-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MynxFqx3xx/LOtVAWW4Rn7uf4FWg1UWlLeD9Aof2PGIM7hniCGs7Ee+/COe+/qzE x4giWETUdLFPmDbYzMu1CQ== 0000950137-98-000601.txt : 19980219 0000950137-98-000601.hdr.sgml : 19980219 ACCESSION NUMBER: 0000950137-98-000601 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19971129 FILED AS OF DATE: 19980218 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLARCOR INC CENTRAL INDEX KEY: 0000020740 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 360922490 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11024 FILM NUMBER: 98544480 BUSINESS ADDRESS: STREET 1: 2323 SIXTH ST STREET 2: PO BOX 7007 CITY: ROCKFORD STATE: IL ZIP: 61125 BUSINESS PHONE: 8159628867 MAIL ADDRESS: STREET 1: 2323 SIXTH STREET CITY: ROCKFORD STATE: IL ZIP: 61125 FORMER COMPANY: FORMER CONFORMED NAME: CLARK J L MANUFACTURING CO /DE/ DATE OF NAME CHANGE: 19871001 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 NOVEMBER 29, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________________ COMMISSION FILE NUMBER 1-11024 CLARCOR Inc. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-0922490 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125 - ---------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 815-962-8867 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value $1.00 per share New York Stock Exchange Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None ---------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value (based on the closing price of registrant's Common Stock on February 11, 1998 as reported on the New York Stock Exchange Composite Transactions) of the voting stock held by non-affiliates of the registrant as at February 11, 1998 is $452,317,264. The number of outstanding shares of Common Stock, as of February 11, 1998 is 16,182,228 shares. Certain portions of the registrant's 1997 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Certain portions of the registrant's Proxy Statement dated February 18, 1998 for the Annual Meeting of Shareholders to be held on March 24, 1998 are incorporated by reference in Part III. 2 PART I ITEM 1. DESCRIPTION OF BUSINESS. (a) General Development of Business CLARCOR Inc. ("CLARCOR") was organized in 1904 as an Illinois corporation and in 1969 was reincorporated in the State of Delaware. As used herein, the "Company" refers to CLARCOR and its subsidiaries unless the context otherwise requires. The Company's fiscal year ends on the Saturday closest to November 30. For fiscal year 1997, the year ended on November 29, 1997 and for fiscal year 1996, the year ended on November 30, 1996. In this Form 10-K, all references to fiscal years are shown to begin on December 1 and end on November 30 for clarity of presentation. (i) Certain Significant Developments. Acquisition of United Air Specialists, Inc. On February 28, 1997, the Company completed the acquisition of United Air Specialists, Inc. ("UAS") located in Cincinnati, Ohio. This transaction was structured as a statutory merger and accounted for as a pooling of interests. As a result of the acquisition, UAS became a wholly-owned subsidiary of the Company. The Company issued 1,081,741 shares of its common stock in exchange for all the shares of UAS stock. Additionally, up to 127,561 shares of CLARCOR stock will be issued upon the exercise of options previously granted by UAS. Under the requirements of pooling of interests accounting treatment, the consolidated financial statements and accompanying notes and all amounts for the periods presented in this Form 10-K have been restated (except for cash dividends declared per share, which represent the historical dividends declared by the Company) to include UAS. A one-time pre-tax charge of $3.0 million ($2.4 million net of tax) was recorded at February 28, 1997, to cover the costs of the merger including legal and professional fees, non-compete agreements, and costs to integrate the businesses of the two companies. UAS is engaged in the design, manufacture and sale of commercial and industrial air cleaning systems, electrostatic fluid contamination control equipment and high precision spraying equipment. For the fiscal year ended November 30, 1996, UAS had net sales of approximately $39.0 million and net earnings of approximately $1.0 million. Other. As reported previously, the Company sold its 5% interest in G.U.D. Holdings Limited ("GUD") and recognized an after-tax gain on the sale of approximately $1.1 million or $0.07 per share in the first quarter of 1997 and $1.1 million or $0.07 per share in the fourth quarter of 1996. The Company continues to market filtration products in Australia through a 50% joint venture with GUD. Other business acquisitions in fiscal 1997 included Airklean Engineering Pte. Ltd. ("Airklean"), a Singapore-based distributor of products sold by the Company's Airguard Industries, Inc. ("Airguard") subsidiary; Ohio Air Filter, a distributor in Toledo, Ohio; and The Filtair Company, a distributor in Arlington, Texas. In addition, through Airklean, a manufacturing facility for Airguard products is being developed in Johor Bahru, Malaysia. This facility is expected to be operational in early 1998. None of these transactions had a significant impact on the results of the Company in 1997 and each was a cash transaction. In November 1997, the Company sold the assets of its Tube Division located in Downers Grove, Illinois. The building in Downers Grove has not been sold, but it is currently being offered for sale. The divestiture did not have a significant impact on the results of the Company. In December 1997, the Company's Board of Directors approved a plan to purchase up to 1,000,000 shares of CLARCOR common stock. At this time, the Company has no immediate plans to repurchase any shares, but may do so in the future to offset shares issued under employee benefit plans and as market conditions warrant. 2 3 (ii) Summary of Business Operations. During 1997, the Company conducted business in three principal industry segments: (1) Engine/ Mobile Filtration, (2) Industrial/Environmental Filtration and (3) Consumer Packaging. Engine/Mobile Filtration. Engine/Mobile Filtration includes filters for oil, air, fuel, coolants and hydraulic fluids for trucks, automobiles, construction and industrial equipment, locomotives, marine and agricultural equipment. Industrial/Environmental Filtration. Industrial/Environmental Filtration products are used primarily for commercial and industrial applications. The segment's industrial and environmental products include air and antimicrobial treated filters and high efficiency electronic air cleaners for commercial buildings, factories, residential buildings, paint spray booths, gas turbine systems, medical facilities, motor vehicle cabins, clean rooms, compressors and dust collector systems. Consumer Packaging. Consumer Packaging products include a wide variety of custom styled containers and packaging items used primarily by the food, spice, drug, toiletries and chemical specialties industries. The segment's products include lithographed metal containers, flat sheet decorated metal, combination metal and plastic containers, plastic closures, composite containers and various specialties, such as spools for wire and cable, dispensers for razor blades and outer shells for dry cell batteries and film canisters. (b) Financial Information About Industry Segments Business segment information for the fiscal years 1995 through 1997 is included on page 34 of the Company's 1997 Annual Report to Shareholders (the "Annual Report"), is incorporated herein by reference and is filed as part of Exhibit 13(a)(vi) to this 1997 Annual Report on Form 10-K ("1997 Form 10-K"). (c) Narrative Description of the Business ENGINE/MOBILE FILTRATION The Company's engine/mobile filtration products business is conducted by the following wholly-owned subsidiaries: Baldwin Filters, Inc.; Clark Filter, Inc.; Hastings Filters, Inc.; Baldwin Filters N.V.; and Baldwin Filters Limited. In addition, the Company owns (i) 50% of Baldwin Filters (Aust.) Pty. Ltd., (ii) 90% of Filtros Baldwin de Mexico ("FIBAMEX"), (iii) 70% of Baldwin-Weifang Filters Ltd., and (iv) 70% of Baldwin-Unifil S.A. The companies market a full line of oil, air, fuel, coolant and hydraulic fluid filters. The Company's filters are used in a wide variety of applications including engines and industrial equipment and in processes where effectiveness, reliability and durability are essential. Impure air or fluid impinge upon a paper, cotton, synthetic, chemical or membrane filter media with high absorption characteristics which collects the impurities that are disposed of when the filter is changed. The segment's filters are sold throughout the United States, Canada and worldwide, primarily in the replacement market for trucks, automobiles, locomotives, marine, construction, industrial and agricultural equipment. In addition, some first-fit filters are sold to the original equipment market. INDUSTRIAL/ENVIRONMENTAL FILTRATION The Company's industrial/environmental filtration products business is conducted by the following wholly-owned subsidiaries: Airguard Industries, Inc.; Airklean Engineering Pte. Ltd.; Airguard Asia Sdn. Bhd.; United Air Specialists, Inc.; and United Air Specialists (U.K.) Ltd. The companies market commercial and industrial air filters and systems, electrostatic fluid contamination control equipment and high precision spraying equipment. The air filters and systems remove contaminants from recirculated indoor air and from process air which is exhausted outdoors. The products represent a complete line of air cleaners with a wide range of uses for maintaining high 3 4 quality standards in interior air and exterior pollution control. These products are sold throughout the United States, Canada and worldwide. CONSUMER PACKAGING The Company's consumer packaging products business is conducted by the Consumer Packaging segment which includes the Company's wholly-owned subsidiary, J. L. Clark, Inc. ("J. L. Clark"). In fiscal 1997 over 1,500 different types and sizes of containers and metal packaging specialties were manufactured for the Company's customers. Flat sheet decorating is provided by use of state-of-the-art lithography equipment. Metal, plastic and paper containers, combination metal/plastic containers and plastic closures manufactured by the Company are used in packaging a wide variety of dry and paste form products, such as food specialties (tea, spices, dry bakery products, potato chips, pretzels, candy and other confections); beverages and juices; cosmetics and toiletries; drugs and pharmaceuticals; and chemical specialties (hand cleaners, soaps and special cleaning compounds). Metal packaging specialties include shells for dry batteries, film canisters, dispensers for razor blades, spools for insulated and fine wire, and custom decorated flat steel sheets. Containers and metal packaging specialties are manufactured only upon orders received from customers, and individualized containers and packaging specialties are designed and manufactured, usually with distinctive decoration, to meet each customer's marketing and packaging requirements and specifications. DISTRIBUTION Engine/Mobile Filtration and Industrial/Environmental Filtration products are sold primarily through a combination of over 3,300 independent distributors and dealers for original equipment manufacturers. The engine/mobile segment also distributes filtration products worldwide through each of its subsidiaries. Baldwin Filters N.V. and Baldwin Filters Limited primarily serve the European markets. The Company's joint venture with GUD, Baldwin Filters (Aust.) Pty. Ltd., markets heavy duty liquid and air filters in Australia and New Zealand. FIBAMEX manufactures filters in Mexico with distribution in Mexico and Central and South America. Through the Company's investment in Baldwin-Weifang Filters Ltd., heavy duty filters are being manufactured in China for distribution in China and Southeast Asia. Additionally, through Baldwin-Unifil S.A., air filtration products are manufactured in South Africa with distribution throughout South Africa, Great Britain, Europe and the Middle East. The industrial/environmental segment also distributes and services filtration products through company-owned branches and wholly-owned subsidiaries. The branches are located throughout the United States and in Germany, and the segment's subsidiaries are located in Singapore, Malaysia and England. Consumer Packaging salespersons call directly on customers and prospective customers for containers and packaging specialties. Each salesperson is trained in all aspects of the Company's manufacturing processes with respect to the products sold and as a result is qualified to consult with customers and prospective customers concerning the details of their particular requirements. CLASS OF PRODUCTS The percentage of the Company's sales volume contributed by each class of similar products within the Company's Consumer Packaging segment which contributed 10% or more of sales is as follows:
1997 1996 1995 ---- ---- ---- Containers............................................... 14% 15% 16%
4 5 No class of products within the Company's Engine/Mobile Filtration segment or the Industrial/ Environmental Filtration segment accounted for as much as 10% of the total sales of the Company. RAW MATERIAL Steel, filter media, aluminum sheet and coil, stainless steel, chrome vanadium, chrome silicon, resins, roll paper, bulk and roll plastic materials and cotton, wood and synthetic fibers and adhesives are the most important raw materials used in the manufacture of the Company's products. All of these are purchased or are available from a variety of sources. The Company has no long-term purchase commitments. The Company did not experience shortages in the supply of raw materials during 1997. PATENTS Certain features of some of the Company's products are covered by domestic and, in some cases, foreign patents or patent applications. While these patents are valuable and important for certain products, the Company does not believe that its competitive position is dependent upon patent protection. CUSTOMERS The largest 10 customers of the Engine/Mobile Filtration segment accounted for 18.3% of the $207,640,000 of fiscal year 1997 sales of such segment. The largest 10 customers of the Industrial/Environmental Filtration segment accounted for 18.2% of the $111,491,000 of fiscal year 1997 sales of such segment. The largest 10 customers of the Consumer Packaging segment accounted for 50.3% of the $75,133,000 of fiscal year 1997 sales of such segment. No single customer accounted for 10% or more of the Company's consolidated 1997 sales. BACKLOG At November 30, 1997, the Company had a backlog of firm orders for products amounting to approximately $43,400,000. The comparable backlog figure for 1996 was approximately $38,100,000. All of the orders on hand at November 30, 1997 are expected to be filled during fiscal 1998. The Company's backlog is not subject to significant seasonal fluctuations. COMPETITION The Company encounters strong competition in the sale of all of its products. The Company competes in a number of filtration products markets against a variety of competitors. The Company is unable to state its relative competitive position in all of these markets due to a lack of reliable industry-wide data. However, in the replacement market for heavy duty liquid and air filters used in internal combustion engines, the Company believes that it is among the top five measured by annual sales. In the replacement market for industrial and environmental filtration products, the Company believes that it is among the top five measured by annual sales. In addition, the Company believes that it is a leading manufacturer of liquid and air filters for diesel locomotives. In the Consumer Packaging segment, its principal competitors are approximately 10 manufacturers whose specialty packaging segments are smaller than the Company's and who often compete on a regional basis only. Strong competition is also presented by manufacturers of paper, plastic and glass containers. The Company's competitors generally manufacture and sell a wide variety of products in addition to packaging products of the type produced by the Company and do not publish separate sales figures relative to these competitive products. Consequently, the Company is unable to state its relative competitive position in those markets. 5 6 The Company believes that it is able to maintain its competitive position because of the quality and breadth of its products and services. PRODUCT DEVELOPMENT The Company's Technical Centers and laboratories test filters, containers, filter components, paints, inks, varnishes, adhesives and sealing compounds to insure high quality manufacturing results, aid suppliers in the development of special finishes and conduct controlled tests of finishes and newly designed filters, air cleaning systems and containers being perfected for particular uses. Product development departments are concerned with the improvement of existing filters, air cleaning systems, consumer products and the creation of new and individualized filters, containers and consumer products, in order to broaden the uses of these items, counteract obsolescence and evaluate other products available in the marketplace. During the fourth quarter of 1995, the Company added the Gas Turbine Systems Business Unit for the development of inlet air filtration systems. In 1996, a new technical center was completed in Louisville, Kentucky to develop new and redesigned environmental and industrial filtration products. In fiscal 1997, the Company employed 57 professional employees on a full-time basis on research activities relating to the development of new products or the improvement or redesign of its existing products. During this period the Company spent approximately $3,991,000 on such activities as compared with $3,600,000 for 1996 and $3,255,000 for 1995. ENVIRONMENTAL FACTORS The Company is not aware of any facts which would cause it to believe that it is in material violation of existing applicable standards respecting emissions to the atmosphere, discharges to waters, or treatment, storage and disposal of solid or hazardous wastes. The Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. Environmental and related remediation costs are difficult to quantify for a number of reasons including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of the environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup. It is the opinion of management, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Company's financial condition or consolidated results of operations. The Company does anticipate, however, that it may be required to install additional pollution control equipment to augment existing equipment in the future in order to meet applicable environmental standards. The Company is presently unable to predict the timing or the cost of such equipment and cannot give any assurance that the cost of such equipment may not have an adverse effect on earnings. However, the Company is not aware, at this time, of any current or pending requirement to install such equipment at any of its facilities. EMPLOYEES As of November 30, 1997, the Company had approximately 2,872 employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales Financial information relating to export sales and the Company's operations in the United States and other countries is set forth on Page 34 of the Annual Report and is incorporated herein by reference and filed as Exhibit 13(a)(vi) to this 1997 Form 10-K. The Company is not aware of any unusual risks attendant to the conduct of its operations in other countries. 6 7 ITEM 2. PROPERTIES. (i) Location The corporate office building located in Rockford, Illinois, houses the Corporate offices and the Consumer Packaging segment headquarters offices in 22,000 square feet of office space. Engine/Mobile Filtration. The following is a description of the principal properties owned and utilized by the Company in conducting its Engine/Mobile Filtration business: The Baldwin Filters' Kearney, Nebraska plant contains 410,000 square feet of manufacturing and warehousing space, 25,000 square feet of research and development space, and 40,000 square feet of office space. It is located on a site of approximately 40 acres. In addition, Baldwin has a capital lease for a 100,000 square foot manufacturing facility on a site of 20 acres in Gothenburg, Nebraska. The Company also manufactures filters in Lancaster, Pennsylvania at its Clark Filter plant. The building, constructed about 1968 on an 11.4 acre tract of land, contains 168,000 square feet of manufacturing and office space and is owned by the Company. Hastings Filters' manufacturing and distribution facilities are located in Yankton, South Dakota and Knoxville, Tennessee. The Yankton facility has approximately 100,000 square feet of floor space on a 21 acre tract and the Knoxville facility has approximately 168,000 square feet of floor space on a 22 acre tract. An addition of 70,000 square feet to the Yankton facility was completed in 1996. Both facilities are owned by the Company. The Company leases various facilities in other countries for the manufacture and distribution of filtration products. Industrial/Environmental Filtration. The following is a description of the principal properties owned and utilized by the Company in conducting its Industrial/Environmental Filtration business: Airguard Industries has four manufacturing and warehousing locations. It leases 318,000 square feet in New Albany, Indiana, 84,000 square feet in Corona, California and 44,500 square feet in Dallas, Texas. The Airguard High Efficiency Filter plant, located in Jeffersontown, Kentucky on a 7.5 acre tract of land, contains 100,000 square feet of manufacturing and office facilities. Airguard sales outlets with warehousing are located in Louisville, Kentucky; Cincinnati, Ohio; Toledo, Ohio; Nashville, Tennessee; Atlanta, Georgia; Columbus, Ohio; Birmingham, Alabama; Arlington, Texas; Dallas, Texas; and Corona, California. Airguard also has distribution centers in Wallingford, Connecticut; New Albany, Indiana; Las Vegas, Nevada and Richmond, Virginia. United Air Specialists ("UAS") has three owned facilities. The offices and primary manufacturing facility is located in Blue Ash, Ohio (a suburb of Cincinnati), on approximately 17 acres of land. This facility was built in 1978 and was expanded in 1991 and 1993 to a total of approximately 157,000 square feet. UAS also has sales office and manufacturing facilities in Warwick, England which total approximately 13,200 square feet. UAS leases sales and service facilities in Wallau, Germany; Phoenix, Arizona; Fremont, California; Fullerton, California; Louisville, Kentucky; Troy, Michigan; Jackson, Mississippi, and Houston, Texas. Consumer Packaging. The following is a description of the principal properties owned by the Company in conducting its Consumer Packaging business: The Company's J. L. Clark, Rockford, Illinois plant, located on 34 acres, consists of one-story manufacturing buildings, the first of which was constructed in 1910. Since then a number of major additions have been constructed and an injection molding plant was constructed in 1972. Approximately 429,000 square feet of floor area are devoted to manufacturing, warehouse and office use. Of the 34 acres, approximately 12 are vacant. A 25,000 square foot addition to the injection molding facility was completed in January 1996. A J. L. Clark plant is located in Lancaster, Pennsylvania on approximately 11 acres. It consists of a two-story office building containing approximately 7,500 square feet of floor space and a 7 8 manufacturing plant and warehouse containing 236,000 square feet of floor space, most of which is on one level. These buildings were constructed between 1924 and 1964. J. L. Clark is marketing for sale the Tube Division's manufacturing plant located in Downers Grove, Illinois which is on a 5-acre tract of land. The one-story building contains 58,000 square feet of floor space. The various properties owned by the Company are considered by it to be in good repair and well maintained. All of the manufacturing facilities are adequate for the current sales volume of the Company's products and can accommodate expansion of production levels before significant plant additions are required. However, in 1998 the Company expects to begin an expansion to its Kearney, Nebraska facility. (ii) Function Engine/Mobile Filtration. Oil, air, fuel, hydraulic fluid and coolant filters are produced at the Baldwin and Hastings facilities in Kearney, and Gothenburg, Nebraska and Yankton, South Dakota. Much of the Baldwin plant equipment has been built or modified by Baldwin. The various processes of pleating paper, winding cotton and synthetic fibers, placing the filter element in a metal or fiber container and painting the containers are mechanized, but require manual assistance. The plants also maintain an inventory of special dies and molds for filter manufacture. Oil, air and fuel filters, primarily for use in the railroad industry, are produced at Clark Filter in Lancaster, Pennsylvania. Industrial/Environmental Filtration. Air filters for the industrial air and environmental markets are produced in the Airguard facilities. Dust collection systems, high efficiency electronic air cleaning systems and precision spraying systems are designed and manufactured at the UAS facility in Cincinnati, Ohio. Consumer Packaging. The Company's metal and combination metal and plastic packaging products are produced at J. L. Clark plants located in Rockford, Illinois, and Lancaster, Pennsylvania. The Rockford and Lancaster plants are completely integrated facilities which include creative and mechanical art departments and photographic facilities for color separation, preparation of multiple-design negatives and lithographing plates. Metal sheets are decorated on high speed coating machines and lithographing presses connected with conveyor ovens. Decorated sheets are then cut to working sizes on shearing equipment, following which fabrication is completed by punch presses, can-forming and can-closing equipment and other specialized machinery for supplementary operations. Most tooling for fabricating equipment is designed and engineered by the Company's engineering staffs, and much of it is produced in the Company's tool rooms. Plastic packaging capabilities include printing and molding of irregular shaped plastic containers and customized plastic closures. J. L. Clark has the capability to mold and offset lithograph a one-piece irregular shaped semi-rigid plastic container with a living hinge cover. A growing area of specialty is custom-designed plastic closures for products which have tamper-evidence as well as convenience features. J. L. Clark's distinctive plastic closures include the combiTop(R) and the SST Series(TM) products. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their outcome will not have a material adverse effect on the Company's consolidated results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 8 9 ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT YEAR ELECTED NAME 11/30/97 TO OFFICE - ---- -------- ------------ Lawrence E. Gloyd........................................... 65 1995 Chairman of the Board and Chief Executive Officer. Mr. Gloyd was elected President and Chief Operating Officer in 1986, President and Chief Executive Officer in 1988, Chairman, President and Chief Executive Officer in 1991, and Chairman of the Board and Chief Executive Officer in 1995. Norman E. Johnson........................................... 49 1995 President and Chief Operating Officer. Mr. Johnson has been employed by the Company since 1990. He was elected President-Baldwin Filters, Inc. in 1990, Vice President-CLARCOR in 1992, Group Vice President-Filtration Products Group in 1993, and President and Chief Operating Officer in 1995. Bruce A. Klein.............................................. 50 1995 Vice President-Finance and Chief Financial Officer. Mr. Klein was employed by the Company and elected Vice President-Finance and Chief Financial Officer on January 3, 1995. David J. Anderson........................................... 59 1994 Vice President-International/Corporate Development. Mr. Anderson has been employed by the Company since 1990. He was elected Vice President Marketing & Business Development for the CLARCOR Filtration Products subsidiary in 1991, Vice President-Corporate Development in 1993 and Vice President-International/Corporate Development in 1994. David J. Lindsay............................................ 42 1995 Vice President-Administration and Chief Administrative Officer. Mr. Lindsay has been employed by the Company in various administrative positions since 1987. He was elected Vice President-Group Services in 1991, Vice President-Administration in 1994 and Vice President- Administration and Chief Administrative Officer in 1995. William F. Knese............................................ 49 1997 Vice President, Treasurer. Mr. Knese has been employed by the Company since 1979. He was elected Vice President, Treasurer and Controller in 1991 and Vice President, Treasurer in 1997. Peter F. Nangle............................................. 36 1997 Vice President-Information Services and Operations Analysis, Chief Information Officer. Mr. Nangle has been employed by the Company since 1993. He was elected Vice President-Information Services in 1994 and Vice President-Information Services and Operations Analysis, Chief Information Officer in 1997. Marcia S. Blaylock.......................................... 41 1997 Vice President, Controller and Corporate Secretary. Ms. Blaylock has been an employee of the Company since 1974. She was elected Assistant Secretary in 1994, Corporate Secretary in 1995, Vice President and Corporate Secretary in 1996 and Vice President, Controller and Corporate Secretary in 1997.
