Redemption Price for shares of each series shall be an amount equal to
the sum of (a) the redemption price fixed by the Board of Directors for the
shares of such series prior to the initial issuance of the first shares of such
series; and (b) an amount equivalent to all accumulated and unpaid dividends on
the shares to be redeemed to the date fixed for redemption (hereinafter referred
to as the "Redemption Date"), whether or not such dividends shall have been
earned or declared. In lieu of such payment the Corporation may deposit the
General Redemption Price of the shares to be redeemed on or prior to the
Redemption Date, with such responsible bank or trust company or bank and trust
company in the Borough of Manhattan, in the City of New York, State of New York,
having a capital and surplus of not less than $5,000,000, as may be designated
by the Board of Directors, in trust, for payment on or after the date of such
deposit (without awaiting the Redemption Date) to the holders of the Voting
Preferred Shares then to be redeemed. If less than the whole amount of
outstanding Voting Preferred Shares of any particular series shall be redeemed
at any time, the shares thereof to be redeemed shall be selected by lot.
Notice of any such redemption, in whole or in part, and of any such deposit
made or to be made of such General Redemption Price, shall be mailed to each
holder of Voting Preferred Shares so to be redeemed, at his address registered
with the Corporation, not less than thirty days prior to the Redemption Date,
and, if less than all of the said shares owned by such shareholder are to be
redeemed, the notice shall specify the number of shares thereof which are to be
redeemed. Such notice having been so given, or irrevocable written authority to
the depositary having been given at the time of making the deposit provided for
herein forthwith to give such notice, all rights of the respective holders of
the said shares as shareholders of the Corporation by reason of the ownership of
such shares, except the right to receive the General Redemption Price of such
shares upon presentation and surrender of their respective certificates
representing the said shares, shall cease from and after the Redemption Date
(unless default shall be made by the Corporation in providing moneys for the
payment of the General Redemption Price), or, if the General Redemption Price
shall have been deposited on or prior to the Redemption Date as above permitted,
from and after the date of such deposit; provided, however, that in lieu of the
right to receive the General Redemption Price, any rights of conversion or
exchange may be exercised up to the close of business on the Redemption Date. If
after such deposit any Voting Preferred Shares so called shall be so converted
or exchanged, the amount theretofore deposited with the depositary for the
redemption thereof shall forthwith be paid over by it to the Corporation. Any
other moneys so deposited which shall remain unclaimed by the holders of Voting
Preferred Shares so called for redemption at the end of two years after the
Redemption Date shall be paid by such depositary to the Corporation, after which
the holders of such Voting Preferred Shares shall look only to the Corporation
for payment of the General Redemption Price thereof, without interest.
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IV. Upon the dissolution, liquidation or sale of all or substantially
all of the assets of the Corporation, the holders of Voting Preferred Shares
shall be entitled to receive the following sums, before any payment shall be
made to any other class of shares ranking junior to the Voting Preferred Shares
with respect to payment upon dissolution, liquidation or sale of assets:
(a) in case of any involuntary dissolution or liquidation or forced
sale of all or substantially all the assets of the Corporation, each Voting
Preferred Shares of each series shall be entitled to receive the amount
fixed for such contingency by the Board of Directors for the shares of such
series prior to the initial issuance of the first shares of such series,
together with a sum, whether or not earned or declared, equivalent to all
accumulated and unpaid dividends thereon to the date of such payment; or
(b) in case of any voluntary dissolution or liquidation or voluntary
sale of all or substantially all the assets of the Corporation, each Voting
Preferred Share of each series shall be entitled to receive the amount
fixed for such contingency by the Board of Directors for the shares of such
series prior to the initial issuance of the first shares of such series,
together with a sum, whether or not earned or declared, equivalent to all
accumulated and unpaid dividends thereon to the date of such payment.
The Voting Preferred Shares shall rank pari passu with the Preferred Shares and
the No Par Preferred Shares with respect to payment upon dissolution,
liquidation, or sale of assets. After all sums payable on the Voting Preferred
Shares as herein provided upon a particular contingency shall have been paid in
full, but not prior thereto, the other classes of shares ranking junior to the
Voting Preferred Shares with respect to payment upon dissolution, liquidation,
or sale of assets shall be entitled to payment of all other sums then
distributable, subject to the respective terms and provisions (if any) applying
to such class or classes of shares, respectively. For the purposes of this
subsection IV, a consolidation or merger of the Corporation with or into any
other corporation, or a consolidation or merger of any other corporation with or
into the Corporation shall not be deemed a dissolution, liquidation, or sale of
assets.
V. The holders of Voting Preferred Shares shall be entitled to one vote for
each Voting Preferred Share held by them respectively. In addition to such
general voting rights, the holders of Voting Preferred Shares shall have the
following voting rights. If dividends on any of the Voting Preferred Shares
shall be in arrears in an amount equal to 150% of the annual dividends thereon,
the holders of the Voting Preferred Shares shall have the special right, voting
as a class, to elect the number of directors hereinafter provided. The
remaining directors shall be elected by the other class or classes (Preferred
Shares, no Par Preferred Shares, Second Preferred Shares and/or Common Shares)
entitled to vote therefor. The holders of Voting Preferred Shares shall have the
right to elect that number of directors which bears the same proportion to the
number of directors constituting the entire board of directors as the
outstanding Voting Preferred Shares bears to the total of the outstanding Common
Shares and Voting Preferred Shares, or in any event a minimum number of two
directors. From and after the election of directors by the holders of Voting
Preferred Shares, as aforesaid, and so long as one or more directors so elected
continue to hold office, the holders of such Voting Preferred Shares shall not
be entitled to exercise their general voting rights with respect to the election
of the other directors. If, however, the holders of such Voting Preferred Shares
do not exercise their rights to elect directors, voting as a class, they shall
continue to be entitled to exercise their general voting rights with respect to
the election of directors.
Whenever the special voting right of the holders of Voting Preferred Shares
shall have vested, such special right may be exercised initially either at a
special meeting of such holders, called as hereinafter provided, or at any
annual meeting of shareholders held for the purpose of electing directors, and
thereafter at such annual meetings. The special right of the holders of the
Voting Preferred Shares, voting as a class, to elect directors as provided
herein, shall continue until such time as all dividends accumulated on the
Voting Preferred Shares shall have been paid in full, at which time the right of
the holders of
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Voting Preferred Shares to exercise such special voting right shall terminate,
subject to revesting in the event of each and every subsequent default of the
character above-mentioned.
At any time when the special voting right shall have vested in the holders
of the Voting Preferred Shares as herein provided, and if such right shall not
already have been initially exercised, the Secretary of the Corporation shall,
upon the written request of the holders of record of at least 10% in amount of
the Voting Preferred Shares then outstanding, call a special meeting of the
holders of the Voting Preferred Shares for the purpose of exercising their
special voting right. Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of shareholders.
Notwithstanding the provisions of this paragraph, no such special meeting shall
be called during a period within 60 days immediately preceding the date fixed
for the next annual meeting of shareholders.
At any meeting held for that purpose of electing directors at which the
holders of the Voting Preferred Shares shall have the special voting right, as a
class, to elect directors as provided herein, the presence in person or by proxy
of the holders of 33-1/3% of the then outstanding Voting Preferred Shares shall
be required and be sufficient to constitute a quorum for the exercise of such
special voting right. At such meeting or adjournment thereof, (a) the absence of
a quorum of the Voting Preferred Shares shall not prevent the election of the
directors to be elected by the holders of the other class or classes entitled to
vote therefor, and the absence of a quorum of such other class or classes shall
not prevent the election of the directors to be elected by the special voting
right of the holders of the Voting Preferred Shares, and (b) in the absence of a
quorum of any class entitled to vote for the election of directors, a majority
of the holders present in person or by proxy of such class shall have the power
to adjourn the meeting for the exercise of the voting rights of such class, from
time to time, without notice other than adjournment at the meeting, until a
quorum shall be present.
The term of office of all directors in office at any time when special
voting power shall, as aforesaid, be vested in the holders of the Voting
Preferred Shares, shall terminate upon the election of any directors at any
meeting of shareholders held for the purpose of electing directors. Upon any
termination of the special voting right of the holders of Voting Preferred
Shares provided herein, the term of office of all directors then in office shall
terminate upon the election of directors at a meeting of the holders of the
other class or classes then entitled to vote, which meeting may be held at any
time after such termination of the special voting right of the holders of the
Voting Preferred Shares, upon notice as above provided, and shall be called by
the Secretary of the Corporation upon written request of the holders of record
of 10% of the aggregate number of outstanding shares of such other class or
classes then entitled to vote for directors.
VI. So long as any of the Voting Preferred Shares shall remain outstanding,
no dividend (other than dividends payable in shares ranking junior to the Voting
Preferred Shares with respect to the payment of dividends and distributions in
liquidation) shall be paid, nor shall any distribution (by purchase, redemption,
payment to any sinking fund, or otherwise) be made, on any shares ranking junior
to the Voting Preferred Shares with respect to the payment of dividends or
distributions in liquidation unless:
(a) all dividends on all outstanding Preferred Shares, Voting
Preferred Shares and No Par Preferred Shares shall have been paid, and full
dividends thereon for the then current quarterly dividend period shall have been
declared and a sum sufficient for the payment thereof set apart therefor;
(b) the Corporation shall not be in arrears in respect of any sinking
fund obligation in respect of any series of Preferred Shares, Voting Preferred
Shares or No Par Preferred Shares;
(c) after giving effect to the payment of the proposed dividend or
distribution, the aggregate of all such dividends and distributions paid,
subsequent to December 31, 1965, shall not exceed the sum of (i) Consolidated
Net Income earned after said date less the aggregate of all dividends paid on
the Preferred Shares, Voting Preferred Shares and No Par Preferred Shares, all
sinking fund payments with respect thereto, and all amounts credited against
such payments
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for the voluntary purchase or redemption of Preferred Shares, Voting
Preferred Shares or No Par Preferred Shares, (ii) the net proceeds of the
sale subsequent to September 1, 1966, of shares ranking junior to the Voting
Preferred Shares with respect to the payment of dividends and distributions
in liquidation, (iii) the principal amount of indebtedness converted,
subsequent to April 1, 1967, and the stated capital of shares ranking equal
with or prior to the Voting Preferred Shares with respect to the payment of
dividends and distributions in liquidation converted, subsequent to April 1,
1967, into shares ranking junior to the Voting Preferred Shares with respect
to the payment of dividends and distributions in liquidation, and (iv)
$32,000,000; and
(d) if such dividend or distribution be on the Common Shares, after
giving effect to the payment of the proposed dividend or distribution,
Consolidated Net Assets shall be at least 175% of the sum of (i) Consolidated
Funded Indebtedness, (ii) the aggregate par value of (and/or, in the case of
shares without par value, stated capital applicable to) the outstanding
Voting Preferred Shares of all series and all other outstanding shares of the
Corporation ranking equally with or prior to the Voting Preferred Shares with
respect to the payment of dividends or distributions in liquidation,
including shares owned by the Corporation, and (iii) capital and surplus of
Subsidiaries applicable to or represented by shares owned by others than the
Corporation or its Subsidiaries.
The purchase or other acquisition by a Subsidiary or Affiliate of shares of the
Corporation shall be deemed a purchase or acquisition of such shares by the
Corporation within the meaning of this subsection VI.
VII. Without the affirmative vote at a meeting, or the written consent
with or without a meeting, of the holders of at least two-thirds of the Voting
Preferred Shares at the time outstanding, as a class, the Corporation shall not:
(a) increase the number of authorized Preferred Shares to an amount in
excess of 100,000;
(b) increase the number of authorized Voting Preferred Shares to an
amount in excess of 20,000,000;
(c) increase the number of authorized No Par Preferred Shares to an
amount in excess of 20,000,000;
(d) authorize or issue any shares other than Preferred Shares,
Voting Preferred Shares, No Par Preferred Shares or shares ranking junior
to the Voting Preferred Shares with respect to the payment of dividends and
distributions in liquidation;
(e) adopt or effect any amendment to its Articles of Incorporation
which would be substantially prejudicial to the holders of Voting Preferred
Shares; provided, however, that if such amendment would be substantially
prejudicial to the holders of Voting Preferred Shares of one or more
series, but less than all of the several series of Voting Preferred Shares,
or would unequally affect two or more series in a substantially prejudicial
manner, the affirmative vote at a meeting, or the written consent with or
without a meeting, of the holders of at least two-thirds of the shares of
each series so affected at the time outstanding, voting as a sub-class,
shall be required in addition to the said vote or written consent of the
holders of at least two-thirds of the Voting Preferred Shares of all series
at the time outstanding, voting as a class; and provided, further, that any
such amendment, when effected upon such vote or consent, shall not confer
upon dissenting holders of Voting Preferred Shares any right to payment for
their shares;
(f) sell, convey, lease or otherwise part with all or substantially
all of its assets, property or business, or consolidate or merge with or
into any other corporation, or merge any other corporation into itself;
provided, however, that this restriction shall not apply to a consolidation
or merger to which the Corporation is a party if none of the rights or
preferences of the Voting Preferred Shares shall be adversely affected
thereby; or
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(g) give any guarantee or similar obligation for the payment of any
share or dividend by any other corporation or person; provided, however,
that this restriction shall not apply to any guarantee or similar
obligation for the payment of any share or dividend by any corporation
which at the time the guarantee or similar obligation is given is a
Subsidiary.
For the purpose of determining whether such affirmative vote or written consent
required by this subsection VII has been obtained, Voting Preferred Shares held
by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be
outstanding or entitled to participate in any such vote or consent.
VIII. So long as any dividend on any Voting Preferred Shares shall be in
arrears and unpaid, the Corporation shall not redeem any Voting Preferred Shares
(unless all outstanding Voting Preferred Shares shall be redeemed) or purchase
any Voting Preferred Shares, or permit any Subsidiary or Affiliate to make any
such purchase, unless such redemption or purchase shall be accomplished not
earlier than 30 days and not later than 90 days after the mailing of a written
purchase offer to each holder of record of Voting Preferred Shares at the
address of such shareholder registered with the Corporation. Any such purchase
offer shall be made upon terms that will result in holders of Voting Preferred
Shares of the several series being offered prices in proportion to the several
dividend rates applicable thereto.
IX. Voting Preferred Shares acquired by the Corporation through the
exercise by the holders thereof of any conversion privilege shall not be re-
issued except as hereinafter provided. Such shares and any other Voting
Preferred Shares acquired by the Corporation otherwise than through the
operation of any sinking fund and not used to reduce the amount of any sinking
fund instalment shall, upon compliance with such provisions of law relating to
the retirement of shares as may be applicable, have the status of authorized and
unissued Voting Preferred Shares which are unclassified into any series. Voting
Preferred Shares acquired by the Corporation through the operation of any
sinking fund or which have been used to reduce the amount of any sinking fund
instalment shall be cancelled and not re-issued, and the Corporation shall from
time to time take appropriate corporate action to reduce the authorized number
of Voting Preferred Shares accordingly.
X. No holder of Voting Preferred Shares of any series shall, as such
holder, have any preemptive rights in, or preemptive rights to purchase or
subscribe to, any shares of the Corporation, or any bonds, debentures, or other
securities convertible into any shares of the Corporation, other than such
rights of conversion or exchange as shall be expressly granted by the Board of
Directors prior to the initial issuance of the first shares of the series of
which such Voting Preferred Shares shall constitute a part; and, except as
aforesaid, each and every holder of Voting Preferred Shares, by accepting the
same, thereby waives and releases any and all preemptive rights which he might
otherwise have to purchase any shares which may at any time be issued by the
Corporation.
SECTION 4. The express terms and provisions of the No Par Preferred Shares
are as follows:
I. No Par Preferred Shares may be issued in series from time to time.
Within the limitations and restrictions set forth in this Article FOURTH, the
Board of Directors is expressly authorized, at one time or from time to time,
to adopt amendments to the Articles of Incorporation in respect of any
authorized and unissued No Par Preferred Shares to fix or alter the division of
such shares into series, the designation and number of shares of each series,
the dividend rates, redemption rights, redemption prices, liquidation prices,
sinking fund requirements, conversion rights, and restrictions on issuance of
shares of the same series or of any other class or series. No Par Preferred
Shares may, if authorized by such amendments to the Articles of Incorporation,
be convertible at the option of the holder thereof into full paid and
nonassessable Common Shares of the Corporation during such period or periods at
such rate or rates (which rate or rates of some or all series may be
determinable in whole or in part by the payment of money to the Corporation by
the holder exercising the option to convert), as may
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be determined by such amendments. The express terms and provisions of No Par
Preferred Shares of different series shall be identical except that there may be
variations in respect of any or all of the particulars hereinbefore set forth in
this subsection 1. In case the stated dividends or the amounts payable on
dissolution, liquidation, or sale of assets of the Corporation are not paid in
full, all No Par Preferred Shares of all series shall participate ratably in
the payment of dividends, including accumulations, if any, in proportion to the
sums which would be payable thereon if all dividends thereon were paid in full,
and, in any distribution of assets other than by way of dividends, in proportion
to the sums which would be payable on such distribution if all sums payable
thereon to holders of No Par Preferred Shares were discharged in full.
II. The holders of No Par Preferred Shares shall be entitled to receive
when and as declared out of the surplus of the Corporation, subject to any
limitations prescribed by statute, cash dividends at the respective rates fixed
as aforesaid by the Board of Directors for the shares of the several series of
No Par Preferred Shares, and no more. Dividends on the No Par Preferred Shares
shall be payable quarterly on the first days of March, June, September and
December in each year. Dividends on each No Par Preferred Share shall be
cumulative from the first day of the dividend period in which such share is
issued, except that if any share is issued after the record date fixed for
determining the holders of No Par Preferred Shares of such series entitled to
the dividend for such period, dividends on such share shall be cumulative from
the first day of the dividend period next following the date of issuance of such
share, and except that dividends on any share of a particular series issued
prior to the first dividend payment date for shares of such series shall be
cumulative from such date as shall be fixed by the Board of Directors prior to
the issuance thereof, but not earlier than the beginning of the current dividend
period.
The No Par Preferred Shares shall rank pari passu with the Preferred Shares
and the Voting Preferred Shares with respect to the payment of dividends.
Subject to the provisions of this Article FOURTH, the holders of all shares
ranking junior to the No Par Preferred Shares with respect to the payment of
dividends shall be entitled to receive such dividends as may from time to time
be declared thereon by the Board of Directors.
III. Except as may be otherwise expressly provided in this Article FOURTH,
the Corporation shall have the right to redeem the No Par Preferred Shares of
any one or more series at any time, either in whole or in such portions, as,
from time to time, the Board of Directors may determine, upon the payment to the
respective holders thereof of the "General Redemption Price" thereof. The
General Redemption Price for shares of each series shall be an amount equal to
the sum of (a) the redemption price fixed by the Board of Directors for the
shares of such series prior to the initial issuance of the first shares of such
series; and (b) an amount equivalent to all accumulated and unpaid dividends on
the shares to be redeemed to the date fixed for redemption (hereinafter referred
to as the "Redemption Date"), whether or not such dividends shall have been
earned or declared. In lieu of such payment the Corporation may deposit the
General Redemption Price of the shares to be redeemed on or prior to the
Redemption Date, with such responsible bank or trust company or bank and trust
company in the Borough of Manhattan, in the City of New York, State of New York,
having a capital and surplus of not less than $5,000,000, as may be designated
by the Board of Directors, in trust, for payment on or after the date of such
deposit (without awaiting the Redemption Date) to the holders of the No Par
Preferred Shares then to be redeemed. If less than the whole amount of
outstanding No Par Preferred Shares of any particular series shall be redeemed
at any time, the shares thereof to be redeemed shall be selected by lot.
Notice of any such redemption, in whole or in part, and of any such deposit
made or to be made of such General Redemption Price, shall be mailed to each
holder of No Par Preferred Shares so to be redeemed, at his address registered
with the Corporation, not less than thirty days prior to the Redemption Date,
and, if less than all of the said shares owned by such shareholder are to be
redeemed, the notice shall specify the number of shares thereof which are to be
redeemed. Such notice having been so given, or irrevocable written authority to
the depositary having been given at the time of making the deposit provided for
herein forthwith to give such notice, all rights of the respective holders of
the said shares as shareholders of the Corporation by reason of the ownership of
such shares, except the right
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to receive the General Redemption Price of such shares upon presentation and
surrender of their respective certificates representing the said shares, shall
cease from and after the Redemption Date (unless default shall be made by the
Corporation in providing moneys for the payment of the General Redemption
Price), or, if the General Redemption Price shall have been deposited on or
prior to the Redemption Date as above permitted, from and after the date of such
deposit; provided, however, that in lieu of the right to receive the General
Redemption Price, any rights of conversion or exchange may be exercised up to
the close of business on the Redemption Date. If after such deposit any No Par
Preferred Shares so called shall be so converted or exchanged, the amount
theretofore deposited with the depositary for the redemption thereof shall
forthwith be paid over by it to the Corporation. Any other moneys so deposited
which shall remain unclaimed by the holders of No Par Preferred Shares so called
for redemption at the end of two years after the Redemption Date shall be paid
by such depositary to the Corporation, after which the holders of such No Par
Preferred Shares shall look only to the Corporation for payment of the General
Redemption Price thereof, without interest.
IV. Upon the dissolution, liquidation or sale of all or substantially all
the assets of the Corporation, the holders of No Par Preferred Shares shall be
entitled to receive the following sums, before any payment shall be made to any
other class of shares ranking junior to the No Par Preferred Shares with respect
to payment upon dissolution, liquidation or sale of assets:
(a) in case of any involuntary dissolution or liquidation or forced
sale of all or substantially all the assets of the Corporation, each No Par
Preferred Share of each series shall be entitled to receive the amount fixed for
such contingency by the Board of Directors for the shares of such series prior
to the initial issuance of the first shares of such series, together with a sum,
whether or not earned or declared, equivalent to all accumulated and unpaid
dividends thereon to the date of such payment; or
(b) in case of any voluntary dissolution or liquidation or voluntary
sale of all or substantially all the assets of the Corporation, each No Par
Preferred Share of each series shall be entitled to receive the amount fixed for
such contingency by the Board of Directors for the shares of such series prior
to the initial issuance of the first shares of such series, together with a sum,
whether or not earned or declared, equivalent to all accumulated and unpaid
dividends thereon to the date of such payment.
