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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________ .
Commission file number 000-17051
TUSCARORA INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1119372
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification No.)
800 Fifth Avenue
New Brighton, Pennsylvania 15066
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 724-843-8200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
Preferred Share Purchase Rights
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 and (2) has been subject to such
filing requirements for at least 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 registrant estimates that as of October 23, 1998, the aggregate
market value of the shares of its Common Stock held by non-affiliates of the
registrant was approximately $90,629,000.
As of October 23, 1998, 9,528,136 shares of Common Stock of the
registrant were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's Annual Report to Shareholders for its
fiscal year ended August 31, 1998 are incorporated by reference into Parts I
and II of this annual report.
Portions of the Proxy Statement for the registrant's Annual Meeting
of Shareholders to be held on December 17, 1998 are incorporated by reference
into Part III of this annual report.
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PART I
ITEM 1. BUSINESS.
Tuscarora Incorporated (the "Company") was incorporated in
1962 as Tuscarora Plastics, Inc. The corporate name was changed in 1992 to
reflect changes in the Company's business.
The Company custom designs and manufactures interior
protective packaging and material handling products and supplies customers with
custom designed components for industrial and consumer products. In each of its
markets, the Company's focus is to engineer a practical, cost effective solution
to meet each customer's specific end-use requirements.
The Company is the largest manufacturer of custom molded
products made from expanded foam plastic materials in the United States.
Interior protective packaging and material handling products and components are
manufactured at the Company's custom molding facilities. Interior protective
packaging products are also manufactured using materials, including corrugated
paperboard, molded and/or diecut foam plastic shapes, thermoformed plastic
shapes and wood, either alone or in various combinations, at the Company's
integrated materials facilities. The range of material options offered enables
the Company to be competitive vis-a-vis companies that offer only a single
material capability. Interior protective packaging and material handling
products and components are also manufactured at the Company's custom
thermoforming facilities.
For the 1998, 1997 and 1996 fiscal years, the interior
protective packaging and material handling products contributed approximately
86% of the Company's net sales. The remainder is accounted for by the component
products.
The Company's principal markets are the high technology,
consumer electronics, automotive and major appliance industries, but the Company
competes in other market segments as well. For the 1998 fiscal year, the four
major markets accounted for approximately 21%, 18%, 15% and 13%, respectively,
of the Company's net sales. For the 1998, 1997 and 1996 fiscal years, the four
major markets accounted in total for approximately 67%, 67% and 65%,
respectively, of the Company's' net sales.
The Company serves more than 3,500 customers, substantially
all of which are located in the United States, Mexico, Canada and the United
Kingdom. For the 1998 fiscal year, no customer accounted for more than 5%, and
the Company's ten largest customers accounted for approximately 26%, of the
Company's net sales.
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For information with respect to the Company's manufacturing
facilities, see "Manufacturing" below and Item 2 of this annual report.
INTERIOR PROTECTIVE PACKAGING AND MATERIAL
HANDLING PRODUCTS
The interior protective packaging products made from foam
plastic materials and integrated materials are used to protect a wide range of
finished consumer and industrial goods during shipment. The products are
designed to reduce or eliminate damage that may occur during shipment and
handling as a result of shock, vibration or wide temperature fluctuations. Goods
packaged in the Company's protective packaging include such items as:
Computers and computer peripherals Water heaters and air conditioners
Televisions and VCRs Refrigerators
Satellite dishes Microwave ovens
Office equipment Coffee makers and other kitchen
Vaccine containers appliances
Liquid chemicals Toys
Pharmaceuticals Outboard motors
Military equipment Office furniture
These goods, together with the Company's interior protective packaging, are
generally placed inside exterior shipping containers prior to shipment.
The material handling products generally serve the same
purposes and functions as the packaging products but are used primarily in
intra-plant and inter-plant movement of parts and components rather than
shipment of finished goods. For example, automobile manufacturers and their
suppliers transport parts to assembly plants using foam dunnage trays made by
the Company. Material handling products also frequently serve as carriers to
position parts for automated assembly. The Company also manufactures insulated
shippers which transport temperature-sensitive materials for the chemical and
pharmaceutical industries. The material handling products are generally more
durable than the interior protective packaging products and are usually
reusable, providing a cost-effective means of transporting materials that are
sensitive or difficult to handle. Most of the material handling products are
foam plastic shapes manufactured at the Company's custom molding facilities;
however, certain material handling products, such as durable returnable material
handling pallets and trays, are made from thermoformed materials and are
manufactured in the Company's custom thermoforming operations.
The interior protective packaging and material handling
products made from expanded foam plastic materials possess an unusual
combination of useful properties such as exceptional lightness, impact
resistance and shock absorbency,
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toughness and strength, thermal insulating efficiency, temperature tolerance,
buoyancy and chemical and biological neutrality. The cost of the products to the
customer is often less than alternative types of materials because, pound for
pound, less material is required to provide equal or better protection. These
products can also be easily and quickly handled thus reducing the customer's
labor costs. Because foam plastic packaging shapes frequently require less space
and are lighter than most other packaging materials, the customer is often able
to reduce its product shipping costs. Similarly, properly designed foam plastic
material handling devices often increase total yield per transportation
container, thus reducing intra-plant or inter-plant freight cost.
At the Company's integrated material facilities, foam plastics
are combined with other materials such as corrugated paperboard to produce
protective packaging products with superior properties and/or lower costs
compared to products made from a single material.
Thermoformed interior protective packaging products are
generally used to hold finished goods in place inside an exterior container
during shipment and handling. Thermoformed products are used where the shock
absorbency or thermal insulating properties of foam plastic are not required.
Because transparent plastic materials can be thermoformed, these materials are
often used to create a package that allows the consumer to view the enclosed
product. The Company supplies thermoformed packaging to most of the principal
markets the Company serves as well as other markets.
For the 1998, 1997 and 1996 fiscal year, sales of products
manufactured by the Company's integrated materials facilities accounted for
approximately 19%, 18% and 20%, respectively, of the Company's net sales.
During the 1998 fiscal year, sales of products manufactured by
the Company's thermoforming facilities, including components (see below),
accounted for approximately 6% of the Company's net sales, as compared with 4%
of net sales during the 1997 fiscal year.
COMPONENTS
The Company manufactures foam plastic shapes which are used as
components in automobiles, watercraft and recreational vehicles. Due to their
light weight and high energy-absorbing properties, molded foam shapes are used
as bumper cores and are positioned in door panels, steering wheels and
dashboards to provide added passenger protection. Flotation and/or seating
assemblies are made for the watercraft and recreational vehicles.
The Company manufactures thermal insulation components which
are foam plastic shapes used by appliance manufacturers to provide insulation in
products such as home and commercial
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refrigerators, freezers, air conditioners and water coolers. The construction
industry also uses these shapes as insulation in poured concrete or block walls,
in prefabricated metal buildings and as core material for factory-manufactured
steel exterior doors.
In the high tech area, the Company has a license for E-PAC, a
design-for-assembly technology, utilizing foam plastic shapes, developed by
Hewlett Packard in Germany. E-PAC is a concept for the internal assembly of
electronic components that enables electronic device manufacturers to reduce
both material cost and assembly time by bundling delicate electronic componentry
into a lightweight, protective carrier that is placed inside an exterior
housing.
The Company makes components such as garage door panels and
motor vehicle trim from thermoformed materials manufactured at the Company's
custom thermoforming facilities.
CUSTOM DESIGN
Virtually all the Company's products are custom designed. The
Company has seven design and testing centers ("tech centers") which support the
Company's manufacturing operations. The tech centers are staffed by design and
engineering personnel who study and evaluate the requirements of the Company's
customers. Four of the tech centers are certified International Safe Transit
Association (ISTA) testing laboratories. The Company's customers make extensive
use of the tech centers.
With respect to the custom molding operations, prototype foam
shapes are developed at the tech centers. After a shape is approved by the
customer, one or more aluminum production molds are made and then shipped to a
custom molding facility, generally the one nearest the customer, for production.
The Company makes most of the production molds for its manufacturing operations
in the United States and Mexico at a single mold making facility in the United
States. In the United Kingdom, the making of the production molds is
outsourced to a third party.
The tech centers and mold making facility are equipped with
and extensively use computer-aided design (CAD) and computer-aided manufacturing
(CAM) systems.
MANUFACTURING
The Company has 33 manufacturing facilities, including the
mold making facility. All but six of the facilities are located in the United
States. Four are located in the United Kingdom and two in Mexico. Prior to 1990,
all the manufacturing facilities were located east of the Mississippi River.
Since that time, the Company has established or acquired facilities in
California, Colorado, Iowa, New Mexico and Texas.
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The Company's manufacturing facilities are generally
strategically situated near manufacturing facilities of major customers. The
location of the manufacturing facilities, as well as the tech centers and sales
offices, is set forth in Item 2 of this annual report.
Custom molded foam plastic products are produced by causing
plastic beads to be blown into an aluminum production mold inserted in an
automatic molding machine. Time and pressure controlled heat (in the form of
steam) is applied to the beads in the mold, causing the beads to further expand,
soften and fuse together to form the shape of the product which is then
stabilized before removal from the molding machine. Significant capital
expenditures for molding machines and other process equipment are required to
manufacture custom molded products. Process equipment includes air compressors,
steam boilers, cooling towers, conveyors, drying equipment and a wide variety of
other standard industrial machinery items. The major items of expense in the
manufacture of the custom molded products are the plastic resins from which the
products are made, labor and the utilities needed to operate the process
equipment.
The manufacture of the integrated materials and thermoformed
products is less capital intensive. In the integrated materials operations, the
machinery and equipment consists primarily of machining and fabricating
equipment for forming foam plastic and corrugated paperboard products.
Fabrication of foam plastic involves the cutting of shapes from billets or
planks of foam plastic using specialized cutting tools and hot wire equipment.
Fabrication of corrugated paperboard involves slitting, die-cutting, folding and
gluing the paperboard.
Thermoforming is the process by which rigid sheets of hard
thermoplastic, such as ABS or high density polyethylene, are heated and then
vacuum and/or pressure formed over molds to create specific shapes. As a result
of two acquisitions during the 1997 fiscal year (see "Business Acquisitions"
below), the Company has the ability to produce products from thin gauge material
in a roll-fed in-line manufacturing process as well as from heavy gauge material
through a sheet-fed process.
Molded foam plastic shapes and thermoformed shapes used in the
integrated materials products are shipped from the facility where these shapes
are made to the appropriate integrated materials facility for integration with
other materials.
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The major items of expense in the manufacture of the
integrated materials and thermoformed products are the materials from which the
products are made, labor and electricity costs.
In general, the Company receives purchase orders from its
customers which do not specify quantity production and delivery dates.
Production against orders is determined by the customers' production schedules
with the result that products are generally required to be produced and
delivered on short notice. Accordingly, production levels are generally
determined by customer release patterns rather than the backlog of purchase
orders.
The proximity of the Company's manufacturing facilities to the
Company's customers ensures timely delivery of products and enables the Company
to provide products without a significant shipping cost. Production flexibility
also exists among the Company's facilities since molds and/or molding machines
and other manufacturing equipment can be moved quickly from one facility to
another.
All the Company's manufacturing facilities have warehousing
capacity for inventories of finished goods. Warehouses are located at other
locations as well. Distribution of products from the manufacturing facilities
and warehouses to customers is made by Company operated tractor-trailers and by
common carrier. Most of the Company operated tractor-trailers are leased.
SALES
Sales are made primarily by the Company's own sales force
which, including supporting technical personnel at the Company's tech centers,
consists of 91 salaried employees. Sales offices are located at all but one of
the tech centers. In addition, sales in certain geographic areas and certain
accounts are handled by sales representatives paid on a commission basis who are
assisted and supported by Company personnel.
FOREIGN OPERATIONS
The Company commenced doing business in the United Kingdom as
a result of a business acquisition during the 1995 fiscal year. The business
there has since been expanded through other business acquisitions and site
development (see "Business Acquisitions" and "New Site Development" below).
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The Company has had a manufacturing facility in Juarez, Chih.,
Mexico since May 1994. This facility has enabled the Company to provide interior
protective packaging for domestic customers that have established "Maquiladora"
operations along the U.S.-Mexican border. Maquiladora programs permit domestic
companies to ship component parts in bond into Mexico, assemble them and then
ship the assembled product in bond back into the United States for sale to their
domestic customers. During the 1998 fiscal year, the Company established a
second similar facility in Tijuana, B.C., Mexico. Over time, it is expected that
the Mexican facilities will also serve customers manufacturing and selling their
products in Mexico.
The performance of the United Kingdom operations during the
1998 and 1997 fiscal years has been disappointing. The decline in the Company's
gross profit margin in each of the fiscal years was largely due to
below-objective gross profit margins at the Company's UK facilities. In
addition, during the 1998 fiscal year, there was a substantial decline in the
operating income of the Mexican operations due primarily to the costs associated
with the establishment of the new custom molding facility in Tijuana. For
further information with respect to the foreign operations, see Note 14 of the
Notes to Consolidated Financial Statements and Management's Discussion and
Analysis of Results of Operations and Financial Condition contained in the
Company's Annual Report to Shareholders for the 1998 fiscal year and
incorporated in this annual report of reference.
The Company's operations in the United Kingdom and Mexico are
conducted through subsidiaries. The Company has no other subsidiaries which play
an important role in the Company's business.
The Company's export sales from the United States to customers
in Canada are not significant.
RAW MATERIALS
The materials from which the Company's custom molded products
are made are expandable polystyrene ("EPS"), expanded polypropylene ("EPP"),
expanded polyethylene ("EPE"), ARCEL(TM) and high heat-resistant styrene-based
resins. All the resins are petroleum based. EPP and EPE are polyolefin resins
and ARCEL(TM) is a co-polymer of polyethylene and polystyrene.
EPS is received by the Company in an unexpanded state and in
its raw form has an appearance much like table salt. ARCEL(TM) and the high
heat-resistant resins are also received by the Company in an unexpanded state.
Under conditions of time and pressure controlled heat, the raw material beads
can be expanded to many times their original size with no increase in
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weight. The Company expands the beads to various densities depending upon the
properties desired and stores the expanded beads until the final products are
molded. In contrast, the EPP and EPE beads are already expanded when received by
the Company and do not require further expansion before molding.
Most of the Company's custom molded products are made from
EPS. The other resins are particularly suitable for certain applications and are
significantly more expensive. Accordingly, the products made from the other
resins sell at higher prices than the products made from EPS. During the 1998,
1997 and 1996 fiscal years, approximately 26%, 20% and 22%, respectively, of the
Company's net sales of custom molded products have been attributable to products
made from the premium resins. The increase in net sales attributable to products
made from premium resins reflects the use of these resins in the manufacture of
custom molded products made to protect computers and other high technology
equipment and as components in automobiles, watercraft and recreational
vehicles.
The Company has never experienced a shortage of the resins
used in the manufacture of the custom molded products and does not foresee that
any shortage will occur. EPS, EPP and EPE are generally available from a number
of suppliers who sell to any prospective purchaser. The high heat-resistant
resins and ARCEL(TM) are each sold by a single supplier but are also generally
available.
The price of EPS has declined during the last three fiscal
years and has resulted in some reductions in the selling price of products made
from EPS.
The materials used in the manufacture of the integrated
materials products (including corrugated paperboard and foam billets and planks)
and the thermoformed products are also readily available.
COMPETITION
The Company's interior protective packaging and material
handling products compete with similar products made by others as well as with
other types of protective products. A majority of the similar products is
produced by independent manufacturers who generally market their products in a
particular geographic area from a single or limited number of facilities. While
the Company is considerably larger than most of the manufacturers of similar
products, the Company's penetration in the total interior protective packaging
market is still relatively small. A number of the companies which produce
competing products, particularly paper and corrugated packaging products, are
well established and have substantially greater financial resources than the
Company.
The components manufactured by the Company for thermal
insulation represent a small portion of the overall market for insulation
products. Because of the specialized nature of this market, the Company competes
primarily with other manufacturers of similar foam plastic products, rather than
with
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manufacturers of alternative insulation products. With the exception of E-PAC
which is licensed technology, the other components manufactured by the Company
can be provided by other vendors using similar or alternative materials.
Competition between the Company and manufacturers of similar
products is based primarily on product engineering, price and customer service.
CAPITAL EXPENDITURES
Capital expenditures for property, plant and equipment during
the 1998, 1997 and 1996 fiscal years (not including expenditures in connection
with business acquisitions) amounted to $24,153,000, $21,318,000 and
$23,129,000, respectively.
Capital expenditures included above for land, buildings and
improvements during the 1998, 1997 and 1996 fiscal years amounted to $5,702,000,
$5,892,000 and $5,029,000, respectively. The 1998 fiscal year expenditures
included $1,953,000 to purchase the Company's custom thermoforming facility in
Sandusky, Ohio which was formerly leased.
Capital expenditures included above for machinery and
equipment during the 1998, 1997 and 1996 fiscal years amounted to $18,451,000,
$15,426,000 and $18,100,000, respectively. During the 1998 fiscal year,
$7,976,000 of these expenditures was for automatic molding machines used in the
custom molding operations, $1,422,000 for manufacturing equipment used in the
integrated materials and custom thermoforming operations and $7,148,000 for
auxiliary process equipment primarily for the custom molding operations. In
addition, $1,316,000 was expended during the 1998 fiscal year for environmental
control equipment (see "Environmental Considerations" below).
Capital expenditures during the 1998 fiscal year were higher
than expected, primarily as a result of higher than expected machinery and
equipment costs associated with the Company's new custom molding facilities in
Brenham, Texas and Tijuana, B.C., Mexico where production commenced during the
1998 fiscal year. Capital expenditures during the 1999 fiscal year are expected
to be less than during the 1998 fiscal year.
BUSINESS ACQUISITIONS
Expenditures in connection with business acquisitions during
the 1998 fiscal year were not significant. In June 1998,the Company acquired a
small EPS custom molding business in Meriden, Connecticut and moved the business
acquired to the Company's existing custom molding facility in Putnam,
Connecticut. The aggregate purchase price recorded for this acquisition was
$713,000, including contingent consideration of $187,500.
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During the 1997 fiscal year, the Company acquired two custom
molding facilities, two integrated materials facilities and two custom
thermoforming facilities through business acquisitions. In September 1996, the
Company acquired the custom thermoforming business of FormPac Corporation in
Sandusky, Ohio; in October 1996, the Company acquired all the outstanding
capital stock of EPS (Moulders) Ltd., a custom molding business in Livingston,
Scotland; in April 1997, the Company acquired the custom thermoforming business
of Thermoformers Plus in Chula Vista, California (near San Diego); in May 1997,
the Company acquired the integrated materials business of Allgood Industries,
Inc. in Hayward, California (near San Francisco); and in July 1997, the Company
acquired all the outstanding capital stock of Arrowtip Mouldings Limited, a
custom molding and fabricating business with separate custom molding and
integrated materials facilities in London, England. The aggregate purchase price
recorded for these acquisitions during the 1997 fiscal year, totaled
$16,694,000, including notes and other obligations payable valued at $2,116,000
and contingent consideration valued at $754,000.
During the 1996 fiscal year, the Company acquired one
integrated materials business. In December 1995, the Company acquired all the
outstanding capital stock of Alpine Packaging, Inc., a custom designer and
manufacturer of specialty corrugated and technical/military specification
packaging and wood pallets in Colorado Springs, Colorado. For this acquisition,
the Company issued 101,046 shares of its Common Stock and paid cash having an
aggregate value of $1,691,000.
Approximately 59% of the increase in the Company's net sales
during the 1998 fiscal year was attributable to acquisitions. The balance of the
increase in net sales was attributable to higher sales in the Company's core
custom molding operations and the thermoforming operations.
For further information with respect to the business
acquisitions during the last three fiscal years, see Note 10 of the Notes to
Consolidated Financial Statements included in the Company's Annual Report to
Shareholders for the 1998 fiscal year and incorporated in this annual report by
reference.
The Company will continue to look for acquisitions which mesh
well with the Company's business.
NEW SITE DEVELOPMENT
The Company has established a number of custom molding
facilities through new site development during the last three fiscal years.
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As indicated above, the Company completed the construction of,
and began production at, new custom molding facilities in Brenham, Texas and
Tijuana, B.C., Mexico during the 1998 fiscal year. Strategically located between
Houston and Austin, Texas, the Brenham facility serves Compaq Computer
Corporation and other high tech companies in southeast Texas. The Tijuana
facility will serve domestic companies that have established "Maquiladora"
operations along the U.S.- Mexican border (see "Foreign Operations" above).
During the 1997 fiscal year, production commenced at a new
custom molding facility which the Company constructed in Storm Lake, Iowa. In
May 1998, this facility was sold by the Company to, and then leased back by the
Company from, an industrial development authority. The lease has been reflected
as a capitalized lease for financial reporting purposes. During the 1996 fiscal
year, the Company leased and totally renovated a building in Spennymoor, England
where production commenced prior to end of the fiscal year.
The Company will continue to develop new production sites as
they are needed to meet the needs of its customers.
SEASONALITY
The Company's net sales and net income are subject to some
seasonal variation both in the United States and the United Kingdom. In both
areas, the Company's business generally declines in December due to a reduction
in manufacturing activity by the Company's customers. Net income in the second
fiscal quarter is also generally adversely affected by higher operating costs
during the winter months. See Note 15 of the Notes to Consolidated Financial
Statements included in the Company's Annual Report to Shareholders for the 1998
fiscal year and incorporated in this annual report by reference.
EMPLOYEES
As of August 31, 1998, the Company had 1,826 employees, of
which 476 were employed in the United Kingdom and Mexico. Of the total, 419 were
salaried employees and 1,407 were paid on an hourly basis. Of the hourly
employees, 314 at eight manufacturing facilities, including one in the United
Kingdom, are covered by collective bargaining agreements with seven different
unions. The agreements expire at various dates from November 30, 1998 through
October 2003. Negotiations regarding a new agreement are in progress with
respect to the agreement which is about to
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expire. The Company considers its labor relations to be good and has never
suffered a work stoppage as a result of a labor conflict.
ENVIRONMENTAL CONSIDERATIONS
The Company has obtained air quality and other applicable
environmental permits for all the custom molding facilities in the United States
and Mexico. Air quality permits are not required in the United Kingdom. Certain
of the permits restrict the amount of pentane (a blowing agent contained in the
Company's foam plastic resins) which may be released during the manufacturing
process and have resulted in capital expenditures for batch pre-expanders which
allow the Company to use low pentane content EPS. Pentane abatement systems have
also been acquired for certain facilities. Air quality permits have not been
required in connection with the manufacture of the Company's integrated
materials and thermoformed products.
The Company has acquired recycling equipment for all its
custom molding and integrated materials facilities. The equipment includes (i)
regrinders which enable the Company to reuse in-house scrap and molded foam
received from original equipment manufacturers, customers and consumers, (ii)
EPS densifiers which enable the Company to compact scrap and molded foam
collected for reprocessing in the polystyrene recycling market and (iii) balers
which enable the Company to compact in-house corrugated paperboard scrap for
reprocessing. In-house scrap resulting from the manufacture of thermoformed
products is returned to the raw material suppliers of these materials for
recycling.
If necessary, the Company's products may also be safely
landfilled or incinerated.
During the 1998, 1997 and 1996 fiscal years, the Company's
capital expenditures for environmental matters, including environmental control
equipment, amounted to $1,341,000, $1,745,000 and $848,000, respectively.
Capital expenditures for environmental matters during the 1999 fiscal year are
expected to amount to approximately $1,500,000.
During the 1995 fiscal year, the Company commenced a program
under which environmental compliance audits are being conducted at all the
Company's manufacturing facilities in the United States. At the end of the 1998
fiscal year, 20 audits had been completed. The audits have been conducted by an
independent environmental consulting firm and have not resulted
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in plans for any significant additional capital expenditures for environmental
matters.
There has been public concern that using chloro-fluoro-carbons
("CFCs ") in the manufacture of plastic products may deplete the Earth's upper
atmospheric ozone layer. The Company does not use, nor has it ever used, CFCs in
the manufacture of any of its products.
REORGANIZATION
In May 1997, the Company announced a plan to reorganize into
seven groups which would be managed as separate profit centers. During the 1998
fiscal year, the plan was revised to consist of five operating divisions
organized on a geographical basis with each division responsible for a group of
five to nine manufacturing facilities. Vice Presidents were appointed to be in
charge of the operating divisions who report directly to David C. O'Leary, the
Company's Chief Operating Officer.
OTHER DEVELOPMENTS
In February 1998, the Company initiated a restructuring plan
to reduce costs and increase future financial performance. The total
restructuring costs amounted to approximately $3,500,000. For further
information with respect to the restructuring plan, see Note 12 of the Notes to
Consolidated Financial Statements contained in the Company's Annual Report to
Shareholders for the 1998 fiscal year and incorporated in this annual report by
reference.
In August 1998, the Company adopted a Shareholder Rights Plan.
For further information with respect to the plan, see Note 5 of the Notes to
Consolidated Financial Statements contained in the Company's Annual Report to
Shareholders for the 1998 fiscal year and incorporated in this annual report by
reference. The Company filed a current report to Form 8-K with respect to the
Shareholder Rights Plan on August 21, 1998.
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ITEM 2. PROPERTIES.
The Company's headquarters are located at 800 Fifth Avenue,
New Brighton, Pennsylvania 15066.
Custom Molding Facilities. The Company has 24 custom molding
facilities at the following locations:
Colorado Springs, Colorado Greeneville, Tennessee
Putnam, Connecticut Lewisburg, Tennessee
Conyers, Georgia (two facilities)
Streator, Illinois Brenham, Texas
Storm Lake, Iowa Sterling, Virginia
Chesaning, Michigan Pardeeville, Wisconsin
Tupelo, Mississippi Juarez, Chih., Mexico
Las Cruces, New Mexico Tijuana, B.C., Mexico
Cortland, New York London, England
Butner, North Carolina Northampton, England
Marion, Ohio Spennymoor, England
New Brighton, Pennsylvania Livingston, Scotland
During the 1998 fiscal year, the Company (i) completed
construction of, and commenced production at, the custom molding facilities in
Brenham, Texas and Tijuana, B.C., Mexico (see "New Site Development" under Item
1) and (ii) closed its custom molding facility in Martinsville, Indiana. The
Martinsville closure resulted from the Company's major customer for this
facility moving its production to a plant near the Company's custom molding
facility in Juarez, Chih., Mexico. The Company continues to serve this customer
from the Juarez facility. The Company is in the process of installing custom
molding equipment at its integrated materials facility in Hayward, California
(see below).
The Company acquired the custom molding facilities in London,
England and Livingston, Scotland (see "Business Acquisitions" under Item 1) and
completed construction of, and commenced production at, the custom molding
facility in Storm Lake, Iowa (see "New Site Development" under Item 1) during
the 1997 fiscal year.
The Company manufactures products from EPS at all the custom
molding facilities except at one of the facilities in Lewisburg, Tennessee and
at Storm Lake, Iowa. These facilities are dedicated polyolefins plants where
products are only made from EPP or EPE. Products are also made from one or more
of the Company's premium raw material resins at a majority of the other custom
molding facilities.
Integrated Materials Facilities. The Company has integrated
materials operations at 13 locations, including seven sites where custom molding
facilities are also located. During the 1998 and 1997 fiscal years, the
integrated materials operations in Conyers, Georgia, Greeneville, Tennessee and
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<PAGE> 16
London, England, which were formerly at separate sites, were transferred to the
same sites as the custom molding facilities at these locations. The Company has
separate integrated materials facilities at six locations as follows:
Hayward, California Saginaw, Michigan
Colorado Springs, Colorado Beaver, Pennsylvania
Holden, Massachusetts Burlington, Wisconsin
The integrated materials facilities in Hayward, California and Colorado Springs,
Colorado were acquired during the 1997 and 1996, fiscal years, respectively (see
"Business Acquisitions" under Item 1).
