UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Year Ended December 31, 1997 Commission file number 0-14825
SEALRIGHT CO., INC.
(Exact name of registrant as specified in its charter)
9201 Packaging Drive
DeSoto, Kansas 66018
Telephone number (913) 583-3025
Incorporated in the State of Delaware
16-0876812
(IRS Employer Identification No.)
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common stock, $.10 par value
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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, [X]
As of February 27, 1998 there were 11,078,232 shares of Common
Stock, $.10 par value, outstanding. On February 27, 1998, the
aggregate market value of such shares held by non-affiliates of the
Registrant was approximately $69.0 million.
Part III of this filing includes information required by items
401, 402, 403 and 404 of Regulation S-K.
<PAGE>
PART I
Item 1. Business.
Sealright Co., Inc., the Registrant, together with its
subsidiaries, is referred to herein as the "Company". The Company was
organized in 1964 as a Delaware corporation. The Company manufactures
packaging and labeling systems primarily for the food and beverage
industries. The Company operates in the packaging industry.
At December 31, 1997, the Company operated five domestic
manufacturing facilities located in Fulton, New York, DeSoto, Kansas,
Los Angeles, California, Akron, Ohio, and San Leandro, California.
Additionally, the Company operated one manufacturing facility in
Brisbane, Queensland, Australia.
A majority of the Company's revenues are derived from the sale of
rigid paperboard containers, primarily for the retail and wholesale
packaged frozen dairy dessert industry. The containers vary in style,
size and composition and are marketed under the following trade names:
Bulkan, Convocan, Nestyle, Ultrakan, Quikspread, Vektor and
Maximizer. The Company manufactures rigid paperboard packaging at
its two strategically located facilities in Fulton, New York and Los
Angeles, California.
The Bulkan container is a spirally wound container used in bulk
service applications such as food service, restaurants, and frozen
dessert stores. The Convocan container is a smaller retail-size
package that is cylindrically shaped and constructed from a one piece
sidewall rather than a spiral construction. The Convocan is used
primarily to package frozen dairy desserts. The Ultrakan container is
a cylindrical container formed from a one piece sidewall that is
tailored to both the product and market in which it is to be used.
The Quikspread container is a derivation of the Ultrakan container but
it is modified to dispense portion-controlled sauces for the fast food
industry. The Vektor container is similar to the Ultrakan container
in that its structural properties are custom tailored to the product
but its shape is not limited to a cylinder. Both the Ultrakan,
Quikspread and Vektor packages are used in a variety of food and non-food
applications. The Bulkan, Convocan, Ultrakan, and Vektor packages are
partially manufactured at the customers' facility with equipment
manufactured by the Company and leased to the customer.
Nestyle containers are tapered round packages available in a
variety of sizes for the retail market. These containers are used for
frozen dairy dessert, carryout foods, and non-food applications.
Generally, Nestyle containers are assembled at the Company's facility
and shipped nested to the customer for filling and sealing.
During 1997, the Company developed and introduced a new rigid
paperboard product called the MaximizerJ package. The Maximizer
container is similar to the Nestyle container in that it has a larger
diameter on the top than the bottom. The Maximizer container is
formed in the customer's facility on equipment leased from the
Company, similar to the Convocan and Ultrakan packages. The Company
provides the customer formed covers, printed sidewalls, and bottom
discs.
To complement its rigid paperboard packaging product lines and to
implement its system sale strategy, the Company manufactures forming
and filling equipment that it leases to its rigid packaging customers
for use in their own facilities. This approach provides customers
with manufacturing control, convenience, flexibility and speed. The
Company has a service staff that is geographically located to install
and repair equipment in the field. The Company designs and
manufactures its leased forming and filling equipment at its DeSoto,
Kansas, facility.
The Company manufactures roll-fed labeling for carbonated
beverages, liquid packaging for single-serve condiments and frozen
liquid novelty products, aseptic lidding for single-serve pudding,
gelatin, and fruit puree packages, dry food packaging for dried fruit,
nutritional products and tea, and sleeve labels for the milk industry.
The Company manufactures these flexible products at its Akron, Ohio,
and San Leandro, California, facilities. The Akron facility
manufactures, among other products, roll-fed labels, liquid condiment
packaging and sleeve labels. The San Leandro facility produces
primarily dried fruit packaging, frozen liquid novelty products and
aseptic lidding for single-serve, shelf-stable products and dried
fruit packaging. The San Leandro facility also manufactures film
structures used in many of its flexible packaging products as well as
blown film products used in the construction industry. The Company
sells flexible features using the Pinch-N-Seal and Jotto trade
names.
The Company manufactures and sells a broad line of equipment to
apply sleeve labels to a variety of containers. These machines are
marketed both domestically and internationally and are sold under the
Styrotech trade name. The Company designs and manufactures these
machines at its DeSoto, Kansas, facility.
Historically, the Company's operations were managed on a plant-by-plant
profit center basis and organized into two distinct product groups:
rigid and flexible packaging. In December 1995, the Company
embarked on a restructuring and reorganization plan (the
"Restructuring Plan") to strengthen management and align operations
into a market-driven strategy. Since December, 1995, the Company has
organized its products into the following categories: frozen dairy
dessert packaging, container decoration for the beverage and dairy
markets, dispensed sauce packaging for the food service markets, and
food packaging. The Company also manufactures machinery that it
leases and sells to complement its packaging systems strategy in
various markets.
As part of the Restructuring Plan, the Company has sought to
reduce fixed overhead costs through facility consolidations and has
eliminated many duplicative processes by centralizing various service
and support functions. In early 1996, the Company ceased the rigid
paperboard packaging operations at its DeSoto, Kansas, facility and
consolidated such operations into the Fulton, New York and Los
Angeles, California, facilities. During the second quarter of 1996,
the Company relocated its machinery manufacturing and research and
development operations from other Kansas City area facilities to the
DeSoto facility, followed by the relocation of the corporate
headquarters from Overland Park, Kansas, to the DeSoto facility in the
third quarter of 1996.
During the first quarter of 1997, the Company completed the
consolidation of the Raleigh, North Carolina, machine manufacturing
operations into the DeSoto facility. The Company continues to use the
Raleigh facility as a sales and service center. By mid-year, the
Company completed the consolidation of its Charlotte, North Carolina,
flexible packaging operations into the Akron, Ohio, facility. The
Company sold the Kansas City, Missouri, Charlotte, and Kansas City,
Kansas, facilities during 1997.
On March 3, 1997, the Company sold its rigid plastic packaging
operation, which was incurring substantial losses. The operation was
sold for $9.0 million. The operation manufactured containers for
cultured dairy products, marketed under the Plastyle trade name, for
sale primarily in the western United States. The Company sold its
rigid plastic packaging operation since it no longer fit the Company's
long-range strategic plans. At December 31, 1997, the Company owned
the facility that formerly housed its plastic packaging operation and
it is leased to the buyer of the plastics manufacturing operation.
The facility was sold to the lessee on March 3, 1998.
Sale of Company
On March 2, 1998, the Company entered into a definitive agreement
for a cash merger with Huhtamaki, Oy, a worldwide food and packaging
company based in Finland. Simultaneous with the merger, the Company
will distribute, as a partial redemption of outstanding Company stock,
its flexible-packaging business to existing stockholders, forming a
new public company. Shareholders will receive $11.00 per share in
cash and one-half share of stock in the new corporation in exchange
for each share of the Company. Both the merger and the partial
redemption will be a taxable transaction. Subject to certain
regulatory and shareholder approvals, these transactions are expected
to close in the third quarter.
Sources of Raw Materials
The Company purchases paperboard, film, resins, steel, ink,
adhesives, cartons, outside printing and supplies from numerous
vendors, some of whom supply substantial amounts. While multiple
sources of these materials are available, the Company prefers to
develop strategic alliances with selective vendors in order to obtain
the best quality, service and price. The Company has experienced
little or no difficulty in obtaining adequate supplies of raw
materials.
Trademarks and Patents
The Company's products are manufactured using machinery and
processes covered by patents owned or controlled by the Company. The
Company has domestic and foreign registered trademarks which are used
in connection with both product names and distinctive designs.
However, the Company views its business as one which is not primarily
dependent on patent or trademark protection.
On a non-exclusive basis the Company licenses others,
domestically and in foreign countries, to produce paperboard
components, assemble containers, sublease its machinery and use its
trademarks in the production of containers. Revenues from these
licensing activities have been negligible.
<PAGE>
Seasonal Operations
The Company's business is somewhat seasonal due to the nature of
the frozen dessert and beverage markets. Generally, approximately 55%
of the Company's sales and 70% of the Company's profits occur during
the second and third quarters. However, due to various restructuring-related
impacts on the business, 1997 and 1996 profits have varied from this
normal seasonal pattern.
Customers
The Company has one customer, Dreyer's Grand Ice Cream, which
constituted approximately 15% of the Company's revenue for 1997. The
Company endeavors to provide this and all customers with superior
customer service, high quality products, value-added innovation, and
competitive prices. While not anticipated, the loss of this account
would have a material adverse impact on the Company.
Sales and Backlog
The Company does not have an accurate methodology to track
backlog, and does not believe recorded sales backlog is a significant
factor in its business. Customers generally place annual orders in
quantities covering demand for one to three months with shipments
scheduled during that period. A substantial portion of the Company's
sales are made under extended-term sales contracts that are subject to
periodic adjustments for raw material and other cost increases.
Competition
The Company's business is highly competitive and subject to
intense pricing pressures. There are numerous producers of packaging
materials supplying the frozen dessert other packaged food markets.
Many of these competitors are larger than the Company and have greater
financial resources.
In order to strengthen its competitive position, the Company
embarked on the Restructuring Plan in December 1995 (See Business -General).
While it is expected that the Restructuring Plan will reduce costs and
increase its competitive advantage, there is no assurance that the
Company's revenues or profits will increase.
While industry statistics are not available, the Company believes
it is the largest manufacturer of containers for the frozen dessert
market nationally. The Company's market penetration varies from
region to region and by type of container. The Company believes it
has a major competitive position in the bulk frozen dessert container
market, although this market is also very competitive.
In the half gallon, quart and pint frozen dessert market, the
Company's round containers compete with round containers manufactured
principally by Sweetheart Cup Company and Tetra Pak. The Company's
round containers also compete with the more traditional square
packages, which are manufactured by Fort James Corporation and other
companies. As a general matter, the Company's frozen dessert
containers are more expensive than square packages. Accordingly, the
Company's containers are primarily sold to producers of premium frozen
dessert to whom container quality, product image and customer service
are more important considerations than price.
In non-dairy markets, the Company competes with numerous
companies which manufacture a variety of containers using many
different materials and forms of construction. The Company targets
its marketing of the Ultrakan and Vektor containers to customers that
emphasize product image. Depending on the market, price may also be
an important competitive factor. The Company does not have a
significant share of any such markets.
The Company's flexible packaging products are sold in highly
competitive markets which include snack foods, condiments, dried
fruits, container decorations and lidding for aseptically packaged
products. The flexible packaging market is highly fragmented and the
Company competes against many suppliers.
The Company also manufactures and sells sleeve label application
equipment for food and non-food markets both domestically and
internationally. These machines are sold through both the Company's
own sales force and through brokers. A portion of these sales are to
international customers which present various pricing and market
risks.
<PAGE>
Financial information about the Company's major markets.
(in thousands of dollars)
1997 1996 1995
Net Net Net
Revenues % Revenues % Revenues %
Packaging
Frozen Desserts $124,384 49 $122,549 47 $138,330 49
Other Food Products 96,750 38 98,651 38 98,455 35
Non-food Products 23,256 9 24,757 10 32,112 11
Medical Products 4,874 2 4,665 2 5,120 2
Other Dairy Products 1,687 - 2,268 1 2,161 1
Lease Revenue 4,247 2 4,346 2 4,489 2
Total $255,198 100 $257,236 100 $280,667 100
Financial information about the Company's foreign and domestic
operations.
(in thousands of dollars)
1997 1996 1995
Revenues
Domestic $238,459 $237,433 $263,726
Foreign 16,739 19,803 16,941
Total Revenues $255,198 $257,236 $280,667
Operating Income (Loss)
from Continuing Operations
Domestic $ 4,260 $ 3,203 $ (4,895)
Foreign 1,652 998 1,801
Operating Income (Loss) $ 5,912 $ 4,201 $ (3,094)
Identifiable Assets
Domestic $207,671 $218,492 $224,977
Foreign 7,350 4,793 2,864
Total Assets $215,021 $223,285 $227,841
Export sales are made mainly to customers in Canada, South
America, Western Europe, Japan and Australia. Identifiable assets
consist primarily of assets employed by the Company's Australian
subsidiary.
Research and Development
The Company is actively engaged in designing and developing
new products and adapting existing products for new uses. A staff
of engineers, designers and machinery specialists evaluate product
ideas initiated by the Company's personnel or by customers seeking
new and better containers. The Company also has a staff of
designers and engineers responsible for the design, development and
modification of the Company's production processes and the
machinery used for production in the Company's plants and in
customers' facilities. Approximately $4,437,000, $5,735,000 and
$6,032,000 were expended for research and development in 1997, 1996
and 1995, respectively.
During 1996, as part of the Restructuring Plan, the Company
consolidated its Research and Development facility previously
located in Kansas City, Missouri, into its corporate headquarters
facility in DeSoto, Kansas. The Company believes that certain
synergies are gained by having its Research and Development staff
physically located with the Company's Marketing and Strategy staff.
Environmental and Governmental Regulation
Since most of the Company's containers and packages are used
in the food industry, the Company is subject to the manufacturing
standards of and inspection by the U.S. Food and Drug
Administration. Historically, compliance with the standards of the
food industry has not had a material effect on the Company's
earnings, capital expenditures, or competitive position.
The manufacturing operations of the Company are subject to
federal, state, and local regulations governing the environment and
the discharge of materials into air, land and water as well as the
handling and disposal of solid and hazardous wastes. The Company
believes it is in substantial compliance with applicable
environmental regulations and does not believe that costs of
compliance will have a material adverse effect on its earnings,
capital expenditures, or competitive position.
The Company has been notified that it is a potentially
responsible party (PRP) under Comprehensive Environmental Response,
Compensation, and Liability Act of 1980(CERCLA) with respect to the
remediation of certain sites where hazardous substances have been
released into the environment. The Company cannot predict with
certainty the total costs of remediation. However, based on
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the financial
condition and results of operations of the Company. There can be
no certainty that the Company will not be named as a PRP at
additional Superfund sites or be subject to other environmental
matters in the future or that the costs associated with those sites
or matters would not be material.
Employees
The Company's average number of employees for 1997 was 1,550.
At three of the Company's domestic manufacturing facilities, the
hourly employees are covered by collective bargaining agreements.
Employees covered by these agreements represent approximately 50% of
the Company's employees. Approximately 34% of the Company's employees
are salaried.
On November 18, 1997, the Company's contract with the
International Chemical Workers Council of the United Food and
Commercial Worker Union expired. This contract covers the hourly
employees at the Company's Akron, Ohio, flexible packaging operation.
The hourly workforce continued to work under a temporary contract
extension while negotiations continued. On March 8, 1998, the
employees ratified a new two-year contract. The Company considers its
relations with this employee group to be good and expects no
disruption to operations.
Effective February 1, 1998, the hourly workforce at the Company's
San Leandro, California, flexible packaging facility, represented by
the Warehouse, Mail Order, & Retail Employees, an affiliate of the
International Brotherhood of Teamsters Union, ratified a new three-year
contract.
Overall, the Company considers its employee relations to be
favorable. There are no collective bargaining agreements scheduled to
expire during 1998.
Forward-Looking Statements
Certain written and oral statements in this document and
elsewhere made by management that are neither reported financial
results nor other historical information are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are not
guarantees of future performance and are subject to known and unknown
risks, uncertainties and other factors which may cause or contribute
to actual results of the Company differing materially from those
expressed in or implied by the forward-looking statements. In
addition to any such risks expressly stated otherwise in this or other
documents, other risks and uncertainties include, but are not limited
to, competitive pricing for the Company's products, changes in raw
material prices, fluctuations in customer demand, changes in
production capacities, and changes in exchange rates, particularly in
Latin America and Australia.
The benefits of the Company's Restructuring Plan may vary from
the Company's original expectations due to various factors such as:
the extent of management's ability to control costs; inefficiencies,
overheads and operational issues during the transition period; sales
prices realized upon future disposal of redundant or unneeded assets,
particularly real property which is subject to future supply and
demand conditions in various real estate markets; higher or lower than
anticipated rates of relocation or resignation of employees who
otherwise would receive termination payments; and difficulties
inherent in forecasting results of an operating mode different from
that which exists at the time the forecast is made. Investors are
also advised to consider other risks and uncertainties that may be
discussed in documents filed by the Company with the Securities and
Exchange Commission.
<PAGE>
Item 2. Properties.
The following tables set forth the location, approximate square
footage, and principal use of each of the Company's facilities. The
Company believes that its facilities are well maintained and suitable
for their respective uses.
Owned Facilities
Square Principal
Location Feet Use
Fulton, New York 575,000 Manufacturing and
warehouse
DeSoto, Kansas 480,000 Corporate office,
manufacturing,
warehouse
Los Angeles, California 172,000 Manufacturing
Los Angeles, California* 190,000 Manufacturing
San Leandro, California 129,000 Manufacturing and
warehouse
Akron, Ohio 125,000 Manufacturing and
warehouse
* Leased to a third party at December 31, 1997. The facility was
sold to the lessee on March 3, 1998.
Leased Facilities
Square Lease Principal
Location Feet Expiration Use
Los Angeles, California 51,000 2000 Warehouse
San Leandro, California 12,000 2002 Warehouse
Raleigh, North Carolina 7,500 1998 Office
Virginia, QLD., Australia 40,500 2001 Manufacturing and
warehouse
<PAGE>
Item 3. Legal Proceedings.
In the ordinary course of business, the Company and its
subsidiaries are subject to various pending claims, lawsuits, and
contingent liabilities. The Company maintains appropriate insurance
policies to protect against various claims and lawsuits. The Company
does not believe that the disposition of these matters will have a
material adverse effect on the Company's consolidated financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Since September 30, 1997, there have been no matters submitted to
a vote of security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Quarter High Low Dividend per Share
1997 First $11 3/8 $10 $ -
Second $12 1/8 $10 3/8 $ -
Third $13 1/4 $11 $ -
Fourth $14 $11 3/4 $ -
1996 First $12 1/2 $ 9 7/8 $.120
Second $14 3/4 $10 7/8 $.120
Third $12 1/2 $11 1/16 $.120
Fourth $12 1/2 $ 9 3/4 $ -
The Common Stock, which has a par value of $.10 per share, is
traded in the over-the-counter market. It is included in the NASDAQ
National Market System ("NMS")under the symbol SRCO. The table above
sets forth the high and low sale prices, as quoted by NMS, and
dividends paid for each quarter of the last two calendar years. These
quotations reflect inter-dealer prices, without markup, markdown or
commissions.
The Company suspended its regular dividend during the fourth
quarter of 1996. The Company is subject to restrictions governing the
payment of dividends by its various borrowing agreements (See
"Management Discussion and Analysis").
As of December 31, 1997, there were 366 shareholders of record.
Since many shareholders hold their certificates in street name, in
addition to many employees owning stock by virtue of their
participation in the Company's Long-Term Savings Plan, management
estimates the number of individual stockholders is approximately
2,900.
<PAGE>
Item 6. Selected Financial Data.
FINANCIAL INFORMATION
(In thousands, except per share data)
FIVE-YEAR SUMMARY
For the Years
Ended December 31, 1997 1996 1995 1994 1993
INCOME STATEMENT DATA
Net sales $255,198 $257,236 $280,667 $280,652 $262,383
Cost of Sales 218,840 213,502 227,399 215,967 202,865
Gross Profit 36,358 43,734 53,268 64,685 59,518
SG&A Expense 31,462 33,766 38,035 37,523 34,750
Other Expense 1,025 990 1,452 1,671 1,830
Net Restructuring (Gain)
Expense (2,041) 4,777 16,875 - -
Operating Income(Loss) from
Continuing Operations 5,912 4,201 (3,094) 25,491 22,938
Interest Expense 5,574 5,466 5,017 3,218 3,648
Income(Loss)from
Continuing Operations
before income taxes and
extraordinary loss 338 (1,265) (8,111) 22,273 19,290
Income taxes 126 (457) (3,276) 8,985 8,120
Income (Loss) from
Continuing Operations
before extraordinary
loss 212 (808) (4,835) 13,288 11,170
Discontinued Operation,
net of tax:
Operating Income (Loss) - (2,140) (799) 47 (85)
Gain (Loss) on
Disposal 54 (2,856) - - -
Income (Loss) From
Discontinued Operation 54 (4,996) (799) 47 (85)
Extraordinary Loss,
net of tax - - (94) - -
Net Income (Loss) $ 266 $ (5,804) $(5,728) $13,335 $ 11,085
<PAGE>
Years Ended December 31, 1997 1996 1995 1994 1993
COMMON SHARE DATA**
Basic Earnings(Loss)Per Share from:
Continuing Operations $ 0.02 $ (0.07) $(0.44) $ 1.21 $ 1.00
Discontinued Operation * (0.45) (0.07) * *
Extraordinary Loss - - (0.01) - -
Basic Earnings(Loss)
per share $ 0.02 $ (0.52) $(0.52) $ 1.21 $ 1.00
Diluted Earnings(Loss)Per Share from:
Continuing Operations $ 0.02 $ (0.07) $(0.44) $ 1.20 $ 1.00
Discontinued Operation * (0.45) (0.07) * *
Extraordinary Loss - - (0.01) - -
Diluted Earnings(Loss)
per share $ 0.02 $ (0.52) $(0.52) $ 1.20 $ 1.00
Dividends per share $ - $ .36 $ .48 $ .46 $ .445
Average basic
shares outstanding 11,072 11,072 11,068 11,063 11,063
Average diluted
shares outstanding 11,080 11,072 11,083 11,075 11,075
Common shares outstanding
at year-end 11,076 11,072 11,072 11,063 11,063
Book value per share $8.25 $8.31 $9.20 $10.20 $9.46
Ending market price
per share $12 3/8 $10 1/2 $11 1/8 $18 1/4 $15 1/4
*Less than $0.01 per share
**Common share data for all years are presented in accordance with SFAS No.
128, which was implemented during the fourth quarter of 1997.