The No Par Preferred Shares shall rank pari passu with the Preferred Shares and
the Voting Preferred Shares with respect to payment upon dissolution,
liquidation, or sale of assets. After all sums payable on the No Par Preferred
Shares as herein provided upon a particular contingency shall have been paid in
full, but not prior thereto, the other classes of shares ranking junior to the
No Par Preferred Shares with respect to payment upon dissolution, liquidation,
or sale of assets shall be entitled to payment of all other sums then
distributable, subject to the respective terms and provisions (if any) applying
to such class or classes of shares, respectively. For the purposes of this
subsection IV, a consolidation or merger of the Corporation with or into any
other Corporation, or a consolidation or merger of any other corporation with or
into the Corporation shall not be deemed a dissolution, liquidation, or sale of
assets.
V. Except as herein or by law expressly provided to the contrary, the
holders of No Par Preferred Shares shall have no right as such holders to vote
at or participate in any meetings of shareholders of the Corporation or to
receive any notice of any such meeting. If, however, dividends on any of the No
Par Preferred Shares shall be in arrears in an amount equal to 150% of the
annual dividends thereon, the holders of the No Par Preferred Shares shall be
entitled to vote at all meetings of shareholders of the Corporation and to
receive notice of all such meetings and shall have the right, voting as a class,
to elect the number of directors hereinafter provided. The remaining directors
shall be elected by the other class or classes (Preferred Shares, Voting
Preferred Shares, Second Preferred Shares and/or Common Shares) entitled to vote
therefor. The holders of No Par Preferred Shares shall have the right to elect
that number of directors which bears the same proportion to the number
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of directors constituting the entire board of directors as the outstanding No
Par Preferred Shares bears to the total of the outstanding Common Shares and
Voting Preferred Shares, or in any event, the holders of No Par Preferred Shares
shall have the right to elect a minimum number of two directors. Such voting
rights of the holders of No Par Preferred Shares shall continue until all
accumulated and unpaid dividends on all No Par Preferred Shares shall have been
paid, whereupon all such voting rights shall cease, subject to being revived
from time to time upon the reoccurrence of the conditions above described as
giving rise thereto.
Whenever the voting right of the holders of No Par Preferred Shares shall
have vested, such right may be exercised initially either at a meeting of such
holders, called as hereinafter provided, or at any annual meeting of
shareholders held for the purpose of electing directors, and thereafter, at such
annual meetings. The right of the holders of the No Par Preferred Shares, voting
as a class, to elect directors as provided herein, shall continue until such
time as all dividends accumulated on the No Par Preferred Shares shall have been
paid in full, at which time the right of the holders of No Par Preferred Shares
to exercise such voting right shall terminate, subject to revesting in the event
of each and every subsequent default of the character above-mentioned.
At any time when the voting right shall have vested in the holders of the
No Par Preferred Shares as herein provided, and if such right shall not already
have been initially exercised, the Secretary of the Corporation shall, upon the
written request of the holders of record of at least 10% in amount of the No Par
Preferred Shares then outstanding, call a special meeting of the holders of the
No Par Preferred Shares for the purpose of exercising their voting right. Such
meeting shall be held at the earliest practicable date upon the notice required
for annual meetings of shareholders. Notwithstanding the provisions of this
paragraph, no such special meeting shall be called during a period within 60
days immediately preceding the date fixed for the next annual meeting of
shareholders.
At any meeting held for the purpose of electing directors at which the
holders of the No Par Preferred Shares shall have the voting right, as a class,
to elect directors as provided herein, the presence in person or by proxy of the
holders of 33 1/3% of the then outstanding No Par Preferred Shares shall be
required and be sufficient to constitute a quorum for the exercise of such
voting right. At such meeting or adjournment thereof, (a) the absence of a
quorum of the No Par Preferred Shares shall not prevent the election of the
directors to be elected by the holders of the other class or classes entitled to
vote therefor, and the absence of a quorum of such other class or classes shall
not prevent the election of the directors to be elected by the voting right of
the holders of the No Par Preferred Shares, and (b) in the absence of a quorum
of any class entitled to vote for the election of directors, a majority of the
holders present in person or by proxy of such class shall have the power to
adjourn the meeting for the exercise of the voting rights of such class, from
time to time, without notice other than adjournment at the meeting, until a
quorum shall be present.
The term of office of all directors in office at any time when voting power
shall, as aforesaid, be vested in the holders of the No Par Preferred Shares,
shall terminate upon the election of any directors at any meeting of
shareholders held for the purpose of electing directors. Upon any termination of
the voting right of the holders of No Par Preferred Shares provided herein, the
term of office of all directors then in office shall terminate upon the election
of directors at a meeting of the holders of the other class or classes then
entitled to vote, which meeting may be held at any time after such termination
of the voting right of the holders of the No Par Preferred Shares, upon notice
as above provided, and shall be called by the Secretary of the Corporation upon
written request of the holders of record of 10% of the aggregate number of
outstanding shares of such other class or classes then entitled to vote for
directors.
VI. So long as any of the No Par Preferred Shares shall remain outstanding,
no dividend (other than dividends payable in shares ranking junior to the No Par
Preferred Shares with respect to the payment of dividends and distributions in
liquidation) shall be paid, nor shall any distribution (by purchase, redemption,
payment to any sinking fund, or otherwise) be made, on any shares ranking junior
to the No Par Preferred Shares with respect to the payment of dividends or
distributions in liquidation unless:
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(a) all dividends on all outstanding Preferred Shares, Voting
Preferred Shares and No Par Preferred Shares shall have been paid, and full
dividends thereon for the then current quarterly dividend period shall have
been declared and a sum sufficient for the payment thereof set apart
therefor;
(b) the Corporation shall not be in arrears in respect of any sinking
fund obligation in respect of any series of Preferred Shares, Voting
Preferred Shares or No Par Preferred Shares;
(c) after giving effect to the payment of the proposed dividend or
distribution, the aggregate of all such dividends and distributions paid,
subsequent to December 31, 1966, shall not exceed the sum of (i)
Consolidated Net Income earned after said date less the aggregate of all
dividends paid on the Preferred Shares, Voting Preferred Shares and No Par
Preferred Shares, all sinking fund payments with respect thereto, and all
amounts credited against such payments for the voluntary purchase or
redemption of Preferred Shares, Voting Preferred Shares or No Par Preferred
Shares, (ii) the net proceeds of the sale subsequent to April 1, 1967, of
shares ranking junior to the No Par Preferred Shares with respect to the
payment of dividends and distributions in liquidation, (iii) the principal
amount of indebtedness converted, subsequent to April 1, 1967, and the
stated capital of shares ranking equal with or prior to the No Par
Preferred Shares with respect to the payment of dividends and distributions
in liquidation converted, subsequent to April 1, 1967, into shares ranking
junior to the No Par Preferred Shares with respect to the payment of
dividends and distributions in liquidation, and (iv) $33,000,000; and
(d) if such dividend or distribution be on the Common Shares, after
giving effect to the payment of the proposed dividend or distribution,
Consolidated Net Assets shall be at least 175% of the sum of (i)
Consolidated Funded Indebtedness, (ii) the aggregate par value of (and/or,
in the case of shares without par value, stated capital applicable to) the
outstanding No Par Preferred Shares of all series and all other outstanding
shares of the Corporation ranking equally with or prior to the No Par
Preferred Shares with respect to the payment of dividends or distributions
in liquidation, including shares owned by the Corporation, and (iii)
capital and surplus of Subsidiaries applicable to or represented by shares
owned by others than the Corporation or its Subsidiaries.
The purchase or other acquisition by a Subsidiary or Affiliate of shares of the
Corporation shall be deemed a purchase or acquisition of such shares by the
Corporation within the meaning of this subsection VI.
VII. Without the affirmative vote at a meeting, or the written consent with
or without a meeting, of the holders of at least two-thirds of the No Par
Preferred Shares at the time outstanding, as a class, the Corporation shall not:
(a) increase the number of authorized Preferred Shares to an amount in
excess of 100,000;
(b) increase the number of authorized Voting Preferred Shares to an
amount in excess of 20,000,000;
(c) increase the number of authorized No Par Preferred Shares to an
amount in excess of 20,000,000;
(d) authorize or issue any shares other than Preferred Shares, Voting
Preferred Shares, No Par Preferred Shares or shares ranking junior to the
No Par Preferred Shares with respect to the payment of dividends and
distributions in liquidation;
(e) adopt or effect any amendment to its Articles of Incorporation
which would be substantially prejudicial to the holders of No Par Preferred
Shares; provided, however, that if such amendment would be substantially
prejudicial to the holders of No Par Preferred Shares of one or more
series, but less than all of the several series of No Par Preferred Shares,
or would unequally
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affect two or more series in a substantially prejudicial manner, the
affirmative vote at a meeting, or the written consent with or without a
meeting, of the holders of at least two-thirds of the shares of each series
so affected at the time outstanding, voting as a sub-class, shall be
required in addition to the said vote or written consent of the holders of
at least two-thirds of the No Par Preferred Shares of all series at the
time outstanding, voting as a class; and provided, further, that any such
amendment, when effected upon such vote or consent, shall not confer upon
dissenting holders of No Par Preferred Shares any right to payment for
their shares;
(f) sell, convey, lease or otherwise part with all or substantially
all of its assets, property or business, or consolidate or merge with or
into any other corporation, or merge any other corporation into itself;
provided, however, that this restriction shall not apply to a consolidation
or merger to which the Corporation is a party if none of the rights or
preferences of the No Par Preferred Shares shall be adversely affected
thereby; or
(g) give any guarantee or similar obligation for the payment of any
share or dividend by any other corporation or person; provided, however,
that this restriction shall not apply to any guarantee or similar
obligation for the payment of any share or dividend by any corporation
which at the time the guarantee or similar obligation is given is a
Subsidiary.
For the purpose of determining whether such affirmative vote or written consent
required by this subsection VII has been obtained, No Par Preferred Shares held
by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be
outstanding or entitled to participate in any such vote or consent.
VIII. So long as any dividend on any No Par Preferred Shares shall be
in arrears and unpaid, the Corporation shall not redeem any No Par Preferred
Shares (unless all outstanding No Par Preferred Shares shall be redeemed) or
purchase any No Par Preferred Shares, or permit any Subsidiary or Affiliate to
make any such purchase, unless such redemption or purchase shall be accomplished
not earlier than 30 days and not later than 90 days after the mailing of a
written purchase offer to each holder of record of No Par Preferred Shares at
the address of such shareholder registered with the Corporation. Any such
purchase offer shall be made upon terms that will result in holders of No Par
Preferred Shares of the several series being offered prices in proportion to the
several dividend rates applicable thereto.
IX. No Par Preferred Shares acquired by the Corporation through the
exercise by the holders thereof of any conversion privilege shall not be re-
issued except as hereinafter provided. Such shares and any other No Par
Preferred Shares acquired by the Corporation otherwise than through the
operation of any sinking fund and not used to reduce the amount of any sinking
fund instalment shall, upon compliance with such provisions of law relating to
the retirement of shares as may be applicable, have the status of authorized and
unissued No Par Preferred Shares which are unclassified into any series. No Par
Preferred Shares acquired by the Corporation through the operation of any
sinking fund or which have been used to reduce the amount of any sinking fund
instalment shall be cancelled and not re-issued, and the Corporation shall from
time to time take appropriate corporate action to reduce the authorized number
of No Par Preferred Shares accordingly.
X. No holder of No Par Preferred Shares of any series shall, as such
holder, have any preemptive rights in, or preemptive rights to purchase or
subscribe to, any shares of the Corporation, or any bonds, debentures, or other
securities convertible into any shares of the Corporation, other than such
rights of conversion or exchange as shall be expressly granted by the Board of
Directors prior to the initial issuance of the first shares of the series of
which such No Par Preferred Shares shall constitute a part; and, except as
aforesaid, each and every holder of No Par Preferred Shares, by accepting the
same, thereby waives and releases any and all preemptive rights which he might
otherwise have to purchase any shares which may at any time be issued by the
Corporation.
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SECTION 5. The express terms and provisions of the Second Preferred Shares
are as follows:
I. The rights and preferences of the Second Preferred Shares shall be
subject in all respects to the rights and preferences of the Preferred Shares,
Voting Preferred Shares and No Par Preferred Shares in the manner and to the
extent provided in this Article FOURTH. The Second Preferred Shares may be
issued in series from time to time. Within the limitations and restrictions set
forth in this Article FOURTH, the Board of Directors is expressly authorized, at
one time or from time to time, to adopt amendments to the Articles of
Incorporation in respect of any authorized and unissued Second Preferred Shares
to fix or alter the division of such shares into series, the designation and
number of shares of each series, the dividend rates, redemption rights,
redemption prices, liquidation prices, sinking fund and market fund
requirements, conversion rights, and restrictions on issuance of shares of the
same series or of any other class or series. The express terms and provisions of
Second Preferred Shares of different series shall be identical except that there
may be variations in respect of any or all of the particulars hereinabove set
forth in this subsection I. In case the stated dividends or the amounts payable
on dissolution, liquidation or sale of assets of the Corporation are not paid in
full, all Second Preferred Shares of all series shall participate ratably in the
payment of dividends, including accumulations, if any, in proportion to the sums
which would be payable thereon if all dividends thereon were paid in full, and,
in any distribution of assets other than by way of dividends, in proportion to
the sums which would be payable on such distribution if all sums payable thereon
to holders of Second Preferred Shares were discharged in full.
II. The Second Preferred Shares shall rank junior to the Preferred Shares,
Voting Preferred Shares and No Par Preferred Shares with respect to the payment
of dividends. Subject to the prior rights of the holders of Preferred Shares,
Voting Preferred Shares and No Par Preferred Shares, the holders of Second
Preferred Shares shall be entitled to receive when and as declared out of the
surplus of the Corporation, subject to any limitations prescribed by statute,
cash dividends at the respective rates fixed as aforesaid by the Board of
Directors for the shares of the several series of Second Preferred Shares, and
no more. Dividends on the Second Preferred Shares shall be payable quarterly on
the first day of March, June, September and December in each year. Dividends on
each Second Preferred Share shall be cumulative from the first day of the
dividend period in which such share is issued, except that if any share is
issued after the record date fixed for determining the holders of Second
Preferred Shares of such series entitled to the dividend for such period,
dividends on such shares shall be cumulative from the first day of the dividend
period next following the date of issuance of such share, and except that
dividends on any share of a particular series issued prior to the first dividend
payment date for shares of such series shall be cumulative from such date as
shall be fixed by the Board of Directors prior to the issuance thereof, but not
earlier than the beginning of the current dividend period.
Subject to the provisions of this Article FOURTH, the holders of all shares
ranking junior to the Second Preferred Shares with respect to the payment of
dividends shall be entitled to receive such dividends as may from time to time
be declared thereon by the Board of Directors.
III. Except as may be otherwise expressly provided in this Article FOURTH,
the Corporation shall have the right to redeem the Second Preferred Shares of
any one or more series at any time, either in whole or in such portions, as,
from time to time, the Board of Directors may determine, upon the payment to the
respective holders thereof of the "General Redemption Price" thereof. The
General Redemption Price for shares of each series shall be an amount equal to
the sum of (a) the redemption price fixed by the Board of Directors for the
shares of such series prior to the initial issuance of the first shares of such
series; and (b) an amount equivalent to all accumulated and unpaid dividends on
the shares to be redeemed to the date fixed for redemption (hereinafter referred
to as the "Redemption Date"), whether or not such dividends shall have been
earned or declared. In lieu of such payment the Corporation may deposit the
General Redemption Price of the shares to be redeemed on or prior to the
Redemption Date, with such responsible bank or trust company or bank and trust
company in the Borough of Manhattan, in the City of New York, State of New York,
having a capital and surplus
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of not less than $5,000,000, as may be designated by the Board of Directors, in
trust, for payment on or after the date of such deposit (without awaiting the
Redemption Date) to the holders of the Second Preferred Shares then to be
redeemed. If less than the whole amount of outstanding Second Preferred Shares
of any particular series shall be redeemed at any time, the shares thereof to be
redeemed shall be selected by lot.
Notice of any such redemption, in whole or in part, and of any such
deposit made or to be made of such General Redemption Price, shall be mailed to
each holder of Second Preferred Shares so to be redeemed, at his address
registered with the Corporation not less than thirty days prior to the
Redemption Date, and, if less than all of the said shares owned by such
shareholder are to be redeemed, the notice shall specify the number of shares
thereof which are to be redeemed. Such notice having been so given, or
irrevocable written authority to the depositary having been given at the time of
making the deposit provided for herein forthwith to give such notice, all
rights of the respective holders of the said shares as shareholders of the
Corporation by reason of the ownership of such shares, except the right to
receive the General Redemption Price of such shares upon presentation and
surrender of their respective certificates representing the said shares, shall
cease from and after the Redemption Date (unless default shall be made by
the Corporation in providing moneys for the payment of the General Redemption
Price), or, if the General Redemption Price shall have been deposited on or
prior to the Redemption Date as above permitted, from and after the date of
such deposit; provided, however, that in lieu of the right to receive the
General Redemption Price, any rights of conversion or exchange may be
exercised up to the close of business on the Redemption Date. If after such
deposit any Second Preferred Shares so called shall be so converted or
exchanged, the amount theretofore deposited with the depositary for the
redemption thereof shall forthwith be paid over by it to the Corporation. Any
other moneys so deposited which shall remain unclaimed by the holders of Second
Preferred Shares so called for redemption at the end of two years after the
Redemption Date shall be paid by such depositary to the Corporation, after which
the holders of such Second Preferred Shares shall look only to the Corporation
for payment of the General Redemption Price thereof, without interest.
IV. The Second Preferred Shares shall rank junior to the Preferred
Shares, Voting Preferred Shares and No Par Preferred Shares with respect to
payment upon dissolution, liquidation or sale of assets of the Corporation.
Subject to the prior rights of the holders of Preferred Shares, Voting Preferred
Shares and No Par Preferred Shares, the holders of Second Preferred Shares, upon
the dissolution, liquidation or sale of all or substantially all the assets of
the Corporation, shall be entitled to receive the following sums, before any
payment shall be made to any other class of shares ranking junior to the Second
Preferred Shares with respect to payment upon dissolution, liquidation or sale
of assets:
(a) in case of any involuntary dissolution or liquidation or forced
sale of all or substantially all the assets of the Corporation, each Second
Preferred Share of each series shall be entitled to receive the sum of $50,
together with a sum, whether or not earned or declared, equivalent to all
accumulated and unpaid dividends thereon to the date of such payment; or
(b) in case of any voluntary dissolution or liquidation or voluntary
sale of all or substantially all the assets of the Corporation, each Second
Preferred Share of each series shall be entitled to receive the amount
fixed for such contingency by the Board of Directors for the shares of such
series prior to the initial issuance of the first shares of such series,
together with a sum, whether or not earned or declared, equivalent to all
accumulated and unpaid dividends thereon to the date of such payment.
After all sums payable on the Second Preferred Shares as herein provided upon a
particular contingency shall have been paid in full but not prior thereto, the
other classes of shares ranking junior to the Second Preferred Shares with
respect to payment upon dissolution, liquidation or sale of assets shall be
entitled to payment of all other sums then distributable, subject to the
respective terms and provisions (if any) applying to such class or classes of
shares, respectively. For the purpose of this subsection IV, a con-
20
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solidation or merger of the Corporation with or into any other corporation or a
consolidation or merger of any other corporation with or into the Corporation
shall not be deemed a dissolution, liquidation or sale of assets.
V. Except as herein or by law expressly provided to the contrary, the
holders of Second Preferred Shares shall have no right as such holders to vote
at or participate in any meeting of shareholders of the Corporation or to
receive any notice of any such meeting. If, however, dividends on any of the
Second Preferred Shares shall be in arrears in an amount equal to the annual
dividends thereon, the holders of all of the Second Preferred Shares shall be
entitled to vote at all meetings of shareholders of the Corporation and to
receive notice of all such meetings. Such voting rights of the holders of Second
Preferred Shares shall continue until all accumulated and unpaid dividends on
all Second Preferred Shares shall have been paid, whereupon all such voting
rights shall cease, subject to being revived from time to time upon the
reoccurrence of the conditions above described as giving rise thereto.
At any meeting at which the holders of the Second Preferred Shares shall be
entitled to vote, each vote cast pursuant to the provisions of this subsection V
on behalf of the holder of a Second Preferred Share shall be counted as such
number of votes as shall equal the quotient derived from dividing the number of
Second Preferred Shares of all series then outstanding into one-third of the
total number of votes to which at such time all outstanding shares ranking
junior to the Second Preferred Shares with respect to the payment of dividends
or distributions in liquidation may be collectively entitled. For the purposes
of the above computation, shares held by the Corporation or by any Subsidiary or
Affiliate shall not be deemed to be outstanding, and such shares shall have no
right whatsoever to vote at or to receive notice of any meeting other than such
rights as may be expressly granted by law.
VI. So long as any of the Second Preferred Shares shall remain outstanding,
no dividend (other than dividends payable in shares ranking junior to the Second
Preferred Shares with respect to the payment of dividends and distributions in
liquidation) shall be paid, nor shall any distribution (by purchase, redemption,
payment to any sinking fund, or otherwise) be made, on any shares ranking junior
to the Second Preferred Shares with respect to the payment of dividends or
distributions in liquidation, unless:
(a) all dividends on all outstanding Second Preferred Shares shall
have been paid and full dividends thereon for the then current quarterly
dividend period shall have been declared and a sum sufficient for the
payment thereof set apart therefor;
(b) the Corporation shall not be in arrears in respect of any sinking
fund obligation in respect of any series of Second Preferred Shares; and
(c) after giving effect to the payment of the proposed dividend or
distribution, the aggregate of all such dividends and distributions paid,
subsequent to December 29, 1945, shall not exceed the sum of (i)
Consolidated Net Income earned after said date, less the aggregate of all
dividends and all payments into any sinking fund for the Preferred Shares,
the Voting Preferred Shares, the No Par Preferred Shares or the Second
Preferred Shares, and all amounts credited against any sinking fund
instalment with respect to the Preferred Shares, the Voting Preferred
Shares, the No Par Preferred Shares or the Second Preferred Shares for the
voluntary purchase or redemption of Preferred Shares, Voting Preferred
Shares, No Par Preferred Shares or Second Preferred Shares, (ii) the net
proceeds of the sale subsequent to September 1, 1946 of shares ranking
junior to the Second Preferred Shares with respect to the payment of
dividends and distributions in liquidation, (iii) the principal amount of
indebtedness converted, subsequent to April 1, 1967, and the stated capital
of shares ranking equal with or prior to the Second Preferred Shares with
respect to the payment of dividends and distributions in liquidation
converted, subsequent to April 1, 1967, into shares ranking junior to the
Second Preferred Shares with respect to the payment of dividends and
distributions in liquidation, and (iv) $500,000.
