<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[x]
For the Fiscal Year Ended September 30, 1995
- --------------------------------------------
or
[ ]
For the transition period from ________ to ________
Commission File No. 0-14699
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MARIETTA CORPORATION
(Exact name of registrant as specified in its charter)
16-1074992
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(I.R.S. Employer Identification No.)
37 Huntington Street, Cortland, New York 13045
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 753-6746
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of December 18, 1995 was approximately $24,801,200.
As of December 18, 1995, there were outstanding 3,596,049 shares of the
Registrant's Common Stock, par value $.01 per share.
Documents Incorporated by Reference: None.
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INTRODUCTORY NOTE
Marietta Corporation ("Marietta" or the "Company") entered into an Agreement
and Plan of Merger, dated as of August 26, 1995, with BFMA Holding Corporation
("Parent"), and BFMA Acquisition Corporation ("Newco"), which provides for the
merger (the "Merger"), of Newco, a wholly-owned subsidiary of Parent, with and
into the Company, with the result that the Company will become a wholly-owned
subsidiary of Parent. Parent is a corporation controlled by Barry W. Florescue,
a director of the Company since August 31, 1995, and the beneficial owner of
approximately 8.7% of the issued and outstanding shares of common stock, par
value $.01 per share (the "Common Stock"). If the Merger is consummated, Mr.
Florescue and his affiliates will acquire the entire equity interest in the
Company and shareholders of the Company (other than Mr. Florescue and his
affiliates) will receive $10.25 per share in cash. The closing of the
transaction is subject to several conditions, including: Mr. Florescue obtaining
the financing necessary to approve the transaction; and approval of the
transaction by holders of at least 66 2/3% of the Common Stock. There can be no
assurance that the conditions will be satisfied.
Page 2 of 65
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PART I
ITEM 1. BUSINESS.
GENERAL
The Company was incorporated in 1976 and is one of the leading independent
companies specializing in the design, manufacture, packaging, marketing and
distribution of guest amenity programs to the travel and lodging industry in the
United States and abroad. The Company's guest amenity programs feature a wide
variety of nationally branded toiletries, personal care products and accessories
which travel and lodging establishments provide for the comfort and convenience
of their guests.
The Company is also a leader in providing customized sample-size and unit-of-use
packaging products and services to companies in the toiletries, cosmetics,
pharmaceuticals and household products industries for such purposes as marketing
promotions and retail sales.
Marietta American, Inc. ("Marietta American"), a wholly owned subsidiary of the
Company, is one of the largest manufacturers of private label miniature bar
soaps for the travel and lodging industry. Marietta American specializes in
customized soap products for the lodging, airline and cruise ship markets. In
addition, Marietta American sells soap products to the cosmetics, consumer goods
and healthcare industries and to institutional and industrial markets including
health spas, schools and restaurants.
The Company also has a wholly owned Canadian subsidiary, Marietta Canada Inc.
("Marietta Canada"), which services the Canadian marketplace in a way which is
similar to the operations of Marietta in the United States. In fiscal 1995 and
1994, net sales for Marietta Canada were less than 10% of the Company's total
sales. Net sales for Marietta Canada in fiscal 1993 were approximately 10% of
total sales for Marietta. See Note 13 of Notes to Consolidated Financial
Statements.
Unless otherwise noted, all references herein to "Marietta" or the "Company"
include Marietta and its wholly owned subsidiaries, Marietta American and
Marietta Canada.
PRODUCTS AND SERVICES
The Company's guest amenity programs include hair care products, soaps, lotions,
bath products, fragrances, mouthwash and other dental care products, sewing
kits, shoe care products, shower caps and decorative display units. Well-known
nationally-branded products are integral components of Marietta's amenities
programs. These include Flex & Go(TM) Shampoo and Conditioner (Revlon),
Vaseline(R) Intensive Care(R) Lotion (Chesebrough-Pond's), Listermint(R)
Mouthwash (Warner-Lambert), Woolite Cold Water Wash (Reckitt & Coleman Household
Products), Andrew Jergens soaps, and H\\2\\O Plus(R) (H\\2\\O Plus) hair and
cleansing bar products.
Customized guest amenity programs marketed by Marietta to major hotel chains
assist in providing a uniform theme throughout the chain. Such programs
typically consist of several items packaged and presented in Company-designed
bottles, tubes, packets and boxes that display the name and logo of the hotel
establishment.
The Company also provides customized guest amenity programs for major hotel
chain franchisees having independent buying power as well as for independent
hotel establishments. Such programs generally entail design and packaging to
complement the guest room decor and the image of the particular lodging
establishment.
As an alternative to customized guest amenity programs, Marietta markets its own
lines of guest amenity programs, including a broad line of 20 items under the
"Fleur de Lis" label and over 40 products under Marietta's "Lord and
Mayfair(R)," "Leisure," "The Executive Collection" and "Sun and Sand" labels.
Such
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programs are suitable for a variety of decors and adequate inventory is
maintained and available for prompt delivery.
Marietta produces an extensive assortment of customized packages, and performs a
variety of packaging services, for companies primarily in the toiletries,
cosmetics, household products and over-the-counter pharmaceuticals industries.
Marietta's products and services are used by such companies principally for new
product introductions, promotional purposes and retail distribution. The
Company's services permit consumer products companies to limit their market
risks and capital expenditures while employing a variety of sampling methods and
packaging alternatives.
Marietta creates, designs and manufactures packages, such as flexible packets,
bottles, tubes and die-cut packets, for many products including creams, flakes,
liquids, lotions, ointments, powders, pills and tablets. Marietta works with
its customers to design attractive, durable and easily usable customized
packages which retain the integrity of the products being packaged. The Company
also manufactures and fills packages requiring innovative and specialized
equipment and tooling. Marietta has successfully developed manufacturing
technologies in connection with its sample-size and unit-of-use packaging and
services. Such technologies enable Marietta to produce die-cut packets in a
multiple of shapes and sizes, to produce "magazine insert" packets able to
withstand pressure of up to 3000 pounds per square inch, to pump difficult
products and to develop packaging materials for "hard-to-hold" products.
Marietta uses bulk products supplied primarily by major consumer products
companies except that the bar soap produced by Marietta American is used to fill
most of the Company's soap requirements.
For the fiscal years 1995, 1994, and 1993 the portion of the Company's net sales
attributable to guest amenities was 62.6%, 59.0%, and 57.4%, respectively, and
the portion of the Company's net sales attributable to customized sample-size
and unit-of-use packaging products and services, and soap manufacturing for
consumer products companies, was 37.4%, 41.0%, and 42.6%, respectively.
Marietta American has been a leader in creative packaging of bar soap for the
travel and lodging industry and offers a wide variety of soap formulations,
colors, fragrances, and bar shapes and sizes, as well as packaging options
including cellophane wrap and tissue pleat packaging.
The Company's manufacturing takes place at its facilities in Cortland, New York,
Olive Branch, Mississippi, and Toronto, Ontario, Canada under strict quality
assurance procedures. At its Cortland facility, Marietta uses sophisticated
machinery designed and engineered by the Company. Marietta American's facility
in Olive Branch uses technologically advanced equipment for both the processing
and the finishing of its soap products. Marietta Canada allows Marietta to
provide manufacturing operations in one location in Toronto similar to those in
the United States. Management believes that the Company has sufficient
production capacity to meet its current needs and its anticipated growth.
CUSTOMERS
Marietta's guest amenity customers are national and international hotel chains,
franchisees of hotel chains, independent hotels, cruise lines, hospitals and
other health care facilities and schools. Marietta provides its services to
many of the major hotel chains including Best Western, Choice Hotels, Days Inn,
Embassy Suites, Holiday Inns, Howard Johnson, Marriott Hotels, Radisson Hotels,
Red Lion Inns and Sheraton Hotels. Many independent hotels are also among the
Company's customers including Bally's(TM) Casino Hotels, Kingsmill Resort in
Virginia, El Dorado Hotel & Casino in Nevada, and the Royal Waikoloan. The
Company's contracts with its customers generally provide for terms ranging from
six months to two years, for fixed prices with escalation clauses for increases
in costs of raw materials and for specified shipments over the life of the
contract.
Many major consumer product companies rely upon independent packagers such as
Marietta to provide high quality, economical packaging services to meet the
demand for distributable samples at retail outlets, by mail or as magazine,
brochure or catalog inserts. The demand for sample-size and unit-of-use
packages by such companies has had a favorable impact on the market for
Marietta's products and services.
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Marietta has designed and customized sample-size and unit-of-use packaging and
services for many of the nation's leading consumer products companies. Included
among its customers are Chesebrough-Pond's, Cosmair, Colgate-Palmolive Co.,
Coty, Eastman Kodak, Estee Lauder, Johnson & Johnson, Procter & Gamble, Revlon,
Schering-Plough and Warner Lambert.
MARKETING AND SALES
The Company's marketing strategy emphasizes sales of guest amenity programs and
sample-size and unit-of-use packaging and products and services on a single
source basis utilizing the cost efficient technology and systems developed by
the Company. Marietta believes it has a reputation for designing and
manufacturing innovative products of superior quality and for providing prompt,
professional customer service.
The Company's marketing activities with respect to its guest amenity programs
are coordinated by its Vice President of Marketing who is responsible for Guest
Amenity direct sales personnel at corporate headquarters and throughout the
country. The Company markets to over 350 independent distributors in the
western hemisphere through the Company's sales personnel whose activities are
coordinated by the National Sales Manager of Guest Amenity Sales who reports to
the Vice President of Marketing. The Company employs a separate sales force for
Marietta Canada consisting of a sales manager and three sales representatives.
Marietta advertises its products and services in trade publications and catalogs
and engages in direct mail solicitation. The Company also employs a
telemarketing effort to contact individual hotels and attends trade shows.
The Company's marketing and sales activities with respect to its sample-size and
unit-of-use packaging and services are coordinated by its Senior Vice President
of Marketing and Sales who is responsible for direct sales personnel. Marietta
Canada employs a separate sales force for its sample-size and unit-of-use
products consisting of a member of senior management and one sales
representative.
DESIGN
The Company considers its package and graphics design capabilities to be an
integral element of its business. Marietta has developed several important
design innovations that have made it a recognized leader in its field.
Marietta's designers assist customers in the creation and development of the
components, graphics, colors, products and presentation methods used in their
guest amenity programs.
The Company consults with its consumer products customers to design customized
packaging which is attractive, durable, easily usable and which retains the
integrity of the products being packaged. Marietta also engineers and adapts
its machinery to create innovative packaging and to develop filling capabilities
which meet customers' specialized requirements.
SUPPLY CONTRACTS
The Company has agreements with certain manufacturers of personal care products
to package, market and distribute their products to the travel and lodging
industry. The Company believes that there are adequate alternative sources of
supply available for all products it manufactures, packages and distributes.
Moreover, Marietta believes that its success is determined more by the overall
quality of its products and services than by the availability of any specific
brand-name products.
QUALITY ASSURANCE
Marietta believes that maintaining the highest standards of quality is important
to generating customer satisfaction and to maintaining its competitive position.
The Company's operations are subject to regular quality inspections by its
personnel. In addition, the Cortland plant, equipment, personnel and record
keeping are periodically reviewed and inspected by United States Food and Drug
Administration ("F.D.A.") officials, as well as by the Company's customers. The
Company's Canadian operation is periodically reviewed by the Canadian Health
Protection Branch ("H.P.B."). The Company's procedures include strict adherence
to the current Good Manufacturing Practices of the F.D.A. and the H.B.P.
Page 5 of 65
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Marietta's commitment to quality assurance includes sampling and laboratory
testing of bulk products prior to packaging and of finished goods prior to
delivery.
COMPETITION
Marietta has many competitors in the guest amenity and customized sample-size
and unit-of-use packaging businesses, some of which have more extensive
production and marketing capabilities, as well as substantially greater
financial resources, than the Company. In addition, many consumer products
companies have in-house packaging capabilities to meet their sample-size and
unit-of-use packaging and services requirements; however, the Company believes
that major consumer products companies will continue to use independent
packagers such as Marietta for the promotion of their products in order to
minimize capital expenditures and maximize production flexibility.
Marietta believes that the factors which affect its business include price,
cost, packaging expertise, quality assurance standards, research and
development, and distribution capabilities. Such factors are relevant to both
the Company's guest amenity and customized sample-size and unit-of-use packaging
products and services. The Company believes that its creative approach to the
design, manufacture, marketing and distribution of its products and services,
its quality assurance standards, its research and development capabilities and
the combination of such elements enable it to compete effectively. In addition,
Marietta endeavors to competitively price all of its products and services.
The Company believes that the continuous modernization and expansion of its
manufacturing facilities has been an important factor in enabling its guest
amenity and customized sample-size and unit-of-use packaging products and
services to remain competitive.
REGULATORY REQUIREMENTS
The Company is subject to the jurisdiction of the F.D.A., the New York State
Department of Agriculture and Markets, the United States Environmental
Protection Agency, and the H.P.B. The Company also complies with the laws and
regulations of the States of New York and Mississippi and the province of
Ontario relating to land use in connection with its manufacturing and packaging
operations. The Company believes that it is in material compliance with
applicable regulatory requirements including applicable environmental laws.
EMPLOYEES
As of September 30, 1995, the Company employed a total of 721 full-time
employees of whom 58 were in sales and marketing, 600 were in manufacturing,
quality assurance and distribution, and 63 were in general administration. The
Company considers its relationship with its employees to be good.
SEASONALITY
The Company's guest amenity business is subject to some fluctuation in results
reflecting the seasonal nature of the travel and lodging industry. As a
consequence, the revenues from the Company's guest amenity business in its third
and fourth fiscal quarters tend to be higher than during the rest of the year.
Page 6 of 65
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ITEM 2. PROPERTIES.
Marietta utilizes approximately 164,000 square feet of manufacturing, warehouse
and office space in three connected buildings located on approximately five
acres of land in Cortland, New York. The Company owns two buildings of
approximately 37,000 and 52,000 square feet and leases the third building of
approximately 75,000 square feet from the Cortland County Industrial Development
Agency, a public benefit corporation (the "Agency"). The lease was entered into
in December 1986 in connection with a fifteen year $2,500,000 Industrial Revenue
Bond (the "1986 IRB") financing extended by the Agency to assist the Company in
constructing, on its land, a new facility of approximately 75,000 square feet
which provided the Company with expanded manufacturing, warehouse and office
facilities. The lease provides for rental payments equal to the debt service
payments required under the 1986 IRB financing and for the purchase of the
premises by the Company for $1.00 at the end of the lease term, which expires in
December 2001. The Company believes it is utilizing its facilities to meet
effectively its current production requirements.
Marietta American utilizes approximately 176,000 square feet of manufacturing,
warehouse and office space at its facility located on approximately ten acres in
Olive Branch, Mississippi. Marietta American owns a 72,600 square foot building
and leases from DeSoto County, Mississippi ("DeSoto County") a 103,800 square
foot building at such location. The lease was entered into in connection with
the refinancing, through the issuance of $4,875,000 aggregate principal amount
of DeSoto County Industrial Development Revenue Bonds (the "1988 Bonds"), of all
of the then outstanding Industrial Development Revenue Bonds issued by DeSoto
County in 1985 (the "1985 Bonds"). The 1985 Bonds were issued to finance the
expansion of Marietta American's manufacturing facility. The lease provides for
basic rental payments equal to the debt service payments on the 1988 Bonds and
supplemental rental payments equal to the expenses, liabilities and obligations
with respect to the facility for which Marietta American is responsible under
the lease. The lease further provides for the purchase by the Company of the
financed addition to the facility for $100 at the end of the lease term which
expires on December 1, 2008.
The Company leases approximately 90,000 square feet of manufacturing, warehouse
and office space in Toronto, Ontario, Canada for the operations of Marietta
Canada. The current lease is a five year lease commencing January 1, 1995 and
expiring December 31, 1999.
The Company leases a sales office in Parsippany, New Jersey.
The Company believes that it has sufficient production capacity to meet its
anticipated growth for the foreseeable future. See Item 1. - "Business -
Products and Services."
The property, plant and equipment of the Company are subject to various liens
securing the Company's long-term debt. See Note 5 of Notes to Financial
Statements.
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ITEM 3. LEGAL PROCEEDINGS.
On or about November 24, 1992, an action was filed in the United States District
Court for the Western District of Tennessee by Donald M. Rowe ("Rowe"), a former
officer and director of the Company and a former shareholder of Marietta
American, J. Donald Rowe, Masella B. Rowe, and California Soap Co. Inc.