Thermoforming Facilities. The Company's main thermoforming
facility, which was acquired during the 1997 fiscal year (see "Business
Acquisitions" under Item 1), is located in Sandusky, Ohio. Other thermoforming
operations are conducted in Conyers, Georgia and Tijuana, B.C., Mexico. During
the 1998 fiscal year, the Company transferred its thermoforming operations in
Chula Vista, California (which had also been acquired during the 1997 fiscal
year) to the same site as the new custom molding facility in Tijuana. The
thermoforming facility in Conyers, Georgia is at a separate site from the custom
molding and integrated materials facility in Conyers.
Tech Centers. The Company's custom molding and integrated
materials operations are supported by six tech centers. These centers are
located at the Company's headquarters in New Brighton, Pennsylvania, at the
custom molding facilities in Colorado Springs, Colorado and Northampton,
England, at the integrated materials facility in Hayward, California and at
separate sites in Conyers, Georgia and Grand Blanc, Michigan. The Grand Blanc
tech center primarily serves the automotive industry. The Company's
thermoforming operations are supported by a tech center at the facility in
Sandusky, Ohio. Sales offices are located at each of the tech centers except in
Sandusky.
During the 1998 fiscal year, the Company consolidated tech
centers at the integrated materials facilities in Holden, Massachusetts and
Burlington, Wisconsin with other tech centers in connection with the
restructuring plan initiated in February 1998 (see Note 12 of the Notes to
Consolidated Financial Statements).
Miscellaneous. The Company's mold making facility is in Sun
Prairie, Wisconsin. This facility is considered a manufacturing facility because
most of the aluminum production molds that are made by the Company at this
facility are sold to and are owned by the Company's customers.
-15-
<PAGE> 17
Most of the facilities where custom molded products are made
are owned while a majority of the other facilities are leased. The Company has
options to purchase most of the leased facilities and generally makes
substantial leasehold improvements to, and exercises its options to purchase,
the leased facilities. The leases expire at various dates through November 2007.
In many cases, the leases may be extended at the Company's option.
The Company has warehouse facilities at each manufacturing
location. Additional warehouse facilities are located near the Company's
manufacturing facilities and near the manufacturing facilities of major
customers. Many of the outside warehouse facilities are leased.
The Company believes that its facilities are generally well
suited for their respective uses and that they are generally adequately sized
and designed to provide the operating efficiencies necessary for the Company to
be competitive. The Company continually expands and modernizes its existing
facilities and establishes new facilities as necessary to meet the demand for
its products.
Information with respect to the machinery and equipment used
in the Company's manufacturing operations and with respect to the Company's
transportation equipment provided in Item 1 of this annual report is
incorporated by reference in this Item 2.
ITEM 3. LEGAL PROCEEDINGS.
John C. Bartram, Administrator of the Estate of Dwayne Scott
Mount, Deceased v. Tuscarora Incorporated, et al. - Case No. 96CV-0511 in the
Court of Common Pleas for Marion County, Ohio. In December 1996, the
Administrator of the Estate of Dwayne Scott Mount (the "Decedent") filed a
Complaint for Wrongful Death in the captioned civil action against the Company
and Toyo Machine and Metal Co., Ltd. ("Toyo"). Decedent, an employee of the
Company, was killed in May 1996 while working on a molding machine at the
Company's custom molding plant in Marion, Ohio. The molding machine was
manufactured by Toyo. Count I of the Complaint states an intentional employer
tort claim and alleges that the Decedent was wrongfully killed as a result of
certain alleged intentional conduct of the Company. Under Count I, plaintiff
seeks both compensatory and punitive damages from the Company of not less than
$5,000,000. Count II of the Complaint stated a products liability claim and
alleged that the Decedent was wrongfully killed as a result of the defective
design and/or manufacture of the molding machine by Toyo. Under Count II,
plaintiff sought both compensatory and punitive damages from Toyo of not less
than the $5,000,000.
Having learned during discovery that the Company did not own
the molding machine but used it under an agreement with
-16-
<PAGE> 18
Kaneka America Corporation ("Kaneka America"), the plaintiff, upon Motion made
to the Court in April 1998, was permitted to file an Amended Complaint which
names Kaneka America and Kaneka Texas Corporation ("Kaneka Texas") as additional
defendants. Kaneka America, the owner of the molding machine at the time it was
acquired by the Company, unbeknownst to the Company leased it to Kaneka Texas in
April 1992 and then sold it to Kaneka Texas in March 1995. In its agreement with
Kaneka America, the Company agreed to indemnify and hold Kaneka America harmless
from any and all claims, demands or causes of action against Kaneka America
which may arise out of the use, operation or condition of the molding machine.
The agreement to indemnify may not apply to Kaneka Texas. The Amended Complaint
amended Count II to assert joint and several liability against Toyo, Kaneka
America and Kaneka Texas and added a Count III which states a breach of contract
claim against Kaneka America and/or Kaneka Texas alleging that the Decedent was
wrongfully killed as a result of the failure of Kaneka America and/or Kaneka
Texas to assist the Company in maintaining the safety of the molding machine
pursuant to the agreement between the Company and Kaneka America. Under Count
III, plaintiff seeks both compensatory and punitive damages from Kaneka America
and/or Kaneka Texas of not less than $5,000,000.
The Company is vigorously contesting the lawsuit and has filed
Answers to the Complaint denying the allegations against the Company and
asserting various defenses including that the plaintiff's claim is barred
pursuant to the Ohio Workers' Compensation statute. In the opinion of
management, the disposition of this proceeding should not have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the
Company during the fiscal quarter ended August 31, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
In accordance with Instruction 3 to Item 401(b) of Regulation
S-K, information with respect to the executive officers of the Company is set
forth below.
Name Age Office with the Company
---- --- -----------------------
John P. O'Leary, Jr. 51 President and Chief Executive Officer
David C. O'Leary 49 Senior Vice President and Chief
Operating Officer
Brian C. Mullins 57 Senior Vice President, Chief Financial
Officer and Treasurer
James H. Brakebill 61 Senior Vice President, Manufacturing
Services
-17-
<PAGE> 19
John P. O'Leary, Jr. has been President and Chief Executive
Officer of the Company since prior to September 1993. He has been a director of
the Company since 1974 and became Chairman of the Board of Directors in August
1994.
David C. O'Leary has been a Vice President and the chief
operating officer of the Company since May 1997. His title was changed to Senior
Vice President and Chief Operating Officer in October 1998. He was Vice
President-Sales and Marketing from April 1994 to May 1997 and Vice
President-Southern Division from prior to September 1993 to April 1994. The Vice
Presidents in charge of the Company's five operating divisions (see
"Reorganization" in Part I of this annual report) report directly to David C.
O'Leary.
Brian C. Mullins has been Vice President and Treasurer of the
Company as well as its chief financial and accounting officer since prior to
September 1993. His title was changed to Senior Vice President, Chief Financial
Officer and Treasurer in October 1998.
James H. Brakebill has been Vice President, Manufacturing
Services of the Company since May 1997. His title was changed to Senior Vice
President, Manufacturing Services in October 1998. He was Vice President,
Manufacturing from April 1994 to May 1997 and Vice President of Technology from
prior to September 1993 to April 1994.
John P. O'Leary, Jr. and David C. O'Leary are brothers.
The executive officers are elected annually by the Board of
Directors at an organization meeting which is held immediately after each Annual
Meeting of Shareholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter
market on the National Market System of the National Association of Securities
Dealers ("NASDAQ"). The Common Stock trades under the NASDAQ symbol TUSC. As of
August 31, 1998, there were 766 holders of record of the Company's Common Stock.
Information with respect to the market prices of, and the cash
dividends paid with respect to, the Company's Common Stock during the fiscal
years ended August 31, 1998 and 1997 appears in Note 15 - Quarterly Financial
Data (unaudited) of
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<PAGE> 20
the Notes to Consolidated Financial Statements on page 21 of the Company's
Annual Report to Shareholders for the fiscal year ended August 31, 1998 and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data required by this Item 6 is
furnished by the "Eleven Year Consolidated Financial Summary" which appears on
the bottom half of the inside front cover of the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1998 and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
The information required by this Item 7 appears under the
caption "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 22 through 25 of the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1998 and is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The quantitative and qualitative disclosure about market risk
required by this Item 7A appears in the Management's Discussion and Analysis of
Results of Operations and Financial Condition under the caption "Market Risks"
on pages 24 and 25 of the Company's Annual Report to Shareholders for the fiscal
year ended August 31, 1998 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and related notes and
report appear on the pages indicated in the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1998 and are incorporated
herein by reference:
Page(s) in
Annual Report
Financial Statements and Related Report to Shareholders
--------------------------------------- ---------------
Consolidated Statements of Income for the
fiscal years ended August 31, 1998,
1997 and 1996 10
Consolidated Balance Sheets at August 31,
1998 and 1997 11
Consolidated Statements of Cash Flows
for the fiscal years ended August 31,
1998, 1997 and 1996 12
Consolidated Statements of Shareholders'
Equity for the fiscal years ended
August 31, 1998, 1997 and 1996 13
Notes to Consolidated Financial Statements 14-21
Report, dated October 16, 1998, of Ernst &
Young LLP 22
-19-
<PAGE> 21
The supplementary financial information required by this Item
8 appears in Note 15 - Quarterly Financial Data (unaudited) of the Notes to
Consolidated Financial Statements on page 21 of the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1998 and is also incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company changed independent public accountants for the
fiscal year ended August 31, 1997. Information with respect to the change in
independent public accountants has been previously reported by the Company in
current reports on Form 8-K filed by the Company with the Commission on February
15, 1996 and November 14, 1996.
PART III
ITEMS 10 THROUGH 13.
In accordance with the provisions of General Instruction G to
Form 10-K, the information required by Item 10 (Directors and Executive Officers
of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) is not set forth herein (except for the
information concerning "Executive Officers of the Company" which appears at the
end of Part I of this annual report) because the Company has already filed its
definitive Proxy Statement for its Annual Meeting of Shareholders to be held on
December 17, 1998, which includes such information, with the Commission. Such
information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
The financial statements, financial statement schedule and
exhibits listed below are filed as part of this annual report:
(a)(1) Financial Statements:
The consolidated financial statements of the Company and its
subsidiaries, together with the report of Ernst & Young LLP, dated October 16,
1998, appearing on pages 10 through 22 of the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1998, are incorporated herein
by reference (see Item 8 above). The report of Ernst & Young LLP relates to the
consolidated financial statements of the Company and its
-20-
<PAGE> 22
subsidiaries as of August 31, 1998 and 1997 and for each of the two fiscal years
then ended.
The report of S.R. Snodgrass, A.C., dated October 11, 1996,
with respect to the consolidated statements of income, shareholders' equity and
cash flows of the Company and its subsidiaries for the fiscal year ended August
31, 1996 is filed with this annual report as Exhibit 99.
(a)(2) Financial Statement Schedules:
Page in this
Schedules and Related Report Annual Report
---------------------------- -------------
Schedule II - Valuation Account for the fiscal
years ended August 31, 1998,
1997 and 1996 S-1
The report of Ernst & Young LLP with respect to Schedule II as
of and for the fiscal years ended August 31, 1998 and 1997 is included in the
consent of Ernst & Young LLP filed with this annual report as Exhibit 23.1.
The report of S.R. Snodgrass, A.C., dated October 11, 1996,
with respect to Schedule II for the fiscal year ended August 31, 1996 is
included in the report of S.R. Snodgrass, A.C. filed with this annual report as
Exhibit 99.
All other financial statement schedules are omitted either
because they are not applicable or are not material, or the information required
therein is contained in the consolidated financial statements or notes thereto
set forth in the Company's Annual Report to Shareholders for its fiscal year
ended August 31, 1998.
(a)(3) Exhibits:
Exhibit
No. Document
- ------- --------------------------------------------------------------
3(i) Restated Articles of Incorporation, as amended by the
Company's Board of Directors on April 16, 1998, and Statement
with Respect to Shares of Series A Junior Participating
Preferred Stock, filed herewith.
3(ii) By-Laws, as Amended and Restated by the Company's Board of
Directors on April 16, 1998, filed herewith.
-21-
<PAGE> 23
Exhibit
No. Document
- ------- --------------------------------------------------------------
4 Loan Agreement, dated as of August 14, 1996, between the
Company and Mellon Bank, N.A. (the "Mellon Loan Agreement"),
with Revolving Credit Note and Term Note attached, filed as
Exhibit 4 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1996 and incorporated herein by
reference.
4.1 First Amendment, effective October 28, 1997, to the Mellon
Loan Agreement, filed as Exhibit 4.1 to the Company's
quarterly report on Form 10-Q for the fiscal quarter ended
February 28, 1998 and incorporated herein by reference.
4.2 Second Amendment, effective August 31, 1998, to the Mellon
Loan Agreement, filed herewith.
4.3 Shareholder Rights Agreement, dated August 17, 1998, between
the Company and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent, filed as Exhibit 4 to the Company's current
report on Form 8-K filed on August 21, 1998 and incorporated
herein by reference.
10.1 1985 Incentive Stock Option Plan, as amended by the Company's
Board of Directors on October 29, 1987, filed on June 20, 1988
as part of Exhibit 10.2 to Amendment No. 1 to Registration
Statement No. 33-17138 on Form S-1 and incorporated herein by
reference.*
10.2 1989 Stock Incentive Plan, as amended by the Company's Board
of Directors and shareholders effective December 15, 1994,
filed as Exhibit 10.3 to the Company's annual report on Form
10-K for the fiscal year ended August 31, 1995 and
incorporated herein by reference.*
10.3 1989 Stock Incentive Plan, as amended by the Company's Board
of Directors effective August 31, 1996, filed as Exhibit 10.4
to the Company's annual report on Form 10-K for the fiscal
year ended August 31, 1996 and incorporated herein by
reference.*
10.4 1997 Stock Incentive Plan, as adopted by the Company's Board
of Directors on October 17, 1997 and approved by the Company's
shareholders on December 18, 1997, filed herewith.*
10.5 Common Stock Purchase Plan for Salaried Employees, as amended
by the Company's Board of Directors on October 11, 1996, filed
as Exhibit 10.5 to the Company's annual report on Form 10-K
for the fiscal year ended August 31, 1996 and incorporated
herein by reference.*
-22-
<PAGE> 24
Exhibit
No. Document
- ------- --------------------------------------------------------------
10.6 Deferred Compensation Plan for Non-Employee Directors, as
adopted by the Company's Board of Directors on December 14,
1994, filed as Exhibit 10.6 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended February 28, 1995
and incorporated herein by reference.*
10.7 Retirement Policy and Plan for Non-Employee Directors, as
amended by the Company's Board of Directors on December 14,
1994, filed as Exhibit 10.7 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended February 28, 1995
and incorporated herein by reference.*
10.8 Written description of supplemental retirement benefit for
Thomas P. Woolaway, filed as Exhibit 10.7 to the Company's
annual report on Form 10-K for the fiscal year ended August
31, 1995 and incorporated herein by reference.*
10.9 First Amendment to the Tuscarora Incorporated and Subsidiary
Companies Salaried Employees' Money Purchase Pension Plan, as
adopted by the Company's Board of Directors on October 11,
1996, providing for additional employer contributions for
certain of the Company's executive officers, filed as Exhibit
10.9 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1996 and incorporated herein by
reference.*
10.10 Tuscarora Incorporated Supplemental Executive Retirement Plan,
as adopted by the Company's Board of Directors on February 9,
1996, and related Consent of the Company's Compensation
Committee, dated October 11, 1996, designating certain of the
Company's executive officers as Plan participants, and form of
Participation Agreement, filed as Exhibit 10.10 to the
Company's annual report on Form 10-K for the fiscal year ended
August 31, 1996 and incorporated herein by reference.*
10.11 Indemnification and Insurance Agreement, dated December 15,
1994, between the Company and Robert W. Kampmeinert
(substantially identical agreements have been entered into
with all the Company's present directors), filed herewith.
11 Computation of Diluted Net Income Per Share, filed herewith.
-23-
<PAGE> 25
Exhibit
No. Document
- ------- --------------------------------------------------------------
13 Those portions of the Annual Report to Shareholders for the
fiscal year ended August 31, 1998 which are expressly
incorporated in this annual report by reference, filed
herewith.
21 List of subsidiaries of the Company, filed herewith.
23.1 Consent of Ernst & Young LLP, filed herewith.
23.2 Consent of S.R. Snodgrass, A.C., filed herewith.
24 Powers of Attorney, filed herewith.
27.1 Financial Data Schedule for the fiscal year ended August 31,
1998, filed herewith.
27.2 Restated Financial Data Schedule for the fiscal year ended
August 31, 1997, filed herewith.
27.3 Restated Financial Data Schedule for the fiscal year ended
August 31, 1996, filed herewith.
99 Report, dated October 11, 1996, of S.R. Snodgrass, A.C., filed
herewith.
- -------------------
* Management contract or compensatory plan, contract or
arrangement required to be filed by Item 601(b)(10)(iii) of
Regulation S-K.
The Company agrees to furnish to the Commission upon request
copies of all instruments defining the rights of holders of long-term debt of
the Company and its subsidiaries which are not filed as a part of this annual
report.
Copies of the exhibits filed as a part of this annual report
are available at a cost of $.20 per page to any shareholder upon written request
to Brian C. Mullins, Senior Vice President and Treasurer, Tuscarora
Incorporated, 800 Fifth Avenue, New Brighton, Pennsylvania 15066.
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on August 21,
1998. Under Item 5, the Company reported the adoption by the Company's Board of
Directors on August 17, 1998 of a Shareholder Rights Plan and the declaration on
that date of a dividend of Preferred Share Purchase Rights to shareholders of
record on August 31, 1998. A copy of the Shareholder Rights Agreement (also
filed herewith as Exhibit 4.3) and of the press release issued on August 17,
1998 were filed as Exhibits to the Form 8-K. The Preferred Share Purchase Rights
have been registered under Section 12(g) of the Securities Exchange Act of 1934.
-24-
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Tuscarora Incorporated
By /s/ John P. O'Leary, Jr.
-------------------------------
John P. O'Leary, Jr., President
and Chief Executive Officer
Date: November 25, 1998
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 Company in the capacities indicated on November 25, 1998:
/s/ John P. O'Leary, Jr. /s/ Brian C. Mullins
-------------------- ---------------------
John P. O'Leary, Jr. Brian C. Mullins
(Director and Chief (Principal Financial
Executive Officer) Officer and Principal
Accounting Officer)
Thomas S. Blair
David I. Cohen
Abe Farkas
Karen L. Farkas
Robert W. Kampmeinert
Jeffery L. Leininger
David C. O'Leary
Harold F. Reed, Jr. and
Thomas P. Woolaway,
Directors
By /s/ Brian C. Mullins
------------------
Brian C. Mullins,
Attorney-in-Fact
-25-
<PAGE> 27
TUSCARORA INCORPORATED
Schedule II - Valuation Account
Years Ended August 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions(1) of Period
- ----------- --------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts
Year Ended
August 31, 1998 $674,689 $311,711 $334,680 $651,720
Year Ended
August 31, 1997 $787,175 $586,582 $699,068 $674,689
Year Ended
August 31, 1996 $694,675 $381,196 $288,696 $787,175
</TABLE>
- ----------------------
(1) Uncollected receivables written off, net of recoveries.
S-1
<PAGE> 28
TUSCARORA INCORPORATED
Form 10-K for Fiscal Year Ended August 31, 1998
Exhibit Index
-------------
The following exhibits are required to be filed with this annual report on
Form 10-K. Exhibits are incorporated herein by reference to other documents
pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, as amended,
as indicated by the index. Exhibits not incorporated herein by reference follow
the index.
Exhibit
No. Document
- ------- ------------------------------------------------------------------
3(i) Restated Articles of Incorporation, as amended by the Company's
Board of Directors on April 16, 1998, and Statement with Respect to
Shares of Series A Junior Participating Preferred Stock, filed
herewith.
3(ii) By-Laws, as Amended and Restated by the Company's Board of
Directors on April 16, 1998, filed herewith.
4 Loan Agreement, dated as of August 14, 1996, between the Company
and Mellon Bank, N.A. (the "Mellon Loan Agreement"), with Revolving
Credit Note and Term Note attached, filed as Exhibit 4 to the
Company's annual report on Form 10-K for the fiscal year ended
August 31, 1996 and incorporated herein by reference.
4.1 First Amendment, effective October 28, 1997, to the Mellon Loan
Agreement, filed as Exhibit 4.1 to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended February 28, 1998 and
incorporated herein by reference.
4.2 Second Amendment, effective August 31, 1998, to the Mellon Loan
Agreement, filed herewith.
4.3 Shareholder Rights Agreement, dated August 17, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, filed as Exhibit 4 to the Company's current report on Form
8-K filed on August 21, 1998 and incorporated herein by reference.
10.1 1985 Incentive Stock Option Plan, as amended by the Company's Board
of Directors on October 29, 1987, filed on June 20, 1988 as part of
Exhibit 10.2 to Amendment No. 1 to Registration Statement No.
33-17138 on Form S-1 and incorporated herein by reference.*
-1-
<PAGE> 29
Exhibit
No. Document
- ------- ------------------------------------------------------------------
10.2 1989 Stock Incentive Plan, as amended by the Company's Board of
Directors and shareholders effective December 15, 1994, filed as
Exhibit 10.3 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1995 and incorporated herein by
reference.*
10.3 1989 Stock Incentive Plan, as amended by the Company's Board of
Directors effective August 31, 1996, filed as Exhibit 10.4 to the
Company's annual report on Form 10-K for the fiscal year ended
August 31, 1996 and incorporated herein by reference.*
10.4 1997 Stock Incentive Plan, as adopted by the Company's Board of
Directors on October 17, 1997 and approved by the Company's
shareholders on December 18, 1997, filed herewith.*
10.5 Common Stock Purchase Plan for Salaried Employees, as amended by
the Company's Board of Directors on October 11, 1996, filed as
Exhibit 10.5 to the Company's annual report on Form 10-K for the
fiscal year ended August 31, 1996 and incorporated herein by
reference.*
10.6 Deferred Compensation Plan for Non-Employee Directors, as adopted
by the Company's Board of Directors on December 14, 1994, filed as
Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the
fiscal year ended February 28, 1995 and incorporated herein by
reference.*
10.7 Retirement Policy and Plan for Non-Employee Directors, as amended
by the Company's Board of Directors on December 14, 1994, filed as
Exhibit 10.7 to the Company's quarterly report on Form 10-Q for the
fiscal year ended February 28, 1995 and incorporated herein by
reference.*
10.8 Written description of supplemental retirement benefit for Thomas
P. Woolaway, filed as Exhibit 10.7 to the Company's annual report
on Form 10-K for the fiscal year ended August 31, 1995 and
incorporated herein by reference.*
10.9 First Amendment to the Tuscarora Incorporated and Subsidiary
Companies Salaried Employees' Money Purchase Pension Plan, as
adopted by the Company's Board of Directors on October 11, 1996,
providing for additional employer contributions for certain of the
Company's executive officers, filed as Exhibit 10.9 to the
Company's annual report on Form 10-K for the fiscal year ended
August 31, 1996 and incorporated herein by reference.*
-2-
<PAGE> 30
Exhibit
No. Document
- ------- ------------------------------------------------------------------
10.10 Tuscarora Incorporated Supplemental Executive Retirement Plan, as
adopted by the Company's Board of Directors on February 9, 1996,
and related Consent of the Company's Compensation Committee, dated
October 11, 1996, designating certain of the Company's executive
officers as Plan participants, and form of Participation Agreement,
filed as Exhibit 10.10 to the Company's annual report on Form 10-K
for the fiscal year ended August 31, 1996 and incorporated herein
by reference.*
10.11 Indemnification and Insurance Agreement, dated December 15, 1994,
between the Company and Robert W. Kampmeinert (substantially
identical agreements have been entered into with all the Company's
present directors), filed herewith.
11 Computation of Diluted Net Income Per Share, filed herewith.
13 Those portions of the Annual Report to Shareholders for the fiscal
year ended August 31, 1998 which are expressly incorporated in this
annual report by reference, filed herewith.
21 List of subsidiaries of the Company, filed herewith.
23.1 Consent of Ernst & Young LLP, filed herewith.
23.2 Consent of S.R. Snodgrass, A.C., filed herewith.
24 Powers of Attorney, filed herewith.
27.1 Financial Data Schedule for the fiscal year ended August 31,
1998, filed herewith.
27.2 Restated Financial Data Schedule for the fiscal year ended
August 31, 1997, filed herewith.
27.3 Restated Financial Data Schedule for the fiscal year ended
August 31, 1996, filed herewith.
99 Report, dated October 11, 1996, of S.R. Snodgrass, A.C., filed
herewith.
- ---------------
* Management contract or compensatory plan, contract or arrangement
required to be filed by Item 601(b)(10)(iii) of Regulation S-K.
<PAGE> 1
Exhibit 3(i)
TUSCARORA INCORPORATED
RESTATED ARTICLES OF INCORPORATION
(as amended by the Board of Directors on April 16, 1998)
1st. The name of the Company is Tuscarora Incorporated.
2nd. The location and post office address of its current registered
office in this Commonwealth is 800 Fifth Avenue, New Brighton, Beaver County,
Pennsylvania 15066.
3rd. The purposes of the Company are to engage in the business of
designing, manufacturing and developing all forms of plastics and other
synthetic materials and encouraging their widespread use, to make available to
its customers all related services, and, in addition, to engage in all other
lawful businesses for which a corporation may be incorporated under the
Pennsylvania Business Corporation Law, being the Act of May 5, 1933, as amended.
4th. The term of its existence is perpetual.
5th. 5.1. The aggregate number of shares of all classes of capital
stock which the Company shall have the authority to issue is 21,000,000 shares,
divided into two classes, of which 1,000,000 shares shall be Preferred Stock,
par value $.01 per share (the "Preferred Stock"), and 20,000,000 shares shall be
Common Stock, without par value.
5.2. The Board of Directors is hereby expressly authorized, at any time
or from time to time, to divide any or all of the shares of the Preferred Stock
into one or more series, and in the resolution or resolutions establishing a
particular series, before issuance of any of the shares of the particular
series, to fix and determine the number of shares and the designation of such
series, so as to distinguish it from the shares of all other series and classes,
and to fix and determine the preferences, voting rights, qualifications,
privileges, limitations, options, conversion rights, restrictions and other
special or relative rights of the Preferred Stock or of such series, to the
fullest extent now or hereafter permitted by the laws of the Commonwealth of
Pennsylvania, including, but not limited to, variations between different series
in the following respects:
(a) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares of such series then
outstanding) from time to time by the Board of Directors;
(b) the annual dividend rate for such series, the dates in each year on
which dividends on such series shall be payable and the date or dates from
which such dividends shall commence to accrue;
(c) the price or prices at which, and the terms and conditions on
which, the shares of such series may be made redeemable;
(d) the purchase or sinking fund provisions, if any, for the purchase
or redemption of shares of such series;
(e) the preferential amount or amounts payable upon shares of such
series in the event of the liquidation, dissolution or winding up of the
Company;
(f) the voting rights, if any, of the holders of shares of such series;
(g) the terms and conditions, if any, upon which shares of such series
may be converted and the class or classes or series of shares of the
Company or other securities into which such shares may be converted;
(h) the relative seniority, parity or junior rank of such series as to
dividends or assets with respect to any other classes or series of stock
then or thereafter to be issued; and
(i) such other terms, qualifications, privileges, limitations, options,
restrictions and special or relative rights and preferences, if any, of
shares of such series as the Board of Directors may, at the time of such
resolution or resolutions, lawfully fix and determine under the laws of
the Commonwealth of Pennsylvania.
