-----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, B1e8vHHM1ubdcZGsgLxuu8es8S1rJGEQmKSvayUh6DMRo0ssrwH1Ii8ShpQlvWFY +6XmPsOnvNg6p1nQLRAjMw== 0000950159-00-000123.txt : 20000331 0000950159-00-000123.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950159-00-000123 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN CORK & SEAL CO INC CENTRAL INDEX KEY: 0000025890 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 231526444 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-02227 FILM NUMBER: 586958 BUSINESS ADDRESS: STREET 1: ONE CROWN WAY CITY: PHILADELPHIA STATE: PA ZIP: 19154 BUSINESS PHONE: 2156985100 10-K405 1 ================================================================================ UNITED STATES 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 (FEE REQUIRED) For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________ to ___________ Commission file number 1-2227 Crown Cork & Seal Company, Inc. (Exact name of registrant as specified in its charter) Pennsylvania 23-1526444 (State or other jurisdiction of (Employer Identification No.) incorporation or organization) One Crown Way, Philadelphia, PA 19154 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 215-698-5100 ------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock $5.00 Par Value New York Stock Exchange & Paris Bourse Common Stock Purchase Rights New York Stock Exchange & Paris Bourse ------------- 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 for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filings 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] As of March 14, 2000, 128,569,186 shares of the Registrant's Common Stock, excluding shares held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant on such date was $2,137,462,717. DOCUMENTS INCORPORATED BY REFERENCE Notice of Annual Meeting and Proxy Statement dated March 24, 2000 is incorporated by Reference into Part III hereof. Only those specific portions so incorporated are to be deemed filed as part of this Form 10-K Annual Report. ================================================================================ Crown Cork & Seal Company, Inc. 1999 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I Item 1 Business...............................................................1 Item 2 Properties.............................................................7 Item 3 Legal Proceedings......................................................8 Item 4 Submission of Matters to a Vote of Security Holders....................8 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters...9 Item 6 Selected Financial Data...............................................10 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................12 Item 7A Quantitative and Qualitative Disclosures About Market Risk............25 Item 8 Financial Statements and Supplementary Data...........................26 Item 9 Disagreements on Accounting and Financial Disclosure..................54 PART III Item 10 Directors and Executive Officers of the Registrant....................55 Item 11 Executive Compensation................................................55 Item 12 Security Ownership of Certain Beneficial Owners and Management........55 Item 13 Certain Relationships and Related Transactions........................55 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................56 SIGNATURES....................................................................60 Crown Cork & Seal Company, Inc. PART I ------ ITEM 1. BUSINESS - ------ -------- GENERAL ------- Crown Cork & Seal Company, Inc. (the "Company" and the "Registrant") is one of the world's leading manufacturers of packaging products with 1999 consolidated net sales of $7.7 billion. Approximately 60% of 1999 net sales were derived from operations outside the United States with approximately 72% of the non-U.S. revenues derived in Europe. The Company believes that it is well positioned within its industry having the ability to supply food, beverage and aerosol containers to multinational consumer marketers on a global basis. As a multinational packaging producer, the Company benefits from, but is exposed to, the fluctuations of world trade. The Company currently operates 227 plants, along with sales and service facilities in 51 countries and employs 35,959 people. The Company continually reviews its operations, especially in terms of their competitiveness and the appropriate number, size and location of its plants, emphasizing service to customers and rate of return to investors. Financial information concerning the Company's operations in its three operating segments, Americas, Europe and Asia-Pacific, and within selected geographic areas is set forth later in this section on pages 4 through 7 under "Operating Segments", in Part II herein on pages 12 through 14 under "Net Sales" and pages 14 and 15 under "Operating Income" within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and within Item 8 herein on pages 50 through 52 under Note T to the Consolidated Financial Statements entitled "Segment Information", which information is incorporated herein by reference. The Company's products include steel and aluminum cans for food, beverage, brewing, household and other consumer products; plastic containers for beverage, processed food, household, personal care and other products; metal and plastic packaging products for health and beauty care applications including cosmetics, fragrances and pharmaceuticals; metal specialty, promotional and industrial packaging products; a wide variety of metal and plastic caps, crowns, closures, pumps and dispensing systems; and canmaking equipment. Under current management, the Company has pursued a strategy of growth through acquisition within the global packaging industry. From 1989 through 1996, the Company completed twenty acquisitions of companies with aggregate net sales of approximately $8 billion. The largest acquisitions over this period included CarnaudMetalbox ("CMB") (February 1996), Van Dorn Company (April 1993), CONSTAR International (October 1992), Continental Can International (May 1991), Continental Can's U.S. food and beverage can businesses (July 1990) and Continental Can Canada (December 1989). This strategy has contributed to an increase in the Company's net sales from $1.9 billion in 1989 to $7.7 billion in 1999. The Company's acquisition strategy has resulted in numerous benefits to the Company, including improved market positions, product and geographic diversification and cost savings. The Company believes that the on-going rationalization of excess or inefficient capacity within the global packaging industry, particularly in the core mature markets served by the Company, has improved asset utilization. Information about the Company's acquisitions over the most recent three years appears in Part II within Item 8 of this Report on page 36 under Note I to the Consolidated Financial Statements, which information is incorporated herein by reference. The Company has invested in capital projects to (i) create additional manufacturing capacity for beverage can production in emerging markets and for polyethylene terephthalate (PET) containers globally, (ii) improve production efficiencies, (iii) improve product quality and (iv) lower manufacturing costs. The Company plans to continue capital expenditure programs designed to take advantage of technological developments which enhance productivity and contain costs, as well as those that provide growth opportunities. -1- Crown Cork & Seal Company, Inc. DISTRIBUTION ------------ As of December 31, 1999, the Company's products were manufactured in 64 plants within the United States and 163 plants outside the U.S. The Company markets and sells products to customers through its own sales and marketing staff located centrally within each operating segment (division). The segments' sales staffs are supported by regional sales personnel. The majority of the Company's sales are to companies which have leading market positions in the packaged food, beverage, aerosol, health and beauty and specialty businesses. Contracts with global suppliers are centrally negotiated, although products are ordered through and distributed directly by each plant. Facilities are generally located in proximity to major customers. The Company maintains continuous contact with customers in order to develop new business and to extend the terms of its existing contracts. Accordingly, the Company is responsive to its customers' quality , innovation and promotional requirements. Most of the Company's products are sold in highly competitive markets, primarily based on price, service, quality, and performance. The Company competes with other packaging manufacturers as well as with fillers, food processors and packers who manufacture containers for their own use and for sale to others. Generally, the Company's multinational competitors include, but are not limited to, Ball, American National Can, Silgan, Owens-Illinois, AptarGroup, U.S. Can, Impress, Rexam and Schmalbach-Lubeca. In each of the years in the period 1997 through 1999, no one customer of the Company accounted for more than ten percent of the Company's net sales. Major customers exist in each operating segment of the Company; and, in each segment, the loss of one or more of these major customers could have a material adverse effect on the segment. Major customers include such companies as Coca-Cola ("Coke"), Pepsi-Cola ("Pepsi"), Cott Beverages, Nestle, Mars and S.C. Johnson, along with other leading companies which manufacture and market a variety of consumer products. Coke and Pepsi, as referred to above, include affiliates as well as licensees. RESEARCH AND DEVELOPMENT ------------------------ The Company's principal Research, Development & Engineering ("RD&E") centers are located in Alsip, Illinois and Wantage, England. The Company uses its RD&E capabilities to (i) promote development of value-added packaging systems, (ii) design cost-efficient manufacturing systems and materials that also provide continuous quality improvement, (iii) support technical needs in customer and vendor relationships, and (iv) provide engineering services for the Company's worldwide packaging activities. These capabilities allow the Company to identify market opportunities by working directly with customers to develop new products, such as the conversion to plastic from other materials, as well as the creation of new packaging shapes. The Company expended $52 million in 1999 and $53 million in each of 1998 and 1997 on RD&E activities. These activities are expected to improve and expand the Company's product lines in the future. Expenditures were also made to improve manufacturing efficiencies and reduce unit costs, principally raw material costs, by reducing the material content of containers while improving or maintaining other physical properties, such as material strength. The costs incurred were associated with a number of products in varying stages of development. MATERIALS --------- The Company continues to pursue strategies which enable it to source its raw materials with increasing effectiveness. The raw materials used in the manufacture of the Company's products are primarily aluminum and tinplate for metals packaging, and various types of resins, which are petrochemical derivatives, for plastics packaging. These materials are generally available from several sources. The Company has secured what it considers adequate supplies of raw materials but there can be no assurance that sufficient quantities will be available in the future. The Company may be subject to adverse price fluctuations on the purchase of such raw materials. There can be no assurance, however, that the Company will be able to recover fully any -2- Crown Cork & Seal Company, Inc. increases in raw material costs from its customers. The price of steel has been historically more stable and has not been subject to the same volatility as aluminum. In response to the variability of aluminum and resin prices, ongoing productivity and cost reduction efforts in recent years have focused on improving raw material cost management as a key component. SEASONALITY ----------- The 1996 acquisition of CMB has increased the potential for seasonal effects on the Company's results of operations. Food packaging products accounted for $2.4 billion or approximately 31% of 1999 consolidated net sales as compared to $1.0 billion or approximately 19% in 1995. Sales and earnings for food cans have historically been higher in the third quarter of the year due to the agricultural harvest. The Company's metal and plastic beverage container businesses are predominantly located in the Northern Hemisphere. Generally, beverage products are consumed in greater amounts during warmer months of the year. Consequently, sales and earnings have generally been higher in the second and third quarters of the calendar year. The Company's other businesses include aerosol, specialty, health and beauty, canmaking equipment and various other products which tend not to be significantly affected by seasonal variations. ENVIRONMENTAL MATTERS --------------------- The Company's operations are subject to numerous laws and regulations governing the protection of the environment, disposal of waste, discharges into water, emissions into the atmosphere and the protection of employee health and safety. Future regulations may impose stricter environmental requirements on the packaging industry. Anticipated future restrictions in some jurisdictions on the use of certain paint and lacquering ingredients may require the Company to employ additional control equipment or alternative coating technologies. The Company has a Corporate Environmental Protection Policy, and environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases. While the Company does not believe that any of the foregoing matters are likely to have a material effect, there can be no assurance that current or future environmental laws or remediation liabilities will not have a material effect on the Company's financial condition, liquidity or results of operations. Further discussion of the Company's environmental matters is contained in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report on pages 21 and 22 under the caption "Environmental Matters", which is incorporated herein by reference. WORKING CAPITAL --------------- Collection and payment periods tend to be longer for the Company's operations located outside the U.S. due to local business practices. In general, the working capital practices followed by the Company are typical of the businesses in which it operates. Reduction of the Company's debt is one element of the Company's strategy to improve its return on invested capital, although the actual level of debt may vary depending upon the results of operations, acquisitions and dispositions and other strategic opportunities or factors. Further information relating to the Company's liquidity and capital resources is set forth in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Report on pages 17 and 18 under the caption "Liquidity and Capital Resources", which is incorporated herein by reference. EMPLOYEES --------- At December 31, 1999, the Company employed 35,959 people throughout the world. A significant number of the Company's employees are covered by collective bargaining agreements with varying terms and expiration dates. -3- Crown Cork & Seal Company, Inc. OPERATING SEGMENTS ------------------ The Company is organized on the basis of geographic regions with three reportable segments: Americas, Europe and Asia-Pacific. The Americas includes the United States, Canada and Central and South America. Europe includes Europe, Africa and the Middle East. Asia-Pacific includes China and Southeast Asia. Although the economic environments within each of these reportable segments are diverse, they are similar in the nature of their products, production and distribution processes and types and classes of customers. Global marketers continue to demand the consolidation of their supplier base under long-term arrangements and to qualify suppliers on the basis of their ability to provide service globally and to create innovative designs and technologies in a cost-effective manner. The acquisition of CMB in February 1996 has created a geographically diversified and innovative packaging company, adding significant operations in Europe, the Middle East, Africa and Asia and an RD&E center in England. The Company believes that price, quality, customer service and manufacturing overcapacity are the principal competitive factors affecting its business. Based upon sales, the Company believes that it is a leader in the markets for packaging in which it competes; however, the Company encounters competition from a number of companies offering similar products. Ongoing productivity improvement and cost reduction efforts in recent years have focused on upgrading and modernizing facilities to reduce costs, improve efficiency and productivity and to phase out non-competitive facilities. These actions reflect the Company's continued commitment to realign the manufacturing facilities within its operating segments with the intent to maintain its competitive position within those markets. The Company believes that its recent restructuring and investment programs have established a modern and efficient asset base. The Company continually reviews its operations and frequently evaluates strategic opportunities, such as, acquisitions, dispositions and joint ventures. Further discussion of the Company's recent restructuring actions is contained in Part II hereof within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 and 20 under "Provision for Restructuring" and within Item 8 herein on pages 38 and 39 under Note L to the Consolidated Financial Statements, which discussion is incorporated herein by reference. The Company's basic raw materials for its products are tinplate, aluminum and resins. These materials are obtained from the major suppliers in the countries within which the Company operates plants. Some plants in less-developed countries, which do not have local mills, obtain their raw materials from nearby more- developed countries. In 1999, consumption of tinplate, aluminum and resin represented 26.3%, 22.3%, and 4.1%, respectively, of consolidated cost of sales. Although sufficient quantities of raw materials have been available in the past, there can be no assurance that sufficient quantities will be available in the future. Recent supplier consolidations provide additional uncertainty as to the level of prices at which the Company might be able to source those materials in the future. AMERICAS -------- For 1999, the Company's Americas segment had net sales of $3,817 (approximately 49% of consolidated net sales) and operating income of $398. Excluding the provision for restructuring and other charges, Americas operating income in 1999 was $384 or 48% of consolidated operating income. Approximately 82% of Americas segment sales are derived from within the United States. The Americas segment manufactures beer and beverage cans and ends, steel and aluminum containers for vegetable, fruit, meat, fish, seafood, tomato based products and other various food products; steel cans for aerosol, motor oil, paint and other household and industrial items and plastic containers for beverage, food, household products, personal care and pharmaceutical products. -4- Crown Cork & Seal Company, Inc. The Company, based on sales, is one of three leading producers of aluminum beverage cans and ends within the Americas. Sales dollars for aluminum beverage cans and ends in 1999 decreased from 1998 due primarily to lower sales unit volumes and the continued pass-through of lower aluminum costs to customers. Beverage can manufacturing is capital intensive, requiring significant investment in tools and machinery. The beverage can competes with bottles made from glass and plastic. The Company continues to reduce can and end diameter, lightweight its cans, reduce non-metal costs and restructure production processes. The Company has also redeployed excess beverage can capacity in North America to emerging markets, and to a lesser extent, retrofitted to produce two-piece food cans. The Company, based on sales, is one of three leading producers of steel and aluminum food cans and ends in North America. Sales dollars for food cans and ends in 1999 decreased from 1998 due to lower sales unit volumes. The Company has entered into contracts with its suppliers of aluminum can and end sheet which, by formula, guarantee prices for a period of six months. This pricing structure is directly tied to a rolling average of the prior six months' market price of aluminum on the LME. Further, "ceiling" prices have been established under these contracts which set maximum prices that the Company would pay for aluminum. Historically, the Company has adjusted the selling prices for its products in response to changes in the cost of tinplate and aluminum. During 1995 when aluminum costs increased, the Company announced price increases to its customers, but due to overcapacity within the aluminum beverage can market and the customers' willingness to shift a portion of their packaging requirements away from aluminum, the Company was unable to fully recover the increases in the cost of aluminum from its customers. During 1999, as aluminum prices fluctuated, selling prices to customers for aluminum beverage cans and ends were also adjusted. In the future, there can be no assurance that the Company will be able to recover fully any increases or fluctuations in metal prices from its customers. The Company, based on sales, is one of two leading producers of plastic containers produced from PET (polyethylene terephthalate) and HDPE (high-density polyethylene) within the United States. The Company is also a leading producer of plastic closures for beverage containers and a leading producer of health and beauty care products in the United States. Plastic products continue to represent a larger portion of Americas segment dollar sales, despite decreases in PET pricing which were passed-through to customers in the form of lower selling prices. Typically, the Company identifies market opportunities by working cooperatively with customers and implementing commercially successful programs. While PET beverage containers compete against both metal and glass containers, the historical increase in PET's share of the market has come primarily at the expense of glass containers and through new market introductions. The Company believes that it will capitalize on conversions to plastic from other forms of packaging and new markets through its technical expertise, quality reputation and customer service. The Company also believes that its plastic container plant sites are strategically located and sized to meet market requirements. During 1997, the Company commenced a restructuring program to improve the structure of its PET plastic beverage container business in the United States. Six CONSTAR manufacturing locations were closed or reorganized. The Company expects to maintain its existing manufacturing capacity, and by relocating equipment among its remaining larger facilities, meet all current and prospective volume requirements. Further discussion of the Company's 1997 restructuring action is contained in Part II hereof within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 and 20 under "Provision for Restructuring" and within Item 8 herein on pages 38 and 39 under Note L to the Consolidated Financial Statements, which information is incorporated herein by reference. At December 31, 1999, the Company operated 94 plants and employed approximately 13,000 persons in the Americas. -5- Crown Cork & Seal Company, Inc. EUROPE ------ The European segment had net sales of $3,590 in 1999 (approximately 47% of consolidated net sales) and operating income of $454. Excluding the provision for restructuring and other charges, operating income was $456 or approximately 57% of consolidated operating income. Net sales in the United Kingdom of $1,009 and France of $773 represented approximately 28% and 22%, respectively, of segment net sales. The European segment manufactures steel and aluminum beer and beverage cans and ends, steel and aluminum food cans, steel cans for aerosol, motor oil, paint, other household products and specialty packaged products, plastic containers and closures for beverage, food, household products and health, beauty and personal care products as well as metal crowns and closures for beverage and food products. The Company, based on sales, is one of the leading producers of steel and aluminum food cans and ends within the European segment. Sales dollars for steel and aluminum food cans and ends decreased in 1999 from 1998 due to lower sales unit volumes, primarily in the United Kingdom, Iberia and Central Europe and the pass-through of lower raw material costs; partially offset by volume gains in France, Italy and Benelux. Weaker demand has led to excess capacity and the resulting price competition has adversely affected the segment's' profitability. In 1996, the Company acquired CMB, a leading multinational manufacturer of metal and plastic packaging materials and equipment. CMB, headquartered in Paris, France, had approximately 28,000 employees located in 175 facilities and 38 countries as of the date of acquisition. CMB derived approximately 90% of its pre-acquisition net sales of $4,900 from its European operations. The acquisition of CMB has positioned the Company as a leading European manufacturer of steel and aluminum food and beverage containers, aerosol containers and a variety of plastic packaging products including PET beverage bottles and plastic closures for beverage, household and personal care applications. During 1999, two customers accounted for approximately 12% of segment net sales. At December 31, 1999, the Company operated 116 plants and employed approximately 20,000 persons throughout the European segment. Discussion of the Company's European restructuring activities is contained in Part II hereof within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19 and 20 under "Provision for Restructuring" and within Item 8 of this Report on pages 38 and 39 under Note L to the Consolidated Financial Statements, which discussion is incorporated herein by reference. ASIA - PACIFIC -------------- The Asia-Pacific segment had net sales of $325 (approximately 4% of consolidated net sales in 1999) and operating income, before restructuring and other charges, of $31. While below reportable segment thresholds, the Company has defined Asia-Pacific as a reportable segment as this segment is a separate operating division within the Company. The Company reviews results of operations and allocates resources to Asia-Pacific separately from its other operating divisions. The Asia-Pacific segment manufactures aluminum beer and beverage cans, steel food cans, PET beverage bottles, plastic closures for beverage, food, household products and personal care applications and metal crowns and closures for beverage and food products. With the acquisition of CMB, the Company expanded its presence in Asia-Pacific, primarily in the manufacture of two-piece aluminum beer and beverage cans in Southeast Asia. Overcapacity in China and Southeast Asia has resulted in very competitive selling price pressures. Recent economic and political turmoil in several Southeast Asian countries has not only lowered demand in Southeast Asia, but has also resulted in a decrease in exports from Company operations in China. The Company has closed eight acquired CMB operations and three existing operations since 1996. The Company believes it is well positioned to benefit -6- Crown Cork & Seal Company, Inc. from future demand growth in China and Southeast Asia and has restructured its cost base to remain competitive in the near-term. During 1999, one customer accounted for approximately 11% of segment net sales. At December 31, 1999, the Company operated 17 plants and employed approximately 2,400 persons in Asia- Pacific. ITEM 2. PROPERTIES - ------- ---------- Crown Cork & Seal Company, Inc. and its worldwide consolidated subsidiaries operate 227 manufacturing facilities. Within the United States there are 64 manufacturing facilities. The Company has three operating segments, defined geographically, within which it manufactures and markets its products. The geographic breakdown of the Company's manufacturing facilities is as follows:
No. No. Geographic Area* Americas Europe Asia-Pacific of Plants Leased - ---------------- -------- ------ ------------ --------- ------ United States 64 64 22 Canada 11 11 Central America 9 9 4 South America 10 10 United Kingdom 21 21 2 France 21 21 8 Other Europe 59 59 13 Africa 11 11 2 Middle East 4 4 1 Asia-Pacific 17 17 13 --------------------------------------------------------------------------- Worldwide Total 94 116 17 227 65 =========================================================================== * Excluded are productive facilities in unconsolidated joint ventures as well as service or support facilities.
The Company's manufacturing and support facilities are designed according to the requirements of the products to be manufactured. Therefore, the type of construction varies from plant to plant. Warehouse and delivery facilities are generally provided at each of the manufacturing locations, although the Company does lease outside warehouses. Management believes that its manufacturing facilities, taken as a whole, are well maintained and generally adequate for current operations. Utilization of any particular facility varies based upon demand for the product. While it is not possible to measure with any degree of certainty or uniformity the productive capacity of these facilities, management believes that, if necessary, production can be increased at existing facilities through the addition of personnel, capital equipment and, in some facilities, square footage available for production. In addition, the Company may from time to time acquire additional facilities and/or dispose of existing facilities. In the design of each new facility, the Company's engineers are instructed to pay particular attention to the safety of operations, abatement of pollution, incorporation of the Company's research activities and the quality of the product to be manufactured at such facility. -7- Crown Cork & Seal Company, Inc. In addition to the manufacturing facilities in the operating segments, the Company has various support facilities. Such facilities include machine shop operations, printing for cans and crowns, coil shearing, coil coating and RD&E. The Company generally owns its manufacturing and other facilities, although office facilities are often leased. The Company maintains research facilities in Alsip, Illinois within the United States and in Wantage, England within the United Kingdom and its corporate headquarters in Philadelphia, Pennsylvania; these facilities are owned. The Company is directly involved in post-consumer plastic container recycling and aluminum and steel can recycling in the United States. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- In management's opinion, there are no pending claims or litigation, the adverse determination of which would have a material adverse effect on the consolidated financial position or liquidity of the Company. The Company is one of over 100 defendants in a substantial number of lawsuits filed by persons alleging bodily injury as a result of exposure to asbestos. This litigation arose from the insulation operations of a U.S. company, the majority of whose stock the Company purchased in 1963. Within approximately three months of this stock purchase, this U. S. company sold its insulation operations. During the fourth quarter of 1999, the Company recorded an additional after-tax charge of $106 (or $.87 per share) to increase its estimate of probable costs related to asbestos. The Company has been identified by the Environmental Protection Agency as a potentially responsible party (along with others, in most cases) at a number of sites. Further information on these matters is presented in this Report in (i) Part II, Item 7 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Provision for Litigation" on pages 20 and 21 and "Environmental Matters" on pages 21 and 22 and (ii) Part II, Item 8 of this Report on pages 36 and 37 under Note K to the Consolidated Financial Statements entitled "Commitments and Contingent Liabilities", which information is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ Information concerning the principal executive officers of the Company, including their ages and positions, is set forth in a table found in Part III, Item 10, "Directors and Executive Officers of the Registrant" of this Report on page 55, which table is incorporated herein by reference. -8- Crown Cork & Seal Company, Inc. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------- -------------------------------------------------------------------- The Registrant's common stock is listed on the New York Stock Exchange and the Paris Bourse. On March 14, 2000, there were 5,202 registered shareholders of the Registrant's common stock. The market price at December 31, 1999, with respect to the Registrant's common stock is set forth in Item 8 of this Report on page 53 under "Quarterly Data (unaudited)." The foregoing information regarding the number of registered shareholders of common stock does not include persons holding stock through clearinghouse systems in the United States and France. It is the present intention of the Company to continue paying dividends on its common stock on a quarterly basis. Further details regarding the Company's policy as to payment of cash dividends are set forth in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Common Stock and Other Shareholders' Equity" appearing on pages 22 and 23 of this Report, which is incorporated herein by reference. On February 26, 2000 all of the outstanding shares of 4.5% convertible preferred stock mandatorily converted into 7,410,315 shares of common stock. No shares of such preferred stock remain outstanding. Further information regarding the Company's 4.5% convertible preferred stock are set forth in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Common Stock and Other Shareholders' Equity" appearing on pages 22 and 23 of this Report and within Item 8 herein on page 39 under Note M to the Consolidated Financial Statements entitled "Capital Stock," which information is incorporated herein by reference. -9- Crown Cork & Seal Company, Inc. ITEM 6. SELECTED FINANCIAL DATA - ------ ----------------------- FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------- (in millions, except per share, ratios and other statistics) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Summary of Operations Net sales............................................. $ 7,732 $ 8,300 $ 8,495 $ 8,332 $5,054 ----------------------------------------------------- Cost of products sold................................. 6,060 6,527 6,708 6,733 4,319 Depreciation and amortization......................... 522 533 540 496 256 Selling and administrative expense 348 379 414 387 139 % to net sales.................................... 4.5% 4.6% 4.9% 4.6% 2.8% Provision for restructuring and other charges..................................... 156 304 67 40 103 Gain on sale of assets................................ (18) (38) (24) (8) Interest expense, net of interest income.............. 342 363 340 306 136 Translation and exchange adjustments.................. 13 14 7 (37) (1) ----------------------------------------------------- Income before income taxes and cumulative effect of accounting changes........... 309 180 457 431 110 % to net sales.................................... 4.0% 2.2% 5.4% 5.2% 2.2% Provision for income taxes............................ 105 74 148 134 25 Minority interests, net of equity earnings............ (23) (1) (7) (13) (10) ----------------------------------------------------- Net income before cumulative effect of accounting changes................................ 181 105 302 284 75 % to net sales.................................... 2.3% 1.3% 3.6% 3.4% 1.5% Cumulative effect of accounting changes (1)........... (8) ----------------------------------------------------- Net income (2)........................................ 181 105 294 284 75 Preferred stock dividends............................. 15 17 23 20 ----------------------------------------------------- Net income available to common shareholders...................................... $ 166 $ 88 $ 271 $ 264 $ 75 Return on average shareholders' equity (3)............ 6.2% 3.2% 8.3% 11.3% 5.3% ===================================================== Financial Position at December 31 Working capital....................................... ($ 573) ($ 1,542) ($ 902) ($ 371) $ 430 Total assets.......................................... 11,545 12,469 12,306 12,590 5,052 Short-term debt plus current long-term debt maturities................................... 1,531 2,466 1,784 1,154 608 Long-term debt........................................ 3,573 3,188 3,301 3,924 1,490 Total debt to total capitalization................ 60.3% 62.3% 56.1% 56.4% 56.2% Minority interests.................................... 295 280 283 244 119 Shareholders' equity.................................. 2,891 2,975 3,529 3,563 1,461 - ----------------------------------------------------------------------------------------------------------------
-10- Crown Cork & Seal Company, Inc. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (Continued)
- ---------------------------------------------------------------------------------------------------------------- (in millions, except per share, ratios and other statistics) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Common Share Data (dollars per share) Earnings per average common share Basic - before cumulative effect of accounting change.................... $ 1.36 $ .71 $ 2.17 $ 2.16 $ .83 after cumulative effect of accounting change ................... 2.11 Diluted - before cumulative effect of accounting change ................... 1.36 .71 2.15 2.14 .83 after cumulative effect of accounting change ................... 2.10 Cash Dividends 1.00 1.00 1.00 1.00 Market price on December 31.......................... 22.38 30.81 50.13 54.38 41.75 Book value (based on year-end outstanding shares plus assumed conversion of preference shares)................. 22.46 22.89 25.26 25.50 16.13 Number of shares outstanding at year-end 121.1 122.3 128.4 128.4 90.6 Average shares outstanding Basic............................................ 122.2 124.4 128.4 122.5 90.2 Diluted.......................................... 129.8 132.9 140.3 132.4 90.6 Shareholders (on record)............................. 5,254 5,644 5,763 5,736 5,976 - ---------------------------------------------------------------------------------------------------------------- Other Statistics Capital expenditures................................. $ 280 $ 487 $ 515 $ 631 $ 434 Number of employees.................................. 35,959 38,459 40,985 44,611 20,409 Actual preferred shares outstanding.................. 8.3 8.4 12.4 12.4 ================================================================================================================ Notes: Total capitalization includes total debt (net of cash and cash equivalents), minority interests and shareholders' equity. Certain reclassifications of prior years' data have been made to improve comparability. The Company has completed a number of acquisitions during the periods presented. Such acquisitions were accounted for using the purchase method and may affect the comparability of data on a year-to-year basis. (1) The cumulative effect of accounting changes resulted from the adoption by the Company of EITF 97-13 in 1997. (2) Amounts for 1999, 1998, 1997, 1996 and 1995 include after-tax adjustments for restructuring, ($5) or ($.04) per basic and diluted share; $127 or $1.02 per basic share and $.95 per diluted share; $43 or $.33 per basic share and $.31 per diluted share; $32 or $.26 per basic share and $.24 per diluted share; and $67 or $.74 per basic and diluted share, respectively. Net income also includes after-tax charges for litigation of $106 or $.87 per basic and diluted share and $78 or $.63 per basic share and $.59 per diluted share for 1999 and 1998, respectively. (3) Excluding the adjustments for restructuring, litigation, the cumulative effect of accounting changes and other non-recurring items, the return on average shareholders' equity in 1999, 1998, 1997, 1996 and 1995 would have been 9.3%, 9.2%, 9.7%, 12.6% and 10.0%, respectively.