Each executive officer of the Company is elected for a term of one year which begins at the Board of Directors Meeting at which he or she is elected, held following the Annual Meeting of Shareholders, and ends on the date of the next Annual Meeting of Shareholders or upon the due election and qualification of his or her successor. 9 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange; it is traded under the symbol CLC. The following table sets forth the high and low market prices as quoted during the relevant periods on the New York Stock Exchange and dividends paid for each quarter of the last two fiscal years.
MARKET PRICE ---------------- QUARTER ENDED HIGH LOW DIVIDENDS - ------------- ---- --- --------- March 1, 1997............................................... $25 1/2 $21 1/2 $.1625 May 31, 1997................................................ 24 7/8 20 .1625 August 30, 1997............................................. 27 5/16 23 1/2 .1625 November 29, 1997........................................... 31 3/16 26 1/16 .1650 ------ Total Dividends............................................. $.6525 ======
MARKET PRICE ---------------- QUARTER ENDED HIGH LOW DIVIDENDS - ------------- ---- --- --------- March 2, 1996............................................... $22 3/4 $19 $.1600 June 1, 1996................................................ 22 1/4 18 5/8 .1600 August 31, 1996............................................. 25 1/8 19 .1600 November 30, 1996........................................... 22 5/8 20 3/8 .1625 ------ Total Dividends............................................. $.6425 ======
The approximate number of holders of record of the Company's Common Stock at February 1, 1998 is 1,800. In addition, the Company believes that there are approximately 6,000 beneficial owners whose shares are held in street names. ITEM 6. SELECTED FINANCIAL DATA. The information required hereunder is set forth on pages 36 and 37 of the Annual Report under the caption "11-Year Financial Summary," is incorporated herein by reference and is filed as Exhibit 13a(ix) to this 1997 Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information required hereunder is set forth on pages 17 through 20 of the Annual Report under the caption "Financial Review," is incorporated herein by reference and is filed as Exhibit 13a(x) to this 1997 Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements, the Notes thereto and the report thereon of Coopers & Lybrand L.L.P., independent accountants, required hereunder with respect to the Company and its consolidated subsidiaries are set forth on pages 21 through 35, inclusive, of the Annual Report, are incorporated herein by reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to this 1997 Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 10 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information required hereunder is set forth on pages 1 and 2 of the Company's Proxy Statement dated February 18, 1998 (the "Proxy Statement") for the Annual Meeting of Shareholders to be held on March 24, 1998 under the caption "Election of Directors -- Nominees for Election to the Board" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required hereunder is set forth on pages 6 through 15 inclusive, of the Proxy Statement under the caption "Compensation of Executive Officers and Other Information" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required hereunder is set forth on pages 4 and 5 of the Proxy Statement under the caption "Beneficial Ownership of the Company's Common Stock" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements The following financial information is incorporated herein by reference to the Company's Annual Report to Shareholders for the fiscal year ended November 30, 1997: *Consolidated Balance Sheets at November 30, 1997 and 1996 *Consolidated Statements of Earnings for the years ended November 30, 1997, 1996 and 1995 *Consolidated Statements of Shareholders' Equity for the years ended November 30, 1997, 1996 and 1995 *Consolidated Statements of Cash Flows for the years ended November 30, 1997, 1996 and 1995 *Notes to Consolidated Financial Statements *Report of Independent Accountants *Management's Report on Responsibility for Financial Reporting - ------------------------------ *Filed herewith as part of Exhibit 13(a) to this 1997 Form 10-K The following items are set forth herein on the pages indicated: Report of Independent Accountants.......................................... F-1 Financial Statement Schedules: II. Valuation and Qualifying Accounts................................. F-2 Financial statements and schedules other than those listed above are omitted for the reason that they are not applicable, are not required, or the information is included in the financial statements or the footnotes therein. (b) There were no Reports on Form 8-K filed during the fourth quarter of the fiscal year ended November 30, 1997. 11 12 (c) Exhibits 2.1 Agreement and Plan of Merger dated as of September 23, 1996, among CLARCOR Inc., CUAC Inc. and United Air Specialists, Inc. Incorporated by reference to Exhibit 2.1 to the Company's registration statement on Form S-4 (registration no. 333-19735) filed on January 14, 1997 (the "Registration Statement"). 3.1 The registrant's Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1983. 3.1(a) Amendment to ARTICLE NINTH of Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1(a) to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1988 (the "1988 10-K"). 3.1(b) Amendment changing name of Registrant to CLARCOR Inc. Incorporated by reference to Exhibit 3.1(b) to the 1988 10-K. 3.1(c) Amendment to ARTICLE FOURTH of the Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1(c) to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1990. 3.2 The registrant's By-laws, as amended. Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 3.3 Certificate of Designation of Series B Junior Participating Preferred Stock of CLARCOR as filed with the Secretary of State of the State of Delaware on April 2, 1996. Incorporated by reference to Exhibit 4.5 to the Registration Statement. 4.1 Stockholder Rights Agreement dated as of March 28, 1996 between the registrant and the First Chicago Trust Company of New York. Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K filed April 3, 1996. 4.2 The instruments defining the rights of holders of long-term debt securities of CLARCOR and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. CLARCOR hereby agrees to furnish copies of these instruments to the SEC upon request. 10.1* The registrant's Deferred Compensation Plan for Directors. 10.2* The registrant's Supplemental Retirement Plan. 10.2(a) The registrant's 1994 Executive Retirement Plan. Incorporated by reference to Exhibit 10.2(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 3, 1994 ("1994 10-K"). 10.2(b) The registrant's 1994 Supplemental Pension Plan. Incorporated by reference to Exhibit 10.2(b) to the 1994 10-K. 10.2(c) The registrant's Supplemental Retirement Plan (as amended and restated effective December 1, 1994). Incorporated by reference to Exhibit 10.2(c) to the 1994 10-K. 10.3 The registrant's 1984 Stock Option Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated March 2, 1984 for the Annual Meeting of Shareholders held on March 31, 1984. 10.4 Employment Agreements with certain officers. Incorporated by reference to Exhibit 5 to the Company's Current Report on Form 8-K filed July 25, 1989. 10.4(a) Form of Employment Agreement with each of David J. Anderson, Marcia S. Blaylock, Bruce A. Klein and Peter F. Nangle. Incorporated by reference to Exhibit 10.4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996. 10.4(b) Employment Agreement with Lawrence E. Gloyd dated July 1, 1997. 10.4(c) Employment Agreement with Norman E. Johnson dated July 1, 1997.
12 13 10.4(d) Trust Agreement dated December 1, 1997. 10.4(e) Executive Benefit Trust Agreement dated December 22, 1997. 10.5 The registrant's 1994 Incentive Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated February 24, 1994 for the Annual Meeting of Shareholders held on March 31, 1994. 10.5(a) The registrant's First Amendment to the 1994 Incentive Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated February 18, 1998 for the Annual Meeting of Shareholders to be held on March 24, 1998. 11 Computation of Per Share Earnings. 13 (a) The following items incorporated by reference herein from the Company's 1997 Annual Report to Shareholders ("1997 Annual Report"), are filed as Exhibits to this Annual Report Form 10-K: (i) Business segment information for the fiscal years 1995 through 1997 set forth on page 34 of the 1997 Annual Report (included in Exhibit 13(a)(vi) -- Note O of Notes to Consolidated Financial Statements); (ii) Consolidated Balance Sheets of the Company and its Subsidiaries at November 30, 1997 and 1996 set forth on page 21 of the 1997 Annual Report; (iii) Consolidated Statements of Earnings of the Company and its Subsidiaries for the years ended November 30, 1997, 1996 and 1995 set forth on page 22 of the 1997 Annual Report; (iv) Consolidated Statements of Shareholders' Equity for the Company and its Subsidiaries for the years ended November 30, 1997, 1996 and 1995 set forth on page 23 of the 1997 Annual Report; (v) Consolidated Statements of Cash Flows of the Company and its Subsidiaries for the years ended November 30, 1997, 1996 and 1995 set forth on page 24 of the 1997 Annual Report; (vi) Notes to Consolidated Financial Statements set forth on pages 25 through 34 of the 1997 Annual Report; (vii) Report of Independent Accountants set forth on page 35 of the 1997 Annual Report; (viii) Management's Report on Responsibility for Financial Reporting set forth on page 35 of the 1997 Annual Report; (ix) Information under the caption "11-Year Financial Summary" set forth on pages 36 and 37 of the 1997 Annual Report; and (x) Management's Discussion and Analysis of Financial Condition and Results of Operation set forth under the caption "Financial Review" on pages 17 through 20 of the 1997 Annual Report. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule.
- ------------------------------ * Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1984, in which each Exhibit had the same number as herein. 13 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 18, 1998 CLARCOR Inc. (Registrant) By: /s/ LAWRENCE E. GLOYD -------------------------------------- Lawrence E. Gloyd Chairman of the Board & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: February 18, 1998 By: /s/ LAWRENCE E. GLOYD ------------------------------------------------ Lawrence E. Gloyd Chairman of the Board & Chief Executive Officer and Director Date: February 18, 1998 By: /s/ BRUCE A. KLEIN ------------------------------------------------ Bruce A. Klein Vice President -- Finance & Chief Financial Officer Date: February 18, 1998 By /s/ MARCIA S. BLAYLOCK ------------------------------------------------ Marcia S. Blaylock Vice President, Controller, Corporate Secretary & Chief Accounting Officer Date: February 18, 1998 By /s/ J. MARC ADAM ------------------------------------------------ J. Marc Adam Director Date: February 18, 1998 By /s/ MILTON R. BROWN ------------------------------------------------ Milton R. Brown Director Date: February 18, 1998 By /s/ CARL J. DARGENE ------------------------------------------------ Carl J. Dargene Director Date: February 18, 1998 By /s/ DUDLEY J. GODFREY, JR. ------------------------------------------------ Dudley J. Godfrey, Jr. Director 14 15 Date: February 18, 1998 By /s/ NORMAN E. JOHNSON ------------------------------------------------ Norman E. Johnson Director Date: February 18, 1998 By /s/ STANTON K. SMITH, JR. ------------------------------------------------ Stanton K. Smith, Jr. Director Date: February 18, 1998 By /s/ DON A. WOLF ------------------------------------------------ Don A. Wolf Director 15 16 [This page intentionally left blank] 17 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois Our report on the consolidated financial statements of CLARCOR Inc. and Subsidiaries has been incorporated by reference in this Form 10-K from page 35 of the 1997 Annual Report to Shareholders of CLARCOR Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed on page 11 (index of exhibits) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Chicago, Illinois January 9, 1998 F-1 18 CLARCOR INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------- ---------- ----------------------- ---------- ---------- ADDITIONS ----------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ------------------------------------- ---------- ---------- ---------- ---------- ---------- 1997: Allowance for losses on accounts receivable......................... $2,007 $696 $ 58(A) $655(B) $2,106 ====== ==== ==== ==== ====== 1996 (Restated)(C): Allowance for losses on accounts receivable......................... $1,846 $568 $ -- $407(B) $2,007 ====== ==== ==== ==== ====== 1995 (Restated)(C): Allowance for losses on accounts receivable......................... $1,722 $635 $ -- $511(B) $1,846 ====== ==== ==== ==== ======
NOTES: (A) Due to acquisition addition in 1997. (B) Bad debts written off during year, net of recoveries. (C) Prior period amounts have been restated to reflect the results of United Air Specialists, Inc. under the requirements of pooling of interests accounting. F-2 EX-10.4(B) 2 EMPLOYMENT AGREEMENT (LAWRENCE E. GLOYD) 1 EXHIBIT 10.4(b) EMPLOYMENT AGREEMENT AMENDED AND RESTATED AGREEMENT by and between CLARCOR Inc., a Delaware corporation (the "Corporation") and LAWRENCE E. GLOYD(the "Executive") dated as of July 1, 1997. WHEREAS, Executive currently serves as Chairman of the Board of Directors and Chief Executive Officer of the Corporation; and WHEREAS, the Corporation desires to enter into this Agreement to assure the benefits of Executive's future services to the Corporation, and Executive is willing to postpone his retirement from the Corporation and to commit to render such services, upon the terms and conditions set forth below. It is therefore mutually agreed as follows: 1. Employment. The Corporation agrees to employ Executive as Chairman of the Board of Directors and Chief Executive Officer and Executive agrees to serve the Corporation in such capacities, upon the terms and conditions and for the period of employment hereinafter set forth. Throughout the Employment Period (as defined below), subject to the supervision of the Board of Directors (the "Board"), Executive shall exercise such authority and perform such duties as are commensurate with the authority being exercised and the duties being performed by Executive immediately preceding the effective date of this Agreement; provided, however, that Executive shall be responsible primarily for strategic planning, mergers and acquisitions and the development and implementation of a plan of executive succession within the Corporation which shall include transferring the responsibilities of Chief Executive Officer to Norman Johnson upon termination of the Employment Period. Executive shall provide such services at the headquarters of the Corporation in Rockford, Illinois, except as otherwise expressly provided herein. Throughout the Employment Period, unless otherwise agreed in writing by Executive and the Corporation, the Corporation shall neither demote Executive nor assign to Executive any duties or responsibilities that are inconsistent with his position, duties, responsibilities and status as Chairman of the Board and Chief Executive Officer. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Corporation and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of Executive's responsibilities as an employee of the Corporation in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by Executive prior to the effective date of this Agreement, the continued conduct of such activities (or conduct of activities similar in nature and scope thereto) subsequent to the effective date of this Agreement shall not thereafter be deemed to interfere with the performance of Executive's responsibilities to the Corporation. Page 1 2 EMPLOYMENT AGREEMENT 2. Employment Period. The term of Executive's employment under this Agreement shall commence as of the date hereof, and shall expire, subject to earlier termination of employment as hereinafter provided, upon the occurrence of the annual meeting of the Board held in March, 2000 (the "Employment Period".) 3. Compensation. Compensation Plans. Benefits and Perquisites. During the Employment Period, Executive shall be compensated as follows: (a) He shall receive an annual salary at a monthly rate at least equal to the highest salary rate he has attained immediately preceding the effective date of this Agreement on an annualized basis, with the opportunity for increases, from time to time thereafter, which are in accordance with the Corporation's regular practices. The term "salary" as utilized in this Agreement shall refer to such annual salary as increased. Notwithstanding the foregoing, the Compensation and Stock Option Committee of the Board of Directors (the "Committee") shall review Executive's salary on an annual basis and make any adjustments in Executive's salary that it deems appropriate. (b) He shall be eligible to participate on a reasonable basis in the Corporation's 1994 Incentive Plan, Key Management Incentive Plan, Long Range Performance Share Plan and other bonus and incentive compensation plans (whether now or hereinafter in effect.) Except as provided below, Executive's participation in the 1994 Incentive Plan, the Key Management Incentive Plan and the Long Range Performance Share Plan shall be on the same basis and terms as in effect immediately preceding the effective date of this Agreement and Executive's participation in any hereinafter established plans shall be on the same basis and terms as other executive officers of the Corporation. No additional compensation provided under any of such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of Executive's entitlements hereunder. (c) Throughout the Employment Period, pursuant to the terms of the 1994 Incentive Plan and the Key Management Incentive Plan, Executive shall receive the following awards and incentives: (i) If the Corporation's budgeted target for sales and net earnings shall have been met for the fiscal year ended in 1997, Executive shall receive a stock option grant of 120,000 shares of the Corporation's common stock at the meeting of the Committee to be held in December of 1997, and no additional option grants shall be made during the remainder of the Employment Period (except as may be provided under Section 3(g) hereof). The options shall contain the provisions commonly contained in executive options awarded by the Corporation, including an exercise price equal to the fair market value of the Corporation's common stock on the date of grant, ratable vesting over a six-year period, and full vesting in the event of a Change of Control (as defined in Section 10). Notwithstanding the foregoing, the options shall become fully vested and exercisable on Page 2 3 EMPLOYMENT AGREEMENT the last day of the Employment Period and shall remain exercisable for a period of three years thereafter. (ii) Executive's entry, target and maximum annual incentive under the Key Management Incentive Plan shall be as follows:
Fiscal Year Ending in Entry Target Maximum 1998 25 52.5 80 1999 30 60 90
(d) He shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Corporation and made available to employees generally, including, without limitation, all pension, retirement, savings, medical, hospitalization, disability, dental, life, or travel accident insurance benefit plans (collectively the "Benefit Plans"). Executive's participation in such Benefit Plans shall be on the same basis and terms as are applicable to employees of the Corporation generally. Such Benefit Plans shall include, but shall not be limited to, the following: CLARCOR Inc. Pension Plan Retirement Savings Plan and Trust (401 (k) Plan) Monthly Investment Plan Dental Plan Health Care Plan Life Insurance Plan/Supplemental Life Insurance Plan (e) Executive shall be entitled to paid vacations in accordance with the Corporation's vacation policy as in effect from time to time, and to all paid holidays given by the Corporation to its executive officers. Executive shall be credited with two additional weeks of paid vacation for the Corporation's fiscal year ending in 1998 and four additional weeks of paid vacation for the Corporation's fiscal year ending in 1999. Executive agrees to use all of his accrued vacation days in the year with respect to which such vacation days have accrued throughout the Employment Period. (f) Executive shall be entitled to all fringe benefits and perquisites made available by the Corporation to its executive officers, including but not limited to, participation in the Automobile Plan and, subject to the provisions of Section 4 hereof, the Supplemental Retirement Plan. (g) In addition to the amounts of compensation provided elsewhere in this Agreement, if during the Employment Period the Corporation shall achieve both (i) quarterly revenues of at least $150,000,000 and (ii) net profits after tax equal to 6.5% of sales (both as reported on any of the Corporation's regular quarterly earnings statements prepared in accordance with Generally Accepted Accounting Principles consistently applied), the Committee shall perform a special review of Executive's compensation and Page 3 4 EMPLOYMENT AGREEMENT shall pay to Executive a lump sum in such amount, if any, as it may determine in good faith to be equitable. Further, in such circumstances the Committee may, if it so determines, award to Executive one additional grant of options under the 1994 Incentive Plan in such amount, if any, as it may determine in good faith to be equitable. Any payment or grants of options under this Section 3(g) may be made at any time within the Employment Period. 4. Supplemental Retirement Plan. Executive is an active participant in the Corporation's Supplemental Retirement Plan on the effective date of this Agreement. The Corporation shall direct its actuarial advisory firm to compute the lump sum present value of the benefit that would be payable to Executive under the Supplemental Retirement Plan if he had retired on his Normal Retirement Date, December 1, 1997, and elected to receive the lump sum present value of his benefit as of such date, computed in accordance with the terms of such plan (the "Lump Sum"). In the event any factor or element in the computation of the Lump Sum cannot be definitively computed on that date, the actuary shall use its best professional judgment to assume and estimate such unknown factor or assumption. The Lump Sum shall be deposited by the Corporation into an escrow account which shall be maintained by the Corporation in a bank or other financial institution of the Corporation's choosing and shall be credited with interest at the prime rate of the Corporation's primary lending institution, as in effect at the beginning of each calendar year. The amount in such escrow account shall be subject at all times to the claims of the Corporation's creditors. The balance in the escrow account shall be paid to Executive upon the earliest of (i) his retirement at the expiration of the Employment Period, (ii) his Disability prior to retirement, (iii) his death prior to retirement, (iv) resignation of Executive for Good Reason (as defined in Section 6), or (v) Executive's termination of employment during the Employment Period by the Corporation with or without Cause or pursuant to a Change of Control. Not later than 12 months prior to the expiration of the Employment Period, Executive may file with the Corporation an irrevocable written election to receive the escrow account in substantially equal monthly or quarterly installments over a selected period, not to exceed ten years, with interest (at a rate to be determined at such time) on the unpaid balance. In the event of the Executive's Disability or termination as provided in (iv) or (v) above, the escrow account shall be paid to Executive in a lump sum. In the event of Executive's death prior to retirement, the escrow account shall be paid in a lump sum to Executive's surviving spouse. If Executive dies before full payment of the escrow account has been made, the unpaid amount shall be paid in a lump sum (or installments shall be continued, as the case may be) to Executive's surviving spouse. Any payment due under this Section 4 shall be made or shall commence within 30 days after the occurrence of the applicable payment event specified herein. Page 4 5 EMPLOYMENT AGREEMENT 5. Post-retirement Relationship (a) After the end of the Employment Period, Executive shall continue to serve his term as a director of the Corporation. Executive's retirement from the Corporation shall not affect his eligibility to be re-elected as a director, subject to applicable maximum age limitations generally applicable to Board members. (b) The Corporation shall provide Executive with secretarial services for work performed on behalf of the Corporation, his community efforts or personal needs. If Executive's spouse accompanies him on travel for matters related to the business of the Corporation, the Corporation shall pay the costs of such travel. (c) The Corporation shall pay the cost of financial planning, estate planning and retirement planning services provided to Executive for two years following Executive's retirement from the Corporation, provided that the cost of such services shall not materially exceed the cost of similar services as performed in prior years. (d) Upon his retirement from the Corporation, the Corporation shall present to Executive as a gift, the automobile being used by Executive at such time pursuant to the Automobile Plan. 6. Termination. Executive's employment with the Corporation as Chief Executive Officer and Chairman of the Board may be terminated by the Corporation or Executive only under the circumstances described in this Section 6: (a) Executive's employment hereunder terminates as of the end of the Employment Period. (b) Executive's employment hereunder will terminate upon his death. (c) If Executive is Disabled, the Corporation may terminate Executive's employment with the Corporation. For purposes of the Agreement, Executive shall be deemed to have a "Disability" (and to be "Disabled") if he has been determined by the Incumbent Board (as defined in Section 10), based on competent medical evidence, to have a physical or mental disability that renders him incapable, after reasonable accommodation by the Corporation, of performing his duties under this Agreement. (d) The Corporation may terminate Executive's employment hereunder at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean fraud, misappropriation or intentional material damage to the property or business of the Corporation, or commission of a felony. (e) Executive may resign at any time for Good Reason. For purposes of this Agreement, "Good Reason" shall mean an adverse change in the nature or scope of Executive's authority, duties or responsibilities from those referred to in Section 1, a Page 5 6 EMPLOYMENT AGREEMENT change in location that is more than 50 miles from that referred to in Section 1, a reduction in total compensation, compensation plans, benefits or perquisites from those provided in Section 3, or the breach by the Corporation of any other provision of this Agreement, or a determination by Executive that as a result of a Change of Control (as defined in Section 10) and a change in circumstances thereafter significantly affecting his position, he is unable to exercise the authorities, powers, function or duties attached to his position and contemplated by Section 1 of the Agreement. For purposes of this Section 6, a reasonable determination made by Executive in good-faith shall be conclusive. 7. Termination Payments. In the event of a termination of Executive's employment with the Corporation and subject to the provisions of Section 6 of this Agreement, the Corporation shall pay to Executive and provide him with the following: (a) If Executive's termination occurs due to death or Disability, Executive (or his estate or beneficiaries, if applicable) shall be entitled to any unpaid salary for days worked prior to his date of termination and payment for unused vacation days (determined in accordance with the policies of the Corporation as in effect at that time for Corporate officers) earned prior to the date of termination, and to all other benefits available to Executive or his estate and beneficiaries under the Corporation's Benefit Plans as in effect on the date of such termination of employment. (b) If Executive's employment is terminated by the Corporation without Cause or if Executive resigns for Good Reason, Executive shall be entitled to the following: (i) The Corporation shall pay to Executive the lump sum present value of the salary, at the rate required by Section 3(a) as in effect immediately prior to the date of such termination of employment, to which he would have been entitled had he remained in the employ of the Corporation for the remainder of the Employment Period. The Corporation shall also pay to Executive the average amount of any incentive compensation and bonuses earned by Executive in the three years preceding Executive's termination of employment with the Corporation, and the benefit provided to Executive under Section 4. Further, Executive shall become fully vested in any stock options in which Executive had not yet become vested. (ii) During the remainder of the Employment Period, Executive shall continue to be treated as an employee under the provisions of the Corporation's plans referred to in Section 3(b). In addition, Executive shall continue to be entitled to all benefits and service credits for benefits, programs and arrangements of the Corporation described in Sections 3(d) and (f) as if he were still employed during such period under this Agreement. (iii) If, despite the provisions of subparagraph (ii) above, benefits or service credits or the right to accrue further benefits or service credits under any plan referred to in Section 3(b) or (d) shall not be payable or provided under such Page 6 7 EMPLOYMENT AGREEMENT plan to Executive, or his dependents, beneficiaries and estate because he is no longer an employee of the Corporation, the Corporation itself shall, to the extent necessary, pay or provide for payment of such benefits and service credits for such benefits to Executive, his dependents, beneficiaries and estate. The amount of payments provided for in this Section 7(b) shall be determined by the Accounting Firm (as defined in Section 12) and such payments shall be made within 30 days after Executive's termination of employment with the Corporation. 