<PAGE>
BALANCE SHEET DATA
(In thousands, except ratios)
1997 1996 1995 1994 1993
Net Working Capital $ 38,801 $ 35,783 $ 37,992 $ 37,429 $ 42,170
Net Property, Plant
& Equipment 128,067 136,253 135,854 146,828 118,197
Total Assets 215,021 223,285 227,841 239,654 212,455
Total Debt 81,000 88,000 83,600 80,726 68,895
Stockholders' Equity 91,395 91,969 102,016 112,892 104,647
Current Ratio 2.12:1 2.15:1 2.26:1 2.06:1 2.58:1
Total Debt to
Capital Ratio 47.0% 48.8% 45.0% 41.7% 39.8%
OTHER DATA
(In thousands, except number of employees)
Depreciation and
Amortization Expense $ 18,131 $ 16,078 $ 19,320 $ 17,148 $ 15,343
Capital Expenditures 18,258 15,623 15,937 44,280 26,288
Dividends Paid - 3,985 5,313 5,090 4,922
Average Number of
Employees 1,550 1,603 1,909 1,959 1,937
<PAGE>
RESULTS OF OPERATIONS
(Percentage of net sales)
Years Ended December 31, 1997 1996 1995 1994 1993
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 85.8 83.0 81.0 77.0 77.3
Gross Margin 14.2 17.0 19.0 23.0 22.7
Selling, general and
administrative
expenses 12.3 13.1 13.6 13.4 13.2
Other Expense 0.4 0.4 0.5 0.6 0.7
Net Restructuring
(Gain) Expense (0.8) 1.9 6.0 - -
Operating Income(Loss) 2.3 1.6 (1.1) 9.0 8.8
Interest Expense 2.2 2.1 1.8 1.1 1.4
Income(Loss) from
Continuing Operations
before income taxes
and extraordinary loss 0.1 (0.5) (2.9) 7.9 7.4
Income taxes * (0.2) (1.2) 3.2 3.1
Income(Loss) from:
Continuing Operations 0.1 (0.3) (1.7) 4.7 4.3
Discontinued Operation - (0.8) (0.3) * *
Gain (Loss) on
Disposal of Discontinued
Operation * (1.2) - - -
Extraordinary Loss - - * - -
Net Income (Loss) 0.1% (2.3)% (2.0)% 4.8% 4.2%
*Less than 0.1%
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
1997 COMPARED TO 1996
Consolidated net sales were $255.2 million during 1997, a decrease
of $2.0 million, or 0.8%, from 1996. During 1997, sales in the
Company's frozen dessert packaging market increased approximately two
percent while units sold increased approximately nine percent,
reflecting increased market penetration but continued pricing pressure
in this competitive market category. During the third quarter, the
Company implemented a price increase in most paperboard-based product
lines that offset an increase the Company experienced in raw material
costs.
Sales in the Company's food and non-food packaging businesses,
which includes primarily flexible packaging products, decreased
approximately five percent during 1997. The decline in revenue resulted
primarily from production inefficiencies and capacity constraints
experienced during the first half of the year at the Company's Akron,
Ohio, facility. In addition, demand for the Company's food and non-food
products declined during the second half of 1997. The Company also
experienced a reduction in average selling prices for various food
packaging products due to competitive pressures, further reducing
revenue.
Revenue at the Company's Australian facility increased by
approximately 50% in the local currency during 1997. However, due to a
strengthening U.S. dollar throughout the year coupled with the
relatively small size of the operation, the impact of this increase on
consolidated revenue was not material.
Consolidated gross profit was $36.4 million in 1997 as compared to
$43.7 million during 1996. The resulting gross margin was 14.2% of
sales in 1997, a decline from 17.0% in 1996. Approximately $3 million
of the decline in gross profit occurred in the frozen dessert packaging
market. This market experienced a sales price decline of approximately
$7 million which was partially offset by approximately a $4 million
increase in gross profit resulting from higher unit volume. Due to
production inefficiencies and reduced capacity at the Akron, Ohio,
facility early in the year, and reduced sales volume during the latter
half of the year, the Company suffered a reduction in gross profit of
approximately $5 million. Gross profit at the Company's San Leandro,
California, facility increased by $2.5 million during the year.
However, these gains were almost entirely offset by lost business in the
Company's sleeve labeling equipment operation and other operational
inefficiencies related to outside processing associated with
lithographic printing.
Selling, general and administrative expenses declined by $2.3
million, or 6.8%, as the Company realized full year savings related to
staffing reductions made during 1996. The Company also benefited from
other various cost savings initiatives.
During the first half of the year, the Company sold three
properties idled as part of the restructuring program, resulting in a
net restructuring gain of $2.0 million. The former plastic
manufacturing facility in Los Angeles, California, was sold on March 3,
1998. The Company expects to record a gain on the sale. The gain will
be shown, net of tax, as a discontinued operation in the first quarter
of 1998.
Net interest expense increased by two percent during 1997 despite a
reduction in the average amount of debt outstanding. The principal
reason for the increase is due to a reduction in the amount of interest
capitalized in conjunction with projects under construction.
Capitalized interest declined during 1997 as a result of lower average
construction-work-in-progress during the year. As further discussed in
note 3 to the Consolidated Financial Statements, the Company incurred
penalties and the Company's borrowing cost increased during the second
half of the year in conjunction with a modification to the Company's
borrowing agreements.
The Company recorded income tax expense for 1997 at a 37.4%
effective tax rate. The Company recorded tax benefits of 36.1% and
40.4% during 1996 and 1995, respectively, due to taxable losses for
those years.
1996 COMPARED TO 1995
The Company recorded net sales from continuing operations of
$257.2 million for 1996, a decrease of $23.4 million, or 8.3%, from
1995. The loss of revenue was primarily attributable to decreased
consumer demand for the Company's customers' products. This was due
to less-than favorable weather conditions in the summer of 1996 and
increased raw material costs, which resulted in higher retail
prices. Reduced demand coupled with continuing competitive pricing
pressure contributed to reduced revenue in the Company's frozen
dessert packaging business. In addition, the Company experienced
reduced sales with smaller, non-strategic flexible packaging
customers.
Gross profit from continuing operations for 1996 was $43.7
million, a decline of $9.5 million, or 17.9%, from 1995. The
Company's gross margin declined 2.0 percentage points from 19.0% to
17.0% during the year. The decline was primarily attributed to
lower sales volume, which resulted in less fixed overhead
absorption, reduced revenue per unit in response to competitive
pricing pressures, and to a lesser extent move-related
inefficiencies stemming from the DeSoto facility consolidation, and
operational issues at the San Leandro facility. Production
inefficiencies at the Fulton facility resulting from the DeSoto
consolidation and operational issues at the San Leandro facility
were isolated to the first and second quarters of 1996.
The plastics manufacturing operation experienced a 19.4%
decline in revenue and a 168% increase in operating loss during
1996. The revenue decline was attributed to lost business and
continued pricing pressures in the rigid plastics packaging market.
The Company encountered service issues while converting customers to
new state-of-the-art thermoforming equipment, resulting in lost
business. Inefficiencies and waste resulting from the
implementation of new thermoforming equipment coupled with the
significant loss of sales resulted in the increase in operating
loss. During the fourth quarter, the Company decided to exit its
plastics container business. This operation was sold on March 3,
1997, for $9.0 million cash.
Selling, general and administrative expense decreased 11.2%
during 1996 as a result of reduced headcount from the Company-wide
facility consolidation and reorganization plan announced in 1995,
the elimination of the Corporate office lease expense, and tight
cost controls throughout the year.
The Company incurred restructuring-related expenses of $4.8
million during the year relating primarily to moving equipment and
personnel and severance in conjunction with the facility
consolidation plan. The restructuring plan was completed during the
first quarter of 1997.
Interest expense increased 8.9% during the year reflecting
higher levels of debt throughout 1996. The Company was not able to
reduce debt during the year due to weak cash flow as a result of
operating issues previously discussed. The Company paid a penalty
of $47,000 to its senior lenders during the fourth quarter of 1996
as a result of not achieving the required minimum level of fixed
charge coverage as stipulated in the Company's loan agreements.
This amount was reflected as interest expense.
Due to the taxable loss for 1996, an income tax benefit has
been provided at a 36.1% effective tax rate. The Company recorded a
tax benefit of 40.4% during 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primary on internally generated cash from
operations to fund operating necessities. For the 12 month period
ended December 31, 1997, the Company's earnings, adjusted for
discontinued operations, were $212,000 compared to a loss of
$808,000 in 1996. After adjusting for non-recurring restructuring
items and other non-cash adjustments, cash generated from earnings
was $14.5 million in 1997 as compared to $20.4 million in 1996. The
primary reason for this decline is the deterioration in operating
earnings previously discussed. Prior to the sale of the plastics
operation on March 3, 1997, this business used $1.4 million in cash
as compared to a source of $1.1 million the prior year. For 1997,
cash provided from operations was $4.5 million, a decline of $8.6
million from 1996.
During 1997, the Company invested $18.3 million in new
property, plant and equipment. Major capital investments during
1997 included the Company's new management information system, a
project that was initiated in 1996, equipment leased to customers,
various building additions and improvements, as well as a partial
payment for the Company's new lithographic printing press, which is
scheduled to be operational in the second quarter of 1998. Capital
expenditures are expected to be several million dollars higher in
1998 than in 1997. The largest expenditure during 1998 will be the
completion of the new printing press project.
The Company sold three idle facilities and other assets during
1997, generating cash of $16.5 million. The proceeds from these
sales were used to reduce debt and fund working capital needs. On
March 3, 1998, the Company sold its former plastics container
manufacturing facility for $4.8 million. The Company has other idle
assets held for sale and expects to generate cash of approximately
$500,000 during 1998 from their sale.
The Company reduced total debt outstanding by $7 million during
the year, consisting of scheduled repayments of long-term debt of
$6.2 million and a reduction in the amount of bank debt outstanding
of $800,000. As a result of year-end timing, the Company's books
reflected a negative cash balance of $5.6 million at December 31,
1997 although, the Company's funded cash position was positive. The
deficit was reflected as a bank overdraft, a separate component of
cash flow from financing.
The Company expects that its operating cash flow will be
sufficient to fund future capital expenditure commitments as well as
working capital requirements during 1998. The Company intends to
reduce its working capital requirements during 1998 and further
reduce bank debt.
EFFECT OF INFLATION
During the last three fiscal periods, inflation has not had a
material effect on the Company. The price of the Company's major
raw materials is based primarily on supply and demand in the
underlying commodity markets rather than inflationary pressures. A
substantial majority of the Company's customer contracts allow for
the Company to increase or decrease selling prices in response to
changes in raw material prices, thus mitigating the impact of
inflation cost changes or inflation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, Reporting Comprehensive Income. This statement
establishes standards for reporting and display of items that may
affect shareholder equity but are not components of reported net
income. The Company is required to adopt SFAS No. 130 in the first
quarter of 1998.
In June 1997, the FASB also issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. This
statement supersedes and expands on the segment disclosure
requirements of SFAS No. 14. The statement requires certain
financial disclosures about business segments. The definition of
business segments has been changed from an industry definition to
that of a management definition. The Company will adopt the
provisions of SFAS No. 131 effective December 31, 1998. It is
expected that the statement will require additional financial
disclosure.
In February 1998, the FASB issued SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. This
statement amends SFAS Nos. 87, 88, and 106. The statement
standardizes and expands the disclosure requirements of the prior
pronouncements in order to facilitate enhanced financial analysis.
The Company will adopt the provisions of SFAS No. 132 effective
December 31, 1998.
YEAR 2000 COMPLIANCE
The Company is currently in the process of improving its
computer systems and software applications by implementing a new
enterprise-wide software system. Since the inception of the project
in 1996, the Company has expended approximately $6.5 million, $1.5
million of which has been charged to operations. The system is
currently in operation at three of the Company's five domestic
locations. The Company has plans to implement the software at the
remaining two domestic facilities during 1998 and at its Australian
facility during 1999. The remaining costs associated with
implementing the system at these facilities is expected to be
approximately $750,000, substantially all of which is expected to be
capitalized. In addition to expanded management information
reporting and other operational improvements, the new software
system will allow the Company to correctly record yearly dates for
year 2000 and beyond.
The Company currently relies on outside service providers for
various other software applications. These vendors have committed
to the Company that their products are either year 2000 compliant or
they have established a timeline to modify their applications in
advance of year 2000.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Sealright Co., Inc., and
Subsidiaries:
We have audited the accompanying consolidated balance sheets of
SEALRIGHT CO., INC. (a Delaware corporation), AND SUBSIDIARIES as of
December 31, 1997 and December 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The
financial statements for the year ended December 31, 1995 were audited
by other auditors whose report dated February 2, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Sealright Co., Inc., and Subsidiaries as of
December 31, 1997 and 1996, and the results of their operations and
their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
Kansas City, Missouri
February 9, 1998, except for note 11
which is as of March 2, 1998.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Sealright Co., Inc., and
Subsidiaries:
We have audited the accompanying consolidated statements of
operations, stockholders' equity and cash flows of SEALRIGHT CO., INC.
(a Delaware corporation), AND SUBSIDIARIES for the year ended December
31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provided a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to
above present fairly, in all material respects, the results of their
operations and their cash flows of Sealright Co., Inc., and
Subsidiaries for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/S/ ARTHUR ANDERSEN & CO. LLP
Kansas City, Missouri
February 2, 1996
<PAGE>
CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
As of December 31, 1997 1996
ASSETS
CURRENT ASSETS
Cash $ 1,454 $ 264
Accounts receivable, less allowance
for doubtful accounts of $538
in 1997 and $453 in 1996 27,496 23,173
Inventories 40,949 36,635
Income tax receivable (Note 2) 2,486 4,800
Prepaid expenses 947 1,121
Other current assets 64 362
Total current assets 73,396 66,355
Property, Plant and Equipment
Land 6,848 7,984
Buildings and improvements 46,608 48,060
Machinery and equipment 174,720 172,755
Furniture and fixtures 18,500 12,971
Property, plant and equipment, gross 246,676 241,770
Less--accumulated depreciation 118,609 105,517
Property, plant and equipment, net 128,067 136,253
OTHER ASSETS
Goodwill, net 5,287 5,701
Other intangibles, net 4,796 5,645
Prepaid pension (Note 5) 2,674 2,682
Other 801 636
Total other assets 13,558 14,664
Net assets of discontinued operation (Note 10) - 6,013
Total assets $215,021 $223,285
======================================================================
The accompanying notes are an integral part of these statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (Dollar amounts in thousands)
As of December 31, 1997 1996
CURRENT LIABILITIES
Current portion of long-term debt (Note 3) $ 7,075 $ 6,200
Accounts payable 7,628 9,731
Accrued vacation 1,865 2,543
Accrued workers' compensation reserve 2,077 2,646
Restructuring liability (Note 8) 352 1,555
Bank overdraft 5,560 -
Other accrued liabilities 10,038 8,098
Total current liabilities 34,595 30,773
Restructuring liability (Note 8) - 300
Long-term debt (Note 3) 73,925 81,800
Postretirement benefit liability (Note 6) 2,284 2,240
Pension liability (Note 5) 603 1,973
Deferred income taxes (Note 2) 11,645 13,871
Other 574 359
Commitments and contingencies (Note 4) - -
Total liabilities $123,626 $131,316
STOCKHOLDERS' EQUITY (Notes 1, 5 and 7)
Common stock, par value $.10
Shares authorized: 20,000,000;
Shares issued and outstanding:
11,075,921 at December 31, 1997 and
11,071,991 at December 31, 1996,
respectively 1,108 1,107
Additional paid-in capital 14,958 14,911
Retained earnings 76,475 76,209
Currency translation adjustment (1,089) -
Minimum pension liability adjustment (57) (258)
Total stockholders' equity $ 91,395 $ 91,969
Total liabilities and stockholders' equity $215,021 $223,285
======================================================================
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands,
except per share data)
For the Years Ended December 31, 1997 1996 1995
Net Sales $255,198 $257,236 $280,667
Cost of Goods Sold 218,840 213,502 227,399
Gross Profit 36,358 43,734 53,268
Selling, General and
Administrative Expenses 31,462 33,766 38,035
Other Expense 1,025 990 1,452
Net Restructuring (Gain)
Expense (Note 8) (2,041) 4,777 16,875
Operating Income (Loss) from
Continuing Operations 5,912 4,201 (3,094)
Interest Expense (Note 3) 5,574 5,466 5,017
Income(Loss) from Continuing
Operations Before Income Taxes 338 (1,265) (8,111)
Income Taxes (Note 2) 126 (457) (3,276)
Income(Loss) from Continuing
Operations 212 (808) (4,835)
Discontinued Operation, net of tax
Loss from operations (Note 10) - (2,140) (799)
Gain (Loss) on Disposal (Note 10) 54 (2,856) -
Income(Loss) from Discontinued
Operation 54 (4,996) (799)
Income (loss) before
Extraordinary Loss 266 (5,804) (5,634)
Extraordinary Loss, Net
of tax (Note 9) - - (94)
Net Income(Loss) $ 266 $(5,804) $ (5,728)
<PAGE>
======================================================================
Basic Earnings (Loss) Per Share from:
Continuing Operations $ 0.02 $ (0.07) $ (0.44)
Discontinued Operation * (0.45) (0.07)
Extraordinary Item - - (0.01)
Basic Earnings(Loss) Per Share $ 0.02 $ (0.52) $ (0.52)
Diluted Earnings (Loss) Per Share from:
Continuing Operations $ 0.02 $ (0.07) $ (0.44)
Discontinued Operation * (0.45) (0.07)
Extraordinary Item - - (0.01)
Diluted Earnings(Loss) Per Share $ 0.02 $ (0.52) $ (0.52)
*Less than $0.01 per share
======================================================================
The accompanying notes are an integral part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share data)
<CAPTION>
Additional Cumulative Minimum
No. of Common Paid-In Retained Translation Pension
Shares Stock Capital Earnings Adjustment Liability Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 11,063 $1,106 $14,747 $97,039 $ -- $ -- $112,892
Net loss -- -- -- (5,728) -- -- (5,728)
Exercise of stock options 9 1 164 -- -- -- 165
Dividends paid ($0.48
per share) -- -- -- (5,313) -- -- (5,313)
Minimum pension liability -- -- -- -- -- --
BALANCE, December 31, 1995 11,072 $1,107 $14,911 $85,998 $ -- $ -- $102,016
Net loss -- -- -- (5,804) -- -- (5,804)
Dividends paid ($0.36
per share) -- -- -- (3,985) -- -- (3,985)
Minimum pension liability -- -- -- -- -- (258) (258)
BALANCE, December 31, 1996 11,072 $1,107 $14,911 $76,209 -- $ (258) $ 91,969
Issuance of common stock 4 1 47 -- -- -- 48
Net income -- -- -- 266 -- -- 266
Translation adjustment -- -- -- -- (1,089) -- (1,089)
Minimum pension liability
adjustment -- -- -- -- -- 201 201
BALANCE, December 31, 1997 11,076 $1,108 $14,958 $76,475 $ (1,089) $ (57) $ 91,395
============================================================================================================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
For the Years Ended December 31, 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 266 $(5,804) $(5,728)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Loss from discontinued
operation - 2,140 799
(Gain) loss on disposal of
discontinued operation (54) 2,856 -
Depreciation & amortization 18,131 16,078 19,320
Deferred income taxes (1,355) 1,270 (4,574)
LIFO provision (benefit) (335) (885) 1,111
(Gain) loss from disposal of assets (136) (20) 183
Restructuring expense (gain) (2,041) 4,777 16,875
Extraordinary loss - - 94
Changes in assets and liabilities:
Accounts receivable, net (4,323) (582) 2,690
Inventories, net (3,684) 1,245 4,098
Accounts payable (2,103) (12) (3,055)
Restructuring liability (1,503) (7,286) (328)
Other 2,954 (1,822) (1,751)
Total adjustments 5,551 17,759 35,462
Net cash provided by continuing operations 5,817 11,955 29,734
Net cash provided by (used in)
discontinued operation (1,358) 1,127 (1,347)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,459 $13,082 $28,387
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (18,258) (15,623) (15,937)
Capital expenditures of
discontinued operation - (3,807) (5,374)
Proceeds from disposal of assets 16,494 180 158
NET CASH USED IN INVESTING ACTIVITIES $(1,764)$(19,250)$(21,153)
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
For the Years Ended December 31, 1997 1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayment) under bank
credit agreement (800) 10,000 (18,500)
Long-term financing - 600 30,000
Principal repayments (6,200) (6,200) (8,626)
Dividends paid - (3,985) (5,313)
Bank overdraft 5,560 - -
Issuance of common stock 48 - 165
(1,392) 415 (2,274)
Effect of exchange rate changes on cash (113) - -
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (1,505) 415 (2,274)
Net increase (decrease) in cash $ 1,190 $(5,753) $4,960
CASH, Beginning of Year $ 264 $ 6,017 $ 1,057
CASH, End of Year $ 1,454 $ 264 $ 6,017
=========================================================================
Supplemental cash flow information (in thousands):
Cash paid during the year for-- 1997 1996 1995
Interest (net of amount capitalized) $ 5,654 $ 5,456 $ 4,902
Income Taxes (net of refunds received) (1,835) 720 1,806
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business -- Sealright Co., Inc. (the Company) serves
the food industry by providing container components and production systems
for packaging food, primarily in round paperboard containers. In addition
to sales in the dairy industry, the Company manufactures packaging films,
supplies flexible packaging, labeling and label-application equipment. The
Company also operates a subsidiary in Australia which supplies packaging to
the dairy and beverage industry in that country.
b. Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior year
amounts in order to conform to the current year presentation.
c. Inventories -- Inventories are stated at the lower of cost or market.