-11- Crown Cork & Seal Company, Inc. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------ RESULTS OF OPERATIONS --------------------------------------------------------------- (in millions, except per share, employee, shareholder and statistical data; per share earnings are quoted as diluted) INTRODUCTION ------------ This discussion summarizes the significant factors affecting the results of operations and financial condition of Crown Cork & Seal Company, Inc. (the "Company") during the three-year period ended December 31, 1999. This discussion should be read in conjunction with the Consolidated Financial Statements included in this annual report. Financial results (operating income, pre-tax income, net income and earnings per share) for 1999, 1998 and 1997 were impacted by restructuring and other charges or accounting changes. These items are summarized below: RESTRUCTURING AND OTHER CHARGES ------------------------------- Pre-tax income was charged for $156 ($101 after taxes or $.78 per share), $304 ($205 after taxes or $1.54 per share), and $67 ($43 after taxes or $.31 per share) in 1999, 1998 and 1997, respectively. Further information concerning the details of the restructuring plans, including a reconciliation of the restructuring accrual is included in Note L to the Consolidated Financial Statements and under Provision for Restructuring as provided later in this discussion. Further information concerning the details of the other charge is included in Note K to the Consolidated Financial Statements and under Provision for Litigation as provided later in this discussion. ACCOUNTING CHANGES ------------------ During the fourth quarter of 1997, the Company implemented EITF 97-13 retroactive to October 1, 1997. The after-tax effect of this accounting change was a one-time charge to 1997 earnings of $8 or $.05 per share. The incremental charge to 1997 earnings in the fourth quarter from this accounting change was not significant. This accounting change did not, and will not, have any cash flow impact on the Company and is more fully described in Note B to the Consolidated Financial Statements. RESULTS OF OPERATIONS --------------------- The Company is organized on the basis of geographic regions with three reportable segments: Americas, Europe and Asia-Pacific. The Americas includes the United States, Canada and South and Central America. Europe includes Europe, Africa and the Middle East. Although the economic environments within each of these reportable segments are quite diverse, they are similar in the nature of their products, the production processes, the types or classes of customers for products and the methods used to distribute products. Asia-Pacific, although below reportable segment thresholds, has been designated as a reportable segment because considerable review is made of this region for the allocation of resources. Each reportable segment is an operating division within the Company and has a President reporting directly to the Chief Executive Officer and the Chief Operating Officer of the Company. "Other" includes Corporate activities, such as Corporate Technology and, prior to 1998, included the divested machinery operations of Crown-Simplimatic. The Company evaluates performance and allocates resources based on operating income, that is, income before net interest, foreign exchange and gain(loss) on sale of assets. The accounting policies for each reportable segment are the same as those described in Note A, "Summary of Significant Accounting Policies" to the consolidated financial statements. NET SALES - --------- Net sales during 1999 were $7,732, a decrease of $568 versus 1998 net sales of $8,300. Net sales during 1997 were $8,495. Sales from U. S. operations decreased 6.5% and 1.7% in 1999 and 1998, respectively. -12- Crown Cork & Seal Company, Inc. Non-U. S. sales decreased 7.1% and 2.7% in 1999 and 1998, respectively. U. S. sales accounted for 40.4% of consolidated net sales in 1999, 40.2% in 1998 and 40.0% in 1997.
Net Sales % Increase/(Decrease) ----------------------------- ---------------------------- DIVISION 1999 1998 1997 1999/1998 1998/1997 - -------------------------------------------------------------------------------------------------------------- Americas............................ $3,817 $4,077 $4,021 (6.4) 1.4 Europe.............................. 3,590 3,888 4,045 (7.7) (3.9) Asia-Pacific........................ 325 335 369 (3.0) (9.2) Other............................... 60 ---------------------------- $7,732 $8,300 $8,495 (6.8) (2.3) ============================
The decrease in 1999 Americas Division net sales is a result of (i) sales unit volume declines across most U.S. and Canadian metal packaging product lines, (ii) the disposal of the Company's composite can business, (iii) the pass-through of lower raw material costs, primarily in aluminum cans and ends and PET bottles, to customers and (iv) weak economic conditions in South America following Brazil's January 1999 currency devaluation; partially offset by sales unit volume increases in PET beverage bottles, beverage and non-beverage plastic closures, aerosol cans and beverage cans and ends at the Company's Colombian beverage can joint venture. Lower pricing in 1999 had an overall 3.5% negative effect on net sales compared to 1998 while volume declines reduced division net sales by 2.0%. The increase in 1998 Americas Division net sales was a result of (i) sales unit volume increases across most U.S. and Canadian products, most notably beverage cans, aerosol cans, PET beverage bottles and beverage closures, (ii) increased sales unit volumes of beverage cans in Argentina, Brazil and Mexico and (iii) initial sales unit volumes at the Company's new beverage can plant in Colombia; offsetting (i) sales unit volume decreases of food cans in the U.S. and Canada and (ii) decreased raw material prices which forced decreases in selling prices, primarily in PET bottles. U.S. sales accounted for approximately 81.8% of division net sales in both 1999 and 1998 and 84.4% in 1997. Excluding the unfavorable impact of foreign currency translation, net sales in the European Division decreased 4.3% in 1999 versus 1998. The decrease is a result of (i) competitive pricing across many product lines coupled with the pass-through of lower raw material costs, reducing division net sales by 3.0%, (ii) sales unit volume decreases of food cans in the United Kingdom, Iberia and Central Europe, (iii) lower aerosol can volumes in the United Kingdom, (iv) lower overall sales unit volumes in health and beauty care packaging and (v) the divestment of a majority portion of the Company's interest in its South African beverage can operations; partially offset by increased sales unit volumes of (i) beverage cans, up 7.5% for the year with strong performances in the United Kingdom, France, Greece and Spain, (ii) food can volumes in Benelux, France and Italy, (iii) plastic beverage closures, up 10.8% and (iv) PET beverage bottles, up 5.9%. Pricing remained competitive throughout the division across all product lines especially in food cans where constant dollar sales values were 3.4% lower than in 1998 despite an overall volume increase of 1.9%. The decrease in 1998 European Division net sales was a result of (i) lower PET resin costs passed on to customers in the form of lower selling prices, (ii) lower food can volumes in the United Kingdom and Spain, (iii) lower beverage can volumes in the United Kingdom and Turkey, (iv) lower aerosol volumes in the United Kingdom and (v) the appreciation of the U.S. dollar against most European currencies; partially offset by (i) increased food can volumes in France and Italy, (ii) increased beverage closure volumes throughout the division and (iii) increased beverage can volumes in Spain and the United Arab Emirates. Demand for several of the Company's products in the United Kingdom was adversely affected by the strong pound sterling during 1998. Not only was it more difficult for our customers to export filled products, but their local market was made more competitive by filled imports. The decrease in net sales for the Asia-Pacific Division in 1999 as compared to 1998 was primarily the result of decreased beverage can sales in China as all Chinese operations suffered from anti-American sentiment following the Chinese embassy bombing in Kosovo as well as the lingering effects from the European health scare crisis affecting one of our major customers. Lower beverage can pricing, a result of very aggressive competition throughout the division, was the major pricing factor which reduced division net sales 4.8% during -13- Crown Cork & Seal Company, Inc. 1999. The Company's operations in Thailand reported very strong sales unit volume increases across all product lines, most notably, beverage, food and seafood cans and plastic beverage closures. Net sales in 1998 as compared to 1997 for the Asia-Pacific Division decreased as a result of (i) the appreciation of the U.S. dollar against most Southeast Asian currencies which reduced division net sales by $20, (ii) lower food can sales unit volumes primarily reflecting the restructuring of operations in Malaysia and Singapore in 1997, (iii) competitive pricing across all product lines throughout the division due mainly to excess capacity and (iv) political unrest which hampered economic growth in several Southeast Asian countries; partially offset by increased sales unit volumes of (i) beverage cans in China, Singapore and Vietnam and (ii) food cans in Thailand. COST OF PRODUCTS SOLD - --------------------- Cost of products sold, excluding depreciation and amortization, for 1999 was $6,060; a 7.2% decrease from $6,527 in 1998, following decreases of 2.7% in 1998 and .4% in 1997. The decreases in cost of products sold are attributable to continuing cost savings from restructuring programs, the appreciation of the U.S. dollar against many foreign currencies, decreased aluminum and PET resin prices and lower sales unit volumes in many product lines. As a percentage of net sales, cost of products sold was 78.4% in 1999 as compared to 78.6% in 1998 and 79.0% in 1997. The improvement in gross margin is due primarily to the benefits derived from the Company's continuing cost containment and restructuring programs partially offset by competitive influences on selling prices. SELLING AND ADMINISTRATIVE - -------------------------- Selling and administrative expenses for 1999 were $348, a decrease of 8.2% from $379 in 1998, following a decrease of 8.5% in 1998 and an increase of 7.0% in 1997. The decreases in 1999 and 1998 selling and administrative expenses are primarily related to the restructuring activities within acquired CMB operations and the appreciation of the U.S. dollar against most European currencies. The increase in 1997 costs was directly related to the consolidation of CMB activity for a full year in 1997 as compared to only 45 weeks in 1996. As a percentage of net sales, selling and administrative expenses were 4.5% in 1999, 4.6% in 1998 and 4.9% in 1997. OPERATING INCOME - ---------------- The Company views operating income as the principal measure of performance before interest costs and other nonoperating expenses. Operating income, after restructuring and other charges, was $646, $557 and $766 in 1999, 1998 and 1997, respectively. Operating income before restructuring and other charges was $802, $861 and $833 in 1999, 1998 and 1997, respectively. Operating income, before restructuring and other charges, as a percentage to net sales was 10.4% in both 1999 and 1998 and 9.8% in 1997. An analysis of operating income, before restructuring and other charges, by operating division follows:
Operating Income % Increase/(Decrease) ------------------------------ ---------------------------- DIVISION 1999 1998 1997 1999/1998 1998/1997 - ------------------------------------------------------------------------------------------------------------ Americas................................. $384 $374 $335 2.7 11.6 Europe................................... 456 556 565 (18.0) (1.6) Asia-Pacific............................. 31 3 7 933.3 (57.1) Other.................................... (69) (72) (74) 4.2 2.7 ------------------------------ $802 $861 $833 (6.9) 3.4 ==============================
Operating income in the Americas Division was 10.1% of net sales in 1999 versus 9.2% in 1998 and 8.3% in 1997. The increase in 1999 operating income and margins was primarily due to (i) cost savings in the Company's U.S. metal and plastic container businesses from related 1998 and 1997 restructuring programs, -14- Crown Cork & Seal Company, Inc. (ii) sales unit volume gains in PET beverage bottles, aerosol cans, beverage and non-beverage plastic closures and beverage cans and ends in Colombia and (iii) a $7 reduction in division selling and administrative costs, including $5 in U.S. operations; partially offset by (i) sales unit volume declines across most U.S. and Canadian metal packaging product lines, (ii) competitive selling price pressures across most division product lines and (iii) the January 1999 currency devaluation in Brazil which had the effect to drive local currency raw material prices higher with price pressures prohibiting the full pass-through of these cost increases. The increase in 1998 operating income and margins was due to (i) increased sales unit volumes in the U.S. and Canada across most product lines, (ii) increased manufacturing efficiencies in the U.S. and (iii) the benefits derived from restructuring, capital expenditure and other cost improvement programs initiated in recent years; offsetting (i) continued U.S. pricing pressures in food cans and in both metal and plastic beverage containers, (ii) lower beverage can pricing in Argentina and Brazil and (iii) sales unit volume decreases of food cans in the U.S. and Canada. The Company has entered into contracts with its suppliers of aluminum can and end sheet which, by formula, guarantee prices for a period of six months. This pricing structure is directly tied to a rolling average of the prior six months' market price of aluminum on the LME. Further, "ceiling" prices have been established under these contracts which set maximum prices that the Company would pay for aluminum. European Division operating income was 12.7% as a percentage of net sales in 1999 compared to 14.3% in 1998 and 14.0% in 1997. The decrease in 1999 operating income and margins is a result of (i) competitive pricing across several product lines, (ii) sales unit volume decreases of food cans in the United Kingdom, Iberia and Central Europe, (iii) lower aerosol volumes in the United Kingdom, (iv) lower overall sales unit volumes in health and beauty care packaging and (v) the appreciation of the U.S. dollar against most European currencies. These factors offset (i) strong sales unit volume performances in (a) beverage cans in the United Kingdom, France, Greece and Spain, (b) plastic beverage bottles, (c) plastic beverage closures, (d) food cans in Benelux, France and Italy and (ii) cost reductions from restructuring, capital expenditure and other cost improvement programs. Weaker demand, particularly in the food can sector, has led to excess capacity within the industry, and the resulting price competition has adversely affected the division's profitability. Our shipments of food cans were 1.9% greater in 1999 than 1998; however, these stronger shipments were in the more price competitive markets. Throughout the division, selling price decreases in excess of raw material cost reductions obtained from suppliers reduced division profitability by 15% in 1999. We expect the European marketplace to be challenging in the near term. The decrease of $9 in operating income in 1998 was a result of (i) the appreciation of the U.S. dollar against most European currencies, (ii) very competitive food can pricing in France and Italy and (iii) decreased sales unit volumes in the United Kingdom across several product lines. However, operating income, as a percentage to net sales, increased over 1997 due to cost savings achieved by restructuring and modernizing acquired CMB and existing Company operations. Operating income in the Asia-Pacific Division was 9.5% of net sales in 1999 versus .9% in 1998 and 1.9% in 1997. The increase in 1999 operating income and margins was due primarily to (i) sales unit volume increases of seafood cans, food cans, beverage cans, aerosol cans and plastic beverage closures in Thailand, (ii) sales unit volume increases of beverage cans in Malaysia and Singapore, (iii) cost reductions, approximating 46% of the operating income improvement, achieved through line speed, spoilage reduction and restructuring programs and (iv) the appreciation of many Southeast Asian currencies against the U.S. dollar, which offset (i) sales unit volume declines of beverage cans in China and (ii) competitive selling pressures across many product lines throughout the region. The decrease in 1998 operating margins was due to (i) competitive pricing across all product lines throughout the division and (ii) the ongoing appreciation of the U.S. dollar against most Southeast Asian currencies offsetting (i) strong sales unit volumes of beverage cans in China, Singapore, and Vietnam, (ii) strong sales unit volumes of food cans in Thailand and (iii) the benefits accruing to the Company from the closure of ten plants since the second quarter of 1996. GAIN ON SALE OF ASSETS - ---------------------- On August 20, 1999, the Company sold its composite can business for $44 in cash. The business sold included manufacturing assets at three separate locations which had generated annual net sales of approximately $30. Gains, totaling $18, were realized from the sales of the composite can business and -15- Crown Cork & Seal Company, Inc. seventeen surplus properties in 1999. In May 1997, the Company sold its Crown-Simplimatic Machinery operations to a group of investors, including division management. The selling price of $105 included $90 in cash and $15 of 8% Class A Preferred Stock that is convertible into approximately 20% of the common stock of Crown-Simplimatic. The Company also sold ten surplus properties in 1997. Gains, totaling $38, were realized from the sales of the machinery operations and surplus properties in 1997. NET INTEREST EXPENSE/INCOME - --------------------------- Net interest expense was $342 in 1999, a decrease of $21 when compared to 1998 net interest expense of $363. Net interest expense was $340 in 1997. The decrease in 1999 net interest expense is due primarily to generally lower interest rates, debt reduction and lower raw material costs which helped reduce the early season build-up of working capital. The increase in 1998 net interest expense was due to the March 1998 repurchase of common and preferred stock. Further information regarding Company financing and repurchases of common and preferred stock is presented in the Liquidity and Capital Resources section of this discussion and Note O to the Consolidated Financial Statements. FOREIGN EXCHANGE - ---------------- Unfavorable foreign exchange adjustments of $13, $14 and $7 were recorded in 1999, 1998 and 1997, respectively, primarily from the remeasurement of the Company's operations in highly inflationary economies. TAXES ON INCOME - --------------- The effective tax rates on income were 34.0%, 41.1% and 32.4% in 1999, 1998 and 1997, respectively. Excluding restructuring and other charges, the effective tax rates were 34.4%, 35.7% and 32.8% in 1999, 1998 and 1997, respectively. The decrease in the effective tax rate in 1999 is principally a result of the effect of non-deductible goodwill amortization having a lesser percentage impact on higher pre-tax income. The decrease in the effective tax rate in 1999, excluding restructuring and other charges, is primarily due to (i) a tax rate reduction in the United Kingdom; (ii) increased pre-tax income in lower tax rate countries in Asia and South America and (iii) taxable profits in Company operations where the utilization of previous net operating losses offset current tax liabilities. The effective rate was lower than the U.S. statutory rate of 35% in 1999 and 1997 as a result of lower effective rates in non-U.S. operations and the continuing reevaluation of reserve and valuation allowance requirements; partially offset by nondeductible amortization of goodwill and other intangibles. A reconciliation of the Company's effective tax rate from the U.S. statutory rate is presented in Note S to the Consolidated Financial Statements. MINORITY INTERESTS, NET OF EQUITY EARNINGS - ------------------------------------------ Minority interests' share of net income was $23, $5 and $9 in 1999, 1998 and 1997, respectively. The increase in minority interests in 1999 is due primarily to (i) increased profits throughout Asia, most notably Thailand, (ii) increased profits in Greece due to the acquisition of Alucanco, (iii) the elimination of start-up losses in Colombia and (iv) the divestment of a majority portion of the Company's interest in its South African beverage can operations which reported operating losses in 1998. Equity in earnings of affiliates was $0, $4 and $2 in 1999, 1998 and 1997, respectively. The decrease in equity earnings in 1999 primarily relates to (i) lower earnings in the Company's non-consolidated affiliates in Brazil, Mexico and Venezuela and (ii) the write-off of a Company investment in Spain. NET INCOME AND EARNINGS PER SHARE - --------------------------------- Net income for 1999 was $166 compared with $88 in 1998 and $271 in 1997. Diluted earnings per share for 1999 was $1.36 compared with $.71 and $2.10 for 1998 and 1997, respectively. Net income from operations, excluding the provision for restructuring and other charges, gain on sale of assets and the cumulative effect of accounting changes, was $257, $293 and $294 in 1999, 1998 and 1997, respectively, while diluted earnings per share were $2.10, $2.33 and $2.26 in 1999, 1998 and 1997, respectively. -16- Crown Cork & Seal Company, Inc. FINANCIAL POSITION ------------------ LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash and cash equivalents totaled $267 at December 31, 1999 compared to $284 and $206 at December 31, 1998 and 1997, respectively. The Company's primary sources of cash in 1999 consisted of (i) funds provided from operations $827; (ii) the sale of assets and businesses $135; and (iii) proceeds from long-term debt of $685. The Company's primary uses of cash in 1999 consisted of (i) a net reduction in short-term debt of $899; (ii) capital expenditures of $280; (iii) payments of long-term debt $225; and (iv) dividends paid $138. The increase in funds provided from operations in 1999 versus 1998 is a result of lower increases in working capital. The Company funds its working capital requirements on a short-term basis primarily through issuances of commercial paper. At December 31, 1999, the commercial paper program was supported by a $2,500 multicurrency credit agreement maturing in February 2002 with interest at market rates. The Company's use of the facility is not restricted. At December 31, 1999, $194 was drawn against this facility. Based on the Company's intention and ability to maintain its credit facility beyond 1999, $700 of commercial paper borrowings was classified as long-term at December 31, 1999. There was $1,604 and $2,074 in commercial paper outstanding at December 31, 1999 and 1998, respectively. On August 25, 1999, the Company sold $350 of public debt securities utilizing the remaining available outstanding on its November 26, 1996 shelf registration filing with the Securities and Exchange Commission (the "SEC"). The Senior Notes will mature on September 1, 2002 and will bear interest from August 30, 1999 at a rate of 7.125% per annum, payable semiannually. The proceeds of this offering were used to pay down short-term commercial paper. On December 2, 1999, the Company sold Euro 300 6% Senior Notes through its wholly owned finance subsidiary, Crown Cork & Seal Finance S.A. located in France. The notes are unconditionally and irrevocably guaranteed by the Company and will mature December 6, 2004. The notes are not registered under the United States Securities Act of 1933, but are listed on the Luxembourg Stock Exchange. The proceeds of the offering were used to pay down short-term French Franc indebtedness. The Company's long-term debt securities are rated Baa2 by Moody's Investor Service and BBB by Standard and Poor's Corporation. On March 2, 1998, the Company completed the repurchase of 4,093,826 shares of its common stock at $49.00 per share and 3,660,300 shares of its acquisition preferred at $46.00 per share from Compagnie Generale d'Industrie et de Participations (CGIP). The repurchased shares represented approximately 5.3% of the Company's then outstanding voting securities and left CGIP with 4.99% voting power in the Company. The repurchased shares included all of CGIP's acquisition preferred position which represented approximately 30% of the then outstanding shares of acquisition preferred. These repurchased preference shares have been retired. The transaction included an agreement to terminate the Shareholders Agreement dated February 22, 1996 between the Company and CGIP. Among other changes, CGIP no longer retains the right to designate Company directors. The transaction value of $369 was financed through an increase in short-term indebtedness. The Company's ratio of total debt (net of cash and cash equivalents) to total capitalization was 60.3%, 62.3% and 56.1% at December 31, 1999, 1998 and 1997, respectively. Total capitalization is defined by the Company as total debt (net of cash and cash equivalents), minority interests and shareholders' equity. The decrease in the Company's debt in 1999 was due to free cash flow (defined as cash from operations less capital expenditures and dividends paid) of $409 as compared to 1998 free cash flow of $42. The increase in the Company's total debt in recent years is principally due to the repurchase of common and preferred stock from CGIP referred to above, the 1996 acquisition of CMB and the significant capital expenditure program which the Company has committed to in recent years. As of December 31, 1999, $169 of long-term debt matures within one year. -17- Crown Cork & Seal Company, Inc. Management believes that, in addition to current financial resources (cash and cash equivalents and the Company's commercial paper program), adequate capital resources are available to satisfy the Company's ongoing investment programs. Such sources of capital would include, but not be limited to, bank borrowings. Management believes that the Company's cash flow is sufficient to maintain its current operations. MARKET RISK - ----------- In the normal course of business, the Company is exposed to fluctuations in currency values, interest rates, commodity prices and other market risks. The Company addresses these risks through a program that includes the use of financial instruments. The Company controls the credit risks associated with these financial instruments through credit approval, investment limits and centralized monitoring procedures and systems. The Company uses only liquid investments from creditworthy institutions and does not enter into leveraged, tiered or illiquid contracts. Further, the Company does not enter into financial instruments for trading purposes. International operations, principally European, constitute a significant portion of the Company's consolidated revenues and identifiable assets. These operations result in a large volume of foreign currency commitment and transaction exposures and significant foreign currency net asset exposures. The Company manages its foreign currency transaction risk to minimize the volatility of cash flows caused by currency fluctuations by forecasting foreign currency denominated cash flows of each subsidiary and aggregating these cash inflows and outflows in each currency to determine the overall net transaction exposures. The Company does not generally hedge its exposure to translation gains and losses; however, by borrowing in local currencies, it reduces such exposure. The Company has entered into cross-currency swaps to hedge the related foreign currency exchange risk related to subsidiary debt which is denominated in currencies other than the functional currency of the related subsidiary. These fixed rate to fixed rate cross-currency swaps will settle in 2003 ($400) and 2006 ($300). The information below summarizes the Company's market risks associated with debt obligations and other significant financial instruments outstanding as of December 31, 1999. Further information specific to Company financing is presented in Notes O and P to the Consolidated Financial Statements. The table below provides information in U.S. dollars as of December 31, 1999 about the Company's forward currency exchange contracts. The majority of the contracts expire in 2000.
Contract Average Contractual Buy/Sell Amount Exchange Rate - --------------- ----------- ------------------- Sterling/Euro.......................................... $499 1.57 Euro/Sterling.......................................... 336 .63 Singapore dollars/U.S. dollars......................... 137 .60 U.S. dollars/Canadian dollars.......................... 107 1.48
The Company has an additional $257 in a number of smaller contracts to purchase or sell various other currencies, principally European, as of December 31, 1999. Unrealized gains on these contracts at December 31, 1999 were $4. Total forward exchange contracts outstanding as of December 31, 1998 were $2,680. The significant decline in outstanding contracts from 1998 to 1999 is due primarily to the introduction of the Euro which is discussed under "Euro Conversion" later in this discussion. The Company manages its interest rate risk, primarily from fluctuations in U.S. prime and LIBOR interest rates, in order to balance its exposure between fixed and variable rates while attempting to minimize its interest costs. Generally, the Company maintains variable interest rate debt at a level of 40% to 60% of total borrowings. The Company manages its interest rate risk by retiring and issuing debt from time to time and by executing interest rate swaps. For debt obligations, the table below presents principal cash flows and related interest rates by year of maturity. Variable interest rates disclosed represent the weighted average rates at December 31, 1999. For -18- Crown Cork & Seal Company, Inc. interest rate swaps, the table presents notional amounts and related interest rates by year of maturity. For these swaps, the variable rates presented are the average forward rates for the term of each contract.
Year of Maturity ------------------------------------------------------------------------ Debt 2000 2001 2002 2003 2004 Thereafter - --------------------------------------------------------------------------------------------------------------- Fixed rate............................ $ 133 $36 $371 $620 $318 $1,432(2) Average interest rate................. 7.1% 7.5% 7.1% 6.9% 6.1% 7.9% - --------------------------------------------------------------------------------------------------------------- Variable rate (1)..................... $1,390 $72 $714 $ 11 $ 6 $ 1 Average interest rate................. 4.8% 6.1% 5.5% 7.6% 7.5% 6.8% - --------------------------------------------------------------------------------------------------------------- Interest rate swaps: Fixed to variable..................... $39 Average pay rate...................... 4.4% Average receive rate.................. 6.9% - --------------------------------------------------------------------------------------------------------------- (1) $700 of commercial paper borrowings due in 2000 are classified as long-term, reflecting the Company's intent and ability to refinance these borrowings on a long-term basis through committed credit facilities. (2) Includes debentures of $200 with a maturity of 2023 which are redeemable at the option of the Company, with prior notice to holders, at any time on or after April 15, 2003. Redemption values vary as defined in the prospectus dated January 15, 1993.