8. Non-Competition and Confidentiality. Executive agrees that: (a) There shall be no obligation on the part of the Corporation to provide any further payments or benefits (other than benefits or payments already earned, accrued or paid) described in Section 7 or Section 11 if, during the Employment Period, Executive shall be employed by (or become an owner, director or officer of, or a consultant to) any business which directly competes with any business of the Corporation or of any of its subsidiaries at such time; provided, however, that Executive shall not be deemed to have breached this undertaking if (i) his sole relationship with such entity consists of his holding, directly or indirectly, an equity interest in such entity not greater than five percent of such entity's outstanding equity interest, and (ii) such employment or activity is not likely to cause serious damage to the Corporation or any of its subsidiaries at such time; and (b) During and after the Employment Period, he shall retain in confidence any confidential information known to him concerning the Corporation and its subsidiaries and their respective businesses so long as such information is not publicly disclosed. Notwithstanding the foregoing, a breach by Executive of this Section 8(b) shall not be used to set-off or delay amounts payable under this Agreement. 9. No Obligation to Mitigate Damages. Executive shall not be obligated to seek other employment in mitigating of amounts payable or arrangements made under the provisions of this Agreement and the obtaining of such other employment shall in no event effect any reduction of the Corporation's obligations under this Agreement. 10. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Corporation) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either the then outstanding shares of common stock or the combined voting power of the Corporation's then outstanding voting securities entitled to vote generally in the election of directors; provided, however, no Change of Control shall be deemed to have occurred for any acquisition by any corporation with respect to which, following such acquisition, more Page 7 8 EMPLOYMENT AGREEMENT than 60% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the then outstanding shares of common stock or the combined voting power of the Corporation's then outstanding voting securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Corporation's then outstanding common stock and then outstanding voting securities, as the case may be; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Corporation, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Corporation immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated corporation's then outstanding voting securities, or a liquidation or dissolution of the Corporation or of the sale of all or substantially all of the assets of the Corporation. 11. Termination of Executive Following a Change of Control. In the event the Corporation terminates Executive's employment with the Corporation during the Employment Period pursuant to or following a Change of Control, Executive shall be entitled to the salary, compensation and benefits provided to him under Section 4 and Section 7(b)(i),(ii) and (iii). 12. Certain Additional Payments by the Corporation. The Corporation agrees that: (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Corporation to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 12) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, and hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an Page 8 9 EMPLOYMENT AGREEMENT additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including, without limitation, any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b)Subject to the provisions of Section 12(c), all determinations required to be made under this Section 12, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand L.L.P. (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 12, shall be paid by the Corporation to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Corporation and Executive. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up payment (or a portion thereof) which should have been paid by the Corporation will not have been paid (an "Underpayment"). (c) An Underpayment shall be deemed to occur upon a claim by the Internal Revenue Service that the tax liability of Executive (whether in respect of the then current taxable year of Executive or in respect of any prior taxable year of Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment. In the event that the Corporation exhausts its remedies pursuant to this Section 12(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of Executive. Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period Page 9 10 EMPLOYMENT AGREEMENT following the date on which he gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give the Corporation any information reasonably requested by the Corporation relating to such claim, (ii) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation, (iii) cooperate with the Corporation in good faith in order effectively to contest such claim, and (iv) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 12(c), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder. Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. Page 10 11 EMPLOYMENT AGREEMENT (d) If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 12(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Corporation's complying with the requirements of Section 12(c), promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 12(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) An Overpayment shall be deemed to have occurred upon a "Final Determination" (as defined below) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when Executive has received from the Internal Revenue Service a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the Internal Revenue Service which finally and conclusively binds Executive and the Internal Revenue Service, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to Executive's applicable tax return has expired. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Corporation to Executive and Executive shall, within ten business days of the occurrence of such Overpayment, pay the Corporation the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 7872(f)(2)(A) of the Code from the date of the Gross-Up Payment (to which the Overpayment related) was paid to Executive. (f) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the Internal Revenue Service as Excise Tax withholding, the amount of the Excise Tax the Corporation has actually withheld from the Payment or Payments. 13. Deferral of Payments. Notwithstanding anything herein to the contrary, the Corporation may defer any payment due under this Agreement to the earliest date upon which the payment can be made and deducted by the Corporation in light of the provisions of Section 162(m) of the Code. Page 11 12 EMPLOYMENT AGREEMENT 14. Expenses. During the Employment Period, the Corporation shall promptly pay or reimburse Executive for all reasonable expenses incurred by Executive in the performance of duties hereunder. 15. Full Settlement. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against Executive or others. The Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Corporation, Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 16. Payments to Beneficiaries. Any payments due under this Agreement as a result of Executive's death shall be made to Executive's surviving spouse. If Executive is not survived by a spouse, payment shall be made to the persons or entities named by Executive as his beneficiary for payment in a written document provided to the Corporation prior to his death. In the absence of a surviving spouse or any such named beneficiary, payment shall be made to Executive's estate. 17. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Executive at 1734 Riverside Road, Belvidere, IL 61008, or at the last address he has filed in writing with the Corporation or, in the case of the Corporation, at its principal executive offices. 18. Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or the laws of descent and distribution. 19. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Illinois. 20. Amendment. This Agreement may be amended or canceled by mutual agreement of the parties in writing without the consent of any other person and, so long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this agreement or the subject matter hereof. 21. Successors. (a) This Agreement is personal to Executive and without the prior written consent of the Corporation shall not be assignable by Executive otherwise than by will or Page 12 13 EMPLOYMENT AGREEMENT the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors and assigns. (c) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Any failure by the Corporation to comply with and satisfy this Section 21(c) shall constitute a termination as provided in Section 6 of this Agreement, provided that such successor has received at least ten days prior written notice from the Corporation or Executive of the requirements of this Section 21(c). 22. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. /s/ Lawrence E. Gloyd -------------------------- Lawrence E. Gloyd CLARCOR Inc. By /s/ Bruce A. Klein ----------------------- Bruce A. Klein ATTEST: /s/ Marcia S. Blaylock - ------------------------------ Marcia S. Blaylock Secretary Page 13 (SEAL) EX-10.4(C) 3 EMPLOYMENT AGREEMENT (NORMAN E. JOHNSON) 1 EXHIBIT 10.4 (c) EMPLOYMENT AGREEMENT AGREEMENT by and between CLARCOR Inc., a Delaware corporation (the "Corporation") and NORMAN JOHNSON (the "Executive") dated as of July 1, 1997. WHEREAS, Executive currently serves as President and Chief Operating Officer of the Corporation; and WHEREAS, the Corporation desires to enter into this Agreement to assure the benefits of Executive's future services to the Corporation, and Executive is willing to commit to render such services, upon the terms and conditions set forth below. It is therefore mutually agreed as follows: 1. Employment. The Corporation agrees to employ Executive as President and Chief Operating Officer and Executive agrees to serve the Corporation in such capacities, upon the terms and conditions and for the period of employment hereinafter set forth. Throughout the Employment Period (as defined below), subject to the supervision of the Board of Directors (the "Board") and the Chief Executive Officer of the Corporation, Executive shall exercise such authority and perform such duties as are commensurate with the authority being exercised and the duties being performed by Executive immediately preceding the effective date of this Agreement. Executive shall provide such services at the headquarters of the Corporation in Rockford, Illinois, except as otherwise expressly provided herein. Throughout the Employment Period, unless otherwise agreed in writing by Executive and the Corporation, the Corporation shall neither demote Executive nor assign to Executive any duties or responsibilities that are inconsistent with his position, duties, responsibilities and status as President and Chief Operating Officer. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Corporation and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of Executive's responsibilities as an employee of the Corporation in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by Executive prior to the effective date of this Agreement, the continued conduct of such activities (or conduct of activities similar in nature and scope thereto) subsequent to the effective date of this Agreement shall not thereafter be deemed to interfere with the performance of Executive's responsibilities to the Corporation. 2. Employment Period. The term of Executive's employment under this Agreement shall commence as of the date hereof, and shall expire, subject to earlier termination of employment as hereinafter provided, upon the occurrence of the annual meeting of the Board held in March, 2000; provided, however, that unless the Board shall take affirmative action to the Page 1 2 EMPLOYMENT AGREEMENT contrary and the Corporation shall give prior written notice thereof to Executive, as of November 29, 1998, and as of the first day of each succeeding fiscal year of the Corporation, the term of this Agreement shall be extended automatically (for a period of approximately one additional year) to the date of the annual meeting of the Board held in March 2001, and each year thereafter (the "Employment Period"). 3. Compensation, Compensation Plans, Benefits and Perquisites. During the Employment Period, Executive shall be compensated as follows: (a) He shall receive an annual salary at a monthly rate at least equal to the highest salary rate he has attained immediately preceding the effective date of this Agreement on an annualized basis, with the opportunity for increases, from time to time thereafter, in the discretion of the Compensation and Stock Option Committee of the Board (the "Committee") in accordance with the Corporation's regular practices. The term "salary" as utilized in this Agreement shall refer to such annual salary as increased. Notwithstanding the foregoing, if in the Committee's judgment, the Corporation is meeting its budgeted target for sales and net earnings, Executive's salary shall be increased, at a minimum. to the following amounts at the times provided below: October, 1997 - $302,000 October, 1998 - $326,268 October, 1999 - $358,895 (b) He shall be eligible to participate on a reasonable basis in the Corporation's 1994 Incentive Plan, Key Management Incentive Plan, Long Range Performance Share Plan and other bonus and incentive compensation plans (whether now or hereinafter in effect.) Except as provided below, Executive's participation in the 1994 Incentive Plan, the Key Management Incentive Plan and the Long Range Performance Share Plan shall be on the same basis and terms as in effect immediately preceding the effective date of this Agreement and Executive's participation in any hereinafter established plans shall be on the same basis and terms as other executive officers of the Corporation. No additional compensation provided under any of such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of Executive's entitlements hereunder. (c) Throughout the Employment Period, pursuant to the terms of the 1994 Incentive Plan, the Key Management Incentive Plan and the Long Range Performance Share Plan, Executive shall receive at least the following awards and incentives: (i) Executive shall receive a stock option grant of 60,000 shares of the Corporation's common stock at the meeting of the Committee to be held in December of 1997 and additional stock option grants of 30,000 shares at each of the meetings of the Committee to be held in December of 1998 and 1999, provided that for the fiscal year just ended, the Corporation's budgeted target for sales and net earnings shall have Page 2 3 EMPLOYMENT AGREEMENT been met. The options shall contain the provisions commonly contained in executive options awarded by the Corporation, including an exercise price equal to the fair market value of the Corporation's common stock on the date of grant and ratable vesting over a six-year period. In the event of a Change of Control (as defined in Section 8), all options shall become fully vested, and any options to which Executive has become entitled pursuant to this provision but which have not yet been granted by the occurrence of the Change of Control, shall be granted immediately and shall be fully vested. (ii) Executive's entry, target and maximum annual incentive under the Key Management Incentive Plan shall be as follows:
Fiscal Year Ending in Entry Target Maximum ----------- ----- ------ ------- 1997 20 45 70 1998 25 52.5 80 1999 30 60 90
(iii) The multiplier under the Long Range Performance Share Plan shall be as follows:
Fiscal Year Ending in Multiplier ----------- ---------- 1997 36.67 1998 38.33 1999 40.00
(d) He shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Corporation and made available to employees generally, including, without limitation, all pension, retirement, savings, medical, hospitalization, disability, dental, life, or travel accident insurance benefit plans (collectively the "Benefit Plans"). Executive's participation in such Benefit Plans shall be on the same basis and terms as are applicable to employees of the Corporation generally. Such Benefit Plans shall include, but shall not be limited to, the following: CLARCOR Inc. Pension Plan Retirement Savings Plan and Trust (401(k) Plan) Supplemental Retirement Plan Monthly Investment Plan Dental Plan Health Care Plan Life Insurance Plan/Supplemental Life Insurance Plan Disability Plan Page 3 4 EMPLOYMENT AGREEMENT (e) Executive shall be entitled to paid vacations in accordance with the Corporation's vacation policy as in effect from time to time, and to all paid holidays given by the Corporation to its executive officers. (f) Executive shall be entitled to all fringe benefits and perquisites made available by the Corporation to its executive officers, including but not limited to, participation in the Automobile Plan. (g) In addition to the amounts of compensation provided elsewhere in this Agreement, if during the Employment Period the Corporation shall achieve both (i) quarterly revenues of at least $150,000,000 and (ii) net profits after tax equal to 6.5% of sales (both as reported on any of the Corporation's regular quarterly earnings statements prepared in accordance with Generally Accepted Accounting Principles consistently applied), the Committee shall perform a special review of Executive's compensation and shall pay to Executive a lump sum in such amount, if any, as it may determine in good faith to be equitable. Further, in such circumstance the Committee may, if it so determines, award to Executive one additional grant of options under the 1994 Incentive Plan in such amount, if any, as it may determine in good faith to be equitable. Any payment or grants of options under this Section 3(g) may be made at any time within the Employment Period. 4. Termination. Executive's employment with the Corporation may be terminated by the Corporation or Executive only under the circumstances described in this Section 4: (a) Executive may voluntarily terminate his employment hereunder, but only upon giving at least six months' prior written notice to the Board, in which case the Employment Period shall terminate on the effective date of such notice. (b) Executive's employment hereunder will terminate upon his death. (c) If Executive is Disabled, the Corporation may terminate Executive's employment with the Corporation. For purposes of the Agreement, Executive shall be deemed to have a "Disability" (and to be "Disabled") if he has been determined by the Incumbent Board (as defined in Section 8), based on competent medical evidence to have a physical or mental disability that renders him incapable, after reasonable accommodation by the Corporation, of performing his duties under this Agreement. (d) The Corporation may terminate Executive's employment hereunder at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean fraud, misappropriation or intentional material damage to the property or business of the Corporation or commission of a felony. (e) Executive may resign at any time for Good Reason. For purposes of this Agreement, "Good Reason" shall mean an adverse change in the nature or scope of Page 4 5 EMPLOYMENT AGREEMENT Executive's authority, duties or responsibilities from those referred to in Section 1, a change in location that is more than 50 miles from that referred to in Section 1, a reduction in total compensation, compensation plans, benefits or perquisites from those provided in Section 3, or the breach by the Corporation of any other provision of this Agreement, Board action to prevent the automatic extension of this Agreement as provided in Section 2 hereof, or a determination by Executive that as a result of a Change of Control (as defined in Section 8) and a change in circumstances thereafter affecting his position, he is unable to exercise the authorities, powers, function or duties attached to his position and contemplated by Section 1 of the Agreement. For purposes of this Section 4, a reasonable determination made by Executive in good-faith shall be conclusive. 5. Termination Payments. In the event of a termination of Executive's employment with the Corporation and subject to the provisions of Section 4 of this Agreement, the Corporation shall pay to Executive and provide him with the following: (a) If Executive's termination occurs due to death or Disability, Executive (or his estate or beneficiaries, if applicable) shall be entitled to any unpaid salary for days worked prior to his date of termination and payment for unused vacation days (determined in accordance with the policies of the Corporation as in effect at that time for Corporate officers) earned prior to the date of termination, and to all other benefits available to Executive or his estate and beneficiaries under the Corporation's Benefit Plans as in effect on the date of such termination of employment. (b) If Executive's employment is terminated by the Corporation without Cause or if Executive resigns for Good Reason, Executive shall be entitled to the following: (i) The Corporation shall pay to Executive the lump sum present value of the salary, at the rate required by Section 3(a) as in effect immediately prior to the date of such termination of employment, to which he would have been entitled had he remained in the employ of the Corporation for the remainder of the Employment Period. The Corporation shall also pay to Executive the average amount of any incentive compensation and bonuses earned by Executive in the three years preceding Executive's termination of employment with the Corporation. Further, Executive shall become fully vested in any stock options in which Executive had not yet become vested. (ii) During the remainder of the Employment Period, Executive shall continue to be treated as an employee under the provisions of the Corporation's plans referred to in Section 3(b). In addition, Executive shall continue to be entitled to all benefits and service credits for benefits, programs and arrangements of the Corporation described in Sections 3(d) and (f) as if he were still employed during such period under this Agreement. Page 5 6 EMPLOYMENT AGREEMENT (iii) If, despite the provisions of subparagraph (ii) above, benefits or service credits or the right to accrue further benefits or service credits under any plan referred to in Section 3(b) or (d) shall not be payable or provided under such plan to Executive, or his dependents, beneficiaries and estate because he is no longer an employee of the Corporation, the Corporation itself shall, to the extent necessary, pay or provide for payment of such benefits and service credits for such benefits to Executive, his dependents, beneficiaries and estate. The amount of payments provided for in this Section 5(b) shall be determined by the Accounting Firm (as defined in Section 10) and such payments shall be made within 30 days after Executive's termination of employment with the Corporation. 6. Non-Competition and Confidentiality. Executive agrees that: (a) There shall be no obligation on the part of the Corporation to provide any further payments or benefits (other than benefits or payments already earned, accrued or paid) described in Section 5 or Section 9 if, during the Employment Period, Executive shall be employed by (or become an owner, director or officer of, or a consultant to) any business which directly competes with any business of the Corporation or of any of its subsidiaries at such time; provided, however, that Executive shall not be deemed to have breached this undertaking if (i) his sole relationship with such entity consists of his holding, directly or indirectly, an equity interest in such entity not greater than five percent of such entity's outstanding equity interest, and (ii) such employment or activity is not likely to cause serious damage to the Corporation or any of its subsidiaries at such time; and (b) During and after the Employment Period, he shall retain in confidence any confidential information known to him concerning the Corporation and its subsidiaries and their respective businesses so long as such information is not publicly disclosed. Notwithstanding the foregoing, a breach by Executive of this Section 6(b) shall not be used to set-off or delay amounts payable under this Agreement. 7. No Obligation to Mitigate Damages. Executive shall not be obligated to seek other employment in mitigating of amounts payable or arrangements made under the provisions of this Agreement and the obtaining of such other employment shall in no event effect any reduction of the Corporation's obligations under this Agreement. 8. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Corporation) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either the then outstanding shares of common stock or the combined voting power of the Corporation's Page 6 7 EMPLOYMENT AGREEMENT then outstanding voting securities entitled to vote generally in the election of directors; provided, however, no Change of Control shall be deemed to have occurred for any acquisition by any corporation with respect to which following such acquisition, more than 60% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the then outstanding shares of common stock or the combined voting power of the Corporation's then outstanding voting securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Corporation's then outstanding common stock and then outstanding voting securities, as the case may be; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Corporation, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Corporation immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated corporation's then outstanding voting securities, or a liquidation or dissolution of the Corporation or of the sale of all or substantially all of the assets of the Corporation. 9. Termination of Executive Following a Change of Control. In the event the Corporation terminates Executive's employment with the Corporation during the Employment Period pursuant to or following a Change of Control, Executive shall be entitled to the salary, compensation and benefits provided to him under Section 5(b)(i),(ii) and (iii). 10. Certain Additional Payments by the Corporation. The Corporation agrees that: (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Corporation to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the Page 7 8 EMPLOYMENT AGREEMENTS "Code"), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, and hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including, without limitation, any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Coopers & Lybrand L.L.P. (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Corporation and Executive. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up payment (or a portion thereof) which should have been paid by the Corporation will not have been paid (an "Underpayment"). (c) An Underpayment shall be deemed to occur upon a claim by the Internal Revenue Service that the tax liability of Executive (whether in respect of the then current taxable year of Executive or in respect of any prior taxable year of Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment. In the event that the Corporation exhausts its remedies pursuant to this Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of Executive. Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service. Such notification shall be given as soon as practicable but no later than Page 8 9 EMPLOYMENT AGREEMENT ten business days after Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give the Corporation any information reasonably requested by the Corporation relating to such claim, (ii) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation, (iii) cooperate with the Corporation in good faith in order effectively to contest such claim, and (iv) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be Page 9 10 EMPLOYMENT AGREEMENT payable hereunder. Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Corporation's complying with the requirements of Section 10(c), promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 10(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) An Overpayment shall be deemed to have occurred upon a "Final Determination" (as defined below) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when Executive has received from the internal Revenue Service a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the internal Revenue Service which finally and conclusively binds Executive and the Internal Revenue Service, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to Executive's applicable tax return has expired. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Corporation to Executive and Executive shall, within ten business days of the occurrence of such Overpayment, pay the Corporation the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 7872(f)(2)(A) of the Code from the date of the Gross-Up Payment (to which the Overpayment related) was paid to Executive. (f) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the internal Revenue Service as Excise Tax withholding, the amount of the Excise Tax the Corporation has actually withheld from the Payment or Payments. 11. Deferral of Payments. Notwithstanding anything herein to the contrary, the Corporation may defer any payment due under this Agreement to the earliest date upon which the payment can be made and deducted by the Corporation in light of the provisions of Section 162(m) of the Code. Page 10 11 EMPLOYMENT AGREEMENT 12. Expenses. During the Employment Period, the Corporation shall promptly pay or reimburse Executive for all reasonable expenses incurred by Executive in the performance of duties hereunder. 13. Full Settlement. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against Executive or others. The Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Corporation, Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 14. Payments to Beneficiaries. Any payments due under this Agreement as a result of Executive's death shall be made to Executive's surviving spouse. If Executive is not survived by a spouse, payment shall be made to the persons or entities named by Executive as his beneficiary for payment in a written document provided to the Corporation prior to his death. In the absence of a surviving spouse or any such named beneficiary, payment shall be made to Executive's estate. 15. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Executive at 5114 Regents Park Road, Rockford, Illinois 61107, or at the last address he has filed in writing with the Corporation or, in the case of the Corporation, at its principal Executive offices. 16. Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or the laws of descent and distribution. 17. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Illinois. 18. Amendment. This Agreement may be amended or canceled by mutual agreement of the parties in writing without the consent of any other person and, so long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this agreement or the subject matter hereof. 19. Successors. (a) This Agreement is personal to Executive and without the prior written consent of the Corporation shall not be assignable by Executive otherwise than by will or Page 11 12 EMPLOYMENT AGREEMENT the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors and assigns. (c) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Any failure by the Corporation to comply with and satisfy this Section 19(c) shall constitute a termination as provided in Section 4 of this Agreement, provided that such successor has received at least ten days prior written notice from the Corporation or Executive of the requirements of this Section 19(c). 20. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. /s/ Norman Johnson ------------------ Norman Johnson CLARCOR Inc. By /s/ Bruce A. Klein -------------------- Bruce A. Klein ATTEST: /s/ Marcia S. Blaylock - ---------------------- Marcia S. Blaylock Secretary (Seal) Page 12 EX-10.4(D) 4 TRUST AGREEMENT 1 EXHIBIT 10.4(d) TRUST AGREEMENT THIS TRUST AGREEMENT (this "Agreement") dated as of December 1, 1997, between CLARCOR Inc., a Delaware corporation (the "Company"), and AMCORE Investment Group, N.A. (the "Trustee"), as trustee, WHEREAS, Mr. Lawrence E. Gloyd ("LEG") serves as Chairman of the Board of Directors and Chief Executive Officer of the Company pursuant to an Employment Agreement dated as of July 1, 1997 (the "Employment Agreement") between LEG and the Company; and WHEREAS, as provided in Section 4 of the Employment Agreement, the Company has computed the present value (the "Lump Sum") on the date hereof of the benefit that would be payable to LEG under the Company's Supplemental Retirement Plan if LEG had retired on December 1, 1997 and if he had then elected to receive the lump sum present value of his benefit computed as provided in such plan at that date; and WHEREAS, the Company wishes to establish a trust (hereinafter called the "Trust") and to contribute to the Trust the Lump Sum, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until such amount (plus interest thereon as hereinafter provided) is paid to 2 LEG or his spouse in such manner and at such times as specified in Section 3 hereof and in the Employment Agreement; NOW THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: 1. Establishment of Trust. (a) The Company hereby deposits with Trustee in trust the Lump Sum, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be irrevocable. (c) the Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J. chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes (i) described in Section 3 hereof and in the Employment Agreement and (ii) general creditors of the Company as herein set forth. Neither LEG nor his spouse shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust. - 2 - 3 Any rights created under the Employment Agreement and this Agreement shall be mere unsecured contractual rights of LEG and his spouse against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 4(a) herein. 2. Investment of Trust Fund. Subject to Section 6 hereof, the Trustee shall invest the Lump Sum and the earnings thereon (collectively, the "Trust Fund") in accordance with the written instructions of the Company. The Trustee shall have no responsibility whatsoever for interest earnings or investment results (including loss of principal) on any funds held hereunder. The Company shall be responsible for any shortfall in the amount or amounts to be delivered to LEG hereunder whether arising from inadequate earnings on the Trust Fund or loss of all or any portion of the principal thereof. 3. (a) Except as provided in 3(c) and 3(h), on the dates or at the time specified below, the Trustee shall deliver to LEG an amount (the "Distribution Amount") equal to the sum of the Trust Fund plus interest thereon at the prime rate as announced at the beginning of each calendar year by Trustee (the "Prime Rate") from the date hereof to the date of such payment. The capitalized terms used in this Section 3 and not otherwise defined herein shall have the respective meanings specified in the Employment Agreement. - 3 - 4 (b) The Distribution Amount shall be paid by the Trustee to LEG (or his spouse as provided below) within 30 days of the receipt by the Trustee of written notice from the Company of (i) LEG's retirement at the end of the Employment Period; (ii) his death prior to the end of the Employment Period; (iii) his resignation as Chairman of the Board of Directors and Chief Executive Officer of the Company for Good Reason; or (iv) the termination by the Company of his employment under the Employment Agreement during the Employment Period with or without Cause or pursuant to Change of Control. (c) In the event that the Distribution Amount becomes payable to LEG for one of the reasons specified in (b)(i) or (ii) above, LEG (or his executor or administrator in the case of his death) may make an irrevocable written election to the Trustee to receive the Distribution Amount in substantially equal monthly or quarterly installments (the "Installments") over a selected period not to exceed ten years with interest (at a rate to be determined at such time) on the unpaid Distribution Amount from - 4 - 5 the date of such election until the Distribution Amount has been paid in full. (d) In the event of LEG's death prior to his receipt of the Distribution Amount in a lump sum or prior to the distribution of all of the Installments, the Distribution Amount shall be paid in a lump sum to Mrs. Lawrence E. Gloyd (Delma Gloyd) or she shall receive when due and payable all of the remaining unpaid Installments. (e) Any funds remaining in the Trust created hereby after payment in full to LEG or his spouse of all amounts payable pursuant to Section 3(a), (b), (c) and (d) above shall be paid over to the Company upon its written demand. (f) The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of amounts pursuant to this Section 3 and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. (g) The entitlement of LEG or his spouse to payments pursuant to this Section 3 shall be determined by the Company or such party as it shall designate; provided that such determination shall be in conformance with the provisions of this Section 3 and the Employment Agreement and nothing in this - 5 - 6 subsection (g) shall excuse or permit any noncompliance by the Company with any provision of this Agreement or the Employment Agreement. (h) The Company may make payment directly to LEG or his spouse as they become due under this Section 3 or the Employment Agreement. The Company shall notify the Trustee of its decision to make payment directly prior to the time amounts are payable to LEG or his spouse. In addition, if the Trust Amount, and any earnings thereon, are not sufficient to make payments in accordance with this Section 3 or the Employment Agreement, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company when principal and earnings are not sufficient. Section 4. Responsibilities of the Trustee Regarding Payments to Trust Beneficiaries when Company is Insolvent. (a) The Trustee shall cease payment of benefits to LEG and his spouse if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Agreement if (i) the Company is unable to pay its debts as they become due, or (ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section l(d) hereof, the principal and income of - 6 - 7 the Trust shall be subject to claims of general creditors of the Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payments to LEG and his spouse hereunder. (2) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. (3) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to LEG and his spouse and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Agreement shall in any way diminish any rights of LEG or his spouse to pursue their rights as general creditors of Company - 7 - 8 with respect to amounts due under this Agreement or the Employment Agreement. (4) The Trustee shall resume the payments to LEG or his spouse in accordance with Section 3 of this Trust Agreement only after Trustee has determined that the Company is not Insolvent (or is no longer Insolvent). (c) Provided that there are sufficient assets, if the Trustee discontinues the payments from the Trust pursuant to Section 4(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to LEG or his spouse under the terms of this Agreement or the Employment Agreement for the period of such discontinuance, less the aggregate amount of any payments made to LEG or his spouse by the Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 5. Payments to Company. Except as provided in Section 4 hereof, the Company shall have no right or power to direct the Trustee to return to the Company or to divert to others any of the Trust assets before all payments have been made to LEG and his spouse pursuant to the terms of this Agreement and the Employment Agreement. - 8 - 9 Section 6. Investment Authority In no event shall the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company, other than a de minimis amount held in common investment vehicles in which the Trustee invests. All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with LEG or his spouse. Section 7. Disposition of Income. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested, except to the extent that the same shall be distributed pursuant to Section 4 hereof. Section 8. Responsibility of Trustee. (a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of - 9 - 10 this Trust and is given in writing by the Company. In the event of a dispute between the Company and any other party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. (c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. (d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall - 10 - 11 have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 9. Compensation and Expenses of Trustee. The Company shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. Section 10. Resignation and Removal of Trustee. (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 180 days after receipt of such notice unless the Company and the Trustee agree otherwise. - 11 - 12 (b) Subject to subsection (c) below, the Trustee may be removed by the Company on 180 days written notice. (c) Upon a Change of Control, as defined herein, the Trustee may not be removed by the Company for 5 years following the date of such Change of Control. (d) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (e) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 11. Appointment of Successor. If the Trustee resigns or is removed in accordance with Section l0(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that has - 12 - 13 corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal; provided that if the Trustee resigns or is removed after a Change of Control such successor trustee shall be appointed by the Trustee. Any such appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer. Section 12. Amendment or Termination. (a) This Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of Section 3 hereof, the Employment Agreement or shall make the Trust revocable. (b) The Trust shall not terminate until the date on which LEG and his spouse are no longer entitled to benefits pursuant to the terms of this Agreement or the Employment Agreement. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. 13. Definition of "Change of Control". As used in this Agreement the term "Change of Control" shall have the same - 13 - 14 meaning as specified in the Employment Agreement, as the same may be amended from time to time. 14. Notices. Each notice, instruction or other certificate required or permitted by the terms hereof shall be in writing and shall be communicated by personal delivery, or registered mail, return receipt requested, or overnight courier or delivery service to the parties hereto at the address shown below or at such other address as any of them may designate by notice to each of the others: (a) If to the Company at: CLARCOR Inc. 2300 Sixth Street P.O. Box 7007 Rockford, Illinois 61104 (b) If to the Trustee at: AMCORE Investment Group, N.A. P.O. Box 1537 Rockford, Illinois 61110 All notices given hereunder shall be effective and deemed received upon personal delivery and subsequent confirmation thereof or, if by overnight courier, (in which case a signed delivery receipt shall be required) on the day of deposit with such courier or service, or, if mailed, upon the day of deposit with the U.S. Postal Service; provided such notice was mailed to the proper address as described above. It any such notice requires a response from the receiving party, the applicable time period for response shall begin on the date such - 14 - 15 notice is actually received, unless delivery is not accepted by the receiving party, in which case, the applicable time period shall begin on the date of attempted delivery. Section 15. Miscellaneous. (a) Any provision of this Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Amounts payable to LEG and his spouse under this Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Agreement shall be governed by and construed in accordance with the laws of Illinois. Section 16. Effective Date. The effective date of this Agreement shall be December 1, 1997. - 15 - 16 IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be executed on the day and year first above written. CLARCOR INC. By: /s/ Bruce A. Klein ---------------------------- Its: VP-Finance & CFO ---------------------------- AMCORE INVESTMENT GROUP, N.A., as Trustee By: /s/ Thomas H. Scoville ---------------------------- Its: VP & Trust Officer ---------------------------- - 16 - EX-10.4(E) 5 EXECUTIVE BENEFIT TRUST AGREEMENT 1 EXHIBIT 10.4(e) CLARCOR INC. EXECUTIVE BENEFIT TRUST Dated as of December 22, 1997 2 CLARCOR INC. EXECUTIVE BENEFIT TRUST TABLE OF CONTENTS Page ---- ARTICLE I - TRUST, TRUSTEE AND TRUST FUND . . . . . . . . . . 2 Section 1.1. Trust . . . . . . . . . . . . . . . . 2 Section 1.2. Trustee . . . . . . . . . . . . . . . 2 Section 1.3. Trust Fund. . . . . . . . . . . . . . 3 Section 1.4. Irrevocability of Trust . . . . . . . 3 Section 1.5. Delivery of Funds . . . . . . . . . . 3 ARTICLE II - THE PLANS. . . . . . . . . . . . . . . . . . . . 5 ARTICLE III - AUTHORIZED COMPANY REPRESENTATIVES. . . . . . . 6 ARTICLE IV - CHANGE IN CONTROL. . . . . . . . . . . . . . . . 6 Section 4.1. Definition of Change in Control . . . 6 Section 4.2. Definition of Potential Change of Control . . . . . . . . . . . . 9 Section 4.3. Notification of the Company . . . . . 9 ARTICLE V - RETURNS AND DISTRIBUTIONS FROM THE FUND . . . . . 10 Section 5.1. Return of Trust Assets to the Company. . . . . . . . . . . . . . 10 Section 5.2. Distributions to Beneficiaries . . . 14 Section 5.3. Non-Duplication of Benefits . . . . . 15 Section 5.4. Withholding of Taxes. . . . . . . . . 16 Section 5.5. Interests Nonassignable . . . . . . . 16 ARTICLE VI - INVESTMENT OF FUND . . . . . . . . . . . . . . . 17 ARTICLE VII - POWERS AND RIGHTS OF TRUSTEE. . . . . . . . . . 19 Section 7.1. Trustee's Powers. . . . . . . . . . . 19 Section 7.2. Advice of Counsel . . . . . . . . . . 20 Section 7.3. Indemnification of Trustee. . . . . . 20 Section 7.4. Compensation and Expenses . . . . . . 21 - i - 3 ARTICLE VIII - ACCOUNTS AND REPORTS OF THE TRUSTEE. . . . . . 21 Section 8.l. Records and Accounts of the Trustee. . . . . . . . . . . . . . 2l Section 8.2. Cash Basis of Accounts. . . . . . . . 22 Section 8.3. Fiscal Year . . . . . . . . . . . . . 22 Section 8.4. Annual Report . . . . . . . . . . . . 22 Section 8.5. Approval of Reports . . . . . . . . . 22 ARTICLE IX - REMOVAL, RESIGNATION AND SUCCESSION OF THE TRUSTEE. . . . . . . . . . . . . . . . . . 24 Section 9.l. Removal . . . . . . . . . . . . . . . 24 Section 9.2. Resignation . . . . . . . . . . . . . 24 Section 9.3. Appointment, Qualifications and Powers of Successor Trustee. . . . 24 Section 9.4. Changes in Organization of Corporate Trustee. . . . . . . . . 25 ARTICLE X - AMENDMENT OR TERMINATION. . . . . . . . . . . . . 26 Section l0.l. Authority to Amend or Terminate. . . 26 Section 10.2. Method of Making Amendment . . . . . 26 Section 10.3. Termination of Trust . . . . . . . . 27 ARTICLE XI - MISCELLANEOUS. . . . . . . . . . . . . . . . . . 27 Section ll.l. Protection of Persons Dealing with Trustee . . . . . . . . . . . 27 Section ll.2. Tax Status of Trust. . . . . . . . . 27 Section ll.3. No Interest in Company Given by Trust. . . . . . . . . . . . . 28 Section ll.4. Gender and Plurals. . . . . . . . . 28 Section ll.5. Governing Law. . . . . . . . . . . . 28 ARTICLE XII - EXECUTION . . . . . . . . . . . . . . . . . . . 28 - ii - 4 CLARCOR INC. EXECUTIVE BENEFIT TRUST This TRUST AGREEMENT dated as of December 22, 1997 (this "Agreement") is made between CLARCOR Inc., a Delaware corporation (the "Company"), and AMCORE Investment Group, N.A., as Trustee (the "Trustee"). WHEREAS, the Company is or may hereafter become obligated under certain plans or agreements identified herein, and any other plan or agreement as the Company may from time to time designate in writing to the Trustee, to make payments to certain of its officers, directors and key employees, or the beneficiaries thereof (such officers, directors, key employees and beneficiaries being hereinafter called the "Beneficiaries"); WHEREAS, the Company's obligations under such plans or agreements are not funded or otherwise secured; and WHEREAS, for purposes of assuring that payment of such Company obligations will not improperly be withheld in the event of a Change of Control (as hereinafter defined), the Company desires to deposit with the Trustee, subject only to the claims of the Company's existing or future creditors, assets sufficient 5 to enable the Trustee to make such payments as they may become due and payable; NOW THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I TRUST, TRUSTEE AND TRUST FUND Section 1.1. Trust. This Agreement and the trust evidenced hereby, as amended and supplemented from time to time, shall be known collectively as the CLARCOR Inc. Executive Benefit Trust (the "Trust"). Section 1.2. Trustee. AMCORE Investment Group, N.A. is hereby designated as the Trustee of the Trust, to receive, hold, invest, administer and distribute the Fund (as hereinafter defined) in accordance with the provisions of this Agreement for the exclusive purpose of providing benefits to the Beneficiaries under the plans or agreements identified in Article II (the - 2 - 6 "Plans") and paying the reasonable expenses of administering such Plans. Section 1.3. Trust Fund. All cash and marketable securities delivered by the Company to the Trustee hereunder, together with all other assets held in the Trust by the Trustee, are hereinafter called the "Fund." Except as herein otherwise provided, title to the Fund shall at all times be vested in the Trustee, subject to the right of the Trustee to hold title to particular assets in bearer form or in the name of a nominee or nominees, and the interest of the Beneficiaries in the assets of the Fund shall be limited to the right to have such assets received, held, invested, administered and distributed by the Trustee in accordance with the provisions of the Trust. Section 1.4. Irrevocability of Trust. The Trust shall not be subject to revocation, amendment or modification except as provided in Section 10.1. Section 1.5. Delivery of Funds. (a) Concurrently with the execution and delivery of this Agreement, the Company has delivered to the Trustee the sum of $1,000.00 in cash, to be held in the Fund. The Company, in its sole discretion, may at any time, or from time to time, deliver additional amounts of cash or property to the Trustee to be held in the Fund. Neither - 3 - 7 the Trustee nor any Beneficiary shall have any right to compel the delivery of such additional amounts. (b) Not later than the fifth business day after the occurrence of a Change in Control or a Potential Change in Control (as hereinafter defined in Article IV), the Company shall deliver to the Trustee, to be held in the Fund, cash or marketable securities having a fair market value (or any combination thereof) equal to 125% or the sum of (i) the amount of the Company's obligations to the Beneficiaries under the Plans and (ii) such additional amount as is reasonably estimated to be necessary to pay the expenses and other costs of maintaining the Trust (collectively the "Required Funding Amount"). (c) At the end of the six calendar month period beginning on the first day of the calendar month commencing immediately after the date of a Potential Change in Control or Change in Control, and at the end of each six calendar months thereafter, the Company shall, unless the Fund shall theretofore have been paid to the Company pursuant to Section 5.1(a), recalculate the Required Funding Amount as of the end of the calendar month immediately preceding such first-specified month-end as though such Potential Change in Control or Change in Control were then occurring. If the Required Funding Amount, as so recalculated, shall exceed the fair market value of the Fund, - 4 - 8 the Company shall promptly notify the Trustee and the Company shall promptly (and in no event later than seven days from the date of such notification) deliver to the Trustee cash or marketable securities having a fair market value (or any combination thereof) equal to such excess. ARTICLE II THE PLANS Benefits payable pursuant to the CLARCOR Inc. 1994 Incentive Plan, the CLARCOR Inc. 1994 Supplemental Retirement Plan, and the individual employment agreements listed on Exhibit I hereto, and any other plan or agreement, including any individual employment agreement, as the Company may, from time to time designate in writing to the Trustee, as each may be amended or supplemented from time to time (collectively the "Plans"), copies of which are attached hereto, shall be payable from the Trust. The Company shall provide to the Trustee any and all amendments, supplements or other documentation with regard to the Plans, including any successor plan, and copies of any additional plans or agreements which the Company designates in writing to the Trustee as providing benefits payable from the Trust. The - 5 - 9 Company further agrees to provide to the Trustee any and all pertinent information regarding the Obligations of the Trustee to the Beneficiaries hereunder. The Trustee's duties and responsibilities shall be defined by this Trust Agreement without any reference to any Plan or other agreement. ARTICLE III AUTHORIZED COMPANY REPRESENTATIVES The Company shall furnish the Trustee the name and specimen signature of each person upon whose certification of any calculation, decision or direction of the Company the Trustee is authorized to rely. Until notified of a change in the identity of such person or persons, the Trustee shall act upon the assumption that there has been no such change. ARTICLE IV CHANGE IN CONTROL Section 4.l. Definition of Change in Control. For the purpose of this Agreement, a "Change of Control" of the Company shall mean: - 6 - 10 (a) The acquisition (other than from the Company) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; provided, however, no Change of Control shall be deemed to have occurred for any acquisition by any corporation with respect to which, following such acquisition, more than 60% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Company's then outstanding common stock and then outstanding voting securities, as the case may be; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to - 7 - 11 constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority or the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose Initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors or the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the recognized, merged or consolidated corporation's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. - 8 - 12 Section 4.2. Definition of Potential Change of Control. For the purposes of this Agreement, a "Potential Change of Control" of the Company shall mean the occurrence or existence of any action, event or condition, including any public announcement of an intention to commence a tender or exchange offer or an election contest, the consummation or continuation of which would result in a Change of Control of the Company, which the Board of Directors of the Company shall, by resolution adopted by a majority of the non-officer directors then in office, determine to constitute a Potential Change of Control. Section 4.3. Notification by Company. The Company shall notify the Trustee of the occurrence of a Potential Change of Control and the Company shall notify the Trustee of the occurrence of a Change of Control, and the Trustee may rely on such notice or any other actual notice, satisfactory to the Trustee, of such a change or potential Change of Control which the Trustee may receive. The Trustee shall have no obligation to make an independent determination as to the occurrence of a Potential Change of Control or Change of Control. - 9 - 13 ARTICLE V RETURNS AND DISTRIBUTIONS FROM THE FUND Section 5.1. Return of Trust Assets to the Company. (a) If a Potential Change in Control shall have occurred but a Change in Control shall not have occurred by the end of the twelfth calendar month period beginning on the first day of the calendar month commencing immediately after the date of such Potential Change in Control, the Trustee shall deliver the Fund to the Company as soon as practicable thereafter; provided, however, that if, within such period, one or more subsequent Potential Changes in Control shall have occurred, no such delivery shall be made until the end of the twelfth calendar month period beginning on the first day of the calendar month commencing immediately after the date the latest Potential Change in Control shall have occurred. The Company shall notify the Trustee in writing of the occurrence of a Potential Change in Control or a Change in Control. The Trustee may rely on such notice or on any other notice or knowledge, satisfactory to the Trustee, as to whether a Potential Change in Control or a Change in Control shall have occurred. The Trustee also may from time to time request that the Company confirm or deny in writing to the Trustee that a Potential Change in Control or Change in Control shall have occurred, to which the Company shall respond in writing within 30 business days after its receipt. The - 10 - 14 Company's failure to respond within 30 business days after such request is delivered to the Company shall be deemed to constitute confirmation of the occurrence of a Potential Change in Control or a Change in Control, as the case may be. (b) The Trust is intended to constitute a grantor trust within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and, except as hereinafter provided, all interest and other income earned on the investment of the Fund shall be the property of the Company and shall not constitute a part of the Fund. Such interest and other income earned in any calendar year shall be paid over by the Trustee to the Company as promptly as practicable after each recalculation of the Required Funding Amount pursuant to Section l.5(c); provided, however, that such interest and other income shall be distributed to the Company at least annually; and provided further that such interest and other income shall not be distributed to the Company to the extent that any Required Funding Amount is then owing to the Trustee. Any loss or expense (including any expense of the Trustee) incurred by the Trustee in investing the Fund shall be for the account of the Company, and the Company shall promptly upon written notice from the Trustee, reimburse the Fund for any - 11 - 15 such loss or expense, except to the extent, if any, that any such loss or expense constitutes, in the case of an expense, a payment to a Beneficiary pursuant to a Payment Schedule (as hereinafter defined) or has been applied to reduce an amount payable to the Company pursuant to Section 1.5(b) or 1.5(c). (c) If the Company shall become insolvent, the Trustee shall immediately cease distributions from the Fund pursuant to Section 5.2 and shall hold the Fund for the benefit of the Company's general creditors. For purposes of the Trust, the Company shall be deemed to be insolvent if: (i) the Company shall (A) be generally not paying its debts as they become due, (B) file, or consent by answer or otherwise to the filing against it of, or fail to controvert in a timely manner, a petition for relief, reorganization or arrangement under, or any other petition in bankruptcy or for liquidation under, or to take advantage of, any bankruptcy or insolvency law of any jurisdiction, (C) make an assignment for the benefit of its creditors, (D) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property, (E) be adjudicated insolvent or be liquidated in any insolvency proceeding or (F) take corporate action for the purpose of any of the foregoing; or (ii) a court or governmental authority of competent jurisdiction shall enter an order appointing, without consent by the Company, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property; or an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company; or if any petition for any such relief - 12 - 16 shall be filed against the Company and such petition shall not be dismissed within 30 days. The Trustee shall, if ordered by a court of competent jurisdiction, distribute the assets of the Trust as such court may direct to pay the claims of creditors without regard to the amount of other assets of the Company available to pay such claims. The Company shall notify the Trustee immediately after the occurrence of any event of insolvency, as specified in the preceding paragraph. If the Trustee shall receive any written allegation (other than from the Company) that the Company is insolvent, it shall immediately suspend distributions from the Fund pursuant to Section 5.2 and shall, within five days of the receipt of such allegation, request a written confirmation or denial by the Company, under oath, of such allegation. The Trustee shall not resume such distributions if the Company is insolvent, but the Trustee shall resume such distributions if the Company confirms that it is not insolvent. In the absence of such notification or allegation, the