<PAGE> 2
Unless otherwise provided in a resolution or resolutions establishing
any particular series, the aggregate number of authorized shares of the
Preferred Stock may be increased by an amendment of the Restated Articles
approved solely by a majority vote of the outstanding shares of Common Stock (or
solely with a lesser vote of the Common Stock, or solely by action of the Board
of Directors, if permitted by law at the time).
All shares of any one series shall be alike in every particular, except
with respect to the accrual of dividends prior to the date of issuance.
5.3 Except for and subject to those rights expressly granted to the
holders of the Preferred Stock or any series thereof by resolution or
resolutions adopted by the Board of Directors pursuant to Section 5.2 of this
Article 5th and except as may be provided by the laws of the Commonwealth of
Pennsylvania, the holders of the Common Stock shall have exclusively all other
rights of shareholders. All or part of the shares of Common Stock of the Company
may be uncertificated shares to the extent determined by the Board (or by any
officer or other person as the Board may designate) from time to time; however,
in no event shall shares of Common Stock represented by a certificate be deemed
uncertificated until the certificate is surrendered to the Company.
5.4 No holder of Common Stock or of any other class of stock of the
Company shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class or of
securities convertible into stock of any class, whether now or hereafter
authorized and whether issued for cash or other consideration or by way of
dividend, and the Company may issue shares, option rights or securities having
option or conversion rights without first offering them to shareholders of any
class.
6th. No Cumulative Voting.
The shareholders of the Company shall not have any right of cumulative
voting in the election of directors.
7th. Definitions; Interpretation.
7.1. Definitions. For the purposes of Articles 7th, 8th, 9th, and
10th:
(a) "Person" means any individual, firm, corporation,
partnership, joint venture, trust or other entity. When two or more
persons act as a partnership, syndicate, association or other group for
the purpose of acquiring, holding or disposing of shares of stock, such
partnership, syndicate, association or group shall be deemed a person.
As used herein, the pronouns "which", "that" and "it" in relation to
persons that are individuals shall be construed to mean "who" or
"whom", "he" or "she" and "him" or "her", as appropriate.
(b) "Interested Shareholder" at any particular time means any
person (other than the Company or a Subsidiary, or an employee benefit
plan of the Company or a Subsidiary, or a trustee or fiduciary of any
such plan when acting in such capacity) who or which:
(1) is at such time, or is a member of a group
acting in concert which is at such time, the beneficial owner,
directly or indirectly, of more than 20% of the voting power
of the outstanding Voting Stock;
(2) is at such time a director or Affiliate of the
Company and at any time within the two-year period immediately
prior to such time was the beneficial owner, directly or
indirectly, of more than 20% of the voting power of the then
outstanding Voting Stock; or
(3) is at such time an assignee of or has otherwise
succeeded to the beneficial ownership of any shares of Voting
Stock which were at any time within the two-year period
immediately prior to such time beneficially owned by any
interested Shareholder, if such assignment or succession shall
have occurred in the course or a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933;
With respect to any particular transaction, "Interested Shareholder"
means any Interested Shareholder involved in such transaction, any
Affiliate or Associate of any such interested Shareholder and any other
member of a group acting in concert with any such Interested
Shareholder.
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(c) A person is a "beneficial owner" of any shares of Voting Stock:
(1) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(2) which such person or any of its Affiliates or Associates
has (A) the right to acquire (whether or not such right is exercisable
immediately) pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or
options, revocation of a trust or otherwise or (B) the right to vote,
or to direct the voting of, pursuant to any agreement, arrangement or
understanding; or
(3) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates has
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
For the purposes of determining whether a person is an Interested Shareholder
pursuant to definition (b) of this Section 7.1, the number of shares of Voting
Stock deemed to be outstanding shall include shares deemed owned by an
Interested Shareholder through the application of this definition (c) but shall
not include any other shares of Voting Stock which may be acquired pursuant to
any agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, warrants or options, revocation of a trust or
otherwise.
(d) "Affiliate" has the meaning ascribed to that term in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
in effect on August 28, 1987 (the term "registrant" in said Rule 12b-2 meaning
in this case the Company).
(e) "Associate" has the meaning ascribed to that term in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
in effect on August 28, 1987 (the term "registrant" in said Rule 12b-2 meaning
in this case the Company).
(f) "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Company, as well as
any Affiliate of the Company which is controlled by the Company; provided,
however, that for the purposes of the definition of Interested Shareholder set
forth in definition (b) of this Section 7.1, "Subsidiary" means only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Company.
(g) "Disinterested Director" means a director of the Company who is not
an Interested Shareholder or an Affiliate, Associate or representative of an
Interested Shareholder and either (1) was a director of the Company immediately
prior to the time the Interested Shareholder became an Interested Shareholder or
(2) is a successor to a Disinterested Director and is or was recommended or
elected to succeed a Disinterested Director by the affirmative vote of a
majority of the Disinterested Directors then in office. Whenever the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or assets shall have the right, voting separately as a class or
series, to elect one or more directors of the Company, the term "Disinterested
Director" shall not include any director elected by the holders of such class or
series. As used with respect to any particular transaction in Article 9th or
with respect to a determination or interpretation as to such transaction under
definition (h) of this Section 7.1 or Section 7.2, the term "Disinterested
Director" includes all directors who are Disinterested Directors with respect to
any Interested Shareholder involved in such transaction. In all other cases,
unless the context otherwise clearly requires, the term "Disinterested Director"
means only those directors who are Disinterested Directors with respect to all
persons who are then Interested Shareholders.
(h) "Fair Market Value" means (1) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
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Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934, as amended, on which such
stock is listed, or, if such stock is not listed on any such exchange,
the highest closing sale price or, if none, the highest closing bid
quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotation System or any similar
system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as
determined in good faith by the affirmative vote of a majority of the
Disinterested Directors then in office; and (2) in the case of property
other than stock or cash, the fair market value of such property on the
date in question as determined in good faith by the affirmative vote of
a majority of the Disinterested Directors then in office or by a
qualified appraiser retained by them for such purpose.
(i) "Voting Stock" means capital stock of the Company entitled to
vote generally in an annual election of directors of the Company.
(j) "Total Assets" means the consolidated total assets of the
Company and its subsidiaries as of the close of the most recent fiscal
quarter ended on or prior to the first public announcement of the
Business Combination in question, as shown on the consolidated balance
sheet published by the Company for such quarter.
7.2 Interpretation. The Disinterested Directors, by the affirmative
vote of a majority of the Disinterested Directors then in office, are authorized
to interpret all the terms and provisions of Articles 7th, 8th, 9th and 10th and
to determine, on the basis of information known to them after reasonable
inquiry, any fact necessary to determine compliance with any such term or
provision, including, without limitation, (a) whether a person is an Interested
Shareholder, (b) the number of shares of Voting Stock beneficially owned by any
person, (c) whether a person is an Affiliate or Associate or another person, (d)
whether any Articles provision required by clause (a) of Section 9.1 of Article
9th complies with such Section and is valid and enforceable and (e) whether the
assets which are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by the
Company or any Subsidiary in any Business Combination has, an aggregate Fair
Market Value equal to 5% or more of Total Assets. Any such interpretation or
determination made in good faith shall be binding and conclusive for all
purposes of these Articles.
8th. Board of Directors.
The business and affairs of the Company shall be managed by or under
the direction of a Board of Directors comprised as follows:
(a) Number. The Board of Directors shall consist of such number
of persons as may from time to time be fixed by the Board pursuant to a
resolution adopted by the affirmative vote of a majority of the
Disinterested Directors then in office, plus such number of additional
directors as the holders of any class or series of stock having a
preference over the Common Stock as to dividends or assets, voting
separately as a class or series, shall have the right from time to time
to elect.
(b) Classes, Election and Terms. The directors elected by the
holders of Voting Stock shall be classified in respect of the time for
which they shall severally hold office by dividing them into three
classes, as nearly equal in number as possible. If such classes of
directors are not equal, the Board of Directors, by the affirmative
vote of a majority of the Disinterested Directors then in office, shall
determine which class shall contain an unequal number of directors. At
the annual meeting of shareholders of the Company in 1987, separate
elections shall be held for the directors of each class, the term of
office of the directors of the first class to expire at the first
annual meeting after their election, the term of office of the
directors of the second class to expire at the second annual meeting
after their election and the term of office of the directors of the
third class to expire at the third annual meeting after their election.
At each succeeding annual meeting of shareholders, the shareholders
shall elect directors of the class whose term then expires, to hold
office until the third succeeding annual meeting. Except as otherwise
expressly provided in these Articles,
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each director shall hold office for the term for which elected and
until his or her successor shall be elected and shall qualify.
(c) Removal of Directors. Any director, any class of directors or
the entire Board of Directors may be removed from office by shareholder
vote at any time, without assigning any cause, but only if shareholders
entitled to cast at least 75% of the votes which all shareholders would
be entitled to cast at an annual election of directors or of such class
of directors shall vote in favor of such removal; provided, however,
that the shareholders shall have such power of removal without cause
only if and so long as the general corporate law of the Company's state
of incorporation specifically mandates such power. If such power of
removal without cause is not mandated by statute, the shareholders may
remove a director or directors from office at any time only for cause
and only if, in addition to any affirmative vote required by law, these
Articles or otherwise, such removal is approved by the holders of at
least a majority of the voting power of the then outstanding shares of
Voting Stock of the Company which are not beneficially owned by any
Interested Shareholder, voting together as a single class.
(d) Vacancies. Vacancies in the members of the Board of Directors
elected by the holders of Voting Stock, including vacancies resulting
from an increase in the number of directors, shall be filled only by
the affirmative vote of a majority of the Disinterested Directors then
in office, though less than a quorum, except as otherwise required by
law. All directors elected to fill vacancies shall hold office for a
term expiring at the annual meeting of shareholders at which the term
of the class to which they have been elected expires. No decrease in
the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
(e) Nominations of Director Candidates. Nominations for the
election of directors may be made only by the Board of Directors or a
committee appointed by the Board of Directors or by a holder of record
of stock entitled to vote in the election of the directors to be
elected; provided, however, that a nomination may be made by a
shareholder only if written notice of such nomination is received by
the Secretary of the Company not later than (1) with respect to an
election to be held at an annual meeting of shareholders, 90 days prior
to the anniversary date of the immediately preceding annual meeting,
and (2) with respect to an election to be held at a special meeting of
shareholders, the close of business on the 10th day following the date
on which notice of such meeting is first given to shareholders. Each
such notice shall set forth (1) the name and address of the shareholder
who intends to make the nomination and of the person or persons to be
nominated; (2) a representation that the shareholder is a holder of
record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (3) a description of all
arrangements or understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (4) such other information regarding each nominee proposed
by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission, had the nominee been nominated by the Board of
Directors; and (5) the consent of each nominee to serve as a director
of the Company if so elected. Only candidates who have been nominated
in accordance with this Article 8th shall be eligible for election by
the shareholders as directors of the Company.
(f) Exception for Preferred Stock. Whenever the holders of any
class or series of stock having a preference over the Common Stock as
to dividends or assets shall have the right, voting separately as a
class or series, to elect one or more directors of the Company or to
take any other action, none of the provisions of this Article 8th above
shall apply with respect to the director or directors elected or the
action taken by the holders of such class or series.
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9th. Votes Required For Certain Business Combinations.
9.1 Special Votes for Certain Business Combinations. In addition to any
affirmative vote required by law, these Articles or otherwise, and except as
otherwise expressly provided in Section 9.2 below:
(a) any merger, consolidation or share exchange of the Company or
any Subsidiary with (1) any Interested Shareholder or with (2) any
other person (whether or not itself an Interested Shareholder) which
is, or after such merger, consolidation or share exchange would be, an
Affiliate or Associate of an Interested Shareholder or which does not
include in its Articles the substance of the terms of this Article 9th,
in each case without regard to which person is the surviving person;
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase, agreement to pay, extention of
credit, joint venture participation or other arrangement (in one
transaction or a series of transactions) to, with or for the benefit of
any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder involving any assets, securities or commitments
of the Company or any Subsidiary having an aggregate Fair Market Value
and/or involving aggregate commitments equal to 5% or more of Total
Assets;
(c) the issuance or transfer by the Company or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Company or any Subsidiary to any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder in exchange for
cash, securities or other consideration (or a combination thereof)
having an aggregate Fair Market Value equal to 5% or more of Total
Assets;
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder;
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Company, or any merger or
consolidation of the Company with any Subsidiary or any other
transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any
class of equity securities or securities convertible into equity
securities of the Company or any Subsidiary which is directly or
indirectly beneficially owned by any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder; or
(f) any other transaction or series of transactions similar in
purpose or effect to, or any agreement, contract or other arrangement
providing for, any one or more of the transactions specified in the
foregoing clauses (a) through (e);
shall require the affirmative votes of (i) the holders of at least 75% of the
voting power of all then outstanding shares of Voting Stock, voting together as
a single class, and (ii) the holders of at least a majority of the voting power
of the then outstanding shares of Voting Stock which are not beneficially owned
by such Interested Shareholder, voting together as a single class. Such
affirmative votes shall be required notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article 9th shall mean
any transaction which is referred to in any one or more of clauses (a) through
(f) above.
9.2 Exception to Special Vote Requirements. The provisions of Section
9.1 shall not be applicable to any Business Combination, and such Business
Combination shall require only such affirmative vote (if any) as is required by
law, any other provision of these Articles, any agreement with any national
securities exchange or otherwise, if the Business Combination is approved by the
affirmative vote of a majority of the Disinterested Directors then in office.
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9.3 No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article 9th shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law or equity.
10th. Amendments.
10.1 Amendments to By-Laws. The Board of Directors may adopt, amend and
repeal the By-Laws with respect to those matters which are not, by statute,
reserved exclusively to the shareholders, provided that such power may be
exercised only by the affirmative vote of a majority of the Disinterested
Directors then in office. No By-Law may be adopted, amended or repealed by the
shareholders unless, in addition to any other affirmative vote required by law,
these Articles or otherwise, such action is approved by the affirmative votes of
(a) the holders of at least 75% of the voting power of all then outstanding
shares of Voting Stock, voting together as a single class, and (b) the holders
of at least a majority of the voting power of the then outstanding shares of
Voting Stock which are not beneficially owned by any Interested Shareholder,
voting together as a single class; provided, however, that the additional
affirmative votes required by this Section 10.1 shall not apply to any
shareholder adoption, amendment or repeal of any By-Law provision if such action
is recommended and submitted to the shareholders for their consideration by the
affirmative vote of a majority of the Disinterested Directors then in office.
10.2 Amendments to Articles. In addition to any affirmative vote
required by law, these Articles or otherwise, any amendment, alteration change
or repeal of any provision of these Articles, or the adoption of any provision
inconsistent therewith, shall require the affirmative votes of (a) the holders
of at least 75% of the voting power of all then outstanding shares of Voting
Stock, voting together as a single class, and (b) the holders of at least a
majority of the voting power of the then outstanding shares of Voting Stock
which are not beneficially owned by any Interested shareholder, voting together
as a single class; provided, however, that the additional affirmative votes
required by this Section 10.2 shall not apply to any amendment, alteration,
change, repeal or provision if it is recommended and submitted to the
shareholders for their consideration by the affirmative vote of a majority of
the Disinterested Directors then in office.
11th. Director Liability.
11.1 To the fullest extent that the Laws of the Commonwealth of
Pennsylvania, as in effect on January 27, 1987, or as thereafter amended, permit
elimination or limitation of the liability of directors, no director of the
Company shall be personally liable for monetary damages as such for any action
taken, or any failure to take any action, as a director.
11.2 This Article 11th shall not apply to any actions filed prior to
January 27, 1987, or to any breach of performance of duty or any failure of
performance of duty by any director of the Company occurring prior to January
27, 1987. The provisions of this Article 11th shall be deemed to be a contract
with each director of the Company who serves as such at any time while this
Article 11th is in effect, and each such director shall be deemed to be so
serving in reliance on the provisions of this Article 11th. Any amendment or
repeal of this Article 11th or adoption of any By-Law of this Company or other
provision of the Articles of this Company which has the effect of increasing
director liability shall operate prospectively only and shall not have any
effect with respect to any action taken, or any failure to act, by a director
prior to such amendment, repeal, By-Law or other provision becoming effective.
12. Indemnification of, and Advancement of Expenses to, Directors,
Officers and Others.
12.1 Right to Indemnification. Except as prohibited by law, every
director and officer of the Company shall be entitled as of right to be
indemnified by the Company against all expenses and liability (as those terms
are defined below in this Section 12.1) incurred by such person in connection
with any actual or threatened claim, action, suit or proceeding, whether civil,
criminal, administrative, investigative or other, or whether brought by or
against such person or by or in the right of the Company or otherwise, in which
such person may be involved in any manner, as a party or otherwise, by reason of
such person being or having been a director or officer of the Company or of a
subsidiary of
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the Company or by reason of the fact that such person is or was serving at the
request of the Company as a director, officer, employee, fiduciary or other
representative of another company, partnership, joint venture, trust, employee
benefit plan or other entity (such claim, action, suit or proceeding hereinafter
being referred to as an "Action"); provided, that no such right to
indemnification shall exist with respect to an Action brought by an indemnitee
(as defined below) against the Company (an "Indemnitee Action") except as
provided in the last sentence of this Section 12.1. Persons who are not
directors or officers of the Company may be similarly indemnified in respect of
service to the Company or a subsidiary of the Company or to another such entity
at the request of the Company to the extent the Board of Directors of the
Company at any time designates any of such persons as entitled to the benefits
of this Article 12th. As used in this Article 12th, "indemnitee" includes each
director and officer of the Company and each other person designated by the
Board of Directors of the Company as entitled to the benefits of this Article
12th; "expenses" means all expenses actually and reasonably incurred, including
fees and expenses of counsel selected by an indemnitee; and "liability" means
all liability incurred, including the amounts of any judgments, excise taxes,
fines or penalties and any amounts paid in settlement. An indemnitee shall be
entitled to be indemnified pursuant to this Section 12.1 against expenses
incurred in connection with an Indemnitee Action if (a) the Indemnitee Action is
instituted under Section 12.3 below and the indemnitee is successful in whole or
in part in such Indemnitee Action, (b) the indemnitee is successful in whole or
in part in another Indemnitee Action for which expenses are claimed or (c) if
the indemnification for expenses is included in a settlement of, or is awarded
by a court in, such other Indemnitee Action.
12.2. Right to Advancement of Expenses. Every indemnitee shall be
entitled as of right to have the expenses of the indemnitee in defending any
Action or in bringing and pursuing an Indemnitee Action under Section 12.3 below
paid in advance by the Company prior to final disposition of the Action or
Indemnitee Action, provided that the Company receives a written undertaking by
or on behalf of the indemnitee to repay the amount advanced if it should
ultimately be determined that the indemnitee is not entitled to be indemnified
for the expenses.
12.3. Right of Indemnitee to Initiate Action. If a written claim for
indemnification under Section 12.1 above or for advancement of expenses under
Section 12.2 above is not paid in full by the Company within 30 days after the
claim has been received by the Company, the indemnitee may at any time
thereafter bring an Indemnitee Action to recover the unpaid amount of the claim,
and, if successful in whole or in part, the indemnitee shall also be entitled to
be paid the expense of bringing and pursuing such Indemnitee Action. The only
defense to an Indemnitee Action to recover on a claim for indemnification under
Section 12.1 above shall be that the conduct of the indemnitee was such that
under Pennsylvania law the Company is prohibited from indemnifying the
indemnitee for the amount claimed but the burden of proving such defense shall
be on the Company. Neither the failure of the Company (including its Board of
Directors, independent legal counsel and shareholders) to have made a
determination prior to the commencement of such Indemnitee Action that
indemnification of the indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors, independent
Legal counsel or shareholders) that the conduct of the indemnitee was such that
indemnification is prohibited by law, shall be a defense to such Indemnitee
Action or create a presumption that the conduct of the indemnitee was such that
indemnification is prohibited by law. The only defense to an Indemnitee Action
to recover a claim for advancement of expenses under Section 12.2 above shall be
the failure by the indemnitee to provide the undertaking required by Section
12.2 above.
12.4. Funding and Insurance. The Company may create a trust fund, grant
a security interest, cause a letter of credit to be issued or use other means
(whether or not similar to the foregoing) to ensure the payment of all sums
required to be paid by the Company to effect indemnification as provided in this
Article 12th.
12.5. Non-Exclusivity; Nature and Extent of Rights. The rights to
indemnification and advancement of expenses provided for in this Article 12th
shall (a) not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which any indemnitee may be entitled under any agreement,
provision in the Articles or By-Laws of the Company, vote of shareholders or
directors or
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otherwise, (b) be deemed to create contractual rights in favor of each
indemnitee who serves at any time while this Article 12th is in effect (and each
such indemnitee shall be deemed to be so serving in reliance on the provisions
of this Article 12th and (c) continue as to each indemnitee who has ceased to
have the status pursuant to which the indemnitee was entitled or was designated
as entitled to indemnification under this Article 12th and inure to the benefit
of the heirs and legal representatives of each indemnitee. Any amendment or
repeal of this Article 12th or adoption of any By-Law of this Company or other
provision of the Articles of this Company which has the effect of limiting in
any way the rights to indemnification or advancement of expenses provided for in
this Article 12th shall operate prospectively only and shall not affect any
action taken, or failure to act, by an indemnitee prior to such amendment,
repeal, By-Law or other provision becoming effective.
12.6. Partial Indemnity. If an indemnitee is entitled under any
provision of this Article 12th to indemnification by the Company for some or a
portion of the expenses or liability incurred by the indemnitee in the
preparation, investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof, the Company
shall indemnify the indemnitee for the portion of such expenses or liability to
which the indemnitee is entitled.
12.7. Applicability of Section. This Article 12th shall apply to every
Action other than an Action filed prior to January 27, 1987, except that it
shall not apply to the extent that Pennsylvania law does not permit its
application to any breach of performance of duty or any failure of performance
of duty by an indemnitee occurring prior to January 27, 1987.
13th. Articles Defined. Henceforth, the Articles as defined in the
Pennsylvania Business Corporation Law shall not include any prior documents.
9
<PAGE> 10
STATEMENT WITH RESPECT TO SHARES
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
TUSCARORA INCORPORATED
(as filed with the Department of State on August 21, 1998)
In compliance with the requirements of Section 1522(c) of the
Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"), the
undersigned company, a corporation organized and existing under the BCL (the
"COMPANY") hereby certifies that:
1. The name of the Company is Tuscarora Incorporated.
2. The resolution duly adopted by the Board of Directors of
the Company establishing and designating the Series A Junior Participating
Preferred Stock, which is the first series of the Preferred Stock, par value
$.01 per share, of the Company, and fixing and determining the relative rights
and preferences thereof (the "RESOLUTION") is as follows:
RESOLVED, that this Board of Directors, pursuant to authority
expressly vested on it by the provisions of the Restated Articles of
Incorporation of Tuscarora Incorporated (hereinafter called the "COMPANY")
hereby authorizes the issue of the first series of Preferred Stock, par value
$.01 per share, of the Company and hereby fixes the designation and relative
rights and preferences thereof in addition to those set forth in said Restated
Articles of Incorporation, as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK" (the
"SERIES A PREFERRED STOCK") and the number of shares constituting the Series A
Preferred Stock shall be 200,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series A Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of the Common Stock,
without par value (the "COMMON STOCK"), of the Company, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, semi-annual dividends
payable in cash on the 6th day of January and July in each year (or if the Board
of Directors commences declaration of quarterly cash dividends instead of
semi-annual dividends to the holders of Common Stock, commencing with the date
of the declaration of the first such quarterly cash dividend, quarterly
dividends payable in cash on such dates as such quarterly dividends would
normally be paid to the holders of the Common Stock) (each such date being
referred to herein as a "DIVIDEND PAYMENT DATE"), commencing on the first
Dividend Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Dividend Payment Date or, with respect to the
first Dividend Payment Date, since the first issuance of any share or fraction
of a share of Series A Preferred Stock. In the event the Company shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of
<PAGE> 11
shares of Common Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Company shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Dividend Payment Date and the next subsequent
Dividend Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue of
such shares is prior to the record date for the first Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a dividend and before such Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series A Preferred
Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the shareholders of the
Company. In the event the Company shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Statement With Respect to Shares creating a series of Preferred Stock or any
similar stock, or in any By-Law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital stock of
the Company having general voting rights shall vote together as one class on all
matters submitted to a vote of shareholders of the Company.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
2
<PAGE> 12
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever dividends or distributions payable on the Series
A Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been paid in full, the
Company shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock, provided that the Company may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Company ranking junior (either
as to dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
SECTION 5. RE-ACQUIRED SHARES. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Restated Articles of Incorporation or in any other Statement With
Respect to Shares creating a series of Preferred Stock or any similar stock or
as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Company shall at any time declare or
pay any dividend on the Common
3
<PAGE> 13
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Company
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Series A Preferred
Stock shall not be redeemable.
SECTION 9. RANK. Except as otherwise set forth in the Restated
Articles of Incorporation or in the Statement With Respect to Shares creating
another series of Preferred Stock or any other class or series of stock, the
Series A Preferred Stock shall rank, with respect to the payment of dividends
and the distribution of assets, junior to all other series of the Company's
Preferred Stock and to any other class or series of stock other than the Common
Stock, whether now existing or hereafter created.
SECTION 10. AMENDMENT. The Restated Articles of Incorporation
of the Company shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without a majority vote of the outstanding
shares of Series A Preferred Stock, voting together as a single class.
3. (i) The aggregate number of shares of the Series A
Preferred Stock established and designated by the Resolution is 200,000, (ii)
the Company has not previously established and designated any other shares of
its stock pursuant to Section 1522 of the BCL or any corresponding provision of
prior law with respect thereto and (iii) the aggregate number of shares
established and designated by the Restated Articles of Incorporation of the
Company is 21,000,000, of which 1,000,000 shares are Preferred Stock, par value
$.01 per share, issuable in one or more series, and 20,000,000 shares are Common
Stock, without par value.
4. The Resolution was duly adopted at a meeting of the Board
of Directors of the Company duly called and held on August 17, 1998, at which
meeting a quorum was present and acted throughout.
5. The Resolution is to be effective upon the filing of this
Statement With Respect to Shares with the Secretary of State of the Commonwealth
of Pennsylvania.
4
<PAGE> 14
IN WITNESS WHEREOF, this Statement With Respect to Shares is
executed on behalf of the Company by its President and Chief Executive Officer
and attested by its Assistant Secretary this 17th day of August, 1998.
[CORPORATE SEAL]
Attest: TUSCARORA INCORPORATED
/s/ BRIAN C. MULLINS By:/s/ JOHN P. O'LEARY, JR.