("Plaintiffs") against the Company and John S. Nadolski (former President, Chief
Executive Officer and a director of the Company). The complaint alleges, among
other things, violations of certain federal and state securities and other laws
as a result of alleged misrepresentations contained in or facts omitted from
certain statements made by the Company in various documents, including documents
filed with the Securities and Exchange Commission, and communications allegedly
made in connection with the Company's acquisition of Marietta American and
Plaintiffs' acquisition of shares of the Company's securities. The complaint
also alleges breaches of Rowe's contractual rights and seeks money damages in an
undetermined amount. Although no claims have been asserted by Huey L. Holden, a
former shareholder of Marietta American, the Company has tolled the statute of
limitations with respect to any claim by Mr. Holden against the Company arising
from the acquisition of Marietta American.
On or about July 29, 1994, an action was commenced in the United States District
Court for the Western District of Tennessee by Valley Products Co., Inc.
("Valley Products"), a vendor of guest amenity products, against Landmark, a
division of Hospitality Franchise Systems, Inc., Hospitality Franchise Systems,
Inc., ("HFS"), the Company, Guest Supply, Inc., Days Inn of America, Inc.,
Howard Johnson Franchise System, Inc., Ramada Franchise Systems, Inc., Super 8
Motels, Inc., Park Inns International, Inc., and TM Acquisitions, Inc. In the
action it is alleged, among other things, that a preferred vendor agreement
entered into by the Company and HFS (as the parent corporation of the
franchisors named as defendants in the action) pursuant to which HFS agreed to
recommend the Company to franchisees of such franchisors in the Western
hemisphere as a preferred vendor of logoed guest amenity products, tortiously
interfered with Valley Product's contracts and constituted an illegal tying and
exclusive dealing arrangement in violation of federal and Tennessee state anti-
trust laws, including Sections 1 and 2 of the Sherman Act and Sections 4 and 16
of the Clayton Act. The action seeks, among other things, a temporary
injunction and a declaratory judgment prohibiting the enforcement of the
preferred vendor agreement between the Company and HFS and money damages in an
amount not less than $10 million dollars, to be trebled pursuant to Section 4 of
the Clayton Act.
On or about September 12, 1994, B.N.P. Industries, Inc. d/b/a Savannah Soaps,
also a vendor of guest amenity products, filed an action, similar to the action
commenced by Valley Products, against the Company and the same other principal
parties, in the United States District Court for the Southern District of
Georgia, seeking money damages in an amount in excess of $100,000, to be trebled
pursuant to Section 4 of the Clayton Act. This case was consolidated with the
action commenced by Valley Products in the United States District Court for the
Western District of Tennessee.
A motion by the Company together with the other defendants to dismiss the action
was granted by the District Court on or about December 22, 1994. The plaintiffs
(Valley Products and Savannah Soaps), appealed the decision of the District
Court. On or about July 27, 1995, Savannah Soap's motion to voluntary dismiss
its appeal was granted.
See Note 15 of Notes to Financial Statements.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) On August 31, 1995, Registrant held its Annual Meeting of Shareholders.
(b) Dickstein Partners Inc. commenced a solicitation in opposition to
management's nominees, but withdrew such solicitation prior to the Company's
Annual Meeting of Shareholders.
(c) At the Company's Annual Meeting of Shareholders, all of management's
nominees were elected to the Board of Directors. The result of such vote was
as follows:
<TABLE>
<CAPTION>
Broker
Name For Withheld Non-Votes
- ---------------------- --------- -------- ---------
<S> <C> <C> <C>
Robert C. Buhrmaster 2,212,733 19,312 0
Ronald C. DeMeo 2,195,472 36,573 0
Barry W. Florescue 2,212,477 19,568 0
Dominic J. LaRosa 2,212,733 19,312 0
Frank Magrone 2,212,733 19,312 0
Charles W. Miersch 2,212,477 19,568 0
Leonard J. Sichel 2,212,477 19,568 0
Stephen D. Tannen 2,212,733 19,312 0
Thomas D. Walsh 2,212,733 19,312 0
</TABLE>
(d) Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ National Market System under
the symbol MRTA. The table below sets forth the range of the high and low sale
prices, as reported by the National Association of Securities Dealers, during
each of the last two fiscal years.
<TABLE>
<CAPTION>
Quarter High Low
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<S> <C> <C> <C>
Fiscal 1995: First $ 8 3/4 $6 3/4
Second 11 1/2 7 1/2
Third 11 1/8 9 1/2
Fourth 10 1/2 7
Fiscal 1994: First $ 8 1/2 $6 1/2
Second 9 6
Third 9 3/8 7 1/2
Fourth 9 1/2 7 1/2
</TABLE>
__________________________
The prices set forth above reflect inter-dealer prices without adjustment for
retail markups, markdowns or commissions, and do not necessarily represent
actual transactions.
The approximate number of holders of record of Marietta's Common Stock as of
December 18, 1995 was 299.
No dividends have been declared with respect to the Company's Common Stock and
the Company has no intention to pay cash dividends in the foreseeable future.
Pursuant to one of the Company's loan agreements, the Company is limited in the
amount of cash dividends it may declare to 50% of the Company's cumulative net
income for each fiscal year commencing with its 1993 fiscal year.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information is derived from and should be read
in conjunction with the financial statements, including the notes thereto,
appearing in Item 8. - "Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
FISCAL YEARS ENDING IN:
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1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS AND RATIO OF EARNINGS TO FIXED CHARGES)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $ 72,407 $ 68,231 $ 65,845 $ 69,111 $ 58,080
Gross profit 16,649 19,129 17,588 17,920 12,129
Income (loss) before extraordinary
item or change in accounting 5 2,282 1,443 2,115 (1,954)
principle
Extraordinary item (1991) or change in
accounting principle (1994) -- 337 -- -- 724
Net income (loss) 5 2,618 1,443 2,115 (1,230)
Per Share Data:
Income (loss) before extraordinary
item or change in accounting
principle 0 0.64 0.40 0.59 (0.54)
Extraordinary item (1991) or change in
accounting principle (1994) -- 0.09 -- -- 0.20
Net income (loss) 0 0.73 0.40 0.59 (0.34)
Weighted average shares outstanding
and common share equivalents (in 3,610 3,586 3,572 3,570 3,609
thousands of shares)
Book Value per Share $13.10 $ 13.06 $ 12.36 $ 12.08 $ 11.62
Ratio of earnings to fixed charges .85 5.00 2.40 1.79 .29
BALANCE SHEET DATA
Working capital $ 23,622 $ 25,142 $ 24,714 $ 23,264 $ 22,225
Total assets 64,131 61,836 58,661 59,477 58,153
Long-term debt 6,514 6,851 7,213 8,548 10,778
Convertible subordinated notes 278 274 269 265 261
Shareholder's equity 46,498 46,275 43,301 42,238 40,584
Cash dividends per common share NONE NONE NONE NONE NONE
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net sales increased 6.1% in fiscal 1995 as compared to fiscal 1994. The
increase of $4,176,000 was attributable to an increase in guest amenity sales of
$5,095,000 partially offset by a decrease in custom packaging sales of $919,000.
The increase in guest amenity sales was the result of increased sales volume.
The decrease in custom packaging sales was attributable to a decrease in pricing
and a change in product mix. Net sales increased 3.6% in fiscal 1994 compared
to fiscal 1993. The increase of $2,386,000 was attributable to an increase in
guest amenity sales of $2,468,000 with a slight decrease in custom packaging
sales of $82,000. The increase in guest amenity sales from fiscal 1993 to 1994
was the result of increased sales volume.
The Company's gross profit decreased to 23.0% of sales in fiscal 1995 from 28.0%
in fiscal 1994. Material cost for guest amenities increased significantly in
fiscal 1995 as compared to 1994. This increase was attributable to higher than
anticipated component costs for tallow, corrugate, bottles and packing film. In
order to offset the resulting decline in gross profit, a price increase was put
into effect on August 15, 1995. In addition, the Company's gross profit
percentage decreased slightly as a result of a mechanical breakdown of certain
of its soap manufacturing equipment during the second quarter of fiscal 1995.
This necessitated the purchase of soap chips on the open market at higher costs
to the Company. The Company also experienced delays in receiving customer-
supplied materials for custom packaging which caused delays in shipment of
finished product and resulted in reduced overhead absorption. In addition,
changes in the product mix negatively impacted gross profits. The Company's
gross profit increased to 28.0% of sales in fiscal 1994 from 26.7% in fiscal
1993. The increase was primarily due to product mix and the Company's continued
efforts in improving production efficiencies. In particular, the Company's
Canadian subsidiary operated at significantly improved margins.
Selling, general and administrative expenses, as a percentage of sales,
increased to 23.4% in fiscal 1995 from 22.1% in fiscal 1994. During fiscal 1995
the Company expensed $1,000,000 in connection with its retention of Goldman,
Sachs & Co. as the Company's financial advisor and incurred additional legal and
professional fees of approximately $763,000, primarily in connection with
matters relating to the unsolicited proposal by Dickstein Partners to acquire
the Company. Excluding the fee of the financial advisor and the additional
legal and professional fees, selling, general and administrative expense would
have been 21.0% of sales, or 1.1% lower than in fiscal 1994. This decrease was
mainly attributable to the increase in sales. Selling, general and
administrative expenses were 22.1% of sales in 1994 compared to 21.1% in fiscal
1993. This 1993 percentage is before giving effect to a non-recurring charge of
$1,333,333 resulting from the settlement of a litigation. The increase in
fiscal 1994 was primarily due to an increase in freight out expense associated
with guest amenity sales and an increase in marketing expense due to a renewed
focus in marketing. Selling, general and administrative expense for 1993,
including such non-recurring charge, was 23.1% of sales.
Other expense (income), net represents the netting of interest expense,
investment income and other income and expense items. Other expense (income),
net resulted in net income of $185,000 in fiscal 1995 compared to a net expense
of $520,00 in fiscal 1994. This change is primarily attributable to a charge in
fiscal 1994 of $713,000 resulting from a decline in the market value of certain
cash equivalents and marketable securities. Investment income of $661,000 in
fiscal 1995 compares favorably with $544,000 in fiscal 1994. This 21.5%
increase was attributable to both higher funds available for investment and to
better yields. Interest expense increased to $514,000 in fiscal 1995 compared
to $447,000 in fiscal 1994. This increase was attributable to interest paid in
connection with the settlement of a state income tax audit and to higher rates
on the Marietta American's Industrial Development Bonds. Net miscellaneous
income in fiscal 1995 was $38,000 as compared to $96,000 in fiscal 1994. Other
expense, net resulted in a net expense of $520,000 in fiscal 1994 compared to a
net income of $92,000 in fiscal 1993. This change is
Page 12 of 65
<PAGE>
primarily attributable to a charge of $713,000 resulting from the decline in
market value of certain cash equivalents and marketable securities. Investment
income of $544,000 in fiscal 1994 compares favorably with $508,000 in fiscal
1993. Interest expense increased slightly in fiscal 1994 to $447,000 compared
to $438,000 in fiscal 1993. This increase was attributable to an increase in
interest rates. Net miscellaneous income in fiscal 1994 was $96,000 as compared
to $22,000 in fiscal 1993. This increase is primarily attributable to the sale
of excess inventory components.
The Company's effective tax rate (benefit) for federal, state and foreign taxes
was a 104.2% effective tax benefit in fiscal 1995 compared to an effective tax
rate of 35.3% in 1994. In fiscal 1995 tax benefits were derived from the
Company's foreign sales corporation, a change in the valuation allowance as
relates to Marietta Canada, and Marietta Canada's net operating income not
currently being taxed. The Company's effective tax rate was 41.1% in fiscal
1993. This rate was impacted by state and provincial franchise/equity taxes and
the inability to utilize a foreign loss as a carryback.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $23,622,000 at September 30, 1995
from $25,142,000 at October 1, 1994. Cash provided by operating activities for
1995 and 1994 was $1,443,000 and $3,554,000 respectively. The $2,111,000
reduction in cash provided by operating activities in 1995 as compared to 1994
was caused primarily by the decrease in net income of $2,613,000 and the
decrease in the cash collected on accounts receivable in 1995 compared to 1994,
partially offset by the increase in accounts payable and accrued expenses. The
cash used in investing activities in 1995 is comparable to 1994 and results
primarily from capital expenditures. The increase in cash used in financing
activities in 1995 compared to 1994 was caused by the purchase of treasury stock
in 1995 of $56,000 and the collection of a common stock note receivable in 1994
(with no corresponding collection 1995) partially offset by a decrease in
payments on long-term debt of $73,000.
The Company has a $12,000,000 revolving credit facility all of which was
available as of September 30, 1995. The revolving credit portion of the
facility expires in October 1996. Borrowings under the facility bear interest at
the prime rate or, if elected by the Company, at an interest rate 1.1% above the
LIBOR rate.
Management believes that the Company is in sound financial condition as
evidenced by its total shareholders' equity of $46,498,000 versus its long-term
debt of $7,129,000. Management believes that its current assets plus funds
provided by operations and the Company's existing lines of credit and debt
capacity are adequate to meet its anticipated capital and short-term needs.
Management also believes that inflation has not had a material effect on its
business. It is the Company's practice to review on an on-going basis the
marketability of its inventory and the Company makes provision for inventory
obsolescence as it deems appropriate.
In fiscal 1996 the Company expects to undertake capital improvements of
approximately $3,000,000. In addition, the Company expects to enter into
capital leases on a new computer system totalling approximately $1,500,000.
The Company is unable to determine the impact upon the Company's financial
condition of an adverse determination, if any, in any action, proceeding or
investigation arising out of the events discussed in Note 15 of the Notes to
Financial Statements.
Page 13 of 65
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page 14 of 65
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Marietta Corporation
Cortland, New York
We have audited the accompanying consolidated balance sheets of Marietta
Corporation and its subsidiaries as of September 30, 1995 and October 1, 1994,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Marietta Corporation and its
subsidiaries as of September 30, 1995 and October 1, 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 15 to the consolidated financial statements, there are
legal proceedings that exist. The outcome of these matters and their impact on
the consolidated financial statements cannot presently be determined.