Finished products, work in process and raw material inventories are carried
at last-in, first-out (LIFO) cost. Certain machine parts and supplies
inventories are carried at average cost, while others are carried at
first-in, first-out (FIFO) cost. Inventories include the cost of material,
labor and factory overhead required in the production of the Company's
products. Inventories at December 31 of each year were:
(In thousands) 1997 1996
Inventories carried on LIFO basis
Raw materials $14,780 $11,337
Work in process 4,044 4,719
Finished goods 17,207 15,005
Total FIFO basis $36,031 $31,061
FIFO basis in excess of LIFO basis (246) (581)
Total LIFO basis 35,785 30,480
Inventories carried on average cost
or FIFO basis 5,164 6,155
Total $40,949 $36,635
d. Property, Plant and Equipment -- Property, plant and equipment has
been recorded at cost and such assets are being depreciated over their
estimated useful lives using the straight-line method. The estimated
useful lives are as follows:
Buildings and improvements 5 to 45 years
Machinery and equipment 3 to 15 years
Furniture and fixtures 3 to 8 years
Maintenance and repairs are charged to expense as incurred. The cost
and accumulated depreciation of assets retired are removed from the
accounts, and any resulting gains or losses are reflected in current
income.
The Company manufactures and leases equipment to its customers under
operating leases which may be canceled by either the Company or customer.
This equipment has been recorded at cost, and classified as machinery and
equipment.
At December 31, 1997, the Company held its former Los Angeles,
California, plastics facility for sale. The property was sold March 3,
1998. The carrying value of this facility at December 31, 1997 and 1996
was approximately $3,900,000.
e. Interest Capitalization -- Interest capitalized on construction of
buildings, machinery and equipment was $370,000, $729,000 and $1,121,000
in 1997, 1996 and 1995, respectively. Building and equipment under
construction at December 31, 1997, 1996 and 1995 was $9,186,000, $8,872,000
and $7,092,000, respectively.
f. Goodwill -- The excess of purchase price over fair value of net assets
acquired was recorded in connection with the acquisition of Indopak in
1986, Jaite Packaging, Inc. in 1990, and Venture Packaging, Inc. in 1992,
and is being amortized ratably over 20, 30 and 20 years, respectively.
Accumulated amortization was $4,048,000 and $3,628,000, as of December 31,
1997 and 1996, respectively. The related amortization expense charged to
operations during each of the years ended December 31, 1997, 1996 and 1995
was $420,000.
g. Other Intangible Assets -- At December 31, 1997, other intangible
assets consisted primarily of customer lists and work forces associated
with the Company's acquisitions. These assets are being amortized over the
respective remaining lives of the assets, ranging from three to 20 years.
Accumulated amortization on these assets totaled $6,652,000 and $6,071,000
at December 31, 1997 and 1996, respectively. The related amortization
expense charged to operations during the years ended December 31, 1997,
1996 and 1995 was $581,000, $594,000 and $1,179,000, respectively.
The Company assesses the recoverability of long-lived assets by
determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows. The
amount of impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of borrowing. The assessment of the recoverability of long-lived
assets will be impacted if estimated future operating cash flows are not
achieved.
h. Research and Development -- Research and development costs are charged
to expense as incurred and were $4,437,000, $5,735,000, and $6,032,000 in
1997, 1996, and 1995, respectively.
i. Earnings Per Share -- At December 31, 1997, the Company adopted SFAS
No. 128, "Earnings Per Share". The effect on prior years was not
significant. Basic and diluted earnings per share have been calculated as
follows:
(in thousands, except per share amounts)
Year Ended December 31,
1997 1996 1995
Net income(loss) $ 266 $(5,804) $(5,728)
Weighted average
common shares outstanding 11,072 11,072 11,068
Basic earnings (loss)
per share $ 0.02 $(0.52) $(0.52)
Dilutive effect
of vested, in-the-
money options 8 - 15
Weighted average diluted
common shares outstanding 11,080 11,072 11,083
Diluted earnings (loss)
per share $ 0.02 $(0.52) $(0.52)
Potentially dilutive securities consist of stock options granted to
key officers and employees.
j. Revenue Recognition -- Revenue from the sale of packaging and
packaging equipment is recognized at the time ownership of the product is
transferred to the customer. Revenue from operating leases of packaging
equipment is recognized monthly in accordance with the terms of the
respective leases.
k. Foreign Operations -- Assets and liabilities related to foreign
operations, principally manufacturing operations located in Brisbane,
Queensland, Australia, are translated at the exchange rate as of the
balance sheet date. All revenue and expense accounts are translated at a
weighted-average of exchange rates in effect during the period. From
December 31, 1996, to December 31, 1997, the Australian Dollar depreciated
approximately 18% against the United States Dollar. The balance sheet
impact of this loss is reflected as a separate component of stockholders'
equity.
Financial information about the Company's foreign and domestic
operations is as follows:
(in thousands of dollars)
1997 1996 1995
Revenues
Domestic $238,459 $237,433 $263,726
Foreign 16,739 19,803 16,941
Total Revenues $255,198 $257,236 $280,667
Operating Income (Loss)
from Continuing Operations
Domestic $ 4,260 $ 3,203 $ (4,895)
Foreign 1,652 998 1,801
Operating Income (Loss) $ 5,912 $ 4,201 $ (3,094)
Identifiable Assets
Domestic $207,671 $218,492 $224,977
Foreign 7,350 4,793 2,864
Total Assets $215,021 $223,285 $227,841
Export sales are made mainly to customers in Canada, South America,
Western Europe, Japan and Australia. Identifiable assets consist primarily
of assets employed by the Company's Australian subsidiary.
l. New Accounting Pronouncements -- In June 1997, the Financial
Accounting Standards Board (FASB) issued SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for reporting
and display of items that may affect shareholder equity but are not
components of reported net income. The Company is required to adopt SFAS
No. 130 in the first quarter of 1998.
In June 1997, the FASB also issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement
supersedes and expands on the segment disclosure requirements of SFAS No.
14. The statement requires certain financial disclosures about business
segments. The definition of business segments has been changed from an
industry definition to that of a management definition. The Company will
adopt the provisions of SFAS No. 131 effective December 31, 1998. It is
expected that the statement will require additional financial disclosure.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. This statement amends
SFAS Nos. 87, 88, and 106. The statement standardizes but expands the
disclosure requirements of the prior pronouncements in order to facilitate
enhanced financial analysis. The Company will adopt the provisions of SFAS
No. 132 effective December 31, 1998.
m. The Company has various financial instruments comprised of cash, trade
and notes receivable, trade and other payables, and floating and fixed-rate
debt. The carrying amounts of short-term assets and liabilities, including
the floating-rate debt obligation, approximate fair value due to the short
duration of these instruments. The carrying value of the Company's
fixed-rate debt portfolio approximates fair value based on the estimated
borrowing costs available to the Company for debt with similar terms and
remaining maturities.
n. Discontinued Operation -- During the fourth quarter of 1996, the
Company decided to exit its plastics container business. The operations of
the plastics container business have been presented as a discontinued
operation and the historical financial statements have been restated to
present the assets, liabilities and operations of the plastics container
business as a discontinued operation. The sale of this business was
consummated on March 3, 1997. The Company subsequently sold the facility
that formerly housed the manufacturing operation to its lessee on March 3,
1998. See note 10.
o. Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
<PAGE>
2 INCOME TAXES
Total income taxes are allocated as follows (Dollar amounts in thousands):
For the years ended December 31, 1997 1996 1995
Continuing operations $ 126 $ (457) $(3,276)
Discontinued operation 39 (3,062) (490)
Extraordinary loss - - (63)
Total tax provision (benefit) $ 165 $(3,519) $(3,829)
Taxes from continuing operations were as follows:
Current
Federal $ 1,159 $(1,971) $ 1,021
State and local 322 244 277
Total current tax
provision (benefit) 1,481 (1,727) 1,298
Deferred
Federal (1,315) 1,084 (4,142)
State and local (40) 186 (432)
Total deferred tax
provision (benefit) (1,355) 1,270 (4,574)
Total tax provision (benefit) $ 126 $ (457) $(3,276)
A reconciliation of the income tax provision (benefit) from continuing
operations to the statutory federal rate is as follows:
For the years ended December 31,
1997 1996 1995
Statutory federal tax rate $ 118 $ (442) $ (2,839)
Non-deductible expenses 267 200 130
State income and franchise taxes 183 279 (100)
Credits and FSC benefit (893) (209) (251)
Valuation allowance - 250 -
Taxes over accrued in prior years - (410) -
Foreign operations 354 185 76
Other 97 (310) (292)
Total $ 126 $ (457) $ (3,276)
=========================================================================
<PAGE>
During 1997 the Company recognized a research and development credit
of $225,000 as well as a portion of the prior year's alternative minimum
tax credit carryforward of $700,000. Accordingly, the Company reduced its
tax liability and reduced income tax expense by $925,000 in 1997.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1996 are as follows:
As of December 31, 1997 1996
Deferred tax assets:
Net operating loss and credit
carryforwards $ 3,582 $ 1,309
Accrued postretirement cost 928 896
Accrued vacation 571 473
Accrued workers' compensation reserve 1,221 1,040
Other 134 706
Total gross deferred tax assets 6,436 4,424
Less valuation allowance (250) (250)
Net deferred tax assets 6,186 4,174
Deferred tax liabilities:
Property, plant and equipment (15,974) (13,861)
Inventories (2,425) (4,006)
Prepaid pension, net (707) (582)
Total gross deferred tax liabilities $(19,106) $(18,449)
Net deferred tax liability $(12,920) $(14,275)
=========================================================================
The Company recorded a valuation allowance for deferred tax assets as
of December 31, 1996 of $250,000. No additional valuation allowance was
required in 1997. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax asset will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the temporary differences
become deductible. Management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of
existing valuation allowances.
At December 31, 1997, the Company had net operating loss carryforwards
for state income tax purposes of approximately $15,300,000 which were
available to offset future state taxable income, if any, through 2008. The
Company also had alternative minimum tax credit carryforwards of
approximately $1,500,000 which were available to reduce federal regular
income taxes, if any, over an indefinite period.
3 LONG-TERM DEBT
Total long-term debt consists of (Dollar amounts in thousands):
As of December 31, 1997 1996
8.30% Senior notes due 1998 $ 6,200 $12,400
6.90% Senior notes due 2008 35,000 35,000
7.24% Senior notes due 2010 30,000 30,000
Bank Credit Agreement 9,200 10,000
Other 600 600
Total debt 81,000 $88,000
Less current portion (7,075) (6,200)
Total long-term debt $ 73,925 $ 81,800
=========================================================================
Pursuant to its debt agreements, the Company must comply with various
financial covenants. During the first quarter of 1997, the Company
obtained a temporary modification of its credit agreements providing
greater financial flexibility for 1997 by changing the fixed charge
coverage covenant. The Company did not meet the fixed charge coverage
requirements of the temporary modification as of September 30, 1997 and
December 31, 1997. The Company was granted a waiver of its fixed charge
coverage covenant for the third and fourth quarter noncompliance and paid a
fee of approximately $120,000. The fee is reflected as interest expense.
In addition, the coupon rate was increased by 15 basis points for all
interest bearing obligations during the third quarter of 1997. The Company
subsequently obtained a modification of its credit agreements for 1998,
amending the fixed charge coverage covenant. The Company believes it will
maintain compliance with these covenants throughout 1998.
Required principal repayments for the next five years are $7,075,000
in 1998 and $3,500,000 in 1999, 2000, 2001, and 2002.
The Company may borrow up to $25,000,000 under the terms of a
committed bank credit agreement which expires October 31, 1999. At
December 31, 1997, approximately $12,000,000 was available under this
agreement. The Company has an additional $5,000,000 uncommitted bank
borrowing facility. The unused portion of these agreements may be used by
the Company at any time. Borrowings under these agreements bear interest
at either the London Interbank Offered Rate plus .65% or prime less .35%,
at the option of the Company. The Company must pay a facility fee of .125%
on the unused portion of the committed facility.
4 COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under the terms of operating
leases that have initial or remaining noncancelable lease terms in excess
of one year from December 31, 1997, are as follows (in thousands):
December 31, Amount
1998 $ 2,370
1999 1,979
2000 1,069
2001 315
2002 54
Principal operating leases are for equipment, warehouse facilities and
office space. Rent expense related to operations for all operating leases
was $2,924,000, $2,628,000 and $2,084,000 in 1997, 1996 and 1995,
respectively. Rent is expensed ratably over the life of each lease,
although the timing of rental payments may be scheduled differently. It is
expected that in the ordinary course of business that leases will be
renewed or replaced as they expire.
At December 31, 1997, the Company had stand-by letters of credit
outstanding totaling USD$3,802,000 and AUD$150,000 securing a workers'
compensation policy, a municipal obligation, and performance obligations
associated with a grant from the State of Queensland, Australia.
In conjunction with the sale of the Kansas City, Kansas, facility in
June, 1997, the Company performed an environmental study. The site was
found to require approximately $200,000 of remediation which the Company is
required to perform. The Company deposited $200,000 in escrow, pursuant to
the terms of the contract, to be used to pay for the necessary remediation
at the site. This expense reduced the Company's gain on the sale of the
facility (see note 8). At December 31, 1997, the escrow balance was
approximately $175,000 which is expected to be sufficient to cover
remaining remediation.
The Company is a party to various legal and environmental matters
incidental to its business. In the opinion of management, these matters
will not have a material impact on the Company's consolidated financial
statements. Liabilities for loss contingencies are recorded when it is
probable that a liability has been incurred and the amount of the loss can
be reasonably estimated.
The Company has been notified that it is a potentially responsible
party (PRP) under Comprehensive Environmental Response, Compensation, and
Liability Act of 1980(CERCLA) with respect to the remediation of certain
sites where hazardous substances have been released into the environment.
The Company cannot predict with certainty the total costs of remediation.
However, based on investigations to date, the Company believes that any
liability with respect to these sites would not be material to the
financial condition and results of operations of the Company. There can be
no certainty that the Company will not be named as a PRP at additional
Superfund sites or be subject to other environmental matters in the future
or that the costs associated with those sites or matters would not be
material.
5 EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have five defined benefit pension
plans covering substantially all employees. Benefits for the salaried
retirement income plans are based on employee compensation during the five
highest consecutive years in the final 10 years prior to retirement. All
hourly and union employee benefits are based on a flat rate per year of
service.
Total pension expense was $420,000, $774,000 and $794,000 in 1997,
1996 and 1995, respectively. In 1996 and 1995, the Company recognized a
curtailment in three pension plans in conjunction with the Company-wide
restructuring. A curtailment expense of $6,000 and $374,000 was recorded
as part of restructuring expense in 1996 and 1995, respectively.
<PAGE>
<TABLE>
The funded status of the plans was as follows (Dollar amounts in thousands):
As of December 31, 1997 1996
<CAPTION>
Plan Assets Accumulated Plan Assets Accumulated
In Excess Of Benefits in In Excess Of Benefits in
Accumulated Excess of Accumulated Excess of
Benefits Plan Assets Benefits Plan Assets
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $ 32,187 $ 20,643 $ 29,702 $ 20,963
Non-vested benefits 427 207 347 158
Accumulated benefit obligation 32,614 20,850 30,049 21,121
Projected compensation increases 1,965 - 3,020 -
Projected benefit obligation 34,579 20,850 33,069 21,121
Estimated fair value of plan assets 45,904 22,457 40,713 19,411
Plan assets in excess (less than)
the projected benefit obligation 11,325 1,607 7,644 (1,710)
Unrecognized transition asset - (318) (344) (515)
Unrecognized prior service cost 215 984 288 1,078
Unrecognized gain (loss) (8,866) (2,876) (4,906) (323)
Adjustment for minimum liability - - - (503)
Net pension asset (liability) $ 2,674 $ (603) $ 2,682 $ (1,973)
==============================================================================
</TABLE>
Pension expense consisted of the following (in thousands):
For the Years Ended December 31, 1997 1996 1995
Benefits earned during the year $ 1,353 $ 1,745 $ 1,572
Interest cost on projected
benefit obligation 4,133 4,104 4,109
Actual return on assets (12,171) (5,336) (8,039)
Net amortization 7,105 261 3,152
Net pension expense $ 420 $ 774 $ 794
<PAGE>
Plan assets are invested in interest-bearing securities (bonds,
fixed income and money market funds), and domestic and international
equity securities.
In determining the actuarial present value of the projected benefit
obligation, the assumed discount rate was 7.25% in 1997 and 7.75% in
1996, respectively. The assumed rate of increase in future compensation
levels was 5.0%, and the expected long-term rate of return on assets was
9.25% in 1997 and 1996.
The Company makes contributions to a defined benefit multi-employer
pension plan for certain union employees at its San Leandro, California,
manufacturing facility. Amounts contributed to the plan totaled
$239,000, $350,000 and $239,000 in 1997, 1996 and 1995, respectively.
The Company has a long-term savings plan available to substantially
all non-union employees. The total expense to the Company for the plan
was $448,000, $697,000 and $686,000 in 1997, 1996 and 1995,
respectively. Effective March 1, 1996, the Company's contribution was
changed from a cash match to a match in the form of Sealright Co., Inc.
common stock.
The Company provides an unfunded supplemental executive retirement
plan (SERP) for certain officers and key employees whose benefits are
reduced because of compensation deferral elections or limitations under
federal tax laws. The Company's plan expense was $127,000, $84,000 and
$136,000 in 1997, 1996 and 1995, respectively.
The status of the plan was as follows (Dollar amounts in thousands):
As of December 31, 1997 1996
Accumulated benefit obligation $ (540) $ (256)
Projected compensation increases (23) (221)
Projected benefit obligation (563) (477)
Estimated fair value of plan assets - -
Plan assets less than the
projected benefit obligation (563) (477)
Unrecognized transition - -
Unrecognized prior service cost asset 381 437
Unrecognized gain (301) (319)
Adjustment for minimum liability (57) -
Net SERP liability $ (540) $ (359)
<PAGE>
6 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Employees hired prior to January 1, 1992 who retire from the
Company on or after attaining age 55 and have rendered service to the
Company ranging from 10 to 15 years are entitled to postretirement life
insurance and health care coverage. These benefits are subject to
retirees' contributions, deductibles, copayment provisions and other
limitations. The Company may amend, change or terminate the plan. The
Company has recorded a post-retirement benefit liability relating to
life insurance coverages provided. No liability has been recorded for
the healthcare coverage, as retirees pay substantially all of the health
care costs through premiums. Any shortfall of premiums in relationship
to actual costs are charged to expense with the intent of recovering
these costs in future periods.
The following table reconciles the plan's funded status to the
accrued postretirement life insurance cost liability as reflected on
the consolidated balance sheets as of December 31, 1997 and 1996 (in
thousands):
1997 1996
Accumulated postretirement benefit obligation:
Retirees $(1,874) $(1,555)
Other fully eligible participants (354) (286)
Other active participants (247) (247)
Unrecognized net (gain) loss 191 (152)
Accrued postretirement liability $(2,284) $(2,240)
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% and 7.75% in
1997 and 1996, respectively.
Postretirement expense consisted of the following (in thousands):
1997 1996 1995
Service cost $ 20 $ 25 $ 23
Interest cost 156 162 167
Total postretirement expense $ 176 $ 187 $190
<PAGE>
7 STOCK OPTION PLANS
The Company has two stock option plans with 850,000 shares of the
Company's common stock reserved for these plans. The first plan was
adopted in 1987 and has 150,000 shares of common stock reserved.
Options issued under the 1987 plan are non-qualified. The second plan
was adopted in 1995 and has 700,000 shares of common stock reserved.
Both incentive and non-qualified options may be issued under the 1995
plan. Under both plans, the exercise price of each option equals the
market price of the Company's stock on the date of grant. The maximum
term of each option is ten years. Options vest at varying rates
depending on the circumstances under which the grants are made. From
time to time, the Company issues options outside of either plan.
<PAGE>
Information regarding the Company's stock options is summarized below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1997 Price 1996 Price 1995 Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 293,000 $14.69 249,500 $14.56 146,500 $13.50
Granted 47,508 $10.87 57,000 $11.78 105,000 $15.77
Exercised - - - - (2,000) $12.75
Forfeited (52,906) $15.82 (13,500) $16.00 - -
Expired (47,000) $14.50 - $ - - -
Options outstanding at
end of year 240,602 $13.77 293,000 $14.69 249,500 $14.56
Options exercisable at
end of year 95,702 130,000 96,500
Weighted average fair value
of options granted during
the year $248,500 $156,750 $213,150
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Prices Number Life (years) Price Number Price
<S> <C> <C> <C> <C> <C>
$10.38-$15.00 132,602 7.65 $11.84 47,702 $11.90
$15.25-$20.75 108,000 7.30 $16.14 48,000 $16.31
Total 240,602 7.49 $13.77 95,702 $14.11
</TABLE>
The Company applied APB Opinion No. 25 in accounting for stock option
grants and, accordingly, no compensation cost has been recognized. Had the
Company recognized a compensation expense in accordance with SFAS No. 123,
the Company's net income (loss) would have been changed to the pro forma
amounts indicated below:
1997 1996 1995
Net Income(Loss) As Reported $ 266 $(5,804) $(5,728)
Pro Forma 161 (5,843) (5,861)
Basic and Diluted Earnings
(Loss) Per Share As Reported $ 0.02 $ (0.52) $ (0.52)
Pro Forma 0.01 (0.52) (0.53)
In accordance with SFAS No. 123, the compensation cost of options
granted during the year is reflected over the vesting period of the
options, generally five years. The Company did not apply the provisions of
SFAS No. 123 prior to 1995. As such, the pro forma net income and loss
reflects only the cost of options granted in 1997, 1996, and 1995.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The following assumptions
were used.