- -------------------------- --------------------------------------
Brian C. Mullins, John P. O'Leary, Jr.,
Assistant Secretary President and Chief Executive Officer
5
<PAGE> 1
Exhibit 3(ii)
BY-LAWS
of
TUSCARORA INCORPORATED
(a Pennsylvania corporation)
As Amended Effective
April 16, 1998
<PAGE> 2
Index to By-Laws
----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I
SHAREHOLDERS
------------
<S> <C> <C>
1.01 Annual Meetings................................................................ 1
1.02 Special Meetings............................................................... 1
1.03 Organization................................................................... 2
1.04 Meetings by Telephone.......................................................... 2
ARTICLE II
DIRECTORS
----------
2.01 Number, Election and Term of Office............................................ 3
2.02 Regular Meetings; Notice....................................................... 3
2.03 Annual Meetings................................................................ 3
2.04 Special Meetings; Notice....................................................... 4
2.05 Organization................................................................... 4
2.06 Meetings by Telephone.......................................................... 5
2.07 Presumption of Assent.......................................................... 6
2.08 Catastrophe.................................................................... 6
2.09 Resignations................................................................... 6
2.10 Committees..................................................................... 7
2.11 Personal Liability of Directors................................................ 8
ARTICLE III
OFFICERS AND EMPLOYEES
----------------------
3.01 Officers....................................................................... 9
3.02 Additional Officers; Other Agents and
Employees.................................................................... 9
3.03 The President.................................................................. 10
3.04 The Vice Presidents............................................................ 10
3.05 The Secretary and Assistant Secretaries........................................ 11
3.06 The Treasurer and Assistant Treasurers......................................... 12
3.07 Vacancies...................................................................... 13
3.08 Delegation of Duties........................................................... 13
ARTICLE IV
SHARES OF CAPITAL STOCK
-----------------------
4.01 Share Certificates............................................................. 14
4.02 Transfer of Shares............................................................. 14
4.03 Lost, Stolen or Destroyed Certificates......................................... 15
4.04 Holders of Record.............................................................. 15
4.05 Uncertificated Shares.......................................................... 15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
4.06 Determinations as to Issuance, Transfer
and Registration............................................................. 16
ARTICLE V
MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS
--------------------------------------------------
5.01 Execution of Notes, Checks, Contracts
and Other Instruments.......................................................... 16
5.02 Voting Securities Owned by the Company......................................... 17
ARTICLE VI
GENERAL PROVISIONS
------------------
6.01 Offices........................................................................ 18
6.02 Corporate Seal................................................................. 18
6.03 Fiscal Year.................................................................... 18
6.04 Conflict with Articles......................................................... 18
ARTICLE VII
AMENDMENTS
-----------
7.01 Amendments..................................................................... 19
</TABLE>
-ii-
<PAGE> 4
TUSCARORA INCORPORATED
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1.01. Annual Meetings. Annual meetings of the shareholders shall be
held on the third Friday of December in each year if not a legal holiday, and if
a legal holiday, then on the next succeeding day which is not a legal holiday,
at 11:00 a.m. at the principal business office of the Company, or at such other
date, time and place as may be fixed by the Board of Directors. Written notice
of the annual meeting shall be given at least ten days prior to the meeting to
each shareholder entitled to vote thereat. Any business may be transacted at the
annual meeting regardless of whether the notice calling such meeting contains a
reference thereto, except as otherwise required by law.
Section 1.02. Special Meetings. Special meetings of the shareholders may be
called at any time, for the purpose or purposes set forth in the call, by the
President or the Board of Directors, by delivering a written request to the
Secretary. Special meetings shall be held at the principal business office of
<PAGE> 5
the Company, or at such other place as may be fixed by the Board of Directors.
The Secretary shall thereupon fix the time and date of such special meeting,
which shall be held not more than sixty days after the receipt of such request,
and shall give due notice thereof. Written notice of each special meeting shall
be given at least five days prior to the meeting to each shareholder entitled to
vote thereat. Such notice shall specify the general nature of the business to be
transacted at such special meeting, and no other business may be transacted at
such special meeting.
Section 1.03. Organization. A Chairman of the Board and Vice Chairman shall
be designated by the Directors. The Chairman of the Board, or in his absence,
the Vice Chairman, or in his absence, the President, or in his absence, a
Director designated by the Board, shall preside, and the Secretary, or in his
absence any Assistant Secretary, shall take the minutes, at all meetings of the
shareholders. In the absence of the Secretary and an Assistant Secretary, the
presiding officer shall designate any person to take the minutes of the meeting.
Section 1.04. Meetings by Telephone. One or more shareholders may
participate in any annual or special meeting of the shareholders by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation
-2-
<PAGE> 6
in a meeting in this manner by a shareholder will be considered to be attendance
in person for all purposes under these By-Laws.
ARTICLE II
DIRECTORS
Section 2.01. Number, Election and Term of Office. The number, election and
term of office of Directors shall be as set forth in Article 8th (or any
successor article thereto) of the Articles of the Company.
Section 2.02. Regular Meetings; Notice. Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated by the
Board of Directors from time to time. Notice of such regular meetings shall not
be required, except as otherwise expressly required herein or by law, and except
that whenever the time or place of regular meetings shall be initially fixed and
then changed, notice of such action shall be given promptly by telephone or
otherwise to each Director not participating in such action. Any business may be
transacted at any regular meeting.
Section 2.03. Annual Meetings. A regular meeting of the Board of Directors
shall be held immediately after and at the
-3-
<PAGE> 7
same place as the annual meeting of the shareholders. Such regular meeting shall
be the annual organization meeting at which the Board of Directors shall
organize itself by electing officers and appointing members of standing
committees of the Board of Directors and may transact any other business.
Section 2.04. Special Meetings; Notice. Special meetings of the Board of
Directors may be called at any time by the Board itself, or by the President, or
by at least one-fourth of the Directors, to be held at such place and day and
hour as shall be specified by the person or persons calling the meeting. Notice
of every special meeting of the Board of Directors shall be given by the
Secretary to each Director at least two days before the meeting. Any business
may be transacted at any special meeting regardless of whether the notice
calling such meeting contains a reference thereto, except as otherwise required
by law.
Section 2.05. Organization. At all meetings of the Board of Directors, the
presence of at least a majority of the Directors in office shall be necessary
and sufficient to constitute a quorum for the transaction of business. If a
quorum is not present at any meeting, the meeting may be adjourned from time to
time by a majority of the Directors present until a quorum as aforesaid shall be
present, but notice of the time and place to which such meeting is adjourned
shall be given to any Directors
-4-
<PAGE> 8
not present either by being sent by telegraph or given personally or by
telephone at least eight hours prior to the hour of reconvening. Except as
otherwise provided in the Articles of the Company, resolutions of the Board
shall be adopted, and any action of the Board upon any matter shall be valid and
effective, with the affirmative vote of a majority of the Directors present at a
meeting duly convened and at which a quorum is present. The Chairman of the
Board, if he is present, or if not, the Vice Chairman, if he is present, or if
not, the President, if he is present, or if not, a Director designated by the
Board, shall preside at each meeting of the Board. The Secretary, or in his
absence any Assistant Secretary, shall take the minutes at all meetings of the
Board of Directors. In the absence of the Secretary and an Assistant Secretary,
the presiding officer shall designate any person to take the minutes of the
meeting.
Section 2.06. Meetings by Telephone. One or more Directors may participate
in any regular or special meeting of the Board of Directors or of a committee of
the Board of Directors by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting in this manner by a
Director will be considered to be attendance in person for all purposes under
these By-Laws.
-5-
<PAGE> 9
Section 2.07. Presumption of Assent. Minutes of each meeting of the Board
shall be made available to each Director at or before the next succeeding
meeting. Each Director shall be presumed to have assented to such minutes unless
his objection thereto shall be made to the Secretary at or within two days after
such succeeding meeting.
Section 2.08. Catastrophe. Notwithstanding any other provisions of the
Pennsylvania Business Corporation Law, the Articles or these By-Laws, if any
emergency resulting from warlike damage or an attack on the United States or any
nuclear or atomic disaster, or any other national or local disaster, causes a
majority of the Board to be incapable of acting as such because of death or
other physical disability or difficulties of communication or transportation,
the other Director or Directors shall constitute a quorum for the sole purpose
of electing Directors to replace the Directors so incapable of acting. The
Directors so elected shall serve until such replaced Directors are able to
attend meetings of the Board or until the shareholders act to elect Directors
for such purpose. Questions as to the existence of such an emergency or disaster
or as to the fact of such incapacity shall be conclusively determined by such
other Director or Directors.
-6-
<PAGE> 10
Section 2.09. Resignations. Any Director may resign by submitting his
resignation to the Secretary. Such resignation shall become effective upon its
receipt by the Secretary or as otherwise specified therein.
Section 2.10. Committees. By resolution adopted by a majority of the whole
Board, standing or temporary committees, which may include an Executive
Committee, consisting of at least two Directors may be appointed by the Board of
Directors from time to time. Each such committee shall have and exercise such
authority of the Board of Directors in the management of the business and
affairs of the Company as the Board may specify from time to time, which may
include declaration of dividends, authorization of the issuance and terms of
sale of stock or debt securities, fixing the relative rights and preferences of
preferred stock or other securities issued by the Company and any other action
which the Pennsylvania Business Corporation Law provides shall or may be taken
by the Board of Directors. The Board may designate one or more Directors as
alternate members of any committee to replace any absent or disqualified member
at any meeting of the committee, and in the event of such absence or
disqualification, the member or members of such committee present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any
-7-
<PAGE> 11
such absent or disqualified member. Any action taken by any committee shall be
subject to alteration or revocation by the Board of Directors; provided,
however, that third parties shall not be prejudiced by such alteration or
revocation.
Section 2.11. Personal Liability of Directors.
(a) Elimination of Liability. To the fullest extent that the laws of the
Commonwealth of Pennsylvania, as in effect on January 27, 1987 or as thereafter
amended, permit elimination or limitation of the liability of directors, no
Director of the Company shall be personally liable for monetary damages as such
for any action taken, or any failure to take any action, as a Director.
(b) This Section 2.11 shall not apply to any actions filed prior to January
27, 1987, nor to any breach of performance of duty or any failure of performance
of duty by any Director of the Company occurring prior to January 27, 1987. The
provisions of this Section 2.11 shall be deemed to be a contract with each
Director of the Company who serves as such at any time while this Section 2.11
is in effect, and each such Director shall be deemed to be so serving in
reliance on the provisions of this Section 2.11. Any amendment or repeal of this
Section 2.11 or adoption of any other By-Law of this Company or provision of the
Articles of this Company which has the effect of increasing Director liability
-8-
<PAGE> 12
shall operate prospectively only and shall not have any effect with respect to
any action taken, or any failure to act, by a Director prior to such amendment,
repeal, By-Law or other provision becoming effective.
(c) This Section 2.11 can be amended, altered, changed or repealed only if
the Article of the Company which is substantially identical to this Section 2.11
is at the same time amended, altered, changed or repealed in a substantially
identical manner.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 3.01. Officers. The officers of the Company shall be the President,
the Secretary and the Treasurer, and may include one or more Vice Presidents as
the Board may from time to time determine, all of whom shall be elected by the
Board. Any two or more offices may be held by the same person. Each officer
shall hold office at the pleasure of the Board, or until his death or
resignation.
Section 3.02. Additional Officers; Other Agents and Employees. The Board of
Directors may from time to time elect or
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<PAGE> 13
employ such additional officers, assistant officers, agents, employees and
independent contractors as the Board deems advisable; the Board or the Chief
Executive Officer shall prescribe their duties, conditions of employment and
compensation; and the Board shall have the right to dismiss them at any time,
without prejudice to their contract rights, if any. The Chief Executive Officer
may employ from time to time such other agents, employees and independent
contractors as he may deem advisable for the prompt and orderly transaction of
the business of the Company, and he may prescribe their duties and the
conditions of their employment, fix their compensation and dismiss them at any
time, without prejudice to their contract rights, if any.
Section 3.03. The President. The President shall be the Chief Executive
Officer. Subject to the control of the Board of Directors, the President shall
have general management and executive powers over all the business, property and
employees of the Company and shall see that the policies and programs adopted or
approved by the Board of Directors are carried.
Section 3.04. The Vice Presidents. Each Vice President shall have such
powers and duties as from time to time may be prescribed by the Board of
Directors or the officer of the Company to whom such Vice President is directly
responsible as determined by the Board of Directors or the Chief Executive
Officer.
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<PAGE> 14
Section 3.05. The Secretary and Assistant Secretaries. It shall be the duty
of the Secretary (a) to keep an original or duplicate record of the proceedings
of the shareholders and the Board of Directors, and a copy of the Articles and
of the By-Laws; (b) to give such notices as may be required by law or these
By-Laws; (c) to be custodian of the corporate records and of the seal of the
Company and see that the seal is affixed to such documents as may be necessary
or advisable; (d) to have charge of and keep, or cause to be kept by a transfer
agent or registrar, the stock books of the Company and such records as to the
identity of the shareholders, and as to the shares issued to and held of record
by them, as may be required by law; and (e) to exercise all powers and duties
incident to the office of Secretary; and the Secretary shall have such further
powers and duties as from time to time may be prescribed in these By-Laws or by
the Board of Directors or the Chief Executive Officer. The Secretary by virtue
of his office shall be an Assistant Treasurer. Each officer of the Company by
virtue of his office shall be an Assistant Secretary. The Assistant Secretaries
shall assist the Secretary in the performance of his duties and shall also
exercise such further powers and duties as from time to time may be prescribed
by the Board of Directors, the Chief Executive Officer or the Secretary. At the
direction of the Secretary or in his absence or
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<PAGE> 15
disability, an Assistant Secretary shall exercise the powers and duties of the
Secretary.
Section 3.06. The Treasurer and Assistant Treasurers. It shall be the duty
of the Treasurer (a) to keep the Company's contracts, insurance policies,
leases, deeds and other business records; (b) to see that the Company's lists,
books, reports, statements, tax returns, certificates and other documents and
records required by law are properly prepared, kept and filed; (c) to be the
principal officer in charge of tax and financial matters, budgeting and
accounting of the Company; (d) to have charge and custody of and be responsible
for the Company's funds, securities and investments; (e) to receive and give
receipts for checks, notes, obligations, funds and securities of the Company,
and deposit monies and other valuable effects in the name and to the credit of
the Company, in such depositories as shall be designated by the Board of
Directors; (f) subject to the provisions of Section 5.01 hereof, to cause the
funds of the Company to be disbursed by payment in cash or by checks or drafts
upon the authorized depositories of the Company, and to cause to be taken and
preserved proper vouchers for such disbursements; (g) to render to the Board of
Directors and the Chief Executive Officer whenever they may require it an
account of all his transactions as Treasurer, and reports as to the financial
position and operations of the Company; (h) to keep appropriate,
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<PAGE> 16
complete and accurate books and records of account of all the Company's business
and transactions; and (i) to exercise all powers and duties incident to the
office of Treasurer; and the Treasurer shall have such further duties from time
to time as may be prescribed in these By-Laws or by the Board of Directors or
the Chief Executive Officer. The Assistant Treasurers shall assist the Treasurer
in the performance of his duties and shall also exercise such further powers and
duties as from time to time may be prescribed by the Board of Directors, the
Chief Executive Officer or the Treasurer. At the direction of the Treasurer or
in his absence or disability, an Assistant Treasurer shall exercise the powers
and duties of the Treasurer.
Section 3.07. Vacancies. Any vacancy in any office or position by reason of
death, resignation, removal, disqualification, disability or other cause shall
be filled in the manner provided in this Article III for regular election or
appointment to such office.
Section 3.08. Delegation of Duties. The Board of Directors may in its
discretion delegate for the time being the powers and duties, or any of them, of
any officer to any other person whom it may select.
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<PAGE> 17
ARTICLE IV
Shares of Capital Stock
Section 4.01. Share Certificates. Shares of stock of the Company shall be
represented by certificates or, to the extent provided in Sections 4.05 and 4.06
below or as otherwise permitted or required by law, shall be uncertificated.
Share certificates shall be in such form as the Board of Directors may from time
to time prescribe in accordance with law. Such certificates shall be signed by
the Chief Executive Officer, countersigned by the Secretary or any other officer
so authorized by the Board and sealed with the seal of the Company, and such
signatures and seal may be facsimile or otherwise as permitted by law. In case
any officer of the Company who has signed, or whose facsimile signature has been
placed upon any share certificate, shall have ceased to be such officer because
of death, resignation, or otherwise, before the certificate is issued, the share
certificate may, nonetheless, be issued by the Company with the same effect as
if such person had not ceased to be such officer at the date of issue of the
share certificate.
Section 4.02. Transfer of Shares. Except as otherwise provided by law,
transfers of shares of stock of the Company shall be made only upon the books of
the Company. Transfers of shares shall be made on the books of the Company in
accordance with the
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<PAGE> 18
provisions of the Pennsylvania Uniform Commercial Code, as the same may be
amended or supplemented from time to time, applicable commercial practices and
the other provisions of these By-Laws.
Section 4.03. Lost, Stolen or Destroyed Certificates. The holder of any
certificate representing shares of stock of the Company shall immediately notify
the Company of any loss, theft or destruction of such certificate. New
certificates for shares of stock may be issued to replace such certificates upon
satisfactory proof of the loss, theft or destruction and upon such other terms
and conditions as the Board of Directors, the Chief Executive Officer or any
person designated by either of them may from time to time determine.
Section 4.04. Holders of Record. The Company shall be entitled to treat any
person in whose name shares of stock of the Company stand on its books as the
holder and owner in fact thereof for all purposes, and it shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise expressly provided by law.
Section 4.05. Uncertificated Shares. All or part of the shares of Common
Stock of the Company may be uncertificated
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<PAGE> 19
shares to the extent determined by the Board of Directors (or by any officer or
other person as the Board may designate) from time to time; however, in no event
shall shares of Common Stock represented by a certificate be deemed
uncertificated until the certificate is surrendered to the Company.
Section 4.06. Determinations as to Issuance, Transfer and Registration. The
Board of Directors (or any officer or other person as the Board may designate)
from time to time may make such rules, policies and procedures as it or such
person may deem appropriate concerning the issue, transfer and registration of
shares of stock of the Company, whether certificated or uncertificated.
ARTICLE V
MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS
Section 5.01. Execution of Notes, Checks, Contracts and Other Instruments.
All notes, bonds, drafts, acceptances, checks, endorsements (other than for
deposit), guarantees and all evidences of indebtedness of the Company
whatsoever, and all deeds, mortgages, contracts and other instruments requiring
execution by the Company, may be signed by the Chairman of the Board, if an
officer of the Company, the Vice Chairman, if an officer of the Company, the
President, any Vice President or the
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<PAGE> 20
Treasurer, and authority to sign any of the foregoing, which may be general or
confined to specific instances, may be conferred by the Board upon any other
person or persons. Any person having authority to sign on behalf of the Company
may delegate, from time to time, by instrument in writing, all or any part of
such authority to any other person or persons if authorized to do so by the
Board, which authority may be general or confined to specific instances.
Facsimile signatures on checks may be used if authorized by the Board.
Section 5.02. Voting Securities Owned by the Company. Securities owned by
the Company and having voting power in any other Company may be voted by the
Chairman of the Board, if an officer of the Company, the Vice Chairman, if an
officer of the Company, the President, any Vice President or the Treasurer,
unless the Board confers authority to vote with respect thereto, which may be
general or confined to specific investments, upon some other person. Any person
authorized to vote such securities shall have the power to appoint proxies, with
general power of substitution.
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<PAGE> 21
ARTICLE VI
GENERAL PROVISIONS
Section 6.01. Offices. The principal business office of the Company shall
be at 800 Fifth Avenue, New Brighton, Pennsylvania 15066. The Company may also
have offices at such other places within or without the Commonwealth of
Pennsylvania as the business of the Company may require.
Section 6.02. Corporate Seal. The Board of Directors shall prescribe the
form of a suitable corporate seal, which shall contain the full name of the
Company and the year and state of incorporation.
Section 6.03. Fiscal Year. The fiscal year of the Company shall end on
August 31 or such other day as shall be fixed by the Board of Directors.
Section 6.04. Conflict with Articles. To the extent any of the provisions
hereof conflict with the terms of the Articles of the Company, the terms of the
Articles shall control.
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<PAGE> 22
ARTICLE VII
AMENDMENTS
Section 7.01. Amendments. Subject to Section 2.11 hereof, these By-Laws may
be amended, altered or repealed, and new by-laws may be adopted, in the manner
provided for in Section 10.1 of Article 10th of the Articles of the Company (or
any successor section thereto). No provision of these By-Laws shall vest any
property or contract right in any person.
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<PAGE> 1
Exhibit 4.2
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT dated as of October 12, 1998,
(the "Second Amendment") by and between TUSCARORA INCORPORATED, a Pennsylvania
corporation (the "Borrower"), and MELLON BANK, N.A., a national banking
association, (the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank entered into a Loan Agreement dated
as of August 14, 1996, as amended by a First Amendment to Loan Agreement dated
as of February 20, 1998 (collectively, the "Agreement"); and
WHEREAS, the Bank and the Borrower have agreed to amend certain
provisions of the Agreement for the purpose of, inter alia, extending the
Revolving Credit Expiry Date.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Section 1.01 of the Agreement is hereby amended by deleting the
definition "Revolving Credit Expiry Date" and restating it as follows:
"Revolving Credit Expiry Date" shall mean August 31, 2001, or
such earlier date on which the Revolving Credit Facility
Commitment shall have been terminated pursuant to this Agreement.
2. This Second Amendment does not evidence or represent in any way
new indebtedness or satisfaction of the indebtedness evidenced by the Note.
3. Borrower hereby represents and warrants to Bank that:
(a) Borrower has and will continue to have corporate power and
authority to execute, deliver and perform the provisions of this Second
Amendment, the Revolving Credit Note, the Term Note and all other
agreements executed and delivered by Borrower in connection with the
Agreement (the "Loan Documents");
(b) The execution and delivery of this Second Amendment and the
carrying out of the Agreement and the other Loan Documents will not violate
any provisions of law or any instrument, agreement, order, decree, writ or
ruling to which such Borrower is a party or by which it is bound or to
which it is subject;
(c) This Second Amendment, which has been duly and validly
executed and delivered by such Borrower, and the other Loan Documents
constitute legal, valid and binding obligations of such Borrower
enforceable in accordance with the terms hereof and thereof;
(d) The representations and warranties of Borrower contained in
the Agreement, as amended by this Second Amendment and the other Loan
Documents are correct and accurate on and as of the date hereof; and
(e) The Bank has acted in good faith in the performance and
enforcement of its rights under the Loan Documents and the negotiation of
this Second Amendment.
4. The effective date of this Second Amendment shall be August 31,
1998.
5. The provisions of the Notes shall remain in full force and
effect except as modified hereby. All representations, warranties and covenants
contained herein or made in writing by Borrower in connection herewith shall
apply to the borrowings and shall survive the execution and delivery of this
Second Amendment, and will bind and inure to the benefit of the successors and
assigns of the parties hereto, provided that, without the prior written consent
of Bank, Borrower may not assign any of its obligations under the Agreement or
any of the other Loan Documents, and any such attempted assignment shall be
null and void.
<PAGE> 2
6. Borrower's obligations under the Agreement, as amended by this
Second Amendment and under the Revolving Credit Note and the Term Note, as
amended, modified or supplemented from time to time, (collectively, the
"Notes"), are and will continue to be secured by the security interest granted
to Bank by Borrower under the Notes, as the same may be amended, modified or
supplemented from time to time, and such obligations are and will continue to
be a part of the "Obligations" (as that term is defined in the Notes) which is
secured by the security interests granted in the Notes.
7. The Borrower hereby reaffirms the Notes and the Agreement and
all obligations and liabilities of the Borrower to the Bank thereunder, and
warrants to the Bank that as of the date hereof the Borrower has no defense or
counterclaim whatsoever to any action or proceeding that may be brought to
enforce the Bank's rights and remedies under the Notes or the Agreement.
8. This Second Amendment and the Agreement shall be governed in all
respects by and construed in accordance with the laws of the Commonwealth of
Pennsylvania, except the rules applicable to the conflicts of law.
9. Except as stated in this Second Amendment, the terms, covenants,
conditions and provisions of the Agreement shall remain in full force and
effect.
10. The Borrower hereby directs the Bank to affix this Second
Amendment to the Agreement, whereupon the Agreement and this Second Amendment
will become and constitute a single instrument.
11. All terms used in this Second Amendment and not otherwise
defined herein shall have the meanings ascribed to them in the Agreement,
unless the context clearly indicates otherwise.
WITNESS the due execution and delivery of this Second Amendment on behalf
of the Bank and the Borrower as of the date first above written.
ATTEST: TUSCARORA INCORPORATED
By: /s/ Edward R. Wolford By: /s/ Brian C. Mullins
------------------------------- ---------------------------------------
Title: Vice President & Controller Title: Sr. Vice President, CFO & Treasurer
---------------------------- ------------------------------------
MELLON BANK, N.A.
By: Dwayne R. Finney
---------------------------------------
Title: Vice President
-----------------------------
<PAGE> 1
Exhibit 10.4
TUSCARORA INCORPORATED
1997 STOCK INCENTIVE PLAN
------------------------
ADOPTED BY BOARD OF DIRECTORS
ON OCTOBER 17, 1997
APPROVED BY SHAREHOLDERS
ON DECEMBER 18, 1997
EFFECTIVE DECEMBER 18, 1997
<PAGE> 2
TUSCARORA INCORPORATED
1997 STOCK INCENTIVE PLAN
A purpose of the 1997 Stock Incentive Plan (the "Plan") is to encourage
eligible employees of Tuscarora Incorporated (the "Company") and its
Subsidiaries to increase their efforts to make the Company and each Subsidiary
more successful, to provide an additional inducement for such employees to
remain with the Company or a Subsidiary, to reward such employees by providing
an opportunity to acquire shares of the Common Stock, without par value, of the
Company (the "Common Stock") on favorable terms and to provide a means through
which the Company may attract able persons to enter the employ of the Company or
one of its Subsidiaries. Another purpose of the Plan is to promote the long-term
success of the Company by creating a long-term mutuality of interest between the
Company's non-employee directors (the "Nonemployee Directors") and the Company's
shareholders, to provide an additional inducement for the Nonemployee Directors
to remain with the Company and to provide a means through which the Company may
attract able persons to serve as Nonemployee Directors. For the purposes of the
Plan, the term "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing at least fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in the chain.
SECTION 1
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board").
The Board shall interpret the Plan and prescribe such rules, regulations
and procedures in connection with the operations of the Plan as it shall deem to
be necessary and advisable for the administration of the Plan consistent with
the purposes of the Plan.
The Board shall keep records of action taken. A majority of the Board shall
constitute a quorum at any meeting, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by a majority of the Board, shall be the acts of the Board.
SECTION 2
ELIGIBILITY
Those employees of the Company or any Subsidiary, including employees who
are directors of the Company, who share responsibility for the management,
growth or protection of the business of the Company or any Subsidiary shall be
eligible to be granted stock options (with or without alternative stock
appreciation rights and/or cash payment rights) and to receive awards of
restricted, performance and other shares as described herein. The Nonemployee
Directors shall be eligible to be granted nonstatutory stock options (with or
without alternative stock appreciation rights and/or cash payment rights) and to
receive awards of restricted shares as described herein.
Subject to the provisions of the Plan, the Board shall have full and final
authority, in its discretion, to grant stock options (with or without
alternative stock appreciation rights and/or cash payment rights) and to award
restricted, performance and other shares as described herein and to determine
the persons to whom any such grant or award shall be made and the number of
shares to be covered thereby. In determining the eligibility of any person, as
well as in determining the number of shares covered by each grant or award and
whether alternative stock appreciation rights and/or cash payment rights shall
be granted in conjunction with a stock option, the Board shall consider the
position and the responsibilities of the person being considered, the nature and
value to the Company or a Subsidiary of his or her services, his or her present
and/or potential contribution to the success of the Company or a Subsidiary and
such other factors as the Board may deem relevant.