Deloitte & Touche LLP
Rochester, New York
November 14, 1995
Page 15 of 65
F-1
<PAGE>
MARIETTA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, OCTOBER 1,
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,384,686 $ 7,476,101
Accounts receivable (net of allowance of $280,314 and
$223,219, respectively) 13,668,876 10,074,495
Inventories 12,626,817 11,926,566
Refundable income taxes 548,792 341,735
Other current assets 433,887 770,475
Deferred tax asset 601,952 467,083
----------- -----------
Total current assets 32,265,010 31,056,455
Property, plant and equipment, net 23,162,584 22,187,484
Restricted cash 2,700,000 2,300,000
Marketable securities 2,432,050 2,219,823
Excess of cost over net assets acquired (net of accumulated
amortization of $807,976 and $682,127, respectively) 3,202,052 3,327,901
Other assets 368,888 744,773
----------- -----------
Total assets $64,130,584 $61,836,436
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,528,147 $ 2,754,613
Accrued payroll 1,708,637 1,512,467
Accrued rebates 483,653 445,226
Accrued expenses 1,448,565 818,880
Current maturities of long-term debt 336,699 361,894
Income taxes payable 137,541 21,602
----------- -----------
Total current liabilities 8,643,242 5,914,682
Long-term debt, less current maturities 6,514,335 6,851,034
Convertible subordinated note 278,040 273,720
Deferred tax liability 2,197,228 2,522,406
Commitments and contingencies
----------- -----------
Total liabilities 17,632,845 15,561,842
----------- -----------
Shareholders' equity:
Preferred stock, $0.01 par value, authorized 1,000,000 shares
Common stock, $0.01 par value, authorized 10,000,000 shares 40,109 40,057
Additional paid-in capital 36,762,049 36,768,483
Common stock notes receivable (607,500) (607,500)
Treasury stock, at cost (3,877,333) (3,923,993)
Retained earnings 14,756,349 14,750,930
Equity adjustment from foreign currency translation (702,505) (753,383)
Marketable securities net unrealized holding gain 126,570
----------- -----------
Total shareholders' equity 46,497,739 46,274,594
----------- -----------
Total liabilities and shareholders'equity $64,130,584 $61,836,436
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 16 of 65
F-2
<PAGE>
MARIETTA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
September 30, October 1, October 2,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $72,407,349 $68,230,918 $65,844,814
Cost of sales 55,758,373 49,102,208 48,257,199
----------- ----------- -----------
Gross profit 16,648,976 19,128,710 17,587,615
----------- ----------- -----------
Litigation settlement 1,333,333
Selling, general and administrative expenses 16,964,554 15,083,615 13,895,746
----------- ----------- -----------
Total operating expenses 16,964,554 15,083,615 15,229,079
----------- ----------- -----------
Operating income (loss) (315,578) 4,045,095 2,358,536
Other expense (income), net (185,301) 520,058 (91,566)
----------- ----------- -----------
Income (loss) before income taxes and
cumulative effect of a change
in accounting principle (130,277) 3,525,037 2,450,102
Income tax provision (benefit) (135,696) 1,243,221 1,007,498
----------- ----------- -----------
Income before cumulative
effect of a change in accounting
principle 5,419 2,281,816 1,442,604
Cumulative effect of a change in
accounting for income taxes 336,596
----------- ----------- -----------
Net income $ 5,419 $ 2,618,412 $ 1,442,604
=========== =========== ===========
Earnings per share:
Earnings before cumulative effect of
a change in accounting principle $0.00 $0.64 $0.40
Cumulative effect of a change in
accounting for income taxes 0.09
----------- ----------- -----------
Earnings per share $0.00 $0.73 $0.40
=========== =========== ===========
Weighted average shares and common
share equivalents 3,609,638 3,585,573 3,572,415
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 17 of 65
F-3
<PAGE>
<TABLE>
<CAPTION>
Marietta Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
September 30,1995, October 1,1994, and October 2, 1993
Additional Common Stock
Paid-in Notes
Common Stock Capital Receivable Treasury Stock
------------ ------- ---------- --------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 26, 1992 3,996,268 $39,962 $36,750,769 ($886,950) 426,096 ($4,038,167)
Net income
Employee stock purchase plan 4,273 43 22,391
Foreign currency translation adjustment
-------------------------------------------------------------------------
Balance, October 2, 1993 4,000,541 40,005 36,773,160 (886,950) 426,096 (4,038,167)
Net income
Employee stock purchase plan 5,176 52 34,887
Employee stock bonus (12,500) (2,500) 29,374
Officers' stock bonus (27,064) (7,217) 84,800
Payment on common stock note receivable 279,450
Foreign currency translation adjustment
-------------------------------------------------------------------------
Balance, October 1, 1994 4,005,717 40,057 36,768,483 (607,500) 416,379 (3,923,993)
Net income
Purchase of treasury stock 7,200 (55,800)
Employee stock purchase plan 5,191 52 34,986
Officers' stock bonus (41,420) (8,720) 102,460
Foreign currency translation adjustment
Marketable securities net unrealized
holding gain
-------------------------------------------------------------------------
Balance, September 30, 1995 4,010,908 $40,109 $36,762,049 ($607,500) 414,859 ($3,877,333)
=========================================================================
<CAPTION>
Equity Adjustment
From Foreign Marketable Securities Total
Retained Currency Net Unrealized Shareholders'
Earnings Translation Holding Gain Equity
-------- ----------- ------------ ------
<S> <C> <C> <C>
Balance, September 26, 1992 $10,689,914 ($317,289) $42,238,239
Net income 1,442,604 1,442,604
Employee stock purchase plan 22,434
Foreign currency translation adjustment (402,280) (402,280)
------------------------------------------------------------------
Balance, October 2, 1993 12,132,518 (719,569) 43,300,997
Net income 2,618,412 2,618,412
Employee stock purchase plan 34,939
Employee stock bonus 16,874
Officers' stock bonus 57,736
Payment on common stock note receivable 279,450
Foreign currency translation adjustment (33,814) (33,814)
------------------------------------------------------------------
Balance, October 1, 1994 14,750,930 (753,383) 46,274,594
Net income 5,419 5,419
Purchase of treasury stock (55,800)
Employee stock purchase plan 35,038
Officers' stock bonus 61,040
Foreign currency translation adjustment 50,878 50,878
Marketable securities net unrealized
holding gain 126,570 126,570
------------------------------------------------------------------
Balance, September 30, 1995 $14,756,349 ($702,505) $126,570 $46,497,739
==================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 18 of 65
F-4
<PAGE>
MARIETTA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED: SEPTEMBER 30, OCTOBER 1, OCTOBER 2,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,419 $ 2,618,412 $ 1,442,604
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting
for income taxes (336,596)
Depreciation and amortization 3,319,721 3,468,621 3,309,120
Provision for loss on accounts receivable 189,198 61,988 (34,190)
Provision for inventory obsolescence 627,876 292,564 324,238
Unrealized loss on marketable securities 670,681
Deferred compensation 97,140 250,140
Deferred income taxes (521,549) (305,467) 414,392
Loss on sale of equipment 128,315 135,899 44,125
Other assets 196,979 97,179 (56,849)
Restricted cash (400,000) (400,000) (400,000)
Stock bonuses 61,040 74,610
Changes in working capital:
Accounts receivable (3,779,832) (571,200) 2,991,926
Inventories (1,264,506) (933,606) (567,835)
Other current assets 335,905 72,864 (458,453)
Accounts payable and accrued expenses 2,635,483 (1,022,691) (721,363)
Income taxes (91,144) (466,341) (476,004)
----------- ----------- -----------
Total adjustments 1,437,486 935,645 4,619,247
----------- ----------- -----------
Net cash provided by operating activities 1,442,905 3,554,057 6,061,851
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment 44,700
Sales of marketable securities 5,605 75,000
Purchases of marketable securities (26,060) (1,168,605)
Reclassification of cash equivalents to non-current marketable
securities (1,797,087)
Capital expenditures (4,112,394) (3,098,703) (1,104,105)
----------- ----------- -----------
Net cash used in investing activities (4,132,849) (4,820,790) (2,228,010)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (361,895) (435,002) (1,317,284)
Purchase of treasury stock (55,800)
Payment of common stock note receivable 279,450
Employee stock purchase plan 35,039 34,939 22,433
----------- ----------- -----------
Net cash used in financing activities (382,656) 120,613 (1,294,851)
----------- ----------- -----------
Effect of foreign currency translation (18,815) 19,171 (89,979)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (3,091,415) (1,368,175) 2,449,011
Cash and cash equivalents, beginning of year 7,476,101 8,844,276 6,395,265
----------- ----------- -----------
Cash and cash equivalents, end of year $ 4,384,686 $ 7,476,101 $ 8,844,276
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $473,765 $419,708 $434,645
Income taxes 491,021 1,676,607 1,403,372
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 19 of 65
F-5
<PAGE>
MARIETTA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company specializes in the design, manufacture, packaging, marketing and
distribution of guest amenity programs to the travel and lodging industry. The
Company also provides customized sample-size and unit-of-use packaging products
and services to major consumer products companies for such purposes as marketing
promotions and retail sales.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Marietta
Corporation and its subsidiary companies, all of which are wholly owned. All
significant inter-company balances and transactions have been eliminated.
FISCAL YEAR END
The Company uses a 52-53 week fiscal year ending on the Saturday closest to
September 30. Fiscal years for the financial statements included herein ended
on September 30, 1995 (52 weeks), October 1, 1994 (52 weeks), and October 2,
1993 (53 weeks).
FOREIGN CURRENCY TRANSLATION
The balance sheet of Marietta Canada Inc. has been translated into U.S. dollars
at year end exchange rates while its income statement has been translated at
average rates in effect during the year. Adjustments resulting from financial
statement translations are included as an equity adjustment from foreign
currency translation in shareholders' equity. Gains and losses from foreign
currency transactions are included in other income.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Effective October 2, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires that investments in debt and marketable equity
securities be designated as held-to-maturity, trading, or available-for-sale.
All of the Company's marketable securities are classified as available-for-sale
and are carried at fair value with the unrealized holding gains and losses, net
of tax, reported as a separate component of shareholders' equity.
Cost is determined by the average cost method when computing realized gains or
losses.
There is no cumulative effect resulting from the adoption of Statement of
Financial Accounting Standards No. 115.
INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined on the
first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the respective
assets. When assets are retired or disposed of, the cost
Page 20 of 65
F-6
<PAGE>
of accumulated depreciation is removed from the accounts and any resulting gain
or loss is recognized in the period of disposal.
AMORTIZATION
The Company is amortizing closing costs incurred relating to the Industrial
Revenue Bonds, non-compete agreements with former officers of Marietta American
Inc., direct acquisition costs, including the costs of certain
licensing and distribution contracts associated with the purchase of Marietta
Canada, and the excess of cost over net assets acquired associated with the
purchases of Marietta American and Marietta Canada. These costs are being
amortized on the straight-line method over their respective lives, with the
excess of cost over net assets acquired being amortized over 35 years.
Amortization expense charged to operations amounted to $306,080, $413,975 and
$402,651 for the fiscal years 1995, 1994, and 1993, respectively.
INCOME TAXES
Effective October 3, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The cumulative effect of this
accounting change for income taxes was to increase income by $336,596 ($0.09 per
share) for the year ended October 1, 1994.
Prior to fiscal 1994 the provision for income taxes, computed under APB Opinion
11, was based on earnings and expenses included in the accompanying consolidated
statements of earnings. Deferred taxes were provided to reflect the tax effects
of reporting earnings, expenses and tax credits in different periods for
financial accounting purposes than for income tax purposes.
Investment tax credits are recognized on the flow-through method in the year
they are utilized.
EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the weighted average
number of shares of common stock outstanding during the periods. No significant
dilutive effect would result from the exercise of outstanding stock options,
warrants, or convertible subordinated notes.
2. MARKETABLE SECURITIES
Effective October 2, 1994, the Company adopted the provisions of Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires certain investments in marketable debt and equity
securities to be classified as either held-to-maturity, trading or available-
for-sale.
At September 30, 1995, the Company's marketable securities were classified as
available-for-sale and are stated at fair value with an unrealized holding gain
of $191,772 less taxes of $65,202, included as a separate component of
shareholders' equity until realized. The fair value of marketable securities is
based on quoted market prices.
At October 1, 1994, marketable securities were reflected at the lower of cost or
market.
As of October 1, 1994 marketable securities totaling $2,219,823 were
reclassified from current to non-current since it was management's intention to
hold these investments on a long term basis. The aggregate cost of these
investments exceeded their aggregate market value by $670,681 at October 1, 1994
and, accordingly, the results of operations for 1994 include a net unrealized
loss in that amount.
Page 21 of 65
F-7
<PAGE>
3. INVENTORIES
Inventories consisted of the following:
SEPTEMBER 30, 1995 OCTOBER 1, 1994
------------------ ---------------
Raw materials and supplies $ 4,568,609 $ 4,082,839
Finished goods 8,582,080 7,843,727
----------- -----------
$12,626,817 $11,926,566
----------- -----------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
SEPTEMBER 30, 1995 OCTOBER 1, 1994
------------------ ---------------
Land and land improvements $ 613,385 $ 604,935
Building and improvements 11,707,584 10,483,077
Computer and office equipment 3,555,721 3,383,597
Machinery and equipment 23,497,735 21,247,367
Molds 2,578,497 2,058,627
Vehicles 65,479 43,650
Construction in progress 174,396 558,466
------------ ------------
42,192,797 38,379,719
Accumulated depreciation and amortization 19,030,213 16,192,235
------------ ------------
$ 23,162,584 $ 22,187,484
------------ ------------
Depreciation expense charged to operations amounted to $3,010,358, $2,894,769,
and $2,746,603 for the fiscal years 1995, 1994, and 1993, respectively.
Computer and office equipment at September 30, 1995 and October 1, 1994 includes
assets acquired under capital leases totaling $800,000. Accumulated
depreciation relating to these assets was $680,000 and $520,000 respectively.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
SEPTEMBER 30, 1995 OCTOBER 1, 1994
------------------ ---------------
Industrial Development Bonds, at various
interest rates ranging from 5.5% to 7.35%,
payable annually, due December 2001. $ 1,600,000 $ 1,775,000
Industrial Development Bond, interest at a
percentage of prime (prime at October 1,
1994 was 7.75%), due December 2008. 4,875,000 4,875,000
New York State Urban Development loan,
3% interest rate, payable monthly through
April 2001. 176,194 184,935
City of Cortland small cities community
development block program, 6% interest
rate, payable monthly through July 2011. 59,469 61,656
Hewlett Packard leases, early buyout option,
interest rates ranging from 7.35% to 8.06%
payable monthly through July 1996. 140,371 315,407
Other 0 930
- ----- ------------ ------------
6,851,034 7,212,928
Less: Current maturities (336,699) (361,894)
- -------------------------- ------------ ------------
Net long-term debt $ 6,514,335 $ 6,851,034
------------ ------------
Page 22 of 65
F-8
<PAGE>
As of September 30, 1995 the Company had available a $12,000,000 revolving line
of credit facility. This facility charges an administrative fee of $15,000, and
shall bear interest at the prime rate or, if elected by the Company, at an
interest rate 1.1% above the London Interbank Offered Rate ("LIBOR").
The Company has, as of September 30, 1995, stand-by letters of credit
outstanding with two banks for $1,734,019 and $5,125,428 which guarantee
Industrial Development Bonds.
The Company has pledged as collateral under its various debt obligations certain
of its assets, primarily property, plant and equipment.
The industrial revenue bonds and revolving credit loan agreement contain various
restrictions which require the Company to obtain bank consent for capital
acquisitions above certain levels and to maintain certain minimum ratios.
Pursuant to the revolving credit loan agreement, the Company is limited in the
amount of cash dividends it may declare. Relating to the Marietta American
Industrial Development Bonds, the Company is required to deposit $100,000
quarterly with a bank. All amounts are restricted as to withdrawal by the
Company until the $4,875,000 bonds have been repaid.
The aggregate annual maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1996 $ 336,699
1997 206,746
1998 221,179
1999 237,340
2000 258,103
Thereafter 5,590,967
</TABLE>
6. CONVERTIBLE SUBORDINATED NOTE
In March 1989, in connection with the acquisition of Marietta American, the
Company issued a 7% convertible subordinated note due March 17, 1999 in the
principle amount of $300,000. The carrying value of the convertible
subordinated note is $278,040 which represents the unamortized value of the
original note discounted using an effective interest rate of 10%. The discount
is being amortized over the life of the note using the interest method.
Interest expense incurred on the note was $25,320 for each of fiscal years 1995,
1994, and 1993. Included in these amounts are amortization of bond discount of
$4,320 in 1995, 1994 and 1993. The note is convertible into shares of common
stock of the Company at $15 per share (subject to certain anti-dilution rights).
If the note is not converted, the Company is required to make three equal annual
installments of $100,000 in 1997, 1998 and 1999.
7. STOCK OPTIONS, WARRANTS AND PURCHASE PLANS
The Company has in effect a 1986 Incentive Stock Option Plan, a 1986 Stock
Option Plan and a 1986 Employee Stock Purchase Plan.
Under the 1986 Incentive Stock Option Plan, grants may be made to key management
employees prior to April 1996, and the term of each option granted shall not
exceed ten years from the date of grant.
Page 23 of 65
F-9
<PAGE>
Under the 1986 Stock Option Plan, grants may be made to key employees and
independent contractors of the Company prior to April 1996, and the term of each
option granted shall not exceed ten years from the date of grant. Stock options
are granted at prices not less than 100% of the fair market value of common
shares at the date of grant. In the case of options granted to holders of 10%
or more of the Company's voting stock, the price will not be less than 110% of
the fair market value at the date of grant.
The Company adopted the 1986 Employee Stock Purchase Plan for eligible employees
of the Company. The purchase price of shares to employees will be 85% of the
fair market value on the date the right to purchase is granted.
The number of options granted, exercised and forfeited during each of the three
years in the period ended September 30, 1995 and the number of options
exercisable and available for grant under these plans at September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
Incentive Stock Employee Stock
Option Plan Stock Option Plan Purchase Plan
------------------ ----------------- -------------------
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding September 26, 1992 - - 48,960 12.25 - -
Granted - - 5,000 8.25 4,273 5.25
Exercised - - - - (4,273) -
Outstanding September 26, 1993 - - 53,960 - - -
Granted - - 4,500 6.75 5,176 6.75
Granted - - 37,386 8.00 - -
Exercised - - - - (5,176) -
Outstanding October 2, 1994 - - 95,846 - - -
Granted - - 5,000 10.92 5,191 -
Forfeited - - (16,320) 12.25 - -
Forfeited - - (8,308) 8.00 - -
Exercised - - - - (5,191) -
Outstanding September 30, 1995 - - 76,218 - - -
Currently available 100,000 - 23,782 - 77,379 -
Currently exercisable - - 52,012 - - -
- ------------------------------------------------------------------------------------------------------
</TABLE>
Of the 52,012 shares currently exercisable under the 1986 Stock Option Plan,
32,640 shares are exercisable at $12.25 per share, 3,333 shares are exercisable
at $8.25 per share, 14,539 shares are exercisable at $8.00 per share and 1,500
shares are exercisable at $6.75 per share.