At December 31, 1998, fixed rate debt of $2,381 was outstanding with an average interest rate of 7.6%, and variable rate debt of $3,273 with an average interest rate of 5.6% was outstanding. The increase in fixed rate debt (22%) and the decrease in variable rate debt (33%) is due primarily to replacement of variable rate debt with fixed rate debt issued during 1999 and improved operating cash flows which have permitted the Company to reduce additional variable rate debt. At December 31, 1998, fixed to variable interest rate swaps of $74 were outstanding with an average pay rate of 4.0% and an average receive rate of 6.9%. The Company's use of financial instruments in managing market risk exposures described above is consistent with the prior year. PROVISION FOR RESTRUCTURING - --------------------------- During 1999, management decided not to close a plant originally provided for in the September 1998 restructuring program based on a customer's decision to increase its purchases in that plant's geographic market. As a result, the reserves of $12 ($8 after-tax or $.06 per share) previously established for employee severance and related benefits and of $3 ($2 after-tax or $.02 per share) for other exit costs were reversed to income. Accordingly, the 200 employees at this location will not be terminated. During the third quarter of 1999, management decided to close one plant in Europe and to reorganize certain research and development functions worldwide. Accordingly, a charge of $8 ($5 after-tax or $.04 per share) was recorded in 1999 to cover these actions, including $6 for employee severance and related benefits, covering 200 employees, and $2 for other exit costs, primarily dismantlement, security and utility costs. The Company anticipates that these restructuring actions will generate after-tax savings of approximately $7 ($.05 per share) on an annualized basis when fully implemented. During 1998, the Company provided $179 ($127 after-tax or $.95 per share) for the costs associated with closing thirteen plants and reorganizing three additional plants. Included in the restructuring charge were costs to provide severance and related benefits, write-down of assets and other exit costs. The Company anticipates that this restructuring program will generate after-tax savings of approximately $59 ($.45 per share) on an annualized basis when fully implemented after giving effect to the reversal discussed above. The cost of providing severance and related benefits was estimated at $99, was a cash expense, and covered the reduction of approximately 2,900 employees, 1,900 of whom were involved in direct manufacturing operations. Cash requirements of this action were funded from operations. -19- Crown Cork & Seal Company, Inc. The employees identified in the restructuring actions include personnel at each plant to be closed or reorganized. During 1999, payments of $73 were made related to the termination of approximately 2,100 employees, 1,200 of whom were involved in direct manufacturing operations. During 1998 approximately 2,200 employees, including 1,800 involved in direct manufacturing operations, were terminated with payments totaling $107. Of those terminated, approximately 600 related to the 1998 restructuring action. The 1998 restructuring action for employee reductions was completed at the end of the third quarter of 1999. Included in the 1998 action was a charge of $60, reflecting the impairment of property, plant and equipment principally located in the Americas Division. The reserves for write-downs have been reflected in the balance sheet as reductions to the carrying values of the related assets. Write-downs of property, plant and equipment were made where their carrying values exceeded the Company's estimate of proceeds from abandonment or disposal. These estimates were principally determined on the basis of past experience for comparable asset disposals. Disposition of assets identified for disposal in the 1998 action, including certain machinery, land and buildings, were substantially completed by the end of 1999. Most of the revenue generating activities related to the assets held for disposal will continue as a result of more effective utilization of other assets. Annual depreciation previously recognized for the affected assets was approximately $4. The carrying value of the land and buildings held for sale at December 31, 1999 is approximately $19. Other non-recurring exit costs were a charge of $20 and were primarily cash expenses, comprising the costs to effectively close and dispose of the facilities identified in the 1998 plan. Exit costs include, but are not limited to, lease termination and other contract cancellations, dismantlement costs and brokers' fees for assets to be sold. These costs were substantially incurred by the end of 1999. During 1997, the Company provided $67 ($43 after-tax or $.31 per share) for the costs associated with a plan to improve the structure of its PET plastic beverage container business in the United States by closing and reorganizing six manufacturing locations in its CONSTAR subsidiary along with other, non-PET, restructuring activities, primarily in Europe. This restructuring program covered approximately 600 employees. PROVISION FOR LITIGATION - ------------------------ The Company is one of over 100 defendants in a substantial number of lawsuits filed by persons alleging bodily injury as a result of exposure to asbestos. This litigation arose from the insulation operations of a U.S. company, the majority of whose stock the Company purchased in 1963. Within approximately three months of this stock purchase, this U.S. company sold its insulation operations. Prior to 1998, the amounts paid to asbestos litigation claimants were covered by a fund of $80 made available to the Company under a 1985 settlement with carriers insuring the Company through 1976, when the Company became self-insured. From 1985 through 1997, the Company disposed of approximately 70,000 claims for amounts which aggregated approximately one-half of the original fund. Until the fourth quarter of 1998 the Company considered that the fund was adequate and that the likelihood of exposure for this litigation in excess of the amount of the fund was remote. This view was based on the Company's analysis of its potential exposure, the balance available under the 1985 settlement, historical trends and actual settlement ranges. However, a change in Texas law, caused, along with other factors, an unexpected increase in claims activity. This, along with several larger group settlements, caused the Company to reevaluate its position. As a consequence, the Company provided an after-tax charge of $78 ($ .64 per share) to supplement the remaining fund and cover estimated future liability claims. Each quarter, the Company evaluates the nature and amounts of claims settled and new claims received in order to determine the adequacy of its asbestos related accrual. During the fourth quarter of 1999, the Company recorded an additional after-tax charge of $106 (or $0.87 per share) to increase its estimate of probable costs related to asbestos. Of this total, management expects to spend approximately $70 during the next year. The need to increase the accrual was primarily driven by an acceleration of pending claims as well as larger group settlements which occurred in the fourth quarter. -20- Crown Cork & Seal Company, Inc. At December 31, 1999, approximately 40,000 asbestos personal injury claims were pending against the Company. During 1999, approximately 33,000 claims were filed and the Company disposed of approximately 58,000 claims for approximately $92 which will be paid to claimants over a period of several years. These figures, and the charge noted above, do not include 27,000 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes, based upon counsel's advice, will not, in the aggregate, involve any material liability. The accrual recorded for asbestos claims constitutes management's best estimate of such costs for pending and future claims. The Company cautions, however, that inherent in its estimate of liabilities are expected trends in claim severity, frequency and other factors which may vary as claims are filed and settled or otherwise disposed of. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the operating results or cash flows in future periods. While it is not possible to predict with certainty the ultimate outcome of these lawsuits and contingencies, the Company believes, after consultation with counsel, that resolution of these matters is not expected to have a material adverse effect on the Company's financial position or liquidity. CAPITAL EXPENDITURES - -------------------- Consolidated capital expenditures totaled $280 in 1999 as compared with $487 in 1998. Minority partner contributions to consolidated capital expenditures were approximately $4 and $6 in 1999 and 1998, respectively. During the past five years, capital expenditures totaled $2,347. Expenditures in the Americas Division totaled $112 including several single-serve PET preform and bottle capacity expansion and lightweighting projects in the U.S., beverage can capacity expansion and line speed programs and several new health and beauty care projects. Spending in the European Division for 1999 totaled $152 as the Company invested in draw redraw food can lines in France and Italy, increased printing and coating capacity, increased plastic beverage closure capacity and in specific pharmaceutical applications. Investments of $10 were made in the Asia-Pacific Division in 1999 as the Company installed a second beverage can line in its plant in Huizhou, China. The Company expects its capital expenditures in 2000 to approximate $300 including joint-venture partner contributions estimated at approximately $5. The Company plans to continue capital expenditure programs designed to take advantage of technological developments which enhance productivity and contain costs, as well as those that provide growth opportunities. Capital expenditures, exclusive of potential acquisitions, during the five-year period 2000 through 2004 are expected to approximate $1,400, including $25 being contributed from joint-venture partners. Cash flow from operating activities will provide support for these expenditures; however, depending upon the Company's evaluation of growth opportunities and other existing market conditions, external financing may be required from time to time. ENVIRONMENTAL MATTERS - --------------------- The Company has adopted a Corporate Environmental Protection Policy. The implementation of this Policy is a primary management objective and the responsibility of each employee of the Company. The Company is committed to the protection of human health and the environment and is operating within the increasingly complex laws and regulations of national, state, and local environmental agencies or is taking action aimed at assuring compliance with such laws and regulations. Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases, and, accordingly, does not expect compliance with these laws and regulations to have a material effect on the Company's competitive position, financial condition, results of operations or capital expenditures. The Company is dedicated to a long-term environmental protection program and has initiated and implemented many pollution prevention programs with an emphasis on source reduction. The Company continues to reduce the amount of metal and plastic used in the manufacture of steel, aluminum and plastic -21- Crown Cork & Seal Company, Inc. containers through "lightweighting" programs. The Company not only recycles nearly 100% of scrap aluminum, steel, plastic and copper used in its manufacturing processes, but through its Nationwide Recyclers subsidiary, is directly involved in post-consumer aluminum, steel and plastics recycling. Many of the Company's programs for pollution prevention reduce operating costs and improve operating efficiencies. The Company has been identified by the EPA as a potentially responsible party (along with others, in most cases) at a number of sites. Estimated remedial expenses for active projects are recognized in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Actual expenditures for remediation were $3 and $4 in 1999 and 1998, respectively. The Company's balance sheet reflects estimated gross remediation liabilities of $19 and $18 at December 31, 1999 and 1998, respectively, and probable recoveries related to indemnification from the sellers of acquired companies and the Company's insurance carriers of $10 and $21 at December 31, 1999 and 1998, respectively. Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement of and the financial capability of other potentially responsible parties and the time periods (sometimes lengthy) over which site remediation occurs. It is possible that some of these matters (the outcome of which are subject to various uncertainties) may be decided unfavorably against the Company. It is, however, the opinion of Company management, after consulting with counsel, that any unfavorable decision will not have a material adverse effect on the Company's financial position, cash flows or results of operations. COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY - ------------------------------------------- Shareholders' equity was $2,891 at December 31, 1999 as compared with $2,975 and $3,529 at December 31, 1998 and 1997, respectively. The decrease in 1999 equity is due to currency translation in non-U.S. subsidiaries of $161, dividends declared on common stock of $122 and the repurchase of 1,256,700 common shares and 50,000 preferred shares offset by $166 of earnings in the business and a $63 minimum pension liability adjustment as more fully described in Note R to the Consolidated Financial Statements. The decrease in 1998 equity was due to the repurchase of 6,528,783 common shares and 4,055,300 preferred shares, an $87 minimum pension liability adjustment as more fully described in Note R to the Consolidated Financial Statements and dividends declared on common stock of $125 offset by $88 of earnings in the business, adjustments for currency translation in non-U.S. subsidiaries of $31 and the issuance of 467,600 common shares, including 195,600 shares for various employee benefit plans and 272,000 shares to five company executive officers. The officers, four of whom are Directors of the Company, borrowed money from the Company and used the funds to purchase the shares directly from the Company. The book value of each share of common stock at December 31, 1999 was $22.46 as compared to $22.89 and $25.26 at December 31, 1998 and 1997, respectively. In 1999, the return on average shareholders' equity before restructuring and other charges and the gain on sale of assets was 9.1% as compared to 9.2% in 1998. Including the restructuring and other charges, the return on average shareholders' equity was 6.2% in 1999 compared to 3.2% in 1998. The Company announced a new share repurchase program in 1998. This program allows for the repurchase of up to ten million shares of outstanding common and preferred stock, representing approximately 7.5% of then current combined shares outstanding. Purchases may be made from time to time in open market transactions at prevailing prices or in negotiated private transactions at management's discretion. The Board of Directors has also approved resolutions authorizing the Company to repurchase shares of its common stock to meet the requirements for the Company's various stock purchase and savings plans. The Company acquired 1,256,700 shares, 6,528,783 shares and 342,414 shares of common stock in 1999, 1998 and 1997 for $29, $286 and $17, respectively. The Company also acquired 50,000 shares and 4,055,300 shares of acquisition preferred for $1 and $181 during 1999 and 1998, respectively. -22- Crown Cork & Seal Company, Inc. The Company declared cash dividends totaling $122 and $125 in 1999 and 1998, respectively, representing a quarterly dividend of $.25 per common share. During 1999 and 1998, 18,874 and 10,631 shares, respectively, of common stock were issued under the Dividend Reinvestment and Stock Purchase Plan. At December 31, 1999, common shareholders of record numbered 5,254 compared with 5,644 at the end of 1998. Total common shares outstanding were 121,081,153 at December 31, 1999 compared to 122,337,398 at December 31, 1998. Total acquisition preferred shares outstanding were 8,325,951 at December 31, 1999 compared to 8,376,451 at December 31, 1998. On February 26, 2000, all then outstanding shares of acquisition preferred stock mandatorily converted into 7,410,315 shares of common stock. After the mandatory conversion there were 128,569,204 shares of common stock outstanding. The Board of Directors adopted a Shareholder Rights Plan in 1995 and declared a dividend of one right for each outstanding share of common stock. Such rights only become exercisable, or transferable apart from the common stock, after a person or group acquires beneficial ownership of, or commences a tender or exchange offer for, 15% or more of the Company's common stock. Each right then may be exercised to acquire one share of common stock at an exercise price of $200, subject to adjustment. Alternatively, under certain circumstances involving the acquisition by a person or group of 15% or more of the Company's common stock, each right will entitle its holder to purchase a number of shares of the Company's common stock having a market value of two times the exercise price of the right. In the event the Company is acquired in a merger or other business combination transaction after a person or group has acquired 15% or more of the Company's common stock, each right will entitle its holder to purchase a number of the acquiring company's common shares having a market value of two times the exercise price of the right. The rights may be redeemed by the Company at $.01 per right at any time until the tenth day following public announcement that a 15% position has been acquired. The rights will expire on August 10, 2005. INFLATION - --------- Inflation has not had a significant impact on the Company over the past three years due to strong cash flow from operations. The Company continues to maximize cash flow through programs designed for cost containment, productivity improvements and capital spending. Management does not expect inflation to have a significant impact on the results of operations or financial condition in the foreseeable future. FUTURE ACCOUNTING CHANGES - ------------------------- In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999 the FASB issued SFAS No. 137, an amendment to SFAS No. 133. SFAS No. 137 effectively deferred the transition date to January 1, 2001 from January 1, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The statement requires that all derivatives are recognized as either assets or liabilities in the statement of financial position and are measured at their fair values. The standard also significantly changes the requirements for hedge accounting. The Company is currently evaluating the requirements of this standard and is preparing an implementation plan. YEAR 2000 - --------- Computers and computer dependent equipment are used throughout the Company's operations. Certain computerized systems were designed using two digits rather than four digits to define the applicable year, which could result in the systems recognizing a date containing "00" as the year 1900 rather than the year 2000. This could lead to miscalculations or system failures and is generally referred to as the "Year 2000" or "Y2K" issue. Based on information available to date, the Company has not experienced any significant Year 2000 or leap year problems. Also, the Company's suppliers and customers have not experienced any Year 2000 problems which have had a significant impact on the Company. -23- Crown Cork & Seal Company, Inc. It is possible that the full impact of the Year 2000 date change has not been realized. Year 2000 issues could arise within the Company's mission critical IT, embedded and other systems. Also, customers and suppliers could experience Year 2000 events. As such, the Company will continue to monitor for potential Year 2000 issues both within the Company and among its critical customers and suppliers. Contingency plans, developed to address potential disruptions from unresolved Y2K issues, will remain in place. Based on operations since January 1, 2000, management does not anticipate any significant impact on its ongoing business as a result of the Year 2000 issue. In connection with its Year 2000 project, the Company has spent approximately $19 of which $9 has been expensed. This spending does not include labor costs for employees assigned to the Year 2000 project, as it was not practicable to accumulate such costs. Funding for the Year 2000 project came from operating cash flows. The Company does not anticipate significant future costs related to the Year 2000 issue. EURO CONVERSION - --------------- On January 1, 1999, eleven of the fifteen member countries ("the participating countries") of the European Union ("EU") established fixed conversion rates between their existing currencies ( the "legacy currencies") and one common currency, the Euro. At that time the Euro began trading on currency exchanges and was available for financial transactions. Beginning in January 2002, new Euro-denominated currency (bills and coins) will be issued, and legacy currencies will be withdrawn from circulation. The largest non-participating country is the United Kingdom which provides approximately 13% of the Company's revenues and is a major trading partner with the participating countries. At December 31, 1999, approximately 69% of the contract notional value of outstanding foreign exchange contracts involve the Euro, primarily with sterling. With the convergence of short-term interest rates within the EU, the foreign exchange exposure between the currencies of participating countries has diminished considerably. The Company's foreign exchange exposure management has systematically been adapted to this evolution, thereby benefitting from reduced hedging costs. The definitive fixing of the exchange rates will only make this benefit permanent without creating any other issue or opportunity other than eliminating the spread on the spot exchange. The number of contracts outstanding at the end of 1999 as compared to 1998 has been reduced by approximately 23% with a corresponding reduction in the notional value of approximately $1,344 or 50.1%. This reduction in outstanding foreign exchange contracts has generated approximately $1 of transaction cost savings. Because there is less diversity in the Company's exposure to foreign currencies, movements in the Euro's value in U.S. dollars could have a more pronounced effect, whether positive or negative. The Company has identified and substantially addressed the significant issues that may have resulted or will result from the Euro conversion. These issues include increased competitive pressures from greater price transparency, changes in information systems to accommodate various aspects of the new currency and exposure to market risk with respect to financial instruments. The conversion to the Euro, including the costs of implementation, has not been, and is not expected to be, material. However, the Company cannot guarantee that, with respect to the Euro conversion, all problems, including long-term competitive implications of the conversion, will be foreseen and corrected and that no material disruption of the Company's business will occur. -24- Crown Cork & Seal Company, Inc. FORWARD LOOKING STATEMENTS - -------------------------- Statements included herein in "Management's Discussion and Analysis of Financial Condition and Results of Operations," including, but not limited to, in the "Provision for Litigation" and "Euro Conversion" sections, and in the discussions of the restructuring plans and provision for litigation in Notes L and K to the Consolidated Financial Statements included in this Annual Report, which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto), are "forward-looking statements," within the meaning of the federal securities laws. In addition, the Company and its representatives may from time to time make other oral or written statements which are also "forward-looking statements." Forward-looking statements can be identified by words, such as "believes," "estimates," "anticipates," "expects" and other words of similar meaning in connection with a discussion of future operating or financial performance. These may include, among others, statements relating to: (i) the impact of an economic downturn or growth in particular regions, (ii) anticipated uses of cash, (iii) cost reduction efforts and expected savings, (iv) the expected outcome of contingencies and (v) the transition to the use of the Euro. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, the ability of the Company to realize cost savings from its restructuring programs; changes in the availability and pricing of raw materials (including aluminum can sheet, steel tinplate, plastic resin, inks and coatings) and the Company's ability to pass raw material price increases through to its customers or to otherwise manage these commodity pricing risks; the Company's ability to generate significant free cash to invest in its business and to maintain appropriate debt levels; the Company's ability to realize efficient capacity utilization and inventory levels and to innovate new designs and technologies for its products in a cost-effective manner; changes in consumer preferences for different packaging products; competitive pressures, including new product developments or changes in competitors' pricing for products; changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters and restrictions as to foreign investment or operation, weather conditions including its effect on demand for beverages and on crop yields for fruits and vegetables stored in food containers; changes or differences in U.S. or international economic or political conditions, such as, inflation or fluctuations in interest or foreign exchange rates and tax rates; the costs and other effects of legal and administrative cases and proceedings, settlements and investigations; the effects of the Euro conversion issue, labor relations and workforce and social costs. Some of the factors noted above are discussed elsewhere in this Annual Report and prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Company's SEC filings. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with the preparation of Management's Discussion and Analysis of Financial Condition and Results of Operations and certain other sections contained in the Company's quarterly, annual or other reports filed with the SEC, the Company does not intend to review or revise any particular forward-looking statement in light of future events. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------- ---------------------------------------------------------- The information set forth on pages 18 and 19 within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Market Risk" is incorporated herein by reference. -25- Crown Cork & Seal Company, Inc. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ ------------------------------------------- INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements -------------------- Report of Independent Accountants........................... 27 Consolidated Statements of Income........................... 28 Consolidated Balance Sheets................................. 29 Consolidated Statements of Cash Flows....................... 30 Consolidated Statements of Shareholders' Equity............. 31 Notes to Consolidated Financial Statements.................. 32 Supplementary Information................................... 53 Financial Statement Schedule ---------------------------- Schedule II - Valuation and Qualifying Accounts and Reserves....................................... 54 -26- Crown Cork & Seal Company, Inc. Report of Independent Accountants To the Board of Directors and Shareholders of Crown Cork & Seal Company, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Crown Cork & Seal Company, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 20, 2000 -27- Crown Cork & Seal Company, Inc. CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts)
- ----------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- Net sales........................................................... $7,732 $8,300 $8,495 ------- ------ ------ Costs, expenses and other income Cost of products sold (excluding depreciation and amortization)................................. 6,060 6,527 6,708 Depreciation and amortization.................................... 522 533 540 Selling and administrative expense............................... 348 379 414 Provision for restructuring and other charges. . Notes L and K....................................... 156 304 67 Gain on sale of assets........................................... (18) (38) Interest expense................................................. 367 408 379 Interest income.................................................. (25) (45) (39) Translation and exchange adjustments............................. 13 14 7 ------- ------ ------ 7,423 8,120 8,038 ------- ------ ------ Income before income taxes and cumulative effect of accounting change............................................. 309 180 457 Provision for income taxes . . Note S............................ 105 74 148 ------- ------ ------ Income from operations before cumulative effect of accounting change............................................. 204 106 309 Minority interests, net of equity earnings....................... (23) (1) (7) ------- ------ ------ Net income before cumulative effect of accounting change............................................. 181 105 302 Cumulative effect of accounting change, net of tax . . Note B.......................................... (8) ------- ------ ------ Net income 181 105 294 Preferred stock dividends........................................ 15 17 23 ------- ------ ------ Net income available to common shareholders......................... $ 166 $ 88 $ 271 ====== ====== ====== - ----------------------------------------------------------------------------------------------------------- Average common share data: Earnings . . Note Q Basic - before cumulative effect of accounting change...................................... $ 1.36 $ .71 $ 2.17 ====== ====== ====== after cumulative effect of accounting change...................................... $ 2.11 ====== Diluted - before cumulative effect of accounting change...................................... $ 1.36 $ .71 $ 2.15 ====== ====== ====== after cumulative effect of accounting change...................................... $ 2.10 ====== Dividends........................................................... $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -28- Crown Cork & Seal Company, Inc. CONSOLIDATED BALANCE SHEETS (in millions, except share data)
- ------------------------------------------------------------------------------------------------------------- December 31 1999 1998 - ------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents................................................. $ 267 $ 284 Receivables . . Note D.................................................... 1,166 1,359 Inventories . . Note E.................................................... 1,312 1,421 Prepaid expenses and other current assets................................. 96 104 ------- ------- Total current assets.................................................. 2,841 3,168 ------- ------- Long-term notes and receivables.............................................. 27 44 Investments . . Note I....................................................... 178 91 Goodwill, net of amortization................................................ 4,228 4,565 Property, plant and equipment . . Note F..................................... 3,255 3,743 Other non-current assets..................................................... 1,016 858 ------- ------- Total................................................................. $11,545 $12,469 ======= ======= Liabilities & Shareholders' Equity Current liabilities Short-term debt . . Note O................................................ $1,362 $ 2,331 Current maturities of long-term debt . . Note O........................... 169 135 Accounts payable and accrued liabilities . . Note G....................... 1,803 2,181 United States and foreign income taxes.................................... 80 63 ------- ------- Total current liabilities............................................. 3,414 4,710 ------- ------- Long-term debt, excluding current maturities . . Note O...................... 3,573 3,188 Other non-current liabilities . . Note H..................................... 686 609 Postretirement and pension liabilities . . Note R............................ 686 707 Minority interests........................................................... 295 280 Commitments and contingent liabilities . . Notes J and K Shareholders' equity Preferred stock, 4.5% cumulative convertible, par value: $41.8875; authorized: 12,432,622 . . Note M 1999 - outstanding 8,325,951......................................... 349 1998 - outstanding 8,376,451......................................... 351 Additional preferred stock, authorized: 30,000,000; none issued . . Note M.................................................. Common stock, par value: $5.00; authorized: 500,000,000 . . Note M 1999 - issued 155,792,879............................................... 779 1998 - issued 155,792,424............................................... 779 Additional paid-in capital................................................... 1,317 1,340 Retained earnings............................................................ 1,295 1,250 Accumulated other comprehensive loss . . Note C.............................. (676) ( 578) Treasury stock (1999 - 34,711,726 shares; 1998 - 33,455,026 shares)........................................................ (173) (167) ------- ------- Total shareholders' equity............................................ 2,891 2,975 ------- ------- Total................................................................. $11,545 $12,469 ======= ======= - -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -29- Crown Cork & Seal Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions)
- ------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities Net income................................................. $ 181 $ 105 $ 294 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................... 522 533 540 Provision for restructuring and other charges.......... 101 205 43 Gain on sale of assets................................. (10) (28) Deferred income taxes.................................. 86 113 93 Changes in assets and liabilities, net of businesses acquired: Receivables............................................ 71 1 (115) Inventories............................................ 28 (24) (70) Accounts payable, accrued and other liabilities........ (93) (235) (219) Other, net............................................. (59) (26) (136) ----- ----- ----- Net cash provided by operating activities............ 827 672 402 ----- ----- ----- Cash flows from investing activities Capital expenditures....................................... (280) (487) (515) Acquisition of businesses, net of cash acquired............ (49) (31) (10) Proceeds from sale of property, plant and equipment........ 91 47 43 Proceeds from sale of businesses........................... 44 35 90 Other, net................................................. (3) (16) (6) ----- ----- ----- Net cash used for investing activities............... (197) (452) (398) ----- ----- ----- Cash flows from financing activities Proceeds from long-term debt............................... 685 23 124 Payments of long-term debt................................. (225) (443) (269) Net change in short-term debt.............................. (899) 877 360 Dividends paid............................................. (138) (143) (152) Stock repurchased.......................................... (30) (467) (17) Common stock issued - benefit plans........................ 6 11 Minority contributions, net of dividends paid.............. (10) (5) 10 ----- ----- ----- Net cash (used for) provided by financing activities.............................. (617) (152) 67 ----- ----- ----- Effect of exchange rate changes on cash and cash equivalents....................................... (30) 10 (26) ----- ----- ----- Net change in cash and cash equivalents....................... (17) 78 45 Cash and cash equivalents at January 1........................ 284 206 161 ----- ----- ----- Cash and cash equivalents at December 31...................... $ 267 $ 284 $ 206 ===== ===== ===== - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -30- Crown Cork & Seal Company, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions, except share data)
- --------------------------------------------------------------------------------------------------------------------------------- | Accumulated | Other Comprehensive | Preferred Common Paid-In Retained Comprehensive Treasury Income | Stock Stock Capital Earnings Income/(Loss) Stock Total - --------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1996............. | $521 $779 $1,567 $1,185 ($352) ($137) $3,563 Net income - 1997..................... $294 | 294 294 Translation adjustments............... (168) | (168) (168) Minimum pension liability | adjustment, net of $1 tax......... (2) | (2) (2) ---- | Comprehensive income.................. $124 | ==== | Stock repurchased: | 342,414 common shares............. | (15) (2) (17) Dividends declared: | Common............................ | (128) (128) Preferred......................... | (24) (24) Stock issued-benefit plans: | 329,406 shares.................... | 9 2 11 | ---- ---- ------ ------ ----- ----- ------ Balance December 31, 1997............. | 521 779 1,561 1,327 (522) (137) 3,529 Net income - 1998..................... $105 | 105 105 Translation adjustments............... 31 | 31 31 Minimum pension liability | adjustment, net of $47 tax........ (87) | (87) (87) ---- | Comprehensive income.................. $49 | ==== | Stock repurchased: | 6,528,783 common shares........... | (225) (29) (32) (286) 4,055,300 preferred shares........ | (170) (11) (181) Dividends declared: | Common............................ | (125) (125) Preferred......................... | (17) (17) Stock issued-benefit plans | 467,600 shares.................... | 4 2 6 | ---- ---- ------ ------ ----- ----- ------ Balance December 31, 1998............. | 351 779 1,340 1,250 (578) (167) 2,975 Net income - 1999..................... $181 | 181 181 Translation adjustments............... (161) | (161) (161) Minimum pension liability | adjustment, net of $34 tax........ 63 | 63 63 ---- | Comprehensive income.................. $83 | ==== | Stock repurchased: | 1,256,700 common shares........... | (23) (6) (29) 50,000 preferred shares........... | (2) 1 (1) Dividends declared: | Common............................ | (122) (122) Preferred......................... | (15) (15) | ---- ---- ------ ------ ----- ----- ------ Balance December 31, 1999............. | $349 $779 $1,317 $1,295 ($676) ($173) $2,891 | ==== ==== ====== ====== ===== ===== ====== - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. Certain prior year balances have been reclassified upon adoption of SFAS No. 130 and to improve comparability. -31- Crown Cork & Seal Company, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions, except per share, employee, shareholder and statistical data; per share earnings are quoted as diluted) A. Summary of Significant Accounting Policies Business and Principles of Consolidation The consolidated financial statements include the accounts of Crown Cork & Seal Company, Inc. (the "Company") and its wholly-owned and majority-owned subsidiary companies. The Company manufactures and sells metal and plastic containers, metal and plastic closures, crowns and canmaking equipment. These products are manufactured in the Company's plants both within and outside the United States and are sold through the Company's sales organization to the soft drink, food, citrus, brewing, household products, personal care and various other industries. The financial statements have been prepared in conformity with generally accepted accounting principles and reflect management estimates and assumptions. Actual results could differ from those estimates, impacting reported results of operations and financial position. All significant intercompany accounts and transactions are eliminated in consolidation. Investments in joint ventures and other companies in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies (generally greater than 20% ownership), are accounted for by the equity method. Other investments are carried at cost. Foreign Currency Translation For non-U.S. subsidiaries which operate in a local currency environment, assets and liabilities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the year. Translation adjustments for these subsidiaries are accumulated in a separate component of accumulated other comprehensive income/(loss) in shareholders' equity. For non-U.S. subsidiaries which operate in U.S. dollars (functional currency) or whose economic environment is highly inflationary, local currency inventories and plant and other property are translated into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are translated at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are translated at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in earnings. Revenue Recognition The Company recognizes revenue from product sales when the goods are shipped and the title passes to the customer. Provisions for discounts and rebates to customers, and return and other adjustments are provided in the same period that the related sales are recorded. Cash and Cash Equivalents Cash equivalents represent investments with maturities of three months or less from the time of purchase and are carried at cost which approximates fair value because of the short maturity of those instruments. Inventory Valuation Inventories are stated at the lower of cost or market, with cost for domestic metal, plastic container, crown and closure inventories principally determined under the last-in, first-out ("LIFO") method. Non-U.S. inventories are principally determined under the average cost method. Goodwill Goodwill, representing the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses, is stated at cost and is amortized, principally on a straight-line basis, over the estimated future periods to be benefited (primarily 40 years). On an annual basis, the Company reviews the recoverability of goodwill based primarily upon an analysis of undiscounted cash flows from the acquired businesses. Accumulated amortization amounted to $564 and $452 at December 31, 1999 and 1998, respectively. -32- Crown Cork & Seal Company, Inc. Property, Plant and Equipment Property, plant and equipment ("PP&E") is carried at cost and includes expenditures for new facilities and equipment and those costs which substantially increase the useful lives of existing PP&E. Cost of significant assets includes capitalized interest incurred during the construction and development period. Maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed, the related costs and accumulated depreciation are eliminated from the respective accounts and any profit or loss on disposition is reflected in income. Costs assigned to PP&E of acquired businesses are based on estimated fair value at the date of acquisition. Depreciation and amortization are provided on a straight-line basis for financial reporting purposes and an accelerated basis for tax purposes over the estimated useful lives of the assets. The range of estimated economic lives assigned to each significant fixed asset category is as follows: Land Improvements-25; Buildings and Building Improvements-25 to 40; Other Depreciable Assets-3 to 14. Impairment of Long-Lived Assets In the event that facts and circumstances indicate that the cost of long-lived assets may be impaired, we perform a recoverability evaluation. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset is compared to the asset's carrying amount to determine whether a write-down to market value is required. Risk Management Contracts In the normal course of business, the Company employs a variety of off-balance-sheet financial instruments to manage its exposure to fluctuations in interest rates, foreign currency exchange rates and, to a lesser extent, commodity prices, including interest rate and cross-currency swap agreements, futures, forwards, options and other financial instruments with similar characteristics. The Company designates and assigns the financial instruments as hedges of underlying exposures associated with specific assets, liabilities, firm commitments or anticipated transactions. The gains or losses on these contracts offset changes in the value of the related exposures and are deferred in the balance sheet until settlement of the underlying exposure. The Company classifies its derivative financial instruments as held or issued for purposes other than trading. Option premiums and the accrued differential for interest rate and cross-currency swaps to be received under the agreements are recorded in the balance sheet as other assets. The accrued differential for interest rate and cross-currency swaps to be paid under the agreements are included in accounts payable and accrued liabilities. Realized gains and losses from hedges are classified in the income statement consistent with the accounting treatment of the items being hedged. The Company accrues the differential for interest rate and cross-currency swaps to be paid or received under the agreements as adjustments to net interest expense over the lives of the swaps. Gains or losses related to firm commitments and anticipated transactions are deferred until settlement of the underlying transaction at which time they are included as part of the cost of the underlying item. When hedged assets or liabilities are sold or extinguished or anticipated transactions are no longer probable, deferred gains or losses are recognized immediately in current earnings. When the financial instrument is terminated or settled prior to expected maturity or realization of the underlying item, hedge accounting is discontinued prospectively and gains or losses up to the date of termination or settlement are deferred into the underlying item and recognized in earnings concurrently with the underlying item. Cash flows from hedges are classified in the statement of cash flows under the same category as the cash flows from the related assets, liabilities, firm commitments or anticipated transactions. For further discussion of the Company's policies surrounding risk management and details of the outstanding contracts and their related fair values, see Notes O and P to the Consolidated Financial Statements herein on pages 41 through 43 entitled "Short-term Borrowings and Long-term Debt" and "Financial Instruments" and the discussion of "Market Risk" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, hereof within Item 7 on pages 18 and 19. -33- Crown Cork & Seal Company, Inc. Treasury Stock Treasury stock is reported at par value and constructively retired. The excess of fair value over par value is first charged to paid in capital, if any, and then to retained earnings. Research and Development Research, development and engineering expenditures which amounted to $52, $53 and $53 in 1999, 1998 and 1997, respectively, are expensed as incurred. Substantially all engineering and development costs are related to developing new products or designing significant improvements to existing products. Reclassifications Certain reclassifications of prior years' data have been made to improve comparability. - -------------------------------------------------------------------------------- B. Accounting Change In the fourth quarter of 1997 the Company adopted the provisions of the Emerging Issues Task Force 97-13 ("EITF 97-13"), Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project that Combines Business Process Reengineering and Information Technology Transformation. EITF 97-13 requires that the costs of business process reengineering activities that are part of systems development projects be expensed as they are incurred. Unamortized costs that were previously capitalized, through September 30, 1997, were written off as a cumulative effect of an accounting change. This resulted in an after-tax charge of $8 or $.05 per share. - -------------------------------------------------------------------------------- C. Comprehensive Income Comprehensive income is composed of two subsets - net income and other comprehensive income. Included in other comprehensive income for the Company are cumulative translation adjustments and minimum pension liability adjustments. These adjustments are accumulated within the Statement of Shareholders' Equity under the caption Accumulated Other Comprehensive Income/(Loss). As of December 31, accumulated other comprehensive income/(loss), as reflected in the consolidated statement of shareholders' equity, was comprised of the following: 1999 1998 ------ ------ Minimum pension liability adjustments................... ($ 41) ($104) Cumulative translation adjustments...................... (635) (474) ------ ------ ($676) ($578) ====== ====== - -------------------------------------------------------------------------------- D. Receivables 1999 1998 ------ ------ Accounts and notes receivable........................... $1,033 $1,161 Less: allowance for possible losses..................... (48) (45) ------ ------ Net trade receivables.............................. 985 1,116 Miscellaneous receivables............................... 181 243 ------ ------ $1,166 $1,359 ====== ====== The Company has agreements to sell certain of its non-U.S. trade accounts receivable. At December 31, 1999, approximately $252 ($201 at December 31, 1998) of receivables had been sold with limited recourse and are reflected as a reduction of trade receivables. - -------------------------------------------------------------------------------- -34- Crown Cork & Seal Company, Inc. E. Inventories 1999 1998 ------ ------ Finished goods................................ $ 503 $ 577 Work in process............................... 174 204 Raw materials and supplies.................... 635 640 ------ ------ $1,312 $1,421 ====== ====== Approximately 29% and 28% of worldwide inventories at December 31, 1999 and 1998, respectively, were stated on the LIFO method of inventory valuation. Had average cost (which approximates replacement cost) been applied to such inventories at December 31, 1999 and 1998, total inventories would have been $13 and $15 higher, respectively. - -------------------------------------------------------------------------------- F. Property, Plant and Equipment 1999 1998 ------ ------ Buildings and improvements............................... $ 889 $ 864 Machinery and equipment.................................. 4,145 4,546 ------ ------ 5,034 5,410 Less: accumulated depreciation and amortization.......... (2,154) (2,153) ------ ------ 2,880 3,257 Land and improvements.................................... 183 206 Construction in progress................................. 192 280 ------ ------ $3,255 $3,743 ====== ====== - -------------------------------------------------------------------------------- G. Accounts Payable and Accrued Liabilities 1999 1998 ------ ------ Trade accounts payable................................... $1,127 $1,315 Salaries, wages and other employee benefits.............. 204 261 Litigation............................................... 70 42 Deferred taxes........................................... 53 85 Interest................................................. 50 63 Restructuring............................................ 21 128 Environmental............................................ 3 3 Other.................................................... 275 284 ------ ------ $1,803 $2,181 ====== ====== - -------------------------------------------------------------------------------- H. Other Non-Current Liabilities 1999 1998 ------ ------ Deferred taxes........................................... $381 $356 Litigation............................................... 179 129 Postemployment benefits.................................. 45 45 Environmental............................................ 16 15 Other.................................................... 65 64 ------ ------ $686 $609 ====== ====== -35- Crown Cork & Seal Company, Inc. Other non-current assets include $10 and $21 at December 31, 1999 and 1998, respectively, for probable recoveries related to environmental liabilities. - -------------------------------------------------------------------------------- I. Acquisitions, Investments and Divestitures During 1999, the Company acquired, in separate transactions, the assets of a beverage can manufacturer in Greece and a food can manufacturer in Spain for aggregate cash payments of $49. In the third quarter of 1999, the Company sold its composite can business to Sonoco Products Company for $44. In the third quarter of 1999, the Company exercised its right to return Golden Aluminum Company ("GAC") to ACX Technologies ("ACX"). In March, 1997, the Company acquired GAC from ACX with an option to return the company. During 1998, the Company acquired, in separate transactions, the assets of food can manufacturers in Portugal and Poland for aggregate cash payments of $31. For financial reporting purposes, all of the acquisitions above were treated as purchases. The operating results of each acquisition are included in consolidated net income from the date of acquisition. The following represents the non-cash impact of the acquisitions noted above:
1999 1998 1997 ---- ---- ---- Fair value of assets acquired, including goodwill......... $ 67 $ 75 $ 70 Liabilities assumed....................................... (18) (44) Note payable.............................................. (60) ---- ---- ---- Cash paid............................................ $ 49 $ 31 $ 10 ==== ==== ====
In 1999, the Company combined its operations in South Africa with certain metal packaging businesses of Nampak Limited to form a new company with Nampak having a controlling interest. - -------------------------------------------------------------------------------- J. Lease Commitments The Company and its subsidiaries lease manufacturing, warehouse and office facilities and certain equipment. Certain non-cancelable leases are classified as capital leases, and the leased assets are included in PP&E. Other long-term non-cancelable leases are classified as operating leases and are not capitalized. The amount of capital leases reported as capital assets, net of accumulated amortization, at December 31, 1999 and 1998 was $47 and $54, respectively. Under long-term operating leases, minimum annual rentals are $33 in 2000, $28 in 2001, $21 in 2002, $15 in 2003, $11 in 2004, and a total of $36 in 2005 and thereafter. Under long-term capital leases, minimum annual rentals are $8 in 2000, $6 in 2001, $6 in 2002, $5 in 2003, $5 in 2004, and a total of $6 in 2005 and thereafter. The present value of future minimum payments on capital leases is $32 with the current portion of the obligation being $6. Rental expense (net of sublease rental income of $5 in 1999, $5 in 1998 and $4 in 1997) amounted to $31 in 1999, $42 in 1998 and $38 in 1997. - -------------------------------------------------------------------------------- K. Commitments and Contingent Liabilities The Company has various commitments to purchase materials and supplies as part of the ordinary conduct of business. Such commitments are not at prices in excess of current market. The Company's basic raw -36- Crown Cork & Seal Company, Inc. materials for its products are tinplate, aluminum and resins, all of which are purchased from multiple sources. The Company is subject to material fluctuations in the cost of these raw materials and has periodically adjusted its selling prices to reflect these movements. There can be no assurance, however, that the Company will be able to recover fully any increases or fluctuations in raw material costs from its customers. The Company is one of over 100 defendants in a substantial number of lawsuits filed by persons alleging bodily injury as a result of exposure to asbestos. This litigation arose from the insulation operations of a U.S. company, the majority of whose stock the Company purchased in 1963. Within approximately three months of this stock purchase, this U.S. company sold its insulation operations. Prior to 1998, the amounts paid to asbestos litigation claimants were covered by a fund of $80 made available to the Company under a 1985 settlement with carriers insuring the Company through 1976, when the Company became self-insured. From 1985 through 1997, the Company disposed of approximately 70,000 claims for amounts which aggregated approximately one-half of the original fund. Until the fourth quarter of 1998 the Company considered that the fund was adequate and that the likelihood of exposure for this litigation in excess of the amount of the fund was remote. This view was based on the Company's analysis of its potential exposure, the balance available under the 1985 settlement, historical trends and actual settlement ranges. However, a change in Texas law caused, along with other factors, an unexpected increase in claims activity in 1998. This, along with several larger group settlements, caused the Company to reevaluate its position. As a consequence, the Company provided an after-tax charge of $78 (or $.64 per share) in 1998 to supplement the remaining fund and cover estimated future liability claims. Each quarter, the Company evaluates the nature and amounts of claims settled and new claims received in order to determine the adequacy of its asbestos related accrual. During the fourth quarter of 1999, the Company recorded an additional after-tax charge of $106 (or $.87 per share) to increase its estimate of probable costs related to asbestos. Of this total, management expects to spend approximately $70 during the next year. The need to increase the accrual was primarily driven by an acceleration of pending claims as well as larger group settlements which occurred in the fourth quarter. At December 31, 1999, approximately 40,000 asbestos personal injury claims were pending against the Company. During 1999, approximately 33,000 claims were filed and the Company disposed of approximately 58,000 claims for approximately $92 which will be paid to claimants over a period of several years. These figures, and the charges noted above, do not include 27,000 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes, based upon counsel's advice, will not, in the aggregate, involve any material liability. The accrual recorded for asbestos claims constitutes management's best estimate of such costs for pending and future claims. The Company cautions, however, that inherent in its estimate of liabilities are expected trends in claim severity, frequency and other factors which may vary as claims are filed and settled or otherwise disposed of. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the operating results or cash flows in future periods. While it is not possible to predict with certainty the ultimate outcome of these lawsuits and contingencies, the Company believes, after consultation with counsel, that resolution of these matters is not expected to have a material adverse effect on the Company's financial position or liquidity. The Company is also subject to various other lawsuits and claims with respect to matters such as governmental and environmental regulations and other actions arising out of the normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes, after consulting with counsel, that the ultimate liabilities resulting from such lawsuits and claims will not materially affect the consolidated results, liquidity or financial position of the Company. - -------------------------------------------------------------------------------- -37- Crown Cork & Seal Company, Inc. L. Restructuring During 1999, management decided not to close a plant originally provided for in the September 1998 restructuring program based on a customer's decision to increase its purchases in that plant's geographic market. As a result, the reserves of $12 ($8 after-tax or $.06 per share) previously established for employee severance and related benefits and of $3 ($2 after-tax or $.02 per share) for other exit costs were reversed to income. Accordingly, the 200 employees at this location will not be terminated. During the third quarter of 1999, management decided to close one plant in Europe and to reorganize certain research and development functions worldwide. Accordingly, a charge of $8 ($5 after-tax or $.04 per share) was recorded in 1999 to cover these actions, including $6 for employee severance and related benefits, covering 200 employees, and $2 for other exit costs, primarily dismantlement, security and utility costs. The Company anticipates that these restructuring actions will generate after-tax savings of approximately $7 ($.05 per share) on an annualized basis when fully implemented. During 1998, the Company provided $179 ($127 after-tax or $.95 per share) for the costs associated with the plan to close thirteen plants and reorganize three additional plants. These actions reflect the Company's continued commitment to realign its manufacturing facilities with the objective of enhancing operating efficiencies. Included in the restructuring charge were costs to provide severance and related benefits, write-down of assets and other exit costs. The Company currently anticipates that this restructuring program will generate after-tax savings of approximately $59 ($.45 per share) on an annualized basis when fully implemented after giving effect to the reversal discussed above. The cost of providing severance and related benefits was estimated at $99, was a cash expense, and covered the reduction of approximately 2,900 employees, 1,900 of whom were involved in direct manufacturing operations. Employee reductions were completed at the end of the third quarter of 1999. Included in this restructuring provision was a charge of $60 reflecting the impairment of property, plant and equipment principally located in the Americas Division. This charge has been reflected as a reduction in the carrying values of the related assets. Write-downs of property, plant and equipment were made where their carrying values exceeded the Company's estimate of proceeds from abandonment or disposal. These estimates were based principally on past experience of comparable asset disposals. Disposition of assets identified for disposal in the 1998 action, including certain machinery, land and buildings, was substantially completed by the end of 1999. The sale of former plant sites typically requires more than one year to complete due to preparations for sale, such as site cleanup and the identification of a buyer. The carrying value of land and buildings held for sale at December 31, 1999 is approximately $19. Other non-recurring exit costs were estimated at $20 and were primarily a cash expense, comprising the costs to effectively close and dispose of the facilities identified in the 1998 plan. Exit costs included, but were not limited to, fees related to lease termination and other contract cancellations, dismantlement costs and brokers' fees for assets to be sold. These costs were substantially incurred by the end of 1999. During 1997, the Company provided $67 ($43 after-tax or $.31 per share) for the costs associated with a plan to improve the structure of its PET plastic beverage container business in the United States by closing and reorganizing six manufacturing locations in its CONSTAR subsidiary along with other, non-PET, restructuring activities, primarily in Europe. This restructuring program covered approximately 600 employees. Remaining balances in the reserves represent contracts or agreements whereby payments are extended over time. This includes agreements with unions and governmental agencies related to employees as well as with landlords in lease arrangements. The balance of the restructuring reserves (excluding write-down of assets which is reflected as a reduction of the related asset account) is included within accounts payable and accrued liabilities. The components of the restructuring reserve and movements within these components during 1999 were as follows: -38- Crown Cork & Seal Company, Inc. Other Employee Exit Severance Costs Total ---------- --------- ---------- Opening balance......................... $ 97 $ 31 $128 Provisions.............................. 6 2 8 Reversal................................ (12) (3) (15) Payments made........................... (73) (23) (96) Other movements*........................ (4) (4) ---- ---- ---- Closing balance......................... $ 14 $ 7 $ 21 ==== ==== ==== *Includes non-cash transactions to reassign amounts to employee benefit plan accounts, provisions under purchase accounting for two 1999 acquisitions in Europe and currency translation. During 1999, payments of $73 were made related to the termination of approximately 2,100 employees, 1,200 of whom were involved in direct manufacturing operations. Payments of $23 were made for other exit costs, including property carrying costs, dismantlement costs, equipment removal and various contractual obligations. - -------------------------------------------------------------------------------- M. Capital Stock On February 26, 2000, the outstanding shares of the Company's 4.5% cumulative convertible preferred stock ("acquisition preferred"), mandatorily converted into 7,410,315 shares of common stock. The acquisition preferred was issued in 1996 as part of the Company's acquisition of CarnaudMetalbox. The Board of Directors has the authority to issue, at any time or from time to time, up to a maximum of 30 million shares of additional preferred stock in one or more classes or series of classes. Such shares of additional preferred stock would not be entitled to more than one vote per share when voting as a class with holders of the Company's common stock. The voting rights and such designations, preferences, limitations and special rights are, subject to the terms of the Company's Articles of Incorporation, determined by the Board of Directors. - -------------------------------------------------------------------------------- N. Stock Options As of December 31, 1999, the Company had three active stock-based incentive compensation plans, 1990, 1994 and 1997. These plans provide for the granting of awards in the form of stock options, deferred stock, restricted stock or stock appreciation rights ("SARs") and may be subject to the achievement of certain performance goals as determined by the Plan Committee as designated by the Company's Board of Directors. There have been no issuances of deferred or restricted stock or SARs under any of the plans. The term for the 1994 plan ended in October, 1999, except with respect to grants and awards then outstanding. The term for the 1990 plan ended in February 2000, except with respect to grants and awards then outstanding. Stock options granted during 1999 generally have a maximum term of ten years and vest pro rata over four years. A maximum of 5,000,000 shares of the Company's Common Stock are available for issuance pursuant to grants and awards made under the 1997 plan, through February 2007. -39- Crown Cork & Seal Company, Inc. A summary of stock option activity under all plans is as follows:
1999 1998 1997 ------------------------ ---------------------- ------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------ ---------- ------------ --------- ------------ ---------- Options outstanding at January 1......................... 5,298,706 $45.51 4,745,796 $44.54 4,625,708 $42.28 Granted................................. 2,722,507 25.64 1,109,032 47.56 877,350 52.27 Exercised............................... (195,571) 33.81 (281,380) 33.36 Canceled................................ (587,453) 44.29 (360,551) 44.54 (475,882) 43.39 ---------- ---------- ---------- Options outstanding at December 31....................... 7,433,760 $38.33 5,298,706 $45.51 4,745,796 $44.54 ========== ========== ========== Options exercisable at December 31....................... 2,681,852 1,805,674 1,083,464 Options available for grant at December 31................. 2,981,403 5,721,135 6,469,616
The following table summarizes information concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable --------------------------------------------------------------------- ---------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price ------------------------------------- ---------------- ------------ -------------- ------------ $19.81 1,184,100 10.0 $19.81 0 $ 0 $20.53 to 30.63 1,526,508 9.1 29.94 32,826 29.20 $30.94 to 49.56 3,825,744 6.3 44.00 2,280,713 43.01 $50.25 to 54.38 897,408 7.2 52.85 368,313 52.67 --------- --------- 7,433,760 7.6 $38.33 2,681,852 $44.16 ========= =========
The Company applies APB No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans in its results of operations. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant date for awards under those plans, consistent with the requirements of SFAS No. 123, net income and earnings per share would have been reduced to the following pro forma amounts:
- ----------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Net income As reported $ 166 $ 88 $ 271 Pro forma $ 158 $ 81 $ 264 Basic earnings per share As reported $1.36 $.71 $2.11 Pro forma $1.29 $.65 $2.05 Diluted earnings per share As reported $1.36 $.71 $ 2.10 Pro forma $1.29 $.65 $ 2.05
-40- Crown Cork & Seal Company, Inc. The pro forma results may not be representative of the effects on reported income in future years. The fair value of each stock option has been estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: - ------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------ Risk-free interest rate 6.4% 4.5% 5.7% Expected life of option (years) 5.0 4.9 4.9 Expected stock price volatility 26.7% 24.5% 21.7% Expected dividend yield 4.5% 3.2% 2.0% The weighted average grant-date fair values for options granted during 1999, 1998 and 1997 were $5.67, $9.96, and $12.92, respectively. - -------------------------------------------------------------------------------- O. Short-Term Borrowings and Long-Term Debt
1999 1998 ------ ------ Short-term borrowings (1) Commercial paper (2)........................................... $ 904 $1,374 U.S. dollar bank loans/overdrafts.............................. 79 123 Other currency bank loans/overdrafts........................... 379 834 ------ ------ Total short-term borrowings........................ $1,362 $2,331 ------ ------ Long-term debt U.S. Dollars: Commercial paper (2) (3)....................................... $ 700 $ 700 Private placements: rates ranging from 7.0% to 7.54%, due 2000 through 2005................. 205 205 Senior notes and debentures: 7.00% due 1999............................................ 100 7.13% due 2002 (4)........................................ 350 6.75% due 2003 (5)........................................ 400 400 6.75% due 2003............................................ 200 200 8.38% due 2005............................................ 300 300 7.00% due 2006 (5)........................................ 300 300 8.00% due 2023............................................ 200 200 7.38% due 2026............................................ 350 350 7.50% due 2096............................................ 150 150 Other indebtedness: rates in 1999 ranging from 5.5% to 8.91%, due 2000 through 2015...................... 178 222 ------ ------ 3,333 3,127 ------ ------ Other currencies: 6.00% Euro Bond due 2004 (6).............................. 302 Other indebtedness in various currencies (average rates ranging from 3.52% to 20.74%), due 2000 through 2004...... 75 153 Capital lease obligations in various currencies................ 32 43 ------ ------ Total long-term debt (7)........................... 3,742 3,323 Less: current maturities....................................... (169) (135) ------ ------ Long-term debt..................................... $3,573 $3,188 ====== ====== (1) The weighted average interest rates for commercial paper outstanding during 1999, 1998 and 1997, were 4.9%, 5.2% and 5.3%, respectively. The weighted average interest rates for notes and overdrafts outstanding during 1999, 1998 and 1997, were 5.5%, 5.6% and 6.4%, respectively. -41- Crown Cork & Seal Company, Inc. (2) At December 31, 1999 and 1998, $700 of commercial paper was reported as long-term, reflecting the Company's intent and ability to refinance these borrowings on a long-term basis through committed credit facilities. (3) A committed $2.5 billion multicurrency revolving credit facility with a maturity of February 4, 2002 is available to support the commercial paper programs and short-term financing needs. The agreement contains certain financial covenants related to leverage and interest coverage. At December 31, 1999 and 1998, $194 million and $517, respectively, was drawn against the facility. (4) On August 25, 1999, the Company sold $350 of 7.125% public debt securities with a maturity of September 1, 2002. Proceeds from this offering were used to pay down U.S. commercial paper. (5) On December 12, 1996, two wholly owned finance subsidiaries located in the United Kingdom and France, sold public debt securities which were fully guaranteed by the Company. The face value of the notes bear interest rates ranging from 6.75% to 7.0%. The offerings by the subsidiaries, amounting to $700, were simultaneously converted into fixed rate, 8.28% Sterling and 5.75% French Franc obligations through cross-currency swaps with various counterparties. (6) On December 2, 1999, a wholly owned finance subsidiary, located in France, sold Euro 300 of 6% senior notes in Europe. These notes, which mature December 6, 2004, are listed on the Luxembourg Exchange and are not registered under the U.S. Securities Act of 1933. Proceeds from this offering were used to pay down short-term indebtedness in Europe. (7) The Company is also party to other interest rate swaps which mature in 2001. The notional amounts of these agreements do not represent amounts exchanged by the parties and are not a measure of the Company's exposure to credit and market risks. At December 31, 1999, the combined notional values of these swaps was $39 million. At December 31, 1998, the combined notional values of other interest rate swaps was $74.
Aggregate maturities of long-term debt for the five years subsequent to December 31, 1999 are $169, $108, $385, $631, and $324, respectively. Cash payments for interest were $377 in 1999, $377 in 1998 and $379 in 1997, respectively (including amounts capitalized of $1 in 1999, $6 in 1998 and $6 in 1997, respectively). The estimated fair value of the Company's long-term borrowings, including interest rate financial instruments, based on quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities was $3,662 and $3,437 at December 31, 1999 and 1998, respectively. - -------------------------------------------------------------------------------- P. Financial Instruments Fair Value At December 31, 1999, the Company's financial instruments included cash, cash equivalents, receivables, accounts payable, short and long-term debt and various risk management contracts which do not appear on the balance sheet. Included in these contracts are foreign exchange forwards and swaps, interest rate and cross-currency swaps and commodity forwards or options. The fair values for cash and cash equivalents, receivables, accounts payables and short-term debt approximated carrying values because of the short-term nature of these instruments. The fair value of long-term debt is disclosed in Note O above. The fair value of the off-balance sheet instruments, as determined by broker quotes or quoted market prices for same or similar instruments, aggregated to $9. -42- Crown Cork & Seal Company, Inc. Foreign Currency Management With respect to balance sheet exposures, the Company has an internal netting strategy to match foreign currency assets and liabilities wherever possible. This is achieved through the individual capital structure of overseas subsidiaries complemented by the use of financial instruments. The Company also enters into various types of foreign exchange contracts, principally forward exchange contracts and swaps, in managing the foreign exchange risk arising from certain foreign currency transactions. At December 31, 1999, the Company had outstanding forward exchange contracts, principally in European currencies, Singapore dollars, Canadian dollars and US dollars (both buy and sell) for an aggregate notional amount of $1,336 ($2,680 at December 31, 1998). Based on year-end exchange rates and the maturity dates of the various contracts, the aggregate contract value of these items approximated fair value at December 31, 1999 and 1998. Gains and losses resulting from contracts that are designated and effective as hedges are recognized in the same period as the underlying hedged transaction. Interest Rate Risk Management The Company uses interest rate swaps, interest rate caps, and cross-currency swaps to manage interest rate risk related to borrowings. Interest rate and cross-currency swap agreements which hedge third party debt issues are described in Note O. Costs associated with these financial instruments are generally amortized over the lives of the instruments and are not material to the Company's financial results. Differences in interest, which are paid or received, are recognized as adjustments to interest expense. Commodities The Company's basic raw materials for its products are subject to significant price fluctuations. In terms of commodity risks, the Company uses a combination of commercial supply contracts and financial instruments, including forwards and options, to minimize these exposures. The maturities of the commodity instruments correlate to the actual purchases of the commodities. Commodity instruments are accounted for as hedges, with any gains or losses included in inventory, to the extent that they are designated and are effective as hedges of anticipated commodity purchases. At December 31, 1999 and December 31, 1998 the fair value of the outstanding commodity contracts was not material to the Company's earnings, cash flows or financial position. - -------------------------------------------------------------------------------- -43- Crown Cork & Seal Company, Inc. Q. Earnings Per Share (EPS) The following table summarizes the basic and diluted earnings per share computations for 1999, 1998 and 1997:
Average ---------------------------------- Income Shares EPS -------- ------ ------ 1999 Net Income............................................................. $181 Less: Preferred stock dividends..................................... (15) ------ ------- ------ Basic EPS ............................................................. $166 122.2 $1.36 Potentially dilutive securities: Stock options ...................................................... Assumed preferred stock conversion.................................. ------ ------- ------ Diluted EPS............................................................ $166* 122.2* $1.36* ====== ======= ====== 1998 Net Income............................................................. $105 Less: Preferred stock dividends..................................... (17) ------ ------- ------ Basic EPS.............................................................. $88 124.4 $ .71 Potentially dilutive securities: Stock options....................................................... .1 Assumed preferred stock conversion................................. ------ ------- ------ Diluted EPS............................................................ $88* 124.5* $ .71* ====== ======= ====== 1997 Net Income............................................................. $294 Less: Preferred stock dividends..................................... (23) ------ ------- ------ Basic EPS.............................................................. $271 128.4 $2.11 Potentially dilutive securities: Stock options....................................................... .6 Assumed preferred stock conversion................................. 23 11.3 ------ ------- ------ Diluted EPS............................................................ $294 140.3 $2.10 ====== ======= ====== *Convertible preferred stock representing 7.6 and 8.4 million shares of the Company's common stock along with $15 and $17 of preferred stock dividends in 1999 and 1998, respectively, were excluded from the computation of diluted EPS as their effect was anti-dilutive.
Basic EPS excludes all potentially dilutive securities and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the assumed exercise and conversion of potentially dilutive securities, including stock options and convertible preferred stock, in periods when they are not anti-dilutive, otherwise it is the same as Basic EPS. As discussed in Note M, the acquisition preferred stock was mandatorily converted into common shares on February 26, 2000. - -------------------------------------------------------------------------------- R. Pensions and Other Retirement Benefits Pensions The Company sponsors various pension plans, covering substantially all U.S. and Canadian and some non-U.S. and non-Canadian employees, and participates in certain multi-employer pension plans. The benefits under these plans are based primarily on years of service and the employees' remuneration near retirement. Contributions to multi-employer plans in which the Company and its subsidiaries participate are determined in accordance with the provisions of negotiated labor contracts or applicable local regulations. The Company's -44- Crown Cork & Seal Company, Inc. objective in funding its pension plans is to accumulate funds sufficient to provide for all accrued benefits. In certain countries the funding of pension plans is not a common practice as funding provides no economic benefit. Consequently, the Company has several pension plans which are not funded. Plan assets of company-sponsored plans of $3,530 consist principally of common stocks, fixed income securities and other investments, including $128 of the Company's common stock. The 1999, 1998 and 1997 components of pension (income)/cost were as follows:
U.S. 1999 1998 1997 ------ ------ ------ Service cost................................................ $ 10 $ 10 $ 8 Interest cost............................................... 87 88 93 Expected return on plan assets.............................. (125) (145) (147) Recognized actuarial loss/(gain)............................ 5 (1) (2) Recognized prior service cost............................... 2 1 1 Cost attributable to plant closings......................... 12 1 ------ ------ ------ Total pension income........................................ ($ 21) ($ 35) ($ 46) ====== ====== ====== Non-U.S. Service cost................................................ $ 29 $ 29 $ 26 Interest cost............................................... 141 140 136 Expected return on plan assets.............................. (220) (233) (206) Recognized actuarial loss................................... 3 2 Recognized prior service cost............................... 1 Cost/(income) attributable to plant closings................ 2 (3) (1) ------ ------ ------ Total pension income........................................ ($ 45) ($ 65) ($ 44) ====== ====== ======
Additional pension expense of $6, $8 and $9 was recognized in 1999, 1998 and 1997 for non-Company sponsored plans. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the U.S. pension plans with accumulated benefit obligations in excess of plan assets were $661, $655 and $632, respectively, as of December 31, 1999, and $823, $812, and $699, respectively, as of December 31, 1998. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the non-U.S. pension plans with accumulated benefit obligations in excess of plan assets were $197, $170, and $63, respectively, as of December 31, 1999, and $259, $220, and $104, respectively, as of December 31, 1998. -45- Crown Cork & Seal Company, Inc. Changes in the benefit obligation and plan assets for 1999 and 1998 were as follows:
Change in Benefit Obligation 1999 1998 ------ ------ U.S. Benefit obligation at January 1....................................... $1,287 $1,237 Service cost.......................................................... 10 10 Interest cost......................................................... 87 88 Plan participants' contributions...................................... 1 1 Amendments............................................................ 2 8 Special termination benefits.......................................... (7) 12 Actuarial (gain)/loss................................................. (108) 50 Benefits paid......................................................... (120) (119) ------ ------ Benefit obligation at end of year..................................... $1,152 $1,287 ====== ====== Non-U.S. Benefit obligation at January 1....................................... $1,957 $1,771 Service cost.......................................................... 29 29 Interest cost......................................................... 141 140 Plan participants' contributions...................................... 9 10 Amendments............................................................ 8 Settlements and curtailments.......................................... (10) Actuarial loss........................................................ 29 121 Benefits paid......................................................... (113) (113) Foreign currency exchange rate changes................................ (63) 9 ------ ------ Benefit obligation at end of year..................................... $1,997 $1,957 ====== ====== Change in Plan Assets 1999 1998 ------ ------ U.S. Fair value of plan assets at January 1................................ $1,226 $1,381 Actual return on plan assets.......................................... 170 (39) Employer contributions................................................ 2 2 Plan participants' contributions...................................... 1 1 Benefits paid......................................................... (120) (119) ------ ------ Fair value of plan assets at December 31.............................. $1,279 $1,226 ====== ====== Plan assets in excess of/(less than) benefit obligation............... $ 127 ($ 61) Net transition obligation............................................. 7 7 Unrecognized actuarial loss........................................... 23 182 Unrecognized prior service cost....................................... 16 16 ------ ------ Net amount recognized................................................. $ 173 $ 144 ====== ====== Amounts recognized in the balance sheet consist of: Prepaid benefit cost.................................................. $119 $ 118 Accrued benefit liability............................................. (5) (116) Intangible asset...................................................... 21 23 Accumulated other comprehensive income................................ 38 119 ------ ------ Net amount recognized................................................. $173 $ 144 ====== ======
Additional minimum pension liabilities of $59 and $142 have been recognized at December 31, 1999 and 1998, respectively. -46- Crown Cork & Seal Company, Inc.