<PAGE> 3
SECTION 3
SHARES AVAILABLE UNDER THE PLAN
The aggregate number of shares of the Common Stock that may be issued and
as to which grants or awards may be made under the Plan is 750,000 shares,
subject to adjustment and substitution as set forth in Section 7. If any stock
option granted under the Plan is canceled by mutual consent or terminates or
expires for any reason without having been exercised in full, the number of
shares subject thereto shall again be available for purposes of the Plan, except
that to the extent that alternative stock appreciation rights granted in
conjunction with a stock option under the Plan are exercised and the related
stock option surrendered the number of shares available for purposes of the Plan
shall be reduced by the number of shares of Common Stock issued upon exercise of
such alternative stock appreciation rights. Any restricted shares which are
surrendered or forfeited to the Company and any performance shares which are not
earned shall again be available for issuance under the Plan.
The shares which may be issued under the Plan may be either authorized but
unissued shares or treasury shares or partly each.
SECTION 4
GRANT OF STOCK OPTIONS, ALTERNATIVE
STOCK APPRECIATION RIGHTS AND CASH
PAYMENT RIGHTS AND AWARD OF RESTRICTED,
PERFORMANCE AND OTHER SHARES
The Board shall have authority, in its discretion, (i) to grant "incentive
stock options" pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to grant "nonstatutory stock options" (i.e., stock options
which do not qualify under Sections 422 or 423 of the Code) or to grant both
types of stock options (but not in tandem), (ii) to award restricted shares,
(iii) to award performance shares and (iv) to make other share awards, all as
provided herein. The Board also shall have the authority, in its discretion, to
grant alternative stock appreciation rights in conjunction with incentive stock
options or nonstatutory stock options with the effect provided in Section 5(D)
and to grant cash payment rights in conjunction with nonstatutory stock options
with the effect provided in Section 5(E). Alternative stock appreciation rights
granted in conjunction with an incentive stock option may only be granted at the
time the incentive stock option is granted. Cash payment rights may not be
granted in conjunction with incentive stock options. Alternative stock
appreciation rights and/or cash payment rights granted in conjunction with a
nonstatutory stock option may be granted either at the time the stock option is
granted or at any time thereafter during the term of the stock option.
Notwithstanding any other provision contained in the Plan or in any
agreement referred to in Section 5(I), but subject to the possible exercise of
the Board's discretion contemplated in the last sentence of this Section 4, the
aggregate fair market value, determined as provided in Section 5(J) on the date
of grant, of the shares with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar year under all
plans of the corporation employing such employee, any parent or subsidiary
corporation of such corporation and any predecessor corporation of any such
corporation shall not exceed $100,000. If the date on which one or more of such
incentive stock options could first be exercised would be accelerated pursuant
to any provision of the Plan or any stock option agreement, and the acceleration
of such exercise date would result in a violation of the limitation set forth in
the preceding sentence, then, notwithstanding any such provision, but subject to
the provisions of the next succeeding sentence, the exercise dates of such
incentive stock options shall be accelerated only to the date or dates, if any,
that do not result in a violation of such limitation and, in such event, the
exercise dates of the incentive stock options with the lowest option prices
shall be accelerated to the earliest such dates. The Board may, in its
discretion, authorize the acceleration of the exercise date of one or more
incentive stock options even if such acceleration would violate the $100,000
limitation set forth in the first sentence of this paragraph and even if such
incentive stock options are thereby converted in whole or in part to
nonstatutory stock options.
2
<PAGE> 4
SECTION 5
STOCK OPTIONS, ALTERNATIVE STOCK APPRECIATION
RIGHTS AND CASH PAYMENT RIGHTS
Stock options, alternative stock appreciation rights and cash payment
rights granted under the Plan shall be subject to the following terms and
conditions:
(A) The purchase price at which each stock option may be exercised (the
"option price") shall be such price as the Board, in its discretion, shall
determine but shall not be less than one hundred percent (100%) of the fair
market value per share of the Common Stock on the date of grant. For purposes
of this Section 5(A), the fair market value of the Common Stock shall be
determined as provided in Section 5(J).
(B) The option price for each stock option shall be payable in cash in
United States dollars (including check, bank draft or money order); provided,
however, that in lieu of cash the person exercising the stock option may (if
authorized by the Board at the time of grant in the case of an incentive stock
option, or at any time in the case of a nonstatutory stock option) pay the
option price in whole or in part by delivering to the Company shares of the
Common Stock having a fair market value on the date of exercise of the stock
option, determined as provided in Section 5(J), equal to the option price for
the shares being purchased, except that (i) any portion of the option price
representing a fraction of a share shall in any event be paid in cash and (ii)
no shares of the Common Stock which have been held for less than one year may
be delivered in payment of the option price of a stock option. Delivery of
shares, if authorized, may also be accomplished through the effective transfer
to the Company of shares held by a broker or other agent. The Company will
also cooperate with any person exercising a stock option who participates in a
cashless exercise program of a broker or other agent under which all or part
of the shares received upon exercise of the stock option are sold through the
broker or other agent or under which the broker or other agent makes a loan to
such person. Notwithstanding the foregoing, unless the Board, in its
discretion, shall otherwise determine at the time of grant in the case of an
incentive stock option, or at any time in the case of a nonstatutory stock
option, the exercise of the stock option shall not be deemed to occur and no
shares of Common Stock will be issued by the Company upon exercise of the
stock option until the Company has received payment of the option price in
full. The date of exercise of a stock option shall be determined under
procedures established by the Board, and as of the date of exercise the person
exercising the stock option shall be considered for all purposes to be the
owner of the shares with respect to which the stock option has been exercised.
Payment of the option price with shares shall not increase the number of
shares of the Common Stock which may be issued under the Plan as provided in
Section 3.
(C) Each stock option shall be exercisable at such time or times as the
Board, in its discretion, shall determine, except that no stock option shall
be exercisable after the expiration of ten years from the date of grant. A
stock option to the extent exercisable at any time may be exercised in whole
or in part.
(D) Alternative stock appreciation rights granted in conjunction with a
stock option shall entitle the person exercising the alternative stock
appreciation rights to surrender the related stock option, or any portion
thereof, and to receive from the Company in exchange therefor that number of
shares of the Common Stock having an aggregate fair market value on the date
of exercise of the alternative stock appreciation rights equal to the excess
of the fair market value of one share of the Common Stock on such date of
exercise over the option price per share times the number of shares covered by
the related stock option, or portion thereof, which is surrendered.
Alternative stock appreciation rights shall be exercisable to the extent that
the related stock option is exercisable and only by the same person who is
entitled to exercise the related stock option; provided, however, that
alternative stock appreciation rights granted in conjunction with an incentive
stock option shall not be exercisable unless the then fair market value of the
Common Stock exceeds the option price of the shares subject to the incentive
stock option. Cash shall be paid in lieu of any fractional share. The Board
shall have the authority, in its discretion, to determine that the obligation
of the Company shall be paid in cash or part in cash and part in shares. The
date of exercise of alternative stock appreciation rights shall be determined
under procedures established by the Board, and as of the date of exercise the
person exercising the alternative stock appreciation rights shall be
considered for all purposes to be the owner of the shares to be received. To
the extent that a stock option as to which alternative stock
3
<PAGE> 5
appreciation rights have been granted is exercised, canceled, terminates or
expires, the alternative stock appreciation rights shall be canceled. For the
purposes of this Section 5(D), the fair market value of the Common Stock shall
be determined as provided in Section 5(J).
(E) Cash payment rights granted in conjunction with a nonstatutory stock
option shall entitle the person who is entitled to exercise the stock option,
upon exercise of the stock option or any portion thereof, to receive cash from
the Company (in addition to the shares to be received upon exercise of the
stock option) equal to such percentage as the Board, in its discretion, shall
determine not greater than one hundred percent (100%) of the excess of the
fair market value of a share of the Common Stock on the date of exercise of
the stock option over the option price per share of the stock option times the
number of shares covered by the stock option, or portion thereof, which is
exercised. Payment of the cash provided for in this Section 5(E) shall be made
by the Company as soon as practicable after the time the amount payable is
determined. For purposes of this Section 5(E), the fair market value of the
Common Stock shall be determined as provided in Section 5(J).
(F) Unless the Board, in its discretion, shall otherwise determine, (i) no
incentive stock option shall be transferable by the grantee otherwise than by
Will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death and
(ii) all incentive stock options shall be exercisable during the lifetime of
the grantee only by the grantee. Unless the Board, in its discretion, shall
otherwise determine, a nonstatutory stock option may be transferred by the
grantee by gift to the grantee's spouse or to any of the grantee's lineal
descendants or to the trustee(s) of a trust for the benefit of any such
person. Any nonstatutory stock option gifted to any such person or trust shall
be subject to the restrictions, terms and conditions of the Plan and the
agreement referred to in Section 5(I), and any such transferee shall be deemed
to be a grantee and shall upon receipt of such stock option, as a condition of
effectiveness of the transfer, sign a written agreement with the Company
agreeing to such restrictions, terms and conditions.
(G) (1) Subject to the provisions of Section 4 in the case of incentive
stock options and subject to the restriction on exercise set forth in Section
5(L), unless the Board, in its discretion, shall otherwise determine:
(i) If the employment of a grantee is voluntarily terminated with the
consent of the Company or a Subsidiary or a grantee retires under any
retirement plan of the Company or a Subsidiary, any outstanding stock
option granted to the grantee shall be exercisable (but only to the extent
exercisable immediately prior to the termination of employment, provided
that the restriction on exercise set forth in Section 5(L) shall not be
considered solely in determining the extent to which such stock option is
exercisable on the date of termination of employment) at any time prior to
the expiration date of such stock option or until three years after the
date of termination of employment of the grantee, whichever is the shorter
period, and to the extent not exercisable shall terminate;
(ii) Following the death of a grantee during employment, any
outstanding stock option granted to the grantee shall be exercisable in
full (whether or not so exercisable immediately prior to the death of the
grantee) by the holder of the stock option, or if the grantee held the
stock option at the time of death, by the person entitled to do so under
the Will of the grantee, or, if the grantee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the legal
representative of the grantee, at any time prior to the expiration date of
the stock option or until three years after the date of death of the
grantee, whichever is the shorter period;
(iii) Following the death of a grantee after termination of employment
during a period when a stock option is exercisable, the stock option shall
be exercisable by the holder of the stock option, or if the grantee held
the stock option at the time of death, by such person entitled to do so
under the Will of the grantee or by such legal representative, at any time
during the shorter of the following two periods: (i) until the expiration
date of the stock option or (ii) until three years after the termination of
employment of the grantee or one year after the date of death of the
grantee (whichever is longer); and
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(iv) Unless Section 8(C) applies following termination of employment,
if the employment of a grantee terminates for any reason other than
voluntary termination with the consent of the Company or a Subsidiary,
retirement under any retirement plan of the Company or a Subsidiary or
death, any outstanding stock option granted to the grantee (whether or not
exercisable immediately prior to termination of employment) shall
automatically terminate.
Whether termination of employment is a voluntary termination with
the consent of the Company or a Subsidiary shall be determined, in its
discretion, by the Board and any such determination by the Board shall be
final and binding.
(G) (2) Unless the Board, in its discretion, shall otherwise determine:
(i) If a grantee ceases to serve as a Nonemployee Director for any
reason other than resignation, removal for cause or death, any outstanding
stock option granted to the grantee shall be exercisable (but only to the
extent exercisable immediately prior to ceasing to serve as a Nonemployee
Director) at any time prior to the expiration date of such stock option or
until three years after the date the grantee ceases to serve as a
Nonemployee Director, whichever is the shorter period, and to the extent
not exercisable shall terminate;
(ii) Following the death of a grantee during service as a Nonemployee
Director, any outstanding stock option granted to the grantee shall be
exercisable in full (whether or not so exercisable immediately prior to the
death of the grantee) by the holder of the stock option, or if the grantee
held the stock option at the time of death, by the person entitled to do so
under the Will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate, by the
legal representative of the grantee, at any time prior to the expiration
date of the stock option or until three years after the date of death of
the grantee, whichever is the shorter period;
(iii) Following the death of a grantee after ceasing to serve as a
Nonemployee Director during a period when a stock option is exercisable,
the stock option shall be exercisable by the holder of the stock option, or
if the grantee held the stock option at the time of death, by such person
entitled to do so under the Will of the grantee or by such legal
representative, at any time during the shorter of the following two
periods: (i) until the expiration date of the stock option or (ii) until
three years after the grantee ceased to serve as a Nonemployee Director or
one year after the date of death of the grantee (whichever is longer); and
(iv) Unless Section 8(C) applies following termination of service, if
during his or her term of office as a Nonemployee Director a grantee
resigns from the Board or is removed from office for cause, any outstanding
stock option granted to the grantee (whether or not exercisable immediately
prior to resignation or removal) shall automatically terminate.
(H) If a grantee of a stock option (i) engages in the operation or
management of a business (whether as owner, partner, officer, director,
employee or otherwise) which is in competition with the Company or any of its
Subsidiaries (provided, however, that this clause shall not apply if Section
8(C) applies), (ii) induces or attempts to induce any customer, supplier,
licensee or other individual, corporation or other business organization
having a business relationship with the Company or any of its Subsidiaries to
cease doing business with the Company or any of its Subsidiaries or in any way
interferes with the relationship between any such customer, supplier, licensee
or other person and the Company or any of its Subsidiaries or (iii) solicits
any employee of the Company or any of its Subsidiaries to leave the employment
thereof or in any way interferes with the relationship of such employee with
the Company or any of its Subsidiaries, the Board, in its discretion, may
immediately terminate all outstanding stock options granted to the grantee.
Whether a grantee has engaged in any of the activities referred to the
preceding sentence which would cause the outstanding stock options to be
terminated shall be determined, in its discretion, by the Board, and any such
determination by the Board shall be final and binding.
(I) All stock options, alternative stock appreciation rights and cash
payment rights shall be confirmed by an agreement which shall be executed on
behalf of the Company by the Chief Executive Officer (if other than the
President), the President or any Vice President and by the grantee. The
agreement confirming a
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stock option shall specify whether the stock option is an incentive stock
option or a nonstatutory stock option. The provisions of the agreements need
not be identical.
(J) Fair market value of the Common Stock shall be the mean between the
following prices, as applicable, for the date as of which fair market value is
to be determined as quoted in The Wall Street Journal (or in such other
reliable publication as the Board, in its discretion, may determine to rely
upon): (i) if the Common Stock is listed on the New York Stock Exchange, the
highest and lowest sales prices per share of the Common Stock as quoted in the
NYSE-Composite Transactions listing for such date, (ii) if the Common Stock is
not listed on such exchange, the highest and lowest sales prices per share of
Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended (the "1934 Act") on which the Common Stock is
listed or (iii) if the Common Stock is not listed on any such exchange, the
highest and lowest sales prices per share of the Common Stock for such date on
the National Association of Securities Dealers Automated Quotations System or
any successor system then in use ("NASDAQ"). If there are no such sale price
quotations for the date as of which fair market value is to be determined but
there are such sale price quotations within a reasonable period both before
and after such date, then fair market value shall be determined by taking a
weighted average of the means between the highest and lowest sales prices per
share of the Common Stock as so quoted on the nearest date before and the
nearest date after the date as of which fair market value is to be determined.
The average should be weighted inversely by the respective numbers of trading
days between the selling dates and the date as of which fair market value is
to be determined. If there are no such sale price quotations on or within a
reasonable period both before and after the date as of which fair market value
is to be determined, then fair market value of the Common Stock shall be the
mean between the bona fide bid and asked prices per share of Common Stock as
so quoted for such date on NASDAQ, or if none, the weighted average of the
means between such bona fide bid and asked prices on the nearest trading date
before and the nearest trading date after the date as of which fair market
value is to be determined, if both such dates are within a reasonable period.
The average is to be determined in the manner described above in this Section
5(J). If the fair market value of the Common Stock cannot be determined on any
basis previously set forth in this Section 5(J) for the date as of which fair
market value is to be determined, the Board shall in good faith determine the
fair market value of the Common Stock on such date. Fair market value shall be
determined without regard to any restriction other than a restriction which,
by its terms, will never lapse.
(K) The obligation of the Company to issue shares of the Common Stock under
the Plan shall be subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to such shares, if
deemed necessary or appropriate by counsel for the Company, (ii) the condition
that the shares shall have been listed (or authorized for listing upon
official notice of issuance) upon each stock exchange, if any, on which the
Common Stock may then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect.
(L) Notwithstanding any other provision of this Section 5 or any other
provision of the Plan or any stock option agreement, any grantee who has made
a hardship withdrawal from the Tuscarora Incorporated Savings Plan for
Salaried Employees (or any holder of a stock option granted to such a grantee)
shall be prohibited, for a period of twelve (12) months following such
hardship withdrawal, from exercising any stock option granted under the Plan
in such a manner and to the extent that the exercise of such stock option
would result in an employee elective contribution or an employee contribution
to an employer plan within the meaning of Treasury Regulation section
1.401(k)-1(d)(2)(iv)(B)(4) or any successor regulation thereto.
Subject to the foregoing provisions of this Section 5 and the other
provisions of the Plan, stock options, alternative stock appreciation rights and
cash payment rights granted under the Plan shall be subject to such restrictions
and other terms and conditions, if any, as shall be determined, in its
discretion, by the Board and set forth in the agreement referred to in Section
5(I).
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SECTION 6
RESTRICTED SHARES, PERFORMANCE SHARES AND
OTHER SHARE AWARDS
(A) Restricted Shares
Awards of restricted shares shall be confirmed by an agreement which shall
set forth the number of shares of the Common Stock awarded, the restrictions
imposed thereon (including, without limitation, restrictions on the right of the
grantee to sell, assign, transfer or encumber such shares (except as provided
below) while such shares are subject to other restrictions imposed under this
Section 6(A)), the duration of such restrictions, events (which may, in the
discretion of the Board, include termination of employment and/or
performance-based events) the occurrence of which would cause a forfeiture of
the restricted shares and such other terms and conditions as shall be
determined, in its discretion, by the Board. The agreement shall be executed on
behalf of the Company by the Chief Executive Officer (if other than the
President), the President or any Vice President and by the grantee. The
provisions of the agreements need not be identical. Awards of restricted shares
shall be effective on the date determined, in its discretion, by the Board.
Following the award of restricted shares and prior to the lapse or
termination of the applicable restrictions, share certificates for the
restricted shares shall be issued in the name of the grantee and deposited with
the Company in escrow together with related stock powers signed by the grantee.
Except as provided in Section 7, the Board, in its discretion, may determine
that dividends and other distributions on the shares held in escrow shall not be
paid to the grantee until the lapse or termination of the applicable
restrictions. Unless otherwise provided, in its discretion, by the Board, any
such dividends or other distributions shall not bear interest. Upon the lapse or
termination of the applicable restrictions (and not before such time), the share
certificates for the restricted shares (subject to the provisions of Section 10)
shall be released from escrow and unpaid dividends, if any, shall be paid. From
the date the award of restricted shares is effective, the grantee shall be a
shareholder with respect to all the shares represented by the share certificates
and shall have all the rights of a shareholder with respect to all the
restricted shares, including the right to vote such shares and to receive all
dividends and other distributions paid with respect to such shares, subject only
to the preceding provisions of this paragraph and the other restrictions imposed
by the Board.
If a grantee of restricted shares (i) engages in the operation or
management of a business (whether as owner, partner, officer, director, employee
or otherwise) which is in competition with the Company or any of its
Subsidiaries (provided, however, that this clause shall not apply if Section
8(D) applies), (ii) induces or attempts to induce any customer, supplier,
licensee or other individual, corporation or other business organization having
a business relationship with the Company or any of its Subsidiaries to cease
doing business with the Company or any of its Subsidiaries or in any way
interferes with the relationship between any such customer, supplier, licensee
or other person and the Company or any of its Subsidiaries or (iii) solicits any
employee of the Company or any of its Subsidiaries to leave the employment
thereof or in any way interferes with the relationship of such employee with the
Company or any of its Subsidiaries, the Board may immediately declare forfeited
all restricted shares awarded to the grantee as to which the restrictions have
not yet lapsed. Whether a grantee has engaged in any of the activities referred
to in the preceding sentence which would cause the restricted shares to be
forfeited shall be determined, in its discretion, by the Board, and any such
determination by the Board shall be final and binding.
Neither this Section 6(A) nor any other provision of the Plan shall
preclude a grantee from transferring restricted shares to (i) the trustee(s) of
a trust that is revocable by such grantee alone, both at the time of the
transfer and at all times thereafter prior to such grantee's death, or (ii) the
trustee(s) of any other trust to the extent approved in advance by the Board.
Restricted shares held by such trustee(s) shall be subject to all the
restrictions, terms and conditions of the Plan and the applicable agreement as
if such trustee(s) were a party to such agreement.
(B) Performance Shares
An award of performance shares shall entitle the grantee to receive up to
the number of shares of Common Stock covered by the award at the end of or at a
specified time or times during a specified award
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period contingent upon the extent to which one or more predetermined performance
targets have been met during the award period. All the terms and conditions of
an award of performance shares shall be determined, in its discretion, by the
Board and shall be confirmed by an agreement which shall be executed on behalf
of the Company by the Chief Executive Officer (if other than the President), the
President or any Vice President and by the grantee. The performance target or
targets may be expressed in terms of earnings per share, return on shareholder
equity, operating profit, return on capital employed or such other measures of
accomplishment by the Company or a Subsidiary, or any branch, department or
other portion thereof, or the grantee individually, as may be established, in
its discretion, by the Board. The performance target or targets may vary for
different award periods and need not be the same for each grantee receiving an
award for an award period.
At any time prior to the end of an award period, the Board may adjust
downward (but not upward) the performance target or targets as a result of major
events unforeseen at the time of the award, such as changes in the economy, in
the industry or laws affecting the operations of the Company or a Subsidiary, or
any branch, department or other portion thereof, or any other event the Board
determines would have a significant impact upon the probability of attaining the
previously established performance target or targets.
Payment of earned performance shares shall be made as soon as practicable
after the shares have been earned. The Board, in its discretion, may determine
that any dividends or other distributions that would have been paid on earned
performance shares had the shares been outstanding during the period from the
award to the payment of the performance shares shall also be paid. Unless
otherwise provided, in its discretion, by the Board, any such dividends or other
distributions shall not bear interest.
Unless otherwise provided in the agreement confirming the award of the
performance shares, if prior to the close of an award period, the employment of
a grantee of performance shares is voluntarily terminated with the consent of
the Company or a Subsidiary, the grantee retires under any retirement plan of
the Company or a Subsidiary or the grantee dies during employment, the Board in
its discretion, may determine to pay all or part of the performance shares based
upon the extent to which the Board determines the performance target or targets
have been achieved as of the date of termination of employment, retirement or
death, the period of time remaining until the end of the award period and/or
such other factors as the Board may deem relevant. If the Board, in its
discretion, determines that all or any part of the performance shares shall be
paid, payment shall be made as promptly as practicable following such
determination. Except as otherwise provided in Section 8(E), if the employment
of a grantee of an award of performance shares terminates prior to the time the
performance shares have been earned for any reason other than voluntary
termination with the consent of the Company or a Subsidiary, retirement under
any retirement plan of the Company or a Subsidiary or death, the unearned
performance shares shall be deemed not to have been earned and such shares shall
not be paid. Whether termination of employment is a voluntary termination with
the consent of the Company or a Subsidiary shall be determined, in its
discretion, by the Board and any such determination by the Board shall be final
and binding.
If a grantee of performance shares (i) engages in the operation or
management of a business (whether as owner, partner, officer, director, employee
or otherwise) which is in competition with the Company or any of its
Subsidiaries (provided, however, that this clause shall not apply if Section
8(E) applies), (ii) induces or attempts to induce any customer, supplier,
licensee or other individual, corporation or other business organization having
a business relationship with the Company or any of its Subsidiaries to cease
doing business with the Company or any of its Subsidiaries or in any way
interferes with the relationship between any such customer, supplier, licensee
or other person and the Company or any of its Subsidiaries or (iii) solicits any
employee of the Company or any of its Subsidiaries to leave the employment
thereof or in any way interferes with the relationship of such employee with the
Company or any of its Subsidiaries, the Board may immediately cancel the award.
Whether a grantee has engaged in any of the activities referred to the preceding
sentence which would cause the award of performance shares to be canceled shall
be determined, in its discretion, by the Board, and any such determination by
the Board shall be final and binding.
Neither this Section 6(B) nor any other provision of the Plan shall
preclude a grantee from transferring the right to receive performance shares to
(i) the trustee(s) of a trust that is revocable by such grantee alone, both at
the time of the transfer and at all times thereafter prior to such grantee's
death, or (ii) the trustee(s)
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of any other trust to the extent approved in advance by the Board. The right to
receive performance shares held by such trustee(s) shall be subject to all the
restrictions, terms and conditions of the Plan and the applicable agreement as
if such trustee(s) were a party to such agreement.
(C) Other Share Awards
The Board, in its discretion, may from time to time make other awards of
shares of Common Stock under the Plan as an inducement to the grantee to enter
the employment of the Company or a Subsidiary, in recognition of the
contribution of the grantee to the performance of the Company or a Subsidiary,
or any branch, department or other portion thereof, in recognition of the
grantee's individual performance or on the basis of such other factors as the
Board may deem relevant. Common Stock issued as a bonus pursuant to this Section
6(C) shall be issued for such consideration as the Board shall determine in its
sole discretion.
SECTION 7
ADJUSTMENT AND SUBSTITUTION OF SHARES
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
subject to any outstanding stock options or performance share awards and the
number of shares of the Common Stock which may be issued under the Plan but are
not subject to outstanding stock options or performance share awards on the date
fixed for determining the shareholders entitled to receive such stock dividend
or distribution shall be adjusted by adding thereto the number of shares of the
Common Stock which would have been distributable thereon if such shares had been
outstanding on such date. Shares of Common Stock so distributed with respect to
any restricted shares held in escrow shall also be held by the Company in escrow
and shall be subject to the same restrictions as are applicable to the
restricted shares on which they were distributed.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option or
performance share award, and for each share of the Common Stock which may be
issued under the Plan but which is not then subject to any outstanding stock
option or performance share award, the number and kind of shares of stock or
other securities into which each outstanding share of the Common Stock shall be
so changed or for which each such share shall be exchangeable. Unless otherwise
determined by the Board, in its discretion, any such stock or securities, as
well as any cash or other property, into or for which any restricted shares held
in escrow shall be changed or exchangeable in any such transaction shall also be
held by the Company in escrow and shall be subject to the same restrictions as
are applicable to the restricted shares in respect of which such stock,
securities, cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 7, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new option price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Common Stock, (i) the Board shall make any adjustments to any
then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of grantees which would otherwise
result from any such transaction, and (ii) unless otherwise determined by the
Board, in its discretion, any stock, securities, cash or other property
distributed with respect to any restricted shares held in escrow or for which
any restricted shares held in escrow shall be exchanged in any such transaction
shall also be held by the Company in escrow and shall be subject to the same
restrictions
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as are applicable to the restricted shares in respect of which such stock,
securities, cash or other property was distributed or exchanged.
No adjustment or substitution provided for in this Section 7 shall require
the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of restricted shares held in
escrow shall be treated in the same manner as owners of Common Stock not held in
escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the Board,
in its discretion, any cash or other property paid in lieu of a fractional share
shall be subject to restrictions similar to those applicable to the restricted
shares exchanged therefor.