Pursuant to a "Cash Bonus Agreement," the Company granted to its Chief Executive
Officer cash-only stock appreciation rights for 90,000 shares of Common Stock,
having a term of 10 years, (expiring in November, 2004), and based on an
increase in the market value of the Common Stock above $7.00 per share. The
maximum amount payable to the Chief Executive Officer pursuant to the Rights is
$630,000. The rights vest through November 1997. All of the Rights would
become exercisable immediately upon the occurrence of certain events, including
the termination by the Company of the Chief Executive Officer's employment
without cause or by reason of his death or disability, or upon a Change in
Control of the Company. During fiscal 1995, the Company expensed $53,663
related to these stock appreciation rights.
Pursuant to a "Shareholders' Rights Plan," on September 11, 1989 the Board of
Directors of the Company declared a dividend distribution of one Right for each
outstanding share of the common
Page 24 of 65
F-10
<PAGE>
stock to shareholders of record at the close of business on September 11, 1989.
In addition, new common stock certificates issued after September 11, 1989 will
also have a Right attached to them. Each Right entitles the registered holder
to purchase from the Company a unit consisting of one one-hundredth of a share
(a "Unit") of Series A Participating Preferred Stock, par value $.01 per share
(the "Series A Preferred"), at a Purchase Price of $110 per Unit, subject to
certain anti-dilution provisions. The Rights will separate from the common
stock only in the event it is determined an adverse person or group of
affiliated or associated persons (as defined) has acquired, or obtained the
right to acquire, beneficial ownership of a significant amount (as defined) of
common stock of the Company. Each Right will then entitle the holder to
receive, upon exercise, $220 worth of common stock (or in certain circumstances,
cash, property or other securities of the Company). The Rights will expire on
September 11, 1999 and may be redeemed by the Company in whole, but not in part,
at a price of $.01 per Right. These Rights, which have a potentially dilutive
effect, have been excluded from the weighted average shares computation since
conditions related to the exercise of such Rights were not satisfied.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption no later than fiscal years beginning
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and similar equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period.
Pursuant to the new standard, companies are encouraged, but not required, to
adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings per share should it elect to make such a change. Adoption of the new
standard will have no effect on the Company's cash flows.
8. INCOME TAXES
The components of income (loss) before income taxes and the provision for income
taxes by taxing jurisdiction were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
Income (loss):
<S> <C> <C> <C>
U.S. $(574,266) $3,488,839 $3,000,409
Canadian 443,989 36,198 (550,307)
--------- ---------- ----------
Income (loss) before income taxes $(130,277) $3,525,037 $2,450,102
--------- ---------- ----------
Current tax provision:
U.S. Federal $ 185,719 $1,077,342 $ 739,896
U.S. State 181,385 134,262 134,326
Canadian Provincial 22,449 27,391 28,576
--------- ---------- ----------
$ 389,553 $1,238,995 $ 902,798
--------- ---------- ----------
</TABLE>
Page 25 of 65
F-11
<PAGE>
Deferred tax provision (credit):
U.S. Federal $(365,031) $ (4,226) $ (104,700)
Canadian Federal (160,218) - -
--------- ---------- ----------
(525,249) (4,226) (104,700)
--------- ---------- ----------
Total income tax provision (credit) $(135,696) $1,243,221 $1,007,498
--------- ---------- ----------
Expenses in 1995, 1994 and 1993 for research and development costs were
approximately $638,000, $682,000 and $1,098,000 respectively.
The effective federal income tax differs from the statutory federal income tax
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at Federal statutory rate $ (44,294) $1,198,513 $ 833,035
Tax effects of:
Foreign taxes in excess of (less than) income
taxes at U.S. statutory rates 22,449 28,200 29,401
State income taxes, net 119,714 88,126 88,204
Tax exempt income (89,546) (77,551) (63,703)
Acquisition intangibles with no tax benefit 90,378 52,876
U.S. benefits of foreign sales corporation (46,240)
U.S. taxes on foreign subsidiaries, net of credits 21,405 (34,301)
Change in valuation allowance (160,200)
Foreign net operating (income) losses not currently
(taxable) deductible (150,956) (10,575) 186,208
Adjustment of prior year's accrual 85,719
Non-deductible meals and entertainment expenses 20,641 10,575 9,800
Officer's life insurance premiums 7,359
Other, net (12,125) (46,943) (41,146)
--------- ---------- ----------
$(135,696) $1,243,221 $1,007,498
--------- ---------- ----------
</TABLE>
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective October 3, 1993. This statement
supersedes APB No. 11, "Accounting for Income Taxes," which had been used by the
Company since its inception. The cumulative effect of adopting SFAS No. 109 on
the Company's financial statements was to increase income by $336,596 ($.09 per
share) for the year ended October 1, 1994.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effect of
significant items comprising the Company's net deferred tax liability as of
September 30, 1995 and October 1, 1994 are as follows:
Page 26 of 65
F-12
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---- ----
Current deferred tax assets (liabilities):
<S> <C> <C>
Deferred compensation $ 188,020 $ 188,020
Inventory obsolescence reserve 247,569 168,814
Inventory uniform capitalization 48,786 44,011
Bad debt reserve 84,700 61,554
Insurance (108,313) (109,980)
Other 112,196 114,664
Deferrals under foreign jurisdiction 69,366 64,740
Less: valuation allowance (40,372) (64,740)
----------- -----------
$ 601,952 $ 467,083
----------- -----------
Non-current deferred tax assets (liabilities):
Accelerated depreciation $(2,547,675) $(2,639,993)
Securities valuation reserve 162,830 242,587
Capitalized professional Fees 81,411 -
Non-deductible reserves (25,000) (125,000)
Deferrals under foreign jurisdiction 315,730 665,693
Less: valuation allowance (184,524) (665,693)
----------- -----------
$(2,197,228) $(2,522,406)
----------- -----------
Net deferred tax liability $(1,595,276) $(2,055,323)
----------- -----------
</TABLE>
The change in the valuation allowance for deferred tax assets was a decrease of
$160,200 and relates to benefits of tax depreciation at Marietta Canada.
Management believes that it is more likely than not that these benefits will be
realized.
The components of the deferred tax provision under APB No. 11 for 1993 are as
follows:
1993
---------
Accelerated depreciation $(109,893)
Inventory obsolescence reserve 267,030
Deferred compensation (85,046)
Inventory uniform capitalization 46,896
Other, net (14,287)
---------
Deferred tax provision: $ 104,700
---------
The Internal Revenue Service has examined U.S. Federal income tax returns for
the years 1988 through 1992, agreements have been reached for all material
adjustments, and such adjustments have been included in the provision for income
taxes.
At September 30, 1995, the Company had investment tax credit carryforwards for
New York State purposes of approximately $775,000. These credits expire through
September 2010.
For fiscal 1995, Marietta Canada utilized loss carryforwards of approximately
$150,000 for federal income tax purposes. In addition, it began recognizing tax
depreciation expenses of approximately $530,000 which was deferred until a
period where its use was beneficial.
Undistributed earnings of the Canadian subsidiary will not be subject to U.S.
tax until distributed as dividends. Since it is the intention of management
that all earnings be indefinitely reinvested in the foreign subsidiary, no
provision will be made for any income tax on any such earnings.
Page 27 of 65
F-13
<PAGE>
9. LEASES
The future minimum lease payments for operating lease agreements as of September
30, 1995 are as follows:
1996 $347,579
1997 201,285
1998 107,340
1999 75,803
2000 16,490
Rent expense incurred under operating leases was $393,459, $584,655 and $766,306
for the fiscal years 1995, 1994, and 1993 respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with certain officers and key employees
which expire at various dates through December 1998. The aggregate commitment
for future salaries at September 30, 1995, excluding bonuses, was approximately
$1,965,000.
Pursuant to an employment agreement between the Company and a former officer,
the former officer was to have received $553,000 as additional compensation when
the agreement expired on February 9, 1994. This amount was fully accrued for
as of that date, and remains fully accrued as of September 30, 1995. The Company
and the former officer continue to defer without prejudice the payment of such
amount pending the conclusion of the review of certain matters by the Board of
Directors. If such additional compensation is paid to the former officer, the
Company has agreed to pay interest thereon at a variable rate per annum equal to
1.35% above the three-month LIBOR in effect on the first business day of each
calendar quarter, from February 10, 1994 through the day of payment.
For a period of five years ending in February 1994, the Company was required to
make contingency payments to the former owners of Marietta American based upon
Marietta American's profits on the sale of glycerine and its earnings before
interest and taxes, in each case above certain threshold levels. Any payment
would result in a direct increase in the amount of goodwill recorded in the
transaction. No amounts were paid pursuant to these calculations for any of the
last three years. In an action commenced by Donald M. Rowe, one of the former
owners of Marietta American, and certain other persons, the calculations made by
the Company are being contested. See Note 15 "Legal Proceedings".
11. OTHER EXPENSE (INCOME), NET
Other expense consisted of:
1995 1994 1993
--------- --------- ---------
Other expenses (income):
Investment income $(658,726) $(543,481) $(508,386)
Interest expense 514,074 446,549 437,627
Unrealized loss on marketable securities - 713,490 -
Miscellaneous income (40,649) (96,500) (20,807)
--------- --------- ---------
$(185,301) $ 520,058 $ (91,566)
--------- --------- ---------
Page 28 of 65
F-14
<PAGE>
12. COMMON STOCK - NOTES RECEIVABLE
On February 9, 1989 the Company sold shares of common stock held in treasury to
certain officers and directors of the Company. The price per share was $12.25
and was paid to Marietta primarily by the delivery of promissory notes bearing
interest, payable semi-annually, at a rate of 9% per annum with principal
payable in one installment on February 9, 1994.
The Company has extended the maturity date of the promissory notes ($607,500)
until February 9, 1996. Interest shall accrue on these promissory notes at a
variable rate per annum equal to 1.35% above the three-month LIBOR in effect on
the first business day of each calendar quarter. Interest on one note ($364,500
of principal) is payable in full on February 9, 1996, while interest on the
other two notes ($243,000 of principal) is payable semi-annually.
13. FOREIGN OPERATIONS
Information concerning the Company's domestic and Canadian operations after
translation into U.S. dollars are summarized as follows for fiscal years 1995,
1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States $65,341,581 $61,790,703 $59,028,415
Canadian 7,065,768 6,440,215 6,816,399
----------- ----------- -----------
$72,407,349 $68,230,918 $65,844,814
----------- ----------- -----------
Operating income (loss):
United States $ (752,265) $ 4,018,147 $ 2,738,560
Canadian 436,687 (26,948) (380,024)
----------- ----------- -----------
$ (315,578) $ 4,045,095 $ 2,358,536
----------- ----------- -----------
Identifiable assets:
United States $57,389,725 $55,727,910 $52,665,328
Canadian 6,740,859 6,108,526 5,996,004
----------- ----------- -----------
$64,130,584 $61,836,436 $58,661,332
----------- ----------- -----------
</TABLE>
14. EMPLOYEE BENEFITS
The Company and its subsidiaries have a defined contribution plan for their
employees. The Plan provides for voluntary employee contributions with limited
matching contributions. The Company's matching contributions to the Plan for
the fiscal years 1995, 1994 and 1993 were approximately $73,100, $83,900, and
$90,200 respectively. The Company does not provide post-retirement benefits to
its employees.
The Company and its subsidiaries have a Profit Sharing Incentive Program. Under
the terms of this Program, which is based on net income before taxes, the
Company's employees received approximately $0, $196,000 and $255,300 for the
fiscal years 1995, 1994 and 1993 respectively.
The Company was required to adopt Statement of Financial Accounting Standard
NO. 112, "Employee's Accounting for Postemployment Benefits," for fiscal year
1995. This statement requires recognition of benefits provided by an employer
to former or inactive employees after employment, but before retirement. The
impact of adopting this standard did not have a material impact on the Company's
financial position or results of operations.
Page 29 of 65
F-15
<PAGE>
15. LEGAL PROCEEDINGS
An action has been commenced by a former owner of Marietta American (formerly
American Soap Company, Inc.), and by California Soap, Inc. and two of its
shareholders. This complaint alleges, among other things, misrepresentations
and omissions in connection with the Company's acquisition of Marietta American,
misrepresentations in and omissions from various financial and other statements
made by the Company, breaches of contract and other violations of federal and
state laws. This action seeks an unspecified amount of damages. No assurance
can be given as to the outcome of this action, which could have a material
adverse effect on the Company.
On or about July 29, 1994, an action was commenced in the United States District
Court for the Western District of Tennessee by Valley Products Co., Inc.
("Valley Products"), a vendor of guest amenity products, against Landmark, a
division of Hospitality Franchise Systems, Inc., Hospitality Franchise Systems,
Inc., ("HFS"), the Company, Guest Supply, Inc., Days Inn of America, Inc.,
Howard Johnson Franchise System, Inc., Ramada Franchise Systems, Inc., Super 8
Motels, Inc., Park Inns International, Inc., and TM Acquisitions, Inc. In the
action it is alleged, among other things, that a preferred vendor agreement
entered into by the Company and HFS (as the parent corporation of the
franchisors named as defendants in the action) pursuant to which HFS agreed to
recommend the Company to franchisees of such franchisors in the Western
hemisphere as a preferred vendor of logoed guest amenity products, tortiously
interfered with Valley Product's contracts and constituted an illegal tying and
exclusive dealing arrangement in violation of federal and Tennessee state anti-
trust laws, including Sections 1 and 2 of the Sherman Act and Sections 4 and 16
of the Clayton Act. The action seeks, among other things, a temporary
injunction and a declaratory judgment prohibiting the enforcement of the
preferred vendor agreement between the Company and HFS and money damages in an
amount not less than $10 million dollars, to be trebled pursuant to Section 4 of
the Clayton Act.
On or about September 12, 1994, B.N.P. Industries, Inc. d/b/a Savannah Soaps,
also a vendor of guest amenity products, filed an action, similar to the action
commences by Valley Products, against the Company and the same other principle
parties, in the United States District Court for the Southern District of
Georgia, seeking money damages in an amount in excess of $100,000, to be trebled
pursuant to Section 4 of the Clayton Act. This case was consolidated with the
action commenced by Valley Products in the United States District Court for the
Western District of Tennessee.
A motion by the Company together with the other defendants to dismiss the action
was granted by the District Court on or about December 22, 1994. The plaintiffs
(Valley Products and Savannah Soaps), appealed the decision of the District
Court. On or about July 27, 1995, Savannah Soap's motion to voluntary dismiss
its appeal was granted. The remaining parties have submitted their respective
briefs on the appeal. Oral argument has not yet been scheduled.
On October 27, 1995, an employee of the Company filed an action against the
Company alleging race and sex discrimination. In the complaint, the employee
seeks reinstatement to employee's former position with full back pay and
benefits in an amount to be determined at trial; actual and compensatory
damages of $150,000; punitive damages of $150,000; and reimbursement of all
reasonable costs related to this action.
16. MERGER AGREEMENT
On January 17, 1995, Dickstein Partners, Inc. made an unsolicited proposal to
acquire the Company. Following the announcement of this proposal, the Board of
Directors retained Goldman Sachs & Co. to assist the Company in reviewing
financial alternatives available to the Company.
The agreement with Goldman Sachs & Co. requires the payment of at least
$1,500,000. Of this amount, $1,000,000 has been expensed in fiscal 1995,
$250,000 of which was paid upon signing and
Page 30 of 65
F-16
<PAGE>
$750,000 of which is accrued as of September 30, 1995. The remaining minimum
amount due of $500,000 is not accrued as of September 30, 1995 and will be
provided for in fiscal 1996.