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The purchase or other acquisition by a Subsidiary or Affiliate of shares of the
Corporation shall be deemed a purchase or acquisition of such shares by the
Corporation within the meaning of this subsection VI.
VII. Without the affirmative vote at a meeting, or the written consent with
or without a meeting, of the holders of at least two-thirds of the Second
Preferred Shares at the time outstanding, as a class, the Corporation shall not:
(a) increase the number of authorized Preferred Shares to an amount in
excess of 100,000, or the number of authorized Voting Preferred Shares to
an amount in excess of 20,000,000, or the number of authorized No Par
Preferred Shares to an amount in excess of 20,000,000, or the number of
authorized Second Preferred Shares to an amount in excess of 295,540;
(b) authorize or issue any shares other than Preferred Shares, Voting
Preferred Shares, No Par Preferred Shares, Second Preferred Shares or
shares ranking junior to the Second Preferred Shares with respect to the
payment of dividends and distributions in liquidation;
(c) adopt or effect any amendment to its Articles of Incorporation
which would be substantially prejudicial to the holders of Second Preferred
Shares; provided, however, that if such amendment would be substantially
prejudicial to the holders of Second Preferred Shares of one or more
series, but less than all of the several series of Second Preferred Shares,
or would unequally affect two or more series in a substantially prejudicial
manner, the affirmative vote at a meeting, or the written consent with or
without a meeting, of the holders of at least two-thirds of the shares of
each series so affected at the time outstanding, voting as a sub-class,
shall be required in addition to the said vote or written consent of the
holders of at least two-thirds of the Second Preferred Shares of all series
at the time outstanding, voting as a class; and provided, further, that any
such amendment, when effected upon such vote or consent, shall not confer
upon dissenting holders of Second Preferred Shares any right to payment for
their shares;
(d) sell, convey, lease or otherwise part with all or substantially
all of its assets, property or business, or consolidate or merge with or
into any other corporation, or merge any other corporation into itself;
provided, however, that this restriction shall not apply to a consolidation
or merger to which the Corporation is a party if none of the rights or
preferences of the Second Preferred Shares shall be adversely affected
thereby; or
(e) give any guarantee or similar obligation for the payment of any
share or dividend by any other corporation or person; provided, however,
that this restriction shall not apply to any guarantee or similar
obligation for the payment of any share or dividend by any corporation
which at the time the guarantee or similar obligation is given is a
Subsidiary.
For the purpose of determining whether such affirmative vote or written consent
required by this subsection VII has been obtained, Second Preferred Shares held
by the Corporation or by any Subsidiary or Affiliate shall not be deemed to be
outstanding or entitled to participate in any such vote or consent.
VIII. So long as any dividend on any Second Preferred Shares shall be in
arrears and unpaid, the Corporation shall not redeem any Second Preferred
Shares (unless all outstanding Second Preferred Shares shall be redeemed) or
purchase any Second Preferred Shares, or permit any Subsidiary or Affiliate to
make any such purchase, unless such redemption or purchase shall be accomplished
not earlier than 30 days and not later than 90 days after the mailing of a
written purchase offer to each holder of record of Second Preferred Shares at
the address of such shareholder registered with the Corporation. Any such
purchase offer shall be made upon terms that will result in holders of Second
Preferred Shares of the several series being offered prices in proportion to the
several dividend rates applicable thereto.
IX. Second Preferred Shares acquired by the Corporation through the
exercise by the holders thereof of any conversion privilege shall not be re-
issued except as hereinafter provided. Such Second
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Preferred Shares and any other Second Preferred Shares acquired by the
Corporation otherwise than through the operation of any sinking fund and not
used to reduce the amount of any sinking fund instalment shall, upon compliance
with such provisions of law relating to the retirement of shares as may be
applicable have the status of authorized and unissued Second Preferred Shares
which are unclassified into any series. Second Preferred Shares acquired by the
Corporation through the operation of any sinking fund which have been used to
reduce the amount of any sinking fund instalment shall be cancelled and not re-
issued, and the Corporation shall from time to time take appropriate corporate
action to reduce the authorized number of Second Preferred Shares accordingly.
X. No holder of Second Preferred Shares of any series shall, as such
holder, have any preemptive rights in, or preemptive rights to purchase or
subscribe to, any shares of the Corporation, or any bonds, debentures, or other
securities convertible into any shares of the Corporation, other than such
rights of conversion or exchange as shall be expressly granted by the Board of
Directors prior to the initial issuance of the first shares of the series of
which such Second Preferred Shares constitute a part; and except as aforesaid
each and every holder of Second Preferred Shares, by accepting the same, thereby
waives and releases any and all preemptive rights he might otherwise have to
purchase any shares which may at any time be issued by the Corporation.
SECTION 6. The express terms and provisions of the Common Shares are as
follows:
I. The rights and preferences of the Common Shares shall be subject in all
respects to the rights and preferences of the Preferred Shares, the Voting
Preferred Shares, the No Par Preferred Shares and the Second Preferred Shares,
in the manner and to the extent provided in this Article Fourth.
II. The Common Shares shall rank junior to the Preferred Shares, the Voting
Preferred Shares, the No Par Preferred Shares and the Second Preferred Shares
with respect to the payment of dividends. Out of the assets of the Corporation
available for dividends remaining after there shall have been paid or declared
and set apart for payment full dividends on all shares ranking prior to the
Common Shares with respect to the payment of dividends, and subject to the
restrictions or limitations contained in the express terms and provisions of all
shares ranking prior to the Common Shares with respect to the payment of
dividends, dividends may be declared and paid upon the Common Shares, but only
when and as determined by the Board of Directors.
III. The Common Shares shall rank junior to the Preferred Shares, the
Voting Preferred Shares, the No Par Preferred Shares and the Second Preferred
Shares with respect to payment upon dissolution, liquidation or sale of assets
of the Corporation. Upon the dissolution, liquidation or sale of all or
substantially all the assets of the Corporation, after there shall have been
paid to or set apart for holders of all shares ranking senior to the Common
Shares the full preferential amounts to which they are respectively entitled,
the holders of Common Shares shall be entitled to receive pro rata all of the
remaining assets of the Corporation available for distribution to its
shareholders.
IV. The holders of Common Shares shall be entitled to one vote for each
Common Share held by them respectively.
V. No present or future holder of Common Shares shall, as such holder, have
any preemptive rights in, or preemptive rights to purchase or subscribe to, any
shares of the Corporation, or any bonds, debentures, or other securities
convertible into any shares of the Corporation.
FIFTH: Subject to the restrictions and limitations set forth in Article
FOURTH hereof, this Corporation may purchase shares of any class of the stock
issued by it to the extent of the surplus available for cash dividends, when
authorized by the affirmative vote of the Board of Directors, but no such
purchase shall be made so as to favor any shareholder over any other, except as
herein provided.
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SIXTH: Subject to the restrictions and limitations set forth in Article
FOURTH hereof, to the fullest extent permitted by law, the Board of Directors
may, from time to time, without any vote, consent or other action of or by the
shareholders, borrow or raise money, without limit as to amount, for any of the
purposes of the Corporation, and may authorize the issue of bonds, debentures,
notes or other obligations of any nature or in any manner for money so borrowed,
and may confer upon the respective holders thereof the right to convert the
principal thereof into shares of any class or series upon such terms and
conditions as the Board of Directors may, in its discretion, deem advisable, and
may authorize the creation of mortgages upon, or the pledge, conveyance or
assignment of the whole or any part of, the property of the Corporation, real,
personal or mixed, whether at the time owned or to be acquired thereafter, to
secure the payment of such obligations and the interest and premium (if any)
thereon, and may authorize the sale, pledge or other disposition of such
obligations at such prices, upon such terms and to such persons as the Board of
Directors, in its discretion, may deem advisable.
SEVENTH: These Amended Articles of Incorporation supersede the existing
Articles of Incorporation.
FURTHER RESOLVED, That the foregoing Amended Articles of
Incorporation, which shall supersede and take the place of the existing
Amended Articles of Incorporation, be, and they hereby are, in all respects
authorized, approved and adopted.
FURTHER RESOLVED, That the President and the Secretary be, and they
hereby are, authorized and directed to execute and file in the Office of
the Secretary of State of the State of Ohio a certificate containing a copy
of these resolutions and to execute, deliver and file any other certificate
or instrument which they may deem necessary or appropriate to render
effective or otherwise fully to carry out the intent and purposes of these
resolutions."
IN WITNESS WHEREOF, said Steven C. Mason, President, and George J. Maly,
Jr., Secretary, of The Mead Corporation, acting for and on behalf of said
Corporation, have hereunto subscribed their names and cause the seal of said
Corporation to be hereunto affixed this 28th day of May, 1987.
/s/ STEVEN C. MASON
---------------------------------
Steven C. Mason, President
/s/ GEORGE J. MALY, JR.
---------------------------------
George J. Maly Jr., Secretary
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EXHIBIT 4.4
October 17, 1996
THE MEAD CORPORATION
Courthouse Plaza Northeast
Dayton, Ohio 45463
Attention:
Re: 364 Day Revolving Credit Line
-----------------------------
Ladies and Gentlemen:
Each of the banks listed on Schedule I attached hereto (each a "Lender" and
collectively, the "Lenders") is pleased to confirm that it is prepared to make
funds available to The Mead Corporation, an Ohio corporation ("Borrower"), for
general corporate purposes, including acquisitions, and for a liquidity and
back-up facility to the Borrower's commercial paper program, subject to the
terms and conditions outlined below.
Agents: The First National Bank of Chicago and Morgan Guaranty Trust
Company of New York (each an "Agent" and together, the "Agents") shall act as
Agents on behalf of the Lenders under this 364 Day Revolving Credit Line Letter
Agreement (this "Agreement") and any documents, instruments and notes in
connection herewith (collectively, "Loan Documents"). The First National Bank
of Chicago shall act as the Paying Agent on behalf of the Lenders (the "Paying
Agent"). The provisions of Section 9 (other than the first sentence of Section
9.1) of the Credit Agreement, dated as of November 15, 1989, among the Borrower,
the banks party thereto and the Agents (as amended, modified and supplemented
from time to time, the "Credit Agreement") shall apply to the duties,
obligations, rights and powers of the Agents and the Lenders as if such Section
9 (other than the first sentence of Section 9.1) had been set forth herein
mutatis mutandis (all references in the Credit Agreement to "Banks", "Agents",
"Company", "Agreement", "Notes", "Loan Documents", "Required Banks",
"Commitment" and "Loans" shall be deemed to be references to Lenders, Agents,
Borrower, Agreement, Notes (as defined below) and Loan Documents, Required
Lenders (as defined below), Commitment (as defined below) and Loans (as defined
below), respectively, herein and all other defined Terms contained in the Credit
Agreement shall have the same meaning, but shall be interpreted in the context
of this Agreement.
Interpretation: In the event of the termination or expiration of the Credit
Agreement (or the Commitments (as defined therein) thereunder), any provisions
of the Credit Agreement which are expressly made applicable hereunder or
expressly incorporated by reference herein as if such provisions had been set
forth herein mutatis mutandis shall be deemed to remain in full force and effect
for purposes of this Agreement in the form in
<PAGE>
effect immediately prior to such termination or expiration. In the event of any
ambiguity in the interpretation of terms and provisions of this Agreement, such
terms and provisions shall be construed and interpreted by reference to similar
provisions in the Credit Agreement in the context of this Agreement (including,
without limitation, the intent and purposes hereof).
Commitment: Each Lender severally agrees to make loans ("Loans") to
Borrower in an aggregate principal amount not to exceed at any one time such
Lender's maximum commitment as set forth opposite such Lender's name on Schedule
I attached hereto as such amount may be reduced in part or in whole by three
business days written notice to such Lender (with respect to such Lender, the
"Commitment" and all commitments together, the "Total Commitment"). Borrower may
borrow, repay and prepay Loans and reborrow at any time during the period from
the date hereof to but excluding the date occurring 364 days after the date of
the Note (the "Availability Period"), subject to the limitations set forth
herein and in the promissory notes in favor of each of the Lenders
(collectively, the "Note"), which shall evidence the Loans and be substantially
in the form of Exhibit "A" attached hereto.
Termination; Reduction of Commitment: Borrower may, upon at least three
business days notice to the Paying Agent, terminate at any time, or irrevocably
reduce from time to time, the unused amount of the Total Commitment pro rata to
the Commitment of each Lender in multiples of $1,000,000 or, if less, the amount
of the Total Commitment; provided, that no reduction shall reduce the Total
Commitment below the aggregate unpaid principal amount of all Loans then
outstanding. All accrued but unpaid facility fees with respect to such
terminated or reduced Commitments shall be payable on the effective date of such
termination or reduction.
Facility Fee: A facility fee shall accrue on the Commitment of each Lender
during the Availability Period at a rate per annum equal to 0.06%, calculated on
the basis of a 365/366 day year, for the actual number of days elapsed, and
payable quarterly in arrears on the last business day of each calendar quarter.
Interest Rate: Each Loan shall bear interest as selected by Borrower and
provided in the Note.
Interest Periods; Maturity: Eurodollar Loans (defined in the Note) and
Variable Rate Loans (defined in the Note) shall be available for interest
periods ("Interest Periods") of, at Borrower's selection, one, two, three or six
months. Offered Rate Loans (defined in the Note) shall be available for Interest
Periods requested by Borrower and accepted by a Lender in its sole discretion.
Upon three business days notice to the Paying Agent, at the expiration of any
Interest Period, Borrower may elect to continue or convert
2
<PAGE>
any applicable Loans (other than Offered Rate Loans) consistent with the
provisions of this Agreement. No Interest Period may extend beyond the date
occurring 364 days after the date of the Note (as may be extended by the Lenders
at the request of the Borrower, the "Termination Date"), the date on which all
Loans shall finally mature.
Payments; Prepayments: All payments and prepayments of principal and
interest shall be made on the terms and conditions specified in the Note.
Drawdowns; Fundings: Borrower may borrow under the Total Commitment by
giving the Paying Agent notice by 12:00 noon New York City time at least one
business day prior to a Variable Rate Loan and at least three business days
prior to a Eurodollar Loan and by 10:00 a.m. New York City time on the same
business day of an Offered Rate Loan. Immediately upon its receipt thereof, the
Paying Agent shall deliver copies of such notices to the Lenders. No later than
11:00 a.m. (Chicago time) (and 1:00 p.m. (Chicago time) in the case of an
Offered Rate Loan) on the date of the requested Loan, each Lender shall pay to
the Paying Agent its pro rata portion of the principal amount of the requested
Loan (other than Offered Rate Loans) to be made on such date. No later than 2:00
p.m. (Chicago time) on the date of the requested Loan (other than Offered Rate
Loans), the Paying Agent shall make available to Borrower the principal amount
of the requested Loan. The Applicable Lenders shall fund Offered Rate Loans
directly to Borrower or as instructed by Borrower.
Defaulting Lenders: No Lender shall be responsible for any default by any
other Lender in fulfilling its obligations hereunder and each Lender shall be
obligated to fulfill its obligations hereunder regardless of the failure of any
other Lender to fulfill its obligations hereunder. A defaulting Lender shall not
be entitled to any facility fees or interest with respect to any amounts not
funded by such Lender in breach of its obligations hereunder. Either of the
Agents may, in its sole discretion, but shall not be obligated to, fulfill the
funding obligations of any defaulting Lender.
Conditions of Lending: The obligation of the Lenders to make Loans to
Borrower is subject to the conditions precedent that (a) in the case of the
initial Loan, each Lender shall have received the Note duly executed and
delivered by Borrower, and the Agents shall have received (i) a corporate
borrowing resolution certified by Borrower's Secretary or Assistant Secretary,
(ii) an incumbency certificate of Borrower's Secretary or Assistant Secretary
setting forth the names, titles and true signatures of Borrower's officers
authorized to sign this Agreement and the Note, (iii) an opinion of counsel to
the Borrower substantially in the form of Exhibit "B" hereto, (iv) the
representations and warranties of Borrower in the Credit Agreement shall be true
and correct in all material respects as if made on such date (other than
representations and warranties that relate solely to an earlier date) and (b) in
the case of all Loans, (i) no Event of Default (or event or circumstance
3
<PAGE>
which with the giving of notice or the passage of time or both would constitute
an Event of Default) under this Agreement or the Note has occurred and is
continuing, or would result from the making of such Loan, and (ii) the
representations and warranties of Borrower herein shall be true and correct in
all material respects as if made on such date (other than representations and
warranties that relate solely to an earlier date).
Representations and Warranties: Borrower hereby represents and warrants
that: (a) this Agreement and the Note when delivered will be the legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally, (b) the execution, delivery and performance by Borrower of
this Agreement and the Note have been authorized by all necessary corporate
action and do not and will not contravene Borrower's charter of by-laws or any
applicable law or any contractual provision binding on or affecting Borrower,
(c) as of the date hereof, there is no "Default" or "Event of Default" as such
terms are defined in the Credit Agreement, (d) there are no pending or
threatened actions, suits or proceedings against or affecting the Borrower
before any court, governmental agency or arbitrator, which are reasonably likely
to, in any one case or in the aggregate, materially adversely affect the
financial condition, operations, properties or business of the Borrower or the
ability of the Borrower to perform in its obligations under any of the Loan
Documents, no part of the proceeds of any Loan shall be used to purchase or
carry any "margin stock" (as defined in Regulation U) in violation of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, and (f) to the best of Borrower's knowledge, the financial statement
schedules contained in Borrower's most recent 10-K Report are true and accurate.
Covenants: During the term of this Agreement, Borrower will, for the
benefit of the Lenders, perform, comply with and be bound by its agreements,
covenants and obligations set forth in Sections 5, 6 and 10.5 (other than the
first sentence thereof) of the Credit Agreement as such Sections may be modified
or amended, and subject to any waivers of compliance granted by the Required
Banks (as defined therein), from time to time, as if such Sections 5 and 6 had
been set forth herein mutatis mutandis.
Events of Default: Any following events shall be an "Event of Default": (a)
Borrower shall fail to pay (i) the principal of the Note as and when due and
payable, or (ii) any interest on, or any other amount due under, the Note or
this Agreement within ten (10) days of the due date thereof; (b) any material
representation or warranty made by Borrower in the Note, this Agreement or any
other Loan Document shall prove to have been incorrect in any material respect
on or as of the date made; (c) Borrower shall fail to perform or observe any
other term, covenant or agreement contained in any Loan Document on its part to
be performed or observed, and such failure shall not have been remedied within
thirty (30)
4
<PAGE>
days after written notice thereof from the Agents; (d) Borrower or any
Significant Subsidiary (as defined in the Credit Agreement) defaults in the
payment of principal of, or interest on, Loans (as defined in the Credit
Agreement) under the Credit Agreement or any other indebtedness for borrowed
money in an amount equal to at least $50,000,000 and, in either case, such
default has not been cured within any period of grace provided with respect
thereto; (e) Borrower or any Significant Subsidiary (i) shall generally not, or
be unable to, or shall admit in writing its inability to, pay its debts as its
debts become due; (ii) shall make a general assignment for the benefit of
creditors; (iii) shall file a petition in bankruptcy or for any relief under any
law of any jurisdiction relating to reorganization, arrangement, readjustment of
debt, dissolution or liquidation; (iv) shall have any such petition filed
against it in which an adjudication is made or order for relief is entered or
which shall remain undismissed for a period of 60 days or shall consent or
acquiesce thereto; or (v) shall have had a receiver, custodian or trustee
appointed for all or a substantial part of its property; or (f) any "group" (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
acquires 20% or more, in the aggregate, of the capital stock of Borrower
entitled, at the time, to vote for the election of Borrower's directors. If an
Event of Default shall have occurred and be continuing, the Agents, if directed
in writing by Lenders with Commitments aggregating at least 66 2/3% of the Total
Commitment (or if the Total Commitment has been terminated, Lenders with Loans
aggregating at least 66 2/3% of the total amount of Loans then outstanding) (the
"Required Lenders"), shall declare the principal and accrued but unpaid interest
under the Note immediately due and payable, and the Agents, if directed in
writing by the Required Lenders, shall terminate the Total Commitment. Upon the
occurrence of any "bankruptcy" or "insolvency" Event of Default, the Total
Commitment shall terminate immediately and the principal and accrued but unpaid
interest under the Note shall be immediately due and payable without requiring
any notice or action by the Agents or the Lenders.
Amendment and Waiver: With the prior written consent of the Required
Lenders and borrower, any provision of this Agreement or the Note may be
amended, waived, supplemented, restated, discharged or terminated; except that
the written consent of Borrower and all of the Lenders shall be required to
extend the final maturity of any Loan or Note, to reduce the rate of interest on
principal or the amount of the facility fee, to extend the time of payment of
principal, interest or the facility fee, to reduce the amount of unpaid
principal of any Loan or Note, to increase the Commitment of any Lender then in
effect, to change the percentage specified in the definition of Required Lenders
or to amend, modify or waive this paragraph.
Governing Law: This Agreement shall be governed by the laws of the State of
New York.
5
<PAGE>
Please evidence your acceptance of the foregoing by signing and returning
to us the enclosed copy of this Agreement on or before November 1, 1996, the
date on which our commitment to enter into this Agreement (if not accepted prior
thereto) will expire.