If any adjustment or substitution provided for in this Section 7 requires
the approval of shareholders in order to enable the Company to grant incentive
stock options, then no such adjustment or substitution shall be made without the
required shareholder approval. Notwithstanding the foregoing, in the case of
incentive stock options, if the effect of any such adjustment or substitution
would be to cause the stock option to fail to continue to qualify as an
incentive stock option or to cause a modification, extension or renewal of such
stock option within the meaning of Section 424 of the Code, the Board may elect
that such adjustment or substitution not be made but rather shall use reasonable
efforts to effect such other adjustment of each then outstanding stock option as
the Board, in its discretion, shall deem equitable and which will not result in
any disqualification, modification, extension or renewal (within the meaning of
Section 424 of the Code) of the incentive stock option.
Except as provided in this Section 7, a grantee shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
SECTION 8
ADDITIONAL RIGHTS IN CERTAIN EVENTS
(A) Definitions.
For purposes of this Section 8, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections 13(d)
and 14(d) of the 1934 Act as in effect on the effective date of the Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on the effective date of the Plan.
(3) A specified percentage of "Voting Power" of a company shall mean such
number of the Voting Shares as shall enable the holders thereof to cast such
percentage of all the votes which could be cast in an annual election of
directors (without consideration of the rights of any class of stock other
than the common stock of the company to elect directors by a separate class
vote); and "Voting Shares" shall mean all securities of a company entitling
the holders thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than the common stock
of the company to elect directors by a separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of the Company (other than such an offer made by the Company or any
Subsidiary), whether or not such offer is approved or opposed by the Board.
(5) "Continuing Directors" shall mean a director of the Company who either
(a) was a director of the Company on the effective date of the Plan or (b) is
an individual whose election, or nomination for election, as a director of the
Company was approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an individual whose
initial assumption of office is in connection
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with an actual or threatened election contest relating to the election of
directors of the Company which would be subject to Rule 14a-11 under the 1934
Act, or any successor Rule).
(6) "Section 8 Event" shall mean the date upon which any of the following
events occurs:
(a) The Company acquires actual knowledge that any Person other than
the Company, a Subsidiary or any employee benefit plan(s) sponsored by the
Company or a Subsidiary has acquired the Beneficial Ownership, directly or
indirectly, of securities of the Company entitling such Person to 20% or
more of the Voting Power of the Company;
(b) A Tender Offer is made to acquire securities of the Company
entitling the holders thereof to 20% or more of the Voting Power of the
Company; or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or more of the
members of the Board or any class of the Board shall be made by any person
other than the Company or less than 51% of the members of the Board shall
be Continuing Directors; or
(d) The shareholders of the Company shall approve a merger,
consolidation, share exchange, division or sale or other disposition of
assets of the Company as a result of which the shareholders of the Company
immediately prior to such transaction shall not hold, directly or
indirectly, immediately following such transaction a majority of the Voting
Power of (i)in the case of a merger or consolidation, the surviving or
resulting corporation, (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than 10% of the
consolidated assets of the Company immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
(a) above, (ii) a grantee is required to be named pursuant to Item 2 of the
Schedule 14D-1 (or any similar successor filing requirement) required to be
filed by the bidder making a Tender Offer referred to in (b) above or (iii) if
a grantee is a "participant" as defined in Instruction 3 to Item 4 of Schedule
14A under the 1934 Act (or any successor Rule) in a solicitation (other than a
solicitation by the Company) referred to in (c) above, then no Section 8 Event
with respect to such grantee shall be deemed to have occurred by reason of
such event.
(B) Acceleration of the Exercise Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(I) shall otherwise
provide, notwithstanding any other provision contained in the Plan, in case any
"Section 8 Event" occurs all outstanding stock options (other than those granted
to a person referred to in the proviso to Section 8(A)(6)) shall become
immediately and fully exercisable whether or not otherwise exercisable by their
terms.
(C) Extension of the Expiration Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(I) shall otherwise
provide, notwithstanding any other provision contained in the Plan, all
outstanding stock options granted to a grantee (other than a grantee referred to
in the proviso to Section 8(A)(6)) whose employment with the Company or a
Subsidiary terminates within one year of any Section 8 Event for any reason
other than voluntary termination with the consent of the Company or a
Subsidiary, retirement under any retirement plan of the Company or a Subsidiary
or death, or whose service as a Nonemployee Director ceases within one year of
any Section 8 Event for any reason other than removal for cause or death, which
are exercisable shall continue to be exercisable for a period of three years
from the date of such termination of employment or the date the grantee ceases
to be a Nonemployee Director, but in no event after the expiration date of the
stock option.
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(D) Lapse of Restrictions on Restricted Shares.
Unless the agreement referred to in Section 6(A) shall otherwise provide,
notwithstanding any other provision contained in the Plan, if any "Section 8
Event" occurs prior to the scheduled lapse of all restrictions applicable to
restricted shares (other than shares awarded to a person referred to in the
proviso to Section 8(A)(6)), all such restrictions shall lapse upon the
occurrence of any such "Section 8 Event" regardless of the scheduled lapse of
such restrictions.
(E) Payment of Performance Shares
Unless the agreement referred to in Section 6(B) shall otherwise provide,
notwithstanding any other provision contained in the Plan, if any "Section 8
Event" occurs prior to the end of an award period with respect to an award of
performance shares to a grantee, the performance shares (unless the grantee is a
person referred to in the proviso to Section 8(A)(6)) shall be deemed to have
been fully earned as of the date of the Section 8 Event, regardless of the
attainment or nonattainment of any performance target and shall be paid as
promptly as practicable after the Section 8 Event.
SECTION 9
EFFECT OF THE PLAN ON THE RIGHTS OF GRANTEES
Neither the adoption of the Plan nor any action of the Board pursuant to
the Plan shall be deemed to give any employee any right to be granted a stock
option (with or without alternative stock appreciation rights and/or cash
payment rights) or an award under the Plan. Nothing in the Plan, in any stock
option, alternative stock appreciation rights or cash payment rights granted
under the Plan or in any award under the Plan or in any agreement providing for
any of the foregoing shall confer any right on any employee to continue in the
employ of the Company or any Subsidiary or interfere in any way with the rights
of the Company or any Subsidiary to terminate the employment of any employee at
any time.
Neither the adoption of the Plan nor any action of the Board pursuant to
the Plan shall confer any right to any person to continue as a Nonemployee
Director of the Company or interfere in any way with the rights of the
shareholders of the Company or the Board to elect and remove Nonemployee
Directors.
SECTION 10
WITHHOLDING
Income or employment taxes may be required to be withheld by the Company or
a Subsidiary in connection with the exercise of a stock option or alternative
stock appreciation rights, upon a "disqualifying disposition" of the shares
acquired upon exercise of an incentive stock option, at the time restricted
shares are awarded or vest, performance shares are earned or other shares are
awarded, or upon the receipt by the grantee of cash in payment of cash payment
rights or dividends which are treated as compensation. Except as provided below,
the grantee shall pay the Company in cash the amount required to be withheld.
Unless the Board, in its discretion, shall otherwise determine, a grantee
may elect to have any withholding obligation at the time of the exercise of a
nonstatutory stock option or alternative stock appreciation rights or at the
time restricted shares vest, performance shares are earned or other shares are
awarded satisfied in whole or in part by the Company withholding from the shares
of Common Stock that would otherwise be received shares of the Common Stock
having a fair market value, determined as provided in Section 5(J), on the date
that the amount of tax to be withheld is determined (the "Tax Date") equal to or
less than the amount required to be withheld, and in this event the Company will
request that the grantee pay any additional amount required to be withheld
directly to the Company in cash.
Unless the Board, in its discretion, shall otherwise determine, a grantee
may also elect to have any withholding obligation at the time of the exercise of
a stock option or alternative stock appreciation rights, upon a "disqualifying
disposition" of the shares acquired upon the exercise of an incentive stock
option or at the time restricted shares are granted or vest, performance shares
are earned or other shares are awarded
12
<PAGE> 14
satisfied in whole or in part by the grantee delivering to the Company shares of
the Common Stock having a fair market value, determined as provided in Section
5(J), on the Tax Date equal to or less than the amount required to be withheld,
except that no shares of the Common Stock which have been held for less than one
year may be delivered, and in this event the Company will request that the
grantee pay any additional amount required to be withheld directly to the
Company in cash.
Unless the Board, in its discretion, shall otherwise determine, any income
or employment taxes required to be withheld by the Company or any of its
Subsidiaries upon the receipt of cash in payment of cash payment rights or
dividends will be satisfied by the Company by withholding the taxes required to
be withheld from the cash the grantee would otherwise receive.
If a grantee does not pay any income or employment taxes required to be
withheld by the Company or any of its Subsidiaries within ten days after a
request for the payment of such taxes, the Company or such Subsidiary may
withhold such taxes from any other compensation to which the grantee is entitled
from the Company or any of its Subsidiaries. The Company shall not be required
to deliver any shares or make any cash payment under the Plan until the
withholding obligation has been satisfied.
SECTION 11
AMENDMENT
The right to alter and amend the Plan at any time and from time to time and
the right to revoke or terminate the Plan are hereby specifically reserved to
the Board; provided that no such alteration or amendment of the Plan shall,
without shareholder approval, (i) increase the number of shares which may be
issued under the Plan as set forth in Section 3, (ii) decrease the purchase
price at which stock options may be granted to less than one hundred percent
(100%) of the fair market value per share of the Common Stock on the date of
grant, (iii) reprice outstanding stock options or other awards or (iv) extend
the duration of the Plan. No alteration, amendment, revocation or termination of
the Plan shall, without the written consent of the holder of an outstanding
grant or award under the Plan, adversely affect the rights of such holder with
respect to such outstanding grant or award.
SECTION 12
EFFECTIVE DATE AND DURATION OF PLAN
Subject to its approval by the shareholders of the Company, the Plan shall
be effective as of December 18, 1997. No stock option or alternative stock
appreciation rights granted under the Plan may be exercised and no restricted,
performance or other shares may be awarded until after such approval. No stock
option, alternative stock appreciation rights or cash payment rights may be
granted and no restricted, performance or other share awards may be made under
the Plan subsequent to December 17, 2007.
13
<PAGE> 1
Exhibit 10.11
TUSCARORA INCORPORATED
INDEMNIFICATION AND INSURANCE AGREEMENT
THIS AGREEMENT made this 15th day of December, 1994, by and
between TUSCARORA INCORPORATED, a Pennsylvania corporation (the "Company"), and
Robert W. Kampmeinert (the "Director").
WHEREAS, the Director is an Authorized Representative of the
Company, as "Authorized Representative" is defined in Section 1 of this
Agreement; and
WHEREAS, the Articles of the Company and the indemnification
provisions of the Pennsylvania Business Corporation Law (the "State Statute")
specifically provide that the rights to indemnification and advancement of
expenses provided by such Articles, the State Statute or any other provision of
law are not exclusive of any other rights to which any person may be entitled
under any by-law, agreement, vote of shareholders or directors or otherwise and
thus contemplate that agreements may be entered into with respect to
indemnification and advancement of expenses; and
WHEREAS, the State Statute permits the Company to purchase and
maintain insurance on behalf of Authorized Representatives against any
reasonable expenses and liability incurred by such persons; and
WHEREAS, developments with respect to the availability of
liability insurance at a reasonable cost and the terms on which liability
insurance may be procured have raised uncertainties concerning the adequacy and
reliability of the protection afforded by such insurance; and
WHEREAS, the Board of Directors of the Company (the "Board")
has concluded that the continuation of present trends in litigation against
Authorized Representatives will make it more difficult for the Company to
attract and retain directors, officers, employees, agents and other
representatives of the highest degree of competence and commitment; and
WHEREAS, the Board deems such consequences to be so
detrimental to the best interests of the Company and its shareholders that it
has concluded that it is reasonable, prudent and necessary for the Company to
act to provide certain of its Authorized Representatives with enhanced
protection against inordinate risks attendant on their positions in order to
assure that the most capable persons otherwise available will be attracted to
such positions; and
WHEREAS, in order to ameliorate the uncertainties and provide
the protection referred to above and to induce the Director to continue to serve
the Company, the Company has
<PAGE> 2
determined it to be in the best interests of the Company and its shareholders
that the Company enter into this Agreement with the Director;
NOW THEREFORE, in consideration of the continued service of
the Director to the Company after the date of this Agreement, the Company and
the Director, intending to be legally bound by this Agreement, agree as follows:
1. Authorized Representative. For the purpose of this
Agreement, the term "Authorized Representative" means a director or officer of
the Company or a subsidiary of the Company; a person serving at the request of
the Company as a director, officer, employee, fiduciary or other representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other entity; and any other person designated by the Board as entitled to the
benefit of the indemnification provisions of the Articles of the Company or of
an agreement similar to this Agreement.
2. Indemnification. Except as provided in Section 7 of this
Agreement, the Company shall hold harmless and indemnify the Director against
all Expenses and Liability (as those terms are defined below in this Section 2)
incurred by the Director in connection with any actual or threatened claim,
action, suit or proceeding, whether civil, criminal, administrative,
investigative or other, or whether brought by or against the Director or by or
in the right of the Company or otherwise, in which the Director may be involved
in any manner, as a party, witness or otherwise, or is threatened to be made so
involved, by reason of the fact that the Director was or is an Authorized
Representative, either as to action by the Director in his or her official
capacity as a director or as to action by the Director in another capacity while
holding such official capacity (any such claim, action, suit or proceeding being
hereinafter referred to as an "Action" and any such claim, action, suit or
proceeding brought by the Director against the Company being hereinafter
referred to as a "Director Action"). As used in this Agreement, the term
"Expenses" means all expenses actually and reasonably incurred, including fees
and expenses of counsel selected by the Director, and "Liability" means all
liability incurred, including the amounts of any judgments, excise taxes, fines
or penalties and any amounts paid in settlement.
3. Advancement of Expenses and Liability. The Company shall
pay all Expenses incurred by the Director in defending an Action, or in bringing
and pursuing a Director Action under Section 5 of this Agreement, in advance of
the final disposition of such Action or Director Action, except that no Expenses
shall be advanced in respect of any Director Action brought to obtain payment
for failure to maintain insurance under Section 4(c) of this Agreement. Also, if
the Director shall become obligated or
-2-
<PAGE> 3
required to pay any Expenses or Liability that the Company would be obligated to
pay under this Agreement except for the exclusion in clause (iv) of Section 7 of
this Agreement before payment is reasonably expected to be made to the Director
under an Insurance Policy or a Security Arrangement (as those terms are defined
in clause (iv) of Section 7 of this Agreement), the Company shall advance the
amount of any such Expenses or Liability to the Director. The advances of
Expenses and Liability by the Company under this Section 3 are subject to the
obligations of the Director set forth in Section 10(b) of this Agreement.
4. Maintenance of Insurance and Self Insurance.
(a) The Company represents that it presently has in force and
effect the insurance on behalf of the Director against certain
liabilities asserted against or incurred by the Director as set forth
in Appendix A attached to and made a part of this Agreement. Subject
only to the provisions of Section 4(b) of this Agreement, the Company
agrees that, so long as the Director shall continue as an Authorized
Representative of the Company and thereafter so long as the Director
shall be subject to any actual or threatened Action by reason of the
fact that the Director served as an Authorized Representative of the
Company, the Company shall purchase and maintain in effect for the
benefit of the Director such insurance providing, in all respects,
coverage at least comparable to that presently provided.
(b) The Company shall not be required to maintain the
insurance referred to in Section 4(a) of this Agreement if such
insurance is not available on terms satisfactory to the then Board or
if, in the business judgment of the then Board, either (i) the premium
cost for such insurance is substantially disproportionate to the amount
of coverage or (ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient benefit from such
insurance.
(c) Without limiting the obligations of the Company to provide
indemnification and advancement of Expenses and Liability under
Sections 2 and 3 of this Agreement, respectively, if the Company does
not purchase and maintain in effect the insurance referred to in
Section 4(a) of this Agreement for whatever reason, the Company shall
hold harmless and make payment to the Director to the fullest extent of
the coverage which would otherwise have been provided by such insurance
for the benefit of the Director.
-3-
<PAGE> 4
5. Right of the Director to Payment Upon Request; Suit to Recover.
(a) Any indemnification under Section 2 of this Agreement,
advancement of Expenses or Liability under Section 3 of this Agreement,
payment for failure to maintain insurance under Section 4 of this
Agreement or contribution under Section 8 of this Agreement shall be
made no later than 30 days after receipt by the Company of a written
request from the Director. If payment in full to the Director pursuant
to such a request is not made by the Company within such period, the
Director may at any time thereafter bring a Director Action to recover
the unpaid amount of the claim and, if successful in whole or in part,
the Director shall also be entitled to be paid for the Expenses of the
Director incurred in bringing and pursuing such Director Action; and
the Company hereby empowers the prothonotary or any attorney of any
court of record within the United States or elsewhere to appear for the
Company and to confess judgment as often as necessary against the
Company in favor of the Director, as of any term, for the amount of the
indemnification, advancement of Expenses or Liability, payment for
failure to maintain insurance or contribution so requested by the
Director, together with costs of suit and an attorney's commission of
15%, with release of all errors.
(b) The only defense to a Director Action to recover on a
claim for indemnification under Section 2 of this Agreement shall be
that the Company is not liable for such payment by reason of Section 7
of this Agreement, but the burden of proving such defense shall be on
the Company. Neither the failure of the Company (including its Board of
Directors, independent legal counsel and shareholders) to have made a
determination prior to the commencement of such Director Action that
indemnification of the Director is proper in the circumstances, nor an
actual determination by the Company (including its Board of Directors,
independent legal counsel or shareholders) that the conduct of the
Director was such that indemnification is prohibited by law, shall be a
defense to such Director Action for indemnification or create a
presumption that the conduct of the Director was such that
indemnification is prohibited by law.
6. Changes in the Law; Partial Indemnity.
(a) If any change after the date of this Agreement in any
applicable law, statute or rule expands the power of the Company to
indemnify an Authorized Representative, such change shall be within the
purview of the rights of the Director and the obligations of the
Company under this
-4-
<PAGE> 5
Agreement. If any change in any applicable law, statute or rule narrows
the right of the Company to indemnify an Authorized Representative such
change, to the extent not otherwise required by such law, statute or
rule to be applied to this Agreement, shall have no effect on this
Agreement or the rights and obligations of the Company and the Director
under this Agreement.
(b) If the Director is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of
the Expenses or Liability incurred by the Director in the prosecution,
defense, appeal or settlement of any Action or Director Action but not,
however, for the total amount of such Expenses or Liability, the
Company shall indemnify the Director for the portion of such Expenses
or Liability to which the Director is entitled.
7. Exclusions. The Company shall not be liable under this
Agreement for any of the following payments:
(i) any payment for Expenses or Liability under
Section 2 of this Agreement if it shall be finally adjudicated
that such payment (which may constitute a portion of the total
Expenses or Liability incurred by the Director, as
contemplated by Section 6(b) of this Agreement) is prohibited
by law; or
(ii) any payment for Expenses or Liability on account
of any Action brought under Section 16(b) of the Securities
Exchange Act of 1934, as amended, in which judgment is
rendered against the Director for an accounting for profits
realized from the purchase and sale, or sale and purchase, by
the Director of equity securities of the Company; or
(iii) any payment for Expenses in a Director Action
unless (1) the Director Action is instituted under Section 5
of this Agreement and the Director is successful in whole or
in part in such Director Action, (2) the Director is
successful in whole or in part in another Director Action for
which Expenses are claimed or (3) the indemnification for
Expenses is included in a settlement of, or is awarded by a
court in, such other Director Action; or
(iv) any payment for Expenses or Liability to the
extent payment is actually made to the Director under a valid,
enforceable and collectible insurance policy provided by the
Company (an "Insurance Policy") or by or out of a trust fund
created by the Company, under a letter of credit or from other
sources provided by the Company (a "Security Arrangement").
-5-
<PAGE> 6
8. Contribution. If the full indemnification provided in
Section 2 of this Agreement may not be paid to the Director because of the
exclusion in clause (i) of Section 7 of this Agreement, then in respect of any
actual or threatened Action in which the Company is jointly liable with the
Director (or would be if joined in such Action), the Company shall contribute to
the amount of any Expenses or Liability incurred by the Director for which
indemnification is not available in such proportion as is appropriate to reflect
(i) the relative benefits received by the Company on the one hand and the
Director on the other hand from the transaction from which the Action arose and
(ii) the relative fault of the Company, including its other Authorized
Representatives, employees, agents and other representatives, on the one hand,
and of the Director on the other hand in connection with the events which
resulted in such Expenses or Liability, as well as any other relevant equitable
considerations. The relative fault of the Company, including its other
Authorized Representatives, employees, agents and other representatives, on the
one hand, and of the Director on the other hand shall be determined by reference
to, among other things, the relative intent, knowledge, access to information
and opportunity of the Company and the Director to correct or prevent the
circumstances resulting in such Expenses or Liability. The Company agrees that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
9. Continuation of Company Obligations. All obligations of the
Company contained in this Agreement shall continue during the period the
Director is an Authorized Representative of the Company and shall continue
thereafter so long as the Director may be subject to any possible Action by
reason of the fact that the Director was an Authorized Representative of the
Company.
10. Obligations of the Director.
(a) Promptly after receipt by the Director of notice of the
commencement of any Action in respect of which the Director may seek
indemnification, advancement of Expenses or Liability or payment for
failure to maintain insurance, the Director shall notify the Company in
writing of the commencement of such Action; but the omission so to
notify the Company shall not relieve the Company from any obligation it
may have to provide indemnification, advance Expenses or Liability or
make payment for failure to maintain insurance to the Director
otherwise than under this Agreement.
-6-
<PAGE> 7
(b) The Director agrees that the Director shall promptly
reimburse the Company for all or an appropriate portion of any Expenses
or Liability advanced by the Company to the Director pursuant to
Section 3 of this Agreement or recovered by the Director pursuant to
Section 5 of this Agreement (i) if it shall be finally adjudicated that
the Director is not entitled to be indemnified, or not entitled to be
fully indemnified, with respect to any such Expenses or Liability for
any of the reasons specified in Section 7 of this Agreement or (ii)
upon receipt by the Director under an Insurance Policy or a Security
Arrangement of the amount of any Expenses or Liability advanced to the
Director by the Company.
11. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be invalidated by
any court of competent jurisdiction, such provision shall be ineffective only to
the extent of such invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
12. Miscellaneous.
(a) This Agreement shall only be applicable to Actions
commenced after the date of this Agreement. Any such Action may,
however, arise from acts or omissions occurring before the date of this
Agreement.
(b) This Agreement shall be deemed to be a contract made under
and shall be governed by and construed and enforced in accordance with
the internal laws of the Commonwealth of Pennsylvania without regard to
principles of conflicts of laws.
(c) This Agreement shall be binding upon the Director and the
heirs and personal representatives of the Director and upon the Company
and its successors. This Agreement shall inure only to the benefit of
the Director and the heirs and personal representatives of the Director
and to the benefit of the Company and its successors and shall not
inure to the benefit of any other party.
(d) No amendment, termination or claimed waiver of any of the
provisions of this Agreement shall be valid unless in writing and
signed by the party or an authorized representative of the party
against whom such amendment, termination or claimed waiver is sought to
be enforced.
(e) The rights to indemnification, advancement of Expenses and
Liability, payment for failure to maintain insurance and contribution
provided by this Agreement shall
-7-
<PAGE> 8
not be deemed exclusive of any other rights, whether now existing or
hereafter created, to which the Director may be entitled under any
other agreement, any provision in the Articles or By-Laws of the
Company, any vote of shareholders or directors, the State Statute, or
otherwise, either as to action by the Director in his or her official
capacity as a director or as to action by the Director in another
capacity while holding such official capacity.
IN WITNESS WHEREOF, the Company and the Director have executed
this Agreement as of the day and year first above written.
TUSCARORA INCORPORATED
By: /s/ John P. O'Leary, Jr.
-------------------------------
John P. O'Leary, Jr.
Title:
-----------------------------
President and Chief Executive
Officer
/s/ Robert W. Kampmeinert
-----------------------------------
Robert W. Kampmeinert, Director
-8-
<PAGE> 1
Exhibit 11
TUSCARORA INCORPORATED
EXHIBIT 11 -- COMPUTATION OF DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average number of shares
of Common Stock outstanding 9,194 9,231 9,362 9,452 9,488
Net effect of dilutive stock options --
based on the treasury stock method
using the average market price for
the period 125 156 171 167 168
------ ------ ------ ------ ------
TOTAL 9,318 9,387 9,533 9,619 9,657
====== ====== ====== ====== ======
Net income $5,703 $8,980 $9,653 $9,295 $8,032
====== ====== ====== ====== ======
Per share amount $0.61 $0.96 $1.01 $0.97 $0.83
====== ====== ====== ====== ======
</TABLE>
The per share amounts and share numbers have been adjusted to reflect the 50%
share distribution declared on December 18, 1996 payable on January 13, 1997 to
shareholders of record on December 27, 1996. In thousands, except per share
data.
<PAGE> 1
EXHIBIT 13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------
Year Ended
August 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $232,902,210 $209,206,775 $182,589,621
Cost of Sales 180,144,500 160,951,244 139,249,481
- ---------------------------------------------------------------------------------------------
Gross profit 52,757,710 48,255,531 43,340,140
- ---------------------------------------------------------------------------------------------
Selling and Administrative Expenses 31,195,448 28,636,840 24,524,593
Restructuring Costs (Note 12) 3,495,336 -- --
Interest Expense 4,944,271 3,741,275 2,928,483
Other (Income) Expense-- Net (58,756) 436,154 (18,235)
- ---------------------------------------------------------------------------------------------
39,576,299 32,814,269 27,434,841
- ---------------------------------------------------------------------------------------------
Income before income taxes 13,181,411 15,441,262 15,905,299
Provision for Income Taxes (Note 8) 5,149,463 6,146,001 6,252,682
- ---------------------------------------------------------------------------------------------
Net income $ 8,031,948 $ 9,295,261 $ 9,652,617
=============================================================================================
Basic net income per share of
Common Stock (Note 1) $0.85 $0.98 $1.03
Diluted net income per share $0.83 $0.97 $1.01
- ---------------------------------------------------------------------------------------------
Weighted average number of shares
of Common Stock outstanding:
Basic 9,488,436 9,452,082 9,362,409
Diluted 9,656,583 9,619,239 9,533,056
- ---------------------------------------------------------------------------------------------
</TABLE>
Basic and diluted net income per share of Common Stock and the weighted average
number of shares of Common Stock outstanding have been adjusted to reflect the
50% share distribution paid on January 13, 1997. The accompanying notes are an
integral part of the consolidated financial statements.