On August 26, 1995 the Company entered into an Agreement and Plan of Merger with
corporations controlled by Barry W. Florescue. Under the terms of the
agreement, all of the Company's outstanding stock (other than those shares
beneficially owned by Mr. Florescue) will be acquired for $10.25 per share in
cash.
The closing of this transaction is subject to several conditions, including:
Mr. Florescue obtaining the financing necessary to complete the transaction;
approval of the transaction by holders of at least 66 2/3% of the Company's
shares; and the Company having met certain specified levels of inventory and net
current assets. As of September 30, 1995, this last condition has been
satisfied. The agreement has a termination date of February 15, 1996.
Page 31 of 65
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Marietta Corporation
Cortland, New York
We have audited the consolidated financial statements of Marietta Corporation
and its subsidiaries as of September 30, 1995 and October 1, 1994 and for each
of the three years in the period ended September 30, 1995, and have issued our
report thereon dated November 14, 1995, which report includes an explanatory
paragraph as to uncertainties because of legal proceedings; such report is
included elsewhere in his Form 10-K. Our audits also included the
consolidated financial statement schedule of Marietta Corporation and its
subsidiaries, listed in Item 14(A)2. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Rochester, New York
November 14, 1995
Page 32 of 65
F-18
<PAGE>
MARIETTA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, OCTOBER 1, 1994 AND OCTOBER 2, 1993
_______
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------ -------------------- ------------------------------------- ---------- --------------
Additions
-------------------------------------
Balance at Beginning Charged to Costs Charged to Deductions Balance at End
Description of Period and Expenses Other Accounts Write-Offs of Period
- ------------------------------------ -------------------- ---------------- ------------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995:
Allowance for doubtful accounts $ 223,219 $189,198 $ (237)(1) $ 131,866 $ 280,314
Reserve for inventory obsolescence 600,707 596,320 906 (1) 328,104 869,829
Year ended October 1, 1994:
Allowance for doubtful accounts $ 205,518 $ 61,987 $ (49)(1) $ 44,237 $ 223,219
Reserve for inventory obsolescence 585,466 292,629 571 (1) 277,959 600,707
Year ended October 2, 1993:
Allowance for doubtful accounts $ 257,468 $(34,187) $(2,407)(1) $ 15,356 $ 205,518
Reserve for inventory obsolescence 1,503,607 324,238 (6,820)(1) 1,235,559 585,466
</TABLE>
(1) Change in Canadian exchange rate.
Page 33 of 65
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
----------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
--------------------------------------
None.
Page 34 of 65
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
----------------------------------------------
(a) DIRECTORS
The table below sets forth the names and ages of all the directors of the
Company as of December 15, 1995. The term of each director expires at the next
Annual Meeting of Shareholders and upon his successor being duly elected and
qualified.
<TABLE>
<CAPTION>
DIRECTORS
Name Age Director Since
---- --- --------------
<S> <C> <C>
Robert C. Buhrmaster(4) 48 1993
Ronald C. DeMeo(4) 47 1988
Barry W. Florescue(2)(3) 50 1995
Dominic J. La Rosa(2)(4) 53 1992
Frank Magrone(1)(2)(3)(4)(5) 61 1980
Charles W. Miersch(1) 48 1995
Leonard J. Sichel(1)(3) 59 1994
Stephen D. Tannen(3) 49 1992
Thomas D. Walsh(1)(2)(3)(5) 48 1980
</TABLE>
___________________________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
(4) Member of the Nominating Committee
(5) Member of the Stock Option Committee
During the course of negotiations with Barry W. Florescue relating to the
Merger, Mr. Florescue requested representation on the Board of Directors of the
Company. See "Item 12. - Security Ownership of Certain Beneficial Owners and
Management -- Changes in Control." The Company believed that in light of Mr.
Florescue's significant investment in the Company it was appropriate to offer
Mr. Florescue representation on the Board of Directors. Accordingly, the Board
determined to offer Mr. Florescue the opportunity to propose two nominees
(acceptable to the Board of Directors) to a Board of Directors that would be
expanded to nine members. Mr. Florescue accepted such offer and the Board of
Directors agreed to nominate Mr. Florescue and Charles W. Miersch for election
at the Company's 1995 Annual Meeting of Shareholders held on August 31, 1995.
See Item 4. -"Submission of Matters to a Vote of Security Holders."
Page 35 of 65
<PAGE>
Business Experience for the past five years for the Company's directors is
as follows:
Robert C. Buhrmaster has been President, Chief Executive Officer and a
director of Jostens, Inc., a publicly held manufacturer of school and
recognition products, since 1994. From 1993 to 1994, he was President, Chief
Operating Officer and a director of Jostens, Inc.; and from 1992 to 1993, he was
Executive Vice President and Chief Staff Officer of Jostens, Inc. Until 1992,
he was Senior Vice President of Corning, Inc., a manufacturer of specialty glass
and related inorganic materials.
Ronald C. DeMeo has been Senior Vice President of Marketing and Sales of
the Company since 1988, and Secretary of the Company since 1991.
Barry W. Florescue is an independent businessman and private investor in a
variety of industries. He has been Chairman of the Board, BMD Management
Company, a management, accounting, and administrative services company since its
inception in 1987; Chairman of the Board of Century Financial Group, Inc., a
bank holding company (the owner of Century Bank, FSB a federal savings bank
based in Sarasota, Florida), since 1989; and Chairman of the Board and Director
of International Poultry Corporation, Inc., a publicly held operator and
franchisor of retail prepared foods specializing in poultry, since August 1995.
Dominic J. La Rosa is President, Chief Executive Officer and a director of
Lamour Division of EHS, Inc., a consumer products company. He was President,
Chief Executive Officer and a director of J.B. Williams Co., Inc., a consumer
products company, from 1993 until July 1995, and was President and Chief
Executive Officer from 1993 to March 1995. From 1992 until 1993, he was a
Management Consultant. From 1989 to 1992, he served as President, Aromatic
Industries Division of The Mennen Company, a manufacturer of health and beauty
aids.
Frank Magrone has been Executive Vice President and Director of Maidenform
Worldwide, Inc., a manufacturer of women's intimate apparel, since April 1995;
prior to April 1995 he was President, Chief Operating Officer and a director of
NCC Industries, Inc., a publicly held manufacturer of women's intimate apparel.
Charles W. Miersch has been an Associate Dean of the University of
Rochester (New York), since 1984. He has been Chairman of Century Bank, FSB, a
federal savings bank based in Sarasota, Florida, since September 1991, and a
Director of Century Financial Group, Inc., a bank holding company, since
September 1991.
Leonard J. Sichel is retired. He served as a director of the Company from
1992 to 1993. From 1989 to 1992, he was Vice Chairman and Chief Financial
Officer of The Mennen Company, a manufacturer of health and beauty aids. Until
1989, he was Executive Vice President and Chief Financial Officer of The Mennen
Company.
Stephen D. Tannen has been the Company's President and Chief Executive
Officer since November 1994. He was a Management Consultant in 1994, served as
President and Chief Operating Officer of Riddell Sports Inc., a publicly held
manufacturer of athletic equipment, from 1992 to 1994, was a Management
Consultant from 1990 to 1992, and was President, Chief Executive Officer and a
director of TSS Ltd., a provider of in-store marketing services to consumer
products companies, from 1988 to 1990.
Thomas D. Walsh has been the Company's Chairman of the Board since August
1995. He has been an Associate with Huver and Associates, Inc., a structured
settlement company, since 1993. Prior to 1993, Mr. Walsh served as a Vice
President of Tucker Anthony Incorporated, a stock brokerage firm.
Page 36 of 65
<PAGE>
(b) EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth certain information regarding the executive officers
of the Company as of December 15, 1995:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- --------------------- --- -----------------------------------------------------------
<S> <C> <C>
Stephen D. Tannen 49 President, Chief Executive Officer and Director
Ronald C. DeMeo 47 Senior Vice President of Marketing and Sales, Secretary
and
Director
David P. Hempson 44 Executive Vice President of Operations
Philip A. Shager 45 Vice President, Chief Accounting Officer and Treasurer
Thomas M. Fairhurst 40 Vice President of Marketing
Wallace B. Bruce 57 Vice President
- ---------------------------------------------------------------------------------------
</TABLE>
Each of the executive officers serves at the pleasure of the Board of Directors
and until his successor is elected and qualified subject, in certain cases, to
the terms of employment agreements.
Business experience for the past five years for the executive officers is as
follows:
Stephen D. Tannen has been the Company's President and Chief Executive Officer
since November 1994 and a Director since 1992. He was a Management Consultant
in 1994, served as President and Chief Operating Officer of Riddell Sports Inc.,
a publicly held manufacturer of athletic equipment from 1992 to 1994, was a
Management Consultant from 1990 to 1992, and was President, Chief Executive
Officer and a Director of TSS Ltd., a provider of in-store marketing services to
consumer products companies, from 1988 to 1990.
Ronald C. DeMeo has been Senior Vice President of Marketing and Sales and a
Director of the Company since 1988, and Secretary of the Company since 1991.
David P. Hempson has been Executive Vice President of Operations of the Company
since 1993. Prior to 1993 he was Vice President of Operations of the Company.
Philip A. Shager has been a Vice President since 1995 and Chief Accounting
Officer and Treasurer of the Company since 1993. Prior to 1993 he served as
Group Controller of Pall Corporation, a publicly held manufacturer of industrial
filtration products.
Thomas M. Fairhurst has been Vice President of Marketing of the Company since
March 1994. He served as Director of Licensing and Rights Development of
Western Publishing Company, Inc., a publisher of children's books and a
manufacturer of children's games and toys from 1991 to 1994, was Director of
Marketing for Creative Edge, Inc., a manufacturer of children's educational
items from 1990 to 1991, and Director, New Ventures for Fisher-Price Toys, a
publicly held manufacturer of children's toys, from 1988 to 1990.
Wallace B. Bruce has been Vice President of the Company and the general manager
of Marietta American since October 1994. He served as President of Valley
Products Co., Inc. a vendor of guest amenity products, in 1993 and was Executive
Vice President of Valley Products Co. prior to 1993.
(c) FAMILY RELATIONSHIPS
There are no family relationships among any of the directors or executive
officers of the Company.
Page 37 of 65
<PAGE>
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Florescue was an executive officer of eight affiliated entities that
operated a total of nine fast food franchise restaurants. On January 31, 1991,
such entities filed for protection under Chapter 11 of the United States
Bankruptcy Code. With respect to two of such entities, the bankruptcy
proceeding was dismissed and the restaurants closed. The franchisor repurchased
six restaurants from five of such entities pursuant to confirmed plans of
reorganization. One entity was reorganized and continues to operate a
franchise.
(e) COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company by each person who, at any time during the fiscal year
ended September 30, 1995, was a director, executive officer or beneficial owner
of more than 10% of the Company's common stock, par value $.01 per share (the
"Common Stock") with respect to the fiscal year ended September 30, 1995, and
Forms 5 and amendments thereto furnished to the Company by such persons with
respect to such fiscal year, and written representations from certain of such
persons that no Forms 5 were required for those persons, the Company believes
that during and with respect to the fiscal year ended September 30 1995, all
filing requirements under Section 16(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), applicable to its directors, executive officers
and the beneficial owners of more than 10% of the Company's Common Stock were
complied with.
Page 38 of 65
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company for
each of the Company's last three completed fiscal years to the two persons
serving as Chief Executive Officer of the Company during fiscal year 1995 and
the Company's other four most highly compensated executive officers at the end
of fiscal year 1995 (such two persons serving as Chief Executive Officer of the
Company and such other four executive officers being hereinafter referred to as
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION(1)
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- ------------- All
OTHER SECURITIES OTHER
ANNUAL RESTRICTED UNDERLYING LTIP COMPEN-
FISCAL SALARY BONUS COMPEN- STOCK OPTIONS/ PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION ($) AWARDS ($) SARS (#) ($) ($)(2)
- --------------------------- ------ ------ ------- ---------- ---------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chesterfield F. Seibert 1995 $ 50,600 $ -- -- -- -- -- $ 210
Sr., Chairman and Chief 1994 189,923 55,888 -- -- 8,308 -- 428
Executive Officer(3) 1993 70,000 -- -- -- -- -- --
Stephen D. Tannen, Chief 1995 220,193 75,000 -- -- 90,000 -- 875
Executive Officer and 1994 -- -- -- -- -- -- --
President (4) 1993 -- -- -- -- -- -- --
Ronald C. DeMeo, Secretary 1995 111,673 172,500 -- -- -- -- 2,797
and Senior Vice President 1994 104,998 159,225 -- -- 4,154 -- 3,087
of Marketing and Sales 1993 101,813 155,035 -- -- -- -- 2,382
David P. Hempson, Executive 1995 175,954 -- -- -- -- -- 2,499
Vice President of 1994 165,171 485,777 -- -- -- -- 1,683
Operations 1993 152,730 26,880 -- -- -- -- 1,982
Philip A. Shager, Vice 1995 150,141 20,912 -- -- -- -- 2,282
President, Treasurer and 1994 142,817 47,525 -- -- -- -- 486
Chief Accounting Officer 1993 56,532 10,100 -- -- 5,000 -- 169
Thomas M. Fairhurst, Vice 1995 112,938 -- -- -- 5,000 -- 1,095
President of Marketing 1994 59,231 9,957 -- -- -- -- 116
1993 -- -- -- -- -- -- --
</TABLE>
(1) The Company did not provide restricted stock awards or long-term incentive
payouts to the Named Executive Officers during its last three completed
fiscal years.
(2) Amounts in this column for fiscal year 1995 represent (i) the Company's
matching contributions under its 401(k) plan for fiscal year 1995 for
Messrs. DeMeo, Hempson, Shager and Fairhurst in the amounts of $2,328,
$1,760, $1,652, and $622, respectively, and (ii) premium payments on
Company-provided term life insurance for fiscal year 1995 for Messrs.
Seibert, Tannen, DeMeo, Hempson, Shager and Fairhurst in the amounts of
$210, $875, $469, $739, $630, and $473, respectively.
(3) Mr. Seibert resigned as Chief Executive Officer on November 11, 1994.
(4) Mr. Tannen was elected Chief Executive Officer of the Company on
November 14, 1994.
Page 39 of 65
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information concerning the grants of stock
options and stock appreciation rights ("SARs") to each of the Named Executive
Officers during fiscal year 1995:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
------------------------------------------------------------ ---------------------
PECENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(1) (#) FISCAL YEAR(2) ($/SH) DATE 5% ($) 10% ($)
- ---- --------------- ---------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Chesterfield F. Seibert Sr................. -- -- -- -- -- --
Stephen D. Tannen.......................... 90,000 94.7% $ 7.00 11/8/2004 $396,203 $630,000(1)
Ronald C. DeMeo............................ -- -- -- -- -- --
David P. Hempson........................... -- -- -- -- -- --
Philip A. Shager........................... -- -- -- -- -- --
Thomas M. Fairhurst........................ 5,000 5.3% $10.92 4/5/2005 $ 34,338 $ 87,018
</TABLE>
(1) The SARs granted to Mr. Tannen vest in three equal installments on November
8, 1995, November 8, 1996 and November 8, 1997. The maximum amount payable
to Mr. Tannen pursuant to such SARs is $630,000. See "Employment
Agreements with Executive Officers" below. The options granted to Mr.
Fairhurst vest in three equal installments on April 5, 1996, April 5, 1997
and April 5, 1998, and were not awarded with tandem stock appreciation
rights. Such options are non-qualified and were granted under the Marietta
Corporation 1986 Stock Option Plan. Upon a change in control of the Company,
such SARs and options shall be immediately exercisable. The number of shares
of Common Stock subject to such SARs and options may be subject to
adjustment in the event of certain changes in the Common Stock.
(2) During fiscal year 1995, the Company granted to employees (i) options to
purchase a total of 5,000 shares of Common Stock and (ii) SARs for 90,000
shares of Common Stock.
(3) These assumed rates of appreciation are provided in order to comply with
requirements of the Securities and Exchange Commission, and do not represent
the Company's expectation as to the actual rate of appreciation of the
Common Stock. The actual value of the options will depend upon the
performance of the Common Stock, and may be greater or less than the amounts
shown.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information concerning the exercise of stock
options and stock appreciation rights during fiscal year 1995 by each of the
Named Executive Officers and the fiscal year-end value of unexercised options
and SARs held by each of the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE
UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FISCAL YEAR-END(1)(2) ($)
FISCAL YEAR-END(1) (#)
---------------------- ---------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- ------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Chesterfield F. Seibert Sr.(3)............. 0 0 0 0 0 0
Stephen D. Tannen.......................... 0 0 0 90,000 0 $101,25
Ronald C. DeMeo............................ 0 0 12,314 0 $519 0
David P. Hempson........................... 0 0 8,160 0 0 0
Philip A. Shager........................... 0 0 3,333 1,667 0 0
Thomas M. Fairhurst........................ 0 0 0 5,000 0 0
</TABLE>
Page 40 of 65
<PAGE>
(1) The amounts listed in these columns indicate the number and value of
unexercised options and SARs held by each of the Named Executive Officers as of
September 30, 1995.