Change in Plan Assets (cont'd): 1999 1998 ------ ------ Non-U.S. Fair value of plan assets at January 1................................ $2,085 $2,143 Actual return on plan assets.......................................... 300 25 Employer contributions................................................ 20 17 Plan participants' contributions...................................... 9 10 Benefits paid......................................................... (113) (113) Foreign currency exchange rate changes................................ (50) 3 ------ ------ Fair value of plan assets at December 31.............................. $2,251 $2,085 ====== ====== Plan assets in excess of benefit obligation........................... $ 254 $ 128 Unrecognized actuarial loss........................................... 100 168 Unrecognized prior service cost....................................... 10 3 ------ ------ Net amount recognized................................................. $ 364 $ 299 ====== ====== Amounts recognized in the balance sheet consist of: Prepaid benefit cost.................................................. $ 479 $ 415 Accrued benefit liability............................................. (150) (162) Intangible asset...................................................... 9 3 Accumulated other comprehensive income................................ 26 43 ------ ------ Net amount recognized................................................. $ 364 $ 299 ====== ======
Additional minimum pension liabilities of $35 and $46 have been recognized at December 31, 1999 and 1998, respectively. The weighted average actuarial assumptions for the Company's pension plans are as follows: U.S. 1999 1998 1997 ------- ------- ------ Discount rate............................. 8.3% 7.1% 7.4% Compensation increase..................... 3.5% 3.5% 3.5% Long-term rate of return.................. 10.8% 11.0% 11.0% Non-U.S. Discount rate............................. 7.2% 7.2% 8.0% Compensation increase..................... 5.1% 5.3% 6.0% Long-term rate of return.................. 11.0% 11.0% 11.0% Other Postretirement Benefit Plans The Company and certain subsidiaries sponsor unfunded plans to provide health care and life insurance benefits to pensioners and survivors. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverages. Life insurance benefits are generally provided by insurance contracts. The Company reserves the right, subject to existing agreements, to change, modify or discontinue the plans. -47- Crown Cork & Seal Company, Inc. The components of the net postretirement benefit cost were as follows:
1999 1998 1997 ---- ---- ---- Service cost................................................. $ 4 $ 4 $ 4 Interest cost................................................ 41 40 39 Recognized actuarial gain.................................... (1) (1) Recognized prior service cost................................ (1) (1) (2) Loss attributable to plant closings.......................... 1 4 --- --- --- Net periodic benefit cost.................................... $45 $46 $40 === === ===
The following provides the components of the changes in the benefit obligation, and reconciles the obligation to the amount recognized:
1999 1998 ---- ---- Benefit obligations at January 1............................. $568 $548 Service cost................................................. 4 4 Interest cost................................................ 41 40 Special termination benefits................................. 1 4 Actuarial loss............................................... 7 25 Benefits paid................................................ (49) (51) Foreign currency exchange rate changes....................... (1) (2) ---- ---- Benefit obligation at December 31............................ 571 568 Unrecognized actuarial gain.................................. 9 16 Unrecognized prior service cost.............................. 10 11 ---- ---- Net amount recognized........................................ $590 $595 ==== ====
The health care accumulated postretirement benefit obligation was determined at December 31, 1999 and 1998 using health care trend rates of 9.7% and 8.0%, respectively, decreasing to 4.8% over nine years and seven years, respectively. The assumed long-term rate of compensation increase used for life insurance was 3.5% at both December 31, 1999 and 1998. The discount rate was 8.2% and 7.1% at December 31, 1999 and 1998, respectively. Changing the assumed health care cost trend rate by one percentage point in each year would change the accumulated postretirement benefit obligation by $35 and the total of service and interest cost by $3. Employee Savings Plan The Company sponsors a Savings Investment Plan which covers substantially all domestic salaried employees who are 21 years of age with one or more years of service. The Company matches with equivalent value of Company stock, up to 1.5% of a participant's compensation. Employee Stock Purchase Plan The Company also sponsors an Employee Stock Purchase Plan which covers all domestic employees with one or more years of service who are non-officers and non-highly compensated as defined by the Internal Revenue Code. Eligible participants contribute 85% of the quarter-ending market price towards the purchase of each common share. The Company's contribution is equivalent to 15% of the quarter-ending market price. Total shares purchased under the plan in 1999 and 1998 were 119,477 and 112,471, respectively, and the Company's contributions were less than $1 in both years. - -------------------------------------------------------------------------------- -48- Crown Cork & Seal Company, Inc. S. Income Taxes Pre-tax income/(loss) for the years ended December 31 was taxed under the following jurisdictions:
1999 1998 1997 ---- ---- ---- Domestic............................................................... ($ 35) ($130) $ 49 Foreign................................................................ 344 310 408 ---- ---- ---- $309 $180 $457 ==== ==== ====
The provision/(benefit) for income taxes consists of the following:
Current tax provision: U.S. Federal........................................................... $ 19 $ 5 $ 14 State and foreign...................................................... 47 52 41 ---- ---- ---- 66 57 55 ---- ---- ---- Deferred tax provision: U.S. Federal........................................................... 14 (31) 10 State and foreign...................................................... 25 48 83 ---- ---- ---- 39 17 93 ---- ---- ---- Total.................................................................. $105 $ 74 $148 ==== ==== ====
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pre-tax income as a result of the following differences:
1999 1998 1997 ------ ------ ------ U.S. statutory rate..................................... 35.0% 35.0% 35.0% Non-U.S. operations at different rates.................. (10.4) (12.6) (6.6) Effect of non-U.S. statutory rate changes............... (1.9) (1.6) (1.5) Amortization of acquisition adjustments................. 13.9 23.8 9.5 Valuation allowance..................................... (2.9) (2.5) (2.7) Other items, net........................................ .3 (1.0) (1.3) ------ ------ ------ Effective income tax rate............................... 34.0% 41.1% 32.4% ====== ====== ======
The Company paid taxes (net of refunds) of $47 in 1999 and $51 in 1997 and received federal, state, local and foreign income tax refunds (net of payments) of $1 in 1998. The components of deferred tax assets and liabilities at December 31, were:
1999 1998 --------------------- ---------------------- Asset Liability Asset Liability ------- --------- ------- --------- Depreciation................................................ $ 385 $ 420 Postretirement and postemployment benefits.................. $ 222 $221 Pensions.................................................... 132 68 Inventories................................................. 31 27 Tax loss and credit carryforwards........................... 233 232 Restructuring............................................... 6 26 Accruals and other.......................................... 209 68 120 55 ----- ----- ----- ----- 670 616 599 570 Valuation allowance......................................... (146) (94) ----- ----- ----- ----- $ 524 $ 616 $ 505 $ 570 ===== ===== ===== =====
-49- Crown Cork & Seal Company, Inc. Prepaid expenses and other current assets include $45 and $52 of deferred tax assets at December 31, 1999 and 1998, respectively. Other non-current assets include $297 and $324 of deferred tax assets at December 31, 1999 and 1998, respectively. The Company has recorded $39 of deferred tax assets arising from tax loss and credit carryforwards which will be realized through future operations and an additional $48 which will be realized through the reversal of existing temporary differences. Future recognition of the remaining $146 will be achieved either when the benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future earnings. Carryforwards of $48 expire over the next five years; $38 expire in years six through fifteen; and $147 can be utilized over an indefinite period. The valuation allowance of $146 includes $75 which, if reversed in future periods, will reduce goodwill. The cumulative amount of the Company's share of undistributed earnings of non-U.S. subsidiaries for which no deferred taxes have been provided was $584 and $549 as of December 31, 1999 and 1998, respectively. Management has no plans to distribute such earnings in the foreseeable future. - -------------------------------------------------------------------------------- T. Segment Information The Company is organized on the basis of geographic regions with three reportable segments: Americas, Europe and Asia-Pacific. The Americas includes the United States, Canada and South and Central America. Europe includes Europe, Africa and the Middle East. Although the economic environments within each of these reportable segments are quite diverse, they are similar in the nature of their products, the production processes, the types or classes of customers for products and the methods used to distribute products. Asia-Pacific, although below reportable segment thresholds, has been designated as a reportable segment because considerable review is made of this region for the allocation of resources. Each reportable segment is an operating division within the Company and has a President reporting directly to the Chief Executive Officer and the Chief Operating Officer. "Other" includes Corporate activities, such as Corporate Technology and, prior to 1998, includes the divested machinery operations of Crown-Simplimatic. The Company evaluates performance and allocates resources based on operating income, that is, income before net interest, foreign exchange and gain/loss on sale of assets. The accounting policies for each reportable segment are the same as those described in the Summary of Significant Accounting Policies. On an enterprise-wide basis, the Company's major products and their distribution along geographic lines along with related long-lived assets are presented below. -50- Crown Cork & Seal Company, Inc. The tables below present information about reportable segments for the years ending December 31, 1999, 1998, 1997:
December 31, 1999 Americas Europe Asia-Pacific Other Total External sales................................. $3,817 $3,590 $325 $7,732 Depreciation & Amortization.................... 210 275 25 $ 12 522 Restructuring & other charges.................. (14) 2 168 156 Segment income................................. 398 454 31 (237) 646 Capital expenditures........................... 112 152 10 6 280 Equity investments............................. 26 134 18 178 Deferred tax assets............................ 126 141 75 342 Segment assets................................. 4,358 6,452 501 234 11,545 - --------------------------------------------------------------------------------------------------------------- December 31, 1998 Americas Europe Asia-Pacific Other Total External sales................................. $4,077 $3,888 $335 $ 8,300 Depreciation & Amortization.................... 219 271 26 $ 17 533 Restructuring & other charges.................. 85 77 3 139 304 Segment income................................. 289 479 (211) 557 Capital expenditures........................... 161 300 7 19 487 Equity investments............................. 30 43 18 91 Deferred tax assets............................ 137 186 5 48 376 Segment assets................................. 4,511 7,176 520 262 12,469 - --------------------------------------------------------------------------------------------------------------- December 31, 1997 Americas Europe Asia-Pacific Other Total External sales................................. $4,021 $4,045 $369 $60 $8,495 Depreciation & Amortization.................... 244 253 28 15 540 Restructuring & other charges.................. 55 12 67 Segment income................................. 280 553 7 (74) 766 Capital expenditures........................... 176 301 19 19 515 Equity investments............................. 30 37 23 90 Deferred tax assets............................ 81 196 4 1 282 Segment assets................................. 4,721 6,941 509 135 12,306 - ---------------------------------------------------------------------------------------------------------------
A reconciliation of segment income to consolidated pre-tax income for the years ended December 31, 1999, 1998 and 1997 is as follows:
INCOME 1999 1998 1997 ---- ---- ---- Segment income....................................... $646 $557 $766 Interest expense..................................... 367 408 379 Interest income...................................... (25) (45) (39) Gain on sale of assets............................... (18) (38) Translation & exchange adjustments................... 13 14 7 ---- ---- ---- Income before income taxes and cumulative effect of accounting change.................. $309 $180 $457 ==== ==== ====
For the years ended December 31, 1999, 1998 and 1997, respectively, no one customer accounted for more than 10% of the Company's consolidated net sales. Sales for major products were: -51- Crown Cork & Seal Company, Inc.
PRODUCTS 1999 1998 1997 ------ ------ ------ Metal beverage cans and ends............................... $2,373 $2,554 $2,485 Metal food cans and ends................................... 2,420 2,562 2,590 Other metal packaging...................................... 1,341 1,478 1,548 Plastic packaging.......................................... 1,443 1,535 1,554 Other products............................................. 155 171 318 ------ ------ ------ Consolidated net sales................................. $7,732 $8,300 $8,495 ====== ====== ======
Sales and long-lived assets for the major countries in which the Company operates were:
GEOGRAPHIC Net Sales Long-lived Assets ----------------------------- ----------------------------- 1999 1998 1997 1999 1998 1997 ------ ------ ------ ------ ------ ------ United States.................... $3,121 $3,337 $3,394 $1,162 $1,351 $1,421 United Kingdom................... 1,009 1,112 1,241 494 522 474 France........................... 773 832 839 270 332 306 Other *.......................... 2,829 3,019 3,021 1,329 1,538 1,463 ------ ------ ------ ------ ------ ------ Consolidated total........... $7,732 $8,300 $8,495 $3,255 $3,743 $3,664 ====== ====== ====== ====== ====== ======
*"Other" includes Other Europe, Africa, Middle East, Canada, South and Central America and Asia-Pacific. -52- Crown Cork & Seal Company, Inc. Quarterly Data (unaudited)
- -------------------------------------------------------------------------------------------------------------------------------- (in millions) 1999 | 1998 - -------------------------------------------------------------------------------------------------------------------------------- First Second Third Fourth | First Second Third Fourth - --------------------------------------------------------------------------------------------------------------------------------- Net sales................. $1,794 $1,997 $2,140 $1,801 | $1,892 $2,245 $2,291 $1,872 Gross profit*............. 274 368 373(1) 266 | 285 412 199 (3) 288 (5) Net income (loss) | available to common | shareholders........... 26 96 114(1) (70)(2) | 36 122 (25)(3) (45)(4) | - --------------------------------------------------------------------------------------------------------------------------------- Earnings per average | common share:** | Basic ................. $ .21 $ .78 $ .93(1) ($ .57)(2) | $ .29 $ .98 ($ .20)(3) ($ .37)(4) Diluted................ + .77 .91(1) + | + .95 + + | Dividends per common | share ................. .25 .25 .25 .25 | .25 .25 .25 .25 | Average common shares | outstanding: | Basic.................. 122.3 122.3 122.3 121.7 | 127.1 124.4 123.7 122.3 Diluted................ 130.0 130.0 130.0 129.3 | 137.8 132.8 131.6 130.0 | - --------------------------------------------------------------------------------------------------------------------------------- | Common stock price range:*** | High................... $34 5/8 $37 1/2 $30 1/2 $24 9/16 | $55 3/16 $54 11/16 $48 1/2 $35 3/4 Low.................... 26 1/4 27 11/16 23 19 11/16 | 46 1/2 45 9/16 25 5/8 24 Close.................. 28 9/16 28 1/2 24 1/4 22 3/8 | 53 1/2 47 1/2 26 3/4 30 13/16 | - -------------------------------------------------------------------------------------------------------------------------------- + Diluted earnings per share for the first and fourth quarters of 1999 and the first, third and fourth quarters of 1998 are the same as Basic because the assumed conversion of convertible preferred stock and the addback of preferred dividends is anti-dilutive. * The Company defines gross profit as net sales less cost of products sold, depreciation and amortization (excluding goodwill amortization) and the provision for restructuring. ** The sum of the quarterly earnings per share does not equal the year-to-date earnings per share due to the effect of shares issued or repurchased during the year. *** Source: New York Stock Exchange - Composite Transactions (1) Includes a pre-tax restructuring credit of $7; $5 after taxes or $.04 per basic and diluted share, non-recurring charges of $10; $6 after taxes or $.05 per basic and diluted share for losses from an earthquake in Turkey and the disposition of Golden Aluminum Company and a gain on the sale of assets of $14; $7 after taxes or $.05 per basic and diluted share. Excluding the impact of the restructuring credit and the non-recurring items, net income was $108 or $.88 per basic share and $.87 per diluted share. See Note L for additional details. (2) Includes an after-tax charge for litigation of $106 or $.87 per basic and diluted share. Excluding the impact of the litigation charge, net income was $36 or $.30 per basic and diluted share. See Note K for additional details. (3) Includes pre-tax restructuring charges of $187; $127 after taxes or $1.03 per basic share and $.96 per diluted share. Excluding the impact of restructuring charges, net income was $102 or $.82 per basic share and $.80 per diluted share. See Note L for additional details. (4) Includes an after-tax charge for litigation of $78 or $.64 per basic share and $.60 per diluted share. Excluding the impact of the litigation charge, net income was $33 or $.27 per basic and diluted share. See Note K for additional details. (5) Includes an adjustment of $8 to the third quarter restructuring provision. The reduction in the provision was offset by lower tax benefits expected from such charges. - -------------------------------------------------------------------------------- -53- Crown Cork & Seal Company, Inc. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In millions) - -------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- Additions Balance at beginning of Description period - -------------------------------------------------------------------------------------------------------------------- Charged to costs Charged to other Deductions - Balance at and expenses accounts Write-Offs end of period - -------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, 1999 Allowances deducted from assets to which they apply: Trade accounts receivable $ 45 $ 18 $ 15 $ 48 Deferred tax assets 94 18 $38 4 146 For the Year Ended December 31, 1998 Allowances deducted from assets to which they apply: Trade accounts receivable 45 14 14 45 Deferred tax assets 124 ( 4) 26 94 For the Year Ended December 31, 1997 Allowances deducted from assets to which they apply: Trade accounts receivable 92 9 56 45 Deferred tax assets 139 ( 12) 4 7 124
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ------- ---------------------------------------------------- None. -54- Crown Cork & Seal Company, Inc. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- The information called for by this Item, is set forth on pages 4 through 7 of the Company's Proxy Statement dated March 24, 2000, in the section entitled "Election of Directors" and on page 18 in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. The following table sets forth certain information concerning the principal executive officers of the Company, including their ages and positions. Name Age Present Title ---- --- ------------- William J. Avery 59 Chairman of the Board of Directors and Chief Executive Officer John W. Conway 54 President and Chief Operating Officer and President-Americas Division William R. Apted 52 Executive Vice President and President-European Division Alan W. Rutherford 56 Executive Vice President and Chief Financial Officer William H. Voss 54 Executive Vice President and President-Asia-Pacific Division Craig R. L. Calle 40 Senior Vice President - Finance and Treasurer Timothy J. Donahue 37 Senior Vice President and Corporate Controller ITEM 11. EXECUTIVE COMPENSATION - ------- ---------------------- The information set forth on pages 9 through 13 of the Company's Proxy Statement dated March 24, 2000, in the section entitled "Executive Compensation" is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- The information required by this Item is set forth on pages 2 through 7 of the Company's Proxy Statement dated March 24, 2000, in the sections entitled "Proxy Statement-Meeting, April 27, 2000" and "Election of Directors" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- The information required by this Item is set forth on pages 4 through 7 of the Company's Proxy Statement dated March 24, 2000, in the section entitled "Election of Directors" and is incorporated herein by reference. -55- Crown Cork & Seal Company, Inc. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------- --------------------------------------------------------------- a) The following documents are filed as part of this report: (1) All Financial Statements: Crown Cork & Seal Company, Inc. and Subsidiaries (see Part II pages 25 through 48 of this Report). (2) Financial Statement Schedules: Schedule Number II.- Valuation and Qualifying Accounts and Reserves (see page 54 of this Report). All other schedules have been omitted because they are not applicable or the required information is included in the Consolidated Financial Statements. (3) Exhibits 3.a Amended and Restated Articles of Incorporation of Crown Cork & Seal Company, Inc. (incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form 8-A dated February 20, 1996 (File No. 1-2227)). 3.b By-laws of Crown Cork & Seal Company, Inc., as amended (incorporated by reference to Exhibit 3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)). 4.a Specimen certificate of Registrant's Common Stock (incorporated by reference to Exhibit 4.a of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-2227)). 4.b Form of Registrant's 7-1/8% Notes due 2002 (incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form 8-A, dated August 27, 1999 (File No. 1-2227)). 4.c Terms Agreement, dated August 25, 1999 (incorporated by reference to Exhibit 4 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-2227)). 4.d Form of the Registrant's 6-3/4% Notes Due 2003 (incorporated by reference to Exhibit 23 of Registrant's Current Report on Form 8-K dated April 12, 1993 (File No. 1-2227)). 4.e Form of the Registrant's 8% Debentures Due 2023 (incorporated by reference to Exhibit 24 of Registrant's Current Report on Form 8-K dated April 12, 1993 (File No. 1-2227)). 4.f Officers' Certificate of the Company (incorporated by reference to Exhibit 4.3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993 (File No. 1-2227)). 4.g Indenture dated as of April 1, 1993 between the Company and Chemical Bank, as Trustee (incorporated by reference to Exhibit 26 of the Registrant's Current Report on Form 8-K dated April 12, 1993 (File No 1-2227)). 4.h Terms Agreement dated March 31, 1993 (incorporated by reference to Exhibit 27 of the Registrant's Current Report on Form 8-K dated April 12, 1993 (File No. 1-2227)). -56- Crown Cork & Seal Company, Inc. 4.i Indenture dated as of January 15, 1995 between the Company and Chemical Bank, as Trustee (incorporated by reference to Exhibit 4 of the Registrant's Current Report on Form 8-K dated January 25, 1995 (File No. 1-2227)). 4.j Form of the Company's 8-3/8% Notes Due 2005 (incorporated by reference to Exhibit 99a of the Registrant's Current Report on Form 8-K dated January 25, 1995 (File No. 1-2227)). 4.k Officers' Certificate of the Company dated January 25, 1995 (incorporated by reference to Exhibit 99b of the Registrant's Current Report on Form 8-K dated January 25, 1995 (File No. 1-2227)). 4.l Terms Agreement dated January 18, 1995 (incorporated by reference to Exhibit 99c of the Registrant's Current Report on Form 8-K dated January 25, 1995 (File No. 1-2227)). 4.m Revolving Credit and Competitive Advance Facility Agreement, dated as of February 4, 1997, among the Registrant, the Subsidiary Borrowers referred to therein, the Lenders referred to therein, the Chase Manhattan Bank, as Administrative Agent, Societe Generale, as Documentation Agent, and Bank of America Illinois, as Syndication Agent (incorporated by reference to Exhibit 4.o of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-2227)). 4.n Rights Agreement, dated August 7, 1995, between Crown Cork & Seal Company, Inc. and First Chicago Trust of New York (incorporated by reference to Exhibits 1 and 2 to the Registrant's Registration Statement on Form 8-A, dated August 10, 1995 (File No. 1-2227)). 4.o Indenture, dated December 17, 1996, among the Company, Crown Cork & Seal Finance PLC, Crown Cork & Seal Finance S.A. and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.p Form of the Registrant's 7-3/8% Debentures Due 2096 (incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1- 2227)). 4.q Form of the Registrant's 7-1/2% Debentures Due 2026 (incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1- 2227)). 4.r Form of UK 6-3/4% Notes Due 2003 (incorporated by reference to Exhibit 99.3 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.s Form of UK 7% Notes Due 2006 (incorporated by reference to Exhibit 99.4 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.t Form of French 6-3/4% Notes Due 2003 (incorporated by reference to Exhibit 99.5 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.u Officers' Certificate for 7-3/4% Debentures Due 2026 (incorporated by reference to Exhibit 99.6 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1- 2227)). 4.v Officers' Certificate for 7-1/2% Debentures Due 2096 (incorporated by reference to Exhibit 99.7 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.w Officers' Certificate for 6-3/4% Notes Due 2003 (incorporated by reference to Exhibit 99.8 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.x Officers' Certificate for 7% Notes Due 2006 (incorporated by reference to Exhibit 99.9 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). -57- Crown Cork & Seal Company, Inc. 4.y Officers' Certificate for 6-3/4% Notes Due 2003 (incorporated by reference to Exhibit 99.10 of the Registrant's Current Report on Form 8-K dated December 17, 1996 (File No. 1-2227)). 4.z Terms Agreement dated December 12, 1996 (incorporated by reference to Exhibit 1.1 of the Registrant's Current Report on Form 8-K dated December 12, 1996 (File No. 1-2227)). 4.aa Form of Bearer Security Depositary Agreement (incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-3 dated November 26, 1996 amended December 5 and 10, 1996 (File No. 333-16869)). 4.bb Form of Underwriting Agreement (incorporated by reference to Exhibit 1.1 of the Registrant's Registration Statement on Form S-3, dated November 26, 1996, amended December 5 and December 10, 1996 (File No. 333-16869)). Other long-term agreements of the Registrant are not filed pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, and the Registrant agrees to furnish copies of such agreements to the Securities and Exchange Commission upon its request. 10.a Employment Contracts: (1) Employment contract between Crown Cork & Seal Company, Inc. and William J. Avery dated January 3, 2000. (2) Employment contract between Crown Cork & Seal Company, Inc. and John W. Conway dated January 3, 2000. (3) Employment contract between Crown Cork & Seal Company, Inc. and Alan W. Rutherford dated January 3, 2000. 10.b Consulting Agreement, dated April 1, 2000, between Crown Cork & Seal Company, Inc. and Michael J. McKenna. 10.c Consulting Agreement, dated February 1, 2000, between Crown Cork & Seal Company, Inc. and Ronald R. Thoma. 10.d Form of Restricted Stock Agreement, dated March 15, 2000 and entered into by Messrs. Avery, Conway and Rutherford. 10.e Crown Cork & Seal Company, Inc. Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 1-2227)). 10.f Crown Cork & Seal Company, Inc. Senior Executive Retirement Plan, as amended and restated as of June 30, 1999 (incorporated by reference to Exhibit 10.d of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)). 10.g 1990 Stock-Based Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-2227)). 10.h Amendment No. 1 to the Crown Cork & Seal Company, Inc. 1990 Stock-Based Incentive Compensation Plan, dated as of September 21, 1998 (incorporated by reference to Exhibit 10.a of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)). 10.i Crown Cork & Seal Company, Inc. Restricted Stock Plan for Non-Employee Directors. (incorporated by the reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-2227)). -58- Crown Cork & Seal Company, Inc. 10.j Crown Cork & Seal Company, Inc. Stock Purchase Plan (incorporated by reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on March 16, 1994 (Registration No. 33-52699)). 10.k Crown Cork & Seal Company, Inc. 1994 Stock-Based Incentive Compensation Plan (incorporated by reference to Exhibit 10.g of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-2227)). 10.l Amendment No. 1 to the Crown Cork & Seal Company, Inc. 1994 Stock-Based Incentive Compensation Plan, dated as of September 21, 1998 (incorporated by reference to Exhibit 10.b of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)). 10.m Crown Cork & Seal Company, Inc. 1997 Stock-Based Incentive Compensation Plan (incorporated by reference to Exhibit 10.f of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-2227)). 10.n Amendment No. 1 to the Crown Cork & Seal Company, Inc. 1997 Stock-Based Incentive Compensation Plan dated as of September 21, 1998 (incorporated by reference to Exhibit 10.c of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)). 10.o Crown Cork & Seal Company, Inc. Deferred Compensation Plan for Directors, dated as of October 27, 1994 (incorporated by reference to Exhibit 10.b of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (File No. 1-2227)). 10.p Crown Cork & Seal Company, Inc. Pension Plan for outside Directors, dated as of October 27, 1994 (incorporated by reference to Exhibit 10.c of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (File No. 1-2227)). 10.q Crown Cork & Seal Company, Inc. Dividend Reinvestment and Stock Purchase Plan (incorporated by reference to the Company's Prospectus dated May 31, 1996 forming a part of the Registrant's Registration Statement on Form S-3 (No. 333-04971) filed with the Securities and Exchange Commission on May 31, 1996). Exhibits 10.a through 10.p, inclusive, are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) of this Report. 12. Computation of ratio of earnings to fixed charges. 21. Subsidiaries of Registrant. 23. Consent of Independent Accountants. 27. Financial Data Schedule. b) Reports on Form 8-K There were no reports on Form 8-K filed by Crown Cork & Seal Company, Inc. during the last quarter of the period for which this report is filed. -59- Crown Cork & Seal Company, Inc. 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. Crown Cork & Seal Company, Inc. Registrant Date: March 30, 2000 --------------------------------- By:/s/ Timothy J. Donahue ---------------------------------- Timothy J. Donahue Senior Vice President and Corporate Controller 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: SIGNATURE TITLE --------- ----- /s/ William J. Avery 3/30/00 - ---------------------------------- Chairman of the Board and Chief William J. Avery Executive Officer /s/ Alan W. Rutherford 3/30/00 - ---------------------------------- Director, Executive Vice President Alan W. Rutherford and Chief Financial Officer DIRECTORS --------- /s/ Henry E. Butwel 3/30/00 /s/ James L. Pate 3/30/00 - ---------------------------------- ----------------------------------- Henry E. Butwel James L. Pate /s/ John W. Conway 3/30/00 /s/ Thomas A. Ralph 3/30/00 - ---------------------------------- ----------------------------------- John W. Conway Thomas A. Ralph /s/ Arnold W. Donald 3/30/00 - ---------------------------------- ----------------------------------- Arnold W. Donald Jean-Pierre Rosso /s/ Harold A. Sorgenti 3/30/00 - ---------------------------------- ----------------------------------- Marie L. Garibaldi Harold A. Sorgenti /s/ John B. Neff 3/30/00 /s/ Guy de Wouters 3/30/00 - ---------------------------------- ----------------------------------- John B. Neff Guy de Wouters -60- EX-10.A.1 2 EXECUTIVE EMPLOYMENT AGREEMENT THIS IS AN EMPLOYMENT AGREEMENT ("Agreement"), effective January 3, 2000, ("Effective Date") between Crown Cork & Seal Company, Inc., (the "Company"), and William J. Avery (the "Executive"). Background WHEREAS, the Executive is currently employed by the Company as Chairman of the Board and Chief Executive Officer. WHEREAS, the Company desires to assure itself of the continued employment of the Executive with the Company and to encourage his continued attention and dedication to the best interests of the Company. WHEREAS, the Executive desires to remain and continue in the employment of the Company in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and intending to be legally bound hereby, the parties agree as follows: Terms 1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: 1.1. "Board" shall mean the Board of Directors of the Company. 1.2. "Cause" shall mean the termination of the Executive's employment with the Company as a result of: (a) the willful failure by the Executive to perform such services as may be reasonably delegated or assigned to the Executive by the Board; (b) the continued failure by the Executive to devote his full-time best effort to the performance of his duties under this Agreement (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (c) the breach by the Executive of any provision of Sections 6, 7 and 8 hereof or any other competition with the Company or any of its affiliates by the Executive; (d) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise; or (e) the Executive's conviction of, or a plea of nolo contendre to, a felony or a crime involving moral turpitude; in any case as approved by the Board upon the vote of not less than a majority of the Board members then in office, after reasonable notice to the Executive specifying in writing the basis or bases for the proposed termination for Cause and after the Executive, together with counsel, has been provided an opportunity to be heard before a meeting of the Board held upon reasonable notice to all Board members and the Executive. For purposes of this Section 1.2, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. Any act or omission to act by the Executive in reliance upon an opinion of counsel to the Company shall not be deemed to be willful. 1.3. "Change in Control" shall mean any of the following events: (a) a "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13D-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 1.3(a), Section 1.3(c) or Section 1.3(d) hereof) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the Company merges or consolidates with any other corporation, other than in a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells or otherwise disposes of all or substantially all of the Company's assets. -2- 1.4. "Good Reason" shall mean: (a) the assignment to the Executive, without the Executive's expressed written approval, of duties or responsibilities, inconsistent, in a material respect, with the Executive's position as provided in Section 2 or the reduction in Executive's duties, responsibilities or authority from those in effect on the date hereof; (b) a reduction by the Company in the Executive's "Base Salary" (as defined in Section 4.1 below) or in the other compensation and benefits, in the aggregate, payable to the Executive hereunder, or a material adverse change in the terms or conditions on which any such compensation or benefits are payable as in effect on the date hereof or as the same is increased from time to time during the term of this Agreement; (c) the Company's failure to pay the Executive any amounts otherwise vested and due hereunder or under any plan or policy of the Company; (d) a relocation of the Executive's primary place of employment, without the Executive's expressed written approval, to a location more than twenty (20) miles from the location at which the Executive performed his duties as of the Effective Date; or (e) the failure or refusal of the Company's Successor (as defined in Section 14 below) to expressly assume this Agreement in writing, and all of the duties and obligations of the Company hereunder in accordance with Section 14. 2. Position and Duties. The Company agrees to continue to employ the Executive and the Executive hereby agrees to continue to be employed by the Company, upon the terms, conditions and limitations set forth in this Agreement. The Executive shall serve as the Company's Chairman of the Board and Chief Executive Officer, with the customary duties, authorities and responsibility of a Chairman of the Board and Chief Executive Officer of a corporation and such other duties, authorities and responsibility (a) as have been agreed upon by the Company and the Executive or (b) as may from time to time be delegated to the Executive by the Board as are consistent with such position. The Executive agrees to perform the duties and responsibilities called for hereunder to the best of his ability and to devote his full time, energies and skills to such duties, with the understanding that he may participate in charitable and similar activities and may have business interests in passive investments which may, from time to time, require portions of his time, but such activities shall be done in a manner consistent with his obligations hereunder. 3. Term. The Executive's employment under this Agreement shall commence on the Effective Date and, unless sooner terminated as provided in this Section 3 or Section 5, shall continue for a period of five years from the Effective Date (the "Initial Term"). Except as otherwise provided herein, unless either party gives written notice to the other party at least thirty (30) days before the first anniversary of the Effective Date or any anniversary thereafter (a "Nonrenewal Notice"), the Agreement shall automatically be extended for an additional one-year period from each anniversary, subject to the same terms, conditions and limitations as applicable to the Initial Term unless amended or terminated as provided herein (the "Renewal Term"), so that the remaining period is never less than four years or more than five years. For purposes of -3- this Agreement, the Initial Term and all subsequent Renewal Terms shall be collectively referred to as the "Term" of this Agreement. Notwithstanding the foregoing, the Term, if not earlier terminated, shall terminate upon the Executive's "Normal Retirement Date" as such term is defined in the Company's Salaried Pension Plan, unless otherwise expressly agreed in writing by the Company and the Executive within the 60-day period preceding such Normal Retirement Date. 4. Compensation and Benefits. 4.1. Base Salary. The Company shall pay to the Executive for the performance of his duties under this Agreement an initial base salary of $927,000 per year (the "Base Salary"), payable in accordance with the Company's normal payroll practices. Thereafter, the rate of the Executive's Base Salary will be reviewed and increased as appropriate in accordance with the Company's regular compensation review practices. Effective as of the date of any such increase, the Base Salary so increased shall be considered the new Base Salary for all purposes of this Agreement and may not thereafter be reduced. Any increase in Base Salary shall not limit or reduce any other obligation of the Company to the Executive under this Agreement. 