Trustee shall be entitled, but shall not be required, to make its own determination as to whether the Company has become insolvent based on information available to it, but the Trustee shall not be under any duty to make any investigation as to the insolvency or financial status of the Company. - 13 - 17 If at any time the Company shall satisfy the Trustee that all benefits under the Plans shall have been paid or otherwise duly provided for, the Trustee shall return the Fund to the Company. Section 5.2. Distributions to Beneficiaries. (a) The Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Beneficiary, that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes as described in Section 5.4. (b) The entitlement of a Beneficiary to benefits under the Plan shall be determined by the Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. - 14 - 18 (c) The Company may make payment of benefits directly to Beneficiaries as they become due under the terms of the Plans. The Company notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Beneficiaries. In addition, if the principal of the Trust, and any earnings thereof, are not sufficient to make payments of benefits in accordance with the terms of the Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. Section 5.3. Non-Duplication of Benefits. Neither the creation of the Trust nor the transfer of cash or marketable securities by the Company to the Trustee shall to any extent release the Company from its obligation to pay or cause to be paid all benefits to which any person is entitled under the Plans, except any payment of benefits by the Trustee to any person shall be deemed to constitute payment by the Company and shall satisfy the obligation of the Company to pay the benefits so paid by the Trustee. The Trustee and the Company shall each advise the other in writing of the payment of any benefits paid pursuant to any Benefit Plan to the end that there shall be no duplicate payment. - 15 - 19 Section 5.4. Withholding of Taxes. The Trustee shall upon written direction from the Company withhold from any distribution which it is required to make hereunder such sum as the Company may reasonably estimate to be necessary to cover any taxes for which the Company may be liable with respect to such distribution. The Trustee shall forward any withheld amounts to the Company, and the Company shall be responsible for (i) paying to the appropriate taxing authority all income and employment taxes so withheld; (ii) furnishing to each person receiving a distribution from the Trust appropriate tax information respecting such distribution and withholding (if any); and (iii) preparing and filing all information reports or returns required to be filed. Upon discharge or settlement of such tax liability the Trustee shall distribute the balance of such sum, if any, to the distributee from whose distribution it was withheld, or if such distributee is then deceased, to such other person as the Company shall direct. Prior to making any distribution hereunder the Trustee may require such releases or other documents from any taxing authority, or may require such indemnity and surety bond, as the Trustee shall reasonably deem necessary for its protection. Section 5.5. Interests Nonassignable. No right or interest of any Beneficiary or distributee to receive distributions from the Trust shall be assignable or transferable - 16 - 20 in whole or in part, either directly, by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge or bankruptcy, but excluding devolution by death or mental incompetency; and no right or interest of any Beneficiary or distributee to receive distributions from the Trust shall be liable for, or subject to, any obligation or liability of such Beneficiary or distributee, including claims for alimony or the support of any spouse. ARTICLE VI INVESTMENT OF FUND Contributions by the Company to the Trust may be in the form of cash, marketable securities, life insurance policies, or other property acceptable to the Trustee. Assets transferred to the Trust by the Company in the form of life insurance policies or other property may be held by the Trustee in kind, or, if the Company determines that funds are needed to make payments hereunder, may be sold by the Trustee. The Trustee is expressly empowered to borrow (as directed by the Company) against the cash surrender value of any life insurance policy for the purpose of paying premiums on life insurance policies or for the payment of benefits, whether or not such premiums or benefit payments are - 17 - 21 for the benefit of the individual insured by such policy. Cash paid to the Trustee shall be invested in the following: (i) any open market commercial paper maturing within 270 days after the issuance thereof which, on the date of acquisition, has a rating of "A-2" or better by Standard & Poor's Corporation, "P-2" or better by Moody's Investors Services, Inc. or an equivalent rating by any other nationally recognized credit rating agency of similar standing; (ii) any marketable direct obligations of the United States of America or marketable obligations of any agency or instrumentality thereof which is fully guaranteed by the United States of America, in any case maturing within 12 months after the date of acquisition thereof; and (iii) any certificates of deposit maturing within 12 months after the date of issuance thereof issued by a bank or trust company organized under the laws of the United States of America or any state thereof, including the Trustee's banking department, the deposits or long term debt of which is rated "A" or better by Standard & Poor's Corporation or Moody's Investor Services, Inc. and which has capital, surplus and undivided profits aggregating at least $50,000,000; (iv) If investments in either one or a combination of (i), (ii) and (iii) above do not offer the short term liquidity necessary to meet the cash requirements of the Trust, then the Trustee in accordance with guidelines approved by the Company may invest in short-term money market mutual funds managed by AMCORE Financial Inc. or any of its affiliates or subsidiaries, and provided, further, that the Trustee shall not be liable for any failure to maximize the income earned on that portion of the Trust Corpus as is from time to time invested or reinvested as set forth above, nor for any loss of income due to liquidation of any investment which the Trustee believes necessary to make payments or to reimburse expenses under the terms of this Trust. - 18 - 22 The Trustee shall not be liable as a result of its retaining any investment, nor for any loss to or diminution of the Trust assets resulting from any such action. ARTICLE VII POWERS AND RIGHTS OF TRUSTEE Section 7.1. Trustee's Powers. The Trustee shall have the following powers and rights, in addition to those vested in it elsewhere in this Agreement or by law: (i) to retain any marketable securities transferred to the Trustee, irrespective of the extent of diversification or any law or rule of court concerning trust investments, or to sell any such securities; (ii) to cause any assets to be held or registered in the Trustee's name individually, in the name of a nominee or in such other form as the Trustee deems best, in each case without disclosing the Trust relationship and without retaining possession and control of the assets so held or registered; (iii) to vote in person or by general or limited proxy, or refrain from voting, any securities for any purpose in the event that such securities shall be entitled to vote with respect to any matter; to exercise or sell any conversion rights; to consent to and join in or oppose any reorganization, consolidation, merger, recapitalization, spin-off, combination or any other change in the corporate structure of the issuer of any securities held by the Trustee or any exchange of such securities for other securities or cash, and in connection therewith to deposit and accept and hold other securities or cash received therefor; - 19 - 23 (iv) to employ agents, attorneys, accountants, actuaries, brokers, custodians and proxies and to delegate to them such powers as the Trustee deems advisable; (v) to contest, prosecute, compromise or abandon claims or other charges in favor of or against the Trust, and the Company shall indemnify the Trustee against all expenses and liabilities sustained or anticipated by it by reason thereof; (vi) to perform other acts necessary or appropriate for the proper administration of the Trust, execute and deliver necessary instruments and give full receipts and discharges; and (vii) to interpret the terms and provisions of the Trust, to establish and revise rules and regulations relating to the Trust and to make any other determinations that it believes are necessary or advisable for the administration of the Trust. Section 7.2. Advice of Counsel. The Trustee may consult with legal counsel, who may be counsel for the Company, independent actuaries, who may be regularly retained by the Company, independent public accountants who may be regularly retained by the Company, or other experts in respect of any of its rights, powers, duties or obligations hereunder. Section 7.3. Indemnification of Trustee. The Trustee shall be indemnified and held harmless by the Company from and against any and all liability to which the Trustee shall be subjected by reason of carrying out its duties and obligations under the Trust, including all expenses reasonably incurred in its defense if the Company shall fail to provide such defense, - 20 - 24 other than any liability arising out of the Trustee's negligence or willful misconduct. The Trustee shall be fully protected in relying upon any notice given hereunder which it in good faith believes to be genuine and executed and delivered in accordance with this Agreement. Section 7.4. Compensation and Expenses. The Trustee shall be entitled to such reasonable compensation as may be agreed upon from time to time by the Company and the Trustee. The Trustee is authorized and directed to pay from the Fund all costs and expenses incurred in administering the Fund, including the compensation, fees and expenses of the Trustee, the fees of counsel for the Trustee and other administrative expenses to the extent such expenses are not paid by the Company. ARTICLE VIII ACCOUNTS AND REPORTS OF THE TRUSTEE Section 8.1. Records and Accounts of the Trustee. The Trustee shall maintain accurate and detailed records and accounts of all transactions of the Trust and make them available at all reasonable times for inspection or audit by any person designated by the Company. At the direction of the Company, the Trustee shall submit to the independent accountants for the Company and - 21 - 25 to others designated by the Company such valuations, reports or other information as any of them may reasonably require. Section 8.2. Cash Basis of Accounts. All accounts of the Trustee shall be kept on a cash basis. Section 8.3. Fiscal Year. The fiscal year of the Trust shall be the same as the fiscal year of the Company; and if the Company shall notify the Trustee that the Company has changed its fiscal year, the Trustee shall take the necessary steps to change the fiscal year of the Trust to correspond therewith. Section 8.4. Annual Report. As soon as practicable after the end of each fiscal year of the Trust and after the effective date of the removal or resignation of the Trustee, the Trustee shall file with the Company a written report setting forth all transactions with respect to the Fund during such fiscal year or during the period from the end of the last fiscal year to the date of such removal or resignation and listing the assets of the Fund and the market values thereof as of the last business day of the period covered by such report. Section 8.5. Aporoval of Reports. Upon the receipt by the Trustee of the Company's written approval of any report delivered pursuant to Section 8.4, or upon the expiration of - 22 - 26 three months after delivery of any such report to the Company, such report (as originally filed if no objection shall have been timely made by the Company, or as adjusted pursuant to agreement between the Company and the Trustee) shall be deemed to be final, except as to such matters, if any, specified by written objections theretofore delivered to the Trustee by the Company regarding which the Trustee has not yet given an explanation or made adjustments satisfactory to the Company, and the Trustee shall be released and discharged as to all matters set forth in such report (other than any unresolved matters set forth in such written objections) to the same extent as though such report has been settled and allowed by a decree of a court having competent jurisdiction regarding such report, the Trustee and the Company. The Trustee, nevertheless, shall have the right to have its accounts and reports settled by judicial proceedings if it so elects, in which event the Company and the Trustee shall be the only necessary parties (although the Trustee may also join such other parties as it may deem appropriate). - 23 - 27 ARTICLE IX REMOVAL, RESIGNATION AND SUCCESSION OF THE TRUSTEE Section 9.1. Removal. The Company, by resolution of its board of directors, may remove the Trustee at any time, such removal to take effect upon the effective date of the appointment of a successor Trustee as hereinafter provided by giving 30-days' prior written notice to the Trustee. Section 9.2. Resignation. The Trustee may resign by delivering to the Company a written resignation to take effect upon the effective date of the appointment of a successor Trustee as hereinafter provided. Section 9. 3. Appointment, Qualifications and Powers of Successor Trustee. The Company shall appoint as a successor Trustee, by resolution of its board of directors, a bank or trust company having the requisite corporate trust powers to act as the Trustee, provided such bank or trust company shall have capital stock and surplus at the time of such appointment of not less than $200,000,000. Each successor Trustee shall have all the rights, powers, title, discretion, obligations, duties and immunities given to, or acquired by, the original Trustee. The legal title to the assets of the Fund shall be and remain vested in the Trustee from time to time acting hereunder without any - 24 - 28 transfer or conveyance to, by or from any succeeding or retiring Trustee. No successor Trustee shall be liable for the acts or omissions of any prior Trustee or be obligated to examine the accounts, acts or omissions of any prior Trustee. Upon the appointment of a successor Trustee, the removed or resigning Trustee shall transfer and deliver the assets of the Trust Fund to such successor after reserving such reasonable amounts as it shall deem necessary to provide for any expenses, fees, taxes then or thereafter chargeable against the Trust Fund. Section 9.4. Changes in Organization of Corporate Trustee. In the event that any Trustee hereunder shall be converted into, shall merge or consolidate with, or shall sell or transfer substantially all of its corporate trust business to, another bank or trust company qualified to act hereunder, the bank or trust company resulting from such conversion, merger or consolidation, or to which such sale or transfer shall be made, shall thereupon become and be the Trustee hereunder with the same effect as though originally named herein. - 25 - 29 ARTICLE X AMENDMENT OR TERMINATION Section 10.1. Authority to Amend or Terminate. The Company shall have the right at any time and from time to time to amend the Trust in any manner, in whole or in part, or to terminate the Trust; provided, however, that no such amendment shall change the duties or liabilities of the Trustee without its written consent; and provided further, that no amendment or termination shall be made which would in any manner diminish or otherwise adversely affect the rights or Beneficiaries or Claimants under Article V or provide for the distribution of the Fund to the Company under circumstances other than those described in Article V. Section 10.2 Method of Making Amendment. Each amendment of the Trust shall be made by delivery to the Trustee of a written instrument setting forth such amendment duly executed by the Company, together with a certified copy of a resolution of the Board of Directors of the Company authorizing the execution of such written instrument. Such written instrument (with the consent to the Trustee endorsed thereon, if its duties or liabilities are changed thereby) shall constitute the instrument of amendment. - 26 - 30 Section 10.3. Termination of Trust. Termination of the Trust shall occur when the Trustee shall cease to hold any assets hereunder. ARTICLE XI MISCELLANEOUS Section 11.1. Protection of Persons Dealing with Trustee. No person, other than the Company, dealing with the Trustee shall be required or entitled to see to the application of any money paid or property delivered to the Trustee, or to determine whether or not the Trustee is acting pursuant to authority granted to it hereunder or to authorizations or directions herein required. Section 11.2. Tax Status of Trust. The Trust is intended to be a trust the assets of which are deemed to be owned for federal income tax purposes by the Company as grantor pursuant to subpart E, part I, subchapter J, chapter 1, subtitle A of the Code. Until advised otherwise, the Trustee may conclusively assume that the Trust is not subject to federal income tax. - 27 - 31 Section 11.3. No Interest in Company Given by Trust. Neither the creation of the Trust nor anything contained in this Agreement shall be construed as giving any person or employee of the Company any equity or interest in any assets (other than the Fund), business or affairs of the Company or any right to continue in the employ of the Company. Section 11.4. Gender and Plurals. Words in the masculine gender shall include the feminine gender, and, unless the context otherwise requires, words in the singular shall include the plural and words in the plural shall include the singular. Section 11.5. Governing Law. This Agreement and the Trust shall be governed by, and construed in accordance with, the internal laws (as opposed to conflict of law provisions) of the State of Illinois. ARTICLE XII EXECUTION This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. - 28 - 32 IN WITNESS WHEREOF, the Company and the Trustee, to evidence the establishment of the Trust, have each caused the Trust to be signed and their respective corporate seals hereto affixed by their authorized officers, all on this 22nd day of December 1997. CLARCOR INC. By /s/ Bruce A. Klein --------------------------- Title V.P. - Finance & CFO ------------------------- ATTEST: /s/ Marcia S. Blaylock - -------------------------- Title V.P.- Secretary --------------------- AMCORE Investment Group, N.A. By /s/ Thomas H. Scoville --------------------------- Title V.P. & Trust Officer ------------------------- ATTEST: /s/ Mary D. Baer - -------------------------- Title V.P. & Trust Officer --------------------- - 29 - EX-11 6 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 CLARCOR INC. EXHIBIT 11--COMPUTATION OF PER SHARE EARNINGS FOR THE FIVE YEARS ENDED NOVEMBER 30, 1997 (DOLLARS IN THOUSANDS)
FISCAL YEARS ENDED NOVEMBER 30, -------------------------------------------------------------- AVERAGE SHARES OUTSTANDING 1997 1996 1995 1994 1993 - -------------------------- ---------- ---------- ---------- ---------- ---------- 1. Average number of shares outstanding................ 16,088,981 15,938,421 15,900,415 15,869,463 15,887,373 2. Net additional shares resulting from assumed exercise of stock options*................... 312,563 221,223 256,346 226,022 201,999 ---------- ---------- ---------- ---------- ---------- 3. Adjusted average shares outstanding for fully diluted computation (1 plus 2)......................... 16,401,544 16,159,644 16,156,761 16,095,485 16,089,372 ========== ========== ========== ========== ========== Earnings per share of common stock: Primary...................... $1.67 $1.63 $1.48 $1.35 $1.09 ========== ========== ========== ========== ========== Assuming full dilution....... $1.64 $1.61 $1.45 $1.33 $1.07 ========== ========== ========== ========== ==========
- ------------------------------ * Assumes proceeds from exercise of stock options used to purchase treasury shares at the greater of the year-end or the average market price during the period. Note: Prior period amounts have been restated to reflect the results of United Air Specialists, Inc. under the requirements of pooling of interests accounting. EX-13.(A)II 7 CONSOLIDATED BALANCE SHEETS 1 EXHIBIT 13(a)ii CONSOLIDATED BALANCE SHEETS November 30, 1997 and 1996 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) ===============================================================================
Restated ASSETS 1997 1996 =============================================================================== Current assets: Cash and short-term cash investments .................... $ 30,324 $ 18,827 Accounts receivable, less allowance for losses of $2,106 for 1997 and $2,007 for 1996 ............... 62,387 58,739 Inventories ............................................. 58,282 56,887 Prepaid expenses and other .............................. 3,917 2,391 Deferred income taxes ................................... 5,617 3,882 ------------------ Total current assets ....................... 160,527 140,726 ------------------ Marketable securities, at fair value ....................... -- 3,292 Investment in affiliate, at cost ........................... 1,899 530 Plant assets, at cost less accumulated depreciation ........ 82,905 84,525 Excess of cost over fair value of assets acquired, less accumulated amortization ........................... 15,777 15,503 Pension assets ............................................. 13,897 12,453 Other assets ............................................... 7,514 9,990 ------------------ Total assets ............................... $282,519 $267,019 ================== LIABILITIES =============================================================================== Current liabilities: Current portion of long-term debt ....................... $ 1,140 $ 7,625 Accounts payable and accrued liabilities ................ 48,153 39,688 Income taxes ............................................ 4,944 3,984 ------------------ Total current liabilities .................. 54,237 51,297 ------------------ Long-term debt, less current portion ....................... 37,656 43,449 Postretirement health care benefits ........................ 1,941 2,009 Long-term pension liabilities .............................. 7,556 6,607 Deferred income taxes ...................................... 9,070 8,068 Minority interests ......................................... 897 908 Contingencies SHAREHOLDERS' EQUITY =============================================================================== Capital stock: Preferred, par value $1, authorized 1,300,000 shares, none issued .................................. -- -- Common, par value $1, authorized 30,000,000 shares, issued 16,162,402 in 1997 and 15,955,784 in 1996 ..... 16,162 15,956 Capital in excess of par value .......................... 2,857 1,276 Foreign currency translation adjustments ................ (2,700) (1,753) Unrealized holding gain on marketable securities, net of taxes ............................. -- 992 Retained earnings ....................................... 154,843 138,210 ------------------ Total shareholders' equity ................. 171,162 154,681 ------------------ Total liabilities and shareholders' equity . $282,519 $267,019 ==================
The accompanying notes are an integral part of the consolidated financial statements. 21 EX-13.(A)III 8 CONSOLIDATED STATEMENTS OF EARNINGS 1 EXHIBIT 13(a)iii CONSOLIDATED STATEMENTS OF EARNINGS for the years ended November 30, 1997, 1996 and 1995 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) ===============================================================================
Restated Restated 1997 1996 1995 =============================================================================== Net sales ............................ $394,264 $372,382 $330,110 Cost of sales ........................ 273,702 263,597 234,452 ----------------------------------- Gross profit ................... 120,562 108,785 95,658 Selling and administrative expenses .. 73,166 66,189 56,930 Merger-related costs ................. 2,972 -- -- ----------------------------------- Operating profit ............... 44,424 42,596 38,728 ----------------------------------- Other income (expense): Interest expense .................. (2,759) (3,822) (3,418) Interest and dividend income ...... 1,020 1,132 1,104 Gain on sale of marketable securities ...................... 1,706 1,675 -- Other, net ........................ (199) (176) 217 ----------------------------------- (232) (1,191) (2,097) ----------------------------------- Earnings before income taxes and minority interests ...... 44,192 41,405 36,631 Provision for income taxes ........... 17,164 15,315 13,060 ----------------------------------- Earnings before minority interests .......... 27,028 26,090 23,571 Minority interests in earnings of subsidiaries ................... (110) (145) (71) ----------------------------------- Net earnings ......................... $26,918 $25,945 $23,500 =================================== Net earnings per common share ........ $1.67 $1.63 $1.48 ===================================
The accompanying notes are an integral part of the consolidated financial statements. 22 EX-13.(A)IV 9 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 1 EXHIBIT 13(a)iv CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended November 30, 1997, 1996 and 1995 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) ===============================================================================
Common Stock -------------------------------------- Issued In Treasury Foreign ------------------ ----------------- Capital in Currency Unrealized Number Number Excess of Translation Holding Retained of Shares Amount of Shares Amount Par Value Adjustments Gain Earnings ============================================================================================================================ Balance, November 30, 1994, as previously reported .... 14,803,788 $14,804 42,900 $ 840 $183 $ (609) $ 911 $103,013 Merger accounted for as a pooling of interests ...... 1,055,606 1,055 -- -- (105) (556) -- 4,946 - --------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1994, as restated ............... 15,859,394 15,859 42,900 840 78 (1,165) 911 107,959 Net earnings .................. -- -- -- -- -- -- -- 23,500 Retirement of treasury stock .. (42,900) (43) (42,900) (840) (351) -- -- (446) Stock options exercised ....... 49,267 50 -- -- 537 -- -- 70 Issuance of stock under award plans ............... 36,832 37 -- -- 742 -- -- -- Cash dividends -- $.6325 per common share .......... -- -- -- -- -- -- -- (9,330) Unrealized holding gain on marketable securities ..... -- -- -- -- -- -- 374 -- Translation adjustments ....... -- -- -- -- -- (638) -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1995 .... 15,902,593 15,903 -- -- 1,006 (1,803) 1,285 121,753 Net earnings .................. -- -- -- -- -- -- -- 25,945 Purchase of treasury stock .... -- -- 21,900 22 -- -- -- -- Retirement of treasury stock .. (21,900) (22) (21,900) (22) (408) -- -- -- Stock options exercised ....... 62,159 62 -- -- 336 -- -- 24 Issuance of stock under award plans ............... 12,932 13 -- -- 342 -- -- -- Cash dividends -- $.6425 per common share .......... -- -- -- -- -- -- -- (9,512) Unrealized holding gain on marketable securities ..... -- -- -- -- -- -- 653 -- Realized gain on sale of marketable securities ..... -- -- -- -- -- 72 (946) -- Translation adjustments ....... -- -- -- -- -- (22) -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1996 .... 15,955,784 15,956 -- -- 1,276 (1,753) 992 138,210 Net earnings .................. -- -- -- -- -- -- -- 26,918 Stock options exercised ....... 195,977 196 -- -- 1,380 -- -- 5 Issuance of stock under award plans ............... 10,641 10 -- -- 201 -- -- -- Cash dividends -- $.6525 per common share .......... -- -- -- -- -- -- -- (10,290) Realized gain on sale of marketable securities ..... -- -- -- -- -- 180 (992) -- Translation adjustments ....... -- -- -- -- -- (1,127) -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1997 .... 16,162,402 $16,162 -- $ -- $2,857 $(2,700) $ -- $154,843 ===========================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 23 EX-13.(A)V 10 CONSOLIDATED STATEMENTS OF CASH FLOWS 1 EXHIBIT 13(a)v CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended November 30, 1997, 1996 and 1995 (DOLLARS IN THOUSANDS) ===============================================================================
Restated Restated 1997 1996 1995 ========================================================================================================= Cash flows from operating activities: Net earnings ....................................................... $ 26,918 $ 25,945 $ 23,500 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation ................................................... 11,001 10,150 8,594 Amortization ................................................... 599 554 551 Gain on sale of marketable securities .......................... (1,706) (1,675) -- Minority interests in earnings of subsidiaries ................. 110 145 71 Net gain on dispositions of plant assets ....................... (512) (243) (177) Changes in assets and liabilities, net of business acquisitions: Accounts receivable ....................................... (3,224) (1,591) (9,302) Inventories ............................................... (1,058) (6,486) (7,849) Prepaid expenses .......................................... 1,028 211 409 Accounts payable and accrued liabilities .................. 7,247 (3,991) 5,887 Pension assets and liabilities, net ....................... (443) 185 (1,713) Income taxes .............................................. 1,771 1,411 1,031 Deferred income taxes ..................................... (99) 2,060 90 ------------------------------ Net cash provided by operating activities ............. 41,632 26,675 21,092 ------------------------------ Cash flows from investing activities: Additions to plant assets .......................................... (11,349) (22,230) (14,471) Proceeds from sale of marketable securities ........................ 3,322 3,067 -- Business acquisitions, net of cash acquired ........................ (1,522) (1,358) (14,125) Investments in affiliate ........................................... (811) (530) -- Dividends from marketable securities ............................... -- (302) (246) Dispositions of plant assets ....................................... 2,100 2,419 173 Other, net ......................................................... 67 -- (375) ------------------------------ Net cash (used in) investing activities ............... (8,193) (18,934) (29,044) ------------------------------ Cash flows from financing activities: Borrowings under long-term debt .................................... 1,123 9,870 25,206 Reduction of long-term debt ........................................ (13,988) (9,147) (9,012) Sales of capital stock under stock option plan ..................... 1,305 445 362 Purchases of treasury stock ........................................ -- (430) -- Cash dividends paid ................................................ (10,290) (9,512) (9,330) ------------------------------ Net cash provided by (used in) financing activities ... (21,850) (8,774) 7,226 ------------------------------ Net effect of exchange rate changes on cash ............................ (92) 69 42 ------------------------------ Net change in cash and short-term cash investments ..................... 11,497 (964) (684) Cash and short-term cash investments, beginning of year ................ 18,827 19,791 20,475 ------------------------------ Cash and short-term cash investments, end of year ...................... $ 30,324 $ 18,827 $ 19,791 ==============================