(2) Options are "in-the-money" if, on September 30, 1995, the market price per
share of the Common Stock exceeded the exercise price per share of such
options. On September 30, 1995, the market price per share, as reported on the
NASDAQ National Market System, was $8.125 per share. The value of such in-the-
money options is calculated by determining the difference between the aggregate
market price of the Common Stock covered by the options or SARs on September
30, 1995, and the aggregate exercise price of the options and SARs.
(3) Upon his resignation as Chairman of the Company on January 30, 1995, Mr.
Seibert forfeited all options previously granted to him.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $500 per month plus
$300 for each meeting attended of the Board or any committee of the Board and
are reimbursed for all travel expenses to and from meetings. Directors who are
also full-time employees of the Company do not receive any compensation for
serving as directors of the Company.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective upon Chesterfield F. Seibert Sr.'s appointment on February 14, 1994
as Chairman of the Board and Chief Executive Officer of the Company and until
his resignation as Chief Executive Officer on November 11, 1994, the Company
agreed to pay him an annual base salary of $200,000. Prior to such appointment,
the Company paid $1,500 to Mr. Seibert for each day that he performed duties on
behalf of the Company in his then-capacity as the Company's Chairman, pro tem.
Stephen D. Tannen is employed as a senior executive by the Company under an
employment agreement for a three-year term which commenced November 16, 1994.
The agreement provides for an annual base salary of $250,000, plus annual cost-
of-living increases. It also provides that Mr. Tannen will be entitled to
receive incentive compensation for the 1995 fiscal year in the amount of
$75,000. For the fiscal years 1996 and 1997 Mr. Tannen is entitled to receive
incentive compensation in amounts based on formulas and goals set forth in a
business plan which shall be approved by the Board of Directors of the Company
prior to the commencement of each such fiscal year. Mr. Tannen may also receive
additional compensation, whether in base salary, by bonus or otherwise, as the
Board of Directors shall deem advisable. If, immediately after a Change in
Control (as defined below) of the Company, (x) Mr. Tannen's employment is
terminated other than for cause, or (y) Mr. Tannen is not offered a position
which is substantially equivalent to his position prior to such Change in
Control and which is at a location within 25 miles of the location he performed
such duties prior to such Change in Control, and he elects to terminate his
employment agreement, Mr. Tannen is entitled to receive a severance benefit
equal to the greater of (i) his base salary then in effect, and (ii) the balance
of his base salary then in effect through the expiration of his employment
agreement. Upon a termination of Mr. Tannen's employment by reason of his
disability, he is entitled to receive a severance benefit equal to his base
salary then in effect.
In connection with Mr. Tannen's employment by the Company, on December 6,
1994, the Stock Option Committee of the Board granted him options (the
"Options"), subject to shareholder approval, to purchase 90,000 shares of Common
Stock. Subsequently, Mr. Tannen and the Company agreed that in the event that
the grant of the Options were not approved by the shareholders he would receive
cash-only stock appreciation rights (the "Rights") for 90,000 shares of Common
Stock, having a term of 10 years, and based on an increase in the market value
of the Common Stock above $7.00 per share. The maximum amount payable to Mr.
Tannen pursuant to the Rights is $630,000. The Rights would vest through
November 1997. All of the Rights would become exercisable immediately upon the
occurrence of certain events, including the termination by the Company of Mr.
Tannen's employment
Page 41 of 65
<PAGE>
without cause or by reason of his death or disability, or upon a Change in
Control of the Company. During June 1995, Mr. Tannen and the Company determined
to terminate the Options. Accordingly, the Company and Mr. Tannen agreed that
the Rights would be deemed granted.
Ronald C. DeMeo is employed as a senior executive by the Company under an
employment agreement which expires on September 30, 1996. The agreement
provides for automatic renewals for one-year periods commencing October 1, 1996
unless prior notice of termination is given in accordance with such agreement.
Pursuant to the employment agreement, Mr. DeMeo receives an annual base salary
of $115,000. Mr. DeMeo also receives commissions based on the net sales of the
custom packaging sales force. If, immediately after a Change in Control of the
Company, (x) Mr. DeMeo's employment is terminated other than by reason of his
death, disability or for cause, or (y) Mr. DeMeo is not offered a position which
is substantially equivalent to his position prior to such Change in Control and
which is at a location within 25 miles of the location he performed such duties
prior to such Change in Control, and he elects to terminate his employment
agreement, Mr. DeMeo is entitled to receive a severance benefit equal to two
months base salary multiplied by his years of employment with the Company
(currently 14 years). Upon a termination of Mr. DeMeo's employment by reason of
DeMeo's death, disability or expiration of the term of his employment agreement,
he is entitled to receive a severance benefit equal to two months base salary
multiplied by his years of employment with the Company (currently, 14 years).
Philip A. Shager is employed as a senior executive by the Company under an
employment agreement commencing May 10, 1993 and expiring October 10, 1997.
Pursuant to his employment agreement, Mr. Shager receives an annual base
salary of $147,000 plus annual cost of living increases. Mr. Shager will
receive guaranteed bonuses of $20,911.66 during each of 1994, 1995 and 1996
(provided that each such bonus shall be paid immediately upon (i) the
termination of Mr. Shager's employment by reason of his death or disability, or
(ii) the payment of a severance benefit as described below), and is also
entitled to receive additional bonus compensation as the Board of Directors
shall deem advisable. Upon a termination of Mr. Shager's employment without
cause or by reason of his not being offered a substantially equivalent position
after a Change in Control of the Company, he is entitled to receive a severance
benefit equal to the greater of (i) his base salary then in effect multiplied by
two, and (ii) his base salary then in effect through the expiration of his
employment agreement. If, immediately after a Change in Control of the Company,
(x) Mr. Shager's employment is terminated other than for cause, or (y) Mr.
Shager is not offered a position which is substantially equivalent to his
position prior to such Change in Control and which is at a location within 25
miles of the location he performed such duties prior to such Change in Control,
and he elects to terminate his employment agreement, Mr. Shager is entitled to
receive a severance benefit equal to the greater of (i) his base salary then in
effect multiplied by two, and (ii) the balance of his base salary then in effect
through the expiration of his employment agreement. Upon a termination of Mr.
Shager's employment by reason of his disability, he is entitled to receive a
severance benefit equal to his base salary then in effect.
David P. Hempson is employed as a senior executive by the Company under an
employment agreement which commenced February 9, 1994 and expires December 31,
1998. Pursuant to his employment agreement, Mr. Hempson receives an annual base
salary of $170,000 plus annual cost of living increases. Mr. Hempson is also
entitled to receive bonus compensation as the Board of Directors shall deem
advisable.
Thomas M. Fairhurst is employed as a senior executive by the Company under an
employment agreement which commenced October 11, 1994 and expires October 10,
1997. Pursuant to his employment agreement, Mr. Fairhurst receives an annual
base salary of $110,000 plus annual cost of living increases. Mr. Fairhurst is
also entitled to receive bonus compensation as the Board of Directors shall deem
advisable. Upon a termination of Mr. Fairhurst's employment by reason of his
not being offered a substantially equivalent position after a Change in Control
of the Company, he is entitled to receive a severance benefit equal to the
greater of (i) one years base salary then in effect or (ii) his base salary then
in effect through the expiration of his employment agreement. Upon a
termination of
Page 42 of 65
<PAGE>
Mr. Fairhurst's employment by reason of his disability, he is entitled to
receive a severance benefit equal to his base salary then in effect.
A "Change in Control" is deemed to have occurred if: (a) following either
(i) the acquisition of 30% of the voting securities of the Company by any person
or persons (together with all affiliates of such person or persons), whether by
tender or exchange offer or otherwise, (ii) a proxy contest for the election of
directors of the Company, or (iii) a merger, consolidation or other disposition
of all or substantially all of the business or assets of the Company, the
persons constituting the Board of Directors of the Company immediately prior to
the initiation of such event cease to constitute a majority of the Board of
Directors of the Company upon the occurrence of such event or within eighteen
months after such event, and such change in the persons constituting the Board
of Directors of the Company shall not have been approved by the persons
constituting the Board of Directors immediately prior to the initiation of such
event; or (b) a sale, transfer or other disposition of all or substantially all
of the business or assets of the Company to a person or entity not controlled by
or under common control with the Company shall have been consummated.
The total cost of satisfying the Company's Change in Control obligations
under all outstanding options and cash only stock appreciation rights (based
upon an assumed market price of the Common Stock of $10.25), is $383,676. A
Change in Control will not entitle any executive officer of the Company to
receive any payment from the Company. However, the employment agreements of
certain executive officers provide that under specified circumstances (such as
the Company's failure to offer such executive officer a position substantially
equivalent to his position prior to the Change in Control), such executive
officers will be entitled to a payment from the Company. The aggregate cost of
satisfying all such obligations would be $1,291,017.
All employment agreements require the Company to furnish health, life and
disability insurance and, in the event the employee becomes disabled, to provide
for salary continuation to supplement disability payments provided by insurance.
PROFIT SHARING INCENTIVE PROGRAM
In October 1985, the Company adopted a Profit Sharing Incentive Program.
Under the terms of this program, when the Company's net income for any quarter
exceeds 6% of the Company's net sales, the Company will pay to each eligible
employee, during the next succeeding quarter, an amount equal to the product of
one-half of the employee's quarterly salary and the net profit percentage. For
the purposes of the Profit Sharing Incentive Program, net profit percentage is
defined to be equal to net income as defined divided by net sales. Net income
is defined to be equal to the Company's net income as shown on its financial
statements before accrual for either income taxes or for additional salary
payable to employees who are compensated on a performance basis. The Company
retains the right to terminate the Profit Sharing Incentive Program at any time
in its sole discretion. For the fiscal year ended September 30, 1995, the
Company's employees received no payments from the Profit Sharing Incentive
Program.
EXECUTIVE INCENTIVE COMPENSATION AND MANAGEMENT STOCK GRANTS
In November 1993, the Board of Directors approved an Executive Incentive
Compensation and Management Stock Grants Program which was recommended to it by
the Company's Compensation Committee. Under this program, the executive
officers of the Company and certain other officers of the Company are entitled
to cash and equity-based bonuses in an aggregate amount equal to 5% of the
Company's operating profit during the applicable fiscal year. The President of
the Company is entitled to 40% of the yearly bonus payments distributed pursuant
to this program and the other participating officers of the Company are entitled
to share the remaining 60% of such bonus payments on a pro rata basis based on
their respective salaries. Any share of the aggregate bonus payable under this
program not paid to an officer otherwise eligible to participate in this program
is not paid to the other
Page 43 of 65
<PAGE>
participating officers by the Company. Pursuant to the employment agreement
between the Company and Stephen D. Tannen, the Company's President and Chief
Executive Officer, for fiscal year 1995 Mr. Tannen will receive a bonus pursuant
to a formula set forth in his employment agreement in lieu of any bonus pursuant
to this program. In addition, the Senior Vice President of Marketing and Sales,
pursuant to the terms of his employment agreement with the Company, receives
commissions based on the net sales of the custom packaging sales force in lieu
of any bonus pursuant to this program. Sixty percent of the bonus provided to
each participating officer under the program is payable in cash. The remaining
40% of each such bonus is paid by a grant of shares of Common Stock of the
Company based on the market value of such shares on the date of such grant.
Effective for the 1994 fiscal year, if in any fiscal year the Company's
operating profit does not exceed its operating profit for the immediately
preceding fiscal year, no bonuses will be paid to officers of the Company
pursuant to this program in respect of such fiscal year. Accordingly, for the
1995 fiscal year, no bonuses were paid pursuant to this program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Barry W. Florescue, Dominic J. La
Rosa, Frank Magrone and Thomas D. Walsh, none of whom has ever served as an
officer or employee of the Company. Chesterfield F. Seibert Sr., Chief
Executive Officer of the Corporation from February 14, 1994 until November 11,
1994 and Chairman of the Company from April 1992 until January 30, 1995,
served on the Compensation Committee until his resignation on January 30, 1995.
No executive officer of the Company served during fiscal year 1995 (i) as a
member of the compensation committee or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors of another entity, one of whose executive officers served on the
Compensation Committee of the Company; (ii) as a director of another entity, one
of whose executive officers served on the Compensation Committee of the Company;
or (iii) as a member of the compensation committee or other board committee
performing equivalent functions or, in the absence of any such committee, the
entire board of directors of another entity, one of whose executive officers
served as a director of the Company.
On February 9, 1989, Chesterfield F. Seibert Sr. and Thomas D. Walsh each
purchased 10,000 shares of Common Stock, previously held by the Company in its
treasury, pursuant to stock purchase agreements between the Company and each of
them. The purchase price of $122,500 was paid by each of Messrs. Seibert and
Walsh by the payment of $1,000 in cash and the delivery of a promissory note in
the principal amount of $121,500. Each of their promissory notes bore interest,
payable semi-annually, at the rate of 9% per annum and was due and payable in
one installment on February 9, 1994. The Company agreed with each of Messrs.
Seibert and Walsh to extend the maturity date of such promissory notes to
February 9, 1996, except that in the event that Mr. Seibert or Mr. Walsh resigns
his position on the Board of Directors of the Company or refuses to stand for
re-election, his promissory note becomes due and payable 30 days after such
resignation or refusal to stand for re-election and, in the event of his death
or disability, his promissory note becomes due and payable six months after such
event. The Company has further agreed with each of Messrs. Seibert and Walsh
that until maturity, interest shall accrue on the promissory notes at a variable
rate per annum equal to 1.35% above the three-month LIBOR in effect on the first
business day of each calendar quarter, and such interest shall be payable
semiannually. Following Mr. Seibert's resignation as Chairman on January 30,
1995, the Company agreed to extend the maturity date of his promissory note
beyond the 30 day due date to August 9, 1995. Subsequently, the Board determined
to extend the maturity date of such note to February 9, 1996.
Page 44 of 65
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to persons
known by the Company to own of record or beneficially more than five percent
(5%) of the Company's outstanding Common Stock as of December 1, 1995.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2)(3) PERCENT OF CLASS(3)
- ------------------------------------------- -------------------- -------------------
<S> <C> <C>
Mentor Partners, L.P.(4)................... 357,800 9.8%
500 Park Avenue
New York, New York 10022
Elliot Associates(5)....................... 339,425 9.3
712 Fifth Avenue
New York, New York 10019
John S. Nadolski(6)(7)..................... 330,268 9.0
3855 Highland Road
Cortland, New York 13045
Barry W. Florescue......................... 314,365 8.6
701 Southeast Sixth Avenue, Suite 294
Delray Beach, Florida 33483
</TABLE>
- ----------
(1) Unless otherwise indicated address is that of the Company set forth above.
(2) All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
(3) Based on the number of Shares issued and outstanding at, or acquirable
within 60 days of, December 1, 1995.
(4) Information as to the holdings of Mentor Partners L.P. ("Mentor"), is based
on a report on a Schedule 13D filed on or about August 8, 1995, as amended.
Such report was filed with the SEC on behalf of Mentor with respect to
Shares owned by Mentor and Mentor Offshore Fund Limited. The general partner
of Mentor is WTG & Co., L.P. ("WTG") and the general partner of WTG is D.
Tisch & Co., Inc., all of the common stock of which is owned by Daniel R.
Tisch.
(5) Information as to the holdings of Elliot Associates, L.P. ("Elliot"), is
based upon a report on Amendment No. 2 to Schedule 13D filed on or about
July 21, 1995. Such report was filed with the SEC jointly by Elliot,
Westgate International, L.P. ("Westgate") and Martley International, Inc.
("Martley"). Paul E. Singer ("Singer") and Braxton Associates, L.P., a New
Jersey limited partnership ("Braxton"), which is controlled by Singer, are
the general partners of Elliot. Hambledon, Inc., a Cayman Island corporation
("Hambledon"), is the sole general partner of Westgate. Martley is the
investment manager for Westgate.