4.2. Annual Bonus. During the Term, in addition to Base Salary, for each fiscal year of the Company ending during the Term, the Executive shall participate in, and shall have the opportunity to receive a bonus in an amount to be determined in accordance with, the Company's Management Incentive Plan or any successor bonus plan, and any other bonus or incentive plan, program or arrangement established by the Company for the benefit of its executive officers (the "Annual Bonus Payment"). 4.3. Stock Options. During the Term, the Executive shall participate in and receive stock options under the Company's 1997 Stock-Based Incentive Plan, and any other option or incentive plans adopted and maintained by the Company, on terms commensurate with the Executive's position with the Company. 4.4. Other Compensation. During the Term, the Executive shall also be entitled to receive additional compensation in the form of other bonuses, 401(k) contributions and matches, deferred compensation, including without limitation continued participation in the Company's Senior Executive Retirement Plan (the "SERP"), and other incentive compensation, as well as other forms of compensation including those that are now or hereafter made available to the Company's executive officers generally, as such plans, programs, practices or policies may be in effect from time to time. 4.5. Employee Benefits. During the Term, the Executive shall be entitled to participate in all of the Company's employee benefit plans, programs and policies, including any retirement benefits or plans, group life, hospitalization or disability insurance plans, health programs, fringe benefit programs and similar plans, programs and policies, that are now or hereafter made available to the Company's executive officers generally, as such plans, programs and policies may be in effect from time to time, in each case to the extent that the Executive is eligible under the terms of such plans, programs and policies. -4- 4.6. Vacation. During the Term, the Executive shall be entitled to vacation in accordance with the Company's vacation policy. 4.7. Reimbursement of Expenses. During the Term, the Company will reimburse the Executive in accordance with the Company's expense reimbursement policy as in effect from time to time for expenses reasonably and properly incurred by him in performing his duties, provided that such expenses are incurred and accounted for in accordance with the policies and procedures presently or hereinafter established by the Company. 4.8. Automobile. During the Term, the Company shall make available to the Executive, an automobile in accordance with and subject to the conditions of the Company's standard automobile policy or practices as in effect from time to time. 4.9. Financial and Accounting Fees. During the Term, the Company shall reimburse the Executive for reasonable fees incurred by him for annual tax return preparation and financial planning. 5. Termination. 5.1. Death. The Executive's employment under this Agreement shall terminate immediately upon the Executive's death, and the Company shall have no further obligations under this Agreement, except to pay to the Executive's estate (or his beneficiary, as may be appropriate) (a) any Base Salary earned through his date of death, to the extent theretofore unpaid, (b) continued Base Salary payments through the end of the calendar year in which his death occurs, and (c) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of his death under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments. In the event the Executive dies during a period for which payments are required to be made under the terms of this Agreement, all such remaining payments and benefits shall continue to be payable to the Executive's estate or as may be directed by the personal representative of his estate. 5.2. Disability. If the Executive is unable to perform his duties under this Agreement because of a long-term disability as determined in accordance with the Company's Long-Term Disability Plan the Company may terminate the Executive's employment by giving written notice to the Executive. Such termination shall be effective as of the date of such notice and the Company shall have no further obligations under this Agreement, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, (b) continued Base Salary payments through the end of the calendar year in which such termination occurs, and (c) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of such termination under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. -5- 5.3. Retirement. The Executive's employment under this Agreement shall terminate upon the Executive's retirement under the Company's Salaried Pension Plan. Such termination shall be effective as of the date of the Executive's retirement, and the Company shall have no further obligations under this Agreement, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of the Executive's retirement, to the extent theretofore unpaid, and (b) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of his retirement under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.4. Termination For Cause. The Company may terminate the Executive's employment, and the Company's obligations, except as provided below, under this Agreement, at any time for Cause by giving written notice to the Executive. The Company's required notice of termination shall specify the event or circumstances that constitute Cause. Except as specified below, the Executive's termination shall be effective as of the date of such notice. If the event or circumstances specified in the Company's notice of termination constitute Cause under Section 1.2(a), 1.2(b) or 1.2(c) (or at the discretion of the Company under Section 1.2(d)), the Executive will have thirty (30) days to correct or eliminate such Cause provided the Executive is taking reasonable and demonstrable action to do so during such period. If the Executive has not corrected or eliminated such Cause by the end of such thirty (30) day period, the Executive's employment shall then terminate. Upon termination of the Executive's employment for Cause, the obligations of the Company under this Agreement shall terminate, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, and (b) such retirement, incentive, and other benefits earned and vested (if applicable) by the Executive as of such termination under any employee benefit plan of the Company in which the Executive participates, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.5. Involuntary Termination by the Company Other Than For Cause or Disability; Voluntary Termination by the Executive. (a) In General. The Company may terminate the Executive's employment without Cause, and the Executive may terminate his employment, at any time during the Term upon thirty (30) days' written notice to the other party; provided that during such notice period, the Board in its absolute discretion may relieve the Executive of all his duties, responsibilities and authority with respect to the Company and restrict the Executive's access to Company property. (b) Without Cause or for Good Reason, Prior to a Change in Control. If the Company terminates the Executive's employment without Cause, or if the Executive voluntarily terminates his employment for Good Reason, except during the one-year period following a Change in Control, the Company's obligations under this Agreement shall terminate upon such termination except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary through the date of such termination, paid in accordance with the Company's normal payroll practice, (ii) a lump-sum payment equal to the Executive's target -6- Annual Bonus Payment for the year of such termination, (iii) any previously earned Annual Bonus Payments, (iv) such retirement and other benefits earned by the Executive and vested (if applicable) under the terms of any employee benefit plan maintained by the Company in which the Executive participates, including without limitation the SERP, paid in the normal course for such payments, (v) a lump-sum payment equal to three (3) times the sum of Base Salary and the average Annual Bonus Payment paid or payable to the Executive for the three completed years prior to the year of such termination (the "Average Annual Bonus Payment"), and (vi) the continued health and other benefits provided by Article XI of the SERP as if the Executive's termination were a Termination Following a Change in Control (as defined in the SERP) or at the discretion of the Company, cash payments equal to the replacement value of such benefits. Each of the payments described in clauses (ii), (iii), and (v) above shall be made within thirty (30) days of the Executive's termination of employment; provided that in no event shall the payment described in clause (v) above be included in the term "Compensation" for purposes of the SERP. (c) Without Cause or Voluntary Termination by the Executive, Following a Change of Control. If the Company terminates the Executive's employment without Cause, or the Executive voluntarily terminates his employment for any reason or for no reason, during the one-year period following a Change in Control, the Company's obligations under this Agreement shall terminate upon such termination except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, paid in accordance with the Company's normal payroll practice, (ii) a lump-sum payment equal to the Executive's target Annual Bonus Payment for the year of such termination, (iii) any previously earned Annual Bonus Payments, (iv) such retirement and other benefits earned by the Executive and vested (if applicable) under the terms of any employee benefit plan maintained by the Company in which the Executive participates, including without limitation the SERP, paid in the normal course for such payments, (v) a lump-sum payment equal to three (3) times the sum of Base Salary and the Average Annual Bonus Payment, (vi) all outstanding stock options held by the Executive shall become immediately vested and exercisable, (vii) the continued health and other benefits provided by Article XI of the SERP in the event of a Termination Following a Change in Control (as defined in the SERP) whether or not the Executive's termination constitutes such a termination for purposes of the SERP. Each of the payments described in clauses (ii), (iii) and (v) above shall be made within thirty days of the Executive's termination of employment; provided that in no event shall the payment described in clause (v) above be included in the term "Compensation" for purposes of the SERP. (d) Without Good Reason (other than in the one-year period following a Change in Control). If the Executive voluntarily terminates his employment with the Company without Good Reason and such termination is not covered by the other provisions of this Section 5.5, the Company's obligations under this Agreement shall terminate except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary earned to the date of the Executive's termination of employment, to the extent theretofore unpaid, (ii) a pro-rated Annual Bonus Payment equal to the product of (A) the Average Annual Bonus Payment multiplied by (B) a fraction the numerator of which is the number of completed days in the year of termination during which the Executive was employed by the Company and the denominator -7- of which is three hundred sixty-five (365), and (iii) such retirement, incentive and other benefits earned by the Executive and vested (if applicable) as of the date of such termination under the terms of any employee benefit plan maintained by the Company in which the Executive participates, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.6. Expiration of Term. For purposes of this Section 5, if the Executive's employment is not terminated under this Section 5 before the Term would otherwise expire under Section 3, then a termination of employment at the expiration of the Term other than a termination due to the Executive's attainment of his Normal Retirement Date as provided in Section 3, shall be treated as a termination under Section 5.5(b). 5.7. Certain Additional Payments by the Company. In the event that the Executive becomes entitled to severance benefits or any other payment or benefit under this Agreement, or under any other agreement with or plan of the Company (in the aggregate, the "Total Payments"), if any of the Total Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to the Executive in cash an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax upon the Total Payments and any Federal, state and local income tax and Excise Tax upon the Gross-Up Payment provided for by this Section 5.7 shall be equal to the Total Payments. Such payments shall be made by the Company to the Executive as soon as practical following the effective date of termination, but in no event beyond thirty (30) days from such date. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax: (a) any other payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company, or with any person (which shall have the meaning set forth in Section 3(a)(9) of the Securities Exchange Act of 1934, including a "group" as defined in Section 13(d) therein) whose actions result in a Change in Control of the Company or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel as supported by the Company's independent auditors and acceptable to the Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (b) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of: (i) the total amount of the Total Payments or (ii) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (a) above); and (c) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal -8- income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the effective date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. All determinations required to be made under this Section 5.7 shall be made by a nationally recognized accounting firm (the "Accounting Firm") mutually acceptable to the parties, which shall provide detailed supporting calculations both to the Company and the Executive. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. 5.8. Mitigation and Offset. The Company's obligation to make the payments provided for in this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income or earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of Executive hereunder. 5.9. Board of Directors. The Executive specifically agrees that upon his termination of employment with the Company, whether voluntarily or involuntarily, his position as a member of the Company's Board of Directors shall immediately end and this Agreement shall act as notice of resignation by the Executive. 6. Confidential Information. Except as required in the performance of his duties to the Company under this Agreement, the Executive shall not, during or after the Term of this Agreement, use for himself or others, or disclose to others, any confidential information including without limitation, trade secrets, data, know-how, design, developmental or experimental work, Company relationships, computer programs, proprietary information bases and systems, data bases, customer lists, business plans, financial information of or about the Company or any of its affiliates, customers or clients, unless authorized in writing to do so by the Board, but excluding any information generally available to the public or information (except information related to the Company) which Executive possessed prior to his employment with the Company. The Executive understands that this undertaking applies to the information of either a technical or commercial or other nature and that any information not made available to the general public is to be considered confidential. The Executive acknowledges that such confidential information as is acquired and used by the Company or its affiliates is a special, valuable and unique asset. All records, files, materials and confidential information obtained by Executive in the course of his employment with the Company are confidential and proprietary and shall remain the exclusive property of the Company or its affiliates, as the case may be. 7. Return of Documents and Property. Upon the termination of Executive's employment from the Company, or at any time upon the request of the Company, Executive (or his heirs or personal representative) shall deliver to the Company (a) all documents and materials containing confidential information relating to the business or affairs of the Company or any of its affiliates, customers or clients and (b) all other documents, materials and other property belonging to the Company or its affiliates, customers or clients that are in the possession or under the control of Executive. -9- 8. Noncompetition. By and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees, unless the Executive requests in writing to the Board, and is thereafter authorized in writing to do so by the Board, that (a) during his employment under this Agreement, and (b) for the two (2) year period following the termination of employment, the Executive shall not directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any manner with, including without limitation as a consultant, any business which at any relevant time during said period directly or indirectly competes with the Company or any of its affiliates in any country in which the Company does business. Notwithstanding the foregoing, the Executive shall not be prohibited during the non-competition period described above from being a passive investor where he owns not more than five percent (5%) of the issued and outstanding capital stock of any publicly-held company. The Executive further agrees that during said period, the Executive shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company to terminate employment with the Company or hire any employee of the Company. Notwithstanding the foregoing, the Board, in its discretion, may permit the Executive to elect to not be subject to the restrictions contained in the first sentence of this Section 8 in exchange for the Executive's waiver of his right to any payments and benefits otherwise due him under Sections 5.5(b)(v) and (vi) or Sections 5.5(c)(v), (vi) and (vii), as applicable. 9. Enforcement: The Executive acknowledges that (i) the Executive's work for the Company has given and will continue to give him access to the confidential affairs and proprietary information of the Company; (ii) the covenants and agreements of the Executive contained in Sections 6, 7 and 8 are essential to the business and goodwill of the Company; and (iii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in Sections 6, 7 and 8. The Executive further acknowledges that in the event of his breach or threat of breach of Sections 6, 7 or 8 of this Agreement, the Company, in addition to any other legal remedies which may be available to it, shall be entitled to appropriate injunctive relief and/or specific performance in order to enforce or prevent any violations of such provisions, and the Executive and the Company hereby confer jurisdiction to enforce such provisions upon the courts of any jurisdiction within the geographical scope of such provisions. 10. Notices. All notices and other communications provided for herein that one party intends to give to the other party shall be in writing and shall be considered given when mailed or couriered, return receipt requested, or personally delivered, either to the party or at the addresses set forth below (or to such other address as a party shall designate by notice hereunder): If to the Company: Crown Cork & Seal Company, Inc. One Crown Way Philadelphia, PA 19154 Attention: Chairman of the Board of Directors -10- If to the Executive: William J. Avery 417 Gwynedd Valley Drive Gwynedd Valley, PA 19437 11. Legal Fees. The Company shall pay, at least monthly, all costs and expenses, including attorneys' fees and disbursements, of the Company and the Executive in connection with any legal proceeding, whether or not instituted by the Company or the Executive, relating to the interpretation or enforcement of any provision of this Agreement; provided that (i) if the Executive institutes the proceeding and the judge or other individual presiding over the proceeding affirmatively finds that the Executive instituted the proceeding in bad faith, or (ii) if at issue is whether or not the Executive was discharged by the Company for Cause and such judge or other decision-maker finds that the Executive was so discharged for Cause, then the Executive shall pay his own costs and expenses and promptly (and in no event more than 60 days after demand therefor by the Company) return to the Company any such amounts previously paid by the Company under this Section 11. 12. Amendments. This Agreement may be amended, modified or superseded only by a written instrument executed by both of the parties hereto. 13. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and the Executive and their respective heirs, executors, personal representatives, successors and permitted assigns. 14. Assignability. This Agreement shall not be assignable, in whole or in part, by either party, without the prior written consent of the other party, provided that (i) this Agreement shall be binding upon and shall be assigned by the Company to any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the assets of the Company, or its successor (the "Company's Successor"), (ii) the Company shall require the Company's Successor to expressly assume in writing all of the Company's obligations under this Agreement and (iii) the Company's Successor shall be deemed substituted for the Company for all purposes of this Agreement. 15. Arbitration. Except as provided in Section 9 of this Agreement, any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association, and judgment upon any award so rendered may be entered in any court having jurisdiction thereof. The determination of the arbitrator(s) shall be conclusive and binding on the Company and the Executive, and judgment may be entered on the arbitrator(s)' award in any court having jurisdiction. 16. Governing Law. Except to the extent such laws are superseded by Federal laws, this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. 17. Entire Agreement. This Agreement contains the entire Agreement between the parties relative to its subject matter, superseding all prior agreements or understandings of the parties -11- relating thereto. In the event of any conflict between this Agreement and the terms of any benefit plan or any other agreement, including without limitation the SERP and any agreement entered into pursuant thereto, the terms of this Agreement will control. 18. Waiver. Any term or provision of this Agreement may be waived in writing at any time by the party entitled to the benefit thereof. The failure of either party at any time to require performance of any provision of this Agreement shall not affect such party's right at a later time to enforce such provision. No consent or waiver by either party to any default or to any breach of a condition or term in this Agreement shall be deemed or construed to be a consent or waiver to any other breach or default. 19. Withholding of Taxes. All payments made by the Company to the Executive under this Agreement shall be subject to the withholding of such amounts, if any, relating to tax, and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 20. Indemnification. During and after the Term, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Articles of Incorporation and By-Laws, provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Articles of Incorporation and By-Laws or policies of the Company as in effect immediately prior to the date hereof. 21. Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 6, 7, 8, 9, 14, 15 and 18, and the other provisions of this Agreement (to the extent necessary to effectuate the survival of Sections 6, 7, 8, 9, 14, 15 and 18), shall survive termination of this Agreement and any termination of the Executive's employment hereunder. 22. Invalidity of Portion of Agreement. If any provision of this Agreement or the application thereof to either party shall be invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby and shall be enforceable to the fullest extent of the law. If any clause or provision hereof is determined by any court of competent jurisdiction to be unenforceable because of its scope or duration, the parties expressly agree that such court shall have the power to reduce the duration and/or restrict the scope of such clause or provision to the extent necessary to permit enforcement of such clause or provision in reduced or restricted form. -12- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above. Crown Cork & Seal Company, Inc. /s/ Alan W. Rutherford ----------------------------- Alan W. Rutherford Executive Vice President and Chief Financial Officer Executive /s/ William J. Avery ----------------------------- William J. Avery -13- EX-10.A.2 3 EXECUTIVE EMPLOYMENT AGREEMENT THIS IS AN EMPLOYMENT AGREEMENT ("Agreement"), effective January 3, 2000, ("Effective Date") between Crown Cork & Seal Company, Inc., (the "Company"), and John W. Conway (the "Executive"). Background WHEREAS, the Executive is currently employed by the Company as President and Chief Operating Officer. WHEREAS, the Company desires to assure itself of the continued employment of the Executive with the Company and to encourage his continued attention and dedication to the best interests of the Company. WHEREAS, the Executive desires to remain and continue in the employment of the Company in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and intending to be legally bound hereby, the parties agree as follows: Terms 1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: 1.1. "Board" shall mean the Board of Directors of the Company. 1.2. "Cause" shall mean the termination of the Executive's employment with the Company as a result of: (a) the willful failure by the Executive to perform such services as may be reasonably delegated or assigned to the Executive by the Board; (b) the continued failure by the Executive to devote his full-time best effort to the performance of his duties under this Agreement (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (c) the breach by the Executive of any provision of Sections 6, 7 and 8 hereof or any other competition with the Company or any of its affiliates by the Executive; (d) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise; or (e) the Executive's conviction of, or a plea of nolo contendre to, a felony or a crime involving moral turpitude; in any case as approved by the Board upon the vote of not less than a majority of the Board members then in office, after reasonable notice to the Executive specifying in writing the basis or bases for the proposed termination for Cause and after the Executive, together with counsel, has been provided an opportunity to be heard before a meeting of the Board held upon reasonable notice to all Board members and the Executive. For purposes of this Section 1.2, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. Any act or omission to act by the Executive in reliance upon an opinion of counsel to the Company shall not be deemed to be willful. 1.3. "Change in Control" shall mean any of the following events: (a) a "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13D-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 1.3(a), Section 1.3(c) or Section 1.3(d) hereof) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the Company merges or consolidates with any other corporation, other than in a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells or otherwise disposes of all or substantially all of the Company's assets. -2- 1.4. "Good Reason" shall mean: (a) the assignment to the Executive, without the Executive's expressed written approval, of duties or responsibilities, inconsistent, in a material respect, with the Executive's position as provided in Section 2 or the reduction in Executive's duties, responsibilities or authority from those in effect on the date hereof; (b) a reduction by the Company in the Executive's "Base Salary" (as defined in Section 4.1 below) or in the other compensation and benefits, in the aggregate, payable to the Executive hereunder, or a material adverse change in the terms or conditions on which any such compensation or benefits are payable as in effect on the date hereof or as the same is increased from time to time during the term of this Agreement; (c) the Company's failure to pay the Executive any amounts otherwise vested and due hereunder or under any plan or policy of the Company; (d) a relocation of the Executive's primary place of employment, without the Executive's expressed written approval, to a location more than twenty (20) miles from the location at which the Executive performed his duties as of the Effective Date; or (e) the failure or refusal of the Company's Successor (as defined in Section 14 below) to expressly assume this Agreement in writing, and all of the duties and obligations of the Company hereunder in accordance with Section 14. 2. Position and Duties. The Company agrees to continue to employ the Executive and the Executive hereby agrees to continue to be employed by the Company, upon the terms, conditions and limitations set forth in this Agreement. The Executive shall serve as the Company's President and Chief Operating Officer, with the customary duties, authorities and responsibility of a President and Chief Operating Officer of a corporation and such other duties, authorities and responsibility (a) as have been agreed upon by the Company and the Executive or (b) as may from time to time be delegated to the Executive by the Chief Executive Officer as are consistent with such position. The Executive agrees to perform the duties and responsibilities called for hereunder to the best of his ability and to devote his full time, energies and skills to such duties, with the understanding that he may participate in charitable and similar activities and may have business interests in passive investments which may, from time to time, require portions of his time, but such activities shall be done in a manner consistent with his obligations hereunder. 3. Term. The Executive's employment under this Agreement shall commence on the Effective Date and, unless sooner terminated as provided in this Section 3 or Section 5, shall continue for a period of five years from the Effective Date (the "Initial Term"). Except as otherwise provided herein, unless either party gives written notice to the other party at least thirty (30) days before the first anniversary of the Effective Date or any anniversary thereafter (a "Nonrenewal Notice"), the Agreement shall automatically be extended for an additional one-year period from each anniversary, subject to the same terms, conditions and limitations as applicable to the Initial Term unless amended or terminated as provided herein (the "Renewal Term"), so that the remaining period is never less than four years or more than five years. For purposes of this Agreement, the Initial Term and all subsequent Renewal Terms shall be collectively referred to as the "Term" of this Agreement. Notwithstanding the foregoing, the Term, if not earlier -3- terminated, shall terminate upon the Executive's "Normal Retirement Date" as such term is defined in the Company's Salaried Pension Plan, unless otherwise expressly agreed in writing by the Company and the Executive within the 60-day period preceding such Normal Retirement Date. 4. Compensation and Benefits. 4.1. Base Salary. The Company shall pay to the Executive for the performance of his duties under this Agreement an initial base salary of $600,000 per year (the "Base Salary"), payable in accordance with the Company's normal payroll practices. Thereafter, the rate of the Executive's Base Salary will be reviewed and increased as appropriate in accordance with the Company's regular compensation review practices. Effective as of the date of any such increase, the Base Salary so increased shall be considered the new Base Salary for all purposes of this Agreement and may not thereafter be reduced. Any increase in Base Salary shall not limit or reduce any other obligation of the Company to the Executive under this Agreement. 4.2. Annual Bonus. During the Term, in addition to Base Salary, for each fiscal year of the Company ending during the Term, the Executive shall participate in, and shall have the opportunity to receive a bonus in an amount to be determined in accordance with, the Company's Management Incentive Plan or any successor bonus plan, and any other bonus or incentive plan, program or arrangement established by the Company for the benefit of its executive officers (the "Annual Bonus Payment"). 4.3. Stock Options. During the Term, the Executive shall participate in and receive stock options under the Company's 1997 Stock-Based Incentive Plan, and any other option or incentive plans adopted and maintained by the Company, on terms commensurate with the Executive's position with the Company. 4.4. Other Compensation. During the Term, the Executive shall also be entitled to receive additional compensation in the form of other bonuses, 401(k) contributions and matches, deferred compensation, including without limitation continued participation in the Company's Senior Executive Retirement Plan (the "SERP"), and other incentive compensation, as well as other forms of compensation including those that are now or hereafter made available to the Company's executive officers generally, as such plans, programs, practices or policies may be in effect from time to time. 4.5. Employee Benefits. During the Term, the Executive shall be entitled to participate in all of the Company's employee benefit plans, programs and policies, including any retirement benefits or plans, group life, hospitalization or disability insurance plans, health programs, fringe benefit programs and similar plans, programs and policies, that are now or hereafter made available to the Company's executive officers generally, as such plans, programs and policies may be in effect from time to time, in each case to the extent that the Executive is eligible under the terms of such plans, programs and policies. 4.6. Vacation. During the Term, the Executive shall be entitled to vacation in accordance with the Company's vacation policy. -4- 4.7. Reimbursement of Expenses. During the Term, the Company will reimburse the Executive in accordance with the Company's expense reimbursement policy as in effect from time to time for expenses reasonably and properly incurred by him in performing his duties, provided that such expenses are incurred and accounted for in accordance with the policies and procedures presently or hereinafter established by the Company. 4.8. Automobile. During the Term, the Company shall make available to the Executive, an automobile in accordance with and subject to the conditions of the Company's standard automobile policy or practices as in effect from time to time. 4.9. Financial and Accounting Fees. During the Term, the Company shall reimburse the Executive for reasonable fees incurred by him for annual tax return preparation and financial planning. 5. Termination. 5.1. Death. The Executive's employment under this Agreement shall terminate immediately upon the Executive's death, and the Company shall have no further obligations under this Agreement, except to pay to the Executive's estate (or his beneficiary, as may be appropriate) (a) any Base Salary earned through his date of death, to the extent theretofore unpaid, (b) continued Base Salary payments through the end of the calendar year in which his death occurs, and (c) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of his death under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments. In the event the Executive dies during a period for which payments are required to be made under the terms of this Agreement, all such remaining payments and benefits shall continue to be payable to the Executive's estate or as may be directed by the personal representative of his estate. 5.2. Disability. If the Executive is unable to perform his duties under this Agreement because of a long-term disability as determined in accordance with the Company's Long-Term Disability Plan the Company may terminate the Executive's employment by giving written notice to the Executive. Such termination shall be effective as of the date of such notice and the Company shall have no further obligations under this Agreement, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, (b) continued Base Salary payments through the end of the calendar year in which such termination occurs, and (c) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of such termination under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.3. Retirement. The Executive's employment under this Agreement shall terminate upon the Executive's retirement under the Company's Salaried Pension Plan. Such termination shall be effective as of the date of the Executive's retirement, and the Company shall have no further obligations under this Agreement, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of the Executive's retirement, to the extent theretofore -5- unpaid, and (b) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of his retirement under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.4. Termination For Cause. The Company may terminate the Executive's employment, and the Company's obligations, except as provided below, under this Agreement, at any time for Cause by giving written notice to the Executive. The Company's required notice of termination shall specify the event or circumstances that constitute Cause. Except as specified below, the Executive's termination shall be effective as of the date of such notice. If the event or circumstances specified in the Company's notice of termination constitute Cause under Section 1.2(a), 1.2(b) or 1.2(c) (or at the discretion of the Company under Section 1.2(d)), the Executive will have thirty (30) days to correct or eliminate such Cause provided the Executive is taking reasonable and demonstrable action to do so during such period. If the Executive has not corrected or eliminated such Cause by the end of such thirty (30) day period, the Executive's employment shall then terminate. Upon termination of the Executive's employment for Cause, the obligations of the Company under this Agreement shall terminate, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, and (b) such retirement, incentive, and other benefits earned and vested (if applicable) by the Executive as of such termination under any employee benefit plan of the Company in which the Executive participates, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.5. Involuntary Termination by the Company Other Than For Cause or Disability; Voluntary Termination by the Executive. (a) In General. The Company may terminate the Executive's employment without Cause, and the Executive may terminate his employment, at any time during the Term upon thirty (30) days' written notice to the other party; provided that during such notice period, the Board in its absolute discretion may relieve the Executive of all his duties, responsibilities and authority with respect to the Company and restrict the Executive's access to Company property. (b) Without Cause or for Good Reason, Prior to a Change in Control. If the Company terminates the Executive's employment without Cause, or if the Executive voluntarily terminates his employment for Good Reason, except during the one-year period following a Change in Control, the Company's obligations under this Agreement shall terminate upon such termination except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary through the date of such termination, paid in accordance with the Company's normal payroll practice, (ii) a lump-sum payment equal to the Executive's target Annual Bonus Payment for the year of such termination, (iii) any previously earned Annual Bonus Payments, (iv) such retirement and other benefits earned by the Executive and vested (if applicable) under the terms of any employee benefit plan maintained by the Company in which the Executive participates, including without limitation the SERP, paid in the normal course for such payments, (v) a lump-sum payment equal to three (3) times the sum of Base Salary and the average Annual Bonus Payment paid or payable to the Executive for the three completed years -6- prior to the year of such termination (the "Average Annual Bonus Payment"), and (vi) the continued health and other benefits provided by Article XI of the SERP as if the Executive's termination were a Termination Following a Change in Control (as defined in the SERP) or at the discretion of the Company, cash payments equal to the replacement value of such benefits. Each of the payments described in clauses (ii), (iii), and (v) above shall be made within thirty (30) days of the Executive's termination of employment; provided that in no event shall the payment described in clause (v) above be included in the term "Compensation" for purposes of the SERP. (c) Without Cause or for Good Reason, Following a Change of Control. If the Company terminates the Executive's employment without Cause, or the Executive voluntarily terminates his employment for Good Reason, during the one-year period following a Change in Control, the Company's obligations under this Agreement shall terminate upon such termination except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, paid in accordance with the Company's normal payroll practice, (ii) a lump-sum payment equal to the Executive's target Annual Bonus Payment for the year of such termination, (iii) any previously earned Annual Bonus Payments, (iv) such retirement and other benefits earned by the Executive and vested (if applicable) under the terms of any employee benefit plan maintained by the Company in which the Executive participates, including without limitation the SERP, paid in the normal course for such payments, (v) a lump-sum payment equal to three (3) times the sum of Base Salary and the Average Annual Bonus Payment, (vi) all outstanding stock options held by the Executive shall become immediately vested and exercisable, (vii) the continued health and other benefits provided by Article XI of the SERP in the event of a Termination Following a Change in Control (as defined in the SERP) whether or not the Executive's termination constitutes such a termination for purposes of the SERP. Each of the payments described in clauses (ii), (iii) and (v) above shall be made within thirty days of the Executive's termination of employment; provided that in no event shall the payment described in clause (v) above be included in the term "Compensation" for purposes of the SERP. (d) Without Good Reason. If the Executive voluntarily terminates his employment with the Company without Good Reason, the Company's obligations under this Agreement shall terminate except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary earned to the date of the Executive's termination of employment, to the extent theretofore unpaid, (ii) a pro-rated Annual Bonus Payment equal to the product of (A) the Average Annual Bonus Payment multiplied by (B) a fraction the numerator of which is the number of completed days in the year of termination during which the Executive was employed by the Company and the denominator of which is three hundred sixty-five (365), and (iii) such retirement, incentive and other benefits earned by the Executive and vested (if applicable) as of the date of such termination under the terms of any employee benefit plan maintained by the Company in which the Executive participates, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.6. Expiration of Term. For purposes of this Section 5, if the Executive's employment is not terminated under this Section 5 before the Term would otherwise expire under Section 3, then a termination of employment at the expiration of the Term other than a -7- termination due to the Executive's attainment of his Normal Retirement Date as provided in Section 3, shall be treated as a termination under Section 5.5(b). 