Very truly yours,
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and Paying Agent
By: /s/ ROBERT L. JACKSON
--------------------------
Name: Robert L. Jackson
Title: Authorized Agent
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By: /s/ JOHN M. MIKOLAY
--------------------------
Name: John M. Mikolay
Title: Vice President
LENDERS:
-------
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ ROBERT L. JACKSON
--------------------------
Name: Robert L. Jackson
Title: Authorized Agent
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ PATRICIA P. LUNKA
--------------------------
Name: Patricia P. Lunka
Title: Vice President
6
<PAGE>
CITIBANK, N.A.
By: /s/ THOMAS D. STOTT
-----------------------------------------
Name: THOMAS D. STOTT
Title: VICE PRESIDENT
ABN AMRO BANK N.V.
By: /s/ J. M. JANOVSKY/KATHRYN C. TOTH
-----------------------------------------
Name: J. M. JANOVSKY/KATHRYN C. TOTH
Title: GROUP V. P. AND/GROUP V. P. AND
DIRECTOR/OPERATIONAL MANAGER
DEUTSCHE BANK AG
By: /s/ FLORE F. BLAISE WILLIAMS
-----------------------------------------
Name: FLORE F. BLAISE WILLIAMS
Title: VICE PRESIDENT
By: /s/ BELINDA J. WHEELER
-----------------------------------------
Name: BELINDA J. WHEELER
Title: ASSISTANT VICE PRESIDENT
THE BANK OF NOVA SCOTIA (Scotia Bank)
By: /s/ F.C.H. ASHBY
-----------------------------------------
Name: F.C.H. ASHBY
Title: SENIOR MANAGER LOAN OPERATIONS
SWISS BANK CORPORATION, INC.
By: /s/ THOMAS R. SALZANO
-----------------------------------------
Name: THOMAS R. SALZANO
Title: ASSOCIATE DIRECTOR,
BANKING FINANCE SUPPORT, N.A.
By: /s/ GARY RIDDELL
-----------------------------------------
Name: GARY RIDDELL
Title: DIRECTOR, CREDIT RISK MANAGEMENT
7
<PAGE>
THE SUMITOMO BANK, LIMITED,
New York Branch
By: /s/ YOSHINORI KAWAMURA
--------------------------------
Name: Yoshinori Kawamura
Title: Joint General Manager
UNION BANK OF SWITZERLAND
By: /s/ PAUL E. BARBIAN
--------------------------------
Name: Paul E. Barbian
Title: Managing Director
By: /s/ DANIEL R. STRICKFORD
--------------------------------
Name: Daniel R. Strickford
Title: Assistant Vice President
WACHOVIA BANK OF GEORGIA
By: /s/ MICHAEL RIPPS
--------------------------------
Name: Michael Ripps
Title: Assistant Vice President
NATIONSBANK, N.A.
By: /s/ MICHAEL SHORT
--------------------------------
Name: Michael Short
Title: Vice President
SOCIETE GENERALE
By: /s/ ERIC BELLAICHE
--------------------------------
Name: Eric Bellaiche
Title: Vice President
8
<PAGE>
Agreed and Accepted this 28th day of October, 1996:
THE MEAD CORPORATION
By: /s/ WILLIAM R. GRABER
----------------------------------------
William R. Graber
Vice President and Chief Financial Officer
9
<PAGE>
EXHIBIT 10.9
THE MEAD CORPORATION COMPOSITE
---------
1984 STOCK OPTION PLAN 11/09/96
----------------------
SECTION 1. PURPOSES.
- ---------- --------
The purposes of this 1984 Stock Option Plan (the "Plan") are (i) to
provide incentives to officers and other key employees of the Company upon whose
judgment, initiative and efforts the long-term growth and success of the Company
is largely dependent; (ii) to assist the Company in attracting and retaining key
employees of proven ability; and (iii) to increase the identity of interests of
such key employees with those of the Company's shareholders by providing such
employees with options to acquire Common Shares of the Company.
SECTION 2. DEFINITIONS.
- ---------- -----------
For purposes of the Plan:
(a) "Acquisition Transaction" means a transaction of the type
described in Section 8(b)(ii).
(b) "Affiliate" means a person controlling, controlled by or under
common control with the Company.
(c) "Board of Directors" means the Board of Directors of the
Company.
(d) "Change in Composition of the Board" means an event of the type
described in Section 8(b)(iv).
(e) "Change in Control" means a transaction of the type described
in Section 8(b)(iii).
(f) "Committee" means the committee referred to in Section 4.
(g) "Code" means the Internal Revenue Code of 1954, as amended.
(h) "Company" means The Mead Corporation; when used in the Plan
with reference to employment, "Company" shall include any Subsidiary of the
Company.
<PAGE>
(i) "Designation of Beneficiary" means such person(s) or entity whom
the Option Holder has designated by a transfer on death or other designation of
beneficiary to receive the Holder's Option on the Holder's death in accordance
with such procedures established from time to time by the Committee.
(j) "Fair Market Value" means the highest sale price of a Share on
the date the value of a Share is to be determined, as reported on the New York
Stock Exchange - Composite Transactions Tape or, if no sale is reported for such
date, then on the next preceding date for which a sale is reported.
(k) "Grantee" means the employee who received the option from the
Company.
(l) "Holder" means the person(s) or entity who owns the option,
whether Grantee, Transferee, heir or other beneficiary.
(m) "Incentive Stock Option" means an option granted under the Plan
which qualifies as an incentive stock option under Section 422 of the Internal
Revenue Code of 1954, as amended.
(n) "Limited Right" means a right granted under Section 8 of the
Plan.
(o) "Nonqualified Option" means an option granted under the Plan
which does not qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1954, as amended.
(p) "Share" or "Shares" means the Common Shares, without par value,
of the Company.
(q) "Subsidiary" means any company 50% or more of the voting stock of
which is owned or controlled, directly or indirectly, by the Company.
(r) "Tax Date" means the date as of which the amount of the
withholding tax payment with respect to the exercise of a Nonqualified Option is
calculated.
2
<PAGE>
(s) "Tender Offer" means a tender offer or a request or invitation
for tenders or an exchange offer subject to regulation under Section 14(d) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, as the same may be amended, modified or superseded from time to
time.
(t) "Transferee" means the person who received the option from the
Grantee during the Grantee's lifetime.
SECTION 3. SHARES SUBJECT TO THE PLAN.
- ---------- --------------------------
(a) Number of Shares. Subject to adjustment as provided in Section
----------------
10, the maximum number of Shares that may be issued and/or delivered under the
Plan upon the exercise of options is 1,700,000. Such Shares may be either
authorized and unissued or treasury Shares. Any Shares subject to an option
which for any reason has terminated or expired or has been cancelled prior to
being fully exercised may again be subject to option under the Plan.
(b) The maximum number of Limited Rights which may be granted under
the Plan is 1,700,000. Any Limited Rights granted under the Plan which for any
reason terminate or expire or have been cancelled prior to being fully exercised
may again be granted under the Plan.
SECTION 4. ADMINISTRATION.
- ---------- --------------
The Plan shall be administered by a Committee of the Board of
Directors, consisting of three or more directors, who shall from time to time be
appointed by, and serve at the pleasure of, the Board of Directors. No director
shall serve as a member of the Committee if he is then, or was at any time
within one year prior to his appointment, eligible for selection as a person to
whom stock may be allocated or to whom stock options or stock appreciation
rights may be granted pursuant to the Plan or any other plan of the Company or
any Affiliate entitling the participants therein to acquire stock, stock options
or stock appreciation rights of the Company or any Affiliate.
3
<PAGE>
The Committee shall have and exercise all the power and authority
granted to it under the Plan. Subject to the provisions of the Plan, the
Committee shall in its sole discretion determine the persons to whom, and the
times at which, Incentive Stock Options, Nonqualified Options and Limited Rights
shall be granted; the number of Shares to be subject to each option; the option
price per Share; and the term of each option. In making such determinations,
the Committee may take into consideration each employee's present and/or
potential contribution to the success of the Company and its Subsidiaries and
any other factors which the Committee may deem relevant and proper. Subject to
the provisions of the Plan, the Board of Directors or the Committee shall also
interpret the Plan; prescribe, amend and rescind rules and regulations relating
to the Plan; correct defects, supply omissions and reconcile any inconsistencies
in the Plan; and make all other determinations necessary or advisable for the
administration of the Plan. Such determinations of the Board of Directors, or
of the Committee (to the extent not reversed or modified by the Board of
Directors), shall be conclusive. A majority of the Committee shall constitute a
quorum for meetings of the Committee, and the act of a majority of the Committee
at a meeting, or an act reduced to or approved in writing by all members of the
Committee, shall be the act of the Committee.
SECTION 5. ELIGIBILITY.
- --------- -----------
From time to time during the term of the Plan, the Committee may
grant one or more Incentive Stock Options and/or Nonstatutory Options to any
person who is then an officer or other key employee of the Company. A director
who is not also an employee of the Company shall not be eligible to receive
options granted under the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- --------- -------------------------------
(a) Written Agreement. The terms of each option granted under the
-----------------
Plan shall be set forth in a written agreement, the form of which shall be
approved by the Committee.
(b) Terms and Conditions of General Application. The following terms
-------------------------------------------
and provisions shall apply to all options granted under the Plan:
4
<PAGE>
(1) No option may be granted under the Plan at an option price
per Share which is less than the Fair Market Value of a Share on the date of
grant.
(2) No option may be exercised more than ten years after the
date of grant.
(3) No option shall be exercisable within one year after the
date of grant. At the time an option is granted, the Committee may provide that
after such one year period, the option may be exercised with respect to all
Shares subject thereto, or may be exercised with respect to only a specified
number of Shares over a specified period or periods.
(4) Except as provided in Sections 6(b)(5) and 6(b)(6), an
option may be exercised only if the Grantee thereof has been continuously
employed by the Company since the date of grant. Whether authorized leave of
absence or absence for military or governmental service shall constitute a
termination of employment shall be determined by the Committee, after
consideration of the provisions of Section 1.421-7(h) of the regulations issued
under the Code, if appropriate.
(5) At the time an option is granted, or at such other time as
the Committee may determine, the Committee may provide that, if the Grantee of
the option ceases to be employed by the Company for any reason (including
retirement or disability) other than death, the option will continue to be
exercisable by the Holder (to the extent it was exercisable on the date the
Holder ceased to be employed) for such additional period (not to exceed the
remaining term of such option) after such termination of employment as the
Committee may provide.
(6) At the time an option is granted, the Committee may provide
that, if the Grantee of the option dies while employed by the Company or while
entitled to the benefits of any additional exercise period established by the
Committee with respect to such option in accordance with Section 6(b)(5), then
the option will continue to be exercisable (to the extent it was exercisable on
the date of death) by the person or persons (including the Holder's estate) to
whom the Holder's rights with respect to such option shall have passed by will
or by the laws
5
<PAGE>
of descent and distribution (or in accordance with the procedures set forth in
Section 9 hereof) for such additional period after death (not to exceed the
remaining term of such option) as the Committee may provide.
(7) At the time an option is granted, the Committee may provide
for any restriction or limitation on the exercise of such option and/or for any
restriction or limitation on the transferability of the Shares issuable upon the
exercise of such option as it may deem appropriate.
(c) Additional Provisions Applicable to Incentive Stock Options. The
-----------------------------------------------------------
following additional terms and provisions shall apply to Incentive Stock Options
granted under the Plan, notwithstanding any provision of Section 6(b) to the
contrary:
(1) By its terms, an Incentive Stock Option granted prior to
January 1, 1987 shall not be exercisable if the Holder thereof holds another
outstanding option which was granted by the Company (or a Subsidiary or a parent
corporation or predecessor corporation of the Company) at an earlier date and
which is an Incentive Stock Option within the meaning of Section 422 of the
Code. For purposes of this paragraph, an option which is an Incentive Stock
Option shall be treated as outstanding until such option is exercised in full or
expires by reason of lapse of time or expires as the result of the exercise of a
related Limited Right.
(2) No Incentive Stock Option shall be granted to an officer or
other employee who possesses directly or indirectly (within the meaning of
Section 424(d) of the Code) at the time of grant more than 10% of the voting
power of all classes of shares of the Company or of any parent corporation or
any Subsidiary of the Company unless the option price is at least 110% of the
Fair Market Value of the Shares subject to the option on the date the option is
granted and the option is not exercisable after the expiration of five years
from the date of grant.
(3) With respect to Incentive Stock Options granted on or after
January 1, 1987, no Incentive Stock Option granted under the Plan and under all
other plans of the Company
6
<PAGE>
and any parent corporation or any Subsidiary of the Company is exercisable for
the first time by a Holder in an amount in excess of $100,000 (based on Fair
Market Value at the time the option is granted) during any calendar year in
accordance with Section 422(b)(7) of the Code, as added by the Tax Reform Act of
1986 and thereafter amended.
(d) Waiver of Terms. Subject to the ten-year limitation in Section
----------------
6(b)(3), the Committee may waive or modify at any time, either before or after
the granting of an option, any condition or restriction with respect to the
exercise of such option imposed by or pursuant to this Section 6 in such
circumstances as the Committee may deem appropriate (including, without
limitation, in the event the Grantee retires with the approval of the Company,
or in the event of a proposed Acquisition Transaction, a Change in Control,
Tender Offer for Shares, or other similar transaction involving the Company).
(e) Acceleration Upon Certain Events. In the event of a Tender Offer
---------------------------------
(other than an offer by the Company) for Shares, if the offeror acquires Shares
pursuant thereto, an Acquisition Transaction, a Change in Control or a Change in
Composition of the Board, all outstanding options granted hereunder shall become
exercisable in full (whether or not otherwise exercisable, but subject, however,
to the one year limitation set forth in Section 6(b)(3) and, in the case of
Incentive Stock Options granted prior to January 1, 1987, to the limitation on
exercise set forth in Section 6(c)(l)), effective on the date of the first
purchase of Shares pursuant to the Tender Offer, or the date of shareholder
approval of the Acquisition Transaction, or the date of filing of the Schedule
13D or shareholder approval of the control share acquisition giving rise in
either case to the Change in Control, or the date of the Change in Composition
of the Board, as the case may be (the occurrence of any such event is
hereinafter referred to as an "Acceleration").
SECTION 7. EXERCISE OF OPTIONS.
- ---------- --------------------
(a) Notice of Exercise. The Holder of an option granted under the
-------------------
Plan may exercise all or part of such option by giving written notice of
exercise to the Committee or its
7
<PAGE>
designee; provided, however, that an option may not be exercised for a fraction
of a Share. No Holder of an option nor such Holder's legal representatives,
legatees, Transferees, distributees, or Designation of Beneficiary will be, or
will be deemed to be, a Holder of any Shares covered by such option unless and
until certificates for such Shares are issued in accordance with the Plan.
(b) Payment of Option Price. The option price for Shares with
------------------------
respect to which an option is exercised shall be paid in full at the time such
notice is given. An option shall be deemed exercised on the date the Committee
or its designee receives written notice of exercise, together with full payment
for the Shares purchased. The option price shall be paid to the Company either
in cash or, with the approval of the Committee, Shares having a Fair Market
Value equal to the option price (or a combination of cash and Shares such that
the sum of the Fair Market Value of the Shares plus the cash equals the option
price).
(c) Payment in Cancellation of Option. The Committee shall have the
----------------------------------
authority in its sole discretion to authorize the payment to the Holder of an
option granted under the Plan (with the consent of such Holder), in exchange for
the cancellation of all or a part of such Holder's option, of cash in an amount
not to exceed the difference between the aggregate Fair Market Value on the date
of such cancellation of the shares with respect to which the option is being
cancelled and the aggregate option price of such Shares; provided, however, that
if an Acceleration of options granted hereunder has occurred, for purposes of
this subparagraph, "Fair Market Value" on the date of such cancellation shall be
calculated in the same manner as the "exercise value" of a Limited Right would
be calculated under Section 8(c) with respect to such date (whether or not any
Limited Rights are actually outstanding).
(d) Tax Withholding. With the approval of the Committee, the Grantee
----------------
of a Nonqualified Option may elect to have the Company retain from the Shares to
be issued upon the exercise by the Grantee of such option Shares having a Fair
Market Value on the Tax Date equal to all or any part of the federal, state and
local withholding tax payments (whether mandatory or
8
<PAGE>
permissive) to be made by the Grantee with respect to the exercise of the option
(up to a maximum amount determined by the Grantee's top marginal tax rate) in
lieu of making such payments in cash. The Committee may establish from time to
time rules or limitations with respect to the right of a Grantee to elect to
have the Company retain Shares in satisfaction of withholding payments;
provided, however, that, in any event, any such election made by a person
subject to Section 16(b) of the 1934 Act must be made in accordance with any
applicable rules established under such Section.
If a Grantee transfers a Nonqualified Option pursuant to Section 9,
the Grantee is required to satisfy the applicable withholding taxes by paying
cash or other property to the Company with respect to any income recognized by
the Grantee on the exercise of such option by the Transferee. The Grantee's
withholding obligations must be satisfied on the date that the Transferee
exercises the option. If the Grantee does not satisfy the applicable
withholding tax obligation, the Company shall retain from the Shares to be
issued Shares having a Fair Market Value on the Tax Date equal to the mandatory
withholding tax payable by the Grantee.
In connection with the exercise of an option or Limited Right, the
Company has the right to require the Grantee to remit or otherwise make
available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for Shares (and prior to a cash payment in the
case of a Limited Right) or to take whatever action it deems necessary to
protect its interests with respect to tax liabilities in connection with the
issuance of Shares or cash payment.
SECTION 8. LIMITED RIGHTS.
- --------- ---------------
(a) Grant of Limited Rights. The Committee may grant Limited
------------------------
Rights with respect to any option granted under the Plan either at the time the
option is granted or at any time thereafter prior to the exercise, cancellation,
termination or expiration of such option. The number of Limited Rights covered
by any such grant shall not exceed, but may be less than, the
9
<PAGE>
number of Shares covered by the related option. The term of any Limited Right
shall be the same as the term of the option to which it relates. The right of a
Holder to exercise a Limited Right shall be cancelled if and to the extent a
related option is exercised, and the right of a Holder to exercise an option
shall be cancelled if and to the extent a related Limited Right is exercised.
(b) Events Permitting Exercise of Limited Rights. A Limited Right
---------------------------------------------
shall be exercisable only if and to the extent that the related option is
exercisable; provided, however, that notwithstanding the foregoing, a Limited
Right shall not be exercisable during the first six months of its term nor shall
it be exercisable unless the Fair Market Value of a Share on the date of
exercise exceeds the exercise price of a Share subject to the related option. A
Limited Right which is otherwise exercisable may be exercised only during the
following periods:
(i) during a period of 30 days following the date of
expiration of a Tender Offer (other than an offer by the Company) for Shares, if
the offeror acquires Shares pursuant to such Tender Offer;
(ii) during a period of 30 days following the date of approval
by the shareholders of the Company of a definitive agreement: (x) for the merger
or consolidation of the Company into or with another corporation, if the Company
will not be the surviving corporation or will become a Subsidiary of another
corporation, or (y) for the sale of all or substantially all of the assets of
the Company (each of the foregoing transactions is hereinafter referred to as an
"Acquisition Transaction");
(iii) during a period of 30 days following: (x) the date upon
which the Company is provided a copy of a Schedule 13D (filed pursuant to
Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder) indicating that any person or group (as such
terms are defined in Section 13(d)(3) of such act) has become the Holder of 20%
or more of the outstanding voting shares of the Company, or (y) the date of
approval by the shareholders of the Company of a control share acquisition (as
such term is defined
10
<PAGE>
in Chapter 1701 of the Ohio Revised Code) (each of the foregoing transactions is
hereinafter referred to as a "Change of Control"); and
(iv) during a period of 30 days following a change in the
composition of the Board of Directors such that individuals who were members of
the Board of Directors on the date two years prior to such change (or who were
elected, or were nominated for election, by the Company's shareholders with the
affirmative vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such two year period) no longer
constitute a majority of the Board of Directors (such a change in composition is
hereinafter referred to as a "Change in Composition of the Board").
(c) Exercise of Limited Rights. Upon exercise of a Limited Right,
---------------------------
the Holder thereof shall receive from the Company a cash payment equal to the
excess of: (x) the aggregate "exercise value" on the date of exercise
(determined as provided below) of that number of Shares as is equal to the
number of Limited Rights being exercised over (y) the aggregate exercise price
under the related option of that number of Shares as is equal to the number of
Limited Rights being exercised. A Holder shall exercise a Limited Right by
giving written notice of such exercise to the Committee. A Limited Right shall
be deemed exercised on the date the Committee receives such written notice.
The "exercise value" of a Limited Right on the date of exercise
shall be:
(i) in the case of an exercise during a period described in
Section 8(b)(i), the highest price per Share paid pursuant to any Tender Offer
which is in effect at any time during the 60-day period prior to the date on
which the Limited Right is exercised;
(ii) in the case of an exercise during a period described in
Section 8(b)(ii), the greater of: (x) the highest sale price of a Share during
the 30-day period prior to the date of shareholder approval of the Acquisition
Transaction, as reported on the New York Stock Exchange - Composite Transactions
Tape, or (y) the highest fixed or formula per Share
11
<PAGE>
price payable pursuant to the Acquisition Transaction (if determinable on the
date of exercise);
(iii) in the case of an exercise during a period described in
Section 8(b)(iii), the greater of: (x) the highest sale price of a Share during
the 30-day period prior to the date the Company is provided with a copy of the
Schedule 13D, or the date of approval of the control share acquisition, as
reported on the New York Stock Exchange - Composite Transactions Tape, or (y)
the highest acquisition price of a Share shown on such Schedule 13D or to be
paid in such control share acquisition; and
(iv) in the case of an exercise during a period described in
Section 8(b)(iv), the highest sale price of a Share during the 30-day period
prior to the date of the Change in Composition of the Board, as reported on the
New York Stock Exchange - Composite Transactions Tape.
Notwithstanding the foregoing, in no event shall the exercise value
of a Limited Right issued in connection with an Incentive Stock Option exceed
the maximum permissible exercise value for such a right under the Code and the
regulations and interpretations issued pursuant thereto. Any securities or
property which form part or all of the consideration paid for Shares pursuant to
a Tender Offer or Acquisition Transaction shall be valued at the higher of (1)
the valuation placed on such securities or property by the person making such
Tender Offer or the other party to such Acquisition Transaction, or (2) the
value placed on such securities or property by the Committee.