(6) Information as to the holdings of John S. Nadolski is based upon Amendment
No. 5, dated February 3, 1994, to a report on Schedule 13G, dated April 28,
1989, filed with the SEC by Mr. Nadolski. Mr. Nadolski is a former director
and chief executive officer of the Company. On February 14, 1994, Mr.
Nadolski resigned as a director and was granted a leave of absence as an
executive officer of the Company following a Grand Jury indictment. On
October 5, 1994, he was convicted of violations of the federal securities
laws relating to false statements contained in financial reports of the
Company for the first quarter of fiscal 1989 and for the fiscal year ended
September 30, 1989 and fraud in connection with the purchase and sale of
securities. Mr. Nadolski resigned from the Company in February 1995.
(7) Includes 8,000 Shares held by the two children of Mr. Nadolski, as to which
Mr. Nadolski disclaims beneficial ownership.
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished with respect to shares of Common
Stock of the Company beneficially owned as of December 1, 1995 by each director
of the Company, by each of the Named Executive Officers, and by all directors
and executive officers of the Company as a group:
Page 45 of 65
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) OF CLASS(2)
- ------------------------ -------------------------- -----------
<S> <C> <C>
Barry W. Florescue............................... 314,365 8.6%
Frank Magrone(3)(4).............................. 64,468 1.8
Ronald C. DeMeo(3)(5)............................ 43,809 1.2
David P. Hempson(3)(6)........................... 37,761 1.0
Thomas D. Walsh(3)(5)(7)......................... 24,935 (10)
Chesterfield F. Seibert Sr.(3)(4)(7)............. 17,193 (10)
Robert C. Buhrmaster(5).......................... 9,154 (10)
Philip A. Shager(8).............................. 5,358 (10)
Dominic J. La Rosa(5)............................ 4,154 (10)
Stephen D. Tannen(5)............................. 4,154 (10)
Charles W. Miersch............................... 1,000 (10)
Thomas M. Fairhurst.............................. 568 (10)
Leonard J. Sichel................................ 0 0.0
All executive officers and directors as a group
(14 persons)(3)(4)(5)(6)(7)(8)(9)................ 526,919 14.4
- ---------------------------------------------------------------------------------------
</TABLE>
(1) All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
(2) Based on the number of shares of Common Stock of the Company outstanding at,
or subject to stock options exercisable on or within 60 days of, December 1,
1995.
(3) Includes options to purchase 8,160 shares of Common Stock granted on
February 9, 1989 to each of Messrs. Magrone, DeMeo, Hempson, Seibert and Walsh,
all of which are currently exercisable.
(4) Includes options to purchase 8,308 shares of Common Stock granted on
December 1, 1993 to each of Messrs. Magrone and Seibert, all of which are
currently exercisable.
(5) Includes options to purchase 4,154 shares of Common Stock granted on
December 1, 1993 to Messrs. DeMeo, Walsh, Buhrmaster, La Rosa and Tannen, all of
which are currently exercisable.
(6) Includes 400 shares of Common Stock held by the two children of Mr. Hempson,
as to which Mr. Hempson disclaims beneficial ownership, and includes 300 shares
of Common Stock held by Mr. Hempson jointly with his spouse.
(7) See Item 11. - "Executive Compensation -- Compensation Committee Interlocks
and Insider Participation" for a discussion of certain transactions and loans
between the Company and certain of its executive officers and directors.
(8) Includes options to purchase 5,000 shares of Common Stock granted on May
10, 1993 to Mr. Shager, 3,333 of which are currently exercisable.
(9) Includes Mr. Seibert, who does not presently serve as an executive officer
or director of the Company.
(10) Less than 1.0%.
CHANGES IN CONTROL
See "Introductory Note."
Page 46 of 65
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
See Item 11. - "Executive Compensation -- Compensation Committee Interlocks
and Insider Participation" for a discussion of certain transactions and loans
between the Company and certain of its executive officers and directors.
See "Introductory Note" and Item 12. - "Security Ownership of Certain
Beneficial Owners and Management - Changes in Control" with respect to the
Merger of the Company with an affiliate of Barry W. Florescue, a
director of the Company.
Pursuant to an agreement relating to Barry W. Florescue joining the
Board of Directors of the Company, Mr. Florescue and his affiliates agreed not
to increase their ownership of the Company's Common Stock above 14.99% or to
commence a tender offer, proxy contest or other similar action unless consented
to by the Board of Directors of the Company. Such agreement has a term of two
years, subject to earlier termination in certain cases.
Page 47 of 65
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1. Financial Statements and Supplementary Data:
Report of Deloitte & Touche LLP, Independent
Certified Public Accountants......................................... F-1
Marietta Corporation's Consolidated
Financial Statements:
Consolidated Balance Sheets as of
September 30, 1995 and October 1, 1994............................... F-2
Consolidated Statements of Operations for the
Years ended September 30, 1995, October 1, 1994 and October 2, 1993.. F-3
Consolidated Statement of Shareholders' Equity for the
Years Ended September 30, 1995, October 1, 1994 and October 2, 1993.. F-4
Consolidated Statements of Cash Flows for the
Years ended September 30, 1995, October 1, 1994, October 2, 1993..... F-5
Notes to Financial Statements........................................ F-6 - F-17
2. Financial Statement Schedules:
Report of Deloitte & Touche LLP, Independent
Certified Public Accountants......................................... F-18
Schedule II - Valuation and Qualifying Accounts....................... F-19
</TABLE>
Schedules other than those listed above have been omitted because they are
not applicable or the required information is shown on the financial statements
or the Notes thereto.
3. Exhibits:
The Exhibit Index begins on page 50.
(b) Reports on Form 8-K. The Company filed a Form 8-K on August 30, 1995, in
which the Company disclosed (pursuant to Item 5) that (i) it had entered
into an Agreement and Plan of Merger with affiliates of Barry W. Florescue,
the beneficial owner of 8.7% of the Company's Common Stock, (ii) in an
agreement relating to Mr. Florescue's joining the Board of Directors of the
Company, Mr. Florescue and his affiliates agreed not to increase their
ownership of the Company's shares above 14.99% or to take certain other
actions for a period of two years, and (iii) the Company had consented to a
final judgment and order in settlement of a Securities and Exchange
Commission investigation.
(c) See Exhibit Index on page 50.
(d) NONE
Page 48 of 65
<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.
Dated: December 27, 1995 MARIETTA CORPORATION
(Registrant)
BY: \s\
----------------------------------------
Stephen D. Tannen
President and Chief Executive Officer
BY: \s\
----------------------------------------
Philip A. Shager
Vice President, Chief Accounting Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: December 27, 1995 \s\
--------------------------------
Robert C. Buhrmaster, Director
Dated: December 27, 1995 \s\
--------------------------------
Ronald C. DeMeo, Director
Dated: December 27, 1995 \s\
--------------------------------
Barry W. Florescue, Director
Dated: December 27, 1995 \s\
---------------------------------
Frank Magrone, Director
Dated: December 27, 1995 \s\
---------------------------------
Charles W. Miersch, Director
Dated: December 27, 1995 \s\
---------------------------------
Leonard J. Sichel, Director
Dated: December 27, 1995 \s\
---------------------------------
Stephen D. Tannen, Director
Dated: December 27, 1995 \s\
---------------------------------
Thomas D. Walsh, Director
Page 49 of 65
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
2.1 Agreement and Plan of Merger, dated 8-K 8/30/95 2.1
August 26, 1995, by and among BFMA
Holding Corporation, BFMA Acquisition
Corporation and the Registrant
2.2 Amendment No. 1, dated as of November 57
30, 1995, to Agreement and Plan of Merger
3.1 Certificate of Incorporation of Registrant, S-1 5/1/86 3.1
dated October 18, 1976, as amended by
amendments thereto filed November 25,
1980 and March 31, 1986, respectively
3.2 By-Laws of Registrant, as amended by 8-K 12/27/91 3.2
Amendments adopted on March 4, 1988
and June 9, 1989
3.3 Amendment to By-Laws of Registrant 10-K 3/17/92 3.3
adopted on February 13, 1992
3.4 Amendment to By-Laws of Registrant 10-K 12/23/94 3.4
adopted on March 29, 1994
3.5 Certificate of Amendment, dated 8-K 9/18/89 3.1
September 15, 1989, to Certificate of
Incorporation of Registrant, dated
October 18, 1976, as amended by
amendments thereto filed November 25,
1980 and March 31, 1986, respectively
4.1 Specimen Stock Certificate for Share of S-2 9/22/89 4.1
Common Stock
4.2 1986 Incentive Stock Option Plan S-1 5/1/86 4.4
4.3 1986 Stock Option Plan S-1 5/1/86 4.5
4.4 1986 Employee Stock Purchase Plan S-1 5/1/86 4.6
4.5 Second Amendment to 1986 Employee 10-Q 5/12/95 4.1
Stock Purchase Plan
4.6 Convertible Subordinated Note, dated 8-K 3/31/89 4(b)
March 17, 1989, in the principal amount
of $300,000, of Registrant to Huey L.
Holden ("Holden")
4.7 Standstill Agreement, dated as of March 8-K 3/31/89 4(c)
17, 1989, between Registrant and Donald
M. Rowe ("Rowe")
</TABLE>
Page 50 of 65
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
4.8 Right of First Refusal Agreement, dated 8-K 3/31/89 4(d)
as of March 17, 1989, between Registrant
and Rowe
4.9 Rights Agreement, dated September 11, 8-K 9/18/89 4.1
1989, between Registrant and Continental
Stock Transfer & Trust Company, as
Rights Agent
10.1 Bond Purchase Agreement and Building S-1 5/1/86 10.1
Loan Contract among Cortland County
Industrial Development Agency,
Registrant and The Bank of New York,
dated as of September 1, 1984
10.2 Lease Agreement between Cortland S-1 5/1/86 10.2
County Industrial Development Agency
and Registrant, dated as of September 1,
1984
10.3 Pledge and Assignment from Cortland S-1 5/1/86 10.3
County Industrial Development Agency to
The Bank of New York, dated as of
September 1, 1984
10.4 Mortgage and Security Agreement from S-1 5/1/86 10.4
Cortland County Industrial Development
Agency to The Bank of New York, dated
as of September 1, 1984
10.5 Guaranty of Registrant to The Bank of S-1 5/1/86 10.5
New York, dated as of September 1, 1984
and amendment thereto, dated April 15,
1986
10.6 Tax Agreement between Cortland County S-1 5/1/86 10.6
Industrial Development Agency and
Registrant, dated as of September 1, 1984
</TABLE>
Page 51 of 65
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
10.7 Employment agreements between
Registrant and each of:
(a) Ronald C. DeMeo 10-K 12/23/92 10.7(b)
Amendment No. 1 to Employment 10-Q 08/09/95 10.1
Agreement with Ronald C. DeMeo
(b) Timothy J. McCabe, Jr. 10-K 12/23/92 10.7(d)
(c) Philip A. Shager, as amended 10-K 12/23/94 10.7(c)
(d) David P. Hempson 10-K 12/23/94 10.7(d)
(e) Thomas M. Fairhurst 10-K 12/23/94 10.7(e)
(f) Wallace B. Bruce 10-K 12/23/94 10.7(f)
(g) Stephen D. Tannen 10-K 12/23/94 10.7(g)
10.8 Installment Sale Agreement between 10-K 12/29/87 45-124
Cortland County Industrial Development
Agency and Registrant, dated as of
December 1, 1986
10.9 Mortgage from Cortland County 10-K 12/29/87 125-179
Industrial Development Agency and
Registrant to Chase Lincoln First Bank,
N.A. as Trustee and Norstar Bank of
Upstate N.Y., dated as of December 1,
1986
10.10 Credit and Reimbursement Agreement, 10-K 12/29/93 65-99
dated as of December 1, 1986 between
Registrant and Norstar Bank of Upstate
N.Y.
10.11 Guaranty of Registrant to Norstar Bank 10-K 12/29/87 180-196
of Upstate N.Y., dated as of December 1,
1986
10.12 Cortland County Industrial Development 10-K 12/29/87 197-220
Agency Bond Purchase Agreement among
First Albany Corporation, Cortland
County Industrial Development Agency
and Registrant, dated as of December 22,
1987
10.13 Tax Regulatory Agreement of Registrant 10-K 12/29/87 221-290
to Cortland County Industrial
Development Agency, Chase Lincoln First
Bank as Trustee and Norstar Bank of
Upstate N.Y., dated December 23, 1986
</TABLE>
Page 52 of 65
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
10.14 Guaranty, dated as of March 30, 1989, of 8-K 3/31/89 28(n)
Marietta American in favor of Norstar
Bank of Central New York, predecessor
in interest of Norstar Bank of Upstate
N.Y.
10.15 Amended Lease Agreement, dated as of S-2 9/22/89 10.28
November 1, 1988, between DeSoto
County, Mississippi and Marietta
American
10.16 Trust Indenture, dated as of November 1, S-2 9/22/89 10.29
1988, from DeSoto County, Mississippi to
Trustmark National Bank ("Trustmark"),
as Trustee
10.17 Form of Bond of DeSoto, Mississippi S-2 9/22/89 10.30
Variable Rate Industrial Development
Revenue Refunding Bonds (American
Soap Company, Inc. Project) Series 1988
10.18 Guaranty Agreement, dated as of S-2 9/22/89 10.31
November 1, 1988, from Marietta
American to Trustmark, as Trustee
10.19 Leasehold Deed of Trust and Security S-2 9/22/89 10.32
Agreement, dated as of November 22,
1988, between Marietta American and
William H. Austin, as Trustee
10.20 Placement and Remarketing Agreement, S-2 9/22/89 10.33
dated as of November 1, 1988, among
Marietta American, DeSoto County,
Mississippi and First Commerce Capital, a
division of Porter, White & Yardley, Inc.
as Remarketing Agent
10.21 Reimbursement and Letter of Credit S-2 9/22/89 10.34
Agreement, dated as of November 1,
1988, between Marietta American and
Sovran Bank/Central South ("Sovran")
10.22 Pledge and Security Agreement, dated as S-2 9/22/89 10.35
of November 1, 1988, between Marietta
American and Sovran
</TABLE>
Page 53 of 65
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
10.23 Non-negotiable Promissory Note, dated 10-K 12/23/94 10.23
February 9, 1994, in the principal amount
of Three Hundred Sixty-Four Thousand
Five Hundred ($364,500) Dollars, of John
S. Nadolski in favor of Registrant
10.24 Non-negotiable Promissory Note, dated 59
November 10, 1995, in the principal
amount of One Hundred Twenty-One
Thousand Five Hundred ($121,500)
Dollars, of Chesterfield F. Seibert Sr. in
favor of Registrant
10.25 Non-negotiable Promissory Note, dated 10-K 12/23/94 10.25
February 9, 1994, in the principal amount
of One Hundred Twenty-One Thousand
Five Hundred ($121,500) Dollars, of
Thomas D. Walsh in favor of Registrant
10.26 Stock Option Agreements, each dated as
of February 9, 1989, between Registrant
and each of:
(a) David P. Hempson S-2 9/22/89 10.42(b)
(b) Ronald C. DeMeo S-2 9/22/89 10.42(c)
(c) Timothy J. McCabe, Jr. S-2 9/22/89 10.42(d)
(d) Frank Magrone S-2 9/22/89 10.42(g)
(e) Thomas D. Walsh S-2 9/22/89 10.42(i)
10.27 Stock Option Agreement, dated as of 10-K 12/29/93 10.30
May 10, 1993, between Registrant and
Philip A. Shager
10.28 Stock Option Agreements, each dated as
of December 1, 1993, between Registrant
and each of:
(a) Robert C. Buhrmaster 10-K 12/23/94 10.28(a)
(b) Ronald C. DeMeo 10-K 12/23/94 10.28(b)
(c) Dominic J. La Rosa 10-K 12/23/94 10.28(c)
(d) Frank Magrone 10-K 12/23/94 10.28(d)
(e) Stephen D. Tannen 10-K 12/23/94 10.28(f)
(f) Thomas D. Walsh 10-K 12/23/94 10.28(g)
10.29 Stock Option Agreement, dated as of 10-Q 5/12/95 10.2
April 5, 1995, between Registrant and
Thomas M. Fairhurst
10.30 Consulting Agreement, dated as of 10-K 9/30/90 10.43
March 17, 1990, between Registrant and
Donald M. Rowe
</TABLE>
Page 54 of 65
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
10.31 Separation Agreement and General 8-K 12/27/91 10.43
Release, dated as of July 22, 1991,
between Registrant and Thomas J. Blair
10.32 First Amendment to Credit and 10-K 3/17/92 10.38
Reimbursement Agreement, dated as of
November 1, 1991, between Registrant
and Norstar Bank of Upstate N.Y.,
amending the Credit and Reimbursement
Agreement, dated as of December 1, 1986
between Registrant and Norstar Bank of
Upstate N.Y.