Year of Grant 1997 1996 1995
Expected Dividend Yield 1.0% 1.0% 2.9%
Expected Volatility 27.4% 27.6% 28.3%
Risk Free Interest Rate 5.5% 6.4% 5.4%
Expected Remaining Life 7.2 years 6.6 years 5.6 years
Option Value $5.23 $2.75 $2.03
8 RESTRUCTURING EXPENSE
In the fourth quarter of 1995, the Company announced a functional
reorganization and facilities consolidation plan to significantly reduce
the Company's cost structure and improve productivity. The consolidated
statement of operations for 1995 includes $16,875,000 of pretax charges
($10,125,000 after tax or $0.91 per basic and diluted share) relating to
this plan. As of December 31, 1995, $328,000 had been paid, $9,670,000 was
reflected on the 1995 consolidated balance sheet as a write down of long-term
assets, $2,140,000 was reflected as a write down of current assets and
$4,364,000 of this amount remained in accrued liabilities representing
approximately $3,905,000 related to severance, $225,000 related to
outplacement, and $234,000 related to exiting the corporate office lease
and legal expenses.
During 1996, the Company consolidated the paperboard manufacturing
operations conducted at its DeSoto, Kansas, facility, and moved the
corporate office, machine manufacturing operations, and research and
development to the DeSoto facility. The costs associated with moving
manufacturing equipment and personnel were $4,092,000 during 1996. In the
fourth quarter of 1996, the Company reflected an additional restructuring
charge of $685,000 relating to severance expense associated with
consolidating the Company's Charlotte, North Carolina, flexible packaging
facility and curtailing operations at the Raleigh, North Carolina, machine
manufacturing facility. At December 31, 1996, $1,855,000 remained on the
consolidated balance sheet as accrued restructuring liability. Of this
amount, $1,737,000 is related to severance, $86,000 is related to
outplacement, and $32,000 is related to legal expenses.
The net number of employees affected as a result of the restructuring
during 1996 was 180, or a reduction of 10 percent. Approximately 100
employees were affected as a result of the Charlotte and Raleigh
consolidations. Affected employees are from the salaried, hourly and union
groups of the Company and included senior management, middle management,
clerical and production employees.
During 1997, the Company sold four facilities that were idled as a
result of the restructuring program. In the first quarter, the Company
sold two facilities in Kansas City, Missouri, recording a restructuring
gain of approximately $700,000. These facilities formerly housed the
research and development and machine manufacturing operations. These
operations were transferred to the Company's DeSoto, Kansas, facility
during 1996. This gain was partially offset by restructuring expenses
related to the Charlotte-to-Akron consolidation. These expenses, which
were related to moving production equipment, were less than $100,000 during
the first quarter. In the second quarter, the Company sold the former
manufacturing facility in Kansas City, Kansas, for a gain of approximately
$200,000 and the Charlotte, North Carolina, facility for a gain of
approximately $1.2 million. The Company expects no further restructuring-
related gains or expenses. The remaining current restructuring liability
at December 31, 1997 consists primarily of unpaid severance benefits.
9 EXTRAORDINARY LOSS
During the fourth quarter of 1995, the Company retired, at a premium,
$1,850,000 of industrial revenue bonds issued in 1989 in conjunction with
the construction of the Company's Engineering Services facility. The
redemption resulted in an extraordinary charge of $94,000, comprised of the
call premium and unamortized issuance costs totaling $157,000, net of an
income tax benefit of $63,000.
<PAGE>
10 DISCONTINUED OPERATION
During the fourth quarter of 1996, the Company decided to exit its
plastics container business which manufactured rigid plastic thermoformed
and injection molded containers for the cultured dairy industry. The
operations of the plastics container business were accounted for as a
discontinued operation. The 1996 consolidated statement of operations
reflected an estimated loss on disposal of $2,856,000 which included income
taxes of $1,750,000 as well as $1,000,000 for operating losses during the
phase-out period.
The sale of this business was consummated on March 3, 1997 for cash of
$8,960,000. During the first quarter of 1997, the Company recognized a
pre-tax gain on the sale of this business of $93,000, or $54,000 after tax.
The operating results of the discontinued operation are summarized below:
1996 1995
Revenues $11,007 $13,656
Loss from operations (3,452) (1,289)
Income taxes 1,312 490
Net loss $(2,140) $ (799)
Net assets of the discontinued operation are summarized below:
1996
Inventories $2,705
Machinery and molds, net 6,005
Deferred income tax liability (1,497)
Estimated loss on disposal (1,200)
Net assets $6,013
On March 3, 1998, the Company sold the building that formerly housed
the Company's plastic manufacturing operation to the company that had been
leasing the facility for $4.9 million. The Company expects to record a
gain on the sale. The gain will be shown, net of tax, as a discontinued
operation in the first quarter of 1998.
<PAGE>
11 SUBSEQUENT EVENT
On March 2, 1998, the Company entered into a definitive agreement for
a cash merger with Huhtamaki, Oy, a worldwide food and packaging company
based in Finland. Simultaneous with the merger, the Company will
distribute, as a partial redemption of outstanding Company stock, its
flexible-packaging business to existing stockholders, forming a new public
company. Shareholders will receive $11.00 per share in cash and one-half
share of stock in the new corporation in exchange for each share of the
Company. Both the merger and the partial redemption will be a taxable
transaction. Subject to certain regulatory and shareholder approvals,
these transactions are expected to close in the third quarter.
12 QUARTERLY INFORMATION (Unaudited)
The following presents selected quarterly data for the three most
recent fiscal years (in thousands, except per share data). Sales and gross
profit have been restated to reflect the discontinued operation.
Basic Diluted
Net Net Income Net Income
Gross Income (Loss) (Loss)
Net Sales Profit (Loss) Per Share Per Share
1997
First quarter $ 62,200 $ 8,302 $ (443) $(0.04) $(0.04)
Second quarter 70,821 12,675 2,915 0.26 0.26
Third quarter 66,353 10,417 1,284 0.12 0.12
Fourth quarter 55,824 4,964 (3,490) (0.32) (0.32)
1996
First quarter $ 63,553 $ 9,716 $ (1,891) $ (0.17) $(0.17)
Second quarter 71,471 14,347 1,625 0.15 0.15
Third quarter 65,564 13,693 1,724 0.15 0.15
Fourth quarter 56,648 5,978 (7,262) (0.65) (0.65)
1995
First quarter $67,109 $13,291 $ 2,087 $ 0.19 $ 0.19
Second quarter 80,524 18,004 3,952 0.36 0.36
Third quarter 72,949 13,524 1,047 0.09 0.09
Fourth quarter 60,085 8,449 (12,814) (1.16) (1.16)
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Pursuant to recommendation made to it by the Audit Committee, on March
12, 1996 the Board of Directors dismissed Arthur Andersen LLP ("Arthur
Andersen") and engaged Peat Marwick to serve as the independent public
accountants of the Company's books and records with such replacement and
engagement to be effective beginning April 1, 1996. The Audit Committee's
recommendation to change independent public accountants was made on the
basis of written presentations made by several independent public
accounting firms (including Arthur Andersen and Peat Marwick) to the Audit
Committee.
The certifying accountant's report of Arthur Andersen for the fiscal
year ended December 31, 1995 contains no adverse opinion, disclaimer of
opinion or qualifications or modifications as to uncertainty, audit scope
or accounting principles. There were no disagreements with Arthur Andersen
on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure for the fiscal year ended
December 31, 1995.
The Company provided notice to Arthur Andersen on March 12, 1996 and
filed Form 8-K on April 1, 1996 in accordance with Item 304 of Regulation
S-K.
There were no disagreements with KPMG Peat Marwick regarding the
audits of the 1997 and 1996 consolidated financial statements.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Name of Director Principal Occupation for Last
Director Since Age Five Years and Directorships
G. Kenneth Baum(1) 1983 67 Chairman of the Board of George K. Baum
Group, Inc., an investment company in
Kansas City, Missouri, since May 1994.
Chairman of the Board of George K. Baum &
Company, an investment banking firm, from
April 1982 until May 1994. Mr. Baum is
also a director of H & R Block, Inc.,
Unitog Company, and Interstate Bakeries
Corporation.
D. Patrick
Curran(2) 1992 53 Chairman of the Board and President of
Curran Companies, a manufacturer and
supplier of specialty chemicals, since
August 1979. Mr. Curran is also a director
of Unitog Company, Applebee's
International, Inc. and American Safety
Razor Co.
Frederick O.
DeSieghardt 1983 73 Retired Vice Chairman of the Board of the
Company from February 1988 until his
retirement in 1990. Mr. DeSieghardt has
been associated with the Company since
September 1964.
Robert F.
Hagans(1)(2) 1983 71 Retired Chairman of the Board of Unitog
Company. Mr. Hagans is also a director of
Unitog.
<PAGE>
Charles F. Marcy 1995 47 President and CEO of the Company since
August 1995. President of the Golden Grain
Company, a subsidiary of Quaker Oats, Inc.
from April 1993 to August 1995. President
of National Dairy Products Corp., a
division of Kraft General Foods, Inc. from
January 1991 to April 1993
Marvin W. Ozley 1986 64 Retired Chairman of the Board, President
and CEO of the Company from April 1989 to
August 1995.
Arthur R. Schulze 1993 67 Retired Vice Chairman of the Board of
General Mills, Inc. from October 1989
until his retirement in April 1993. Mr.
Schulze is also a director of Dain
Rauscher, Inc.
Charles A.
Sullivan 1992 62 Chairman of the Board of Interstate
Bakeries Corporation since May 1991.
President and CEO of Interstate since March
1989. Mr. Sullivan is a director of UMB
Bank, n.a. and The Andersons, Inc.
William D.
Thomas(1)(2) 1983 54 President of George K. Baum Group, Inc.
since May 1994. Senior Managing Director
of George K. Baum Merchant Banc LLC since
May 1995. Vice Chairman of George K. Baum
& Company from June 1991 until May 1994.
Mr. Thomas is also a director of Unitog
Company.
_________________________
The Company's directors serve a one-year term which expires in 1998.
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
<PAGE>
Executive Officers
Name of Non-Director Principal Occupation for
Executive Officers Age Last Five Years
John T. Carper 46 Senior Vice President of Finance and CFO of
the Company since May 1994. From July 1989 to
May 1994, he was a partner with KPMG Peat
Marwick LLP, independent public accountants.
Mark E. Dowey 46 Vice President of Dairy Sales since March
1997. From 1988 to 1997 he was Director of
Sales of Sweetheart Packaging, a strategic
business unit of Sweetheart Cup Co. Inc. From
1986 to 1988 he was Director of Marketing of
Fort Howard Corporation.
Michael L. Lappa 48 Vice President of International Operations
since August 1997. From 1994 to 1997 he was
Vice President, Latin America for Mead
Corporation. From 1989 to 1994 he was Vice
President & General Manager, Canada for Mead.
J. Patrick Muldoon 38 Vice President of Marketing and Strategy of
the Company since January 1996. Since August
1996, he has also overseen the Research and
Development function. From July 1995 to
January 1996, he was Director of Customer
Marketing for the Golden Grain Company. From
July 1989 to July 1995, he held various
marketing positions with Quaker Oats, Inc.
Steven D. Saucier 44 Senior Vice President of Supply Chain since
April 1996. From January 1992 to April 1996,
he was the Manufacturing Manager for the
flexible films division of Mobil Corporation.
<PAGE>
John T. Slattery 50 Vice President of Information Systems and
Chief Information Officer of the Company since
December 1995. From March 1993 to December
1995, he was Vice President and Chief
Information Officer of James River
Corporation. From January 1990 to March 1993,
he was Vice President/General Manager of James
River.
T. Carl Walker, II 44 Vice President of Human Resources of the
Company since July 1996. From January 1995 to
July 1996, he was Director of Human Resources
for Quaker Oats, Inc. From November 1978 to
January 1995, he held various managerial
positions with Hewlett-Packard.
A. Lawrence Walton 53 Vice President of Food and Beverage Sales of
the Company since August 1996. From February
1996 to August 1996, he was Vice President of
Research and Development. Mr. Walton was Vice
President, Marketing and Technical Services of
Packaging Industries, Inc., a wholly owned
subsidiary of the Company, from June 1994 to
February 1996. From July 1991 to June 1994,
he was Vice President of Marketing & Sales
with Glenroy, Inc., a flexible packaging
company.
<PAGE>
Item 11. Executive Compensation.
Executive Compensation And Other Information Summary
The following table provides certain summary information
concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the
Company whose salary and bonus exceeded $100,000 (determined as
of December 31, 1997) for the years ended December 31, 1997, 1996 and 1995:
Summary Compensation Table
Long-Term
Compensation
Annual Awards
Compensation Securities
Name and Underlying All Other
Principal Salary Bonus Options Compensation
Position Year ($) ($) (#) ($)
Charles F. Marcy, 1997 300,000 -0- 3,000 13,958(1)
President and 1996 300,000 150,000 -0- 9,824(2)
CEO 1995 114,808 107,535 100,000 194,556(3)
John T. Carper, 1997 168,000 -0- 1,500 6,800(4)
Senior Vice 1996 168,000 -0- -0- 4,406(5)
President, Finance 1995 164,670 12,000 -0- 2,450(6)
and CFO
J. Patrick Muldoon 1997 155,000 -0- 1,250 4,327(6)
Vice President of 1996 155,000 31,000 15,000 43,070(7)
Marketing and 1995 N/A N/A N/A N/A
Strategy, Research
and Development
John T. Slattery 1997 150,000 -0- 1,200 4,471(8)
Vice President of 1996 150,000 17,500 -0- -0-
Information Systems 1995 12,500 -0- 5,000 12,500(9)
and CIO
<PAGE>
Steven D. Saucier 1997 150,000 -0- 900 1,875(6)
Senior Vice 1996 87,500 -0- 15,000 20,000(9)
President, Supply 1995 N/A N/A N/A N/A
Chain
(1) Company's payments for Long-Term and Savings Plan ($3,958) and
deferred compensation plan ($10,000).
(2) Company's payments for reimbursement of moving expenses ($7,387) and
Long-Term Savings Plan ($2,437).
(3) Company's payments for reimbursement of moving expenses ($51,699)
and tax protected home equity loss ($142,857).
(4) Company's payments for Long-Term Savings Plan ($4,200) and deferred
compensation ($2,600).
(5) Company's payments for Long-Term Savings Plan ($3,971) and deferred
compensation ($435).
(6) Company's payments for Long-Term Savings Plan.
(7) Company's payments for signing bonus ($26,000) and reimbursement of
moving expenses ($17,070).
(8) Company's payments for Long-Term Savings Plan ($3,821) and deferred
compensation ($650).
(9) Company's payment of a signing bonus.
<TABLE>
Option Grants, Exercises and Holdings
The following table provides further information concerning
grants of stock options pursuant to the 1995 Stock Option Plan:
Option Grants In Last Fiscal Year
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants (1) for Option Term
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees or Expiration
Name Granted in Fiscal Year Base Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Charles F. Marcy 3,000 6.3% $10.88 02/14/02 $ 9,030 $ 19,920
John T. Carper 1,500 3.1% 10.88 02/14/02 4,515 9,960
J. Patrick Muldoon 1,250 2.6% 10.88 02/14/02 3,762 8,300
Steven D. Saucier 900 1.9% 10.88 02/14/02 2,709 5,976
John T. Slattery 1,200 2.5% 10.88 02/14/02 3,612 7,968
<F1>
(1) All options were granted with an exercise price equal to the closing sale price for the
Company's common stock on the date of grant, as reported on the NASDAQ National Market
System. Except in the event of death, disability or retirement, if any of the named
executive officers ceases to be employed by the Company, his options shall terminate
immediately. prior to such merger or consolidation. Upon a merger or consolidation in
which the Company is not the surviving corporation, all options outstanding shall become
vested and exercisable immediately prior to such merger or consolidation.
</FN>
</TABLE>
The following table provides information with respect to the named
executive officers concerning exercised and unexercised options as of the
end of 1997:
Option Exercises and Year End Option Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal
Shares Fiscal Year-End
Acquired Year-End
on Value
Exercise Realized Exercisable/ Exercisable/
Name Unexercisable Unexercisable
Charles F. -0- -0- 43,000/ 4,500/
Marcy 60,000 -0-
John T.
Carper -0- -0- 13,500/ 2,250/
8,000 -0-
J. Patrick
Muldoon -0- -0- 7,250/ 10,155/
9,000 12,420
John T.
Slattery -0- -0- 4,200/ 5,190/
2,000 2,260
Steven D.
Saucier -0- -0- 3,900/ 1,350/
12,000 -0-
<PAGE>
Retirement Income Plan
The retirement benefits pursuant to the Company's pension
plan are generally based on the average annual compensation of the highest
five consecutive years of annual compensation (salary and bonus, as
identified in the Summary Compensation Table, above) during the previous
ten years of credited service. The following table sets forth the
estimated annual retirement benefits payable (on a straight-life annuity
basis) upon normal retirement to participating employees in the specified
remuneration and years-of-service classifications. Such retirement
benefits are not subject to reduction for Social Security benefits. The
estimated credited years of service for the named executive officers based
on continued service to normal retirement age would be: Mr. Marcy, 19
years; Mr. Carper, 20 years; Mr. Muldoon, 27 years; Mr. Saucier, 21 years;
and Mr. Slattery, 15 years.
Pension Plan Table
Remuneration Years of Service
15 20 25 30 35
$125,000 $17,250 $23,000 $28,750 $34,500 $40,250
$150,000 $20,700 $27,600 $34,500 $41,400 $48,300
$175,000 $24,150 $32,200 $40,250 $48,300 $56,350
$200,000 $27,600 $36,800 $46,000 $55,200 $64,400
$225,000 $31,050 $41,400 $51,750 $62,100 $72,450
$250,000 $34,500 $46,000 $57,500 $69,000 $80,500
$300,000 $41,400 $55,200 $69,000 $82,800 $96,600
$400,000 $55,200 $73,600 $92,000 $110,400 $128,800
$450,000 $62,100 $82,800 $103,500 $124,200 $144,900
$500,000 $69,000 $92,000 $115,000 $138,000 $161,000
Payment of the specified retirement benefits is contingent
upon continuation of the plans in their present form until the
employee retires and, in the case of those subject to reduction
of benefits under the Internal Revenue Code, selection by the
administrative committee of the Deferred Compensation Plan to
participate in the Company's supplemental executive retirement
provisions under such Deferred Compensation Plan.
<PAGE>
Compensation of Directors
In order to more closely align director interests with those of the
Company's shareholders, the Board of Directors adopted a compensation plan
whereby at least 50% of the Board's annual compensation will be paid in the
form of Sealright common stock with the remaining compensation in the form
of cash. The compensation plan became effective January 1, 1997. Under
the plan, each non-officer director receives an annual retainer of $12,000
and $500 for each board or committee attended. At least 50% of the
directors' compensation is paid in the form of restricted stock. The stock
received by the directors is restricted from resale for three years
following issuance. The directors are entitled to any dividends declared
on such shares. For 1997, the directors received 53% of their aggregate
compensation in the form of stock with the remainder in cash.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of G. Kenneth Baum,
Robert F. Hagans and William D. Thomas. There are no Compensation
Committee interlocks with other companies.
Agreements
In September, 1997, the Board of Directors adopted a retention plan
for executive officers of the Company. The Company will pay each
executive, with the exception of Mr. Marcy, a retention payment of $60,000
on May 29, 1998, if the executive remains in continuous employment through
this date, unless asked to leave prior to this date without cause. In
addition, if the executive is terminated by the Company or any successor
company without cause, the executive is entitled to receive a severance
benefit, outplacement services, and insurance and other benefits, for an
additional 12 months. Mr. Marcy is entitled to a retention payment of
$120,000. Additionally, pursuant to his existing employment agreement, Mr.
Marcy is entitled to severance and outplacement benefits for 24 months, and
insurance benefits for 18 months.
Compensation Committee Report on Executive Compensation
On an annual basis, the Compensation Committee reviews the salaries
and bonuses of the executive officers and other employees, administers
the 1987 Stock Option Plan (the "1987 Plan"), the 1995 Stock Option Plan
(the "1995 Plan"), and oversees the administration of the Company's
compensation program. From time to time, the Committee engages the use
of independent compensation consultants to aid in focusing and
implementing the Company's compensation policies and objectives.
In accordance with the Securities and Exchange Commission's rules
designed to enhance disclosure of companies' policies toward executive
compensation, the following report is submitted by the committee members
in their capacity as the Board's Compensation Committee. The report
addresses the Company's compensation policy as it related to the
executive officers for the 1997 fiscal year.
General Compensation Policy
The Compensation Committee has been, and continues to be, guided by
a belief that executive compensation should reflect the Company's ability
to create shareholder value. To this end, the Company recently adopted a
uniform performance measurement system that aligns the goals, objectives,
and ultimately compensation, of each executive officer and senior manager
with the strategic goals of the Company. In 1995, the Board of
Directors, along with senior management, re-defined the Company's
strategic goals. Base compensation, merit and bonus awards are based
primarily on the individual's attainment of predetermined goals and
objectives as well as the Company's ability to increase shareholder
value. The Company measures shareholder value using the concepts of
"economic profit" and "Sealright Value Added", or SVA. The Compensation
Committee also relies on underlying earnings performance in determining
performance-based compensation. The Compensation Committee has not yet
adopted a policy with respect to the $1,000,000 limitation on
deductibility of executive compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended, since current compensation
levels fall significantly below that amount.
Fiscal 1997 Compensation
The Company's executive compensation plan integrates annual base
salary and bonuses. Executive bonuses are determined as part of the
Leadership Incentive Plan (LIP). The LIP's goal attainment is based on
the Company achieving its SVA target as well as attaining other strategic
goals. The compensation policies, as implemented, endeavor to enhance the
profitability of the Company, and thus shareholder value, by tying the
financial interests of the management with those of the Company.
<PAGE>
Base Salary
As a general matter, an executive officer's base salary is
subjectively positioned so as to reflect the experience and performance
of such executive officer and the performance of the Company. The
Compensation Committee initially determines the amount of base salary
based on factors such as prior level of pay, quality of resume,
responsibilities of the position and salary levels of similarly
positioned executives in other companies of comparable size within the
Company's industry. Since many of the companies in the Company's peer
group (for purposes of the performance graph, below) are much larger than
the Company, the Compensation Committee does not directly compare the
salaries of the Company's executives exclusively with those of its peer
group. The Committee believes that such a comparison would result in
overstating the appropriate level of executive compensation. However,
the Company does benchmark executive compensation against similar size
non-durable manufacturing companies to ensure that the level of
remuneration is appropriate.