(d) Compliance with Law. The exercise of Limited Rights by directors
--------------------
and officers of the Company shall be subject to, and comply with, the applicable
requirements of Rule 16b3(e) promulgated under the Securities Exchange Act of
1934, as amended, and as the same may be amended, modified or superseded from
time to time.
SECTION 9. NON-TRANSFERABILITY.
- --------- -------------------
Except as provided in this Section 9, options granted under the Plan
may not be sold, pledged, assigned,
12
<PAGE>
hypothecated or transferred other than by Designation of Beneficiary, or, if
none, then by will or the laws of descent and distribution and may be exercised
during the lifetime of the Grantee only by such Grantee or by his guardian or
legal representative.
Upon the death of an Option Holder, outstanding Options held by such
Holder may be exercised only by Designation of Beneficiary, or, if none, then by
the executor or administrator of the Holder's estate or by a person who shall
have acquired the right to such exercise by will or by the laws of descent and
distribution.
Subject to such conditions as the Committee may prescribe, during an
option Grantee's lifetime, the Committee may permit the transfer or assignment
of an outstanding option by such Grantee; provided, that such transfer or
assignment shall not apply to (y) an option which is an Incentive Stock Option
(but only if nontransferability is necessary in order for the option to qualify
as an Incentive Stock Option), and (z) an option granted to a person subject to
Section 16 of the 1934 Act (but only if nontransferability is necessary in order
for the option to qualify for the exemption under Rule l6b-3 of the 1934 Act).
SECTION 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
- ---------- ------------------------------------------
In the event of a change in outstanding Shares by reason of a Share
dividend, recapitalization, merger, consolidation, split-up, combination or
exchange of Shares, or the like, the maximum number of Shares subject to option
during the existence of the Plan, the number of Limited Rights which may be
granted under the Plan, the number of Shares subject to, and the option price
of, each outstanding option, the number of Limited Rights outstanding, the Fair
Market Value of a Share on the date a Limited Right is granted, and the like
shall be appropriately adjusted by the Committee (disregarding any fractional
Shares resulting therefrom), whose determination in each case shall be
conclusive.
13
<PAGE>
SECTION 11. CONDITIONS UPON GRANTING AND EXERCISE OF OPTIONS AND LIMITED RIGHTS
- ---------- -------------------------------------------------------------------
AND ISSUANCE OF SHARES.
- ----------------------
No option or Limited Right shall be granted, no option or Limited
Right shall be exercised and Shares shall not be issued or delivered upon the
exercise of an option unless the grant and exercise thereof, and the issuance
and/or delivery of Shares pursuant thereto, or the payment therefor, shall
comply with all relevant provisions of state and federal law, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares then may be listed.
SECTION 12. AMENDMENT AND TERMINATION OF PLAN.
- ---------- ---------------------------------
(a) Amendment. The Board of Directors may from time to time amend
the Plan, or any provision thereof, in such respects as the Board of Directors
may deem advisable; provided, however, that any such amendment shall be approved
by the Holders of shares entitling them to exercise a majority of the voting
power of the Company if such amendment would:
(i) materially increase the benefits accruing to participants
under the Plan;
(ii) materially increase the aggregate number of Shares which
may be issued and/or delivered under the Plan and/or the number of Shares which
may be issued and/or delivered to any individual under the Plan; or
(iii) materially modify the requirements as to eligibility for
participation in the Plan.
(b) Termination. The Board may at any time terminate the Plan.
-----------
(c) Effect of Amendment or Termination. No amendment to or
----------------------------------
termination of the Plan shall adversely affect any option or Limited Right
previously granted under the Plan without the consent of the Holder thereof.
14
<PAGE>
SECTION 13. NOTICES.
- ---------- -------
Each notice relating to this Plan shall be in writing and delivered
in person or by mail to the proper address. Except as otherwise provided by the
Committee, each notice shall be deemed to have been given on the date it is
delivered or mailed, provided, however, that for a notice of exercise given in
accordance with Section 7(b), which shall be deemed to have been given on the
date it is received by the Committee with payment of the option price. Each
notice to the Committee shall be addressed as follows: The Mead Corporation,
Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463,
Attention: Compensation Committee. Each notice to the Holder of an option or
other person or persons then entitled to exercise an option shall be addressed
to such person or persons at the Holder's address as set forth in the records of
the Company. Anyone to whom a notice may be given under this Plan may designate
a new address by written notice to the party to that effect.
SECTION 14. BENEFITS OF PLAN.
- ---------- ----------------
This Plan shall inure to the benefit of and be binding upon each
successor and assign of the Company. All rights and obligations imposed upon the
Holder of an option and all rights granted to the Company under this Plan shall
be binding upon such Holder's heirs, legal representatives and successors.
SECTION 15. PRONOUNS AND PLURALS.
- ---------- --------------------
All pronouns shall be deemed to refer to the masculine, feminine,
singular or plural, as the identity of the person or persons may require.
SECTION 16. SHAREHOLDER APPROVAL AND TERM OF PLAN.
- ---------- -------------------------------------
The Plan shall become effective upon its approval by the affirmative
vote (either in person or by proxy) of the Holders of shares entitling them to
exercise a majority of the voting power of the Company. The Plan shall expire on
January 26, 1994, unless sooner terminated in accordance with Section 12.
15
<PAGE>
--------------------------
NOTES:
- -----
(1) Adopted by the Board of Directors of the Company on January 26, 1984,
subject to approval by the shareholders of the Company.
(2) Approved by the shareholders of the Company on April 24, 1986.
(3) Amendment to Section 6(b)(5) adopted by the Board of Directors of the
Company on November 01, 1986.
(4) Amendment to Section 2, 6(4), (5) and (6), 7 and 9 by the Board of
Directors of the Company on November 09, 1996 to permit the transfer of stock
options and to allow for the designation of a beneficiary of the stock option
grant.
16
<PAGE>
EXHIBIT 10.10
THE MEAD CORPORATION COMPOSITE
---------
1991 STOCK OPTION PLAN 11/09/96
------------------------
SECTION 1. PURPOSES.
- ---------- ---------
The purposes of this 1991 Stock Option Plan (the "Plan") are (i) to provide
----
incentives to officers and other key employees of the Company upon whose
judgment, initiative and efforts the long-term growth and success of the Company
is largely dependent; (ii) to assist the Company in attracting and retaining key
employees of proven ability; and (iii) to increase the identity of interests of
such key employees with those of the Company's shareholders by providing such
employees with options to acquire Common Shares of the Company.
SECTION 2. DEFINITIONS.
- ---------- ------------
For purposes of the Plan:
(a) "Acquisition Transaction" means a transaction of the type described
in Section 8(b)(ii).
(b) "Affiliate" means a person controlling, controlled by or under common
control with the Company.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Change in Composition of the Board" means an event of the type
described in Section 8(b)(iv).
(e) "Change in Control" means a transaction of the type described in
Section 8(b)(iii).
(f) "Committee" means the committee referred to in Section 4.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
----
(h) "Company" means The Mead Corporation; when used in the Plan with
reference to employment, "Company" shall include any Subsidiary of the Company.
<PAGE>
(i) "Designation of Beneficiary" means such person(s) or entity whom the
option Holder has designated by a transfer on death or other designation of
beneficiary to receive the Holder's option on the Holder's death in accordance
with such procedures established from time to time by the Committee.
(j) "Fair Market Value" means the average of the highest sale price and
the lowest sale price of a Share on the date the value of a Share is to be
determined, as reported on the New York Stock Exchange - Composite Transactions
Tape or, if no sale is reported for such date, then on the next preceding date
for which a sale is reported.
(k) "Grantee" means the employee who received the option from the Company.
(l) "Holder" means the person(s) or entity who owns the option, whether
Grantee, Transferee, heir or other beneficiary.
(m) "Incentive Stock Option" means an option granted under the Plan which
qualifies as an incentive stock option under Section 422 of the Code.
(n) "Limited Right" means a right granted under Section 8 of the Plan.
(o) "Nonqualified Option" means an option granted under the Plan which
does not qualify as an incentive stock option under Section 422 of the Code.
(p) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(q) "Share" or "Shares" means the Common Shares, without par value, of the
Company.
(r) "Subsidiary" means any corporation, partnership or other person or
entity at least 10% of the voting or equity interest of which is owned or
controlled, directly or indirectly, by the Company.
2
<PAGE>
(s) "Tender Offer" means a tender offer or a request or invitation for
tenders or an exchange offer subject to regulation under Section 14(d) of the
1934 Act and the rules and regulations thereunder, as the same may be amended,
modified or superseded from time to time.
(t) "Tax Date" means the date as of which the amount of the withholding
tax payment with respect to the exercise of a Nonqualified Option is calculated.
(u) "Transferee" means the person who received the option from the Grantee
during the Grantee's lifetime.
Section 3. Shares Subject to the Plan.
- ---------- ---------------------------
(a) Number of Shares. Subject to adjustment as provided in Section 10,
the maximum number of Shares that may be issued and/or delivered under the Plan
upon the exercise of options is 4,000,000. Such Shares may be either authorized
and unissued or treasury Shares. Any Shares (i) subject to an option which for
any reason has terminated or expired or has been cancelled prior to being fully
exercised or (ii) which have been received by the Company as full or partial
payment for Shares purchased pursuant to Section 7(b), may again be subject to
option under the Plan.
(b) The maximum number of Limited Rights which may be granted under the
Plan is 4,000,000. Any Limited Rights granted under the Plan which for any
reason terminate or expire or have been cancelled prior to being fully exercised
may again be granted under the Plan.
Section 4. Administration.
- ---------- ---------------
The Plan shall be administered by a committee (the "Committee") of the
Board of Directors, consisting of three or more directors, who shall from time
to time be appointed by, and serve at the pleasure of, the Board of Directors.
No director shall serve as a member of the Committee if he does not qualify as a
disinterested person with respect to the Plan under Rule 16b-3 (or any successor
provision) under the 1934 Act.
3
<PAGE>
The Committee shall have and exercise all the power and authority granted
to it under the Plan. Subject to the provisions of the Plan, the Committee shall
in its sole discretion determine the persons to whom, and the times at which,
Incentive Stock Options, Nonqualified Options and Limited Rights shall be
granted; the number of Shares to be subject to each option; the option price per
Share; and the term of each option. In making such determinations, the Committee
may take into consideration each employee's present and/or potential
contribution to the success of the Company and its Subsidiaries and any other
factors which the Committee may deem relevant and proper. Subject to the
provisions of the Plan, the Board of Directors or the Committee shall also
interpret the Plan; prescribe, amend and rescind rules and regulations relating
to the Plan; correct defects, supply omissions and reconcile any inconsistencies
in the Plan; and make all other determinations necessary or advisable for the
administration of the Plan. The Committee or its designee may in its discretion
change the terms of any Limited Right granted hereunder in connection with an
Incentive Stock Option to permit the Limited Right to be exercisable even though
the Fair Market Value of a Share on the date of exercise does not exceed the
exercise price of the related option. Such determinations of the Board of
Directors, or of the Committee (to the extent not reversed or modified by the
Board of Directors), shall be conclusive. A majority of the Committee shall
constitute a quorum for meetings of the Committee, and the act of a majority of
the Committee at a meeting, or an act reduced to or approved in writing by all
members of the Committee, shall be the act of the Committee.
Section 5. Eligibility.
- --------- ------------
From time to time during the term of the Plan, the Committee may grant one
or more Incentive Stock Options and/or Nonqualified Options to any person who is
then an officer or other key employee of the Company. A director who is not also
an employee of the Company shall not be eligible to receive options granted
under the Plan.
Section 6. Terms and Conditions of Options.
- --------- --------------------------------
(a) Written Agreement. The terms of each option granted under the Plan
shall be set forth in a written agreement, the form of which shall be approved
by the Committee.
4
<PAGE>
(b) Terms and Conditions of General Application. The following terms and
provisions shall apply to all options granted under the Plan:
(1) No option may be granted under the Plan at an option price per
Share which is less than the Fair Market Value of a Share on the date of
grant.
(2) No option may be exercised more than ten years after the date of
grant.
(3) No option shall be exercisable within one year after the date of
grant. At the time an option is granted, the Committee may provide that
after such one-year period, the option may be exercised with respect to all
Shares subject thereto, or may be exercised with respect to only a
specified number of Shares over a specified period or periods.
(4) Except as provided in Sections 6(b)(5) and 6(b)(6), an option may
be exercised only if the Grantee thereof has been continuously employed by
the Company since the date of grant. Whether authorized leave of absence or
absence for military or governmental service shall constitute a termination
of employment shall be determined by the Committee, after consideration of
the provisions of Section 1.421-7(h) of the regulations issued under the
Code, if appropriate.
(5) At the time an option is granted, or at such other time as the
Committee may determine, the Committee may provide that, if the Grantee of
the option ceases to be employed by the Company for any reason (including
retirement or disability) other than death, the option will continue to be
exercisable by the Grantee for such additional period (not to exceed the
remaining term of such option) after such termination of employment as the
Committee may provide.
(6) At the time an option is granted, the Committee may provide that,
if the Grantee of the option dies while employed by the Company or while
entitled to the benefits of any additional exercise period established by
the Committee with respect to such option in accordance with Section
6(b)(5), then the option will continue to be exercisable by the person or
5
<PAGE>
persons (including the Holder's estate) to whom the Holder's rights with
respect to such option shall have passed by will or by the laws of descent
and distribution (or in accordance with the procedures set forth in Section
9 hereof) for such additional period after death (not to exceed the
remaining term of such option) as the Committee may provide.
(7) At the time an option is granted, the Committee may provide for
any restriction or limitation on the exercise of such option and/or for any
restriction or limitation on the transferability of the Shares issuable
upon the exercise of such option as it may deem appropriate.
(c) Additional Provisions Applicable to Incentive Stock Options. The
following additional terms and provisions shall apply to Incentive Stock Options
granted under the Plan, notwithstanding any provision of Section 6(b) to the
contrary:
(1) No Incentive Stock Option shall be granted to an officer or other
employee who possesses directly or indirectly (within the meaning of
Section 424(d) of the Code) at the time of grant more than 10% of the
voting power of all classes of shares of the Company or of any parent
corporation or any corporation, 50% or more of the voting stock of which is
owned or controlled, directly or indirectly, by the Company, unless the
option price is at least 110% of the Fair Market Value of the Shares
subject to the option on the date the option is granted and the option is
not exercisable after the expiration of five years from the date of grant.
(2) The aggregate Fair Market Value (determined on the date an
Incentive Stock Option is granted) of Shares with respect to which
Incentive Stock Options are exercisable for the first time by any
individual in any calendar year (under the Plan and all of the plans of the
Company and any Subsidiary and any parent corporation) shall not exceed
$100,000, or such other maximum amount permitted by the Code.
(d) Waiver of Terms. Subject to the ten-year limitation in Section
6(b)(2), the Committee may waive or modify at any time, either before or after
the granting of an option, any condition or restriction with respect to the
exercise of such option imposed by or pursuant to this Section 6 in such
6
<PAGE>
circumstances as the Committee may deem appropriate (including, without
limitation, in the event the Grantee retires with the approval of the Company,
or in the event of a proposed Acquisition Transaction, a Change in Control,
Tender Offer for Shares, or other similar transaction involving the Company).
(e) Acceleration Upon Certain Events. In the event of a Tender Offer
(other than an offer by the Company) for Shares, if the offeror acquires Shares
pursuant thereto, an Acquisition Transaction, a Change in Control or a Change in
Composition of the Board, all outstanding options granted hereunder shall become
exercisable in full (whether or not otherwise exercisable, but subject, however,
to the one-year limitation set forth in Section 6(b)(3)), effective on the date
of the first purchase of Shares pursuant to the Tender Offer, or the date of
shareholder approval of the Acquisition Transaction, or the date of filing of
the Schedule 13D or shareholder authorization of the control share acquisition
giving rise in either case to the Change in Control, or the date of the Change
in Composition of the Board, as the case may be (the occurrence of any such
event is hereinafter referred to as an "Acceleration").
Section 7. Exercise of Options.
- ---------- --------------------
(a) Notice of Exercise. The Holder of an option granted under the Plan
may exercise all or part of such option by giving written notice of exercise to
the Committee or its designee; provided, however, that an option may not be
exercised for a fraction of a Share. No Holder of an option nor such Holder's
legal representatives, legatees, Transferees, distributees, or Designation of
Beneficiary will be, or will be deemed to be, a Holder of any Shares covered by
such option unless and until the option shall have been exercised in accordance
with the Plan.
(b) Payment of Option Price. The option price for Shares with respect to
which an option is exercised shall be paid in full at the time such notice is
given. An option shall be deemed exercised on the date the Committee or its
designee receives written notice of exercise, together with full payment for the
Shares purchased. The option price shall be paid to the Company either in cash
or, with the approval of the Committee,
7
<PAGE>
Shares having a Fair Market Value equal to the option price (or a combination of
cash and Shares such that the sum of the Fair Market Value of the Shares plus
the cash equals the option price).
(c) Payment in Cancellation of Option. The Committee shall have the
authority in its sole discretion to authorize the payment to the Holder of an
option granted under the Plan (with the consent of such Holder), in exchange for
the cancellation of all or a part of such Holder's option, of cash in an amount
not to exceed the difference between the aggregate Fair Market Value on the date
of such cancellation of the Shares with respect to which the option is being
cancelled and the aggregate option price of such Shares; provided, however, that
if an Acceleration has occurred, for purposes of this subparagraph, "Fair Market
Value" on the date of such cancellation shall be calculated in the same manner
as the "exercise value" of a Limited Right would be calculated under Section
8(c) with respect to such date (whether or not any Limited Rights are actually
outstanding).
(d) Tax Withholding. With the approval of the Committee, the Grantee of a
Nonqualified Option may elect to have the Company retain from the Shares to be
issued upon the exercise by the Grantee of such option Shares having a Fair
Market Value on the Tax Date equal to all or any part of the federal, state and
local withholding tax payments (whether mandatory or permissive) to be made by
the Grantee with respect to the exercise of the option (up to a maximum amount
determined by the Grantee's top marginal tax rate) in lieu of making such
payments in cash. The Committee may establish from time to time rules or
limitations with respect to the right of a Grantee to elect to have the Company
retain Shares in satisfaction of withholding payments; provided, however, that,
in any event, any such election made by a person subject to Section 16(b) of the
1934 Act must be made in accordance with any applicable rules established under
such section.
If a Grantee transfers a Nonqualified Option pursuant to Section 9, the
Grantee is required to satisfy the applicable withholding taxes by paying cash
or other property to the Company with respect to any income recognized by the
Grantee on the exercise of such option by the Transferee. The Grantee's
8
<PAGE>
withholding obligations must be satisfied on the date that the Transferee
exercises the option. If the Grantee does not satisfy the applicable withholding
tax obligation, the Company shall retain from the Shares to be issued Shares
having a Fair Market Value on the Tax Date equal to the mandatory withholding
tax payable by the Grantee.
In connection with the exercise of an option or Limited Right, the Company
has the right to require the Grantee to remit or otherwise make available to the
Company an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery or transfer of any
certificate or certificates for Shares (and prior to a cash payment in the case
of a Limited Right) or to take whatever action it deems necessary to protect its
interests with respect to tax liabilities in connection with the issuance of
Shares or cash payment.
Section 8. Limited Rights.
(a) Grant of Limited Rights. The Committee may grant Limited Rights with
respect to any option granted under the Plan either at the time the option is
granted or at any time thereafter prior to the exercise, cancellation,
termination or expiration of such option. The number of Limited Rights covered
by any such grant shall not exceed, but may be less than, the number of Shares
covered by the related option. The term of any Limited Right shall be the same
as the term of the option to which it relates. The right of a Holder to exercise
a Limited Right shall be cancelled if and to the extent a related option is
exercised, and the right of a Holder to exercise an option shall be cancelled if
and to the extent a related Limited Right is exercised.
(b) Events Permitting Exercise of Limited Rights. A Limited Right shall be
exercisable only if and to the extent that the related option is exercisable;
provided, however, that notwithstanding the foregoing, (x) a Limited Right shall
not be exercisable during the first six months of its term, and (y) in the case
of a Limited Right issued in connection with an Incentive Stock Option, such
Limited Right shall not be exercisable unless the Fair Market Value of a Share
on the date of exercise exceeds the exercise price of a Share subject to the
9
<PAGE>
related option. A Limited Right which is otherwise exercisable may be exercised
only during the following periods:
(i) during a period of 30 days following the date of expiration of
a Tender Offer (other than an offer by the Company) for Shares, if the offeror
acquires Shares pursuant to such Tender Offer;
(ii) during a period of 30 days following the date of approval by
the shareholders of the Company of a definitive agreement: (x) for the merger or
consolidation of the Company into or with another corporation, if the Company
will not be the surviving corporation or will become a subsidiary of another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) at least 80% of the
combined voting power of the voting securities of the Company or such surviving
or parent entity outstanding immediately after such merger or consolidation, or
(y) for the sale of all or substantially all of the assets of the Company (each
of the foregoing transactions is hereinafter referred to as an "Acquisition
Transaction");
(iii) during a period of 30 days following: (x) the date upon which
the Company is provided a copy of a Schedule 13D (filed pursuant to Section
13(d) of the 1934 Act and the rules and regulations promulgated thereunder)
indicating that any person or group (as such terms are defined in Section
13(d)(3) of the 1934 Act) has become the beneficial owner (as defined in Rule
13d-3 of the 1934 Act) of 20% or more of the outstanding voting shares of the
Company, or (y) the date of authorization, by both a majority of the voting
power of the Company and a majority of the portion of such voting power
excluding the voting power of interested shares, of a control share acquisition
(as such term is defined in Chapter 1701 of the Ohio Revised Code) (each of the
foregoing transactions is hereinafter referred to as a "Change in Control"); and
(iv) during a period of 30 days following a change in the
composition of the Board of Directors such that individuals who were members of
the Board of Directors on the
10
<PAGE>
date two years prior to such change (or who were elected, or were nominated for
election, by the Company's shareholders with the affirmative vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such two-year period) no longer constitute a majority of the Board
of Directors (such a change in composition is hereinafter referred to as a
"Change in Composition of the Board").