10.33 Second Amendment to Guaranty, dated 10-K 3/17/92 10.39
as of November 1, 1991, between
Registrant and Norstar Bank of Upstate
N.Y., as successor, amending the
Guaranty Agreement, dated as of
September 1, 1984 from Registrant to the
Bank of New York
10.34 Second Amendment to Credit and 10-K 12/29/93 10.35
Reimbursement Agreement, dated as of
November 5, 1993, between Registrant
and Fleet Bank of New York, as
successor, amending the Credit and
Reimbursement Agreement, dated as of
December 1, 1986 between Registrant
and Norstar Bank of Upstate N.Y.
10.35 Third Amendment to Guaranty, dated as 10-K 12/29/93 10.36
of November 5, 1993, between Registrant
and Fleet Bank of New York, as
successor, amending the Guaranty
Agreement, dated as of September 1,
1984 from Registrant to the Bank of New
York
10.36 Revolving Credit Loan and Term Loan 10-K 12/29/93 10.37
Agreement, dated as of November 10,
1993, among Registrant, Subsidiaries of
Registrant and Chemical Bank
10.37 Waiver and Amendment Agreement, 62
dated as of December 19, 1995, between
the Registrant, subsidiaries of Registrant
and Chemical Bank
</TABLE>
Page 55 of 65
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From
From Filed Exhibit
Exhibit Herewith or
No. Description Page No. Form Date Page No.
- -------- --------------------------------------------- -------- --------- --------- -----------
<C> <S> <C> <C> <C> <C>
10.38 Revolving Credit Note, dated as of 10-K 12/29/93 10.38
November 10, 1993, between Registrant
and Chemical Bank
10.39 Letter Agreement, dated as of February 10-K 12/23/94 10.39
14, 1994, between Registrant and John S.
Nadolski
10.40 Agreement between Registrant and 10-Q 2/13/95 10.1
Goldman, Sachs & Co.
10.41 Cash Bonus Agreement, dated January 10-K/A-2 2/13/95 10.42
26, 1995, between Registrant and Stephen
D. Tannen
10.42 Cash Bonus Agreement, dated January 10-K/A-2 2/13/95 10.43
21, 1996, between Registrant and Stephen
D. Tannen
10.43 Agreement, dated June 13, 1995, by and 10-Q 8/9/95 10.2
between Registrant and Stephen D.
Tannen with regard to SAR Units
10.44 Letter Agreement, dated August 25, 1995, 8-K 8/30/95 10.1
by and among Barry W. Florescue,
Florescue Family Corporation and
Registrant
11 Omitted (inapplicable)
12 Omitted (inapplicable)
13 Omitted (inapplicable)
18 Omitted (inapplicable)
21 List of all subsidiaries of Registrant 10-K 9/30/89 22
22 Omitted (inapplicable)
23.1 Omitted (inapplicable)
24 Omitted (inapplicable)
27 Financial Data Schedule 65
28 Omitted (inapplicable)
</TABLE>
Page 56 of 65
<PAGE>
Exhibit 2.2
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
This Amendment No. 1 to Agreement and Plan of Merger (the "Amendment")
is effective as of November 30, 1995, by and among BFMA Holding Corporation, a
Delaware corporation ("Parent"), BFMA Acquisition Corporation, a New York
corporation and a wholly-owned subsidiary of the Parent ("Newco"), and Marietta
Corporation, a New York corporation (the "Company"), and amends the Agreement
and Plan of Merger (the "Agreement"), dated as of August 26, 1995, by and among
Parent, Newco and the Company.
W I T N E S S E T H :
--------------------
WHEREAS, Parent, Newco and the Company wish to amend
the Agreement in the manner set forth herein.
NOW, THEREFORE, for and in consideration of the covenants and
agreements set forth herein and in the Agreement, it is mutually agreed as
follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings ascribed to them in the Agreement.
2. Amendments.
----------
a. Section 9.1(b) of the Agreement is hereby amended and restated in its
entirety as follows:
(b) By the Parent giving written notice to the Company if, without fault on
the part of the Parent or its Affiliates, the Closing does not occur prior to
January 31, 1996, unless the Proxy Statement has not been mailed prior to
January 11, 1996 in which case such date shall be extended to a date 20 days
after the date of mailing of the Proxy Statement but not later than February 15,
1996.
b. Section 9.1(f) of the Agreement is hereby amended and restated in its
entirety as follows:
(f) By the Company giving written notice to the Parent if, without fault on
the part of the Company or its officers or Affiliates, the Closing does not
occur prior to January 31, 1996, unless the Proxy Statement has not been mailed
prior to January 11, 1996 in which case such date shall be extended to a date 20
days after the date of mailing of the Proxy Statement but not later than
February 15, 1996.
c. Section 9.3(b)(ii) of the Agreement is hereby deleted.
d. Section 9.3(c) of the Agreement is hereby amended and restated in its
entirety as follows:
(c) If the Agreement is terminated as a result of (i) Sections 9.3(b)(i)
or (b)(iii), the Company shall pay immediately to an account designated by the
Parent in immediately available funds an amount equal to $250,000, (ii) Sections
9.3(b)(iv) through (b)(vi), the Company shall pay immediately to an account
designated by the Parent in immediately available funds an amount equal to
$600,000, and (iii) Sections 9.3(b)(vii) or (b)(viii), the Company shall pay
immediately to an account designated by the Parent in immediately available
funds an amount equal to $1,250,000.
Page 57 of 65
<PAGE>
3. Continuing Effect of the Agreement. Except as expressly modified herein,
----------------------------------
the terms and provisions in the Agreement shall remain in full force and effect
and are hereby ratified and confirmed.
4. Fees and Expenses. Each party hereto shall pay its own fees and expenses
-----------------
relating to the negotiation, preparation and consummation of this Amendment.
5. Counterparts. This Amendment may be executed by all parties hereto in one
------------
or more counterparts, each of which shall be deemed to be an original and all of
which, when taken together, shall constitute one and the same instrument.
6. Governing Law. This Amendment shall be construed in accordance with, and
-------------
governed by, the internal laws of the State of New York, without giving effect
to the principles of conflict of laws thereof. Any legal action, suit or
proceeding arising out of or relating to this Amendment may be instituted in any
state or federal court located within the County of New York, State of New York,
and each party hereto agrees not to assert, by way of motion, as a defense, or
otherwise, in any such action, suit or proceeding, any claim that it is not
subject personally to the jurisdiction of such court in an inconvenient forum,
that the venue of the action, suit or proceeding is improper or that this
Amendment or the subject matter hereof may not be enforced in or by such court.
Each party hereto further irrevocably submits to the jurisdiction of any such
court in any such action, suit or proceeding.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
set forth above.
BFMA HOLDING CORPORATION
By:____________________________
Barry W. Florescue, President
BFMA ACQUISITION CORPORATION
By:____________________________
Barry W. Florescue, President
MARIETTA CORPORATION
By:____________________________
Stephen D. Tannen, President
2
Page 58 of 65
<PAGE>
Exhibit 10.24
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
$121,500 November 10, 1995
FOR VALUE RECEIVED, the undersigned, Chesterfield F. Seibert Sr.
("Maker"), hereby promises to pay to Marietta Corporation, a corporation
- -------
organized under the laws of the State of New York (the "Corporation"), the
-----------
principal sum of One Hundred Twenty-one Thousand Five Hundred ($121,500) Dollars
on February 9, 1996 (the "Maturity Date"). This Note shall bear interest on the
-------------
unpaid principal amount hereof at a rate per annum equal to 1.35% above the
three-month London Interbank Offered Rate in effect on the first day of each
calendar quarter, such interest rate changing on the first day of each calendar
quarter. Such interest shall be due and payable on the Maturity Date. In the
event of the death or disability of Maker, the entire unpaid principal amount of
this Note, together with all accrued and unpaid interest through the date of
payment, shall be due and payable six months from the date of death or
disability.
This Note is delivered to the Corporation in exchange for the Non-
Negotiable Promissory Note, dated February 9, 1995, of Maker to the Corporation,
in the principal amount of One Hundred Twenty-one Thousand Five Hundred
($121,500) Dollars.
In the event that Maker shall sell any of the shares purchased
pursuant to the Stock Purchase Agreement, dated as of February 9, 1989, between
Maker and the Corporation, the portion of the principal amount of this Note,
together with accrued interest, corresponding to the percentage that the number
of such shares sold bears to the total number of shares purchased pursuant to
such agreement, shall, to the extent not previously paid, immediately be due and
payable.
Page 59 of 65
<PAGE>
To the extent permitted by law, overdue principal of and interest on
this Note shall continue to bear interest at the rate of 18% per annum, or at
the highest rate allowed by law if lower, until paid in full.
Maker may prepay the principal outstanding hereunder, in whole or in
part, without premium or penalty at any time, with accrued interest to the date
of such prepayment. Payment of principal and interest shall be made in lawful
money of the United States of America, to Marietta Corporation, 37 Huntington
Street, Cortland, New York 13045, or at such other place as may be designated
in writing by the Corporation.
Failure of the Corporation to assert any right hereunder shall not be
deemed to be a waiver thereof. Maker waives notice of all action by the
Corporation. No course of dealing by the Corporation and no failure or delay by
the Corporation in exercising any right, remedy or power shall preclude any
other or further exercise thereof or exercise of any other right or remedy.
Maker hereby waives presentment, demand for payment, diligence, protest, notice
of protest or non-payment, dishonor or acceleration, and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of or under this Note. Maker assents to any extension or
postponement of the time for payment or any other indulgence, and to the
addition, substitution or release of any other party or person primarily or
secondarily liable, and agrees to pay, to the extent permitted by law, all costs
and expenses, including, without limitation, reasonable attorneys' fees and
expenses, incurred or paid by the Corporation in enforcing this Note, whether or
not litigation is commenced. Such costs shall be added to the balance of
principal and interest then due under this Note. The Corporation may not
assign, transfer or pledge this Note.
Upon a failure by Maker to make payment when due and payable of any
principal of this Note, or upon a failure by Maker to make payment of interest
on this Note for more than five days after receipt of written notice from the
Corporation with respect to his failure to make payment of such interest when
due and payable, the Corporation may, at its option, declare the entire unpaid
principal amount of
2
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<PAGE>
this Note together with all interest due and payable through the date of such
declaration and all other amounts payable under this Note, to be forthwith due
and payable.
Moreover, upon
(i) commencement of any voluntary proceeding by Maker under any
provision of Title 11 of the United States Code, as now or hereafter amended, or
of any other proceeding, under any law, now or hereafter in force, relating to
bankruptcy, insolvency, reorganization, liquidation or otherwise to the relief
of debtors or the readjustment of indebtedness;
(ii) the making by Maker of an assignment for the benefit of creditors
or a composition or similar arrangement with creditors;
(iii) appointment by or for Maker of a receiver, trustee or
similar judicial officer or agent to take charge of or liquidate substantially
all of Maker's property or assets; or
(iv) commencement against Maker of any involuntary proceeding of the
kind described in this paragraph, unless Maker is diligently contesting the same
by appropriate action, or if, despite such contest, such proceeding is not
dismissed within a period of 60 days; this Note shall become immediately due and
payable, together with all accrued and unpaid interest thereon and together with
all other amounts payable under this Note, without presentment, demand, payment
or notice of any kind.
This Note shall be governed by, enforced, determined and construed in
accordance with the laws of the State of New York applicable to contracts,
transactions and obligations entered into and wholly to be performed in the
State of New York, without reference to conflict of laws principles. This Note
may not be modified or terminated except by a writing executed by the
Corporation and Maker. This Note shall be binding upon Maker and Maker's heirs,
legal representatives, successors and assigns.
______________________________
Chesterfield F. Seibert Sr.
3
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<PAGE>
Exhibit 10.37
WAIVER AND AMENDMENT AGREEMENT dated as of December 19, 1995 to the
$12,000,000 Revolving Credit Loan and Term Loan Agreement dated November 10,
1993 (the "Loan Agreement") between Marietta Corporation, Marietta American,
Inc., Marietta Canada Inc., Marietta Realty Holdings Ltd. and Chemical Bank (the
"Bank"). Terms defined in the Loan Agreement are used herein as therein defined
and references herein to "Sections" are to Sections of the Loan Agreement.
1. The Bank hereby waives non-compliance with Section 7.15 for
the four-quarter period ending on September 30, 1995; provided that the
Borrower's Interest Coverage Ratio on a consolidated basis for such period is
not less than .75 to 1.0. The foregoing waiver does not constitute a waiver of
any other provision of the Loan Agreement or a waiver of any other right, power
or privilege of the Bank or of any other present or future default under the
Loan Agreement.
2. Section 2.06 is hereby amended to read in its entirety as
follows:
"Section 2.06 Repayment of Revolving Credit Loans.
All principal, interest and other sums due under this Loan
Agreement and the Revolving Credit Note shall be all due and payable
on the Conversion Date."
The parties hereto expressly confirm and agree that the intent and
effect of the foregoing amendment is to eliminate any Borrower right and any
Bank obligation to convert the Principal Balance outstanding on the Conversion
Date to the Term Loan and that, accordingly, such Principal Balance and all
other amounts then due under the Loan Agreement and the Revolving Credit Note
shall be due and payable on the Conversion Date.
3. Each Borrower hereby represents and warrants, as of the date
hereof, to the same effect as set forth in Sections 4.01, 4.02 and 4.03, except
that (a) the amendments set forth herein shall be assumed to be in effect and
(b) all references in such Sections to "this Agreement" or "this Loan Agreement"
shall be read, for the purposes hereof, to refer to both this Waiver and
Amendment and the Loan Agreement, as amended hereby.
4. Except for and to the extent expressly amended hereby, the
provisions of the Loan Agreement shall continue in full force and effect, and
are hereby ratified and confirmed, in all respects (and, to the extent not
already provided for therein, all references therein, in the Schedules and in
any Note to "the(is) Agreement," "the(is) Loan Agreement," "herein," "hereunder"
or similar references shall refer to the Loan Agreement as so amended).
5. This Waiver and Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Page 62 of 65
<PAGE>
6. This Waiver shall (i) become effective when counterparts
hereof have been signed by the Borrower and the Bank and (ii) be construed in
accordance with and governed by the law of the State of New York.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Waiver
and Amendment to be duly executed by their authorized officers.
MARIETTA CORPORATION
By: /s/ Stephen D. Tannen
-------------------------
Name: Stephen D. Tannen
Title: President and CEO
MARIETTA AMERICAN, INC.
By: /s/ Stephen D. Tannen
-------------------------
Name: Stephen D. Tannen
Title: President and CEO
MARIETTA CANADA INC.
By: /s/ Stephen D. Tannen
-------------------------
Name: Stephen D. Tannen
Title: President and CEO
MARIETTA REALTY HOLDINGS LTD.
By: /s/ Stephen D. Tannen
-------------------------
Name: Stephen D. Tannen
Title: President
2
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<PAGE>
CHEMICAL BANK
By: /s/ William J. McPhail
-------------------------
Name: William J. McPhail
Title: Vice President
3
Page 64 of 65
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> SEP-30-1995
<CASH> 4384686
<SECURITIES> 0
<RECEIVABLES> 13949190
<ALLOWANCES> (280314)
<INVENTORY> 12626817
<CURRENT-ASSETS> 32265010
<PP&E> 42192797
<DEPRECIATION> (19030213)
<TOTAL-ASSETS> 64130584
<CURRENT-LIABILITIES> 8643242
<BONDS> 6792375
0
0
<COMMON> 40109
<OTHER-SE> 46457630
<TOTAL-LIABILITY-AND-EQUITY> 64130584
<SALES> 72407349
<TOTAL-REVENUES> 72407349
<CGS> 55758373
<TOTAL-COSTS> 55758373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 189198
<INTEREST-EXPENSE> 514183
<INCOME-PRETAX> (130277)
<INCOME-TAX> (135696)
<INCOME-CONTINUING> 5419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5419
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