Leadership Incentive Plan
For its executive officers and other key employees, the Company's
Leadership Incentive Plan couples compensation to the Company's SVA
target and other strategic goals. Under the LIP, each participating
officer and key employee is assigned a payout percentage which, when
multiplied by his/her base salary, establishes the amount of his/her
annual bonus. Had the Company achieved its target in 1997, the bonus
payout would have been paid in a combination of cash and common stock of
the Company, depending on the percent of goal attainment. As the percent
of goal attainment increases, the percent of bonus payout in the form of
common stock increases. The common stock would be issued at a 25%
discount to the market price at the date of award and placed in trust,
restricted from resale for three years following the bonus payout date.
Dividends declared on the common stock, if any, are paid to the employee.
For 1997, the Company did not achieve its minimum LIP target and no
payout was made. For 1998, the Company will pay out bonuses in the form
of cash, assuming attainment of performance goals.
Stock Option Awards
The Compensation Committee also awards stock options to executive
officers and key employees under the 1987 Plan, the 1995 Plan, or
otherwise. The Committee believes that stock options are an effective
incentive for executives to create value for shareholders since the value
of an option bears a direct relationship to appreciation in the Company's
stock price. The Compensation Committee subjectively and informally
determines the granting of stock options. In making the determination,
the Committee examines (i) the Company's performance, as determined by
SVA, other subjective measures, and the market price of its common stock,
(ii) the number and exercise price of options then held by each
executive, (iii) the total stock holdings of the executive officer, (iv)
the individual performance of the executive (as informally evaluated by
other executives and/or the Board), (v) the executive's potential
contribution to the Company, and (vi) the executive's position with the
Company. The Compensation Committee does not separately weigh such
criteria, but rather views the mix of information with respect to each
executive officer.
For 1997, the Compensation Committee reserved 265,000 stock options
for award to executive officers if the Company achieved its earnings per
share target. The Company did not achieve its target and the options
were not awarded.
During 1997, the Compensation Committee granted 25,000 options to
two executive officers in conjunction with each officers' new
responsibilities with the Company. In lieu of cash merit increases,
executive officers received 1997 merit increases in the form of stock
options. The awards were based on the dollar equivalent of a 3% merit
increase. The options vested six months from grant date and expired five
years from grant date. An aggregate of 10,400 options were awarded to
executive officers in lieu of cash increases.
President and CEO Compensation
The Compensation Committee decided not to change Mr. Marcy's base
annual salary during 1997. Mr. Marcy's base compensation and bonus were
set based on the foregoing policies.
<PAGE>
Summary
The Compensation Committee believes that the executive officers of
the Company are dedicated to achieving significant improvements in
long-term financial performance, and that the compensation policies and
programs contribute to achieving this focus. The Compensation Committee
believes that the compensation levels during fiscal 1997 adequately
reflected the Company's compensation goals and policies.
The Compensation Committee report is submitted by:
G. Kenneth Baum
Robert F. Hagans
William D. Thomas
Company Performance
The following graph shows a five-year comparison of
cumulative total returns for the Company, the NASDAQ Composite
and an index of peer companies selected by the Company.
Comparison Of Five-Year Cumulative Total Return
(Sealright Co., Inc., NASDAQ Composite, and Peer Group)
Dollars
1992 1993 1994 1995 1996 1997
Sealright 100.00 71.1 87.7 55.2 53.7 63.3
Peer Group 100.00 98.2 102.9 117.3 139.0 181.2
NASDAQ 100.00 114.8 112.2 158.7 195.2 239.5
The total cumulative return on investment (change in the
year-end stock price plus dividends reinvested at the ex-dividend
date) for each of the periods for the Company, the peer group and the
NASDAQ Composite is based on the stock prices at the end of fiscal year
1992, assuming a $100 investment. The graph compares the performance of
the Company with that of the NASDAQ Composite and peer companies selected
by the Company with the investment weighted at the beginning of the
period based on market capitalization.
The peer group consists of the following companies: Bemis Company,
Inc., Liqui-Box, Inc., Shorewood Packaging Corporation and Sonoco
Products Company. The peer group was approved by the Compensation
Committee. Since December 31, 1996, two companies previously in the peer
group, James River Corporation of Virginia and Kerr Group, Inc. ceased to
be independent public companies and have been removed from the peer
group.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth with respect to the Company's common
stock as of December 31, 1997: (i) the only persons known to be
beneficial owners of more than 5% of the Company's common stock; (ii)
shares beneficially owned by all directors and nominees; (iii) each of
the executive officers named in the Summary Compensation Table set forth
herein; and (iv) shares beneficially owned by all directors and executive
officers as a group.
<TABLE>
Amount and Nature of Beneficial Ownership(1)
<CAPTION>
Direct,
Indirect
& Profit
Sharing Right to
Name Plan(2) Acquire(3) Other(4) Percent
<S> <C> <C> <C> <C>
G. Kenneth Baum 743,205 - 3,412,500(5) 37.5%
William D. Thomas 300,590 - 3,512,700(5)(6) 34.4%
George K. Baum Group, Inc. 3,412,500(5) - - 30.8%
120 West 12th Street
Kansas City, Missouri 64105
T. Rowe Price Associates, Inc. 740,000 - - 6.7%
100 East Pratt Street
Baltimore, Maryland 21202
Marvin W. Ozley 104,773 4,000(7) 61,523(8) 1.5%
Frederick O. DeSieghardt 30,590 - 65,000(9) 1.1%
Charles F. Marcy 10,500 43,000 4,577(10)(11) *
John T. Carper 14,917 13,500 3,579(10) *
J. Patrick Muldoon - 7,250 351 *
Charles A. Sullivan 5,590 - - *
John T. Slattery - 4,200 325 *
A. Lawrence Walton - 3,200 511 *
Robert F. Hagans 4,790 - - *
Steven D. Saucier - 4,000 133 *
T. Carl Walker - 3,600 136 *
D. Patrick Curran 1,590 - - *
Arthur R. Schulze 1,590 - - *
Directors and Executive 4,946,720 44.6%
Officers as a Group
(15 persons)
* Percentages do not exceed 1% of the issued and outstanding
shares of common stock.
<F1>
(1) Calculated in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. Nature of beneficial
ownership of securities is direct unless indicated
otherwise by footnote. Beneficial ownership as shown in
the table arises from sole voting power and sole
investment power unless otherwise indicated by footnote.
<F2>
(2) Includes shares held in personal trusts where the director or
officer has sole discretion as to voting of shares. Also includes
shares held in the Company's Long-Term Savings Plan (LTSP) where the
participant has voting discretion.
<F3>
(3) Unless otherwise noted, includes shares issuable pursuant to vested
stock options.
<F4>
(4) Unless otherwise noted, includes shares held in the LTSP which are
voted by the Plan's administration committee. Mr. Marcy, Mr. Carper
and Mr. Walker, among others, serve on the committee.
<F5>
(5) Includes 3,412,500 shares owned by George K. Baum Group, Inc.
(Group). Mr. Baum and Mr. Thomas are each a director, officer and
shareholder of Group and have shared voting and investment power
over these shares. Excludes shares owned by officers and employees
of Group and its subsidiaries.
<F6>
(6) Includes 100,000 shares held by his spouse and 200 shares held by
his spouse as custodian for their children, in which he disclaims
beneficial ownership.
<F7>
(7) Mr. Ozley has options to acquire 2,667 units. Each unit consists of
one share of common stock and one-half share of restricted stock.
These options are currently exercisable.
<F8>
(8) Includes 41,750 shares held by his spouse as trustee of a revocable
trust established by her; 19,500 shares held in trust for the
benefit of Mr. Ozley's daughter, of which his spouse is trustee; 273
shares which are owned in the Company's Long-Term Savings Plan.
<F9>
(9) Includes 46,500 held indirectly by Mr. DeSieghardt as a joint
trustee with his wife of a unit trust established by him and 18,500
shares held by a foundation, of which Mr. DeSieghardt is a trustee.
<F10>
(10) Includes 3,000 shares held by the Sealright Foundation, Inc., a
501(c)(3) foundation of which Mr. Marcy and Mr. Carper are trustees.
<F11>
(11) Includes 1,000 shares held jointly with his wife and 577 shares in
the LTSP.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires directors
and certain officers of the Company, as well as persons who own more than
10% of the Company's outstanding common stock ("Reporting Persons"), to
file reports of ownership and changes in ownership on Forms 3, 4 and 5
with the Securities and Exchange Commission. The Company believes that
during the preceding year all Reporting Persons timely complied with all
filing requirements applicable to them.
Item 13. Certain Relationships and Related Transactions.
On September 12, 1997, the Company entered into an financial advisory
agreement with George K. Baum & Company (GKB&Co.) to advise the board of
directors on various financial matters relating to the potential sale of
all or part of the Company. Pursuant to the agreement, which is filed as
Exhibit 10(ee) to this Form 10-K, GKB&Co. is entitled to receive $32,000
plus 0.25% of the aggregate consideration of the potential sale
transaction, if consummated. At the time the Company engaged GKB&Co., it
also entered into a financial advisory agreement with Goldman Sachs &
Company (Goldman). The fees negotiated between the Company, Goldman and
GKB&Co. are believed to be competitive relative to those charges by other
financial advisory firms.
Mr. G. Kenneth Baum and Mr. William D. Thomas serve as directors of the
Company and collectively own or control in excess of ten percent of the
outstanding equity of the Company (see Part III, Item 12). Messrs. Baum
and Thomas are affiliated with GKB&Co., or companies affiliated with
GKB&Co., and serve in various management capacities (see Part III, Item
10).
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
The Company's financial statement, prepared in accordance with
Regulation S-X, including statements of operations, cash flow, and
stockholders' equity, for the three fiscal periods ended December 31,
1997, 1996, and 1995, and balance sheets as of December 31, 1997 and 1996,
and related notes and the independent auditors' opinion thereon are
included under Item 8.
(2) Financial Statement Schedules
No financial statement schedules are required to be
included in this Annual Report by the Securities and
Exchange Commission's current regulations.
(3) Exhibits
Exhibit
Number Description
3(a) Certificate of Incorporation, as amended, of
the Registrant (Incorporated by reference
from Exhibit 3(a) to Form 10-K for year ended
December 31, 1987)
3(b) Amended and Restated Bylaws dated February
17, 1988 (Incorporated by reference from
Exhibit 3(b) to Form 10-K for year ended
December 31, 1987)
4(a) Specimen Common Stock Certificate
(Incorporated by reference from Exhibit 4 to
Amendment No. 1 to Form S-1, effective April
2, 1986 (Registration No. 33-3508)
4(b) Loan Agreement with Metropolitan Life Insurance Company
for $40,000,000, 8.15% Senior Notes due October 22,
1998 (Incorporated by reference from Exhibit 4(d) to
Form 10-K for year ended December 31, 1993.)
4(c) Credit Agreement with UMB Bank, n.a. dated
October 22, 1991 for a $25,000,000 line of
credit (Incorporated by reference from
Exhibit 4(c) to Form 10-K for year ended
December 31, 1993.)
4(d) Note Agreement with The Prudential Insurance
Company of America for $35,000,000, 6.75%
Senior Notes due September 9, 2008
(Incorporated by reference from Exhibit 4(b)
to Form 10-K for year ended December 31,
1993.)
4(e) First Amendment to the credit agreement with
UMB Bank, n.a. for a $30,000,000 line of
credit dated August 5, 1994. (Incorporated
by reference from Exhibit 4(d) to Form 10-K
for the year ended December 31, 1994.)
4(f) Second Amendment to the credit agreement with
UMB Bank, n.a. for a $40,000,000 line of
credit dated December 20, 1994.
(Incorporated by reference from Exhibit 4(e)
to Form 10-K for the year ended December 31,
1994.)
4(g) Master Shelf Agreement with Prudential Insurance
Company of America for $75,000,000 Senior Notes and
$30,000,000, 7.09% Senior Notes, Series A, due October
17, 2010. (Incorporated by reference from Exhibit 4(g)
to Form 10-K for the year ended December 31, 1995.)
4(h) Third Amendment to the credit agreement with
UMB Bank, n.a. for a $30,000,000 line of
credit dated December 1, 1995. (Incorporated
by reference from Exhibit 4(h) to Form 10-K
for the year ended December 31, 1995.)
4(i) Waiver of compliance and amendment to note
agreements with The Prudential Insurance
Company of America, Metropolitan Life
Insurance Company, Mutual of Omaha Insurance
Company, and UMB Bank, n.a. dated January 24,
1996. Incorporated by reference from Exhibit
4(i) to Form 10-K for the year ended December
31, 1996.)
4(j) Waiver of compliance to note agreements with
The Prudential Insurance Company of America,
Metropolitan Life Insurance Company, Mutual
of Omaha Insurance Company, and UMB Bank,
n.a. dated October 17, 1996. Incorporated by
reference from Exhibit 4(j) to Form 10-K for
the year ended December 31, 1996.)
4(k) Fourth Amendment to the credit agreement with
UMB Bank, n.a., filed herewith.
4(l) Waiver of compliance and amendment to note
agreements with the Prudential Insurance
Company of America dated September 30, 1997,
Metropolitan Life Insurance Company dated
October 22, 1997, and Mutual of Omaha
Insurance Company dated October 1, 1997,
filed herewith.
4(m) Fifth Amendment and waiver of compliance to
the credit agreement with UMB Bank, n.a. for
a $25,000,000 line of credit dated November
10, 1997, filed herewith.
10(a) Trademark License Agreement between Sealright
Co., Inc. and Sealright Packaging Company
dated December 31, 1990 (Incorporated by
reference from Exhibit 10(h) to Form 10-K for
year ended December 31, 1993.)
10(b) Patent License Agreement between Sealright
Co., Inc. and Sealright Packaging Company
dated December 31, 1990 (Incorporated by
reference from Exhibit 10(i) to Form 10-K for
year ended December 31, 1993.)
10(c) Incentive Compensation Plan of Sealright Co.,
Inc. effective January 1, 1986 (Incorporated
by reference from Exhibit 10(i) to Form S-1)
10(d) Sealright Co., Inc. Amended and Restated 1987
Stock Option Plan (Incorporated by reference
from Form S-8, effective November 2, 1988
(Registration No. 33-25304))
10(e) Retirement Income Plan of Sealright Co., Inc.
dated January 1, 1994 (Incorporated by
reference from Exhibit 10(n) to Form 10-K for
year ended December 31, 1993.)
10(f) Sealright Co., Inc. and Subsidiaries Long-
Term Incentive Plan "Restated" effective
January 1, 1992 and amended on January 15,
1992 (Incorporated by reference from Exhibit
10(o) to Form 10-K for year ended December
31, 1993.)
10(g) Employment Agreement with John T. Carper,
effective May 16, 1994. (Incorporated by
reference from Exhibit 10(n) to Form 10-K for
the year ended December 31, 1994.)
10(h) Sealright Co., Inc. Deferred Compensation Plan
effective January 1, 1994. (Incorporated by reference
from Exhibit 10(o) to Form 10-K for the year ended
December 31, 1994.)
10(i) Employment Term Sheet with Charles F. Marcy, effective
August 14, 1995. (Incorporated by reference from
Exhibit 10(p) to Form 10-K for the year ended December
31, 1995.)
10(j) Stock Option Agreement with Charles F. Marcy effective
August 14, 1995. (Incorporated by reference from
Exhibit 10(q) to Form 10-K for the year ended December
31, 1995.)
10(k) Incentive Stock Option Agreement with Charles F. Marcy
effective August 14, 1995. (Incorporated by reference
from Exhibit 10(r) to Form 10-K for the year ended
December 31, 1995.)
10(l) Noncompetition and Nondisclosure Agreement with Charles
F. Marcy effective August 14, 1995. (Incorporated by
reference from Exhibit 10(s) to Form 10-K for the year
ended December 31, 1995.)
10(m) Separation Agreement with Marvin W. Ozley effective
August 14, 1995. (Incorporated by reference from
Exhibit 10(t) to Form 10-K for the year ended December
31, 1995.)
10(n) Sealright Long-Term Savings Plan (Incorporated by
reference from Form S-8, effective February 16, 1996
(Registration No. 33-300979))
10(o) Sealright Co., Inc. 1995 Stock Option Plan.
(Incorporated by reference from Form S-8, effective
July 30, 1997)(Registration No. 333-32419).
10(p) Employment Term Sheet with J. Patrick Muldoon,
effective January 5, 1996. (Incorporated by reference
from Exhibit 10(p) to Form 10-K for the year ended
December 31, 1996.)
10(q) Assignment and Bill of Sale and Assumption of
Liabilities between Sealright Co., Inc. and
Sealright Packaging Company dated December
31, 1996. (Incorporated by reference from
Exhibit 10(q) to Form 10-K for the year ended
December 31, 1996.)
10(r) Assignment and Bill of Sale between Sealright
Co., Inc. and Sealright Manufacturing - West,
Inc. dated December 31, 1996. (Incorporated
by reference from Exhibit 10(r) to Form 10-K
for the year ended December 31, 1996.)
10(s) Sealright Co., Inc. Director Stock
Compensation Plan and Amended and Restated
Director Stock Compensation Plan, filed
herewith. (Registration No. 333-32411)
10(t) Sealright Co., Inc. Leadership Incentive Plan
and Sealright Co., Inc. Sales Incentive Plan,
filed herewith. (Registration No. 333-32403)
10(u) Executive Retention Agreement between
Sealright Co., Inc. and John T. Carper dated
October 21, 1997, filed herewith.
10(v) Executive Retention Agreement between
Sealright Co., Inc. and Mark E. Dowey dated
October 21, 1997, filed herewith.
10(w) Executive Retention Agreement between
Sealright Co., Inc. and Michael L. Lappa
dated October 21, 1997, filed herewith.
10(x) Executive Retention Agreement between
Sealright Co., Inc. and Charles F. Marcy
dated October 21, 1997, filed herewith.
10(y) Executive Retention Agreement between
Sealright Co., Inc. and J. Patrick Muldoon
dated October 21, 1997, filed herewith.
10(z) Executive Retention Agreement between
Sealright Co., Inc. and Steven D. Saucier
dated October 21, 1997, filed herewith.
10(aa) Executive Retention Agreement between
Sealright Co., Inc. and John T. Slattery
dated October 21, 1997, filed herewith.
10(bb) Executive Retention Agreement between
Sealright Co., Inc. and T. Carl Walker dated
October 21, 1997, filed herewith.
10(cc) Executive Retention Agreement between
Sealright Co., Inc. and A. Lawrence Walton
dated October 21, 1997, filed herewith.
10(dd) Engagement Agreement between Sealright Co.,
Inc. and Goldman Sachs & Co. dated September
12, 1997, filed herewith.
10(ee) Engagement Agreement between Sealright Co.,
Inc. and George K. Baum and Company dated
September 12, 1997, filed herewith.
21 Subsidiaries of the Registrant, filed
herewith.
27 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of
1997. The Company filed a Form 8-K on March 17, 1998 discussing the
proposed merger with Huhtamaki Oy. See Item 8, note 11.
<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.
Sealright Co., Inc.
(Registrant)
By/s/ Charles F. Marcy
Charles F. Marcy
President and Chief
Executive Officer
Dated: March 24, 1998
Pursuant to the requirements of the Securities 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.
Signature Title Date
/s/ Charles F. Marcy President and Chief March 24, 1998
Charles F. Marcy Executive Officer
/s/ John T. Carper Senior Vice President March 24, 1998
John T. Carper Finance and Principal
Accounting Officer
/s/ G. Kenneth Baum Director March 24, 1998
G. Kenneth Baum
/s/ D. Patrick Curran Director March 24, 1998
D. Patrick Curran
/s/ F. O. DeSieghardt Director March 24, 1998
Frederick O. DeSieghardt
/s/ Robert F. Hagans Director March 24, 1998
Robert F. Hagans
/s/ Marvin W. Ozley Director March 24, 1998
Marvin W. Ozley
/s/ Arthur R. Schulze Director March 24, 1998
Arthur R. Schulze
/s/Charles A. Sullivan Director March 24, 1998
Charles A. Sullivan
/s/ William D. Thomas Director March 24, 1998
William D. Thomas
<PAGE>
EXHIBIT 4K
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT is made and
entered into effective as of the 7 day of April ,
1997, by and between Sealright Co., Inc., a Delaware corporation
( Sealright ), and UMB Bank, n.a., f/k/a United Missouri Bank,
n.a, a national banking association ( Bank ).
WHEREAS, Sealright and Bank entered into a Credit Agreement
(the Agreement ) dated as of October 22, 1991, the terms of
which were modified and amended by an Amendment to Credit
Agreement dated as of August 5, 1991, a Second Amendment to
Credit Agreement dated as of December 20, 1994, a Third Amendment
to Credit Agreement dated as of December 1, 1995, a letter
agreement dated January 24, 1996, and a letter agreement dated
February 27, 1997 (the Agreement, as thereby modified and
amended, hereinafter the Credit Agreement ); and
WHEREAS, Sealright has requested that the Bank issue one or
more letters of credit on its account; and
WHEREAS, the Bank is willing, on the terms set forth herein,
to grant such request .
NOW, THEREFORE, in consideration of the mutual agreements of
the parties hereto, and for other good and valuable
consideration, the receipt of which is hereby acknowledge, the
parties mutually agree as follows:
1. A new Section 1.41 is hereby added to the Credit Agreement
to read as follows:
The term Loans means all loans outstanding under the
Revolving Credit.