5.7. Certain Additional Payments by the Company. In the event that the Executive becomes entitled to severance benefits or any other payment or benefit under this Agreement, or under any other agreement with or plan of the Company (in the aggregate, the "Total Payments"), if any of the Total Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to the Executive in cash an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax upon the Total Payments and any Federal, state and local income tax and Excise Tax upon the Gross-Up Payment provided for by this Section 5.7 shall be equal to the Total Payments. Such payments shall be made by the Company to the Executive as soon as practical following the effective date of termination, but in no event beyond thirty (30) days from such date. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax: (a) any other payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company, or with any person (which shall have the meaning set forth in Section 3(a)(9) of the Securities Exchange Act of 1934, including a "group" as defined in Section 13(d) therein) whose actions result in a Change in Control of the Company or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel as supported by the Company's independent auditors and acceptable to the Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (b) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of: (i) the total amount of the Total Payments or (ii) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (a) above); and (c) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the effective date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. All determinations required to be made under this Section 5.7 shall be made by a nationally recognized accounting firm (the "Accounting Firm") mutually acceptable to the parties, which shall provide detailed supporting calculations both to the Company and the Executive. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. 5.8. Mitigation and Offset. The Company's obligation to make the payments provided for in this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or -8- other claim, right or action which the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income or earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of Executive hereunder. 5.9. Board of Directors. The Executive specifically agrees that upon his termination of employment with the Company, whether voluntarily or involuntarily, his position as a member of the Company's Board of Directors shall immediately end and this Agreement shall act as notice of resignation by the Executive. 6. Confidential Information. Except as required in the performance of his duties to the Company under this Agreement, the Executive shall not, during or after the Term of this Agreement, use for himself or others, or disclose to others, any confidential information including without limitation, trade secrets, data, know-how, design, developmental or experimental work, Company relationships, computer programs, proprietary information bases and systems, data bases, customer lists, business plans, financial information of or about the Company or any of its affiliates, customers or clients, unless authorized in writing to do so by the Board, but excluding any information generally available to the public or information (except information related to the Company) which Executive possessed prior to his employment with the Company. The Executive understands that this undertaking applies to the information of either a technical or commercial or other nature and that any information not made available to the general public is to be considered confidential. The Executive acknowledges that such confidential information as is acquired and used by the Company or its affiliates is a special, valuable and unique asset. All records, files, materials and confidential information obtained by Executive in the course of his employment with the Company are confidential and proprietary and shall remain the exclusive property of the Company or its affiliates, as the case may be. 7. Return of Documents and Property. Upon the termination of Executive's employment from the Company, or at any time upon the request of the Company, Executive (or his heirs or personal representative) shall deliver to the Company (a) all documents and materials containing confidential information relating to the business or affairs of the Company or any of its affiliates, customers or clients and (b) all other documents, materials and other property belonging to the Company or its affiliates, customers or clients that are in the possession or under the control of Executive. 8. Noncompetition. By and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees, unless the Executive requests in writing to the Board, and is thereafter authorized in writing to do so by the Board, that (a) during his employment under this Agreement, and (b) for the two (2) year period following the termination of employment, the Executive shall not directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any manner with, including without limitation as a consultant, any business which at any relevant time during said period directly or indirectly competes with the Company or any of its affiliates in any country in which the Company does business. Notwithstanding the foregoing, the -9- Executive shall not be prohibited during the non-competition period described above from being a passive investor where he owns not more than five percent (5%) of the issued and outstanding capital stock of any publicly-held company. The Executive further agrees that during said period, the Executive shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company to terminate employment with the Company or hire any employee of the Company. Notwithstanding the foregoing, the Board, in its discretion, may permit the Executive to elect to not be subject to the restrictions contained in the first sentence of this Section 8 in exchange for the Executive's waiver of his right to any payments and benefits otherwise due him under Sections 5.5(b)(v) and (vi) or Sections 5.5(c)(v)-(vii), as applicable. 9. Enforcement: The Executive acknowledges that (i) the Executive's work for the Company has given and will continue to give him access to the confidential affairs and proprietary information of the Company; (ii) the covenants and agreements of the Executive contained in Sections 6, 7 and 8 are essential to the business and goodwill of the Company; and (iii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in Sections 6, 7 and 8. The Executive further acknowledges that in the event of his breach or threat of breach of Sections 6, 7 or 8 of this Agreement, the Company, in addition to any other legal remedies which may be available to it, shall be entitled to appropriate injunctive relief and/or specific performance in order to enforce or prevent any violations of such provisions, and the Executive and the Company hereby confer jurisdiction to enforce such provisions upon the courts of any jurisdiction within the geographical scope of such provisions. 10. Notices. All notices and other communications provided for herein that one party intends to give to the other party shall be in writing and shall be considered given when mailed or couriered, return receipt requested, or personally delivered, either to the party or at the addresses set forth below (or to such other address as a party shall designate by notice hereunder): If to the Company: Crown Cork & Seal Company, Inc. One Crown Way Philadelphia, PA 19154 Attention: Chairman of the Board of Directors If to the Executive: John W Conway 6059 Stoney Hill Road New Hope, PA 18938 11. Legal Fees. The Company shall pay, at least monthly, all costs and expenses, including attorneys' fees and disbursements, of the Company and the Executive in connection with any legal proceeding, whether or not instituted by the Company or the Executive, relating to the interpretation or enforcement of any provision of this Agreement; provided that (i) if the Executive institutes the proceeding and the judge or other individual presiding over the proceeding affirmatively finds that the Executive instituted the proceeding in bad faith, or (ii) if at issue is whether or not the Executive was discharged by the Company for Cause and such judge or other decision-maker finds that the Executive was so discharged for Cause, then the -10- Executive shall pay his own costs and expenses and promptly (and in no event more than 60 days after demand therefor by the Company) return to the Company any such amounts previously paid by the Company under this Section 11. 12. Amendments. This Agreement may be amended, modified or superseded only by a written instrument executed by both of the parties hereto. 13. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and the Executive and their respective heirs, executors, personal representatives, successors and permitted assigns. 14. Assignability. This Agreement shall not be assignable, in whole or in part, by either party, without the prior written consent of the other party, provided that (i) this Agreement shall be binding upon and shall be assigned by the Company to any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the assets of the Company, or its successor (the "Company's Successor"), (ii) the Company shall require the Company's Successor to expressly assume in writing all of the Company's obligations under this Agreement and (iii) the Company's Successor shall be deemed substituted for the Company for all purposes of this Agreement. 15. Arbitration. Except as provided in Section 9 of this Agreement, any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association, and judgment upon any award so rendered may be entered in any court having jurisdiction thereof. The determination of the arbitrator(s) shall be conclusive and binding on the Company and the Executive, and judgment may be entered on the arbitrator(s)' award in any court having jurisdiction. 16. Governing Law. Except to the extent such laws are superseded by Federal laws, this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. 17. Entire Agreement. This Agreement contains the entire Agreement between the parties relative to its subject matter, superseding all prior agreements or understandings of the parties relating thereto. In the event of any conflict between this Agreement and the terms of any benefit plan or any other agreement, including without limitation the SERP and any agreement entered into pursuant thereto, the terms of this Agreement will control. 18. Waiver. Any term or provision of this Agreement may be waived in writing at any time by the party entitled to the benefit thereof. The failure of either party at any time to require performance of any provision of this Agreement shall not affect such party's right at a later time to enforce such provision. No consent or waiver by either party to any default or to any breach of a condition or term in this Agreement shall be deemed or construed to be a consent or waiver to any other breach or default. 19. Withholding of Taxes. All payments made by the Company to the Executive under this Agreement shall be subject to the withholding of such amounts, if any, relating to tax, and other -11- payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 20. Indemnification. During and after the Term, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Articles of Incorporation and By-Laws, provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Articles of Incorporation and By-Laws or policies of the Company as in effect immediately prior to the date hereof. 21. Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 6, 7, 8, 9, 14, 15 and 18, and the other provisions of this Agreement (to the extent necessary to effectuate the survival of Sections 6, 7, 8, 9, 14, 15 and 18), shall survive termination of this Agreement and any termination of the Executive's employment hereunder. 22. Invalidity of Portion of Agreement. If any provision of this Agreement or the application thereof to either party shall be invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby and shall be enforceable to the fullest extent of the law. If any clause or provision hereof is determined by any court of competent jurisdiction to be unenforceable because of its scope or duration, the parties expressly agree that such court shall have the power to reduce the duration and/or restrict the scope of such clause or provision to the extent necessary to permit enforcement of such clause or provision in reduced or restricted form. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above. Crown Cork & Seal Company, Inc. /s/ William J. Avery ----------------------------- William J. Avery Chairman of the Board and Chief Executive Officer /s/ John W. Conway ------------------------------ John W. Conway -12- EX-10.A.3 4 EXECUTIVE EMPLOYMENT AGREEMENT THIS IS AN EMPLOYMENT AGREEMENT ("Agreement"), effective January 3, 2000, ("Effective Date") between Crown Cork & Seal Company, Inc., (the "Company"), and Alan W. Rutherford (the "Executive"). Background WHEREAS, the Executive is currently employed by the Company as Executive Vice President and Chief Financial Officer. WHEREAS, the Company desires to assure itself of the continued employment of the Executive with the Company and to encourage his continued attention and dedication to the best interests of the Company. WHEREAS, the Executive desires to remain and continue in the employment of the Company in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and intending to be legally bound hereby, the parties agree as follows: Terms 1. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: 1.1. "Board" shall mean the Board of Directors of the Company. 1.2. "Cause" shall mean the termination of the Executive's employment with the Company as a result of: (a) the willful failure by the Executive to perform such services as may be reasonably delegated or assigned to the Executive by the Board; (b) the continued failure by the Executive to devote his full-time best effort to the performance of his duties under this Agreement (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); (c) the breach by the Executive of any provision of Sections 6, 7 and 8 hereof or any other competition with the Company or any of its affiliates by the Executive; (d) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise; or (e) the Executive's conviction of, or a plea of nolo contendre to, a felony or a crime involving moral turpitude; in any case as approved by the Board upon the vote of not less than a majority of the Board members then in office, after reasonable notice to the Executive specifying in writing the basis or bases for the proposed termination for Cause and after the Executive, together with counsel, has been provided an opportunity to be heard before a meeting of the Board held upon reasonable notice to all Board members and the Executive. For purposes of this Section 1.2, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. Any act or omission to act by the Executive in reliance upon an opinion of counsel to the Company shall not be deemed to be willful. 1.3. "Change in Control" shall mean any of the following events: (a) a "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13D-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 1.3(a), Section 1.3(c) or Section 1.3(d) hereof) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the Company merges or consolidates with any other corporation, other than in a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or the Company sells or otherwise disposes of all or substantially all of the Company's assets. -2- 1.4. "Good Reason" shall mean: (a) the assignment to the Executive, without the Executive's expressed written approval, of duties or responsibilities, inconsistent, in a material respect, with the Executive's position as provided in Section 2 or the reduction in Executive's duties, responsibilities or authority from those in effect on the date hereof; (b) a reduction by the Company in the Executive's "Base Salary" (as defined in Section 4.1 below) or in the other compensation and benefits, in the aggregate, payable to the Executive hereunder, or a material adverse change in the terms or conditions on which any such compensation or benefits are payable as in effect on the date hereof or as the same is increased from time to time during the term of this Agreement; (c) the Company's failure to pay the Executive any amounts otherwise vested and due hereunder or under any plan or policy of the Company; (d) a relocation of the Executive's primary place of employment, without the Executive's expressed written approval, to a location more than twenty (20) miles from the location at which the Executive performed his duties as of the Effective Date; or (e) the failure or refusal of the Company's Successor (as defined in Section 14 below) to expressly assume this Agreement in writing, and all of the duties and obligations of the Company hereunder in accordance with Section 14. 2. Position and Duties. The Company agrees to continue to employ the Executive and the Executive hereby agrees to continue to be employed by the Company, upon the terms, conditions and limitations set forth in this Agreement. The Executive shall serve as the Company's Executive Vice President and Chief Financial Officer, with the customary duties, authorities and responsibility of an Executive Vice President and Chief Financial Officer of a corporation and such other duties, authorities and responsibility (a) as have been agreed upon by the Company and the Executive or (b) as may from time to time be delegated to the Executive by the Chief Executive Officer as are consistent with such position. The Executive agrees to perform the duties and responsibilities called for hereunder to the best of his ability and to devote his full time, energies and skills to such duties, with the understanding that he may participate in charitable and similar activities and may have business interests in passive investments which may, from time to time, require portions of his time, but such activities shall be done in a manner consistent with his obligations hereunder. 3. Term. The Executive's employment under this Agreement shall commence on the Effective Date and, unless sooner terminated as provided in this Section 3 or Section 5, shall continue for a period of five years from the Effective Date (the "Initial Term"). Except as otherwise provided herein, unless either party gives written notice to the other party at least thirty (30) days before the first anniversary of the Effective Date or any anniversary thereafter (a "Nonrenewal Notice"), the Agreement shall automatically be extended for an additional one-year period from each anniversary, subject to the same terms, conditions and limitations as applicable to the Initial Term unless amended or terminated as provided herein (the "Renewal Term"), so that the remaining period is never less than four years or more than five years. For purposes of this Agreement, the Initial Term and all subsequent Renewal Terms shall be collectively referred -3- to as the "Term" of this Agreement. Notwithstanding the foregoing, the Term, if not earlier terminated, shall terminate upon the Executive's "Normal Retirement Date" as such term is defined in the Company's Salaried Pension Plan, unless otherwise expressly agreed in writing by the Company and the Executive within the 60-day period preceding such Normal Retirement Date. 4. Compensation and Benefits. 4.1. Base Salary. The Company shall pay to the Executive for the performance of his duties under this Agreement an initial base salary of $450,000 per year (the "Base Salary"), payable in accordance with the Company's normal payroll practices. Thereafter, the rate of the Executive's Base Salary will be reviewed and increased as appropriate in accordance with the Company's regular compensation review practices. Effective as of the date of any such increase, the Base Salary so increased shall be considered the new Base Salary for all purposes of this Agreement and may not thereafter be reduced. Any increase in Base Salary shall not limit or reduce any other obligation of the Company to the Executive under this Agreement. 4.2. Annual Bonus. During the Term, in addition to Base Salary, for each fiscal year of the Company ending during the Term, the Executive shall participate in, and shall have the opportunity to receive a bonus in an amount to be determined in accordance with, the Company's Management Incentive Plan or any successor bonus plan, and any other bonus or incentive plan, program or arrangement established by the Company for the benefit of its executive officers (the "Annual Bonus Payment"). 4.3. Stock Options. During the Term, the Executive shall participate in and receive stock options under the Company's 1997 Stock-Based Incentive Plan, and any other option or incentive plans adopted and maintained by the Company, on terms commensurate with the Executive's position with the Company. 4.4. Other Compensation. During the Term, the Executive shall also be entitled to receive additional compensation in the form of other bonuses, 401(k) contributions and matches, deferred compensation, including without limitation continued participation in the Company's Senior Executive Retirement Plan (the "SERP"), and other incentive compensation, as well as other forms of compensation including those that are now or hereafter made available to the Company's executive officers generally, as such plans, programs, practices or policies may be in effect from time to time. 4.5. Employee Benefits. During the Term, the Executive shall be entitled to participate in all of the Company's employee benefit plans, programs and policies, including any retirement benefits or plans, group life, hospitalization or disability insurance plans, health programs, fringe benefit programs and similar plans, programs and policies, that are now or hereafter made available to the Company's executive officers generally, as such plans, programs and policies may be in effect from time to time, in each case to the extent that the Executive is eligible under the terms of such plans, programs and policies. 4.6. Vacation. During the Term, the Executive shall be entitled to vacation in accordance with the Company's vacation policy. -4- 4.7. Reimbursement of Expenses. During the Term, the Company will reimburse the Executive in accordance with the Company's expense reimbursement policy as in effect from time to time for expenses reasonably and properly incurred by him in performing his duties, provided that such expenses are incurred and accounted for in accordance with the policies and procedures presently or hereinafter established by the Company. 4.8. Automobile. During the Term, the Company shall make available to the Executive, an automobile in accordance with and subject to the conditions of the Company's standard automobile policy or practices as in effect from time to time. 4.9. Financial and Accounting Fees. During the Term, the Company shall reimburse the Executive for reasonable fees incurred by him for annual tax return preparation and financial planning. 5. Termination. 5.1. Death. The Executive's employment under this Agreement shall terminate immediately upon the Executive's death, and the Company shall have no further obligations under this Agreement, except to pay to the Executive's estate (or his beneficiary, as may be appropriate) (a) any Base Salary earned through his date of death, to the extent theretofore unpaid, (b) continued Base Salary payments through the end of the calendar year in which his death occurs, and (c) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of his death under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments. In the event the Executive dies during a period for which payments are required to be made under the terms of this Agreement, all such remaining payments and benefits shall continue to be payable to the Executive's estate or as may be directed by the personal representative of his estate. 5.2. Disability. If the Executive is unable to perform his duties under this Agreement because of a long-term disability as determined in accordance with the Company's Long-Term Disability Plan the Company may terminate the Executive's employment by giving written notice to the Executive. Such termination shall be effective as of the date of such notice and the Company shall have no further obligations under this Agreement, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, (b) continued Base Salary payments through the end of the calendar year in which such termination occurs, and (c) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of such termination under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.3. Retirement. The Executive's employment under this Agreement shall terminate upon the Executive's retirement under the Company's Salaried Pension Plan. Such termination shall be effective as of the date of the Executive's retirement, and the Company shall have no further obligations under this Agreement, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of the Executive's retirement, to the extent theretofore -5- unpaid, and (b) such retirement, incentive and other benefits earned and vested (if applicable) by the Executive as of the date of his retirement under any employee benefit plan of the Company in which the Executive participates, including without limitation all payments due under the SERP and other retirement plans, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.4. Termination For Cause. The Company may terminate the Executive's employment, and the Company's obligations, except as provided below, under this Agreement, at any time for Cause by giving written notice to the Executive. The Company's required notice of termination shall specify the event or circumstances that constitute Cause. Except as specified below, the Executive's termination shall be effective as of the date of such notice. If the event or circumstances specified in the Company's notice of termination constitute Cause under Section 1.2(a), 1.2(b) or 1.2(c) (or at the discretion of the Company under Section 1.2(d)), the Executive will have thirty (30) days to correct or eliminate such Cause provided the Executive is taking reasonable and demonstrable action to do so during such period. If the Executive has not corrected or eliminated such Cause by the end of such thirty (30) day period, the Executive's employment shall then terminate. Upon termination of the Executive's employment for Cause, the obligations of the Company under this Agreement shall terminate, except for the obligation to pay to the Executive (a) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, and (b) such retirement, incentive, and other benefits earned and vested (if applicable) by the Executive as of such termination under any employee benefit plan of the Company in which the Executive participates, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.5. Involuntary Termination by the Company Other Than For Cause or Disability; Voluntary Termination by the Executive. (a) In General. The Company may terminate the Executive's employment without Cause, and the Executive may terminate his employment, at any time during the Term upon thirty (30) days' written notice to the other party; provided that during such notice period, the Board in its absolute discretion may relieve the Executive of all his duties, responsibilities and authority with respect to the Company and restrict the Executive's access to Company property. (b) Without Cause or for Good Reason, Prior to a Change in Control. If the Company terminates the Executive's employment without Cause, or if the Executive voluntarily terminates his employment for Good Reason, except during the one-year period following a Change in Control, the Company's obligations under this Agreement shall terminate upon such termination except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary through the date of such termination, paid in accordance with the Company's normal payroll practice, (ii) a lump-sum payment equal to the Executive's target Annual Bonus Payment for the year of such termination, (iii) any previously earned Annual Bonus Payments, (iv) such retirement and other benefits earned by the Executive and vested (if applicable) under the terms of any employee benefit plan maintained by the Company in which the Executive participates, including without limitation the SERP, paid in the normal course for such payments, (v) a lump-sum payment equal to three (3) times the sum of Base Salary and the average Annual Bonus Payment paid or payable to the Executive for the three completed years -6- prior to the year of such termination (the "Average Annual Bonus Payment"), and (vi) the continued health and other benefits provided by Article XI of the SERP as if the Executive's termination were a Termination Following a Change in Control (as defined in the SERP) or at the discretion of the Company, cash payments equal to the replacement value of such benefits. Each of the payments described in clauses (ii), (iii), and (v) above shall be made within thirty (30) days of the Executive's termination of employment; provided that in no event shall the payment described in clause (v) above be included in the term "Compensation" for purposes of the SERP. (c) Without Cause or for Good Reason, Following a Change of Control. If the Company terminates the Executive's employment without Cause, or the Executive voluntarily terminates his employment for Good Reason, during the one-year period following a Change in Control, the Company's obligations under this Agreement shall terminate upon such termination except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary earned through the date of such termination, to the extent theretofore unpaid, paid in accordance with the Company's normal payroll practice, (ii) a lump-sum payment equal to the Executive's target Annual Bonus Payment for the year of such termination, (iii) any previously earned Annual Bonus Payments, (iv) such retirement and other benefits earned by the Executive and vested (if applicable) under the terms of any employee benefit plan maintained by the Company in which the Executive participates, including without limitation the SERP, paid in the normal course for such payments, (v) a lump-sum payment equal to three (3) times the sum of Base Salary and the Average Annual Bonus Payment, (vi) all outstanding stock options held by the Executive shall become immediately vested and exercisable, (vii) the continued health and other benefits provided by Article XI of the SERP in the event of a Termination Following a Change in Control (as defined in the SERP) whether or not the Executive's termination constitutes such a termination for purposes of the SERP. Each of the payments described in clauses (ii), (iii) and (v) above shall be made within thirty days of the Executive's termination of employment; provided that in no event shall the payment described in clause (v) above be included in the term "Compensation" for purposes of the SERP. (d) Without Good Reason. If the Executive voluntarily terminates his employment with the Company without Good Reason, the Company's obligations under this Agreement shall terminate except for the Company's obligation to pay or to provide to the Executive the following: (i) any Base Salary earned to the date of the Executive's termination of employment, to the extent theretofore unpaid, (ii) a pro-rated Annual Bonus Payment equal to the product of (A) the Average Annual Bonus Payment multiplied by (B) a fraction the numerator of which is the number of completed days in the year of termination during which the Executive was employed by the Company and the denominator of which is three hundred sixty-five (365), and (iii) such retirement, incentive and other benefits earned by the Executive and vested (if applicable) as of the date of such termination under the terms of any employee benefit plan maintained by the Company in which the Executive participates, all of the foregoing to be paid in the normal course for such payments and in accordance with the terms of such plans. 5.6. Expiration of Term. For purposes of this Section 5, if the Executive's employment is not terminated under this Section 5 before the Term would otherwise expire under Section 3, then a termination of employment at the expiration of the Term other than a -7- termination due to the Executive's attainment of his Normal Retirement Date as provided in Section 3, shall be treated as a termination under Section 5.5(b). 5.7. Certain Additional Payments by the Company. In the event that the Executive becomes entitled to severance benefits or any other payment or benefit under this Agreement, or under any other agreement with or plan of the Company (in the aggregate, the "Total Payments"), if any of the Total Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to the Executive in cash an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax upon the Total Payments and any Federal, state and local income tax and Excise Tax upon the Gross-Up Payment provided for by this Section 5.7 shall be equal to the Total Payments. Such payments shall be made by the Company to the Executive as soon as practical following the effective date of termination, but in no event beyond thirty (30) days from such date. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax: (a) any other payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company, or with any person (which shall have the meaning set forth in Section 3(a)(9) of the Securities Exchange Act of 1934, including a "group" as defined in Section 13(d) therein) whose actions result in a Change in Control of the Company or any person affiliated with the Company or such persons) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel as supported by the Company's independent auditors and acceptable to the Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (b) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of: (i) the total amount of the Total Payments or (ii) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (a) above); and (c) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay Federal income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the effective date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. All determinations required to be made under this Section 5.7 shall be made by a nationally recognized accounting firm (the "Accounting Firm") mutually acceptable to the parties, which shall provide detailed supporting calculations both to the Company and the Executive. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. 5.8. Mitigation and Offset. The Company's obligation to make the payments provided for in this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or -8- other claim, right or action which the Company may have against the Executive or others. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income or earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of Executive hereunder. 5.9. Board of Directors. The Executive specifically agrees that upon his termination of employment with the Company, whether voluntarily or involuntarily, his position as a member of the Company's Board of Directors shall immediately end and this Agreement shall act as notice of resignation by the Executive. 6. Confidential Information. Except as required in the performance of his duties to the Company under this Agreement, the Executive shall not, during or after the Term of this Agreement, use for himself or others, or disclose to others, any confidential information including without limitation, trade secrets, data, know-how, design, developmental or experimental work, Company relationships, computer programs, proprietary information bases and systems, data bases, customer lists, business plans, financial information of or about the Company or any of its affiliates, customers or clients, unless authorized in writing to do so by the Board, but excluding any information generally available to the public or information (except information related to the Company) which Executive possessed prior to his employment with the Company. The Executive understands that this undertaking applies to the information of either a technical or commercial or other nature and that any information not made available to the general public is to be considered confidential. The Executive acknowledges that such confidential information as is acquired and used by the Company or its affiliates is a special, valuable and unique asset. All records, files, materials and confidential information obtained by Executive in the course of his employment with the Company are confidential and proprietary and shall remain the exclusive property of the Company or its affiliates, as the case may be. 7. Return of Documents and Property. Upon the termination of Executive's employment from the Company, or at any time upon the request of the Company, Executive (or his heirs or personal representative) shall deliver to the Company (a) all documents and materials containing confidential information relating to the business or affairs of the Company or any of its affiliates, customers or clients and (b) all other documents, materials and other property belonging to the Company or its affiliates, customers or clients that are in the possession or under the control of Executive. 8. Noncompetition. By and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, and further in consideration of the Executive's exposure to the proprietary information of the Company, the Executive agrees, unless the Executive requests in writing to the Board, and is thereafter authorized in writing to do so by the Board, that (a) during his employment under this Agreement, and (b) for the two (2) year period following the termination of employment, the Executive shall not directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any manner with, including without limitation as a consultant, any business which at any relevant time during said period directly or indirectly competes with the Company or any of its affiliates in any country in which the Company does business. Notwithstanding the foregoing, the -9- Executive shall not be prohibited during the non-competition period described above from being a passive investor where he owns not more than five percent (5%) of the issued and outstanding capital stock of any publicly-held company. The Executive further agrees that during said period, the Executive shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company to terminate employment with the Company or hire any employee of the Company. Notwithstanding the foregoing, the Board, in its discretion, may permit the Executive to elect to not be subject to the restrictions contained in the first sentence of this Section 8 in exchange for the Executive's waiver of his right to any payments and benefits otherwise due him under Sections 5.5(b)(v) and (vi) or Sections 5.5(c)(v)-(vii), as applicable. 