(c) Exercise of Limited Rights. Upon exercise of a Limited Right, the
Holder thereof shall receive from the Company a cash payment equal to the excess
of: (x) the aggregate "exercise value" on the date of exercise (determined as
provided below) of that number of Shares as is equal to the number of Limited
Rights being exercised over (y) the aggregate exercise price under the related
option of that number of Shares as is equal to the number of Limited Rights
being exercised. A Holder shall exercise a Limited Right by giving written
notice of such exercise to the Committee. A Limited Right shall be deemed
exercised on the date the Committee receives such written notice.
The "exercise value" of a Limited Right on the date of exercise shall be:
(i) in the case of an exercise during a period described in Section
8(b)(i), the highest price per Share paid pursuant to any Tender Offer which is
in effect at any time during the 60-day period prior to the date on which the
Limited Right is exercised;
(ii) in the case of an exercise during a period described in Section
8(b)(ii), the greater of: (x) the highest sale price of a Share during the 30-
day period prior to the date of shareholder approval of the Acquisition
Transaction, as reported on the New York Stock Exchange - Composite Transactions
Tape, or (y) the highest fixed or formula per Share price payable pursuant to
the Acquisition Transaction (if determinable on the date of exercise);
(iii) in the case of an exercise during a period described in Section
8(b)(iii), the greater of: (x) the highest sale price of a Share during the 30-
day period prior to the date the Company is provided with a copy of the Schedule
13D, or the date of authorization of the control share acquisition, as
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<PAGE>
reported on the New York Stock Exchange - Composite Transactions Tape, or (y)
the highest acquisition price of a Share shown on such Schedule 13D or to be
paid in such control share acquisition; and
(iv) in the case of an exercise during a period described in Section
8(b)(iv), the highest sale price of a Share during the 30-day period prior to
the date of the Change in Composition of the Board, as reported on the New York
Stock Exchange - Composite Transactions Tape.
Notwithstanding the foregoing, in no event shall the exercise value of a
Limited Right issued in connection with an Incentive Stock Option exceed the
maximum permissible exercise value for such a right under the Code and the
regulations and interpretations issued pursuant thereto. Any securities or
property which form part or all of the consideration paid for Shares pursuant to
a Tender Offer or Acquisition Transaction shall be valued at the higher of (1)
the valuation placed on such securities or property by the person making such
Tender Offer or the other party to such Acquisition Transaction, or (2) the
value placed on such securities or property by the Committee.
(d) Compliance with Law. The exercise of Limited Rights by directors and
officers of the Company shall be subject to, and comply with, the applicable
requirements of Rule 16b-3(e) under the 1934 Act (or any successor provision),
as the same may be amended, modified or superseded from time to time.
Section 9. Non-Transferability.
Except as provided in this Section 9, options granted under the Plan may
not be sold, pledged, assigned, hypothecated or transferred other than by
Designation of Beneficiary, or, if none, then by will or the laws of descent and
distribution and may be exercised during the lifetime of the Grantee only by
such Grantee or by his guardian or legal representative.
Upon the death of an option Holder, outstanding options held by such Holder
may be exercised only by Designation of Beneficiary, or, if none, then by the
executor or administrator of the Holder's estate or by a person who shall
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<PAGE>
have acquired the right to such exercise by will or by the laws of descent and
distribution.
Subject to such conditions as the Committee may prescribe, during an option
Grantee's lifetime, the Committee may permit the transfer or assignment of an
outstanding option by such Grantee; provided, that such transfer or assignment
shall not apply to (y) an option which is an Incentive Stock Option (but only if
nontransferability is necessary in order for the option to qualify as an
Incentive Stock Option), and (z) an option granted to a person subject to
Section 16 of the 1934 Act (but only if nontransferability is necessary in order
for the option to qualify for the exemption under Rule l6b-3 of the 1934 Act).
Section 10. Adjustments Upon Changes in Capitalization.
In the event of a change in outstanding Shares by reason of a Share
dividend, recapitalization, merger, consolidation, split-up, combination or
exchange of shares, or the like, the maximum number of Shares subject to option
during the existence of the Plan, the number of Limited Rights which may be
granted under the Plan, the number of Shares subject to, and the option price
of, each outstanding option, the number of Limited Rights outstanding, the Fair
Market Value of a Share on the date a Limited Right is granted, and the like
shall be appropriately adjusted by the Committee (disregarding any fractional
Shares resulting therefrom), whose determination in each case shall be
conclusive.
Section 11. Conditions Upon Granting and Exercise of Options and Limited Rights
and Issuance of Shares.
No option or Limited Right shall be granted, no option or Limited Right
shall be exercised and Shares shall not be issued or delivered upon the exercise
of an option unless the grant and exercise thereof, and the issuance and/or
delivery of Shares pursuant thereto, or the payment therefor, shall comply with
all relevant provisions of state and federal law, including, without limitation,
the Securities Act of 1933, as amended, the 1934 Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares then may be listed.
13
<PAGE>
Section 12. Amendment and Termination of Plan.
(a) Amendment. The Board of Directors may from time to time amend the Plan,
or any provision thereof, in such respects as the Board of Directors may deem
advisable; provided, however, that any such amendment shall be approved by the
Holders of Shares by such vote and otherwise in compliance with applicable
federal or state law (including Rule 16b-3 (or any successor provision) under
the 1934 Act) or the requirements of any stock exchange upon which the Shares
may then be listed.
(b) Termination. The Board may at any time terminate the Plan.
(c) Effect of Amendment or Termination. No amendment to or termination of
the Plan shall adversely affect any option or Limited Right previously granted
under the Plan without the consent of the Holder thereof.
Section 13. Notices.
Each notice relating to this Plan shall be in writing and delivered in
person or by mail to the proper address. Except as otherwise provided by the
Committee, each notice shall be deemed to have been given on the date it is
delivered or mailed, provided, however, that for a notice of exercise given in
accordance with Section 7(b), which shall be deemed to have been given on the
date it is received by the Committee with payment of the option price. Each
notice to the Committee shall be addressed as follows: The Mead Corporation,
Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463,
Attention: Compensation Committee. Each notice to the Holder of an option or
other person or persons then entitled to exercise an option shall be addressed
to such person or persons at the Holder's address as set forth in the records of
the Company. Anyone to whom a notice may be given under this Plan may designate
a new address by written notice to the party to that effect.
Section 14. Benefits of Plan.
This Plan shall inure to the benefit of and be binding upon each successor
and assign of the Company. All
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rights and obligations imposed upon the Holder of an option and all rights
granted to the Company under this Plan shall be binding upon such Holder's
heirs, legal representatives and successors.
Section 15. Pronouns and Plurals.
All pronouns shall be deemed to refer to the masculine, feminine, singular
or plural, as the identity of the person or persons may require.
Section 16. Shareholder Approval and Term of Plan.
The Plan shall become effective upon its approval by the affirmative vote
of the Holders of a majority of the Shares entitled to vote thereon held by
shareholders present in person or by proxy at any shareholders' meeting at which
a quorum is present. The Plan shall expire on January 24, 2001, unless sooner
terminated in accordance with Section 12.
----------------------
NOTES:
(1) Adopted by the Board of Directors of the Company on January 24, 1991,
and approved by the Company's shareholders on April 25, 1991.
(2) Amendments to Sections 2, 7(a),(b),(c), and 9 adopted by the Board of
Directors of the Company on November 09, 1996 to permit the transfer of stock
options and to allow for the designation of a beneficiary of the stock option
grant.
15
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EXHIBIT 10.11
THE MEAD CORPORATION COMPOSITE
1996 STOCK OPTION PLAN 11/09/96
----------------------
Section 1. Purposes.
- --------- --------
The purposes of The Mead Corporation 1996 Stock Option Plan (the
"Plan") are (i) to provide incentives to officers, other key employees and non-
employee directors of the Company upon whose judgment, initiative and efforts
the long-term growth and success of the Company is largely dependent; (ii) to
assist the Company in attracting and retaining key employees and non-employee
directors of proven ability; and (iii) to increase the identity of interests of
such key employees and non-employee directors with those of the Company's
shareholders by providing such employees and directors with options to acquire
Shares of the Company.
Section 2. Definitions.
- --------- -----------
For purposes of the Plan:
(a) "Acquisition Transaction" means a transaction of the type
described in Section 9(b)(ii).
(b) "Affiliate" means a person controlling, controlled by or under
common control with the Company.
(c) "Board of Directors" or "Board" means the Board of Directors of
the Company.
(d) "Change in Composition of the Board" means an event of the type
described in Section 9(b)(iv).
(e) "Change in Control" means a transaction of the type described in
Section 9(b)(iii).
(f) "Committee" means the committee referred to in Section 4.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE>
(h) "Company" means The Mead Corporation, an Ohio corporation; when
used in the Plan with reference to employment, "Company" shall include any
Subsidiary of the Company.
(i) "Designation of Beneficiary" means such person(s) or entity whom
the Option Holder has designated by a transfer on death or other designation of
beneficiary to receive the Holder's Option on the Holder's death in accordance
with such procedures established from time to time by the Committee.
(j) "Fair Market Value" means the average of the highest sale price
and the lowest sale price of a Share on the date the value of a Share is to be
determined, as reported on the New York Stock Exchange - Composite Transactions
Tape or, if no sale is reported for such date, then on the next preceding date
for which a sale is reported.
(k) "Grantee" means the employee who received the option from the
Company.
(l) "Holder" means the person(s) or entity who owns the option,
whether Grantee, Transferee, heir or other beneficiary.
(m) "Incentive Stock Option" means an option granted under the Plan
which qualifies as an Incentive Stock Option under Section 422 of the Code.
(n) "Initial Director" means a person who is a Non-Employee Director
at the date of requisite approval of this Plan by the shareholders of the
Company.
(o) "Limited Right" means a right granted under Section 9 of the Plan.
(p) "Non-Employee Director" means a member of the Board who is not
also an employee of the Company.
(q) "Nonqualified Option" means an option granted under the Plan which
does not qualify as an Incentive Stock Option under Section 422 of the Code.
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<PAGE>
(r) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(s) "Reload Option" means a Nonqualified Option granted under Section
6(d) of the Plan.
(t) "Share" or "Shares" means shares of common stock, without par
value, of the Company.
(u) "Subsequent Director" means a person who becomes a Non-Employee
Director subsequent to the date of requisite approval of this Plan by the
shareholders of the Company.
(v) "Subsidiary" means any corporation, partnership or other person or
entity at least 10% of the voting or equity interest of which is owned or
controlled, directly or indirectly, by the Company.
(w) "Tender Offer" means a tender offer or a request or invitation for
tenders or an exchange offer subject to regulation under Section 14(d) of the
1934 Act and the rules and regulations thereunder, as the same may be amended,
modified or superseded from time to time.
(x) "Tax Date" means the date as of which the amount of the
withholding tax payment with respect to the exercise of a Nonqualified Option is
calculated.
(y) "Transferee" means the person who received the option from the
Grantee during the Grantee's lifetime.
Section 3. Shares Subject to the Plan.
- --------- --------------------------
(a) Number of Shares. Subject to adjustment as provided in Section 11,
the maximum number of Shares that may be issued and/or delivered under the Plan
upon the exercise of options is 4,000,000. Subject to adjustment as provided in
Section 11, the maximum number of Shares that may be issued and/or delivered
under the Plan to any individual over the term of the Plan upon the exercise of
options shall not exceed 400,000. Such Shares may be either authorized and
unissued or treasury Shares. Any shares (i) subject to an option which for
3
<PAGE>
any reason has terminated or expired or has been cancelled prior to being fully
exercised or (ii) which have been received by the Company as full or partial
payment for Shares purchased pursuant to Section 8(b), may again be granted
pursuant to options under the Plan.
(b) Subject to adjustment as provided in Section 11, the maximum
number of Limited Rights which may be granted under the Plan is 4,000,000.
Subject to adjustment as provided in Section 11, the maximum number of Limited
Rights that may be granted under the Plan to any individual over the term of the
Plan shall not exceed 400,000. Any Limited Rights granted under the Plan which
for any reason terminate or expire or have been cancelled prior to being fully
exercised may again be granted under the Plan.
Section 4. Administration.
- --------- --------------
The Plan shall be administered by a committee (the "Committee") of the
Board of Directors, consisting of three or more directors, who shall from time
to time be appointed by and serve at the pleasure of, the Board of Directors. No
director shall serve as a member of the Committee if (i) he or she does not
qualify as a disinterested person with respect to the Plan under Rule 16b-3 (or
any successor provision) under the 1934 Act or (ii) he or she does not qualify
as an outside director within the meaning of Section 162(m) of the Code.
The Committee shall have and exercise all the power and authority
granted to it under the Plan. Subject to the provisions of the Plan, the
Committee shall in its sole discretion determine the persons to whom, and the
times at which, Incentive Stock Options, Nonqualified Options, Reload Options
and Limited Rights shall be granted; the number of Shares to be subject to each
option; the option price per Share; and the term of each option. In making such
determinations, the Committee may take into consideration each participant's
present and/or potential contribution to the success of the Company and any
other factors which the Committee may deem relevant and proper. Subject to the
provisions of the Plan, the Committee shall also interpret the Plan; prescribe,
amend and rescind rules and regulations relating to the Plan; correct defects,
supply omissions and
4
<PAGE>
reconcile any inconsistencies in the Plan; and make all other determinations
necessary or advisable for the administration of the Plan. The Committee may in
its discretion change the terms of any Limited Right granted hereunder in
connection with an Incentive Stock Option to permit the Limited Right to be
exercisable even though the Fair Market Value of a Share on the date of exercise
does not exceed the exercise price of the related option. Such determinations of
the Committee shall be conclusive. A majority of the Committee shall constitute
a quorum for meetings of the Committee, and the act of a majority of the
Committee at a meeting, or an act reduced to or approved in writing by all
members of the Committee, shall be the act of the Committee.
Section 5. Eligibility.
- --------- -----------
From time to time during the term of the Plan, the Committee may grant
one or more Incentive Stock Options, Nonqualified Options and Reload Options to
any person who is then an officer or other key employee of the Company. Each
Non-Employee Director shall be eligible to receive Nonqualified Options granted
under the formula provision set forth in Section 7 of the Plan.
Section 6. Terms and Conditions of Options.
- --------- -------------------------------
(a) Written Agreement. The terms of each option granted under the Plan
shall be set forth in a written agreement, the form of which shall be approved
by the Committee.
(b) Terms and conditions of General Application. The following terms
and provisions shall apply to all options granted under the Plan, except to the
extent otherwise provided in Sections 6(c), 6(d), 6(e), 6(f) and 7 hereof, if
applicable:
(1) No option may be granted under the Plan at an option price
per Share which is less than the Fair Market Value of a share on the date of
grant.
(2) No option may be exercised more than ten years after the date
of grant.
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<PAGE>
(3) No option shall be exercisable within one year after the
date of grant. At the time an option is granted, the Committee may provide
that after such one year period, the option may be exercised with respect to all
Shares subject thereto, or may be exercised with respect to only a specified
number of Shares over a specified period or periods.
(4) Except as provided in Sections 6(b) (5) and 6(b)(6), an
option may be exercised only if the Grantee of such option has been continuously
employed by the Company since the date of grant. Whether authorized leave of
absence or absence for military or governmental service shall constitute a
termination of employment shall be determined by the Committee in its sole
discretion.
(5) At the time an option is granted, or at such other time as
the Committee may determine, the Committee may provide that, if the Grantee of
the option ceases to be employed by the Company for any reason (including
retirement or disability) other than death, the option will continue to be
exercisable by the Holder (including a Transferee under Section 10 hereof) for
such additional period (not to exceed the remaining term of such option) after
such termination of employment as the Committee may provide.
(6) At the time an option is granted, the Committee may
provide that, if the Grantee of such option dies while employed by the Company
or while entitled to the benefits of any additional exercise period established
by the Committee with respect to such option in accordance with Section 6(b)(5),
then the option will continue to be exercisable by the person or persons to whom
the Grantee's rights with respect to such option shall have passed by will or by
the laws of descent and distribution (or in accordance with the procedures set
forth in Section 10 hereof) for such additional period after death (not to
exceed the remaining term of such option) as the Committee may provide.
(7) At the time an option is granted, the Committee may
provide for any restriction or limitation on the exercise of such option and/or
for any restriction or limitation on the transferability of the Shares issuable
upon the exercise of such option as it may deem appropriate.
6
<PAGE>
(c) Additional Provisions Applicable to Incentive Stock Options. The
following additional terms and provisions shall apply to Incentive Stock Options
granted under the Plan, notwithstanding any provision of Section 6(b) to the
contrary:
(1) No Incentive Stock Option shall be granted to an officer or
other employee who possesses directly or indirectly (within the meaning of
Section 424(d) of the Code) at the time of grant more than 10% of the voting
power of all classes of Shares of the Company or of any parent corporation or
any corporation, 50% or more of the voting stock of which is owned or
controlled, directly or indirectly, by the Company, unless the option price is
at least 110% of the Fair Market Value of the Shares subject to the option on
the date the option is granted and the option is not exercisable after the
expiration of five years from the date of grant.
(2) The aggregate Fair Market Value (determined on the date an
Incentive Stock Option is granted) of Shares with respect to which Incentive
Stock Options are exercisable for the first time by any individual in any
calendar year (under the Plan and all of the plans of the Company and any
Subsidiary and any parent corporation) shall not exceed $100,000, or such other
maximum amount permitted by the Code.
(3) Any Stock Option granted under the Plan may contain a
feature providing for, upon the exercise thereof, the grant of a Reload Option
subject to and in accordance with the terms and conditions set forth in Section
6(d) below.
(d) Additional Provisions Applicable to Reload Options. Whenever the
Grantee of any option containing a reload feature (the "Original Option")
outstanding under this Plan exercises such Original Option, the Grantee of such
Original Option (except as provided in Section 6(d)(5) below) shall be granted
on the date of such exercise (the "Reload Date") a new option (the "Reload
Option") for a number of Shares (the "Original Shares") equal to the number of
Shares subject to the Original Option being exercised less the number of Shares
subject to the Original Option which are (A) withheld by the Company as full or
partial payment of the option price
7
<PAGE>
for such Original Option, (B) otherwise disposed of for purposes of having the
proceeds applied for such purpose or (C) withheld by the Company for purposes of
tax withholding in accordance with Section 8(d) hereof. The following additional
terms and provisions shall apply to Reload Options granted under the Plan,
notwithstanding any provision of Section 6(b) to the contrary:
(1) Option Price. The option price per Share covered by a Reload
Option shall be an amount equal to the Fair Market Value per Share as of the
Reload Date.
(2) Expiration Date. Subject to Section 6(d)(4) below, the
option exercise period shall expire on, and the Reload Option shall no longer be
exercisable following, the tenth anniversary of the Reload Date.
(3) Vesting Period. Reload Options granted under this Section
6(d) shall vest and become exercisable with respect to all Shares covered
thereby on the third anniversary of the Reload Date, subject to Section 6(f)
hereof.
(4) Automatic Cancellation. Except as otherwise provided in the
agreement evidencing a Reload Option, a Reload Option shall be immediately
cancelled (without any action taken by the Company) with respect to that number
of Shares subject to such Reload Option (such number of Shares being determined
in accordance with the succeeding sentence), effective immediately upon any
sale, disposition or purported assignment or transfer of any or all of the
Original Shares subject to the Original Option prior to the third anniversary of
the Reload Date. The number of Shares subject to the Reload Option so cancelled
shall equal the number of Original Shares subject to the Original Option so
sold, disposed of, assigned or transferred prior to the third anniversary of the
Reload Date; provided, however, that such Shares subject to the Reload Option
shall not be cancelled if such Original Shares are used in connection with the
exercise of another option with respect to which Section 6(d) hereof applies.
(5) Active Employee. No Reload Option shall be granted to any
person who is not employed by the Company at the time of exercise of an Original
Option.
8
<PAGE>
(e) Waiver of Terms. Subject to the ten-year limitation in Section
6(b)(3), the Committee may waive or modify at any time, either before or after
the granting of an option (including a Reload Option but excluding any option
granted under Section 7 hereof) any condition or restriction with respect to the
exercise of such option imposed by or pursuant to this Section 6 in such
circumstances as the committee may deem appropriate (including, without
limitation, in the event the Grantee retires with the approval of the Company,
or in the event of a proposed Acquisition Transaction, a Change in Control,
Tender Offer for Shares, or other similar transaction involving the Company).
(f) Acceleration Upon Certain Events. Notwithstanding any other
provision of the Plan to the contrary, in the event of a Tender Offer (other
than an offer by the Company) for Shares pursuant to which the offeror acquires
Shares, or in the event of an Acquisition Transaction, a Change in Control or a
Change in Composition of the Board, all outstanding options granted hereunder
(including Reload Options and options granted pursuant to Section 7 below) shall
become exercisable in full (whether or not otherwise exercisable) effective on
the date of the first purchase of Shares pursuant to the Tender Offer, or the
date of shareholder approval of the Acquisition Transaction, or the date of
filing of the Schedule 13D or shareholder authorization of the control Share
acquisition giving rise in either case to the Change in Control, or the date of
the change in Composition of the Board, as the case may be (the occurrence of
any such event is hereinafter referred to as an "Acceleration"); provided,
however, that no option shall be exercisable under this subpart (f) until six
months after the date of grant.
Section 7. Non-Employee Directors Formula Options.
The following additional terms and provisions of this Section 7 shall
apply to grants of options to Non-Employee Directors under the Plan,
notwithstanding any provision of Section 6(b) to the contrary. The provisions of
this Section 7 shall not be amended more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security Act
of 1974, as amended, or the rules promulgated thereunder.
9
<PAGE>
(a) General. Non-Employee Directors shall receive Nonqualified Options
under the Plan. The option price per Share shall equal the Fair Market Value of
a Share on the date of grant.
(b) Initial Grants to Initial Directors. Upon the requisite approval
of the Plan by the shareholders of the Company, each Initial Director shall be
granted automatically an option to purchase 300 Shares.
(c) Initial Grants To Subsequent Directors. Each Subsequent Director
shall, at the time such director becomes a Non-Employee Director, be granted
automatically an option to purchase 300 Shares.