2. Section 2 of the Credit Agreement is hereby deleted and
replaced in its entirely with the following:
2. THE REVOLVING CREDIT/ ISSUANCE OF LETTERS OF
CREDIT. Subject to all of the terms and conditions
hereof, and so long as there shall exist no Default, on
such dates as Sealright may request (which are called
Closing Dates ), the Bank will lend to Sealright,
during the period from the effective date of this
Agreement to the termination of the Revolving Credit,
such amounts (in integral multiples of $100,000) as
Sealright may from time to time require by notice to
the Bank (the Revolving Credit ). Any Loans in excess
of $5,000,000 shall require three (3) business days
written notice from Sealright; any permitted oral
notice under this Article 2 shall be confirmed in
writing within twenty-four (24) hours. Each Loan will
be made at the Bank s office by recording the amount
thereof on the Promissory Note (as defined in Section
2.2. below) and by crediting the amount thereof to the
general account of Sealright with the Bank. The
proceeds of each such Loan shall be applied only as
provided in Section 2.5 below.
Subject also to all of the terms and conditions of
this Agreement, and so long as there shall exist no
Default, the Bank will issue from time to time for the
account of Sealright one or more letters of credit;
provided, however, the aggregate exposure under all
outstanding letters of credit plus the aggregate
outstanding principal amount of all Loans under the
Revolving Credit shall at no time and in no event
exceed the maximum amount which may be outstanding
under the Revolving Credit. Letters of credit will be
issued on any business day on or after the date hereof
provided, however, that the maturity of any letter of
credit issued hereunder shall be no later than one (1)
day prior to the date the Revolving Credit shall
terminate as provided herein. Sealright may from time
to time request a letter of credit by providing a
notice to the Bank which is actually received not later
than 3:00 p.m. (Kansas City time) on the first business
day prior to the requested issuance for such letter of
credit. Such notice shall specify (a) the amount of
the requested letter of credit, (b) the beneficiary
thereof, (c) the requested issuance date and (d) the
principal terms of the text for such letter of credit.
Each letter of credit will be issued by the Bank by
forwarding such letter of credit as directed in
writing by Sealright. In connection with the
issuance of any letter of credit, Sealright shall
execute and deliver to the Bank any customary letter
of credit application forms generally required by the
Bank.
If and to the extent a drawing is at any time
made under any such letter of credit, the Bank shall
immediately notify Sealright of such draw and
Sealright shall immediately elect whether the LIBOR
Rate shall apply to the advance made to pay such
draw. In the event the LIBOR Rate is selected, until
the prior notice period for electing the LIBOR Rate
as set forth in Section 2.4 has expired, the
applicable interest rate shall be the rate for prime
based borrowings set forth in Section 2.4 of the
Credit Agreement. In the event no advance may be
made to the Borrower on the Revolving Credit, the
Borrower shall pay to the Banks the amount of the
draw upon demand and interest shall accrue on the
amount of the draw at the rate for prime based
borrowings set forth in Section 2.4 of the Credit
Agreement, from the date the draw was paid by the
Bank until the amount of the draw is paid by
Sealright.
This Agreement shall supersede any terms of any
letter of credit applications or other documents
which are irreconcilably inconsistent with the terms
hereof or thereof. Sealright agrees to pay to the
Bank letter of credit fees equal to three-eights of
one percent (3/8%) of the face amount of each letter
of credit, subject to a minimum fee in each case of
$150.00."
3. All provisions of the Credit Agreement not expressly amended
hereby shall remain in full force and effect as if this
Amendment had not been executed.
4. This Amendment shall be effective from and after the date
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Fourth Amendment to Credit Agreement as of this 7 day of
April , 1997.SEALRIGHT CO., INC.
By /s/John T. Carper
Name: John T. Carper
Title: Senior Vice
President/Chief
Financial Officer
<PAGE>
UMB BANK, n.a.
By /s/ David A. Proffitt
Name: David A. Profitt
Title: Senior Vice
President
EXHIBIT 4l
LETTER AMENDMENT NO. 3
to
Note Agreement
and
Master Shelf Agreement
September 30, 1997
The Prudential Insurance Company
of America
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
Ladies and Gentlemen:
We refer to the Note Agreement dated as of September 9,
1993 (as amended, the "Note Agreement") and the Master Shelf
Agreement dated as of October 17, 1995 (as amended, the "Shelf
Agreement"), as such agreements have been amended by a Letter
Amendment dated January 24, 1996 and Letter Amendment No. 2 dated
February 27, 1997 (as amended, the "Agreements"), among the
undersigned and you. Unless otherwise defined herein, the terms
defined in the Agreement shall be used herein as therein defined.
I. Amendments to Agreements. The Agreements are,
effective the date first above written, hereby amended as
follows:
a. Paragraph 4(a). Scheduled Prepayments. (i)
Shelf Agreement. Paragraph 4A of the Shelf Agreement is amended
by adding at the end thereof a new sentence to read as follows:
"Any partial prepayment of the Notes of any Series
pursuant to paragraph 4B or purchase of the Notes of
such Series permitted by paragraph 4E shall reduce the
principal amount of each required prepayment of the
Notes of such Series coming due under this paragraph 4A
on and after the date of such prepayment or purchase in
the same proportion as the aggregate unpaid principal
amount of the Note of such Series is reduced as a
result of such prepayment or purchase."
i) Note Agreement. Paragraph 4A of the Note
Agreement is amended by adding at the end thereof a new sentence
to read as follows:
"Any partial prepayment of the Notes pursuant to
paragraph 4B or purchase of the Notes permitted by
paragraph 4E shall reduce the principal amount of each
required prepayment of the Notes coming due under this
paragraph 4A on and after the date of such prepayment
or purchase in the same proportion as the aggregate
unpaid principal amount of the Note is reduced as a
result of such prepayment or purchase."
a. Paragraph 4B. Optional Prepayment with
Yield-Maintenance Amount.
(i) Shelf Agreement. Paragraph 4B of each of the
Shelf Agreement is amended by deleting the last sentence thereof
and substituting therefor the following:
"Any partial prepayment of Notes pursuant to this
paragraph 4B shall be allocated among all the Notes at
the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts
thereof not theretofor called for prepayment."
(ii) Note Agreement. Paragraph 4B of each of the
Shelf Agreement is amended by deleting the last sentence thereof
and substituting therefor the following:
"Any partial prepayment of a Series of Notes pursuant to
this paragraph 4B shall be allocated among all the Notes
of such Series at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid
principal amounts thereof not theretofor called for
prepayment."
(c) Paragraph 6F. Fixed Charge Coverage. Paragraph 6F
of each of the Agreements is amended in full to read as follows:
"6F. Fixed Charge Coverage. The Company covenants that
it will not suffer to permit, as of the end of any fiscal
quarter of the Company, Consolidated Net Income Available for
Fixed Charges for its four most recent consecutive fiscal
quarters (taken as a whole) for each such period indicated
below to be less than the percent of the aggregate amount of
the Fixed Charges for such period of four fiscal quarters
(taken as a whole) indicated opposite such period:
Period ending Percentage
March 31, 1997 45%
June 30, 1997 75%
September 30, 1997 60%
December 31, 1997 95%
March 31, 1998 and thereafter 200%;
provided, however, that for the purposes of this paragraph 6F,
any risk premium fee paid pursuant to paragraph 5I that is
deducted in determining Consolidated Net Income shall be added
back to Consolidated Net Income Available for Fixed Charges."
a. Paragraph 6L. Restricted Payments. Paragraph 6L
of each of the Agreements is amended in full to read as follows:
"6L. Restricted Payments. The Company covenants that it
will not, and will not permit any of its Subsidiaries to,
directly or indirectly, during any fiscal year, (i) declare
or pay any dividend or make any other distribution, in cash
or otherwise, on any shares of any class of capital stock of
the Company or any of its Subsidiaries (other than dividends
payable to the Company, and other than a dividend or
distribution payable in shares of capital stock of the
Company or, as permitted by paragraph 6H, in shares of
capital stock of any such Subsidiary) or (ii) purchase,
redeem, retire by the making of any payment, or otherwise
acquire any such shares (other than treasury stock held by
the Company or any such Subsidiary as of September 9, 1993)
or any warrants, options or other rights to acquire any such
shares of stock, unless, immediately after giving effect to
such action, the sum of
(i) the aggregate amount of all such dividends and
distributions declared, paid or made subsequent to September
30, 1997, and
(ii) the aggregate amount of all such purchases,
redemptions, retirements, and acquisitions made subsequent
to September 30, 1997,
shall not exceed the sum of
(i) fifty percent (50%) (or minus one hundred percent
(100%) in the case of a deficit) of cumulative Consolidated
Net Income earned subsequent to December 31, 1997, and
(ii) the aggregate amount received by the Company (other
than from its Subsidiaries) as the net cash proceeds of
sales of capital stock of the Company (including treasury
stock and debt securities subsequently converted into or
exchanged for capital stock) subsequent to December 31,
1997.
Notwithstanding the foregoing, the Company covenants that it
will not, and will not permit any of its Subsidiaries to,
directly or indirectly, during any fiscal year, (i) declare
or pay any dividend or make any other distribution, in cash
or otherwise, on any shares of any class of capital stock of
the Company or any of its Subsidiaries (other than dividends
payable to the Company, and other than a dividend or
distribution payable in shares of common stock of the
Company) at any time that the ratio of Consolidated Net
Income Available for Fixed Charges for its four most recent
consecutive fiscal quarters (taken as a whole) is less than
200% of the aggregate amount of the Fixed Charges for such
period of four fiscal quarters (taken as a whole)."
I. Amendment to the Notes.
(a) Amendment to the 6.75% Senior Notes due September
9, 2008. The 6.75% Notes due September 9, 2008 (the "6.75%
Notes") are amended such that the interest rate on the 6.75%
Notes shall increase by 0.15% (for a total interest rate of 6.90%
per annum) effective as of December 9, 1997 and shall continue
until the March 9, June 9, September 9, or December 9 that is the
end of the fiscal quarter of the Company that is the fourth
consecutive fiscal quarter that the Company's Fixed Charge
Coverage Ratio has exceeded 200% on which date the interest rate
on the 6.75% Notes shall decrease by 0.05% (for a total interest
rate of 6.85% per annum until paid in full).
a. Amendment to the 7.09% Senior Notes due October
17, 2010. The 7.09% Notes due October 17, 2010 (the "7.09%
Notes") are amended such that the interest rate on the 7.09%
Notes shall increase by 0.15% (for a total interest rate of 7.24%
per annum) effective as of October 17, 1997 and shall continue
until the January 17, April 17, July 17, or October 17 that is
the end of the fiscal quarter of the Company that is the fourth
consecutive fiscal quarter that the Company's Fixed Charge
Coverage Ratio has exceeded 200%, on which date the interest rate
on the 7.09% Notes shall decrease by 0.05% (for a total interest
rate of 7.19% per annum until paid in full).
(c) The Company will, at the request of a holder of
Notes, place a legend on the Notes held by such holder to reflect
these amendments.
III. Representations and Warranties. The Company
hereby represents and warrants that as of the date of this letter
amendment, it was in compliance with paragraph 6L. Restrictive
Payments. prior to the amendment contemplated by this letter
amendment.
On and after the effective date of this letter
amendment, each reference in the Agreements to "this Agreement",
"hereunder", "hereof", or words of like import referring to such
Agreement, and each reference in the Notes to "the Agreement",
"thereunder", "thereof", or words of like import referring to
such Agreement, shall mean such Agreement as amended by this
letter amendment and each reference in the Note to "this Note",
"hereof", "herein" or words of like import, and each reference in
the Agreements to the Notes shall mean and be a reference to the
Notes as amended hereby. The Agreement, as amended by this
letter amendment, is and shall continue to be in full force and
effect and is hereby in all respects ratified and confirmed. The
execution, delivery and effectiveness of this letter amendment
shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy under the Agreements nor
constitute a waiver of any provision of the Agreements.
This letter amendment may be executed in any number of
counterparts and by any combination of the parties hereto in
separate counterparts, each of which counterparts shall be an
original and all of which taken together shall constitute one and
the same letter amendment.
If you agree to the terms and provisions hereof, please
evidence your agreement by executing and returning a counterpart
of this letter amendment to my attention at 9201 Packaging Dr.,
DeSoto, KS 66018. This letter amendment shall become effective
as of the date first above written when and if counterparts of
this letter amendment shall have been executed by us and you.
Very truly yours,
SEALRIGHT CO., INC.
By: /s/ John T. Carper
Title:Senior Vice President/
Chief Financial Officer
Agreed as of the date
first above written:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Jay E. Squires
Vice President
EXHIBIT 4.m
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT is made and entered
into effective as of the 10th day of November, 1997, by and
between Sealright Co., Inc., a Delaware corporation
(ASealright@), and UMB Bank, n.a., f/k/a United Missouri Bank,
n.a, a national banking association (ABank@).
WHEREAS, Sealright and Bank entered into a Credit Agreement
(the AAgreement@) dated as of October 22, 1991, the terms of
which were modified and amended by an Amendment to Credit
Agreement dated as of August 5, 1994, a Second Amendment to
Credit Agreement dated as of December 20, 1994, a Third Amendment
to Credit Agreement dated as of December 1, 1995, a letter
agreement dated January 24, 1996, a letter agreement dated
February 27, 1997, and a Fourth Amendment to Credit Agreement
dated April 7, 1997 (the Agreement, as thereby modified and
amended, hereinafter the ACredit Agreement@); and
WHEREAS, Sealright has requested certain modifications to
its financial covenants under the Credit Agreement; and
WHEREAS, the Bank is willing, subject to the terms set forth
herein, including expressly, but not limited to, a decrease in
the maximum amount of credit under the Credit Agreement and
modification of the Revolving Credit interest rate, to grant such
request.
NOW, THEREFORE, in consideration of the mutual agreements of
the parties hereto, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties mutually agree as follows:
1. Amendment of Section 2.1. Section 2.1 of the Credit
Agreement is hereby amended by deleting the first sentence
thereof and inserting in its place the following:
"The aggregate outstanding principal amount of all loans
under the Revolving Credit shall at no time exceed Twenty
Five Million Dollars ($25,000,000.00) (the "Maximum Amount
of Revolving Credit")."
2. Amendment of Section 2.2. Section 2.2 of the Credit
Agreement is hereby amended in its entirety to read as
follows:
"2.2 Promissory Note. Upon the execution of this Agreement,
Sealright shall deliver to the Bank the Promissory Note of
Sealright, due and payable on the date the Revolving Credit
shall terminate as provided herein (or such earlier date as
the Revolving Credit Obligations are due and payable by
reason of an Event of Default) in the amount of Twenty Five
Million Dollars ($25,000,000.00) in substantially the same
form as Exhibit 2.2 attached hereto (the "Promissory Note").
3. Amendment of Section 2.4. Section 2.4 of the Credit
Agreement is hereby amended by deleting the first five
sentences thereof in their entirety and replacing the same
with the following:
A2.4 Revolving Credit Interest. At the option of Sealright,
each borrowing under the Revolving Credit shall bear
interest at (a) a rate equal to 65 basis points over the
applicable LIBOR (the "LIBOR RATE") during LIBOR Interest
Periods elected by Sealright in its discretion, as adjusted
from time to time or (b) a rate equal to the Prime Rate less
35 basis points, adjusted daily. At the expiration of each
applicable LIBOR Interest Period, the LIBOR Rate will be
adjusted to the applicable LIBOR Rate for the next elected
LIBOR Interest Period. An election of the desired interest
rate must be made for each borrowing by Sealright. Once
elected, the rate of interest applicable to any borrowing
may not be changed. If no election is made for any
borrowing, the applicable interest rate for such borrowing
shall be the Prime Rate less 35 basis points, adjusted
daily.@
4. Amendment of Section 4.1. Section 4.1 of the Credit
Agreement is hereby amended in its entirety to read as
follows:
A4.1 Payment at Maturity of Revolving Credit. On November
1, 1999, without notice or demand, or on any accelerated
maturity of the Indebtedness evidenced by the Promissory
Note, Sealright will pay to the Bank for credit to the
Revolving Credit an amount equal to the entire outstanding
principal amount of Indebtedness evidenced by the Promissory
Note, together with all accrued and unpaid interest thereon
and other amounts owed in connection therewith or otherwise
under this Agreement. The Bank may by written notice at
least four hundred twenty (420) days prior to November 1,
1999 (and four hundred twenty (420) days prior to November 1
of any subsequent year the Revolving Credit is in effect)
extend the Revolving Credit for any additional twelve (12)
months to the next following November 1. If the Bank does
not give such notice extending the Revolving Credit, the
Revolving Credit shall terminate on the then scheduled
November 1 termination date without any notice.@
5. One-Time Waiver of Limitation on Short-Term Working Capital
Indebtedness. Without prejudice to Bank=s right to
otherwise demand strict compliance with the terms of the
Credit Agreement, for the twelve month period ending October
22, 1997, Bank hereby waives the limitation on Short-Term
Working Capital Indebtedness set forth in Section 5.9.4 of
the Credit Agreement.
6. Amendment of Section 5.9.5 of the Credit Agreement. Section
5.9.5 of the Credit Agreement is hereby amended by reducing
the Fixed Charge coverage ratios required thereunder for the
fiscal quarters of the Company ending September 30, 1997 and
December 31, 1997 from One Hundred Twenty Five percent
(125%) and One Hundred Eight Five percent (185%),
respectively, to Sixty percent (60%) and Ninety Five percent
(95%), respectively.
7. Exhibit 2.2 to the Credit Agreement is revised in its
entirety in the form attached hereto as Exhibit 2.2.
8. All provisions of the Credit Agreement not expressly amended
hereby shall remain in full force and effect as if this
Amendment had not been executed.
9. This Fifth Amendment to Credit Agreement shall be effective
from and after the date hereof.
IN WITNESS WHEREOF, the parties have executed this Fifth
Amendment to Credit Agreement as of this 10th day of November,
1997.
SEALRIGHT CO., INC.
By /s/ John T. Carper
Name: John T. Carper
Title: Senior Vice President &
C.F.O.
<PAGE>
UMB BANK, N.A.
By /s/ James A. Sangster
Name: James A. Sangster
Title: Divisional Executive Vice President
Exhibit 10(s)
Sealright Co., Inc.
Director Stock Compensation Plan
Section 1. Purpose
The purpose of this Director Stock Compensation Plan
(the "Plan") of Sealright Co., Inc. (the "Company") is to
increase the alignment of the interests of the members of the
Company's Board of Directors who are not employees of the Company
(the "Outside Directors") with the interests of the Company's
stockholders.
Section 2. Administration
The Plan shall be administered by a committee (the
"Director Compensation Committee") of three or more persons
appointed by the Board of Directors of the Company, all of whom
shall be employees of the Company, who may or may not be members
of the Company's Board of Directors. Grants of shares of stock
under the Plan and the amount and nature of the awards shall be
automatic, as described in Section 5 hereof. However, all
interpretations of the Plan or the stock grants made hereunder
shall be determined by the Director Compensation Committee, which
determinations shall be binding.
Section 3. Participation in the Plan
All directors of the Company shall be eligible to
participate in the Plan, unless they are employees of the Company
or any subsidiary of the Company.
Section 4. Stock Subject to the Plan
The stock which is made the subject of awards under the
Plan shall be the Company's common stock, par value $.10 per
share ("Common Stock"). The total number of shares issuable
under the Plan, as adjusted for all stock splits occurring since
the date of the Plan's effectiveness, shall not exceed 50,000
shares.
Section 5. Terms and Conditions of Grants
The annual fee (the "Annual Fee") paid to each of the
Outside Directors (currently $12,000 per annum) which is payable
in equal quarterly installments (currently $3,000) (each a
"Quarterly Payment") shall be paid twenty-five percent (25%) in
cash and seventy-five percent (75%) in shares of Common Stock.
Fees for attendance at a meeting of the Company's Board of
Directors or a Committee thereof (currently $500 per meeting)
shall be paid in cash (the "Meeting Fees").
A. Timing of Payment. The cash portion of the
Annual Fee shall be paid at the end of the calendar quarter
for which the services were rendered. The Common Stock
portion of the Annual Fee shall be paid by the issuance of
shares of Common Stock promptly after the second day
following the Company's public release of its report of its
earnings for the Company's fiscal quarter for which the
services were rendered. If an Outside Director ceases to be
a member of the Company's Board of Directors in any part of
a fiscal quarter, he or she is eligible to receive the
portion of the Annual Fee payable in that fiscal quarter.
The Meeting Fees shall be paid at the meeting to which they
relate.
B. Valuation of Shares and Calculation of Common
Stock Portion of Annual Fees. The per share value at which
the shares of Common Stock shall be issued shall be the
closing price of the Common Stock on the second day after
the Company's public release of its report of its earnings
for the Company's fiscal quarter, as reported on The NASDAQ
Stock Market, or such other exchange on which the Common
Stock may be listed (the "Valuation Price"). The number of
shares of Common Stock to be issued to each Outside Director
with respect to any Quarterly Payment shall be that number
of shares equal to 75% of the Quarterly Payment divided by
the Valuation Price for the given fiscal quarter, rounded to
the next highest ten shares (i.e., if the Quarterly Payment
were $2,250 and the Valuation Price $12, the number of
shares granted to each Outside Director would be 190 shares
[187.5 shares rounded to 190]). In no event shall
fractional shares be granted, nor shall shares be issued in
amounts which are not divisible by ten.
C. Registration of Shares. At the option of an
Outside Director, shares of Common Stock granted pursuant to
the Plan may be registered in the name of an Outside
Director; jointly, in the name of an Outside Director and
his or her spouse; or in the name of an Outside Director's
revocable trust for which he is, and remains, during the
"Restricted Period" (as defined below in Section 5(D)), the
trustee with sole investment discretion.
D. Restriction on Alienation. Shares of Common
Stock issued pursuant to the Plan may not be sold or
transferred (except for transfers to a person eligible to
originally receive such shares, as described in
Section 5(C)) for a period of three (3) years from the date
of their grant (the "Restricted Period"), provided that the
foregoing restriction on alienation shall be automatically
terminated upon (i) the termination of the Outside
Director's status as a member of the Company's Board of
Directors due to death, resignation, removal or otherwise,
or (ii) in connection with a merger or consolidation in
which the Company is not the surviving corporation. The
shares of Common Stock issued pursuant to the Plan shall be
legended to appropriately reflect this restriction on
alienation.