9. Enforcement: The Executive acknowledges that (i) the Executive's work for the Company has given and will continue to give him access to the confidential affairs and proprietary information of the Company; (ii) the covenants and agreements of the Executive contained in Sections 6, 7 and 8 are essential to the business and goodwill of the Company; and (iii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in Sections 6, 7 and 8. The Executive further acknowledges that in the event of his breach or threat of breach of Sections 6, 7 or 8 of this Agreement, the Company, in addition to any other legal remedies which may be available to it, shall be entitled to appropriate injunctive relief and/or specific performance in order to enforce or prevent any violations of such provisions, and the Executive and the Company hereby confer jurisdiction to enforce such provisions upon the courts of any jurisdiction within the geographical scope of such provisions. 10. Notices. All notices and other communications provided for herein that one party intends to give to the other party shall be in writing and shall be considered given when mailed or couriered, return receipt requested, or personally delivered, either to the party or at the addresses set forth below (or to such other address as a party shall designate by notice hereunder): If to the Company: Crown Cork & Seal Company, Inc. One Crown Way Philadelphia, PA 19154 Attention: Chairman of the Board of Directors If to the Executive: Alan W. Rutherford 216 Saint Andrews Court Blue Bell, PA 19422-1288 11. Legal Fees. The Company shall pay, at least monthly, all costs and expenses, including attorneys' fees and disbursements, of the Company and the Executive in connection with any legal proceeding, whether or not instituted by the Company or the Executive, relating to the interpretation or enforcement of any provision of this Agreement; provided that (i) if the Executive institutes the proceeding and the judge or other individual presiding over the proceeding affirmatively finds that the Executive instituted the proceeding in bad faith, or (ii) if at issue is whether or not the Executive was discharged by the Company for Cause and such judge or other decision-maker finds that the Executive was so discharged for Cause, then the -10- Executive shall pay his own costs and expenses and promptly (and in no event more than 60 days after demand therefor by the Company) return to the Company any such amounts previously paid by the Company under this Section 11. 12. Amendments. This Agreement may be amended, modified or superseded only by a written instrument executed by both of the parties hereto. 13. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and the Executive and their respective heirs, executors, personal representatives, successors and permitted assigns. 14. Assignability. This Agreement shall not be assignable, in whole or in part, by either party, without the prior written consent of the other party, provided that (i) this Agreement shall be binding upon and shall be assigned by the Company to any person, firm or corporation with which the Company may be merged or consolidated or which may acquire all or substantially all of the assets of the Company, or its successor (the "Company's Successor"), (ii) the Company shall require the Company's Successor to expressly assume in writing all of the Company's obligations under this Agreement and (iii) the Company's Successor shall be deemed substituted for the Company for all purposes of this Agreement. 15. Arbitration. Except as provided in Section 9 of this Agreement, any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association, and judgment upon any award so rendered may be entered in any court having jurisdiction thereof. The determination of the arbitrator(s) shall be conclusive and binding on the Company and the Executive, and judgment may be entered on the arbitrator(s)' award in any court having jurisdiction. 16. Governing Law. Except to the extent such laws are superseded by Federal laws, this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. 17. Entire Agreement. This Agreement contains the entire Agreement between the parties relative to its subject matter, superseding all prior agreements or understandings of the parties relating thereto. In the event of any conflict between this Agreement and the terms of any benefit plan or any other agreement, including without limitation the SERP and any agreement entered into pursuant thereto, the terms of this Agreement will control. 18. Waiver. Any term or provision of this Agreement may be waived in writing at any time by the party entitled to the benefit thereof. The failure of either party at any time to require performance of any provision of this Agreement shall not affect such party's right at a later time to enforce such provision. No consent or waiver by either party to any default or to any breach of a condition or term in this Agreement shall be deemed or construed to be a consent or waiver to any other breach or default. 19. Withholding of Taxes. All payments made by the Company to the Executive under this Agreement shall be subject to the withholding of such amounts, if any, relating to tax, and other -11- payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 20. Indemnification. During and after the Term, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Company's Articles of Incorporation and By-Laws, provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Articles of Incorporation and By-Laws or policies of the Company as in effect immediately prior to the date hereof. 21. Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 6, 7, 8, 9, 14, 15 and 18, and the other provisions of this Agreement (to the extent necessary to effectuate the survival of Sections 6, 7, 8, 9, 14, 15 and 18), shall survive termination of this Agreement and any termination of the Executive's employment hereunder. 22. Invalidity of Portion of Agreement. If any provision of this Agreement or the application thereof to either party shall be invalid or unenforceable to any extent, the remainder of this Agreement shall not be affected thereby and shall be enforceable to the fullest extent of the law. If any clause or provision hereof is determined by any court of competent jurisdiction to be unenforceable because of its scope or duration, the parties expressly agree that such court shall have the power to reduce the duration and/or restrict the scope of such clause or provision to the extent necessary to permit enforcement of such clause or provision in reduced or restricted form. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above. Crown Cork & Seal Company, Inc. /s/ William J. Avery ----------------------------- William J. Avery Chairman of the Board and Chief Executive Officer /s/ Alan W. Rutherford ----------------------------- Alan W. Rutherford -12- EX-10.B 5 CONSULTING AGREEMENT THIS IS A CONSULTING AGREEMENT ("Agreement") dated April 1, 2000, between Crown Cork & Seal Company, Inc., a Pennsylvania corporation, ("Company") and Michael J. McKenna ("Consultant"). BACKGROUND WHEREAS, the Consultant has been a long-time executive of the Company and has retired; WHEREAS, the Consultant has special knowledge, expertise and experience concerning the business and operations of the Company; and WHEREAS, the Company desires to have continuing access to the Consultant's knowledge, expertise and experience, and the Consultant is willing to provide the same to the Company. TERMS In consideration of the mutual covenants contained herein and intending to be legally bound hereby, the Company and the Consultant agree as follows: 1. Consulting Services. The Consultant is hereby engaged to consult with and provide the Company advice on any issue pertaining to the business or operations of the Company, its subsidiaries, divisions or affiliates, as may be requested from time to time by the Chief Executive Officer, President or any Executive Vice-President of the Company (the "Consulting Services"); provided that the Consultant will not be required to devote more than 416 hours per year in the performance of the Consulting Services. If the hours worked are in excess of the Agreement, the fee will be adjusted accordingly. The Consultant will devote his best efforts and skills in rendering the Consulting Services. 2. Term of the Agreement. The term of this Agreement shall be from April 1, 2000 to March 31, 2002 ("Agreement Period"). Either party may terminate this Agreement immediately upon written notice if the other party hereto is in breach of any material term or condition of this Agreement and such breach has not been cured within 30 days following written notice of such breach. Notwithstanding the cure period provided in the preceding paragraph, the Company may terminate this Agreement immediately upon the gross negligence or willful misconduct of the Consultant in the performance of the Consulting Services. This Agreement shall terminate automatically upon the death or "disability" of the Consultant. For purposes of this Agreement, "disability" shall be defined as the inability of the Consultant due to a physical or mental health condition to provide the Consulting Services for a period of 90 consecutive days. 3. Compensation and Expenses. As compensation for the Consulting Services, the Company will pay the Consultant an aggregate fee of $250,000, payable in two equal installments. The first installment will be paid upon the signing of this Agreement and the second installment will be paid on the first anniversary of this Agreement provided that this Agreement has not been terminated prior to such anniversary date. The Consultant will retain and maintain his current Company automobile under the existing Corporate Automobile Policy for the duration of this Agreement. The Company shall also reimburse the Consultant for all reasonable and necessary expenses incurred by the Consultant in connection with performance of the Consulting Services. To obtain reimbursement, the Consultant must first submit to the Company invoices, receipts or other appropriate documentation of the expenses in accordance with the Company's reimbursement policy. Payment of such expenses shall be made by the Company within thirty (30) days of receipt of such documentation. All payments made by the Company to the Consultant under this Agreement shall be subject to the withholding of such amounts, if any, relating to tax and other deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 4. Confidential Information. Except as required in the performance of the Consulting Services, the Consultant shall not, during or after the Agreement Period, use for himself or others, or disclose to others, any confidential information including without limitation, trade secrets, data, know-how, design, developmental or experimental work, Company relationships, computer programs, proprietary information bases and systems, data bases, customer lists, business plans, financial information of or about the Company or any of its affiliates, customers or clients, unless authorized in writing to do so by the Company, but excluding any information generally available to the public. The Consultant understands that this undertaking applies to the information of either a technical or commercial or other nature and that any information not made available to the general public is to be considered confidential. 5. Return of Documents and Property. Upon the termination of this Agreement, or at any time upon the request of the Company, the Consultant (or his heirs or personal representative) shall deliver to the Company (a) all documents and materials containing confidential information relating to the business or affairs of the Company or any of its affiliates, customers or clients and (b) all other documents, materials and other property belonging to the Company or its affiliates, customers or clients that are in the possession or under the control of the Consultant. -2- 6. Noncompetition. By and in consideration of the compensation to be paid by the Company hereunder, the Consultant agrees that during the Agreement Period, the Consultant shall not directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any manner with, including without limitation as a consultant, any business which at any relevant time during said period directly or indirectly competes with the Company or any of its affiliates in any country in which the Company does business. Notwithstanding the foregoing, the Consultant shall not be prohibited during the non-competition period described above from being a passive investor where he owns not more than five percent (5%) of the outstanding capital stock of any publicly-held company. The Consultant further agrees that during said period, the Consultant shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company or any of its affiliates to terminate employment or hire any employee of the Company or any of its affiliates. 7. Enforcement: The Consultant acknowledges that (i) the Consultant's work for the Company will give him access to the confidential affairs and proprietary information of the Company; (ii) the covenants and agreements of the Consultant contained in Sections 4, 5 and 6 are essential to the business and goodwill of the Company; and (iii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in Sections 4, 5 and 6. The Consultant further acknowledges that in the event of his breach or threat of breach of Sections 4, 5 or 6 of this Agreement, the Company, in addition to any other legal remedies which may be available to it, shall be entitled to appropriate injunctive relief and/or specific performance in order to enforce or prevent any violations of such provisions, and the Consultant and the Company hereby confer jurisdiction to enforce such provisions upon the courts of any jurisdiction within the geographical scope of such provisions. 8. Independent Contractor. In providing Consulting Services under this Agreement, it is mutually understood and agreed that the Consultant is acting and performing as an independent contractor and not an employee or agent of the Company. The Consultant shall not make any representations to being an employee or agent of the Company and shall pay all federal, state and local taxes which shall be become due on any money paid to the Consultant by the Company under the terms of this Agreement. Consultant hereby acknowledges and agrees that he is not entitled to participate in or receive coverage under any benefit plan of the Company with respect to the performance of the Consulting Services under this Agreement. 9. Personal Performance of Work and Nonassignability. The services provided under this Agreement shall all be provided personally by the Consultant. The Consultant may not assign any rights or performance obligations under this Agreement to any other party. Any attempt to make such an assignment will be void. 10. Compliance with Applicable Law. In providing services under this Agreement, the Consultant shall comply with all applicable federal, state and local laws and regulations. -3- 11. Notices. All notices given pursuant to this Agreement shall be in writing and shall be directed as follows (or to such other address as a party shall designate by notice hereunder): For the Consultant: For the Company: Michael J. McKenna Chief Executive Officer The Regency Island Dunes Crown Cork & Seal Company, Inc. 8650 S. Ocean Dr. Unit #701 One Crown Way Jensen Beach, FL 34957 Philadelphia, PA 19154 12. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and the Consultant and their respective heirs, executor, personal representatives, successors and permitted assigns. 13. Waiver. Any term or provision of this Agreement may be waived in writing at any time by the party entitled to the benefit thereof. The failure of either party at any time to require performance of any provision of this Agreement shall not affect such party's right at a later time to enforce such provision. No consent or waiver by either party to any default or to any breach of a condition or term in this Agreement shall be deemed or construed to be a consent or waiver to any other breach or default. 14. Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 4, 5, 6 and 7, and the other provisions of this Agreement (to the extent necessary to effectuate the survival of Sections 4, 5, 6 and 7), shall survive termination of this Agreement. 15. Entire Agreement. This Agreement contains the entire agreement between the parties relative to its subject matter, superseding all prior agreements or understandings of the parties relating thereto. This Agreement may be amended, modified or superseded only by a written instrument executed by both of the parties hereto. 16. Invalidity. The fact that any portion of this Agreement shall be found invalid or unenforceable shall not effect the validity or enforceability of the remainder of this Agreement. If any clause or provision hereof is determined by any court of competent jurisdiction to be unenforceable because of its scope or duration, the parties expressly agree that such court shall have the power to reduce the duration and/or restrict the scope of such clause or provision to the extent necessary to permit enforcement of such clause or provision in reduced or restricted form. 17. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. -4- 18. Execution. This Agreement may be executed in counterparts and will be valid even though the signatures of all parties do not appear on the same page. CROWN CORK & SEAL COMPANY, INC. /s/ William J. Avery ------------------------------------- By: William J. Avery CONSULTANT /s/ Michael J. McKenna ------------------------------------- Michael J. McKenna -5- EX-10.C 6 CONSULTING AGREEMENT THIS IS A CONSULTING AGREEMENT ("Agreement") dated February 1, 2000, between Crown Cork & Seal Company, Inc., a Pennsylvania corporation, ("Company") and Ronald R. Thoma ("Consultant"). BACKGROUND WHEREAS, the Consultant has been a long-time executive of the Company and has retired; WHEREAS, the Consultant has special knowledge, expertise and experience concerning the business and operations of the Company; and WHEREAS, the Company desires to have continuing access to the Consultant's knowledge, expertise and experience, and the Consultant is willing to provide the same to the Company. TERMS In consideration of the mutual covenants contained herein and intending to be legally bound hereby, the Company and the Consultant agree as follows: 1. Consulting Services. The Consultant is hereby engaged to consult with and provide the Company advice on any issue pertaining to the business or operations of the Company, its subsidiaries, divisions or affiliates, as may be requested from time to time by the Chief Executive Officer, President or any Executive Vice-President of the Company (the "Consulting Services"); provided that the Consultant will not be required to devote more than 625 hours per year in the performance of the Consulting Services. If the hours worked are in excess of the Agreement, the fee will be adjusted accordingly. The Consultant will devote his best efforts and skills in rendering the Consulting Services. 2. Term of the Agreement. The term of this Agreement shall be from February 1, 2000 to January 31, 2002 ("Agreement Period"). Either party may terminate this Agreement immediately upon written notice if the other party hereto is in breach of any material term or condition of this Agreement and such breach has not been cured within 30 days following written notice of such breach. Notwithstanding the cure period provided in the preceding paragraph, the Company may terminate this Agreement immediately upon the gross negligence or willful misconduct of the Consultant in the performance of the Consulting Services. This Agreement shall terminate automatically upon the death or "disability" of the Consultant. For purposes of this Agreement, "disability" shall be defined as the inability of the Consultant due to a physical or mental health condition to provide the Consulting Services for a period of 90 consecutive days. 3. Compensation and Expenses. As compensation for the Consulting Services, the Company will pay the Consultant an aggregate fee of $150,000, payable in two equal installments. The first installment will be paid upon the signing of this Agreement and the second installment will be paid on the first anniversary of this Agreement provided that this Agreement has not been terminated prior to such anniversary date. The Consultant will retain and maintain his current Company automobile under the existing Corporate Automobile Policy for the duration of this Agreement. The Company shall also reimburse the Consultant for all reasonable and necessary expenses incurred by the Consultant in connection with performance of the Consulting Services. To obtain reimbursement, the Consultant must first submit to the Company invoices, receipts or other appropriate documentation of the expenses in accordance with the Company's reimbursement policy. Payment of such expenses shall be made by the Company within thirty (30) days of receipt of such documentation. All payments made by the Company to the Consultant under this Agreement shall be subject to the withholding of such amounts, if any, relating to tax and other deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 4. Confidential Information. Except as required in the performance of the Consulting Services, the Consultant shall not, during or after the Agreement Period, use for himself or others, or disclose to others, any confidential information including without limitation, trade secrets, data, know-how, design, developmental or experimental work, Company relationships, computer programs, proprietary information bases and systems, data bases, customer lists, business plans, financial information of or about the Company or any of its affiliates, customers or clients, unless authorized in writing to do so by the Company, but excluding any information generally available to the public. The Consultant understands that this undertaking applies to the information of either a technical or commercial or other nature and that any information not made available to the general public is to be considered confidential. 5. Return of Documents and Property. Upon the termination of this Agreement, or at any time upon the request of the Company, the Consultant (or his heirs or personal representative) shall deliver to the Company (a) all documents and materials containing confidential information relating to the business or affairs of the Company or any of its affiliates, customers or clients and (b) all other documents, materials and other property belonging to the Company or its affiliates, customers or clients that are in the possession or under the control of the Consultant. -2- 6. Noncompetition. By and in consideration of the compensation to be paid by the Company hereunder, the Consultant agrees that during the Agreement Period, the Consultant shall not directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed or otherwise connected in any manner with, including without limitation as a consultant, any business which at any relevant time during said period directly or indirectly competes with the Company or any of its affiliates in any country in which the Company does business. Notwithstanding the foregoing, the Consultant shall not be prohibited during the non-competition period described above from being a passive investor where he owns not more than five percent (5%) of the outstanding capital stock of any publicly-held company. The Consultant further agrees that during said period, the Consultant shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company or any of its affiliates to terminate employment or hire any employee of the Company or any of its affiliates. 7. Enforcement: The Consultant acknowledges that (i) the Consultant's work for the Company will give him access to the confidential affairs and proprietary information of the Company; (ii) the covenants and agreements of the Consultant contained in Sections 4, 5 and 6 are essential to the business and goodwill of the Company; and (iii) the Company would not have entered into this Agreement but for the covenants and agreements set forth in Sections 4, 5 and 6. The Consultant further acknowledges that in the event of his breach or threat of breach of Sections 4, 5 or 6 of this Agreement, the Company, in addition to any other legal remedies which may be available to it, shall be entitled to appropriate injunctive relief and/or specific performance in order to enforce or prevent any violations of such provisions, and the Consultant and the Company hereby confer jurisdiction to enforce such provisions upon the courts of any jurisdiction within the geographical scope of such provisions. 8. Independent Contractor. In providing Consulting Services under this Agreement, it is mutually understood and agreed that the Consultant is acting and performing as an independent contractor and not an employee or agent of the Company. The Consultant shall not make any representations to being an employee or agent of the Company and shall pay all federal, state and local taxes which shall be become due on any money paid to the Consultant by the Company under the terms of this Agreement. Consultant hereby acknowledges and agrees that he is not entitled to participate in or receive coverage under any benefit plan of the Company with respect to the performance of the Consulting Services under this Agreement. 9. Personal Performance of Work and Nonassignability. The services provided under this Agreement shall all be provided personally by the Consultant. The Consultant may not assign any rights or performance obligations under this Agreement to any other party. Any attempt to make such an assignment will be void. 10. Compliance with Applicable Law. In providing services under this Agreement, the Consultant shall comply with all applicable federal, state and local laws and regulations. -3- 11. Notices. All notices given pursuant to this Agreement shall be in writing and shall be directed as follows (or to such other address as a party shall designate by notice hereunder): For the Consultant: For the Company: Ronald R. Thoma Chief Executive Officer 1481 Bristol Road Crown Cork & Seal Company, Inc. Churchville, PA 18966-1511 One Crown Way Philadelphia, PA 19154 12. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the Company and the Consultant and their respective heirs, executor, personal representatives, successors and permitted assigns. 13. Waiver. Any term or provision of this Agreement may be waived in writing at any time by the party entitled to the benefit thereof. The failure of either party at any time to require performance of any provision of this Agreement shall not affect such party's right at a later time to enforce such provision. No consent or waiver by either party to any default or to any breach of a condition or term in this Agreement shall be deemed or construed to be a consent or waiver to any other breach or default. 14. Survival. Anything contained in this Agreement to the contrary notwithstanding, the provisions of Sections 4, 5, 6 and 7, and the other provisions of this Agreement (to the extent necessary to effectuate the survival of Sections 4, 5, 6 and 7), shall survive termination of this Agreement. 15. Entire Agreement. This Agreement contains the entire agreement between the parties relative to its subject matter, superseding all prior agreements or understandings of the parties relating thereto. This Agreement may be amended, modified or superseded only by a written instrument executed by both of the parties hereto. 16. Invalidity. The fact that any portion of this Agreement shall be found invalid or unenforceable shall not effect the validity or enforceability of the remainder of this Agreement. If any clause or provision hereof is determined by any court of competent jurisdiction to be unenforceable because of its scope or duration, the parties expressly agree that such court shall have the power to reduce the duration and/or restrict the scope of such clause or provision to the extent necessary to permit enforcement of such clause or provision in reduced or restricted form. 17. Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania without reference to principles of conflict of laws. -4- 18. Execution. This Agreement may be executed in counterparts and will be valid even though the signatures of all parties do not appear on the same page. CROWN CORK & SEAL COMPANY, INC. /s/ William J. Avery ---------------------------------------- By: William J. Avery CONSULTANT /s/ Ronald R. Thoma ---------------------------------------- Ronald R. Thoma -5- EX-10.D 7 RESTRICTED STOCK AGREEMENT Background Crown Cork & Seal Company, Inc. (the "Company") desires to encourage the highest level of performance from __________ ("Mr. __________") as an executive officer of the Company by providing Mr. __________ a proprietary interest in the Company's success and progress. Accordingly, the Company has determined to grant Mr. __________ _____ shares of the Company's common stock, subject to restrictions designed to retain Mr. __________'s services and encourage the highest level of performance. Therefore, the Company and Mr. __________, both intending to be legally bound, hereby agree as follows: Agreement 1. The Company, immediately following the execution of this Agreement, will issue or transfer _____ shares of the Company's common stock (the "Stock") to Mr. __________ (the "Grant"). The Grant shall consist of a certificate for ___ shares registered in Mr. __________'s name, subject to the restrictions set forth herein. 2. The Company will deliver to the Treasurer or the Secretary of the Company (the "Secretary") a stock certificate, representing ___ shares of Stock, showing Mr. __________ as the registered owner of such Stock (the "Certificate"), to be held in escrow in accordance with the terms of this agreement. 3. Simultaneously with the delivery of the Certificate described above, Mr. __________ will sign and deliver to the Secretary an undated stock power with respect to the Certificate, authorizing the Secretary to transfer title to the Certificate to the Company, in case Mr. __________ ceases to be an executive officer of the Company. 4. Mr. __________ will be considered a shareholder with respect to the escrowed Stock and will have all corresponding rights, including the right to vote the Stock and to receive all dividends and other distributions with respect to the Stock, except that Mr. __________ will have no right to sell, exchange, transfer, pledge, hypothecate or otherwise dispose of any escrowed stock, and Mr. __________'s rights in the escrowed Stock will be subject to forfeiture as provided in paragraph 6(a) of this Agreement. 5. Mr. __________ will vest in the Stock on March 15, 2001. On such date, the escrow will terminate and the Secretary will deliver the Certificate to Mr. __________ as soon as practicable. If, on or before March 15, 2001, any of the conditions described in paragraph 6(a) of this Agreement have occurred, and Mr. _________ has not previously vested in the Stock pursuant to paragraph 6(b) below, Mr. __________ shall not vest in the Stock and shall forfeit all rights with respect to any such Stock. Title to all such forfeited Stock shall, at the direction of the Company, be transferred back to the Company. 6. (a) Mr. __________ shall forfeit all escrowed Stock upon the termination of his service as an executive officer for any reason, whether voluntary or involuntary, other than by reason of death or permanent physical or mental disability as determined by the Board of Directors of the Company, or upon any attempt by Mr. __________ to sell, exchange, transfer, pledge, hypothecate or otherwise dispose or encumber any of the escrowed Stock. (b) In the event of (i) Mr.__________'s death or disability as described above, or (ii) a Change in Control (as such term is defined in the Employment Agreement, effective as of January 3, 2000, between the Company and Mr. __________) of the Company, Mr. __________ shall vest in the Stock immediately, the escrow shall terminate and the Secretary shall deliver the Certificate to Mr. __________ or his personal representative as soon as practicable thereafter. 7. Mr. __________ represents that he is acquiring the Stock for investment and not with a view to distribution. All shares of Stock issued to Mr. __________ or his personal representative from the Secretary shall be transferred in accordance with all applicable laws, regulations or listing requirements of any national securities exchange, and the Company may take all actions necessary or appropriate to comply with such requirements including, without limitation, withholding federal income and other taxes with respect to such Stock; restricting (by legend or otherwise) such Stock as shall be necessary or appropriate, in the opinion of counsel for the Company, to comply with applicable federal and state securities laws, which restrictions shall continue to apply after the delivery of a Certificate for the Stock to Mr. __________ or his personal representative; and postponing the issuance or delivery of any Stock. Notwithstanding -2- any provision in this Agreement to the contrary, the Company shall not be obligated to issue or deliver any Stock if such action violates any provision of any law or regulation of any governmental authority or any national securities exchange. -3- This Agreement is entered into this ____ day of March, 2000. Attest: CROWN CORK & SEAL COMPANY, INC. ___________________________ By ______________________ Name: Title: ___________________________ ___________________________ Witness Mr. __________ -4- EX-12 8 Exhibit 12 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Twelve months ended December 31, 1999 Computation of Earnings: Pretax income from continuing operations $309 Adjustments to income: Add: Distributed income from less than 50% owned companies 4 Add: Portion of rent expense representative of interest expense 10 Add: Interest incurred net of amounts capitalized 367 Add: Amortization of interest previously capitalized ( 1) Add: Amortization of debt issue costs and discount or premium on indebtedness 6 --------- Earnings 695 --------- Computation of Fixed Charges: Interest incurred $368 Amortization of debt issue costs and discount or premium on indebtedness 6 Portion of rental expense representative of interest 10 Preferred stock dividend requirements 23 --------- Fixed Charges 407 --------- Ratio of Earnings to Fixed Charges 1.7 EX-21 9 Crown Cork & Seal Company, Inc. Exhibit 21 - Subsidiaries of Registrant Page 1 of 5 STATE OR COUNTRY OF INCORPORATION OR NAME ORGANIZATION Crown Cork & Seal Company, Inc. Pennsylvania Crown Cork & Seal Company (PA) Inc. Pennsylvania Crown Consultants, Inc. Pennsylvania Nationwide Recyclers Pennsylvania CONSTAR, Inc. Pennsylvania CONSTAR INTERNATIONAL INC Delaware CarnaudMetalbox Investments (USA), Inc. Delaware Risdon - AMS (USA), Inc. Delaware Zeller Plastik, Inc. Delaware Crown Cork & Seal Holdings, Inc. Delaware Crown Cork & Seal Technologies Corporation Delaware Crown Cork & Seal Company (USA), Inc. Delaware Crown Financial Management, Inc. Delaware Crown Overseas Investments Corporation Delaware Crown Beverage Packaging, Inc. Delaware Crown Cork de Puerto Rico, Inc. Delaware Aluplata S.A Argentina Crown Cork de Argentina S.A Argentina Crown Cork & Seal (Barbados) Foreign Sales Corporation Barbados Crown Cork Company (Belgium) N.V Belgium Crown Cork Holding Company Belgium Speciality Packaging Belgie NV Belgium Crown Brasil Holding Ltd. Brazil Crown Cork Embalagens S.A Brazil Crown Cork Tampas Plasticas, S.A Brazil Crown Cork & Seal Canada Inc. Canada Risdon - AMS (Canada) Inc. Canada Crown Cork de Chile, S.A.I Chile Beijing CarnaudMetalbox Co., Ltd. China Beijing Crown Can Co., Ltd. China Crown Cork & Seal Company, Inc. Exhibit 21 - Subsidiaries of Registrant Page 2 of 5 STATE OR COUNTRY OF INCORPORATION OR NAME ORGANIZATION CarnaudMetalbox Huapeng (Wuxi) Closures Co., Ltd. China Foshan Crown Can Company, Limited China Foshan Crown Easy-Opening Ends Co., Ltd. China Huizhou Crown Can Co., Ltd. China Shanghai Crown Packaging Co., Ltd. China Jiangmen Zeller Plastik, Ltd. China Crown Litometal S.A Colombia Crown Colombiana, S.A Colombia Crown Pakkaus OY Finland Astra Plastique France Risdon S.A France CarnaudMetalbox S.A France CarnaudMetalbox Group Services France CMB Plastique SNC France Crown Cork & Seal Finance S.A France Crown Cork Company (France) S.A France Crown Developpement SNC France Crown Financial Corporation France S.A France Polyflex S.A France Societe de Participations Entrangers CarnaudMetalbox France Societe de Participations CarnaudMetalbox France Societe Francasie De Developpement De La Boite Boisson France Z. P. France France CarnaudMetalbox Deutschland GmbH Germany CarnaudMetalbox Nahrungsmitteldosen GmbH Germany CarnaudMetalbox Plastik Holding GmbH Germany Crown Bender (Germany) GmbH Germany Wehrstedt GmbH Germany Zeller Plastik GmbH Germany Zuchner Gruss Metallverpackungen GmbH Germany Crown Cork & Seal Company, Inc. Exhibit 21 - Subsidiaries of Registrant Page 3 of 5 STATE OR COUNTRY OF INCORPORATION OR NAME ORGANIZATION Zuchner Metallverpackugen GmbH Germany Zuchner Verpackugen GmbH & Co Germany Zuchner Verschlusse GmbH Germany Hellas Can Packaging Manufacturers Greece CarnaudMetalbox Magyarorszag Hungary CONSTAR International Plastics KFT Hungary CarnaudMetalbox Ireland Ltd. Ireland CarnaudMetalbox Italia SRL Italy CMB Italcaps SRL Italy Crown Cork Company (Italy) S.P.A Italy FABA Sud Spa Italy Risdon SRL Italy Superbox Aerosols SRL Italy Superbox Contenitori per Bevande SRL Italy Zeller Plastik Italia SPA Italy CarnaudMetalbox Kenya Limited Kenya Societe Malgache D'Emgallages Metalliques Madagascar CarnaudMetalbox Bevcan SDN BHD Malaysia Envases Generales Crown, S.A. DE C.V Mexico Carnaud Maroc Morocco CMB Plastique Maroc Morocco CarnaudMetalbox NV The Netherlands CMB Closures Benelux BV The Netherlands CMB Promotional Packaging (Netherlands) BV The Netherlands CONSTAR International Holland (Plastics) B.V The Netherlands Crown Cork Company (Holland) B.V The Netherlands Crown Cork Mijdrecht B.V The Netherlands Crown Cork Netherlands Holding B.V The Netherlands Speciality Packaging Nederland BV The Netherlands CarnaudMetalbox Nigeria PLC Nigeria Zeller Plastik Philippines, Inc. Philippines CarnaudMetalbox Gopak SP Zoo Poland Crown Cork & Seal Company, Inc. Exhibit 21 - Subsidiaries of Registrant Page 4 of 5 STATE OR COUNTRY OF INCORPORATION OR NAME ORGANIZATION CarnaudMetalbox Tworzyna Sztuczne SP Z.O.D Poland CarnaudMetalbox de Portugal Portugal Crown Cork & Seal de Portugal Embalagens S.A Portugal CarnaudMetalbox Asia Limited Singapore CarnaudMetalbox Packaging PTE Limited Singapore CarnaudMetalbox Slovakia Spol. S.R.O Slovakia CarnaudMetalbox Food South Africa(Pty) Ltd. South Africa Crown Investment Holdings (Pty) Ltd. South Africa Crown Cork de Espana, S.A. Spain Envases Metalicos Manlleu S.A Spain Envases Metalner S.A Spain Envases Murcianos S.A Spain Ormis Embalajes Espana S.A Spain Crown Obrist AG Switzerland CarnaudMetalbox Tanzania Limited Tanzania CarnaudMetalbox (Thailand) PLC Thailand CarnaudMetalbox Bevcan Limited Thailand Crown Cork & Seal (Thailand) Co., Ltd. Thailand ZPJK (Thailand) Co., Ltd. Thailand CarnaudMetalbox Ambalaj Sanayi Turkey CONSTAR Ambalaj Sanayi Ve Ticaret A.S Turkey Emirates Can Company, Ltd. (Dubai, UAE) United Arab Emirates CarnaudMetalbox Bevcan PLC United Kingdom CarnaudMetalbox Closures PLC United Kingdom CarnaudMetalbox Engineering PLC United Kingdom CarnaudMetalbox Group UK Limited United Kingdom CarnaudMetalbox Overseas Limited United Kingdom CarnaudMetalbox PLC United Kingdom CMB Bottles and Closures United Kingdom CONSTAR International U.K., Ltd. United Kingdom Crown Cork & Seal Finance PLC United Kingdom Crown Cork & Seal Company, Inc. Exhibit 21 - Subsidiaries of Registrant Page 5 of 5 NAME STATE OR COUNTRY OF INCORPORATION OR ORGANIZATION Crown UK Holdings Ltd. United Kingdom Speciality Packaging (UK) PLC United Kingdom The Crown Cork Company Limited United Kingdom United Closures & Plastic PLC United Kingdom Zeller Plastik UK Limited United Kingdom CarnaudMetalbox (Saigon) Limited Vietnam Vietnam Crown Vinalimex Packaging, Ltd. Vietnam CarnaudMetalbox (Zimbabwe) Ltd. Zimbabwe Crown Cork Company 1958 PVT Ltd. Zimbabwe (1) The list includes only consolidated subsidiaries which are directly owned or indirectly owned by the Registrant. (2) In accordance with Regulation S-K, Item 601(b)(22)(ii), the names of certain subsidiaries have been omitted from the foregoing list. The unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary, as defined in Regulation S-X, Rule 1-02 (w). EX-23 10 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-85907, 33-56965, 333-16869 and 333-04971) and in the Registration Statements on Form S-8 (Nos. 333-67175, 333-67173, 333-25837, 33-45900, 33-39529, 33-63732, 33-61240, 33-50369 and 33-52699) of Crown Cork & Seal Company, Inc. of our report dated March 20, 2000 relating to the financial statements and financial statement schedule, which appear in this Form 10-K. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 30, 2000 EX-27 11
5 This schedule contains summary financial information extracted from the consolidated balance sheets, consolidated statements of income and the notes thereto on pages 28 thru 52 of the Company's 1999 Annual Report to Shareholders and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1999 DEC-31-1999 267 0 1,214 48 1,312 2,841 5,409 2,154 11,545 3,414 3,573 0 349 779 1,763 11,545 7,732 7,732 6,060 6,738 13 18 367 309 105 181 0 0 0 181 1.36 1.36 1999 Diluted EPS is the same as Basic EPS due to the anti-dilutive effect from the assumed conversion of convertible preferred stock and the addback of preferred dividends.
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