TUSCARORA ANNUAL REPORT 98
10
<PAGE> 2
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------
Assets (August 31) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,452,281 $ 5,095,149
Trade accounts receivable, less allowance of
$651,720 in 1998; $674,689 in 1997 34,239,819 31,667,668
Inventories (Note 2) 20,158,857 18,238,886
Prepaid expenses and other current assets 1,955,310 1,592,284
- -----------------------------------------------------------------------------------------------------------
Total current assets 61,806,267 56,593,987
- -----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 3,944,644 3,867,700
Buildings and improvements 58,796,424 55,320,144
Machinery and equipment 131,344,481 128,809,150
- -----------------------------------------------------------------------------------------------------------
Total 194,085,549 187,996,994
- -----------------------------------------------------------------------------------------------------------
Less accumulated depreciation (96,547,340) (94,882,160)
- -----------------------------------------------------------------------------------------------------------
Net property, plant and equipment 97,538,209 93,114,834
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill 8,905,355 8,540,479
Other non-current assets 3,916,075 4,138,260
- -----------------------------------------------------------------------------------------------------------
Total other assets 12,821,430 12,678,739
- -----------------------------------------------------------------------------------------------------------
Total assets $172,165,906 $162,387,560
===========================================================================================================
Liabilities and Shareholders' Equity (August 31)
- -----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt (Note 3) $ 5,321,709 $ 5,133,332
Accounts payable 14,178,763 16,714,670
Accrued income taxes 337,711 390,008
Accrued payroll and related taxes 1,133,192 910,090
Other current liabilities 5,975,400 3,661,408
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 26,946,775 26,809,508
- -----------------------------------------------------------------------------------------------------------
Long-term Debt (Note 3) 61,184,124 57,166,326
Deferred Income Taxes (Note 8) 1,677,978 2,417,725
Other Long-term Liabilities (Note 9) 2,833,072 3,176,653
- -----------------------------------------------------------------------------------------------------------
Total liabilities 92,641,949 89,570,212
- -----------------------------------------------------------------------------------------------------------
Commitments (Note 13)
Shareholders' Equity
Preferred Stock--par value $.01 per share;
authorized shares, 1,000,000; none issued -- --
Common Stock--without par value, authorized shares,
20,000,000; issued shares, 9,530,856 in 1998,
9,479,241 in 1997 (Note 4) 9,530,856 9,479,241
Capital surplus (Note 4) 1,435,582 1,071,878
Retained earnings 68,240,138 62,291,940
Foreign currency translation adjustment 392,150 49,999
- -----------------------------------------------------------------------------------------------------------
Total 79,598,726 72,893,058
- -----------------------------------------------------------------------------------------------------------
Less Common Stock in treasury--4,620 shares
in 1998 and 1997; at cost (74,769) (75,710)
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 79,523,957 72,817,348
- -----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $172,165,906 $162,387,560
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
TUSCARORA ANNUAL REPORT 98
11
<PAGE> 3
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended
August 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,031,948 $ 9,295,261 $ 9,652,617
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 16,080,389 14,429,068 12,364,207
Amortization 1,150,138 857,319 612,773
Provision for losses on receivables 311,711 504,862 378,366
Increase (decrease) in deferred income taxes (748,329) (69,674) 200,468
Loss on sale, abandonment or write-down of
property, plant and equipment, net (Note 12) 2,470,209 524,449 80,883
Stock compensation expense 13,513 13,684 12,290
Changes in operating assets and liabilities, net of
effects of business acquisitions:
Decrease (increase):
Trade accounts receivable (3,095,960) 852,227 (2,588,248)
Inventories (1,816,520) (521,990) 2,561,825
Prepaid expenses and other current assets (357,209) (961,419) (309,401)
Other non-current assets 220,059 (179,702) (226,454)
Increase (decrease):
Accounts payable (2,490,497) (2,133,551) 726,863
Accrued income taxes (55,307) 96,729 (281,410)
Accrued payroll and related taxes 241,914 249,493 100,695
Other current liabilities 2,112,943 (2,256,586) (884,162)
Other long-term liabilities (357,788) 311,645 (53,049)
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 21,711,214 21,011,815 22,348,263
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (24,153,483) (21,318,432) (23,128,792)
Business acquisitions, net of cash acquired (Note 10) (1,062,744) (14,084,072) (513,239)
Proceeds from sale of property, plant and equipment 1,399,612 1,050,319 152,129
- ---------------------------------------------------------------------------------------------------------------------------
Cash (used for) investing activities (23,816,615) (34,352,185) (23,489,902)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 9,221,670 23,000,000 8,000,000
Payments on long-term debt (5,156,164) (6,320,161) (4,854,866)
Dividends paid (2,083,750) (1,828,369) (1,626,948)
Proceeds from sale of Common Stock 402,746 421,194 323,218
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by
financing activities 2,384,502 15,272,664 1,841,404
- ---------------------------------------------------------------------------------------------------------------------------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS 78,031 (216,921) 20,244
Net increase in cash and cash equivalents 357,132 1,715,373 720,009
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,095,149 3,379,776 2,659,767
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,452,281 $ 5,095,149 $ 3,379,776
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA
Income taxes paid $ 6,058,530 $ 5,944,408 $ 6,243,828
Interest paid $ 5,080,415 $ 3,046,640 $ 3,302,840
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
TUSCARORA ANNUAL REPORT 98
12
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Treasury Shares
------------------ --------------------- Foreign
Currency
Shares Capital Retained Translation
Issued Amount Surplus Earnings Shares Amount Adjustment Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
August 31, 1995 9,300,237 $9,300,237 ($840,577) $46,799,379 41,298 ($385,218) ($100,460) $54,773,361
- ---------------------------------------------------------------------------------------------------------------------------
Net income 9,652,617 9,652,617
Sale of
shares under
employee stock
purchase plan 9,020 9,020 131,374 140,394
Sale of
unissued shares
under stock
option plans 16,620 16,620 124,214 140,834
Sale of
treasury shares
under stock
option plans (203,729) (31,950) 307,660 103,931
Shares acquired in
payment of
option price 3,003 (49,652) (49,652)
Shares issued in
connection with
an acquisition 101,046 101,046 1,529,536 1,630,582
Dividends paid
($0.17 per share) (1,626,948) (1,626,948)
Foreign currency
translation adjustment 61,770 61,770
- ---------------------------------------------------------------------------------------------------------------------------
Balance at
August 31, 1996 9,426,923 $9,426,923 $740,818 $54,825,048 12,351 ($127,210) ($38,690) $64,826,889
- ---------------------------------------------------------------------------------------------------------------------------
Net income 9,295,261 9,295,261
Sale of
shares under
employee stock
purchase plan 9,873 9,873 147,384 157,257
Sale of
unissued shares
under stock
option plans 42,445 42,445 244,929 287,374
Sale of
treasury shares
under stock
option plans (61,253) (21,530) 258,873 197,620
Shares acquired in
payment of
option price 13,799 (207,373) (207,373)
Dividends paid
($0.19 per share) (1,828,369) (1,828,369)
Foreign currency
translation adjustment 88,689 88,689
- ---------------------------------------------------------------------------------------------------------------------------
Balance at
August 31, 1997 9,479,241 $9,479,241 $1,071,878 $62,291,940 4,620 ($75,710) $49,999 $72,817,348
- ---------------------------------------------------------------------------------------------------------------------------
Net income 8,031,948 8,031,948
Sale of
shares under
employee stock
purchase plan 9,516 9,516 147,461 156,977
Sale of
unissued shares
under stock
option plans 42,099 42,099 216,243 258,342
Sale of
treasury shares
under stock
option plans (4,371) 71,877 71,877
Shares acquired in
payment of
option price 4,371 (70,936) (70,936)
Dividends paid
($0.22 per share) (2,083,750) (2,083,750)
Foreign currency
translation adjustment 342,151 342,151
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
AUGUST 31, 1998 9,530,856 $9,530,856 $1,435,582 $68,240,138 4,620 ($74,769) $392,150 $79,523,957
===========================================================================================================================
</TABLE>
Share numbers, dollar amounts, and cash dividends paid per share of Common Stock
have been adjusted to reflect the 50% share distribution paid on January
13,1997.
The accompanying notes are an integral part of the consolidated financial
statements.
TUSCARORA ANNUAL REPORT 98
13
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
Tuscarora Incorporated (the Company) is a multinational designer and
manufacturer of interior protective packaging and material handling solutions,
made from a variety of materials, for a broad range of manufactured products.
The Company also supplies customers with molded foam plastic and thermoformed
components for a large number of industrial and consumer product applications.
The principal end-user markets that the Company serves are the high technology,
consumer electronics, automotive and major appliance industries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tuscarora
Incorporated and its subsidiaries. Significant inter-company accounts and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are translated
into U. S. dollars at current exchange rates. The revenues and expenses of these
operations are translated at the average exchange rates prevailing during the
fiscal year. These translation adjustments are accumulated in a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are included in determining net income for the fiscal year in which the exchange
rate changes.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of 90 days
or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of trade accounts receivable. However, due to the large number
of the Company's customers and their dispersion across many geographic areas,
concentrations of credit risk with respect to trade accounts receivable are
limited. This risk is further reduced by the Company's maintenance of credit
insurance on certain large accounts.
INVENTORIES
Inventories other than finished goods are stated at the lower of cost or market,
cost being determined on the FIFO (first-in, first-out) method. Finished goods
are stated at the lower of average cost or market and include the cost of
material, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and equipment are stated on the basis of cost. Major renewals
and betterments are capitalized while replacements and maintenance and repairs,
which do not improve or extend the life of the asset, are charged against
earnings in the year incurred. When properties are disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and any
gain or loss on disposition is reflected in earnings.
Provisions for depreciation of plant and equipment are computed on the
straight-line method based on the following estimated useful lives:
Buildings and improvements....................... 10-30 years
Machinery and equipment.......................... 3-10 years
OTHER ASSETS
Other assets consist primarily of intangible assets such as goodwill and
covenants not to compete which have been acquired in connection with business
acquisitions (see Note 10) and are amortized using the straight-line method.
Goodwill is amortized over 15 years and the covenants over the period covered by
each agreement.
The carrying value of intangible assets is periodically reviewed by the
Company and impairments are recognized when the expected future operating cash
flows derived from such intangible assets is less than their carrying value.
INTEREST RATE AGREEMENTS
The Company has entered into interest rate swap, cap and floor agreements with
its principal bank having a combined notional value of $37,750,000 at August 31,
1998. The purpose of these agreements is to reduce the impact of increases in
interest rates on the Company's variable rate long-term debt principally under
its credit agreement with its principal bank. While there was no net
out-of-pocket cost for these agreements, any amounts paid or received under the
agreements are recognized as adjustments to interest expense. Neither the fair
market value of the agreements nor the interest expense adjustments associated
with the agreements has been material.
TUSCARORA ANNUAL REPORT 98
14
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
INCOME TAXES
The provision for income taxes includes deferred taxes resulting from temporary
differences in income for financial reporting and tax purposes using the
liability method. Such temporary differences result primarily from differences
in the carrying value of assets and liabilities.
STOCK-BASED COMPENSATION
Stock options granted by the Company are accounted for in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB No. 25"). In accordance with APB No. 25, no stock-based
compensation expense has been recognized in the accompanying financial
statements for the Company's employee stock options since the exercise price of
the outstanding stock options has equalled the market price of the underlying
stock on the date of grant of the stock options. Stock-based compensation
expense under APB No. 25 has, however, been recognized in the accompanying
financial statements for the Company contributions under the Company's Common
Stock Purchase Plan.
NET INCOME PER SHARE
During the fiscal quarter ended February 28,1998, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings per Share". SFAS No. 128 replaced the calculation of primary and fully
diluted net income per share with a calculation of basic and diluted net income
per share. Basic net income per share computations are based on the weighted
average number of shares of Common Stock outstanding. Diluted net income per
share computations reflect the assumed exercise of outstanding stock options
based on the treasury stock method as prescribed by SFAS No. 128. Net income per
share amounts for all prior periods have been restated to conform to SFAS No.
128 requirements. The weighted average number of shares outstanding used in the
net income per share calculations at August 31, 1998, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year Ended
August 31, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic weighted average
number of shares 9,488,436 9,452,082 9,362,409
Diluted weighted average
number of shares 9,656,583 9,619,239 9,533,056
- -------------------------------------------------------------------------------
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" and SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related Information".
In 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued.These statements will be adopted by the Company when
required, and are not expected to have a material effect on the consolidated
financial statements.
NOTE 2: INVENTORIES
Inventories at August 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
August 31, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $10,454,863 $10,511,267
Work in process 257,055 154,962
Raw materials 7,510,482 5,820,100
Supplies 1,936,457 1,752,557
- -------------------------------------------------------------------------------
Total $20,158,857 $18,238,886
- -------------------------------------------------------------------------------
</TABLE>
TUSCARORA ANNUAL REPORT 98
15
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3: LONG-TERM DEBT
The Company's credit agreement with its principal bank provides for a
$40,000,000 revolving credit facility expiring on August 31, 2001 and a
$37,000,000 eight-year term note repayable in quarterly installments, with final
maturity on August 31, 2004. Under the credit agreement, the Company may choose
between various interest rate options for specified interest periods for both
the revolving credit facility and the term note. The agreement provides for a
commitment fee of 0.125% per annum on the average daily unborrowed funds under
the revolving credit facility.
Long-term debt outstanding at August 31, 1998 and 1997 is summarized as set
forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Interest Rate at August 31,
August 31, 1998 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes under credit agreement with principal bank:
Variable rate revolving credit note 6.70% $34,215,000 $26,215,000
Variable rate term note payable in quarterly
installments, through August 31, 2004 6.97% 27,750,000 32,375,000
Other long-term debt:
Variable rate industrial development bonds
subject to annual mandatory sinking
fund redemption through December 1, 2000,
with final payment on December 1, 2001 3.80% 2,450,000 2,875,000
Variable rate mortgage note payable in quarterly
installments, through March 30, 2006 9.00% 645,843 729,175
Capital lease obligation payable in monthly
installments, through May 25, 2005 8.00% 1,198,838 --
Other 5.75% 246,152 105,483
- ---------------------------------------------------------------------------------------------------------------------------
66,505,833 62,299,658
Less amounts due within one year, included in current liabilities 5,321,709 5,133,332
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt $61,184,124 $57,166,326
===========================================================================================================================
</TABLE>
The outstanding borrowings by the Company under the credit agreement with
its principal bank are unsecured. The credit agreement contains covenants, which
require the Company to maintain a certain tangible net worth, as well as certain
financial ratios. These covenants also impose limitations on the amount which
the Company may pay during any fiscal year for property, plant and equipment,
and in transactions accounted for as business acquisitions. At August 31, 1998,
approximately $4,300,000 of retained earnings was available for the payment of
cash dividends by the Company without causing a violation of any of the
financial covenants. The agreement relative to the Company's industrial
development bonds also contains financial covenants.
TUSCARORA ANNUAL REPORT 98
16
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Aggregate maturities of long-term debt during the next five fiscal years
are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
August 31,
- -------------------------------------------------------------------------------
<S> <C>
1999 $5,321,709
2000 5,321,709
2001 39,536,709
2002 5,321,709
2003 5,321,709
- -------------------------------------------------------------------------------
</TABLE>
The amount becoming due in the fiscal year ended August 31, 2001 includes
the $34,215,000 borrowed under the revolving credit facility with the Company's
principal bank. The bank makes an annual determination as to whether to extend
the expiration date of the revolving credit facility for an additional fiscal
year.
NOTE 4: COMMON STOCK
In all transactions involving the authorized but unissued shares of the
Company's Common Stock, an amount equal to $1.00 times the number of shares
which is issued is credited to the Common Stock account and the balance of the
purchase price is credited to the Capital Surplus account.
NOTE 5: SHAREHOLDER RIGHTS PLAN
In August 1998, the Company adopted a Shareholder Rights Plan under which the
holder of each share of the Company's outstanding Common Stock has an associated
preferred stock purchase right. The rights become exercisable to purchase shares
of a series of the Company's authorized Preferred Stock designated as the Series
A Junior Participating Preferred Stock under certain circumstances, and in the
event a person or group would acquire 20% or more of the Company's Common Stock,
if not previously redeemed the rights would entitle the holders (other than such
person or a member of such group) to purchase shares of the Common Stock of the
Company or an acquiring company at 50% of the respective stocks' current fair
market value. The rights expire on August 31, 2008.
NOTE 6: STOCK OPTIONS
In December 1997, the Company's shareholders approved the 1997 Stock Incentive
Plan (the "1997 Plan") under which the Board of Directors may grant options to
purchase a total of 750,000 shares of the Company's Common Stock to key
employees of the Company and its subsidiaries, and to the Company's non-employee
directors. At August 31, 1998, all 750,000 shares remained available for the
grant of stock options under the 1997 Plan.
The Company also has two prior stock option plans under which options to
purchase shares of the Company's Common Stock which remain outstanding have been
granted to key employees of the Company and its subsidiaries.
All outstanding stock options have been granted at 100% of the fair market
value of the Company's Common Stock on the date of grant. The stock options have
ten-year option terms. The option price may be paid in cash, in already-owned
shares of the Company's Common Stock, or in a combination of cash and shares.
Data concerning the outstanding stock options during each of the fiscal years in
the three-year period ended August 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 1 640,590 $12.08 566,565 $10.87 478,035 $ 8.62
Options granted 202,700 18.92 153,975 14.96 144,750 16.50
Options exercised (46,470) 7.11 (63,975) 7.58 (48,570) 5.04
Options expired (28,225) 17.43 (15,975) 14.89 (7,650) 14.15
- ---------------------------------------------------------------------------------------------------------------------------
Balance at August 31 768,595 $13.99 640,590 $12.08 566,565 $10.87
- ---------------------------------------------------------------------------------------------------------------------------
Exercisable at August 31 768,595 $13.99 640,590 $12.08 566,565 $10.87
===========================================================================================================================
</TABLE>
Stock options outstanding at August 31, 1998 were as follows:
<TABLE>
<CAPTION>
Range of Options at Weighted Average Weighted Average
Exercise Prices August 31, 1998 Exercise Price Remaining Contractual Life
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$5.17-$9.99 110,220 $ 7.32 2.3 years
$10.00-$14.99 343,575 12.52 7.7 years
$15.00-$19.16 314,900 17.93 8.4 years
- ---------------------------------------------------------------------------------------------------------------------------
Total 768,695
===========================================================================================================================
</TABLE>
TUSCARORA ANNUAL REPORT 98
17
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The following pro forma information regarding net income and basic net income
per share, required by Statement of Financial Accounting Standards (SFAS) No.
123 "Accounting and Disclosure of Stock-Based Compensation", has been determined
as if the Company had accounted for its employee stock options under the fair
value method of SFAS No. 123. The fair value for the options granted during the
1998, 1997 and 1996 fiscal years was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions: a risk-free
interest rate of 5.50% for 1998 and 6.50% for 1997 and 1996; a volatility factor
of the expected market price of the Company's Common Stock of 0.25 for 1998 and
0.28 for 1997 and 1996; a weighted average expected option life of seven years;
and a 1.00% dividend yield. For purposes of the pro forma disclosure, the
estimated fair value of the options granted ($6.72, $5.94 and $6.55 per share
for 1998, 1997 and 1996, respectively) is charged to expense during the fiscal
year of grant based on the vesting provisions of the grants. For the fiscal
years ended August 31, 1998, 1997 and 1996, the Company's reported and pro forma
net income and basic net income per share are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AS REPORTED: 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Net income $8,032,000 $9,295,000 $9,653,000
Basic net
income per share $0.85 $0.98 $1.03
- -------------------------------------------------------------
Pro forma:
- -------------------------------------------------------------
Net income $6,779,000 $8,380,000 $8,705,000
Basic net
income per share $0.71 $0.89 $0.93
- -------------------------------------------------------------
</TABLE>
NOTE 7: COMMON STOCK PURCHASE PLAN
The Company has a Common Stock Purchase Plan under which most full-time salaried
employees in the U.S. may participate. Employees may authorize salary deductions
up to 8% of annual salary but not to exceed $300 per month, and the Company
contributes an amount equal to 10% of the contributions of the participating
employees. The contributions are used to purchase shares of the Company's Common
Stock from the Company at current market value.
NOTE 8: INCOME TAXES
For the fiscal years ended August 31, 1998, 1997 and 1996, income (loss) before
income taxes consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Year Ended
August 31, 1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
U.S.
operations $15,506,129 $16,251,615 $15,639,009
Foreign
operations (2,324,718) (810,353) 266,290
- -------------------------------------------------------------------
Total $13,181,411 $15,441,262 $15,905,299
- -------------------------------------------------------------------
</TABLE>
The provision (benefit) for taxes on income consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Year Ended
August 31, 1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $5,780,529 $5,365,323 $4,894,867
State 115,913 741,814 1,140,588
Foreign 21,232 47,450 16,759
- -------------------------------------------------------------------
5,917,674 6,154,587 6,052,214
Deferred:
Federal (295,887) 197,229 110,844
State (86,740) 76,002 34,094
Foreign (385,584) (281,817) 55,530
- -------------------------------------------------------------------
(768,211) (8,586) 200,468
- -------------------------------------------------------------------
Total provision $5,149,463 $6,146,001 $6,252,682
- -------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the statutory U.S. corporate federal income
tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Year Ended
August 31, 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate
applied to
pre-tax income 35.0% 35.0% 35.0%
State income taxes
net of Federal
tax benefit 2.4% 5.3% 4.8%
Prior years' state
income tax
overaccruals (2.2%) -- --
Other 3.9% (0.5%) (0.5%)
- -----------------------------------------------------------
39.1% 39.8% 39.3%
- -----------------------------------------------------------
</TABLE>
TUSCARORA ANNUAL REPORT 98
18
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Deferred tax assets and liabilities at August 31, 1998 and 1997 were
comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
August 31, 1998 1997
- --------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for
bad debts $241,235 $238,445
Foreign net operating
loss carry forward 584,248 --
Supplemental
pension benefits 502,304 502,317
Other 331,238 142,208
Deferred tax liabilities:
Depreciation 2,991,992 3,085,036
Other 345,011 215,659
- --------------------------------------------------------
Net deferred
tax liability $1,677,978 $2,417,725
- --------------------------------------------------------
</TABLE>
NOTE 9: RETIREMENT BENEFITS
The Company maintains non-contributory individual account defined contribution
pension plans covering most employees in the U. S. and a contributory individual
account defined contribution pension plan covering most salaried employees in
the U. K. Under these pension plans, the Company contribution is 5.5% of total
compensation for most employees. Benefits generally do not become vested until,
but become fully vested upon, five full years of employment in the U. S. and two
full years of employment in the U. K. Normal retirement under all plans is age
65. All contributions are made to the plan trustees and invested for the
accounts of the participants. The Company contributions for the fiscal years
ended August 31, 1998, 1997 and 1996 were $2,237,627, $2,143,754 and $1,557,721,
respectively.
The Company also maintains Section 401(k) plans covering most salaried and
non-union hourly employees in the U. S. The Company makes matching contributions
based upon the savings of participants, subject to certain limitations. All
contributions are made to the plan trustee, are fully vested and are invested by
the plan trustee among various investment options in accordance with
instructions from the participants. The Company contributions for the fiscal
years ended August 31, 1998, 1997 and 1996 were $163,492, $108,510 and $94,628,
respectively.
Effective September 1, 1996, the Company adopted a supplemental executive
retirement plan under which benefits will be paid by the Company directly to
certain key employees following their retirement. Benefits under the plan accrue
each fiscal quarter and are reflected as a long-term liability. In addition,
certain former executive officers of the Company or their beneficiaries are
receiving supplemental retirement benefits directly from the Company, the future
liability for which is also reflected as a long-term liability. As of August 31,
1998, the liability for the supplemental retirement benefits amounted to
$1,112,356, of which $136,453 represents amounts payable within one year.
The Company does not provide any other significant postretirement benefits.
NOTE 10: ACQUISITIONS
Expenditures in connection with business acquisitions in the 1998 fiscal year
were not significant.
During the fiscal year ended August 31, 1997, the Company completed five
acquisitions. In September 1996, the Company acquired the custom thermoforming
business of FormPac Corporation in Sandusky, Ohio; in October 1996, the Company
acquired all the outstanding capital stock of EPS (Moulders) Ltd., a custom foam
molding business in Livingston, Scotland; in April 1997, the Company acquired
the custom thermoforming business of Thermoformers Plus in Chula Vista,
California; in May 1997, the Company acquired the integrated materials business
of Allgood Industries, Inc. in Hayward, California; and in July 1997, the
Company acquired all the outstanding capital stock of Arrowtip Group Ltd., a
custom molded and fabricated foam packaging business in the United Kingdom. The
aggregate purchase price recorded for these acquisitions has totaled
$17,662,000, including contingent consideration payable in certain of the
acquisitions. The amount recorded as contingent consideration is based on
readily attainable sales or on a specified minimum payment amount, and in the
aggregate is not material.
TUSCARORA ANNUAL REPORT 98
19
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In December 1995, the Company acquired all the outstanding capital stock of
Alpine Packaging, Inc., a custom designer and manufacturer of specialty
corrugated and technical/military specifications packaging and wood pallets in
Colorado Springs, Colorado. For this acquisition,the Company issued 101,046
shares of its Common Stock and paid cash having an aggregate value of $1,690,663
during the 1996 fiscal year. The Consolidated Statement of Cash Flows for the
fiscal year ended August 31, 1996 excludes the non-cash consideration issued in
connection with the acquisition.
All the acquisitions during the fiscal years ended August 31,1998, 1997 and
1996 have been accounted for as purchases. The operating results of the
acquisitions are included in the Company's consolidated results of operations
from the date of acquisition. The combined operating results, including the
operating results of the acquired businesses had they been included at the
beginning of the fiscal year of acquisition would not be materially different
from the consolidated results of operations as reported. In certain of these
acquisitions, part of the purchase price has been allocated to goodwill
(1998-$967,566; 1997-$5,065,420; and 1996-$1,383,140) and/or covenants not to
compete (see Note 1 of the Notes to Consolidated Financial Statements).
NOTE 11: LEASE COMMITMENTS
Rental expense charged to operations for the fiscal years ended August 31, 1998,
1997 and 1996 amounted to $6,550,994, $5,907,685 and $4,223,461, respectively.
The approximate net minimum rentals required to be paid under all non-cancelable
operating leases during each of the next five fiscal years is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
August 31,
- --------------------------------------------------------
<S> <C>
1999 $3,918,482
2000 3,552,298
2001 3,233,138
2002 2,812,520
2003 2,586,420
Thereafter 4,741,571
- --------------------------------------------------------
</TABLE>
Substantially all the rental payments represent commitments under leases
for manufacturing and warehouse facilities and under leases for trucking
equipment. The Company has the option to purchase certain of the manufacturing
and warehouse facilities.
NOTE 12: RESTRUCTURING COSTS
In February 1998, the Company initiated a restructuring plan to reduce costs and
increase future financial performance through a workforce reduction,
consolidation of certain product design centers and the write-down of certain
buildings and equipment that will no longer be employed in the Company's
operations. The total restructuring costs amounted to approximately $3,500,000.
The principal component of the restructuring plan was a charge of $2,070,572 to
cover the write-down of the carrying values of the property and equipment.
In addition, the restructuring costs included estimated employee
termination costs of $988,864 of which approximately $739,000 was paid as of
August 31, 1998. In connection with the restructuring plan, approximately 30
employees were terminated or accepted an early retirement package. These
employees were associated with the Company's field sales, design, manufacturing
and marketing activities and general corporate overhead. The balance of the
charge, approximately $400,000, relates to other restructuring costs associated
with the plan.
NOTE 13: CLAIMS AND CONTINGENCIES
A lawsuit seeking substantial compensatory and punitive damages as a result of
the alleged wrongful death of an employee was filed against the Company in
December 1996. In addition, several legal and administrative proceedings against
the Company involving claims of employment discrimination are pending. In the
opinion of management, the disposition of these proceedings should not have a
materially adverse effect on the Company's financial position or results of
operations.
NOTE 14:BUSINESS SEGMENTS
The Company currently operates primarily in a single business segment as a
designer and manufacturer of interior protective packaging, material handling
solutions and componentry.