Section 6. Limitation of Rights
Neither the Plan nor any action taken pursuant to the
Plan shall constitute or be evidence of any agreement or
understanding that the Company will retain an Outside Director
for any period of time, or at any particular rate of
compensation.
Section 7. Effective Date of Plan
The effective date of the plan shall be January 1, 1997.
Section 8. Amendment of Plan
The Board of Directors may suspend or discontinue the
Plan, or amend it in any respect whatsoever.
Section 9. Governing Law
The Plan and all determinations made and actions taken
pursuant thereto shall be governed by the laws of the State of
Kansas and construed accordingly.
<PAGE>
Sealright Co., Inc.
Director Stock Compensation Plan
Amended and Restated as of January 30, 1998
Section 1. Purpose
The purpose of this Director Stock Compensation Plan (the
"Plan") of Sealright Co., Inc. (the "Company") is to increase the
alignment of the interests of the members of the Company's Board
of Directors who are not employees of the Company (the "Outside
Directors") with the interests of the Company's stockholders.
Section 2. Administration
The Plan shall be administered by a committee (the
"Director Compensation Committee") of three or more persons
appointed by the Board of Directors of the Company, all of whom
shall be employees of the Company, who may or may not be members
of the Company's Board of Directors. Grants of shares of stock
under the Plan and the amount and nature of the awards shall be
automatic, as described in Section 5 hereof. However, all
interpretations of the Plan or the stock grants made hereunder
shall be determined by the Director Compensation Committee, which
determinations shall be binding.
Section 3. Participation in the Plan
All directors of the Company shall be eligible to
participate in the Plan, unless they are employees of the Company
or any subsidiary of the Company.
Section 4. Stock Subject to the Plan
The stock which is made the subject of awards under the
Plan shall be the Company's common stock, par value $.10 per
share ("Common Stock"). The total number of shares issuable
under the Plan, as adjusted for all stock splits occurring since
the date of the Plan's effectiveness, shall not exceed 25,000
shares.
Section 5. Terms and Conditions of Grants
The annual fee (the "Annual Fee") paid to each of the
Outside Directors (currently $12,000 per annum) which is payable
in equal quarterly installments (currently $3,000) (each a
"Quarterly Payment") shall be paid twenty-five percent (25%) in
cash and seventy-five percent (75%) in shares of Common Stock.
Fees for attendance at a meeting of the Company's Board of
Directors or a Committee thereof (currently $500 per meeting)
shall be paid in cash (the "Meeting Fees").
A. Timing of Payment. The cash portion of the
Annual Fee shall be paid at the end of the calendar quarter
for which the services were rendered. The Common Stock
portion of the Annual Fee shall be paid by the issuance of
shares of Common Stock promptly after the second day
following the Company's public release of its report of its
earnings for the Company's fiscal quarter for which the
services were rendered. If an Outside Director ceases to be
a member of the Company's Board of Directors in any part of
a fiscal quarter, he or she is eligible to receive the
portion of the Annual Fee payable in that fiscal quarter.
The Meeting Fees shall be paid at the meeting to which they
relate.
B. Valuation of Shares and Calculation of Common
Stock Portion of Annual Fees. The per share value at which
the shares of Common Stock shall be issued shall be the
closing price of the Common Stock on the second day after
the Company's public release of its report of its earnings
for the Company's fiscal quarter, as reported on The NASDAQ
Stock Market, or such other exchange on which the Common
Stock may be listed (the "Valuation Price"). The number of
shares of Common Stock to be issued to each Outside Director
with respect to any Quarterly Payment shall be that number
of shares equal to 75% of the Quarterly Payment divided by
the Valuation Price for the given fiscal quarter, rounded to
the next highest ten shares (i.e., if the Quarterly Payment
were $2,250 and the Valuation Price $12, the number of
shares granted to each Outside Director would be 190 shares
[187.5 shares rounded to 190]). In no event shall
fractional shares be granted, nor shall shares be issued in
amounts which are not divisible by ten.
C. Registration of Shares. At the option of an
Outside Director, shares of Common Stock granted pursuant to
the Plan may be registered in the name of an Outside
Director; jointly, in the name of an Outside Director and
his or her spouse; or in the name of an Outside Director's
revocable trust for which he is, and remains, during the
"Restricted Period" (as defined below in Section 5(D)), the
trustee with sole investment discretion.
D. Restriction on Alienation. Shares of Common
Stock issued pursuant to the Plan may not be sold or
transferred (except for transfers to a person eligible to
originally receive such shares, as described in
Section 5(C)) for a period of three (3) years from the date
of their grant (the "Restricted Period"), provided that the
foregoing restriction on alienation shall be automatically
terminated upon (i) the termination of the Outside
Director's status as a member of the Company's Board of
Directors due to death, resignation, removal or otherwise,
or (ii) in connection with a merger or consolidation in
which the Company is not the surviving corporation. The
shares of Common Stock issued pursuant to the Plan shall be
legended to appropriately reflect this restriction on
alienation.
Section 6. Limitation of Rights
Neither the Plan nor any action taken pursuant to the
Plan shall constitute or be evidence of any agreement or
understanding that the Company will retain an Outside Director
for any period of time, or at any particular rate of
compensation.
Section 7. Effective Date of Plan
The effective date of the plan shall be January 1, 1997.
Section 8. Amendment of Plan
The Board of Directors may suspend or discontinue the
Plan, or amend it in any respect whatsoever.
Section 9. Governing Law
The Plan and all determinations made and actions taken
pursuant thereto shall be governed by the laws of the State of
Kansas and construed accordingly.
EXHIBIT 10 (t)
SEALRIGHT CO., INC.
LEADERSHIP INCENTIVE PLAN
1. Purpose.
(a)
The purposes of the Sealright Co., Inc. Leadership
Incentive Plan (the "Plan") are: (i) to incentivize those key
management employees largely responsible for the success and
growth of Sealright Co., Inc. and its subsidiary corporations
(collectively, the "Company") through their efforts to have the
Company meet its stockholders' expectations, and to provide
rewards therefore; and (ii) to assist the Company in attracting
and retaining executives and other key management employees with
experience and ability.
1. Administration of the Plan.
The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company (the
"Board"). The Committee may, in its authority, construe,
interpret and administer the Plan. The Committee may at any time
and from time to time during the continuance of the Plan, determine
which of the management employees of the Company shall be eligible
for participation in the Plan ("Eligible Employees"); establish the
target bonuses under the Plan; determine the amount of actual
bonuses to be paid under the Plan and their composition; grant such
bonuses; establish objectives and conditions for receipt of such
bonuses and do all other things necessary to carry out the
intentions of the Plan.
1. Terms of the Awards.
Each year the Committee shall determine the performance
criteria for the award of incentive bonuses for the Company's
fiscal year (each a "Plan Year"). The criteria for such awards
(collectively, the "Performance Criteria") shall be tied to one or
more of the following objectives: overall Company achievement of
financial, "value added," goals ("SVA"), achievement of specific
strategic goals, and achievement of certain department/division
objectives. Certain of the Performance Criteria (i.e., SVA
objectives) may be common to all Eligible Employees, while other of
the Performance Criteria (i.e., strategic goals and
department/division objectives) may be specific to individuals or
certain categories of Eligible Employees. The relative weighting
of each of the Performance Criteria shall be as annually determined
by the Committee.
Based on achievement of the Performance Criteria, a
target bonus (a "Target Bonus") shall be determined for each
Eligible Employee and set forth on an individualized Plan (an
"Annual Plan"). The amount of an Eligible Employee's Target Bonus
shall be determined by the Committee and shall be based upon a
percentage of his/her base salary for the given fiscal year.
The payment of the actual bonus for a Plan Year (a
"Bonus") may be subject to achievement of specified minimum
requirements and the percentage of a Target Bonus actually paid may
be subject to achievement of certain benchmark levels (i.e.,
Threshold, Target, Above Target), all as annually determined by the
Committee (the "Benchmarks") and set forth in an Annual Plan. Thus
an Eligible Employee may not be paid any Bonus if specified minimum
requirements are not met or if the minimum Benchmark is not
achieved. The Annual Plan may set forth a maximum attainable
percentage of an Eligible Employee's Target Bonus, as determined by
the Committee.
4. Method and Date of Payment.
The Bonus may be paid in cash, common stock of the
Company, or a combination of both. The method of payment and/or
the allocation between cash and stock, shall be determined
annually by the Committee and be set forth in the Annual Plans.
The cash portion of any Bonus (the "Cash Award") shall be
paid on or before the last business day in the February following
the close of the Plan Year for which the Bonus is being paid.
The stock portion of any Bonus (the "Stock Award") shall
be paid on or before the last business day in the February
following the close of the Plan Year for which the Bonus is being
paid, provided the issuance of the shares of common stock of the
Company constituting the Stock Award (the "Shares") shall not then
violate any applicable federal or state securities laws or the
regulations promulgated thereunder. The Shares may be issued by
the Company at discount to their fair market value (as determined
by the closing sale price quoted on the NASDAQ Stock Market on the
close of business on the last business day of the Plan Year), as
determined by the Committee and set forth in the Annual Plans, up
to a maximum discount of twenty-five percent (25%).
Upon issuance, an Eligible Employee's Shares will be held
in escrow by the Company until the earlier of (i) the third
anniversary of their issuance or (ii) the date of termination of
the Eligible Employee's employment with the Company (the "Escrow
Period"). During the Escrow Period, the Shares may not be sold,
transferred, pledged or otherwise assigned by the Eligible
Employee, unless the Committee makes a hardship exception upon
written application from the Eligible Employee, or his/her legal
representative. Any such determination shall be in the sole
discretion of the Committee and shall be binding. All other rights
of ownership, including the right to vote the Shares and to receive
dividends thereon, when and if declared, or distributions with
respect thereto, shall accrue to the respective Eligible Employees.
5. Promotions.
Employees of the Company who are promoted in the midst of
a Plan Year into incentive eligible positions will be eligible to
receive incentives pursuant to the Plan, pro rated for the balance
of the year, based upon the next accounting period after the date
of promotion.
6. Termination of Employment.
An Eligible Employee must be continuously employed by
the Company from the end of the fiscal year for which the Bonus is
awarded through the date that the Bonus is paid to receive the
Bonus. The Committee may establish such other provisions with
respect to the termination or disposition of a Bonus on the death
or retirement of an Eligible Employee as it deems advisable.
7. Shares/Adjustments Upon Changes in Capitalization.
Up to 250,000 Shares shall be reserved for issuance
pursuant to Stock Awards under the Plan. Shares may be issued by
the Company from its treasury or from its authorized but unissued
capital. In the event of any changes in the capital structure of
the Company, including but not limited to a change resulting from a
stock dividend or split-up, or combination or reclassification of
Shares, the number of Shares available for issuance under the Plan
shall be appropriately and reciprocally adjusted.
8. Duration and Amendment of Plan.
The Committee may at any time prospectively terminate or
amend the Plan, provided that no such action may be taken that
adversely affects any rights or obligations with respect to any
Bonuses theretofore made under the Plan or any Bonus to be paid
pursuant to then existing Annual Plans, without the consent of the
Eligible Employee.
9. Miscellaneous.
Nothing contained in the Plan shall be construed as
giving any Participant the right to remain in the employ of the
Company nor of limiting the Company's right to terminate an
Eligible Employee's employment at any time.
Payments under the Plan shall be made from the general
assets of the Company. The right of any Eligible Employee to
payment under the Plan shall be no greater than that of an
unsecured general creditor of the Company.
The Plan is not qualified under Section 401(a) of the
Code, nor is it subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA").
10. Applicable Law.
The Plan shall be construed and administered in
accordance with the laws of the State of Kansas.
SEALRIGHT CO., INC.
SALES INCENTIVE PLAN
1. Purpose.
The purposes of the Sealright Co., Inc. Sales Incentive
Plan (the "Plan") are: (i) to incentivize those sales employees
largely responsible for the success and growth of Sealright Co.,
Inc. and its subsidiary corporations (collectively, the "Company")
through their efforts to have the Company meet its stockholders'
expectations, and to provide rewards therefore; and (ii) to assist
the Company in attracting and retaining sales employees with
experience and ability.
2. Administration of the Plan.
The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company (the
"Board"). The Committee may, in its authority, construe,
interpret and administer the Plan. The Committee may at any time
and from time to time during the continuance of the Plan, determine
which of the sales employees of the Company shall be eligible for
participation in the Plan ("Eligible Employees"); establish the
target bonuses under the Plan; determine the amount of actual
bonuses to be paid under the Plan and their composition; grant such
bonuses; establish objectives and conditions for receipt of such
bonuses and do all other things necessary to carry out the
intentions of the Plan.
3. Terms of the Awards.
Each year the Committee shall determine the performance
criteria for the award of incentive bonuses for the Company's
fiscal year (each a "Plan Year"). The criteria for such awards
(collectively, the "Performance Criteria") shall be tied to one or
more of the following objectives: overall Company achievement of
financial "value added" goals ("SVA"), achievement of specific
strategic goals, achievement of certain department/division
objectives, and achievement of individual sales objectives and
goals. Certain of the Performance Criteria (i.e., SVA objectives)
may be common to all Eligible Employees, while other of the
Performance Criteria (i.e., strategic goals, department/division
objectives and individual goals) may be specific to individuals or
certain categories of Eligible Employees. The relative weighting
of each of the Performance Criteria shall be as annually determined
by the Committee.
Based on achievement of the Performance Criteria, a
target bonus (a "Target Bonus") shall be determined for each
Eligible Employee and set forth on an individualized Plan (an
"Annual Plan"). The amount of an Eligible Employee's Target Bonus
shall be determined by the Committee and shall be based upon a
percentage of his/her base salary for the given fiscal year.
The payment of the actual bonus for a Plan Year (a
"Bonus") may be subject to achievement of specified minimum
requirements and the percentage of a Target Bonus actually paid may
be subject to achievement of certain benchmark levels (i.e., 95% of
target performance), all as annually determined by the Committee
(the "Benchmarks") and set forth in an Annual Plan. Thus an
Eligible Employee may not be paid any Bonus if specified minimum
requirements are not met or if the minimum Benchmark is not
achieved. An Eligible Employee who has achieved greater than 100%
of target performance may receive greater than 100% of his/her
Target Bonus. The Annual Plan may set forth a maximum attainable
percentage of an Eligible Employee's Target Bonus, as determined by
the Committee.
4. Method and Date of Payment.
The Bonus may be paid in cash, common stock of the
Company, or a combination of both. The method of payment and/or
the allocation between cash and stock, shall be determined
annually by the Committee and be set forth in the Annual Plans.
The cash portion of any Bonus (the "Cash Award")
attributable to up to 100% achievement of the Performance Criteria
excluding SVA shall be paid on a quarterly basis. Any portion of
the Cash Award above 100% achievement and the portion of Cash Award
attributable to SVA shall be paid on or before the last business
day in the February following the close of the Plan Year for which
the Bonus is being paid.
The stock portion of any Bonus (the "Stock Award") shall
be paid on or before the last business day in the February
following the close of the Plan Year for which the Bonus is being
paid, provided the issuance of the shares of common stock of the
Company constituting the Stock Award (the "Shares") shall not then
violate any applicable federal or state securities laws or the
regulations promulgated thereunder. The Shares may be issued by
the Company at discount to their fair market value (as determined
by the closing sale price quoted on the NASDAQ Stock Market on the
close of business on the last business day of the Plan Year), as
determined by the Committee and set forth in the Annual Plans, up
to a maximum discount of twenty-five percent (25%).
Upon issuance, an Eligible Employee's Shares will be held
in escrow by the Company until the earlier of (i) the third
anniversary of their issuance or (ii) the date of termination of
the Eligible Employee's employment with the Company (the "Escrow
Period"). During the Escrow Period, the Shares may not be sold,
transferred, pledged or otherwise assigned by the Eligible
Employee, unless the Committee makes a hardship exception upon
written application from the Eligible Employee, or his/her legal
representative. Any such determination shall be in the sole
discretion of the Committee and shall be binding. All other rights
of ownership, including the right to vote the Shares and to receive
dividends thereon, when and if declared, or distributions with
respect thereto, shall accrue to the respective Eligible Employees.
5. Promotions.
Employees of the Company who are promoted in the midst of
a Plan Year into incentive eligible positions will be eligible to
receive incentives pursuant to the Plan, pro rated for the balance
of the year, based upon the next accounting period after the date
of promotion.
<PAGE>
6. Termination of Employment.
An Eligible Employee must be continuously employed by
the Company from the end of the fiscal year for which the Bonus is
awarded through the date that the Bonus is paid to receive the
Bonus. The Committee may establish such other provisions with
respect to the termination or disposition of a Bonus on the death
or retirement of an Eligible Employee as it deems advisable.
7. Shares/Adjustments Upon Changes in Capitalization.
Up to 250,000 Shares shall be reserved for issuance
pursuant to Stock Awards under both the Plan and the Company's
Leadership Incentive Plan. Shares may be issued by the Company
from its treasury or from its authorized but unissued capital. In
the event of any changes in the capital structure of the Company,
including but not limited to a change resulting from a stock
dividend or split-up, or combination or reclassification of Shares,
the number of Shares available for issuance under the Plan shall be
appropriately and reciprocally adjusted.
8. Duration and Amendment of Plan.
The Committee may at any time prospectively terminate or
amend the Plan, provided that no such action may be taken that
adversely affects any rights or obligations with respect to any
Bonuses theretofore made under the Plan or any Bonus to be paid
pursuant to then existing Annual Plans, without the consent of the
Eligible Employee.
9. Miscellaneous.
Nothing contained in the Plan shall be construed as
giving any Participant the right to remain in the employ of the
Company nor of limiting the Company's right to terminate an
Eligible Employee's employment at any time.
Payments under the Plan shall be made from the general
assets of the Company. The right of any Eligible Employee to
payment under the Plan shall be no greater than that of an
unsecured general creditor of the Company.
The Plan is not qualified under Section 401(a) of the
Code, nor is it subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA").
10. Applicable Law.
The Plan shall be construed and administered in
accordance with the laws of the State of Kansas.
EXHIBIT 10(u)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
John Carper
Dear John:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(v)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Mark Dowey
Dear Mark:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(w)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Mike Lappa
Dear Mike:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(x)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Chuck Marcy
Dear Chuck:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $120,000. However, if you are
asked to leave before this date without cause, you will receive
this payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 18 months.
2. Payment for outplacement services for as long as
the services are needed up to 24 months.
3. Payment of your base salary for 24 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBITS 10(y)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Pat Muldoon
Dear Pat:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(z)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Steve Saucier
Dear Steve:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(aa)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Jack Slattery
Dear Jack:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(bb)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Carl Walker
Dear Carl:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(cc)
SEALRIGHT CO., INC.
9201 Packaging Drive
DeSoto, Kansas 66018
Larry Walton
Dear Larry:
The Board of Directors of Sealright has approved
supplementary benefits for key executives. The Benefits include
a Retention Payment and Severance Enhancements, but do not
otherwise modify your existing agreements or benefits.
Retention Payment
If you remain in the continuous employment of Sealright
and perform your present duties through May 29, 1998, you will
receive a one time payment of $60,000. However, if you are asked
to leave before this date without cause, you will receive this
payment.
Severance Enhancements
If your employment with Sealright or its successor is
terminated without cause you will receive the benefits under the
Severance Pay Plan or your individual agreement plus the
following:
1. Payment of COBRA costs for as long as you desire
such insurance coverage up to 12 months.
2. Payment for outplacement services for as long as
the services are needed up to 12 months.
3. Payment of your base salary for 12 months
following the effective date of the termination in
place of your existing arrangement.
In the event no transaction involving Sealright has been
consummated by December 31, 1998, the Board will review the
Severance Enhancements as well as all other benefits in the
normal course.
If you have any questions about the foregoing, please
contact Carl Walker or me.
Sincerely,
/s/ Charles F. Marcy
EXHIBIT 10(dd)
Goldman, Sachs & Co./85 Broad Street/New York, New York 10004
Tel: 212-902-1000
GOLDMAN
SACHS
Personal and Confidential
September 12, 1997
G. Kenneth Baum
Director
Sealright Co., Inc.
9201 Packaging Drive
DeSoto, Kansas 66018
Dear Mr. Baum:
We are pleased to confirm the arrangements under which Goldman
Sachs & Co. ("Goldman Sachs") (together with George K. Baum &
Company pursuant to a letter dated September 12, 1997, a copy of
which has been provided to Goldman Sachs) is exclusively engaged
by Sealright Co., Inc. (the "Company") as financial advisor to
assist the Company in its analysis and consideration of various
financial alternatives available to it, which may include the
possible sale of all or a portion of the Company.
During the term of our engagement, we will provide you with
financial advice and assistance in connection with analyzing and
considering various financial alternatives, which may include
performing valuation analyses, searching for a purchaser
acceptable to you, coordinating visits of potential purchasers
and assisting you in negotiating the financial aspects of a
transaction.
At your request we also will undertake a study to enable us to
render our opinion as to the fairness of the financial
consideration to be received by stockholders of the Company or
the Company, as the case may be, in connection with the sale of
50% or more of the outstanding common stock of the Company. The
nature and scope of our investigation as well as the scope, form
and substance of our opinion shall be such as we consider
appropriate. If requested our opinion will be in written form.
In connection with this engagement, the Company shall pay us a
fee of $150,000, payable in cash immediately, which to the extent
paid shall be applied against any transaction fee which may
become payable pursuant to this engagement. If the purchase of
50% or more of the outstanding common stock or the assets (based
on the book value thereof) of the Company is accomplished ("a
sale of the Company") in one or a series of transactions,
including, but not limited to, private or open market purchases
of stock, a tender offer, a merger or a sale by the Company of
its stock or assets, we will charge a transaction fee of 1.15% of
the aggregate consideration paid in such transactions. If less
than 50% of the outstanding common stock or the assets (based on
the book value thereof) of the Company is acquired in the manner
set forth in the preceding sentence, we will charge a transaction
fee to be mutually agreed upon by Goldman Sachs and the Company.