The accompanying notes are an integral part of the consolidated financial statements. 24 EX-13.(A)VI 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 13(a)vi NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) =============================================================================== On February 28, 1997, CLARCOR Inc. completed its acquisition of United Air Specialists, Inc. (UAS), a manufacturer of air quality equipment based in Cincinnati, Ohio. (See Note B.) The transaction has been structured as a statutory merger accounted for as a pooling of interests. As a result of the acquisition, UAS became a subsidiary of CLARCOR Inc. Under the requirements of pooling of interests accounting treatment, the consolidated financial statements and accompanying notes for the periods presented have been restated (except for cash dividends declared per share, which represent the historical dividends declared by CLARCOR Inc.) to include the results of operations, cash flows, and financial positions of UAS. CLARCOR Inc. and its subsidiaries are hereinafter collectively referred to as the "Company" or CLARCOR. A. ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled. Minority interests represent an outside shareholder's 10% ownership of the common stock of Filtros Baldwin de Mexico (FIBAMEX), outside shareholders' 30% ownership of Baldwin-Unifil S.A., and an outside shareholder's 50% ownership of Baldwin Filters (Aust.) Pty. Limited. Foreign Currency Translation Financial statements of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average current rates during each reporting period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are accumulated and credited or charged directly to a separate component of shareholders' equity. Plant Assets Depreciation is provided by the straight-line and accelerated methods for financial statement purposes and by the accelerated method for tax purposes. The provision for depreciation is based on the estimated useful lives of the assets. It is the policy of the Company to capitalize renewals and betterments and to charge to expense the cost of current maintenance and repairs. Excess of Cost Over Fair Value of Assets Acquired The excess of cost over fair value of assets acquired is being amortized over a forty-year period, using the straight-line method subject to impairment write-offs determined by underlying cash flows. Accumulated amortization was $7,192 and $6,802 at November 30, 1997 and 1996, respectively. Statements of Cash Flows All highly liquid investments that are readily saleable are considered to be short-term cash investments. The carrying amount approximates fair value. The Company has certain noncash transactions related to stock option and award plans that are described in Note M. Concentrations of Credit Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of short-term cash investments and trade receivables. The Company places its short-term cash investments with high credit quality financial institutions and in high-grade municipal securities. At November 30, 1997 and 1996, the Company held short-term municipal securities with a total cost of $27,620 and $15,780, respectively, with an original maturity of three months or less. Cost approximates market for these securities. Concentrations of credit risk with respect to trade receivables are limited due to the Company's large number of customers and their dispersion across many different industries and locations. Income Taxes The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Stock-Based Compensation On November 30, 1997, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The disclosures are presented in Note M. The Company continues to account 25 2 NOTES TO FINANCIAL STATEMENTS (CONTINUED) =============================================================================== for stock-based compensation using the intrinsic value method as prescribed under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Revenue Recognition Revenue is recognized upon shipment of goods to customers. Net Earnings Per Common Share Net earnings per common share is based on the weighted-average number of common shares outstanding during the respective years. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share" (EPS), which requires dual presentation of basic EPS and diluted EPS, simplifies existing computational guidelines, and increases the comparability of earnings per share on an international basis. SFAS 128 is effective for periods ending after December 15, 1997 and requires restatement of all prior period EPS data presented. The Company will adopt SFAS 128 in its first quarter of fiscal year 1998. Adoption of SFAS 128 will not have a material impact on the Company's EPS other than the additional disclosure of diluted EPS. Use of Management's Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Period The Company's fiscal year ends on the Saturday closest to November 30. Each of the fiscal years ended November 29, 1997, November 30, 1996, and December 2, 1995, was comprised of fifty-two weeks. In the consolidated financial statements, all fiscal years are shown to begin as of December 1 and end as of November 30 for clarity of presentation. Reclassification Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no effect on reported earnings. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components (revenue, expenses, gains, and losses) in a full set of general-purpose financial statements. The Company will adopt SFAS 130 in its fiscal year 1999. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and Related Information," which changes the way public companies report information about operating segments. SFAS 131, which is based on the management approach to segment reporting, establishes the requirement to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenue. The Company will adopt SFAS 131 in its fiscal year 1999. Management does not expect the adoption of SFAS 131 to change the way it currently reports the Company's segment information. B. BUSINESS COMBINATIONS, INVESTMENTS IN AFFILIATES, AND DIVESTITURE On February 28, 1997, the Company completed its acquisition of UAS, a manufacturer of air quality equipment based in Cincinnati, Ohio. The Company issued 1,081,741 shares of its common stock in exchange for all the shares of UAS stock. Additional shares of the Company's common stock will be issued upon exercise of UAS options. (See Note M for a discussion of the additional shares to be issued.) The transaction has been structured as a statutory merger accounted for as a pooling of interests. As a result of the acquisition, UAS became a subsidiary of the Company. Under the requirements of the pooling of interests accounting treatment, the consolidated financial statements for the periods presented have been restated (except for cash dividends declared per share, which represent the historical dividends declared by the Company) to include the results of operations, cash flows, and financial positions of UAS. UAS' fiscal year-end for all periods presented has been changed to the Saturday closest to November 30. Therefore, the Company's restated consolidated financial statements for fiscal 1997, 1996, and 1995 include UAS for the period beginning December 1 and ending on November 30 of the following year. Certain prior period amounts for UAS have been reclassified to conform with the presentation of such data by the Company. UAS' net sales and net earnings for the fiscal years ended November 30, 1996 and 1995 were $38,994 and $39,916, and $967 and $1,546, respectively. 26 3 =============================================================================== No intercompany transactions existed between the two companies during the periods presented. A one-time pre-tax charge of $2,972 ($2,390 net of tax) covering the costs of the merger includes legal and professional fees, non-compete agreements, and costs to integrate the businesses of the two companies. Other business acquisitions in fiscal 1997 included Airklean Engineering Pte. Ltd., an Airguard distributor in Singapore; a distribution facility in Toledo, Ohio; and The Filtair Company in Arlington, Texas; each purchased for cash. None of these acquisitions had a significant impact on the results of the Company. Also during 1997, the Company sold the assets of its Tube division located in Downers Grove, Illinois. The divestiture did not have a significant impact on the results of the Company. During fiscal 1996, Baldwin-Unifil S. A., in which the Company owns a 70% equity interest, was incorporated in South Africa. Baldwin-Unifil S. A. acquired certain assets from Unifil (Pty.) Ltd. for $1,298 in cash. The Company also entered into a joint venture in China, called Baldwin-Weifang Filters Ltd., and accounts for its investment on a cost basis. The Company purchased certain assets comprising the filtration business of Hastings Manufacturing Company on September 4, 1995 for $14,125 in cash, including acquisition expenses. The business is a manufacturer of automotive and light-duty filter products. The acquisition has been accounted for by the purchase method of accounting and the operating results of the business are included in the Company's consolidated statements of earnings from the date of the acquisition. The following unaudited pro forma amount is presented as if the Hastings acquisition had occurred at the beginning of the period presented immediately preceding the acquisition and does not purport to be indicative of what would have occurred had the acquisition been made as of that date or of results which may occur in the future. Unaudited pro forma net sales for the Company would have been $360,110 for the year ended November 30, 1995. Net earnings and earnings per share for this period would not have been significantly affected. C. INVESTMENT IN MARKETABLE SECURITIES In November 1996, the Company sold 50% of its 5% interest in G.U.D. Holdings Limited, an Australian company, recognizing a pretax gain on the sale of $1,675 in fiscal 1996. The Company sold its remaining 2.5% investment in December 1996 recognizing a pretax gain on the sale of $1,706 in fiscal 1997. The investment, with an average cost basis, had been classified as available for sale under the provisions of Statement of Financial Accounting Standards No. 115, (SFAS 115) "Accounting for Certain Investments in Debt and Equity Securities." The quoted market value of the investment was $3,292 as of November 30, 1996, which included unrealized holding gains, net of deferred income taxes, of $992 and $1,285 as of November 30, 1996 and 1995, respectively. The 1996 and 1995 unrealized holding gains, net of deferred income taxes, have been included as a component of shareholders' equity at November 30. D. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 61% and 58% of the Company's inventories at November 30, 1997 and 1996, respectively, and by the first-in, first-out (FIFO) method for all other inventories. The FIFO method approximates current cost. Inventories are summarized as follows:
1997 1996 -------------------- Raw materials ........................................... $ 20,890 $ 20,713 Work-in-process ......................................... 9,341 12,473 Finished products ....................................... 30,585 26,648 -------------------- Total at FIFO ......................................... 60,816 59,834 Less excess of FIFO over LIFO ............................................. 2,534 2,947 -------------------- $ 58,282 $ 56,887 ====================
E. PLANT ASSETS Plant assets at November 30, 1997 and 1996 were as follows:
1997 1996 -------------------- Land .................................................... $ 2,566 $ 2,563 Buildings and building fixtures ......................... 53,442 49,824 Machinery and equipment ................................. 119,644 114,726 Construction-in-process ................................. 4,967 8,837 -------------------- 180,619 175,950 Less accumulated depreciation ........................... 97,714 91,425 -------------------- $ 82,905 $ 84,525 ====================
27 4 NOTES TO FINANCIAL STATEMENTS (CONTINUED) =============================================================================== F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 1997 and 1996 were as follows:
1997 1996 -------------------- Accounts payable ........................................ $ 22,168 $ 20,366 Accrued salaries, wages and commissions ................. 8,773 6,375 Compensated absences .................................... 3,742 3,127 Accrued pension liabilities ............................. 996 996 Other accrued liabilities ............................... 12,474 8,824 -------------------- $ 48,153 $ 39,688 ====================
G. LONG-TERM DEBT Long-term debt at November 30, 1997 and 1996 consists of the following:
1997 1996 -------------------- Promissory note, interest payable quarterly at 9.71% ...... $ - $ 6,416 Promissory note, interest payable semi-annually at 6.69% .. 25,000 25,000 Industrial Revenue Bonds, at 2.65% to 4.80% interest rates. 10,958 11,127 Borrowings under domestic lines of credit, prime .......... - 4,865 Note payable to bank, denominated in Deutsche marks, interest payable quarterly at FIBOR plus 2.75% ... 362 768 Other obligations, at 7% to 10% interest rates ............ 2,476 2,898 -------------------- 38,796 51,074 Less current portion ...................................... 1,140 7,625 -------------------- $ 37,656 $ 43,449 ====================
The 9.71% promissory note was paid at maturity on March 31, 1997. The 6.69% promissory note matures July 25, 2004, but the Company is required to prepay, without premium, certain principal amounts as stated in the agreement. A fair value estimate of $40,080 and $51,238 for the long-term debt in 1997 and 1996, respectively, is based on the current interest rates available to the Company for debt with similar remaining maturities. Under the note agreements, the Company must meet certain restrictive covenants. The primary covenants include maintaining minimum consolidated net worth at $100,000, limiting new borrowings, and restricting certain changes in ownership as stipulated in the agreement. On February 1, 1996, the Company, in cooperation with the South Dakota Economic Development Finance Authority, issued $8,410 of Industrial Revenue Bonds. The bonds are due February 1, 2016, with a variable rate of interest that is reset weekly. In conjunction with the issuance of the Industrial Revenue Bonds, the Company holds in trust certain investments restricted and committed for the acquisition of plant equipment. At November 30, 1997 and 1996, the restricted asset balance of $1,525 and $2,780 is included in other long-term assets. UAS has $2,547 and $2,717 of outstanding Industrial Revenue Bonds as of November 30, 1997 and 1996, respectively. These mature in 2005 and are backed by a letter of credit that requires an annual fee of 1.25% of the outstanding balance. This letter of credit expires in May 2001. Other obligations include a 15 year capital lease for a manufacturing facility acquired in 1991 from the Community Development Authority of the City of Gothenburg, Nebraska, and debt acquired through the merger with UAS and the acquisition of Airguard Industries including an industrial revenue bond due in 2003. The Company has a $25,000 revolving credit facility with a financial institution, against which $9,995 and $9,421 letters of credit have been issued at November 30, 1997 and 1996, respectively. The agreement related to this obligation includes certain restrictive covenants that are similar to the 6.69% promissory note. The agreement expires in 2000. Principal maturities of long-term debt for the next five fiscal years ending November 30 approximates: $1,140 in 1998, $676 in 1999, $5,508 in 2000, $5,555 in 2001, $5,600 in 2002, and $20,317 thereafter. Interest paid totaled $2,870, $3,987, and $2,930 during 1997, 1996, and 1995, respectively. H. RETIREMENT PLANS The Company has defined benefit pension plans covering certain employees. Plan benefits are principally based upon years of service, compensation, and social security benefits. The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. 28 5 =============================================================================== The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheet at November 30:
1997 1996 ----------------------------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ----------------------------------------------- Accumulated benefit obligation, including vested benefits of $51,615 and $47,269 in 1997 and 1996, respectively ................... $52,755 $ 8,552 $48,628 $ 7,603 ========================================== Plan assets at fair value ....... $78,046 $ - $66,857 $ - Less projected benefit obligation for service rendered to date ............... 58,818 10,218 54,266 8,785 ------------------------------------------ Plan assets in excess of (less than) projected benefit obligation ............. 19,228 (10,218) 12,591 (8,785) Unrecognized net loss (gain) from past experience different from that assumed ............. (2,163) 2,425 4,214 1,988 Unrecognized net asset being recognized over approximately 15 years ........ (3,168) - (4,352) - Recognition of additional minimum liability ............. - (759) - (806) ------------------------------------------ Accrued pension asset (liability) for defined benefit plans ......... $13,897 $ (8,552) $12,453 $(7,603) ==========================================
In addition to the plan assets related to qualified plans, the Company has funded approximately $3,002 and $2,829 at November 30, 1997 and 1996, respectively, in a restricted trust for its nonqualified plans. This trust is included in other long-term assets in the Company's consolidated balance sheets. The defined benefit pension plan covering the Company's non-employee directors was terminated as of December 1, 1996. The payment of the net present value of the Company's obligation for directors' retirement benefits was deferred and will be paid to the directors at their normal retirement date. The net pension expense includes the following components for the three years ended November 30:
1997 1996 1995 ------------------------------- Service cost - benefits earned during the period .................................. $ 2,029 $ 1,986 $ 1,789 Interest cost on projected benefit obligation. 4,558 4,394 4,139 Actual return on assets ...................... (14,630) (7,232) (8,791) Net amortization and deferral ................ 8,506 1,062 3,208 ------------------------------- Net pension expense .......................... $ 463 $ 210 $ 345 ===============================
The projected benefit obligation has been determined with a weighted-average discount rate of 7.25% and 7.5% in 1997 and 1996, respectively, and a rate of increase in future compensation of primarily 5.0% in both years. The expected weighted-average long-term rate of return was 9.0% in both 1997 and 1996. Plan assets consist of group annuity insurance contracts, corporate stocks, bonds and notes, certificates of deposit and U.S. Government securities. The Company also sponsors various defined contribution plans that provide substantially all employees with an opportunity to accumulate funds for their retirement. The Company matches the contributions of participating employees based on the percentages specified in the respective plans. The Company recognized expense related to these plans of $941, $786, and $552 in 1997, 1996, and 1995, respectively. I. POSTRETIREMENT HEALTH CARE BENEFITS The Company provides certain health care benefits for certain of the Company's retired employees. These employees become eligible for benefits if they meet minimum age and service requirements and are eligible for retirement benefits. The Company has the right to modify or terminate these benefits. 29 6 NOTES TO FINANCIAL STATEMENTS (CONTINUED) =============================================================================== The following table sets forth the plan's obligation and cost at November 30, 1997 and 1996:
1997 1996 ------------------- Accumulated postretirement benefit obligation: Retirees ............................................... $ 2,136 $ 2,158 Fully eligible active plan participants................. 19 13 Other active plan participants ......................... 276 147 ------------------- Accumulated postretirement benefit obligation ........... 2,431 2,318 Unrecognized (loss) ..................................... (210) - ------------------- Accrued postretirement benefit liability ............... 2,221 2,318 Less current portion, included in accrued liabilities ... 280 309 ------------------- $ 1,941 $ 2,009 ===================
The net periodic postretirement benefit cost includes the following components for the three years ended November 30:
1997 1996 1995 ------------------- Service cost - benefits attributed to service during the period ..................... $ 7 $ 11 $ 25 Interest cost on accumulated postretirement benefit obligations ..................... 162 236 218 ------------------- Net periodic postretirement benefit cost ............................................ $169 $247 $243 ===================
During 1996, the Company entered into an irrevocable agreement with the Healthcare Financing Administration (HCFA), the Federal agency that oversees Medicare, whereby certain employees and retirees of the Company's locations in Pennsylvania relinquished their rights to receive Medicare and accepted healthcare insurance from an insurance carrier. The HCFA entered into a contract with the insurance carrier to administer the healthcare claims and Medicare for these employees and retirees. This agreement terminated the Company's primary responsibility to provide for the postretirement benefit obligation and eliminated significant risks related to the obligation and plan assets related to those employees and retirees. The Company recognized a pretax gain of $672 on the curtailment of its postretirement healthcare plan for certain employees and retirees as defined above. Substantially all future health care benefit cost increases will be assumed by the participants, and therefore, future increases in health care costs will not increase the postretirement benefit obligation or cost to the Company. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% and 7.5% in 1997 and 1996, respectively. J. INCOME TAXES The provision for income taxes consists of:
1997 1996 1995 ---------------------------------- Current: Federal .......................... $15,095 $11,596 $11,592 State ............................ 2,356 1,432 1,407 Foreign .......................... 446 423 214 Deferred ........................... (733) 1,864 (153) ---------------------------------- $17,164 $15,315 $13,060 ==================================
Income taxes paid, net of refunds, totaled $15,112, $11,230, and $11,939 during 1997, 1996, and 1995, respectively. The components of the net deferred tax liability as of November 30, 1997 and 1996 were as follows:
1997 1996 ------------------------- Deferred tax assets: Deferred compensation .......................... $ 1,984 $ 1,566 Other postretirement benefits .................. 777 855 Foreign net operating loss carryforwards ....... 626 939 Loss allowance on receivables .................. 1,229 1,007 Other items .................................... 2,280 1,958 ------------------------- Total gross deferred tax assets ................. 6,896 6,325 ------------------------- Deferred tax liabilities: Pensions ....................................... (2,151) (2,107) Plant assets ................................... (7,766) (6,503) Other items .................................... (432) (1,901) ------------------------- Total gross deferred tax liabilities ............ (10,349) (10,511) ------------------------- Net deferred tax liability ...................... $ (3,453) $ (4,186) =========================
Deferred tax assets, including foreign net operating loss carryforwards, are expected to be realized through reversal of taxable temporary differences and future earnings. Earnings before income taxes and minority interests included the following components:
1997 1996 1995 ------------------------------------- Domestic income ......................... $42,874 $40,224 $35,314 Foreign income .......................... 1,318 1,181 1,317 ------------------------------------- Total ................................... $44,192 $41,405 $36,631 =====================================
30 7 =============================================================================== The provision for income taxes resulted in effective tax rates that differ from the statutory federal income tax rates. The reasons for these differences are as follows:
Percent of Pretax Earnings ----------------------- 1997 1996 1995 ----------------------- Statutory U.S. tax rates ........................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit ......... 3.2 2.6 3.0 Merger-related costs ............................... 0.8 - - Foreign tax credit (utilization) ................... - - (0.1) Foreign net operating loss (utilization) ........... - (0.3) (3.6) Other, net ......................................... (0.2) (0.3) 1.4 ----------------------- Consolidated effective income tax rate ............. 38.8% 37.0% 35.7% =======================
K. CONTINGENCIES The Company is involved in legal actions arising in the normal course of business. Additionally, the Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. Environmental and related remediation costs are difficult to quantify for a number of reasons including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of the environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup. It is the opinion of management, after consultation with legal counsel, that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Company's financial condition or consolidated results of operations. L. PREFERRED STOCK PURCHASE RIGHTS In March 1996, the Board of Directors of CLARCOR adopted a Shareholder Rights Plan to replace an existing plan that expired on April 25, 1996. Under the terms of the Plan, each shareholder received rights to purchase shares of CLARCOR Series B Junior Participating Preferred Stock. The rights become exercisable only after the earlier to occur of (i) 10 business days after the first public announcement that a person or group (other than a CLARCOR related entity) has become the beneficial owner of 15% or more of the outstanding shares of CLARCOR Common Stock, or (ii) 10 business days (unless extended by the CLARCOR Board in accordance with the Rights Agreement) after the commencement of, or the intention to make, a tender or exchange offer the consummation of which would result in any person or group (other than a CLARCOR related entity) becoming such a 15% beneficial owner. Each right entitles the holder to buy one-hundredth of a share of such preferred stock at an exercise price of $80. Once the rights become exercisable, each right will entitle the holder, other than the acquiring individual or group, to purchase a number of CLARCOR common shares at a 50% discount to the then-market price of CLARCOR Common Stock. In addition, under certain circumstances, if the rights become exercisable, the holder will be entitled to purchase the stock of the acquiring individual or group at a 50% discount. The Board may also elect to redeem the rights at $.01 per right. The rights expire on April 25, 2006. The authorized preferred stock includes 300,000 shares designated as Series B Junior Participating Preferred Stock. M. INCENTIVE PLAN In 1994, the shareholders of CLARCOR adopted the 1994 Incentive Plan, which allows the Company to grant stock options, restricted stock and performance awards to officers, directors and key employees. The 1994 Incentive Plan incorporates the various incentive plans in existence prior to March 1994, including the 1984 Stock Option Plan, the 1987 Long Range Performance Share Plan, and the 1990 Directors' Restricted Stock Compensation Plan. In addition, the Company has, in connection with the acquisition of UAS, assumed the stock option plans of UAS. The Company has reserved 127,590 shares of the Company's common stock for issuance under the assumed UAS stock option plans. At the inception of the 1994 Incentive Plan there were 1,000,000 shares authorized for future grants. At November 30, 1997 and 1996, respectively, there were 306,089 and 494,349 shares reserved for future grants, of which 306,043 and 183,260 shares were granted in December 1997 and 1996, respectively. The remaining ungranted shares expire in December 2003. The following is a description and a summary of key provisions related to this plan. 31 8 NOTES TO FINANCIAL STATEMENTS (CONTINUED) =============================================================================== STOCK OPTIONS Nonqualified stock options may, at the discretion of the Board of Directors, be granted at the fair market value at the date of grant or an exercise price less than the fair market value at the date of grant. Options granted to key employees vest 25% per year beginning at the end of the third year; therefore, they become fully exercisable at the end of six years. Options granted to nonemployee directors vest immediately. All options expire ten years from the date of grant unless otherwise terminated. The following table summarizes the activity under the nonqualified stock option plans.