(d) Subsequent Grants To Directors. On January 3rd of each year
beginning on January 3, 1997, each continuing Initial Director shall be granted
automatically an option to purchase a number of Shares determined below. On
January 3rd of each year subsequent to a Subsequent Director's becoming a Non-
Employee Director, each Subsequent Director shall be granted automatically an
option to purchase a number of Shares determined below. The number of Shares
subject to each grant made pursuant to this Paragraph (d) shall equal the
product obtained by multiplying (w) 300, by (x) an adjustment factor (the
"Factor"). The Factor shall equal the quotient obtained by dividing (y) the
"base line number" for average "total compensation" paid to directors by
companies with annual sales in excess of $4 billion, as published in the Hay
Consulting Group's "Directors Compensation Report" (or comparable successor
report) in the calendar year immediately preceding the year in which such grant
is made, which report covers compensation paid in the year ending immediately
prior to the year of publication, by (z) $36,246. In the event that such
Directors Compensation Report (or comparable successor report) is not published
with respect to any year, the Factor shall equal one (1).
(e) Exercisability. Subject to Section 6(f) hereof, each option
granted under this Section 7 shall be exercisable as to 100 percent of the
Shares covered by the option on the first anniversary of the date the option is
granted.
10
<PAGE>
(f) Termination. Upon the termination of a Non-Employee Director from
such position, for any reason, after such director has attained either age 70 or
ten (10) years of service as a director of the Company (whether or not as a Non-
Employee Director), each option granted to such Non-Employee Director pursuant
to this Section 7 which is exercisable at the time of such termination shall
remain exercisable for the remainder of its term. Upon the termination of a Non-
Employee Director from such position, for any reason, prior to me attainment of
age 70 or ten (10) years of service as a director of the Company (whether or not
as a Non-Employee Director), all options granted to such Non-Employee Director
pursuant to this Section 7 which are exercisable at the time of such termination
shall remain exercisable for a period or one year following the date of such
termination, but in no event may the term of an option be extended beyond its
expiration date. Each option granted pursuant to this Section 7 which is not
exercisable at the time of such termination shall be immediately cancelled.
Section 8. Exercise of Options.
(a) Notice of Exercise. The Holder of an option granted under the Plan
may exercise all or part of such option by giving written notice of exercise to
the Committee or its designee; provided, however, that an option may not be
exercised for a fraction of a Share. No Holder of an option nor such Holder's
legal representatives, legatees, Transferees, distributees or Designation of
Beneficiary will be, or will be deemed to be, a Holder of any Shares covered by
such option unless and until the option shall have been exercised in accordance
with the Plan.
(b) Payment of Option Price. The option price for Shares with respect
to which an option is exercised shall be paid in full at the time such notice is
given. An option shall be deemed exercised on the date the Committee or its
designee receives written notice of exercise, together with full payment for the
Shares purchased. The option price shall be paid to the Company either in cash
or Shares (including Shares withheld from the Shares otherwise receivable by the
Option Holder upon the exercise of the option) having a Fair Market Value equal
to the option price (or a combination of
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<PAGE>
cash and Shares such that the sum of the Fair Market Value of the Shares plus
the cash equals the option price). The Committee shall have the authority,
subject to such conditions and procedures that it deems necessary and advisable,
to authorize the use of a cashless exercise procedure with a registered
broker/dealer.
(c) Payment in Cancellation of Option. The Committee shall have
the authority in its sole discretion to authorize the payment to an Option
Holder (with the consent of such Holder) in exchange for the cancellation of all
or a part of such Holder's Option (other than an option granted under Section 7
hereof), of cash in an amount per Share not to exceed the difference between the
aggregate Fair Market Value on the date of such cancellation of the Shares and
the aggregate option price of such Shares; provided, however, that if an
Acceleration has occurred, for purposes of this subparagraph, "Fair Market
Value" on the date of such cancellation shall be calculated in the same manner
as the "exercise value" of a Limited Right would be calculated under Section
9(c) with respect to such date (whether or not any Limited Rights are actually
outstanding).
(d) Tax Withholding. With the approval of the Committee, the
Grantee of a Nonqualified Option may elect to have the Company retain from the
Shares to be issued upon the exercise by the Grantee of such option Shares
having a Fair Market Value on the Tax Date equal to all or any part of the
federal, state and local withholding tax payments (whether mandatory or
permissive) to be made by the Grantee with respect to the exercise of the option
(up to a maximum amount determined by the Grantee's top marginal tax rate) in
lieu of making such payments in cash. The Committee may establish from time to
time rules or limitations with respect to the right of a Grantee to elect to
have the Company retain Shares in satisfaction of withholding payments;
provided, however, that, in any event, any such election made by a person
subject to Section 16(b) of the 1934 Act must be made in accordance with any
applicable rules established under such Section.
If a Grantee transfers a Nonqualified Option pursuant to Section 10,
the Grantee is required to satisfy the applicable withholding taxes by paying
cash or other property
12
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to the Company with respect to any income recognized by the Grantee on the
exercise of such option by the Transferee. The Grantee's withholding obligations
must be satisfied on the date that the Transferee exercises the option. If the
Grantee does not satisfy the applicable withholding tax obligation, the Company
shall retain from the Shares to be issued Shares having a Fair Market Value on
the Tax Date equal to the mandatory withholding tax payable by the Grantee.
In connection with the exercise of an option or Limited Right, the
Company has the right to require the Grantee to remit or otherwise make
available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for Shares (and prior to a cash payment in the
case of a Limited Right) or to take whatever action it deems necessary to
protect its interests with respect to tax liabilities in connection with the
issuance of Shares or cash payment.
Section 9. Limited Rights.
(a) Grant of Limited Rights. The Committee may grant Limited
Rights with respect to any option granted under the Plan (other than an option
granted under Section 7) either at the time the option is granted or at any time
thereafter prior to the exercise, cancellation, termination or expiration of
such option. The number of Limited Rights covered by any such grant shall not
exceed, but may be less than, the number of Shares covered by the related
option. The term of any Limited Right shall be the same as the term of the
option to which it relates. The right of a Holder to exercise a Limited Right
shall be cancelled if and to the extent a related option is exercised, and the
right of a Holder to exercise an option shall be cancelled if and to the extent
a related Limited Right is exercised.
(b) Events Permitting Exercise of Limited Rights. A Limited Right
shall be exercisable only if and to the extent that the related option is
exercisable; provided, however, that notwithstanding the foregoing, (x) a
Limited Right shall not be exercisable during the first six months of its term,
and (y) in the case of a Limited Right issued in connection with an
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Incentive Stock Option, such Limited Right shall not be exercisable unless the
Fair Market Value of a Share on the date of exercise exceeds the exercise price
of a Share subject to the related option. A Limited Right which is otherwise
exercisable may be exercised only during the following periods:
(i) during a period of 30 days following the date of expiration
of a Tender Offer (other than an offer by the Company) for Shares, if the
offeror acquires Shares pursuant to such Tender offer;
(ii) during a period of 30 days following the date of approval
by the shareholders of the Company of a definitive agreement: (x) for the merger
or consolidation of the Company into or with another corporation, if the Company
will not be the surviving corporation or will become a subsidiary of another
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) at least 80% of the
combined voting power of the voting securities of the Company or such surviving
or parent entity outstanding immediately after such merger or consolidation, or
(y) for the sale of all or substantially all of the assets of the Company (each
of the foregoing transactions is hereinafter referred to as an "Acquisition
Transaction");
(iii) during a period of 30 days following: (x) the date upon
which the Company is provided a copy of a Schedule 13D (filed pursuant to
Section 13(d) of the 1934 Act and the rules and regulations promulgated
thereunder) indicating that any person or group (as such terms are defined in
Section 13(d)(3) of the 1934 Act) has become the beneficial owner (as defined in
Rule 13d-3 of the 1934 Act) of 20% or more of the outstanding voting Shares of
the Company or (y) the date of authorization, by both a majority of the voting
power of the Company and a majority of the portion of such voting power
excluding the voting power of interested Shares, of a control Share acquisition
(as such term is defined in Chapter 1701 of the Ohio Revised Code) (each of the
foregoing transactions is hereinafter referred to as a "Change in Control"); and
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<PAGE>
(iv) during a period of 30 days following a change in the
composition of the Board of Directors such that individuals who were members of
the Board of Directors on the date two years prior to such change (or who were
elected, or were nominated for election, by the Company's shareholders with the
affirmative vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such two year period) no longer
constitute a majority of the Board of Directors (such a change in composition is
hereinafter referred to as a "Change in Composition of the Board").
(c) Exercise of Limited Rights. Upon exercise of a Limited Right,
the Holder thereof shall receive from the Company a cash payment equal to the
excess of: (x) the aggregate "exercise value" on the date of exercise
(determined as provided below) of that number of Shares as is equal to the
number of Limited Rights being exercised over (y) the aggregate exercise price
under the related option of that number of Shares as is equal to the number of
Limited Rights being exercised. A Holder shall exercise a Limited Right by
giving written notice of such exercise to the Committee. A Limited Right shall
be deemed exercised on the date the Committee receives such written notice.
The "exercise value" of a Limited Right on the date of exercise shall
be:
(i) in the case of an exercise during a period described in
Section 9(b)(i), the highest price per Share paid pursuant to any Tender Offer
which is in effect at any time during the 60-day period prior to the date on
which the Limited Right is exercised;
(ii) in the case of an exercise during a period described in
Section 9(b)(ii), the greater of: (x) the highest sale price of a Share during
the 30-day period prior to the date of shareholder approval of the Acquisition
Transaction, as reported on the New York Stock Exchange - Composite Transactions
Tape, or (y) the highest fixed or formula per Share price payable pursuant to
the Acquisition Transaction (if determinable on the date of exercise);
15
<PAGE>
(iii) in the case of an exercise during a period described in
Section 9(b)(iii), the greater of: (x) the highest sale price of a Share during
the 30-day period prior to the date the Company is provided with a copy of the
Schedule l3D, or the date of authorization of the control Share acquisition, as
reported on the New York Stock Exchange - Composite Transactions Tape, or (y)
the highest acquisition price of a Share shown on such schedule 13D or to be
paid in such control Share acquisition; and
(iv) in the case of an exercise during a period described in
Section 9(b)(iv), the highest sale price of a Share during the 30-day period
prior to the date of the change in Composition of the Board, as reported on the
New York Stock Exchange - Composite Transactions Tape. Notwithstanding the
foregoing, in no event shall the exercise value of a Limited Right issued in
connection with an Incentive Stock Option exceed the maximum permissible
exercise value for such a right for purposes of Section 422 of the Code and the
regulations and interpretations issued pursuant thereto. Any securities or
property which form part or all of the consideration paid for Shares pursuant to
a Tender Offer or Acquisition Transaction shall be valued at the higher of (l)
the valuation placed on such securities or property by the person making such
Tender Offer or the other party to such Acquisition Transaction, or (2) the
value placed on such securities or property by the Committee.
(d) Compliance with Law. The exercise of Limited Rights by
directors and officers of the Company shall be subject to, and comply with, the
applicable requirements of Rule 16b-3(e) under the 1934 Act (or any successor
provision), as the same may be amended, modified or superseded from time to
time.
Section 10. Transfers Upon Death; Nonassignability.
Except as provided in this Section 10, options granted under the Plan
may not be sold, pledged, assigned, hypothecated or transferred other than by
Designation of Beneficiary, or, if none, then by will or the laws of descent and
distribution and may be exercised during the lifetime of the Grantee only by
such Grantee or by his guardian or legal representative.
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<PAGE>
Upon the death of an Option Holder, outstanding Options held by such
Holder may be exercised only by Designation of Beneficiary, or, if none, then by
the executor or administrator of the Holder's estate or by a person who shall
have acquired the right to such exercise by will or by the laws of descent and
distribution.
Subject to such conditions as the Committee may prescribe, during an
option Grantee's lifetime, the Committee may permit the transfer or assignment
of an outstanding option by such Grantee; provided, that such transfer or
assignment shall not apply to (y) an option which is an Incentive Stock Option
(but only if nontransferability is necessary in order for the option to qualify
as an Incentive Stock Option) and (z) an option granted to a person subject to
Section 16 of the 1934 Act (but only if nontransferability is necessary in order
for the option to qualify for the exemption under Rule l6b-3 of the 1934 Act).
Section 11. Adjustments Upon Changes in Capitalization.
In the event of a change in outstanding Shares by reason of a Share
dividend, recapitalization, merger, consolidation, split-up, combination or
exchange of Shares, or the like, or in the event of any similar corporate
transaction which the Committee determines requires the adjustments described
herein, the maximum number of Shares subject to option during the existence of
the Plan, the number of Limited Rights which may be granted under the Plan, the
number of Shares subject to, and the option price of, each outstanding option,
the maximum number of Shares or Limited Rights which may be granted to any
individual over the term of the Plan, the number of Limited Rights outstanding,
the Fair Market Value of a Share on the date a Limited Right is granted, and the
like shall be appropriately adjusted by the Committee (disregarding any
fractional Shares resulting therefrom), whose determination in each case shall
be conclusive.
Section 12. Conditions Upon Granting and Exercise of Options and Limited Rights
and Issuance of Shares.
No option or Limited Right shall be granted, no option or Limited
Right shall be exercised and Shares shall not
17
<PAGE>
be issued or delivered upon the exercise of an option unless the grant
and exercise thereof, and the issuance and/or delivery of Shares pursuant
thereto, or the payment therefor, shall comply with all relevant provisions of
state and federal law, including, without limitation, the Securities Act of
1933, as amended, the 1934 Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
then may be listed.
Section 13. Amendment and Termination of Plan.
(a) Amendment. The Board of Directors may from time to time amend
the Plan, or any provision thereof, in such respects as the Board of Directors
may deem advisable; provided, however, that any such amendment shall be approved
by the holders of Shares by such vote and otherwise in compliance with
applicable federal or state law (including Rule 16b-3 (or any successor
provision) under the 1934 Act) or the requirements of any stock exchange upon
which the Shares may then be listed.
(b) Termination. The Board may at any time terminate the Plan.
(c) Effect of Amendment or Termination. No amendment to or
termination of the Plan shall adversely affect any option or Limited Right
previously granted under the Plan without the consent of the Holder thereof.
Section 14. Notices.
Each notice relating to this Plan shall be in writing and delivered in
person or by mail to the proper address. Except as otherwise provided by the
Committee, each notice shall be deemed to have been given on the date it is
delivered or mailed, provided, however, that for a notice of exercise given in
accordance with Section 8(b), which shall be deemed to have been given on the
date it is received by the Committee with payment of the option price. Each
notice to the Committee shall be addressed as follows: The Mead Corporation,
Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463,
Attention: Compensation Committee. Each notice to the Holder of an option or
other person or persons then
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<PAGE>
entitled to exercise an option shall be addressed to such person or persons at
The Holder's address as set forth in the records of the Company. Anyone to whom
a notice may be given under this Plan may designate a new address by written
notice to the party to that effect.
Section 15. Benefits of Plan.
This Plan shall insure to the benefit of and be binding upon each
successor and assign of the Company. All rights and obligations imposed upon
the Holder of an option and all rights granted to the Company under this Plan
shall be binding upon such Holder's heirs, legal representatives and successors.
Section 16. Pronouns and Plurals.
All pronouns shall be deemed to refer to the masculine, feminine,
singular or plural, as the identity of the person or persons may require.
Section 17. Shareholder Approval and Term of Plan.
The Plan shall become effective upon its approval by the affirmative
vote of the holders of a majority of the Shares entitled to vote thereon held by
shareholders present in person or by proxy at any shareholders' meeting at which
a quorum is present. The Plan shall expire on September 30, 2005, unless sooner
terminated in accordance with Section 13.
Section 18. Interpretation.
The Plan is designed and intended to comply with Rule 16b-3
promulgated under the 1934 Act and Section 162(m) of the Code and all provisions
hereof shall be construed in a manner to so comply.
---------------------------
NOTES:
(1) Adopted by the Board of Directors of the Company on October 28, 1995,
and approved by the Company's shareholders on April 25, 1996.
(2) Amendments to Sections 2, 6 (b) and (e), 8 (a) and (d), 10 and 14 to
allow for the designation of a beneficiary of the stock option grant.
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EXHIBIT 10.21
THE MEAD CORPORATION COMPOSITE
---------
RESTRICTED STOCK PLAN 11/09/96
---------------------
ARTICLE I. GENERAL PROVISIONS
- --------- ------------------
Section 1. Purpose. The purpose of The Mead Corporation Restricted Stock
Plan (the "Plan") is to provide certain compensation to eligible directors and
employees in the form of Common Shares ("Shares") of The Mead Corporation (the
"Company") which are restricted in accordance with the terms and conditions set
forth below and to encourage the continued high level of performance of such
directors and employees by increasing the identity of interests of such
directors and employees with the shareholders of the Company. The Plan is
intended to be an unfunded program established for the purpose of providing
compensation for eligible directors and a select group of management employees
and is exempt from Parts 1 through 4 of Title I of the Employee Retirement
Income Security Act of 1974, as amended.
Section 2. Definitions. For purposes of the Plan, the following terms shall
have the following meanings:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Change in Control" means the occurrence of any of the following: (i)
any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Act"), becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act) of more than 25% of the then
outstanding voting shares of the Company otherwise than through a transaction
arranged by, or consummated with the prior approval of, the Board of Directors,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors (and any new director
whose election by the Board of Directors or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof.
(c) "Committee" means the Compensation Committee of the Board of Directors.
<PAGE>
(d) "Company" means The Mead Corporation; however, when used with
reference to employment, "Company" also includes any corporation, partnership or
other person or entity at least 10% of the voting or equity interest of which is
owned or controlled, directly or indirectly, by the Company.
(e) "Eligible Director" means any director of the Company who is not also
an employee of the Company.
(f) "Eligible Employee" means any employee of the Company selected by the
Committee.
(g) "Grant Date" means the date on which Restricted Shares are to be
granted pursuant to Article II, Section 1.
(h) "Market Value" means the average of the highest sale price and the
lowest sale price of a Share on the date the value of a Share is to be
determined, as reported on the New York Stock Exchange - Composite Transactions
Tape (or other similar source) or, if no sale is reported for such date, then on
the next preceding date for which a sale is reported.
(i) "Participant" means any individual who holds Restricted Shares granted
under the Plan.
(j) "Restriction Period" means (i) in the case of Restricted Shares
granted pursuant to Article II. Section 1(a), (b) or Section 2, the period of
six months from the date the Restricted Shares are granted, (ii) in the case of
Restricted Shares granted pursuant to Article II. Section 1(c), the date the
grantee becomes age 55 or six months from the date the Restricted Shares are
granted, whichever is later, and (iii) in the case of Restricted Shares granted
pursuant to Article III, the period of six months or longer (as determined by
the Committee) from the date Restricted Shares are granted.
(k) "Restricted Shares" means any Shares issued or delivered pursuant to
the Plan which remain subject to the restrictions set forth in Article I,
Section 5 of the Plan.
(l) "Shares" means the Common Shares, without par value, of the Company.
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<PAGE>
Section 3. Administration.
--------- --------------
(a) The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee and the Board of Directors shall
each have authority to construe and interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
or the Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent it shall
deem expedient to carry it into effect. The determination of the Committee or
the Board of Directors on any matters within the scope of this section shall be
conclusive. A majority of the Committee shall constitute a quorum for meetings
of the Committee, and the act of a majority of the Committee at a meeting, or an
act reduced to or approved in writing by all members of the Committee, shall be
the act of the Committee.
In the case of Restricted Shares granted pursuant to Article III, the
Committee may in its discretion impose additional conditions or restrictions as
to the attainment of specified performance goals during the Restriction Period
for all or a portion of the shares or all or a portion of the years in the
Restriction Period.
(b) The Committee may waive or modify at any time any condition or
restriction (including, without limitation, any of the restrictions set forth in
Article I, Section 5) with respect to any Restricted Shares issued pursuant to
Article III.
Section 4. Shares Subject to the Plan. Subject to adjustment as provided in
Section 1 of Article IV, the maximum number of Shares which may be granted as
Restricted Shares under the Plan is 500,000; the maximum number of Shares which
may be granted as Restricted Shares to any individual pursuant to Section 2 of
Article II is 20,000; and, the maximum number of Shares which may be granted as
Restricted Shares to any eligible employee pursuant to Article III is 150,000.
Shares granted as Restricted Shares under the Plan may be authorized and
unissued Shares or Shares held in the Company's treasury. Any Shares which are
granted as Restricted Shares under the Plan and which are thereafter forfeited
by the participant may again be granted under the Plan as Restricted Shares.
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<PAGE>
Section 5. Terms and Conditions of Restricted Shares.
--------- -----------------------------------------
(a) Subject to the provisions of paragraph (b) of this Section 5,
Restricted Shares issued pursuant to the Plan shall be subject to the following
restrictions:
(i) the Participant shall not be entitled to receive delivery of the
certificate for such Restricted Shares until the expiration of the Restriction
Period;
(ii) such Restricted Shares shall not be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of during the Restriction Period;
and
(iii) all such Restricted Shares shall be forfeited and all right of the
Participant to such Restricted Shares shall terminate without further
obligations on the part of the Company if the Participant ceases to be a
director of the Company (in the case of a Participant who received Restricted
Shares as an Eligible Director) or an employee of the Company (in the case of a
Participant who received Restricted Shares as an Eligible Employee) prior to the
end of the Restriction Period.
Upon the forfeiture of Restricted Shares, such Shares shall be returned to
the status of authorized and unissued Shares or treasury Shares, as determined
by the Committee.
(b) Notwithstanding the provisions of paragraph (a) of this Section 5, in
the event a Participant ceases to be a director of the Company (in the case of a
Participant who received Restricted Shares as an Eligible Director) or an
employee of the Company (in the case of a Participant who received Restricted
Shares as an Eligible Employee) prior to the end of a Restriction Period as a
result of such Participant's death, disability or normal retirement in
accordance with the Company's policies, then the restrictions set forth in
paragraph (a) of this Section 5 shall immediately cease to apply to (and all
rights of the Participant shall immediately vest with respect to) all of the
Restricted Shares.
In any event, all such Restricted Shares shall be forfeited and all rights
of the Participant to such Restricted Shares shall terminate without further
obligations on the part of the Company if the Participant, directly or
indirectly, individually or as an
4
<PAGE>
agent, officer, director, employee, shareholder (excluding being the holder of
any stock which represents less than 1% interest in a corporation), partner or
in any other capacity whatsoever engages prior to the time such restrictions
cease to apply in any activity competitive with or adverse to the Company's
business or in the sale, distribution, production or attempted sale or
distribution of any goods, products or services then sold or being developed by
the Company.