Except as provided herein, a transaction fee will be paid to us
in cash upon consummation of each transaction.
The aggregate consideration for purposes of calculating a
transaction fee shall be:
(i) In the case of the sale, exchange or purchase of the
Company's equity securities, the total consideration
paid for such securities (including amounts paid to
holders of options, warrants and convertible securities),
plus the principal amount of all indebtedness for borrowed
money as set forth on the most recent consolidated balance
sheet of the Company prior to the consummation of such
sale, exchange or purchase, and
(ii) In the case of a sale or disposition by the Company of
assets, the total consideration paid for such assets,
including the principal amount of all indebtedness for
borrowed money assumed by the purchaser, plus the net value
of any current assets not sold by the Company.
Amounts paid into escrow and contingent payments in connection
with any transaction will be included as part of the aggregate
consideration. Fees on amounts paid into escrow will be payable
upon the establishment of such escrow. If the consideration in
connection with any transaction may be increased by payments
related to future events, the portion of our fee relating to such
contingent payments will be calculated and paid if and when such
contingent payments are made. Aggregate consideration also shall
include the aggregate amount of any (i) dividends or other
distributions declared by the Company with respect to its stock
after the date hereof, other than normal recurring cash dividends
in amounts not materially greater than $.12 per share per
quarter, and (ii) amounts paid by the Company to repurchase any
securities of the Company outstanding on the date hereof other
than amounts paid to acquire shares pursuant to the terms of
existing compensation programs and in the normal course of
business.
In connection with a sale of the Company involving a tender offer
or other purchase or sale of stock, the transaction fee will be
payable and calculated under the definition of aggregate
consideration set forth above as though 100% of the outstanding
common stock on a fully diluted basis had been acquired for the
same per share amount paid in the transaction in which 50% or
more of the Company's outstanding common stock is acquired by a
purchaser or group of affiliated purchasers. Nevertheless, our
services pursuant to this letter will continue after control is
obtained to assist you with a second step merger or similar
transaction.
If any portion of the aggregate consideration is paid in the form
of securities, the value of such securities, for purposes of
calculating the transaction fee, will be determined by the
average of the last sales prices for such securities on the five
trading days ending five days prior to the consummation of the
transaction. If such securities do not have an existing public
trading market, the value of the securities shall be the mutually
agreed upon fair market value on the day prior to the
consummation of the transaction.
In the event that the Company determines to undertake a financing
transaction or other strategic transaction in lieu of a sale of
all or a portion of the Company, the Company shall offer Goldman
Sachs the right to act in such transaction as manager or agent in
the case of any offering or placement of securities, arranger in
the case of a syndicated bank loan, or as advisor or dealer
manager, as applicable, in the case of any other transaction. If
Goldman Sachs agrees to act in such capacity, the Company and
Goldman Sachs will enter into an appropriate form of
underwriting, placement agency, engagement, dealer manager or
other agreement relating to the type of transaction involved and
containing customary terms and conditions, including customary
fee provisions and provisions relating to our indemnity.
However, unless specifically covered by a separate agreement
setting forth such arrangement, the provisions in the attached
Annex A shall apply to each such transaction. The Company
acknowledges that this letter agreement is neither an expressed
nor an implied commitment by Goldman Sachs to act in any capacity
in any such transaction or to purchase or place any securities in
connection therewith, which commitment shall only be set forth in
a separate underwriting, placement agency or other applicable
type of agreement.
You also agree to reimburse us periodically, upon request, and
upon consummation of the transaction or transactions contemplated
hereby or upon termination of our services pursuant to this
agreement, for our reasonable out-of-pocket expenses including
any expenses related to any such financing transaction or other
strategic transaction, including the fees and disbursements of
our attorneys, plus any sales, use or similar taxes (including
additions to such taxes, if any, but excluding any income taxes
owed by Goldman Sachs or its partners) arising in connection with
any matter referred to in this letter. The fees and
disbursements of counsel retained pursuant to the immediately
preceding sentence shall not exceed $100,000 without the prior
consent of the Company, such consent not to be unreasonably
withheld; provided, however, this sentence shall in no way affect
the Company's obligations as set forth in Annex A to this letter.
In order to coordinate most effectively our efforts together to
effect a transaction satisfactory to the Company, the Company and
its management will promptly inform us of any inquiry they may
receive concerning the availability of all or a portion of the
stock or assets of the Company for purchase. Also, during the
period of our engagement, neither the Company nor its management
will initiate any discussions looking toward the sale of all or a
portion of the stock or assets of the Company without first
consulting with Goldman Sachs.
Please note that any written or oral opinion or advice provided
by Goldman Sachs in connection with our engagement is exclusively
for the information of the Board of Directors and senior
management of the Company, and may not be disclosed to any third
party or circulated or referred to publicly without our prior
written consent.
In connection with the engagements such as this, it is our firm
policy to receive indemnification. The Company agrees to the
provisions with respect to our indemnity and other matters set
forth in Annex A which is incorporated by reference into this
letter.
As you know, Goldman Sachs is a full service securities firm and
as such may from time to time affect transactions, for its own
account or the account of customers, and hold positions in
securities or options on securities of the Company and other
companies which may be the subject of the engagement contemplated
by this letter.
Our services may be terminated by you or us at any time with or
without cause effective upon receipt of written notice to that
effect; provided, however, that our services will automatically
terminate on the date 18 months after the date of this letter
agreement, unless the Company and Goldman Sachs mutually agree in
writing to extend them for a specified period. We will be
entitled to the applicable transaction fee set forth above in the
event that at any time prior to the expiration of 18 months after
such termination an agreement is entered into with respect to a
sale of all or a portion of the stock or assets of the
Company which is eventually consummated and any of the purchasers
or their affiliates were on the list of prospective buyers
provided by Goldman Sachs to the Company, and mutually agreed to
by the Company and Goldman Sachs, at the commencement of this
assignment, including any prospective buyers added to such list
as mutually agreed to by Goldman Sachs and the Company during the
term of the engagement, or Goldman Sachs or the Company, its
management, its directors or its affiliates had contact with the
acquiring party, or any affiliate thereof, regarding such a
transaction during the period of our engagement. The Company's
obligation to offer Goldman Sachs the right to act in the
capacities set forth above in connection with certain financing
transactions or other strategic transactions shall survive any
such termination for a period of 18 months from the date of such
termination.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed copy of
this letter, which shall become a binding agreement upon our
receipt. We are delighted to accept this engagement and look
forward to working with you on this assignment.
Very truly yours, Confirmed
Sealright Co., Inc.
/s/ Goldman Sachs & Co By: /s/ G. Kenneth Baum
(Goldman Sachs & CO.) G. Kenneth Baum
Director
Date: 10/9/97
<PAGE>
Annex A
In the event that Goldman Sachs becomes involved in any capacity
in any action, proceeding or investigation brought by or against
any person, including stockholders of the Company, in connection
with or as a result of either our engagement or any matter
referred to in this letter, the Company periodically will
reimburse Goldman Sachs for its legal and other expenses
(including the cost of any investigation and preparation)
incurred in connection therewith. The Company also will
indemnify and hold Goldman Sachs harmless against any and all
losses, claims, damages or liabilities to any such person in
connection with or as a result of either our engagements or any
matter referred to in this letter, except to the extent that any
such loss, claim, damage or liability results from the gross
negligence or bad faith of Goldman Sachs in performing the
services that are the subject of this letter. If for any reason
the foregoing indemnification is unavailable to Goldman Sachs or
insufficient to hold it harmless, then the Company shall
contribute to the amount paid or payable by Goldman Sachs as a
result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative economic
interests of the Company and its stockholders on the one hand and
Goldman Sachs on the other hand in the matters contemplated by
this letter as well as the relative fault of the Company and
Goldman Sachs with respect to such loss, claim, damage or
liability and any other relevant equitable considerations. The
reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon
the same terms and conditions to any affiliate of Goldman Sachs
and the partners, directors, agents, employees and controlling
persons (if any), as the case may be, of Goldman Sachs and any
such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal
representatives of the Company, Goldman Sachs, any such affiliate
and any such person. The Company also agrees that neither
Goldman Sachs nor any of such affiliates, partners, directors,
agents, employees or controlling persons shall have any liability
to the Company or any person asserting claims on behalf of or in
right of the Company in connection with or as a result of either
our engagement or any matter referred to in this letter except to
the extent that any losses, claims, damages, liabilities or
expenses incurred by the Company result from the gross negligence
or bad faith of Goldman Sachs in performing the services that are
the subject of this letter. Prior to entering into any agreement
or arrangement with respect to, or effecting, any proposed sale,
exchange, dividend or other distribution or liquidation of all or
a significant portion of its assets in one or a series of
transactions or any significant recapitalization or
reclassification of its outstanding securities that does not
directly or indirectly provide for the assumption of the
obligations of the Company set forth in this Annex A, the Company
will notify Goldman Sachs in writing thereof (if not previously
so notified) and, if requested by Goldman Sachs, shall arrange in
connection therewith alternative means of providing for the
obligations of the Company set forth in this paragraph upon terms
and conditions satisfactory to Goldman Sachs. Any right to trial
by jury with respect to any action or proceeding arising in
connection with or as a result of either our engagement or any
matter referred to in this letter is hereby waived by the parties
hereto. The provisions of this Annex A shall survive any
termination or completion of the engagement provided by this
letter agreement, and this letter agreement shall be governed by
and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of laws.
EXHIBIT 10(ee)
George K. Baum & Company
Investment Bankers
Member Twelve Wyandotte Plaza
New York Stock Exchange, Inc. 120 West 12th Street
Chicago Stock Exchange, Inc. Kansas City, Missouri 64105
Telephone: (816) 474-1100
September 12, 1997
Personal and Confidential
G. Kenneth Baum
Director
Sealright Co., Inc.
9201 Packaging Drive
DeSoto, Kansas 66018
Dear Mr. Baum:
We are pleased to confirm the arrangements under which George K.
Baum & Company ("George K. Baum") (together with Goldman, Sachs &
Co. Pursuant to a letter dated September 12, 1997, a copy of
which has been provided to George K. Baum) is exclusively engaged
by Sealright Co., Inc. (The "Company") as financial advisor to
assist the Company in its analysis and consideration of various
financial alternatives available to it, which may include the
possible sale of all or a portion of the Company.
During the term of our engagement, we will provide you with
financial advice and assistance in connection with analyzing and
considering various financial alternatives, which may include
performing valuation analyses, searching for a purchaser
acceptable to you, coordinating visits of potential purchasers
and assisting you in negotiating the financial aspects of a
transaction.
At your request we also will undertake a study to enable us to
render our opinion as to the fairness of the financial
consideration to be received by stockholders of the Company or
the Company, as the case may be, in connection with the sale of
50% or more of the outstanding common stock of the Company. The
nature and scope of our investigation as well as the scope, form
and substance of our opinion shall be such as we consider
appropriate. If requested our opinion will be in written form.
In connection with this engagement, the Company shall pay us a
fee of $32,000, payable in cash immediately, which to the extent
paid shall be applied against any transaction fee which may
become payable pursuant to this engagement. If the purchase of
50% or more of the outstanding common stock or the assets (based
on the book value thereof) of the Company is accomplished ("a
sale of the Company") in one or a series of transactions,
including, but not limited to, private or open market purchases
of stock, a tender offer, a merger or a sale by the Company of
its stock or assets, we will charge a transaction fee of .25% of
the aggregate consideration paid in such transactions. If less
than 50% of the outstanding common stock or the assets (based on
the book value thereof) of the Company is acquired in the manner
set forth in the preceding sentence, we will charge a transaction
fee to be mutually agreed upon by George K. Baum and the Company.
Except as provided herein, a transaction fee will be paid to us
in cash upon consummation of each transaction.
The aggregate consideration for purposes of calculating a
transaction fee shall be:
(i) In the case of the sale, exchange or purchase of the
Company's equity securities, the total consideration paid for
such securities (including amounts paid to holders of options,
warrants and convertible securities), plus the principal amount
of all indebtedness for borrowed money as set forth on the most
recent consolidated balance sheet of the Company prior to the
consummation of such sale, exchange or purchase, and
(ii) In the case of a sale or disposition by the Company of
assets, the total consideration paid for such assets,
including the principal amount of all indebtedness for
borrowed money assumed by the purchaser, plus the net value
of any current assets not sold by the Company.
Amounts paid into escrow and contingent payments in connection
with any transaction will be included as part of the aggregate
consideration. Fees on amounts paid into escrow will be payable
upon the establishment of such escrow. If the consideration in
connection with any transaction may be increased by payments
related to future events, the portion of our fee relating to such
contingent payments will be calculated and paid if and when such
contingent payments are made. Aggregate consideration also shall
include the aggregate amount of any (i) dividends or other
distributions declared by the Company with respect to its stock
after the date hereof, other than normal recurring cash dividends
in amounts not materially greater than $.12 per share per
quarter, and (ii) amounts paid by the Company to repurchase any
securities of the Company outstanding on the date hereof other
than amounts paid to acquire shares pursuant to the terms of
existing compensation programs and in the normal course of
business.
In connection with a sale of the Company involving a tender offer
or other purchase or sale of stock, the transaction fee will be
payable and calculated under the definition of aggregate
consideration set forth above as though 100% of the outstanding
common stock on a fully diluted basis had been acquired for the
same per share amount paid in the transaction in which 50% or
more of the Company's outstanding common stock is acquired by a
purchaser or group of affiliated purchasers. Nevertheless, our
services pursuant to this letter will continue after control is
obtained to assist you with a second step merger or similar
transaction.
If any portion of the aggregate consideration is paid in the form
of securities, the value of such securities, for purposes of
calculating the transaction fee, will be determined by the
average of the last sales prices for such securities on the five
trading days ending five days prior to the consummation of the
transaction. If such securities do not have an existing public
trading market, the value of the securities shall be the mutually
agreed upon fair market value on the day prior to the
consummation of the transaction.
In the event that the Company determines to undertake a financing
transaction or other strategic transaction in lieu of a sale of
all or a portion of the Company, the Company shall offer George
K. Baum the right to act in such transaction as manager or agent
in the case of any offering or placement of securities, arranger
in the case of a syndicated bank loan, or as advisor or dealer
manager, as applicable, in the case of any other transaction. If
George K. Baum agrees to act in such capacity, the Company and
George K. Baum will enter into an appropriate form of
underwriting, placement agency, engagement, dealer manager or
other agreement relating to the type of transaction involved and
containing customary terms and conditions, including customary
fee provisions and provisions relating to our indemnity.
However, unless specifically covered by a separate agreement
setting forth such arrangement, the provisions in the attached
Annex A shall apply to each such transaction. The Company
acknowledges that this letter agreement is neither an expressed
nor an implied commitment by George K. Baum to act in any
capacity in any such transaction or to purchase or place any
securities in connection therewith, which commitment shall only
be set forth in a separate underwriting, placement agency or
other applicable type of agreement.
You also agree to reimburse us periodically, upon request, and
upon consummation of the transaction or transactions contemplated
hereby or upon termination of our services pursuant to this
agreement, for our reasonable out-of-pocket expenses including
any expenses related to any such financing transaction or other
strategic transaction, including the fees and disbursements of
our attorneys, plus any sales, use or smaller taxes (including
additions to such taxes, if any, but excluding any income taxes
owed by George K. Baum) arising in connection with any matter
referred to in this letter. The fees and disbursements of
counsel retained pursuant to the immediately preceding sentence
shall (together with similar fees incurred by Goldman, Sachs &
Co.) Not exceed $100,000 without the prior consent of the
Company, such consent not to be unreasonably withheld; provided,
however, this sentence shall in no way affect the Company's
obligations as set forth in Annex A to this letter.
In order to coordinate most effectively our efforts together to
effect a transaction satisfactory to the Company, the Company and
its management will promptly inform us of any inquiry they may
receive concerning the availability of all or a portion of the
stock or assets of the Company for purchase. Also, during the
period of our engagement, neither the Company nor its management
will initiate any discussions looking toward the sale of all or a
portion of the stock or assets of the Company without first
consulting with George K. Baum.
Please note that any written or oral opinion or advice provided
by George K. Baum in connection with our engagement is
exclusively for the information of the Board of Directors and
senior management of the Company, and may not be disclosed to any
third party or circulated or referred to publicly without our
prior written consent. In connection with the engagements such
as this, it is our firm policy to receive indemnification. The
Company agrees to the provisions with respect to our indemnity
and other matters set forth in Annex A which is incorporated by
reference into this letter.
As you know, George K. Baum is a full service securities firm and
as such may from time to time affect transactions, for its own
account or the account of customers, and hold positions in
securities or options on securities of the Company and other
companies which may be the subject of the engagement contemplated
by this letter.
Our services may be terminated by you or us at any time with or
without cause effective upon receipt of written notice to that
effect; provided, however, that our services will automatically
terminate on the date 18 months after the date of this letter
agreement, unless the Company and George K. Baum mutually agree
in writing to extend them for a specified period. We will be
entitled to the applicable transaction fee set forth above in the
event that at any time prior to the expiration of 18 months after
such termination an agreement is entered into with respect to a
sale of all or a portion of the stock or assets of the
Company which is eventually consummated and any of the purchasers
or their affiliates were on the list of prospective buyers
provided by George K. Baum to the Company, and mutually agreed to
by the Company and George K. Baum, at the commencement of this
assignment, including any prospective buyers added to such list
as mutually agreed to by George K. Baum and the Company during
the term of the engagement, or George K. Baum or the Company, its
management, its directors or its affiliates had contact with the
acquiring party, or any affiliate thereof, regarding such a
transaction during the period of our engagement. The Company's
obligation to offer George K. Baum the right to act in the
capacities set forth above in connection with certain financing
transactions or other strategic transactions shall survive any
such termination for period of 18 months from the date of such
termination.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed copy of
this letter, which shall become a binding agreement upon our
receipt. We are delighted to accept this engagement and look
forward to working with you on this assignment.
Very truly yours, Confirmed
George K. Baum & Company Sealright Co., Inc.
/s/ Duncan M. O'Brien, Jr. By: /s/ G. Kenneth Baum
Duncan M. O'Brien, Jr. G. Kenneth Baum
Vice Chairman Director
Director of Investment Banking
Date: ______________
<PAGE>
Annex A
In the event that George K. Baum becomes involved in any capacity
in any action, proceeding or investigation brought by or against
any person, including stockholders of the Company, in connection
with or as a result of either our engagement or any matter
referred to in this letter, the Company periodically will
reimburse George K. Baum for its legal and other expenses
(including the cost of any investigation and preparation)
incurred in connection therewith. The Company also will
indemnify and hold George K. Baum harmless against any and all
losses, claims, damages or liabilities to any such person in
connection with or as a result of either our engagements or any
matter referred to in this letter, except to the extent that any
such loss, claim, damage or liability results from the gross
negligence or bad faith of George K. Baum in performing the
services that are the subject of this letter. If for any reason
the foregoing indemnification is unavailable to George K. Baum or
insufficient to hold it harmless, then the Company shall
contribute to the amount paid or payable by George K. Baum as a
result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative economic
interests of the Company and its stockholders on the one hand and
George K. Baum on the other hand in the matters contemplated by
this letter as well as the relative fault of the Company and
George K. Baum with respect to such loss, claim, damage or
liability and any other relevant equitable considerations. The
reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon
the same terms and conditions to any affiliate of George K. Baum
and the partners, directors, agents, employees' and controlling
persons (if any), as the case may be, of George K. Baum and any
such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal
representatives of the Company, George K. Baum, any such
affiliate and any such person. The Company also agrees that
neither George K. Baum nor any of such affiliates, partners,
directors, agents, employees or controlling persons shall have
any liability to the Company or any person asserting claims on
behalf of or in right of the Company in connection with or as a
result of either our engagement or any matter referred to in this
letter except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the
gross negligence or bad faith of George K. Baum in performing the
services that are the subject of this letter. Prior to entering
into any agreement or arrangement with respect to, or effecting,
any proposed sale, exchange, dividend or other distribution or
liquidation of all or a significant portion of its assets in one
or a series of transactions or any significant recapitalization
or reclassification of its outstanding securities that does not
directly or indirectly provide for the assumption of the
obligations of the Company set forth in this Annex A, the Company
will notify George K. Baum in writing thereof (it not previously
so notified) and, if requested by George K. Baum, shall arrange
in connection therewith alternative means of providing for the
obligations of the Company set forth in this paragraph upon terms
and conditions satisfactory to George K. Baum. Any right to
trial by jury with respect to any action or proceeding arising in
connection with or as a result of either our engagement or any
manor referred to in this letter is hereby waived by the parties
hereto. The provisions of this Annex A shall survive any
termination or completion of the engagement provided by this
letter agreement, and this letter agreement shall be governed by
and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of laws.
Exhibit 21
Sealright Co., Inc. and Subsidiaries
Subsidiaries of Registrant
State/Country
of
Name Incorporation
Sealright Co., Inc. Delaware
Sealright Manufacturing - West, Inc. Missouri
Sealright Manufacturing - East, Inc. Ohio
Sealright Manufacturing - Fulton, Inc. New York
Sealright Packaging Company Kansas
Venture Packaging, Inc. North Carolina
Sealright FSC, Inc. Barbados
Sealright Packaging Company of Australia
Australia Pty. Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,454
<SECURITIES> 0
<RECEIVABLES> 28,034
<ALLOWANCES> 538
<INVENTORY> 40,949
<CURRENT-ASSETS> 73,396
<PP&E> 246,676
<DEPRECIATION> 118,609
<TOTAL-ASSETS> 215,021
<CURRENT-LIABILITIES> 34,595
<BONDS> 73,925
0
0
<COMMON> 1,108
<OTHER-SE> 90,287
<TOTAL-LIABILITY-AND-EQUITY> 215,021
<SALES> 255,198
<TOTAL-REVENUES> 255,198
<CGS> 218,840
<TOTAL-COSTS> 218,840
<OTHER-EXPENSES> 30,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,574
<INCOME-PRETAX> 338
<INCOME-TAX> 126
<INCOME-CONTINUING> 212
<DISCONTINUED> 54
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 266
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