1997 1996 1995 ------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------------------ Outstanding at beginning of year ..................... 1,334,800 $17.16 1,252,906 $16.16 1,112,269 $15.56 Granted .............................................. 193,750 21.94 208,500 20.88 195,250 18.79 Exercised/surrendered ................................ (265,159) 15.59 (126,606) 13.47 (54,613) 13.30 ------------------------------------------------------------------------ Outstanding at end of year ........................... 1,263,391 $18.22 1,334,800 $17.16 1,252,906 $16.16 ======================================================================== Options exercisable at end of year ................... 737,954 $16.69 744,175 $15.35 726,000 $13.83 ========================================================================
The following table summarizes information about the options at November 30, 1997:
Options Outstanding Options Exercisable ------------------------------------------------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Exercise Remaining Exercise Prices Number Price Life in Years Number Price - ---------------------------------------------------------------------------------- $12.55 - $18.50 671,891 $16.145 4.30 611,516 $15.93 $18.875 - $25.50 591,500 $20.573 7.97 126,438 $20.38
In addition, stock options outstanding at November 30, 1997 and 1996 assumed as part of the UAS acquisition were 42,714 and 127,590, respectively. Substitute stock options exercisable under the UAS plans were 42,714 and 119,579. These substitute options have an exercisable price range per share of $3.60 to $11.34 at November 30, 1997 and expire between 2002 and 2005. No grants were made under these plans in 1996 or 1997 and no future additional awards will be granted. LONG RANGE PERFORMANCE AWARDS Officers and key employees may be granted target awards of Company shares of common stock and performance units, which represent the right to a cash payment. The awards are earned and shares are issued only to the extent that the Company achieves performance goals determined by the Board of Directors during a three-year performance period. The Company granted 12,010 and 11,758 performance shares on December 1, 1996 and 1995, respectively. As of November 30, 1997, none of these shares have been cancelled. The shares vest at the end of three years. During the performance period, officers and key employees are permitted to vote the restricted stock and receive compensation equal to dividends declared on common shares. The Company accrues compensation expense for the performance opportunity ratably during the performance cycle. Compensation expense for the plan totaled $547, $522, and $446 in 1997, 1996, and 1995, respectively. Distribution of Company common stock and cash for the performance periods ended November 30, 1997, 1996, and 1995 were $341, $291, and $312, respectively. DIRECTORS' RESTRICTED STOCK COMPENSATION The 1994 Incentive Plan grants all nonemployee directors, in lieu of cash, shares of common stock equal to five years directors' annual retainer. The directors' rights to the shares vest 20% on date of grant and 20% annually during the next four years. The directors are entitled to receive dividends and exercise voting rights with respect to all shares prior to vesting. Any unvested shares are forfeited if the director ceases to be a nonemployee director for any reason. Compensation expense for the plan totaled $121, $165, and $104 in 1997, 1996, and 1995, respectively. During 1996, 4,575 shares of Company common stock (or $5) were issued under the plan. No shares were granted in 1997. FAIR VALUE ACCOUNTING (SFAS 123) In 1997, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123 encourages, but does not require, companies to recognize compensation cost for stock-based compensation plans over the vesting period based upon the fair value of awards on the date of grant. However, the statement allows the alternative of the continued use of the intrinsic value method as prescribed under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Therefore, as 32 9 =============================================================================== permitted, the Company will continue to apply APB No. 25 and related Interpretations in accounting for its stock-based compensation plans. Had compensation expense for the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method of SFAS 123, the Company's pro forma net earnings and earnings per share would have been $26,702 and $1.66, and $25,782 and $1.62 for 1997 and 1996, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1997 and 1996. Adjustments for forfeitures are made as they occur.
1997 1996 -------------- Risk free interest rate ....................................... 5.98% 5.61% Expected dividend yield ....................................... 3.05% 3.04% Expected volatility factor .................................... 26.10% 27.90% Expected option term (in years) ............................... 7.00 7.00
The weighted-average fair value per option at the date of grant for options granted in 1997 and 1996 was $6.03 and $5.88, respectively. The above pro forma disclosures may not be representative of the effects on reported net income and earnings per share for future years because compensation cost under SFAS 123 is amortized over the options' vesting period and compensation cost for options granted prior to fiscal year 1996 is not considered. N. UNAUDITED QUARTERLY FINANCIAL DATA The unaudited quarterly data for 1997 and 1996 are as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------------------------------ 1997: Net sales .............................. $86,958 $96,684 $104,636 $105,986 $394,264 Gross profit ........................... 24,508 29,866 32,111 34,077 120,562 Net earnings ........................... 3,017 7,048 8,085 8,768 26,918 Net earnings per common share .......... $ 0.19 $ 0.44 $ 0.50 $ 0.54 $ 1.67 1996: Net sales .............................. $81,014 $91,540 $99,134 $100,694 $372,382 Gross profit ........................... 23,101 27,387 28,544 29,753 108,785 Net earnings ........................... 3,752 6,277 6,943 8,973 25,945 Net earnings per common share .......... $ 0.24 $ 0.39 $ 0.44 $ 0.56 $ 1.63
In the first quarter of 1997, the Company incurred merger-related costs of $2,972 ($2,390 after-tax or $0.15 per share) as discussed in Note B and realized a gain from the sale of securities of $1,706 ($1,092 after-tax or $0.07 per share). In the fourth quarter of 1996, the Company realized a gain from the sale of securities of $1,675 ($1,072 after-tax or $0.07 per share). The realized gains are discussed in Note C. O. SEGMENT INFORMATION The Company operates in three principal product segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Consumer Packaging. Engine/Mobile Filtration manufactures and markets a complete line of filters used in the filtration of internal combustion engines, and lubrication oils, air, fuel, coolant, hydraulic and transmission fluids in both the domestic and international markets, including Europe, Australia, Canada, Mexico, South Africa, Latin America and Asia. Industrial/Environmental Filtration manufactures and markets a complete line of filters and systems used in the filtration of commercial and industrial buildings, residences, and clean rooms in both the domestic and international markets, including Europe, Australia, Mexico, Canada, South Africa, Latin America and Asia. Consumer Packaging manufactures and markets plastic closures and custom designed lithographed metal and metal/plastic containers in both domestic and international markets, including Canada and Germany. Net sales represent sales to unaffiliated customers, as reported in the consolidated statements of earnings. Intersegment sales were not material. Assets are those assets used in each business segment. Corporate assets consist of cash and short-term cash investments, deferred income taxes, world headquarters facility, pension assets and various other assets that are not specific to an industry segment. 33 10 NOTES TO FINANCIAL STATEMENTS (CONTINUED) =============================================================================== The segment data for the years ended November 30, 1997, 1996, and 1995 are as follows:
1997 1996 1995 - ------------------------------------------------------------------------------- Net sales: Engine/Mobile Filtration........... $207,640 $195,223 $158,969 Industrial/Environmental Filtration ....................... 111,491 103,388 101,981 Consumer Packaging................. 75,133 73,771 69,160 -------------------------------------- $394,264 $372,382 $330,110 ====================================== - ------------------------------------------------------------------------------- Operating profit: Engine/Mobile Filtration .......... $ 34,536 $ 31,169 $ 28,940 Industrial/Environmental Filtration ....................... 4,188 4,046 3,121 Consumer Packaging ................ 8,672 7,381 6,667 -------------------------------------- 47,396 42,596 38,728 Merger-Related Costs ................ (2,972) - - -------------------------------------- $ 44,424 $ 42,596 $ 38,728 ====================================== - ------------------------------------------------------------------------------- Assets: Engine/Mobile Filtration .......... $121,804 $120,584 $104,022 Industrial/Environmental Filtration ....................... 60,706 56,272 56,658 Consumer Packaging ................ 36,824 41,334 39,853 Corporate ......................... 63,185 48,829 45,164 -------------------------------------- $282,519 $267,019 $245,697 ====================================== - ------------------------------------------------------------------------------- Additions to plant assets: Engine/Mobile Filtration .......... $ 7,382 $ 11,386 $ 6,140 Industrial/Environmental Filtration ....................... 2,570 1,829 2,563 Consumer Packaging ................ 1,127 4,275 5,591 Corporate ......................... 270 4,740 177 -------------------------------------- $ 11,349 $ 22,230 $ 14,471 ====================================== - ------------------------------------------------------------------------------- Depreciation: Engine/Mobile Filtration .......... $ 5,262 $ 4,533 $ 3,327 Industrial/Environmental Filtration ....................... 2,249 2,310 2,273 Consumer Packaging ................ 2,994 2,946 2,787 Corporate ......................... 496 361 207 -------------------------------------- $ 11,001 $ 10,150 $ 8,594 ======================================
The following details sales volume by class of product for the Consumer Packaging segment for those classes of products that contributed 10% or more to total Corporate revenue.
1997 1996 1995 - ------------------------------------------------------------------------------- Containers .......................... 14% 15% 16%
No class of products within the Engine/Mobile Filtration or the Industrial/Environmental Filtration segment accounted for as much as 10% of the total sales of the Company. Financial data relating to the geographic areas in which the Company operates are shown for the years ended November 30, 1997, 1996, and 1995. Net sales by geographic area are based on sales to final customers within that segment.
1997 1996 1995 - ------------------------------------------------------------------------------- Net sales: Sales within the United States .................... $325,361 $310,611 $278,018 Export Sales to Other Countries .................. 43,266 37,171 29,471 Sales within Other Countries ................. 25,637 24,600 22,621 -------------------------------------- $394,264 $372,382 $330,110 ====================================== - ------------------------------------------------------------------------------- Operating profit: On Sales within the United States .................... $ 37,730 $ 35,530 $ 34,620 On Export Sales to Other Countries .................. 8,043 5,649 2,817 On Sales within Other Countries ................. 1,623 1,417 1,291 -------------------------------------- 47,396 42,596 38,728 Merger-Related Costs ................ (2,972) - - -------------------------------------- $ 44,424 $ 42,596 $ 38,728 ====================================== - ------------------------------------------------------------------------------- Identifiable Assets: United States ...................... $262,739 $249,505 $229,207 Other Countries .................... 19,780 17,514 16,490 -------------------------------------- $282,519 $267,019 $245,697 ======================================
34 EX-13.(A)VII 12 REPORT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 13(a)vii REPORT OF INDEPENDENT ACCOUNTANTS =============================================================================== The Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois We have audited the accompanying consolidated balance sheets of CLARCOR Inc. and Subsidiaries as of November 30, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended November 30, 1997. 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. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of CLARCOR Inc. and Subsidiaries as of November 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. - ---------------------------- Chicago, Illinois January 9, 1998 35 EX-13.(A)VIII 13 MANAGEMENT'S REPORT ON RESPONSIBILITY 1 EXHIBIT 13(a)viii MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING =============================================================================== The management of CLARCOR is responsible for the preparation, integrity and objectivity of the Company's financial statements and the other financial information in this report. The financial statements were prepared in conformity with generally accepted accounting principles and reflect, in all material respects, the results of operations and the Company's financial position for the periods shown. The financial statements are presented on the accrual basis of accounting and, where appropriate, reflect estimates based upon judgments of management. In addition, management maintains a system of internal controls designed to assure that Company assets are safeguarded from loss or unauthorized use or disposition. Also, the controls system provides assurance that transactions are authorized according to the intent of management and are accurately recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. For the periods covered by the financial statements in this report, management believes this system of internal controls was effective concerning all material matters. The effectiveness of the controls system is supported by the selection and training of qualified personnel, an organizational structure that provides an appropriate division of responsibility, a strong budgetary system of control and a comprehensive internal audit program. The Audit Committee of the Board of Directors, which is composed of three outside directors, serves in an oversight role to assure the integrity and objectivity of the Company's financial reporting process. The Committee meets periodically with representatives of management and the independent and internal auditors to review matters of a material nature related to financial reporting and the planning, results and recommendations of audits. The independent and internal auditors have free access to the Audit Committee. The Committee is also responsible for making recommendations to the Board of Directors concerning the selection of the independent auditors. /s/ Lawrence E. Gloyd /s/ Bruce A. Klein /s/ Marcia S. Blaylock - ----------------------- ------------------------ ---------------------- Lawrence E. Gloyd Bruce A. Klein Marcia S. Blaylock Chairman of the Board & Vice President-Finance & Vice President, Chief Executive Officer Chief Financial Officer Controller & Corporate Secretary January 9, 1998 35 EX-13.(A)IX 14 INFORMATION UNDER THE CAPTION 1 EXHIBIT 13(a)ix 11-YEAR FINANCIAL SUMMARY (RESTATED TO INCLUDE UNITED AIR SPECIALISTS, INC.) ===============================================================================
1997 1996 1995 1994 - --------------------------------------------------------------------------------------- PER SHARE Equity .................................... $ 10.59 $ 9.69 $ 8.69 $ 7.76 Earnings from Continuing Operations ....... 1.67 1.63 1.48 1.31 Net Earnings .............................. 1.67 1.63 1.48 1.35 Dividends ................................. 0.6525 0.6425 0.6325 0.6225 Price: High ............................... 31.19 25.13 27.00 22.38 Low ................................ 20.00 18.63 18.13 15.88 - --------------------------------------------------------------------------------------- EARNINGS DATA ($000) Net Sales ................................. $394,264 $372,382 $330,110 $300,450 Operating Profit .......................... 44,424 42,596 38,728 33,188 Interest Expense .......................... 2,759 3,822 3,418 3,298 Pretax Income ............................. 44,192 41,405 36,631 31,886 Income Taxes .............................. 17,164 15,315 13,060 12,057 Income from Continuing Operations ......... 26,918 25,945 23,500 20,786 Income from Discontinued Operations ....... - - - - Cumulative Effect of Accounting Changes ... - - - 630 Net Earnings .............................. 26,918 25,945 23,500 21,416 Average Shares Outstanding ................ 16,089 15,938 15,900 15,869 - --------------------------------------------------------------------------------------- EARNINGS ANALYSIS Operating Margin .......................... 11.3% 11.4% 11.7% 11.0% Pretax Margin ............................. 11.2% 11.1% 11.1% 10.6% Effective Tax Rate ........................ 38.8% 37.0% 35.7% 37.8% Net Margin-Continuing Operations .......... 6.8% 7.0% 7.1% 6.9% Net Margin ................................ 6.8% 7.0% 7.1% 7.1% Return on Beginning Assets ................ 10.1% 10.6% 11.4% 11.2% Return on Beginning Shareholders' Equity .. 17.4% 18.8% 19.1% 19.4% Dividend Payout to Net Earnings ........... 38.2% 36.7% 39.7% 43.0% - --------------------------------------------------------------------------------------- BALANCE SHEET DATA ($000) Current Assets ............................ $160,527 $140,726 $133,286 $109,992 Plant Assets, Net ......................... 82,905 84,525 73,047 58,787 Total Assets .............................. 282,519 267,019 245,697 206,928 Current Liabilities ....................... 54,237 51,297 49,841 43,926 Long-Term Debt ............................ 37,656 43,449 41,860 25,090 Shareholders' Equity ...................... 171,162 154,681 138,144 122,801 - --------------------------------------------------------------------------------------- BALANCE SHEET ANALYSIS ($000) Debt to Capitalization .................... 18.0% 21.9% 23.3% 17.0% Working Capital ........................... $106,290 $ 89,429 $ 83,445 $ 66,066 Current Ratio ............................. 3.0:1 2.7:1 2.7:1 2.5:1 - --------------------------------------------------------------------------------------- CASH FLOW DATA ($000) From Operations ........................... $ 41,632 $ 26,675 $ 21,092 $ 25,670 For Investment ............................ (8,193) (18,934) (29,044) (1,159) From/(For) Financing ...................... (21,850) (8,774) 7,226 (18,656) Change in Cash & Equivalents .............. 11,497 (964) (684) 5,912 Capital Expenditures ...................... 11,349 22,230 14,471 12,119 Depreciation .............................. 11,001 10,150 8,594 7,600 Dividends Paid ............................ 10,290 9,512 9,330 9,201 Interest (Income)/Expense ................. 1,739 2,991 2,560 2,750 Income Taxes Paid ......................... 15,112 11,230 11,939 10,194 - --------------------------------------------------------------------------------------- CASH FLOW ANALYSIS ($000) Operating Cash Flow (1) ................... $ 58,483 $ 40,896 $ 35,591 $ 38,614 Net Cash Flow (2) ......................... 47,134 18,666 21,120 26,495 Elective Cash Flow (3) .................... 19,993 (5,067) (2,709) 4,350 - ---------------------------------------------------------------------------------------
(1) From operations before interest income/expense and taxes paid. (2) Operating Cash Flow less capital expenditures. (3) Net Cash Flow less dividends +(-) interest income/expense and less taxes paid. 36 CLARCOR 2 11-YEAR SUMMARY
1993 1992 1991 1990 1989 1988 1987 - ------------------------------------------------------------------------------------------------------------------- PER SHARE Equity .................................... $ 6.95 $ 6.58 $ 6.39 $ 5.60 $ 4.89 $ 6.86 $ 6.20 Earnings from Continuing Operations ....... 1.09 1.00 1.17 1.21 0.69 0.98 0.89 Net Earnings .............................. 1.09 0.85 1.19 1.28 0.44 1.12 0.97 Dividends ................................. 0.6100 0.6000 0.5500 0.5200 0.4800 0.4530 0.4310 Price: High ............................... 20.00 22.50 22.67 17.83 18.92 14.59 16.89 Low ................................ 16.00 15.00 13.00 11.83 11.75 9.75 9.25 - -------------------------------------------------------------------------------------------------------------------- EARNINGS DATA ($000) Net Sales ................................. $253,211 $218,172 $213,999 $197,917 $181,837 $171,354 $165,146 Operating Profit .......................... 29,960 27,810 32,204 31,407 23,969 28,408 29,440 Interest Expense .......................... 3,979 4,438 4,402 4,189 1,710 415 401 Pretax Income ............................. 27,221 24,930 28,778 30,325 23,572 29,809 30,543 Income Taxes .............................. 9,944 8,941 10,095 11,008 11,008 10,951 13,240 Income from Continuing Operations ......... 17,277 15,989 18,683 19,317 12,564 18,858 17,303 Income from Discontinued Operations ....... - - 297 1,200 (4,493) 2,412 1,672 Cumulative Effect of Accounting Changes ... - (2,370) - - - 115 - Net Earnings .............................. 17,277 13,619 18,980 20,475 8,071 21,385 18,975 Average Shares Outstanding ................ 15,887 16,020 15,943 15,954 18,192 19,153 19,472 - -------------------------------------------------------------------------------------------------------------------- EARNINGS ANALYSIS Operating Margin .......................... 11.8% 12.7% 15.0% 15.9% 13.2% 16.6% 17.8% Pretax Margin ............................. 10.8% 11.4% 13.4% 15.3% 13.0% 17.4% 18.5% Effective Tax Rate ........................ 36.5% 35.9% 35.1% 36.3% 46.7% 36.7% 43.3% Net Margin-Continuing Operations .......... 6.8% 7.3% 8.7% 9.8% 6.9% 11.0% 10.5% Net Margin ................................ 6.8% 6.2% 8.9% 10.3% 4.4% 12.5% 11.5% Return on Beginning Assets ................ 9.5% 7.6% 11.6% 14.0% 5.1% 14.6% 14.1% Return on Beginning Shareholders' Equity .. 16.4% 13.4% 21.3% 26.0% 6.2% 17.7% 17.3% Dividend Payout to Net Earnings ........... 52.3% 65.8% 43.0% 37.6% 102.7% 38.0% 41.2% - -------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA ($000) Current Assets ............................ $97,569 $105,067 $ 87,322 $ 83,988 $ 68,860 $ 79,215 $ 75,330 Plant Assets, Net ......................... 53,839 42,324 52,324 47,498 48,231 46,026 43,122 Total Assets .............................. 191,657 181,660 179,337 164,294 145,982 157,193 146,229 Current Liabilities ....................... 37,647 30,559 25,977 25,783 26,415 17,859 19,082 Long-Term Debt ............................ 32,650 38,534 45,406 44,363 36,253 4,992 3,911 Shareholders' Equity ...................... 110,299 105,460 102,000 89,076 78,860 130,646 120,614 - -------------------------------------------------------------------------------------------------------------------- BALANCE SHEET ANALYSIS ($000) Debt to Capitalization .................... 22.8% 26.8% 30.8% 33.2% 31.5% 3.7% 3.1% Working Capital ........................... $59,922 $ 74,508 $ 61,345 $ 58,205 $ 42,445 $ 61,356 $ 56,248 Current Ratio ............................. 2.6:1 3.4:1 3.4:1 3.3:1 2.6:1 4.4:1 3.9:1 - -------------------------------------------------------------------------------------------------------------------- CASH FLOW DATA ($000) From Operations ........................... $20,727 $ 23,456 $ 19,012 $ 25,109 $ 18,547 $ 19,463 $ 22,743 For Investment ............................ (74) (7,737) (15,848) (9,689) (8,918) (2,605) (16,801) From/(For) Financing ...................... (22,772) (9,929) (8,059) (5,577) (24,279) (10,492) (8,641) Change in Cash & Equivalents .............. (2,197) 5,811 (4,895) 9,843 (14,650) 6,366 (2,699) Capital Expenditures ...................... 10,776 8,290 10,804 9,685 9,037 7,566 5,767 Depreciation .............................. 6,653 7,881 7,248 7,094 6,883 6,863 6,567 Dividends Paid ............................ 9,036 8,958 8,165 7,708 8,290 8,121 7,814 Interest (Income)/Expense ................. 3,104 4,140 3,280 3,657 436 (682) (686) Income Taxes Paid ......................... 10,059 11,200 9,693 10,811 11,643 13,434 14,621 - -------------------------------------------------------------------------------------------------------------------- CASH FLOW ANALYSIS ($000) Operating Cash Flow (1) ................... $33,890 $ 38,796 $ 31,985 $ 39,577 $ 30,626 $ 32,215 $ 36,678 Net Cash Flow (2) ......................... 23,114 30,506 21,181 29,892 21,589 24,649 30,911 Elective Cash Flow (3) .................... 915 6,208 43 7,716 1,220 3,776 9,162 - --------------------------------------------------------------------------------------------------------------------
CLARCOR 37 EX-13.(A)X 15 MANAGEMENT'S DISCUSSION AND ANALYSIS 1 EXHIBIT 13(a)x FINANCIAL REVIEW (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) CLARCOR's 1997 results from operations and financial condition were at record levels and reflect increased sales and operating profit from each of the Company's segments. On February 28, 1997, the Company completed the acquisition of United Air Specialists, Inc. (UAS). This transaction was structured as a statutory merger accounted for as a pooling of interests. As a result, all of the financial information provided in this Financial Review and throughout this 1997 Annual Report has been restated (except for cash dividends) to include the results of operations, cash flows, and financial positions of UAS for all periods presented. The information presented in this financial review should be read in conjunction with other financial information presented throughout this 1997 Annual Report. OPERATING RESULTS Sales Record net sales of $394.3 million resulted in the eleventh consecutive year of sales growth. The 5.9% sales growth in 1997 over 1996 resulted from increased sales for each business segment. International sales in 1997 increased 11.5% to 17.5% of total sales. Strong volume of international shipments was partially offset by a strong U.S. dollar. In addition to the acquisition of UAS in 1997, the Company acquired several distributors of industrial and environmental filter products. The additional sales recorded from these distributors did not have a material effect on sales growth in 1997. Sales increased 12.8% in 1996 over the 1995 level; however, 1996 included a full year of sales from the 1995 Hastings Filters acquisition, compared to one quarter of Hastings sales included in fiscal 1995. Excluding Hastings sales, the Company's net sales increased 4.5% in 1996, which included growth from each business segment. Comparative net sales information related to CLARCOR's operating segments is shown in the tables below.