(c) Upon the occurrence of a Change in Control, all of the restrictions set
forth in this Section 5 shall immediately cease to apply to all Restricted
Shares issued pursuant to the Plan, except to the extent that the lapse of such
restrictions would, in the opinion of counsel selected by the Company's
independent auditors, constitute "parachute payments" within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code (the "Code") and, when added
to any other "parachute payments" which would be received by the Participant
pursuant to the terms of any other plan, arrangement or agreement with the
Company, any person whose actions result in a change in control of the Company
or any person affiliated with the Company or such person, would be subject to
the tax imposed by Section 4999 of the Code.
(d) At the end of the Restriction Period, or at such earlier time as it is
provided for in Paragraphs (b) or (c) of this Section 5, the restrictions
applicable to the Restricted Shares pursuant to this Section 5 shall cease and a
share certificate for the number of Restricted Shares with respect to which the
restrictions have ceased shall be delivered, free of all such restrictions and
all restrictive legends, to the Participant or the Participant's beneficiary or
estate, as the case may be.
(e) If required by the Committee, each grant of Restricted Shares shall be
evidenced by a written agreement between the Company and the Participant.
(f) In the event that the restrictions set forth in Paragraph (a) of this
Section 5 shall cease to apply to any Restricted Shares granted to Eligible
Employees subject to Section 16 of the Act prior to the date which is six months
after the date of grant of such Restricted Shares, then, notwithstanding any
provision to the contrary in this Section 5, the restrictions set forth in
paragraphs (a)(i) and (a)(ii) of
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this Section 5 shall continue in effect until the date which is six months after
the date of such grant.
(g) Notwithstanding any provision to the contrary in this Section 5, but
subject nonetheless to Paragraph (c) of this Section 5, in the case of
Restricted Shares granted pursuant to Article III, if the Participant fails to
attain specified performance goals set forth with respect to such Restricted
Shares during the Restriction Period, the Participant will forfeit such
Restricted Shares to the extent specified in the grant of such Restricted Shares
and the right of the Participant to such Restricted Shares shall terminate to
the extent specified in the grant of such Restricted Shares without any further
obligations on the part of the Company.
Section 6. Rights as a Shareholder.
(a) Upon the grant of Restricted Shares pursuant to Article II or Article
III of the plan, the company shall issue a share registered in the name of the
Participant bearing the following legend and any other legend required by any
federal or state securities laws:
"the transferability of this certificate and the Common Shares represented
hereby are subject to the restrictions, terms and conditions (including
forfeiture and restrictions against sale, assignment, transfer, pledge,
hypothecation and other disposition) set forth in The Mead Corporation
Restricted Stock Plan. Copies of such Plan will be mailed to any shareholder
without charge within five days after receipt of written request therefor
address to Secretary, The Mead Corporation, Mead World Headquarters, Courthouse
Plaza Northeast, Dayton, OH 45463."
Each such share shall be retained by the Company until the restrictions set
forth in Article I, Section 5(a) cease to apply to the Shares.
(b) Upon the issuance of Restricted Shares pursuant to paragraph (a) of
this Section 6, the Participant shall, subject to all of the terms, conditions
and restrictions set forth in the Plan, have all of the rights of a holder of
Shares, including the right to vote and to receive dividends and other
distributions with respect thereto.
6
<PAGE>
ARTICLE II. RESTRICTED SHARES FOR ELIGIBLE DIRECTORS
Section 1. Grant of Restricted Shares to Eligible Directors.
(a) On the third business day of January, 1998 and on each annual
anniversary of such date during the term of the Plan, (each such date is
hereinafter referred to as a "Grant Date"), the Company shall grant a number of
Restricted Shares to each then Eligible Director determined by dividing $7,500
by the Market Value of a Share on the Grant Date (rounded to the nearest whole
shares).
(b) If during the term of the Plan any person becomes an Eligible Director
on a date other than a Grant Date, the Company shall grant such person a number
of Restricted Shares determined by dividing $7,500 by the Market Value of a
Share (rounded to the nearest whole share) on the date of such person's election
to the Board Of Directors.
(c) Each Eligible Director shall automatically receive a grant of a number
of Restricted Shares of the Company equal to the quotient obtained by dividing
(i) 5,000, by (ii) the Market Value per Share on the date the Plan, as amended,
is approved by the Shareholders (the "Initial Grant"). Thereafter, on the third
Business day of January, 1997 and on each annual anniversary of such date during
the term of the Plan, the company shall grant and each Eligible Director shall
automatically reeceive a number of Restricted Shares which shall equal the
product obtained by multiplying the Initial Grant by an adjustment factor (the
"Factor"). The Factor shall equal the quotient obtained by dividing (y) the base
line number for average total compensation paid to directors by companies with
annual sales in excess of $4 billion, as published in the Hay Consulting Group's
"Directors Compensation Report" (or comparable successor report) in the calendar
year immediately preceding the year in which such grant is made, which report
covers compensation paid in the year ending immediately prior to the year of
publication, by (z) 36,246. In the event that such Directors Compensation Report
(or comparable successor report) is not published with respect to any year, the
Factor shall equal one (1).
7
<PAGE>
Section 2. Election to Receive Compensation as Restricted Shares.
(a) Not later than June 1 of each year during the term of the Plan, the
Committee shall cause each Eligible Director to be furnished with an appropriate
form which enables the director to elect to receive payment in Restricted Shares
of a minimum of 20% up to a maximum of 100% (in increments of 10%) of the annual
retainer fee to be earned by such director for service on the Board of Directors
during the following calendar year which is paid on or after the first day of
such calendar year. In order to be effective, the election form must be signed
by the director and must be returned to the Committee or its delegate not later
than July 1 of the year prior to the year with respect to which the election is
being made. All such elections are irrevocable.
(b) A new Eligible Director may, by filing the prescribed election form,
elect to receive the annual retainer fee as Restricted Shares as provided in
paragraph (a) of this Section 2 only if the election form is signed and filed at
least six months prior to the date of payment of the annual retainer fee to such
director.
(c) If an Eligible Director has elected to receive all or a portion of the
annual retainer fee as Restricted Shares as provided in this Section 2, then on
the date such fee would otherwise be payable, the Company shall grant to such
director a number of Restricted Shares determined by dividing the compensation
so to be received by the Market Value of a Share on such date such other
compensation would otherwise be payable (rounded to the nearest whole share).
ARTICLE III. RESTRICTED SHARES FOR ELIGIBLE EMPLOYEES
Section 1. Grant of Restricted Shares to Eligible Employees. From time to
time during the term of the Plan, the Committee may determine that Restricted
Shares shall be granted to Eligible Employees either as payment for all or a
portion of the compensation to be paid to any Eligible Employee pursuant to the
Company's incentive compensation plans, or for any other reason consistent with
the purposes of the Plan. Restricted Shares to be granted as payment for all or
a portion of incentive compensation shall be granted on the date the
compensation is
8
<PAGE>
awarded, and the number of Restricted Shares so granted shall be determined by
dividing the amount of such compensation by the Market Value of a share on the
date the compensation is awarded (rounded to the nearest whole share).
ARTICLE IV. MISCELLANEOUS
Section 1. Adjustments Upon Changes in Capitalization.
Upon any change in the outstanding Shares by virtue of a share dividend or
split, recapitalization, merger, consolidation, combination or exchange of
shares or other similar change, the number of Restricted Shares which may be
granted under the Plan (or the class of shares which may be granted as
Restricted Shares) shall be adjusted appropriately by the Committee, whose
determination with respect to such adjustment shall be conclusive. Unless the
Committee shall otherwise determine, any securities and other property received
by a Participant in connection with or as a result of any such change with
respect to Restricted Shares (excluding dividends paid in cash) shall be subject
to the restrictions then applicable to Restricted Shares under the Plan
(including forfeiture), and shall be deposited promptly with the Company to be
held in custody until the restrictions cease to apply to the Restricted Shares
to which such securities or other property relates.
Notwithstanding the foregoing, however, in the event any rights to purchase
Shares are issued pursuant to the Company's Shareholder Rights Plan (or any
successor plan) with respect to Restricted Shares, such rights shall cease to be
subject to the restrictions applicable to the underlying Restricted Shares at
such time, if any, as such rights become exercisable.
Section 2. Compliance with Laws. The issuance or delivery of Shares
pursuant to the Plan shall be subject to, and shall comply with, any applicable
requirements of federal and state securities laws, rules and regulations
(including, without limitation, the provisions of the Securities Act of 1933,
the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder), any securities exchange upon which the Shares may be listed and any
other law or regulation applicable thereto, and the Company shall not be
obligated to issue or deliver any Shares pursuant to the Plan if such issuance
or delivery would violate any such requirements. The foregoing
9
<PAGE>
shall not, however, be deemed to require the Company to effect any registration
of shares under any such law or regulation.
Section 3. Amendment and Termination.
(a) The Board of Directors may from time to time amend the Plan, or any
provision thereof, in such respects as the Board of Directors may deem
advisable; provided, however, that any such amendment must be approved by the
holders of Shares entitling them to exercise a majority of the voting power of
the Company if such amendment would:
(i) materially increase the benefits accruing to participants under the
Plan;
(ii) materially increase the aggregate number of Shares which may be issued
and/or delivered or the number of Shares which may be granted to any individual
under the Plan;
(iii) materially modify the requirements as to eligibility for
participation in the Plan.
(b) The Plan shall terminate and no additional Restricted Shares shall be
granted under the Plan after September 30, 2005; provided, however, that the
Board of Directors may earlier terminate the Plan at any time.
(c) No amendment to or termination or expiration of the Plan shall
adversely affect any Restricted Shares previously granted under the Plan without
the consent of the holder thereof.
(d) Notwithstanding paragraph (a) of this Section 3, the provisions of
Section 1 of Article II may not be amended more than once every six months other
than to comport with changes in the Code, ERISA or the rules thereunder.
Section 4. Notices. Each notice relating to the Plan shall be in writing
and delivered in person or by mail to the proper address. Each notice shall be
deemed to have been given on the date it is delivered or mailed except that an
election to receive compensation as Restricted Shares pursuant to Article II,
Section 2 shall be deemed to have been given on the date it is received by the
Committee. Each notice to the committee shall be addressed as follows: The
Mead Corporation, Mead World
10
<PAGE>
Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463, Attention:
Secretary. Each notice to a Participant shall be addressed to the Participant's
address as set forth in the records of the Company. Anyone to whom a notice may
be given under this Plan may designate a new address by written notice to the
Company or to the Participants, as the case may be.
Section 5. Benefits Of Plan. The Plan shall inure to the benefit of, and
shall be binding upon, each successor and assign of the Company. All rights and
obligations imposed upon a Participant and all rights granted to the Company
under this Plan shall be binding upon such Participant's heirs, legal
representatives and successors. Nothing in the Plan shall be deemed to create
any obligation on the part of the Company to nominate any director for re-
election or to continue the employment of any employee.
Section 6. Taxes.
(A) The Company shall have the right to require, prior to the issuance or
delivery of any Restricted Shares, payment by the Participant of any taxes
required by law with respect to the issuance or delivery of such Restricted
Shares.
(B) On any date on or after January 1, 1994 that restrictions applicable to
Restricted Shares granted (or to be granted) hereunder shall have ceased
pursuant to Article I, Section 5 (the "Lapse Date"), and with respect to persons
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"1934 Act") on any date thereafter through the end of the next following period
(the "Window Period") specified in Rule 16b-3(e)(3) (or any successor rule)
under the 1934 Act, the Participant to whom such Restricted Shares were granted
may elect to have the Company retain, from the Restricted Shares to be delivered
at the end of the Restriction Period, Shares having a Market Value on the date
of delivery equal to all or any part of the federal, state and local withholding
tax payments (whether mandatory or permissive) to be made by the Participant
with respect to ceasing of the restrictions (up to the maximum amount determined
by the Participant's top marginal tax rate) in lieu of making such payments in
cash; provided that such election may also be made in advance of the Lapse Date
and will be effective on the date specified in the notice of election (subject,
as applicable, to Section 16 of the 1934 Act), and further provided
11
<PAGE>
that, with respect to a Lapse Date that has occurred or will occur between
January 1, 1994 and October 28, 1994, the election may be made by persons
subject to and in accordance with Section 16 of the 1934 Act through the end of
the first Window Period which commences on, includes or follows October 28,
1994. The Committee may establish from time to time rules or limitations with
respect to the right of a Participant to elect to have the Company retain
Restricted Shares in satisfaction of withholding payments; provided, however,
that, in any event, any such rules or limitations must be in accordance with
Section 16 of the 1934 Act and any applicable rules established under such
Section.
Section 7. Governing Law. All grants of Restricted Shares shall be made
and accepted in the State of Ohio. The laws of the State of Ohio shall control
the interpretation and performance of the provisions of the Plan.
Section 8. Effective Date of the Plan. The effective date of the Plan
shall be December 10, 1987; provided, however, that if the Plan is not approved
at the 1988 Annual Meeting of Shareholders by the holders of at least a majority
of the outstanding voting power of the Company, the Plan shall immediately
terminate. No dividends shall be paid prior to the 1988 Annual Meeting of
Shareholders with respect to any Restricted Shares granted prior to such
meeting. If the Plan is not approved at such meeting, all Restricted Shares
granted prior thereto shall be retained by the Company, and the Company shall
pay to the Participant in whose name such Restricted Shares were registered an
amount equal to the Market Value on the date of grant of a number of Shares
equal to such number of Restricted Shares.
---------------------------
NOTES:
(1) Adopted by the Board of Directors of the Company on December 11, 1987.
(2) Approved by the shareholders of the Company on April 28, 1988.
12
<PAGE>
(3) Addition of Article II, Section 2, subsection (d) adopted by the Board
of Directors of the Company on December 15, 1989 (deleted February 28, 1991).
(4) Amendment to Article I, Section 2, subsection (h) adopted by the Board
of Directors of the Company on January 25, 1990.
(5) Amendments to Article I, Section 2, subsections (d) and (j); Article I,
Section 3, subsection (a); and Article III, Section 1; and addition of Article
2, Section 5, subsection (g), adopted by the Board of Directors of the Company
on January 24, 1991, and approved by the shareholders of the Company on April
25, 1991.
(6) Amendments to Article II, Section 2, subsections (a) and (b); and
addition of Article I, Section 5, subsection (f) and Article IV, Section 3,
subsection (d) adopted by the Board of Directors of the Company on February 28,
1991.
(7) Amendments to Article I, Section 5, subsection (b); and addition of
Article I, Section 5, subsection (b)(iii), adopted by the Board of Directors of
the Company on July 23, 1992.
(8) Amendment to Article IV, Section 6, subsection (b) adopted by the Board
of Directors of the Company on April 28, 1994.
(9) Amendments to Article I, Section 2(j), Section 4, Section 5(b)(i),
Section 6, Article II, Section 1(c), Article IV, Section 3(b) adopted by the
Board of Directors of the Company on October 28, 1995, and approved by the
shareholders of the Company on April 25, 1996.
(10) Amendments to Article I, Section 2(j) and 5(b); Article II, Section
1(a) and (b) adopted by the Board of Directors of the Company on November 09,
1996.
13
<PAGE>
EXHIBIT (11.1)
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CALCULATION OF PRIMARY NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(All amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET EARNINGS APPLICABLE TO COMMON AND COMMON
EQUIVALENT SHARES $195,344 $349,972 $695,725
ADJUSTMENT FOR OTHER POTENTIALLY DILUTIVE
SECURITIES - Interest Savings (net of tax) on
Convertible Subordinated Debentures as if converted
at the beginning of the period 5,661
-------- -------- --------
NET EARNINGS APPLICABLE TO COMMON AND COMMON
EQUIVALENT SHARES $195,344 $349,972 $701,386
======== ======== ========
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Average number of common shares outstanding 52,421 54,380 59,333
Dilutive effect of stock options after
application of treasury stock method 748 913 621
Adjustment of other potentially dilutive
securities - Dilutive effect of Convertible
Subordinated Debentures as if converted at the
beginning of the year 2,601
-------- -------- --------
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 53,169 55,293 62,555
======== ======== ========
PRIMARY NET EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE $3.67 $6.33 $ 11.21
======== ======== ========
</TABLE>
65
<PAGE>
EXHIBIT (11.2)
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CALCULATION OF FULLY DILUTED NET EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE (1)
(All amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET EARNINGS APPLICABLE TO COMMON AND COMMON
EQUIVALENT SHARES $195,344 $349,972 $701,386
======== ======== ========
AVERAGE NUMBER OF SHARES OUTSTANDING ON A
FULLY DILUTED BASIS:
Shares used in calculating primary earnings
per share 53,169 55,293 62,555
Additional dilutive effect of stock options after
application of treasury stock method 173 8 172
-------- -------- --------
AVERAGE NUMBER OF SHARES OUTSTANDING ON A
FULLY DILUTED BASIS 53,342 55,301 62,727
======== ======== ========
FULLY DILUTED NET EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE $ 3.66 $ 6.33 $ 11.18
======== ======== ========
</TABLE>
(1) This calculation is submitted in accordance with 17 CFR 229.601(b)(11)
although not required by APB Opinion No. 15 because it results in dilution of
less than 3%.
66
<PAGE>
EXHIBIT (12)
THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(All dollar amounts in millions)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
The Mead Corporation earnings
from continuing operations
before income taxes $294.6 $487.7 $ 52.4 $135.0 $ 15.8
Mead's share of earnings of
investees before income taxes 8.2 63.4 95.7 30.3 9.4
Interest and debt expense 73.3 86.0 113.4 107.5 116.0
Amortization of capitalized interest:
The Mead Corporation 4.8 4.5 4.6 6.5 4.9
Mead's share of investees .7 .7 1.3 1.4 1.5
Portion of rental payments deemed
to be interest 18.6 16.9 18.0 16.5 17.3
------ ------ ------ ------ ------
$400.2 $659.2 $285.4 $297.2 $164.9
====== ====== ====== ====== ======
Combined fixed charges:
Interest and debt expense:
The Mead Corporation $ 57.7 $ 69.4 $101.1 $ 94.6 $ 99.5
Mead's share of investees 15.6 16.6 12.3 12.9 16.5
------ ------ ------ ------ ------
73.3 86.0 113.4 107.5 116.0
------ ------ ------ ------ ------
Capitalized interest-
The Mead Corporation 6.9 2.0 5.7 2.6 2.3
------ ------ ------ ------ ------
Portion of rental payments deemed
to be interest:
The Mead Corporation 18.2 16.4 17.6 16.2 17.3
Mead's share of investees .4 .5 .4 .3
------ ------ ------ ------ ------
18.6 16.9 18.0 16.5 17.3
------ ------ ------ ------ ------
$ 98.8 $104.9 $137.1 $126.6 $135.6
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 4.1 6.3 2.1 2.3 1.2
====== ====== ====== ====== ======
</TABLE>
67
<PAGE>
Exhibit (21)
SUBSIDIARIES OF THE MEAD CORPORATION*
State of Jurisdiction
Name of Incorporation
---- ---------------------
Escanaba Paper Company Michigan
Forest Kraft Company Delaware
M-B Pulp Company Delaware
MCB Woodlands and Services, Inc. Alabama
Mead Coated Board, Inc. Delaware
Mead Foreign Holdings, Inc. Ohio
Mead Holdings B.V. Netherlands
Mead Holdings S.A. France
Mead Packaging International, Inc. Ohio
Mead Packboard B.V. Netherlands
Mead Panelboard, Inc. Ohio
--------------
* The names of additional subsidiaries have been omitted because the
unnamed subsidiaries, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
Subsidiaries which are consolidated into the above-listed subsidiaries
are also omitted.
68
<PAGE>
EXHIBIT (23)
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in (i) the Form S-8 Registration
Statement (No. 33-59007) pertaining to The Mead Corporation Employees Stock
Purchase Plan, (ii) the Post-Effective Amendment No. 2 to Form S-8 Registration
Statement (No. 2-90746) pertaining to the 1984 Stock Option Plan, (iii) the Form
S-8 Registration Statements (Nos. 33-37961 and 33-47580) pertaining to the Mead
Salaried Savings Plan, (iv) the Form S-3 Registration Statements (Nos. 33-14759
and 33-34009) pertaining to Common Shares of Selling Shareholders, (v) the Form
S-3 Registration Statements (Nos. 33-43994, 33-51337 and 333-16135) pertaining
to $850,000,000 aggregate principal amount of Debt Securities, (vi) the Form S-8
Registration Statement (No. 33-40118) pertaining to the 1991 Stock Option Plan,
(vii) the Form S-8 Registration Statement (No. 33-03047) pertaining to the 1996
Stock Option Plan, (viii) the Form S-3 Registration Statement (No. 333-16221)
pertaining to transferred stock options, and (ix) the Form S-8 Registration
Statement (No. 33-53421) pertaining to the Mead Savings Plan for Bargaining Unit
Employees, and Prospectus pertaining to Common Shares of Selling Shareholders,
included in such Registration Statement, of our report dated January 23, 1997,
appearing in the Annual Report on Form 10-K of The Mead Corporation for the year
ended December 31, 1996.
DELOITTE & TOUCHE LLP
Dayton, Ohio
March , 1997
69
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the annual report on Form 10-K of The Mead Corporation for the year ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 578
<ALLOWANCES> 28
<INVENTORY> 509
<CURRENT-ASSETS> 1,189
<PP&E> 5,199
<DEPRECIATION> 2,078
<TOTAL-ASSETS> 4,986
<CURRENT-LIABILITIES> 758
<BONDS> 1,240
<COMMON> 156
0
0
<OTHER-SE> 2,091
<TOTAL-LIABILITY-AND-EQUITY> 4,986
<SALES> 0
<TOTAL-REVENUES> 4,707
<CGS> 0
<TOTAL-COSTS> 3,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 295
<INCOME-TAX> 109
<INCOME-CONTINUING> 190
<DISCONTINUED> 5
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195
<EPS-PRIMARY> 3.67
<EPS-DILUTED> 0.00
</TABLE>