TUSCARORA ANNUAL REPORT 98
20
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company has operations in the United States, the United Kingdom and
Mexico. Transfers between geographic regions are not significant. The geographic
distribution of sales and operating profit for the fiscal years ended August 31,
1998, 1997 and 1996 and of identifiable assets as of August 31, 1998, 1997 and
1996 is set forth below. A portion of U.S. selling expenses has been allocated
to the Mexican operations for all periods presented, since a majority of the
design and selling activity is performed by U.S. personnel. Operating profit is
gross profit less selling and administrative expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
August 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
United States $193,470,452 $178,587,326 $165,156,448
United Kingdom 25,696,670 21,078,007 12,398,404
Mexico 13,735,088 9,541,442 5,034,769
- ---------------------------------------------------------------------------------------------------------------------
Total $232,902,210 $209,206,775 $182,589,621
- ---------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)
United States $23,452,719 $18,087,518 $18,585,318
United Kingdom (2,043,964) (34,582) 357,303
Mexico 153,507 1,565,755 (127,074)
- ---------------------------------------------------------------------------------------------------------------------
Total $21,562,262 $19,618,691 $18,815,547
- ---------------------------------------------------------------------------------------------------------------------
Identifiable Assets
United States $134,396,269 $132,026,240 $115,485,089
United Kingdom 24,448,713 25,311,617 11,224,548
Mexico 13,320,924 5,049,703 4,459,805
- ---------------------------------------------------------------------------------------------------------------------
Total $172,165,906 $162,387,560 $131,169,442
=====================================================================================================================
</TABLE>
NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information is as follows:
(All per share amounts have been adjusted to reflect the 50% share distribution
paid on January 13, 1997.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal Quarter Ended
November 30 February 28 May 31 August 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1998:
Net Sales $61,292,000 $55,919,000 $59,608,000 $56,083,000
Gross Profit 15,099,000 11,404,000 13,178,000 13,077,000
Net Income 3,772,000 (889,000) 2,570,000 2,579,000
Per Share of Common Stock:
Basic Net Income $0.40 ($0.09) $0.27 $0.27
Diluted Net Income $0.39 ($0.09) $0.27 $0.27
Dividends Paid - $0.11 -- $0.11
Stock Market Prices:
High 21-3/8 18-1/2 16-1/2 16-1/4
Low 17 13-3/8 15-3/8 14-3/8
- ---------------------------------------------------------------------------------------------------------------------------
November 30 February 28 May 31 August 31
- ---------------------------------------------------------------------------------------------------------------------------
FISCAL 1997:
Net Sales $53,441,000 $48,977,000 $52,593,000 $54,196,000
Gross Profit 13,706,000 11,522,000 11,398,000 11,630,000
Net Income 3,692,000 2,074,000 1,885,000 1,644,000
Per Share of Common Stock:
Basic Net Income $0.39 $0.22 $0.20 $0.17
Diluted Net Income $0.39 $0.21 $0.20 $0.17
Dividends Paid -- $0.09 -- $0.10
Stock Market Prices:
High 15-1/2 19 17-1/2 17-5/8
Low 14-7/16 14-15/16 14-1/8 14-7/8
===========================================================================================================================
</TABLE>
TUSCARORA ANNUAL REPORT 98
21
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF TUSCARORA INCORPORATED
We have audited the accompanying consolidated balance sheets of Tuscarora
Incorporated and subsidiaries as of August 31, 1998 and 1997 and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Tuscarora
Incorporated for the year ended August 31, 1996, were audited by other auditors
whose report dated October 11, 1996, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1998 and 1997 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Tuscarora Incorporated at August 31, 1998 and 1997 and the consolidated results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Pittsburgh, PA
October 16, 1998
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS--FISCAL 1998
COMPARED TO FISCAL 1997
Net sales for the fiscal year ended August 31, 1998 were $232.9 million, an
increase of $23.7 million, or 11.3% over fiscal 1997. Approximately 59% of the
increase in net sales was attributable to the following acquisitions made in
fiscal 1997: the acquisition of two custom molding businesses in the United
Kingdom in October 1996 and July 1997, the acquisition of an integrated
materials business in the United States in May 1997 and the acquisition of a
thermoforming business in the United States in April 1997 (see Note 10 of the
Notes to Consolidated Financial Statements). The balance of the increase in net
sales was attributable to higher sales in the Company's core custom molding
operations and the thermoforming operations. The sales increase was achieved
despite slightly lower sales at the Company's existing integrated materials
operations and some reduction in selling prices compared to the prior fiscal
year resulting from lower EPS raw material costs.
Net sales in the fourth quarter of fiscal 1998 were $56.1 million compared
to $54.2 million in the same period last year, an increase of 3.5%. The fiscal
year over prior fiscal year growth rate in net sales in the fourth quarter was
well below the growth rate in the three previous quarters of fiscal 1998,
principally because sales from the businesses acquired in May and July 1997 had
little effect, year over year, on sales increases in the quarter.
Gross profit for the fiscal year ended August 31, 1998 was $52.8 million,
or 22.7% of net sales, compared to $48.3 million, or 23.1% of net sales, in
fiscal 1997. The decrease in gross profit margin for the fiscal year is due
primarily to continued well-below-objective gross profit margins at the
Company's United Kingdom facilities. Slower than anticipated demand from certain
of the Company's high technology customers, particularly as it affected the
start up of the Company's new plant in Texas, also adversely affected gross
profit. The decrease in gross profit margin occurred despite lowering EPS raw
material costs throughout the period, compared to the prior fiscal year.
Selling and administrative expenses for the fiscal year ended August 31,
1998 increased 8.9%, or $2.6 million, to $31.2 million but decreased slightly as
a percentage of net sales to 13.4% from 13.7% in the previous fiscal year. The
dollar increase was due primarily to increased
TUSCARORA ANNUAL REPORT 98
22
<PAGE> 14
employee and other costs added in connection with the acquisitions of the
businesses in October 1996 and May and July 1997. The dollar decrease in the
six-month period ended August 31, 1998, compared to the six-month period ended
February 28, 1998, was due primarily to the restructuring initiative implemented
in February 1998.
Net sales and operating loss for the U.K. operations for the twelve months
ended August 31, 1998 were $25.7 million and $2.0 million, respectively,
compared to $21.1 million and $35,000, respectively, in fiscal 1997.
In February 1998, the Company took a $3.5 million restructuring charge.
Approximately $1.0 million of the restructuring charge related to the cost of
employee terminations and early retirements; approximately $2.1 million related
to the write-down of obsolete or impaired assets; and the balance of $400,000
related to other restructuring costs associated with the plan. In addition to
the employee terminations and early retirements, the Company consolidated
certain product design centers in the United States. Approximately $411,000 of
the restructuring charge related to the U.K. operations.
Interest expense for the fiscal year ended August 31, 1998 was $4.9 million
compared to $3.7 million in fiscal 1997. The increase of $1.2 million was due to
a higher level of outstanding debt throughout the year, primarily as a result of
additional borrowings to finance the business acquisitions in fiscal 1997 and
capital expenditures in the current fiscal year.
Income before income taxes for fiscal 1998 decreased to $13.2 million from
$15.4 million in fiscal 1997, a decrease of 14.6%. The decrease is due to the
pre-tax $3.5 million restructuring charge.
The Company's effective tax rate decreased to 39.1% from 39.8% in fiscal
1997. Lower effective state income tax rates were offset by lower income tax
benefits resulting from the operating loss in the U.K.
Net income for the fiscal year ended August 31, 1998 was $8.0 million, a
decrease of 13.6% from the $9.3 million earned in fiscal 1997. The decrease is
due to the pre-tax $3.5 million restructuring charge.
RESULTS OF OPERATIONS --
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for the fiscal year ended August 31, 1997 were $209.2 million, an
increase of $26.6 million, or 14.6% over fiscal 1996. Approximately 65% of the
increase in net sales was attributable to acquisitions in fiscal 1996 and fiscal
1997. The Company acquired two custom molding businesses in the United Kingdom
in October 1996 and July 1997, two integrated materials businesses in the United
States in December 1995 and May 1997 and two thermoforming businesses in the
United States in September 1996 and April 1997 (see Note 10 of the Notes to
Consolidated Financial Statements). The balance of the increase in net sales was
attributable to higher sales in the Company's core custom molding operations.
The sales increase was achieved despite lower sales at the Company's existing
integrated materials operations than in the prior fiscal year, two large
customers adjusting inventory levels and reducing their packaging requirements
and reductions in some selling prices.
Net sales in the fourth quarter of fiscal 1997 were $54.2 million compared
to $47.0 million in the same period of fiscal 1996, an increase of 15.3%. The
fiscal year over prior fiscal year growth rate in net sales in the fourth
quarter was comparable to the growth rate in the three previous quarters of
fiscal 1997.
Gross profit for the fiscal year ended August 31, 1997 was $48.3 million,
or 23.1% of net sales, compared to $43.3 million, or 23.7% of net sales, in
fiscal 1996. The decrease in gross profit margin for fiscal 1997 was due
primarily to well-below-objective gross profit margins at the Company's United
Kingdom facilities and at the expanding thermoforming operations. The gross
profit margin was also negatively impacted by the lower sales to two major
customers and by operational difficulties at two of the Company's older
manufacturing facilities. The decrease in gross profit margin occurred despite
lower EPS raw material costs than in fiscal 1996.
Selling and administrative expenses for the fiscal year ended August 31,
1997 increased 16.8%, or $4.1 million, to $28.6 million and increased as a
percentage of net sales to 13.7% from 13.4% in fiscal 1996. The significant
dollar increase was due primarily to increased employee and other costs added in
connection with the acquisitions of the businesses in December 1995, September
and October 1996 and May and July 1997.
TUSCARORA ANNUAL REPORT 98
23
<PAGE> 15
Interest expense for the fiscal year ended August 31, 1997 was $3.7 million
compared to $2.9 million in fiscal 1996. The increase of $800,000 was due to a
higher level of outstanding debt throughout the year, primarily as a result of
additional borrowings to finance the business acquisitions.
Income before income taxes for fiscal 1997 decreased to $15.4 million from
$15.9 million in fiscal 1996, a decrease of 2.9%.
The Company's effective tax rate increased slightly to 39.8% from 39.3% in
fiscal 1996.
Net income for the fiscal year ended August 31, 1997 was $9.3 million, a
decrease of 3.7% from the $9.7 million earned in fiscal 1996. The decrease was
due primarily to the decrease in the gross profit margin.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities amounted to $21.7 million, $21.0
million and $22.3 million in fiscal 1998, 1997 and 1996, respectively.
Depreciation and amortization in fiscal 1998,1997 and 1996 amounted to $17.2
million, $15.3 million and $13.0 million, respectively. Because a substantial
portion of the Company's operating expenses are attributable to depreciation and
amortization, the Company believes that its liquidity would not be adversely
affected should a period of reduced earnings occur.
At August 31, 1998, the Company's accounts receivable and inventories were
higher than at the end of the previous fiscal year due to the higher sales level
during the current fiscal year.
Capital expenditures for property, plant and equipment during fiscal 1998,
1997 and 1996 amounted to $24.2 million, $21.3 million and $23.1 million,
respectively, including approximately $1.3 million, $1.5 million and $900,000,
respectively, for environmental control equipment. The largest amount of the
capital expenditures during all three years has been for machinery and
equipment. For fiscal 1998, the expenditures included machinery and equipment
for new custom molding facilities in Brenham, Texas and Tijuana, B.C., Mexico,
and for the purchase of the custom thermoforming facility in Sandusky, Ohio,
which was previously leased. Expenditures in connection with business
acquisitions during fiscal 1998 were not significant.
Long-term debt increased from $57.2 at August 31, 1997 to $61.2 million at
August 31, 1998, of which $57.3 million was borrowed under a credit agreement
with the Company's principal bank, including $34.2 million out of an available
$40.0 million under a revolving credit facility. During the twelve months ended
August 31, 1998, $8.0 million was borrowed under the revolving credit facility
primarily to fund capital expenditures during the fiscal year. At August 31,
1998, $5.8 million of the revolving credit facility remained available. See Note
3 of the Notes to Consolidated Financial Statements for additional information
with respect to long-term debt.
The Company has initiated discussions with its principal bank to amend and
increase the revolving credit facility.
Cash dividends amounted to $2.1 million ($0.22 per share), $1.8 million
($0.19 per share) and $1.6 million ($0.17 per share) in fiscal 1998, fiscal 1997
and fiscal 1996, respectively.
Cash provided by operating activities as supplemented by the amount
available under the bank credit agreement should continue to be sufficient to
fund the Company's operating needs, capital requirements and dividend payments.
MARKET RISKS
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates.
The Company's primary interest rate risk relates to its long-term debt
obligations. At August 31, 1998, the Company had total long-term obligations,
including the current portion of those obligations, of $66,505,833. Of that
amount, $1,444,990 was in fixed-rate obligations, $37,750,000 was subject to
interest rate swap, cap and floor agreements and $27,310,843 was fully subject
to variable rates. Assuming a 10% increase in interest rates on the Company's
variable rate obligations (i.e., an increase from the August 31, 1998 weighted
average interest rate of 6.75% to a weighted average interest rate of 7.21%),
annual interest expense would be approximately $309,000 higher based on the
August 31, 1998 outstanding balance of variable rate obligations.
A substantial majority of the Company's sales, expenses and cash flows are
transacted in U.S. dollars. For the fiscal year ended August 31, 1998, sales
denominated in currencies other than the U.S. dollar (primarily U.K. pounds
sterling) totaled $25.7 million or approximately 11% of total sales. An adverse
change of 10% in exchange rates would have resulted in a decrease in sales of
$2,570,000. Due to the losses incurred in the U.K. in 1998, an adverse change in
exchange rates would have
TUSCARORA ANNUAL REPORT 98
24
<PAGE> 16
resulted in a reduction in the net loss for the fiscal year ended August 31,
1998. The Company's entities that operate in the U.K. and Mexico have certain
accounts receivable and accounts payable denominated in U.S. dollars in addition
to receivable and payable accounts in their home currencies which can act to
mitigate the impact of foreign exchange rate changes. The Company has no
significant foreign currency exchange contracts.
OUTLOOK
While the Company's net sales continued to grow, the decline in net income for
the 1998 fiscal year and, in particular, the increased operating loss incurred
by the operations in the United Kingdom, were significant disappointments.
Management's focus for the 1999 fiscal year will be to continue to improve on
the relatively high level of profitability of the Company's existing U.S.
operations, and to improve the profitability in the Company's U.K. and
thermoforming operations. Capital expenditures for fiscal 1999 are expected to
be below the expenditures during the 1998 fiscal year; however, the Company will
continue to look for acquisitions which will mesh well with the Company's
business. The Company will also continue to develop new production sites as they
are needed to meet the needs of its customers and expand its geographic area.
Should a major acquisition develop or new production site be required, it is
likely that there would be a refinancing of the Company's credit agreement with
its principal bank.
YEAR 2000 ISSUES
The Company has completed an internal assessment as to whether its computer
systems will properly utilize dates beyond December 31, 1999. Where necessary,
the Company has installed new computer software that is Year 2000 capable. The
Company has also substantially completed an assessment as to whether its
manufacturing machinery and equipment is Year 2000 capable. In this regard, it
has contacted its major equipment manufacturers, primarily the manufacturers of
the Company's molding presses, for confirmation that the equipment should
operate without creating Year 2000 problems.
Separately, the Company has contacted its major raw material suppliers to
determine if the Company should anticipate any delivery problems associated with
Year 2000 issues and intends to contact its significant customers whose Year
2000 readiness could cause a loss of business that might be material to the
Company. These customers are generally companies with substantial resources.
Management believes, based on its own investigation and the information it
has obtained, that any significant problems that might arise should be resolved
without materially adversely affecting the Company's business, results of
operations or financial condition. The cost to the Company of acquiring and
installing the new computer software and other costs associated with Year 2000
issues have not been significant. Estimated future costs are also not expected
to be of any significance.
OTHER
The impact of inflation on both the Company's financial position and results of
operations has been minimal and is not expected to adversely effect fiscal 1999
results.
ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" and SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related Information".
In 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued. These statements will be adopted by the Company when
required, and are not expected to have a material effect on the consolidated
financial statements.
TUSCARORA ANNUAL REPORT 98
25
<PAGE> 17
Eleven Year Consolidated Financial Summary
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $232,902 $209,207 $182,590 $163,300 $120,085
Income before income taxes 13,181(a) 15,441 15,905 15,034 9,017
Net income 8,032(a) 9,295 9,653 8,980 5,703
Depreciation and amortization 17,231 15,286 12,977 10,890 9,721
Weighted average shares outstanding--basic 9,488 9,452 9,362 9,231 9,194
Basic net income per share 0.85(a) 0.98 1.03 0.97 0.62
Diluted net income per share 0.83(a) 0.97 1.01 0.96 0.61
Margin on sales 3.4% 4.4% 5.3% 5.5% 4.7%
Return on beginning shareholders' equity 11.0% 14.3% 17.6% 19.0% 13.4%
Working capital 34,859 29,784 23,224 22,390 16,548
Total assets 172,166 162,388 131,169 117,721 94,225
Long-term debt (excluding current portion) 61,184 57,166 39,249 36,510 25,284
Shareholders' equity 79,524 72,817 64,827 54,773 47,180
Shareholders' equity per share 8.38 7.70 6.92 5.93 5.13
Dividends per share 0.22 0.19 0.17 0.15 0.13
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $101,075 $95,809 $84,420 $85,458 $77,642 $65,583
Income before income taxes 6,285 8,289 6,856 7,912 7,479 5,644
Net income 4,270(b) 4,981 4,230 4,874 4,478 3,469
Depreciation and amortization 9,206 7,879 7,235 6,591 5,463 4,269
Weighted average shares outstanding-- basic 9,164 9,146 9,086 9,033 9,030 8,034
Basic net income per share 0.47(b) 0.54 0.47 0.54 0.50 0.43
Diluted net income per share 0.46(b) 0.54 0.46 0.53 0.49 0.43
Margin on sales 4.2% 5.2% 5.0% 5.7% 5.8% 5.3%
Return on beginning shareholders' equity 10.9% 14.2% 13.4% 17.8% 19.0% 22.0%
Working capital 15,893 13,463 13,728 11,385 11,418 10,146
Total assets 79,769 75,510 63,775 60,677 53,138 46,777
Long-term debt (excluding current portion) 23,930 22,121 14,870 16,264 13,165 13,248
Shareholders' equity 42,546 39,280 35,152 31,451 27,360 23,574
Shareholders' equity per share 4.64 4.29 3.87 3.48 3.03 2.93
Dividends per share 0.12 0.11 0.09 0.09 0.08 0.07
</TABLE>
In the above table, all dollar amounts, except per share data, are in thousands.
The weighted average number of shares of Common Stock outstanding and the
dividends and other per share amounts have been adjusted to reflect the 200%
share distribution paid on October 1, 1987, the 100% share distribution paid on
April 14, 1992 and the 50% share distribution paid on January 13, 1997.
(a) Income before income taxes, net income and net income per share amounts for
the 1998 fiscal year include the effect of a nonrecurring, pre-tax charge of
$3,495,336 for restructuring costs. (See Note 12 to the financial statements.)
(b) Net income and net income per share amounts for the 1993 fiscal year include
income of $321,218 or $0.03 per share resulting from the cumulative effect of a
change in the method of accounting for income taxes.
<PAGE> 1
Exhibit 21
TUSCARORA INCORPORATED
List of Subsidiaries
The following is a complete list of the subsidiaries of the Company:
<TABLE>
<CAPTION>
Name of Jurisdiction of
Subsidiary Incorporation
---------- -------------
<S> <C>
Alpine Packaging, Inc. (1) Colorado
Tuscarora International, Inc. (1) Delaware
Tuscarora, S.A. de C.V. (2) Mexico
Tuscarora Tijuana, S.A. de C.V. (2) Mexico
Tuscarora Investment Corporation (1) Delaware
Tuscarora Limited(1) England
Tuscarora (Scotland) Limited (3) England
Arrowtip Mouldings Limited (3) England
Arrowtip Limited (4) England
Anglian Expanded Products Limited (4) England
</TABLE>
- -----------------
(1) 100% owned by Tuscarora Incorporated.
(2) 4,999 shares are owned by Tuscarora International, Inc. and 1 share is
owned by Tuscarora Incorporated.
(3) 100% owned by Tuscarora Limited.
(4) 100% owned by Arrowtip Moldings Limited
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this annual report on Form 10-K
of Tuscarora Incorporated of our report dated October 16, 1998 included in the
1998 Annual Report to Shareholders of Tuscarora Incorporated.
Our audits also included the financial statement schedules of Tuscarora
Incorporated as of and for the years ended August 31, 1998 and 1997 listed in
Item 14(a)(2) of this annual report. These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. The financial statement schedule of Tuscarora Incorporated as of and
for the year ended August 31, 1996 was audited by other auditors whose report
dated October 11, 1996 expressed an unqualified opinion on that schedule. In our
opinion, the financial statement schedules as of and for the years ended August
31, 1998 and 1997, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in Registration Statements on
Form S-8 (No. 33-35373) pertaining to the 1985 Incentive Stock Option Plan of
Tuscarora Incorporated; Form S-8 (Nos. 33-35373 and 333-06111) pertaining to the
1989 Stock Incentive Plan of Tuscarora Incorporated; Form S-8 (No. 333-57833)
pertaining to the 1997 Stock Incentive Plan of Tuscarora Incorporated; and Form
S-8 (No. 333-35587) pertaining to the Tuscarora Incorporated Common Stock
Purchase Plan for Salaried Employees of our report dated October 16, 1998 with
respect to the financial statements incorporated in this annual report by
reference and our report included in the preceding paragraph with respect to the
financial statement schedules included in this annual report on Form 10-K of
Tuscarora Incorporated.
/s/ ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
November 25, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF S.R. SNODGRASS, A.C.
We consent to the incorporation by reference of our report dated October 11,
1996 on our audit of the consolidated statements of income, shareholders' equity
and cash flows of Tuscarora Incorporated and subsidiaries as of and for the year
ended August 31, 1996, which report is filed as Exhibit 99 to this annual report
on Form 10-K, in the following documents:
1. Registration Statement No. 333-57833 on Form S-8 for the
1997 Stock Incentive Plan of Tuscarora Incorporated, filed under the Securities
Act of 1933, as amended, and the Prospectus used in connection with such
Registration Statement;
2. Registration Statements No. 33-35373 and No. 333-06111 on
Form S-8 for the 1985 Incentive Stock Option Plan and 1989 Stock Incentive Plan
of Tuscarora Incorporated, filed under the Securities Act of 1933, as amended,
and the Prospectus used in connection with such Registration Statements; and
3. Registration Statement No. 33-35587 on Form S-8 for the
Tuscarora Incorporated Common Stock Purchase Plan for Salaried Employees, filed
under the Securities Act of 1933, as amended, and the Prospectus used in
connection with such Registration Statement.
/s/ S.R. Snodgrass, A.C.,
Beaver Falls, PA
November 25, 1998
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ THOMAS S. BLAIR
------------------------------
Thomas S. Blair
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ DAVID I. COHEN
------------------------------
David I. Cohen
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ ABE FARKAS
------------------------------
Abe Farkas
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ KAREN L. FARKAS
------------------------------
Karen L. Farkas
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ ROBERT W. KAMPMEINERT
------------------------------
Robert W. Kampmeinert
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ JEFFERY L. LEININGER
------------------------------
Jeffery L. Leininger
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ DAVID C. O'LEARY
------------------------------
David C. O'Leary
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ HAROLD F. REED, JR.
------------------------------
Harold F. Reed, Jr.
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and
appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the
undersigned's true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
name, place and stead, in any all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and
any and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person and hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his or her
substitutes, may lawfully do or cause to be done by virtue hereof.
October 16, 1998
/s/ THOMAS P. WOOLAWAY
------------------------------
Thomas P. Woolaway
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 5,452,281
<SECURITIES> 0
<RECEIVABLES> 34,891,539
<ALLOWANCES> 651,720
<INVENTORY> 20,158,857
<CURRENT-ASSETS> 61,806,267
<PP&E> 194,085,549
<DEPRECIATION> 96,547,340
<TOTAL-ASSETS> 172,165,906
<CURRENT-LIABILITIES> 26,946,775
<BONDS> 61,184,124
0
0
<COMMON> 9,530,856
<OTHER-SE> 69,993,101
<TOTAL-LIABILITY-AND-EQUITY> 172,165,906
<SALES> 232,902,210
<TOTAL-REVENUES> 232,902,210
<CGS> 180,144,500
<TOTAL-COSTS> 180,144,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 311,711
<INTEREST-EXPENSE> 3,495,336
<INCOME-PRETAX> 13,181,411
<INCOME-TAX> 5,149,463
<INCOME-CONTINUING> 8,031,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,031,948
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 5,095,149
<SECURITIES> 0
<RECEIVABLES> 32,342,357
<ALLOWANCES> 674,689
<INVENTORY> 18,238,886
<CURRENT-ASSETS> 56,593,987
<PP&E> 187,996,994
<DEPRECIATION> 94,882,160
<TOTAL-ASSETS> 162,387,560
<CURRENT-LIABILITIES> 26,809,508
<BONDS> 57,166,326
0
0
<COMMON> 9,479,241
<OTHER-SE> 63,338,107
<TOTAL-LIABILITY-AND-EQUITY> 162,387,560
<SALES> 209,206,775
<TOTAL-REVENUES> 209,206,775
<CGS> 160,951,244
<TOTAL-COSTS> 160,951,244
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 504,862
<INTEREST-EXPENSE> 3,741,275
<INCOME-PRETAX> 15,441,262
<INCOME-TAX> 6,146,001
<INCOME-CONTINUING> 9,295,261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,295,261
<EPS-PRIMARY> 0.98<F1>
<EPS-DILUTED> 0.97<F1>
<FN>
<F1>Restated to conform to SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 3,379,776
<SECURITIES> 0
<RECEIVABLES> 26,881,581
<ALLOWANCES> 787,175
<INVENTORY> 15,666,880
<CURRENT-ASSETS> 46,912,756
<PP&E> 159,239,608
<DEPRECIATION> 80,529,962
<TOTAL-ASSETS> 131,169,442
<CURRENT-LIABILITIES> 23,688,852
<BONDS> 39,249,136
0
0
<COMMON> 9,426,923
<OTHER-SE> 55,399,966
<TOTAL-LIABILITY-AND-EQUITY> 131,169,442
<SALES> 182,589,621
<TOTAL-REVENUES> 182,589,621
<CGS> 139,249,481
<TOTAL-COSTS> 139,249,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 378,366
<INTEREST-EXPENSE> 2,928,483
<INCOME-PRETAX> 15,905,299
<INCOME-TAX> 6,252,682
<INCOME-CONTINUING> 9,652,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,652,617
<EPS-PRIMARY> 1.03<F1>
<EPS-DILUTED> 1.01<F1>
<FN>
<F1>Restated to conform to SFAS No. 128.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99
REPORT OF S.R. SNODGRASS, A.C.
To the Board of Directors
and Shareholders of
Tuscarora Incorporated
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Tuscarora Incorporated and subsidiaries
for the fiscal year ended August 31, 1996. Our audit also included the financial
statement schedule of Tuscarora Incorporated and subsidiaries for the year ended
August 31, 1996 listed in the Index at Item 14(a)(2) of this annual report.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flow of
Tuscarora Incorporated and subsidiaries for the fiscal year ended August 31,
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ S.R. Snodgrass, A.C.
Beaver Falls, PA
October 11, 1996