1997 vs. 1996 Change ----------------- NET SALES 1997 % Total $ % - ---------------------------------------------------------------------- Engine/Mobile Filtration $207.7 52.7% $12.5 6.4% Industrial/Environmental Filtration ............ 111.5 28.3% 8.1 7.8% Consumer Packaging ..... 75.1 19.0% 1.3 1.8% -------------------------------------------- Total ................ $394.3 100.0% $21.9 5.9% ============================================
1996 vs. 1995 Change Restated ---------- NET SALES 1996 % Total $ % - ------------------------------------------------------------------ Engine/Mobile Filtration $195.2 52.4% $36.3 22.8% Industrial/Environmental Filtration ............ 103.4 27.8% 1.4 1.4% Consumer Packaging ..... 73.8 19.8% 4.6 6.7% -------------------------------------- Total ................ $372.4 100.0% $42.3 12.8% ======================================
The Engine/Mobile Filtration segment's 1997 sales rose 6.4% from 1996. Although the segment's heavy-duty filter sales increased over the prior year, sales of the light-duty Hastings' brand were lower largely due to the elimination of low and negative margin business as planned. Sales of the segment's railroad locomotive filtration products increased at nearly a double-digit rate on the strength of traditional liquid filtration products and from additional sales of air filtration products. The 1996 sales increase of 22.8% for the segment resulted primarily from the inclusion of a full year of sales from Hastings Filters compared to three months of sales included in 1995. Sales also increased in 1996 over 1995 for both heavy-duty filtration products and railroad locomotive filter products. The Industrial/Environmental Filtration segment recorded sales of $111.5 million, an increase of 7.8% over 1996. This segment is growing at a faster rate than the Company's other segments as a result of investments in product development and distribution, and due to increased customer demand for indoor air filtration products. The segment's 1996 sales level of $103.4 million increased 1.4% from $102.0 million in 1995, a year that included an unusually strong level of UAS shipments. Sales for the Consumer Packaging segment increased 1.8% in 1997 to $75.1 million. Sales of plastic closures and containers increased over 20% in 1997. Although sales of metal packaging products in 1997 were nearly equal to the prior year's level, higher sales are expected in 1998 as a result of a forecasted increase in flat sheet decorating and sales of new product concepts introduced throughout 1997, such as sports collectibles and combination metal/plastic promotional containers. The segment's Tube Division recorded sales of approximately $7.0 million in 1997, which was a lower level than in 1996. In November 1997 the Tube Division was sold, and although this divestiture did not have a significant impact on the operating results of the Company, the sales level for the segment will be reduced in 1998. The segment's sales increased 6.7% in 1996 over 1995 and included increases in both plastics and metals of 9.0% and 7.9%, respectively. CLARCOR 17 2 FINANCIAL REVIEW (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) ================================================================================ Operating Profit On the strength of increased sales from each business segment, CLARCOR's operating profit improved for the fifth consecutive year. Operating profit of $44.4 million was reduced by $3.0 million of costs related to the UAS merger. Excluding the impact of the merger costs, operating profit was $47.4 million, an 11.3% increase over the 1996 level. Gross margin increased by 1.4% in 1997 from 1996. This increase in margins resulted from an increased volume of shipments, material cost containment, and higher productivity levels in each of the Company's manufacturing facilities. Selling and administrative expenses increased by 0.8% as a result of higher distribution and marketing costs. Operating margins, excluding the impact of the merger costs, increased to 12.0% from 11.4% in 1996. Profitability on international sales increased in 1997, although operating profit was reduced by unfavorable currency translation adjustments which were not material in amount compared to consolidated operating profit. The 1996 operating profit of $42.6 million increased 10.0% over the prior year as a result of higher sales levels and increased productivity from each business segment. Comparative operating profit information related to the Company's business segments is as follows.
1997 vs. 1996 Change OPERATING PROFIT BEFORE ----------------- MERGER-RELATED COSTS 1997 % Total $ % - ------------------------------------------------------------------- Engine/Mobile Filtration $34.5 72.9% $3.3 10.8% Industrial/Environmental Filtration ............ 4.2 8.8% 0.2 3.5% Consumer Packaging ..... 8.7 18.3% 1.3 17.5% --------------------------------------- Total ................ $47.4 100.0% $4.8 11.3% =======================================
1996 vs. 1995 Change Restated ----------------- OPERATING PROFIT 1996 % Total $ % - ------------------------------------------------------------------- Engine/Mobile Filtration $31.2 73.2% $2.3 7.7% Industrial/Environmental Filtration ............ 4.0 9.5% 0.9 29.6% Consumer Packaging ..... 7.4 17.3% 0.7 10.7% --------------------------------------- Total ................ $42.6 100.0% $3.9 10.0% =======================================
OPERATING PROFIT BEFORE MERGER-RELATED COSTS AS Restated Restated A PERCENT OF NET SALES 1997 1996 1995 - ----------------------------------------------------------------- Engine/Mobile Filtration 16.6% 16.0% 18.2% Industrial/Environmental Filtration ............ 3.8% 3.9% 3.1% Consumer Packaging ..... 11.5% 10.0% 9.6% --------------------------------------- Total ................ 12.0% 11.4% 11.7% =======================================
Operating profit for the Engine/Mobile Filtration segment was favorably impacted in 1997 by the higher sales level, material cost containment, manufacturing cost reduction, improvements to manufacturing, distribution and administration of the light-duty filter line, and overall productivity improvements. Profit margins for the segment improved to 16.6% of net sales, compared to 16.0% in 1996. The segment's profit in 1996, the first full year after the purchase of the Hastings light-duty filter line in 1995, was negatively impacted by costs incurred at the light-duty filter manufacturing facility. The productivity of this facility improved throughout 1997 and it is now operating near expected levels. The Industrial/Environmental Filtration segment improved operating profit 3.5% over the prior year. Although sales were up 7.8% for the year, profitability was impacted by additional costs related to the investment in additional distribution, marketing, product development and manufacturing processes. These investments are expected to positively benefit the operating results for this segment beginning in 1998. Operating profit in 1996 increased 29.6% over the 1995 level as a result of significantly improved operations at Airguard Industries, offset by reduced profit from UAS due to costs related to expanding distribution and new product introductions. Operating profit for the Consumer Packaging segment increased 17.5% from the 1996 level as a result of significantly higher sales of plastics products and continued productivity improvement for the metals business. The segment's operating margin improved to 11.5% from 10.0% in 1996 and 9.6% in 1995. Other Income & Expense Other expense totaled $0.2 million in 1997. Interest expense was reduced to $2.8 million in 1997 from a level of $3.8 million in 1996 due to a lower level of debt throughout 1997. Interest expense was higher in 1996 than the $3.4 million in 1995 due to additional long-term debt borrowed to finance the Hastings Filters acquisition. Total interest and dividend income of $1.0 million in 1997 resulted from higher cash and short-term cash investment balances offset by lower interest rates. In both the first quarter of 1997 and fourth quarter of 1996, the Company recorded a $1.7 million gain on the sale of G.U.D. Holdings Ltd. shares, an Australian company. These gains resulted from the sale of all the shares owned by the Company in G.U.D. Holdings Ltd. 18 CLARCOR 3 ================================================================================ Provision for Income Taxes The provision for income taxes in 1997 of $17.2 million resulted in an effective tax rate of 38.8%. This effective rate is higher than both 1996 and 1995 due to merger costs that were not fully deductible for tax purposes. In addition, the effective tax rates of 37.0% in 1996 and 35.7% in 1995 were reduced due to the utilization of foreign net operating loss carryforwards. Net Earnings and Earnings Per Share Record net earnings of $26.9 million, or $1.67 per share, reflect the after-tax impact of the merger-related costs of $2.4 million, or $0.15 per share, and the gain on sale of securities of $1.1 million, or $0.07 per share. Net earnings and earnings per share, excluding these unusual items, were $28.2 million or $1.75 per share. Net earnings in 1996 were $25.9 million, or $24.8 million excluding the impact of the gain on sale of securities recorded in 1996 of $1.1 million, or $0.07 per share. Excluding the gain in 1996 and the 1997 gain and merger-related charge, CLARCOR's fiscal 1997 net earnings increased 13.4% and earnings per share 12.2%. These increases resulted from the higher sales level, productivity improvements and cost reductions, offset by higher marketing and product distribution costs. Earnings per share in 1996 were $1.63, including $0.07 from the sale of securities, and in 1995 were $1.48. The 1996 earnings per share, excluding the 1996 gain, increased 5.4% over the 1995 level. Average shares outstanding for fiscal 1997 were 16,088,981 compared to 15,938,421 for fiscal 1996. These amounts include the additional shares issued in connection with the merger of UAS. YEAR 2000 For several years the Company has been reviewing Year 2000 issues related to the impact on its computer systems. Project teams have been reviewing all computer operated machinery and related software to assure that key financial, information and operational systems have been assessed. Information processing related to the Company's major customers and suppliers has also been reviewed. Plans have been developed to address systems modifications required by December 31, 1999, and some of these modifications have already been implemented. The financial impact of making the required systems changes is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. FINANCIAL CONDITION Corporate Liquidity The Consolidated Statements of Cash Flows are shown on page 24, and the discussion of corporate liquidity should be read in conjunction with information presented in those statements. Cash and short-term cash investments increased to $30.3 million at year-end 1997 principally as a result of record levels of cash provided by operating activities. The cash provided by operating activities, $41.6 million, included higher net earnings, depreciation and amortization and a lower level of investment in working capital. The Company's emphasis on measuring CLARCOR Value Added (CVA) resulted in significantly improved working capital management. The cash provided by operations was primarily used for additions to plant assets of $11.3 million, payments on long-term debt of $14.0 million, and $10.3 million for cash dividend payments to shareholders. Net cash used in investing activities of $8.2 million in 1997 was primarily for plant asset additions of $11.3 million offset by cash proceeds from the sale of securities of $3.3 million. Similarly, the 1996 net cash used in investing activities of $18.9 million included $3.1 million from the sale of securities in fourth quarter 1996. The higher level of additions to plant assets in 1996 of $22.2 million included the Hastings' plant expansion and related new equipment, completion of a new plastics facility at J.L. Clark, and additional capital expenditures at Corporate. Cash used in investing activities in 1995 of $29.0 million included $14.5 million for plant asset additions and $14.1 million primarily for the acquisition of Hastings Filters. Net cash used in financing activities totaled $21.9 million in 1997 and included $14.0 million for long-term debt payments and $10.3 million for dividend payments. In 1996 and 1995, payments on long-term debt totaled approximately $9 million and cash dividends were $9.5 million and $9.3 million, respectively. In 1996 and 1995, additional long-term borrowings of $9.9 million and $25.2 million, respectively, were related primarily to industrial revenue bonds for the Hastings Filters building expansion in 1996 and for the acquisition of Hastings Filters in 1995. CLARCOR continues to generate sufficient cash to maintain current operating levels, to pay dividends, to provide for the addition and replacement of necessary plant assets, and to service and repay long-term debt. CLARCOR 19 4 FINANCIAL REVIEW (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) ================================================================================ Sufficient lines of credit remain available to fund the Company's current operations and planned future growth. As additional investment in facilities and equipment is expected in 1998, the Company anticipates that total capital expenditures will be approximately $20.0 million. In 1998, principal payments on long-term debt will be lower than in 1997 and are expected to total $1.1 million based on scheduled payments per the debt agreements. Capital Resources The Company's financial position at November 30, 1997 continued to be solid and sufficiently liquid to support current operations. Total assets increased to $282.5 million at November 30, 1997 from $267.0 million at year-end 1996. Cash and short-term cash investments totaled $30.3 million, an increase of $11.5 million from the year-end 1996 balance of $18.8 million. Total current assets increased to $160.5 million from $140.7 million in 1996 and reflects the increased level of sales and operating activities in 1997 and inventory for customer requirements in fiscal 1998. The current ratio was 3.0 at year-end 1997 and 2.7 at year-end 1996. Long-term debt of $37.7 million at year-end 1997 reflects payments made during 1997 which reduced the balance from $43.4 million at year-end 1996. In addition to making the required payments on long-term debt during 1997, the Company also paid off certain high-cost debt assumed in the UAS merger. Shareholders' equity increased to $171.2 million from $154.7 million at November 30, 1996. Total debt was 18.0% of total capitalization at year-end 1997 compared to 21.9% at year-end 1996. At November 30, 1997, CLARCOR had 16,162,402 shares of common stock outstanding at $1.00 par value, compared to 15,955,784 shares outstanding at the end of 1996. The increase in shares outstanding from the prior year is primarily due to additional shares issued upon exercise of stock options. OUTLOOK Operating results and the Company's financial condition are expected to continue to increase and strengthen. Each business segment is expected to improve sales and operating profit in 1998. Improved productivity levels are expected as the investments made by the Company during 1996 and 1997 have already enhanced the operating performance of each segment. Additional investments will be made in 1998 to expand distribution and manufacturing, develop new products, further improve productivity and enhance employee development programs. As a result, selling and administrative expenses are expected to grow faster than sales in 1998. The Company expects these efforts to accelerate sales growth, particularly in 1999 and 2000. At the same time, continuing efforts to achieve greater productivity and further cost reductions are expected to maintain operating margins at current levels. The Company will continue to expand distribution worldwide for its products through company-owned locations and additional sales coverage. The Company continues to look at acquisition opportunities, especially in related filtration businesses. It is expected that these acquisitions would expand the Company's distribution and product offerings further. The Company is aware of current concerns over economic growth in the United States in 1998 and 1999 due to recent events in Asia, the unusually long duration of the current economic expansion, the strength of the U.S. dollar compared to most other currencies, and the continuing trend toward consolidation in many mature manufacturing industries. Though no significant impact is expected on CLARCOR at this time, Company management remains watchful and sensitive to these and other events. If necessary, the Company is prepared to adjust its growth plans quickly to maintain the high standard of performance expected by its shareholders. FORWARD-LOOKING STATEMENTS Certain statements quoted in this Annual Report are forward-looking. These statements involve risk and uncertainty. Actual future results and trends may differ materially depending on a variety of factors, including the volume and timing of orders received during the year, the mix of changes in distribution channels through which the Company's products are sold, the timing and acceptance of new products and product enhancements by the Company or its competitors, changes in pricing, product life cycles, purchasing patterns of distributors and customers, competitive conditions in the industry, business cycles affecting the markets in which the Company's products are sold, extraordinary events, such as litigation or acquisitions, including related charges, and economic conditions generally or in various geographic areas. All of the foregoing are difficult to forecast. The future results of the Company may fluctuate as a result of these and the other risk factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. Due to the foregoing items, it is possible that, in the future, the Company's operating results will be below the expectations of stock market analysts and investors. In such event, the price of CLARCOR common stock could be materially adversely affected. 20 CLARCOR EX-21 16 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 CLARCOR INC. SUBSIDIARIES AS OF FEBRUARY 18, 1998
JURISDICTION OF INCORPORATION OR PERCENT OF NAME ORGANIZATION OWNERSHIP - ------------------------------------ ---------------- ---------- CLARCOR Consumer Products, Inc. Delaware 100% J.L. Clark, Inc. Delaware 100% Clark Europe, Inc. Delaware 100% CLARCOR Filtration Products, Inc. Delaware 100% Airguard Industries, Inc. Kentucky 100% Airklean Engineering Pte. Ltd. Singapore 100% Airguard Asia Sdn. Bhd. Malaysia 100% Baldwin Filters, Inc. Delaware 100% Baldwin Filters N.V. Belgium 100%* Baldwin Filters Limited United Kingdom 100%* Baldwin South Africa, Inc. Delaware 100% Baldwin-Unifil S.A. South Africa 70% Hastings Filters, Inc. Delaware 100% Hastings Filters Ltd. Canada Canada 100% Baldwin Filters (Aust.) Pty. Limited Australia 50% Clark Filter, Inc. Delaware 100% Filtros Baldwin de Mexico Mexico 90% United Air Specialists, Inc. Ohio 100% United Air Specialists (U.K.) Ltd. United Kingdom 100% CLARCOR International, Inc. Delaware 100% Baldwin-Weifang Filters Ltd. China 70% CLARCOR Foreign Sales Corporation Virgin Islands 100% CLARCOR Trading Company Delaware 100%*
- ------------------------------ * Direct or indirect EX-23 17 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in each Registration Statement of CLARCOR Inc. on Form S-8 (file numbers 33-5456, 33-38590, 33-39374, 33-53763 and 33-53899) of our reports dated January 9, 1998, on our audits of the consolidated financial statements of CLARCOR Inc. and Subsidiaries as of November 30, 1997 and 1996 and for the years ended November 30, 1997, 1996 and 1995, and the financial statement schedule for the years ended November 30, 1997, 1996, and 1995, which reports are included or incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Chicago, Illinois February 18, 1998 EX-27 18 FINANCIAL DATA SCHEDULE
5 1,000 U.S YEAR NOV-29-1997 DEC-01-1996 NOV-29-1997 1.0 30,324 0 64,493 2,106 58,282 160,527 180,619 97,714 282,519 54,237 37,656 0 0 16,162 155,000 282,519 394,264 394,264 273,702 273,702 0 696 2,759 44,192 17,164 26,918 0 0 0 26,918 1.67 1.64
-----END PRIVACY-ENHANCED MESSAGE-----