-----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, KmJxhbqK7xXzbI4+5y19G8yQYTIZH3nEzLkTeRKoieTuqsuik6OtpGpPsGnDQFNt Uu1YnOzInpuRE8d0mWX1jA== 0000893220-97-000654.txt : 19970401 0000893220-97-000654.hdr.sgml : 19970401 ACCESSION NUMBER: 0000893220-97-000654 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR GROUP INC CENTRAL INDEX KEY: 0000055454 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 950898810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07272 FILM NUMBER: 97569582 BUSINESS ADDRESS: STREET 1: 500 NEW HOLLAND AVENUE CITY: LANCASTER STATE: PA ZIP: 17602 BUSINESS PHONE: 3105562200 MAIL ADDRESS: STREET 1: 1840 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: KERR GLASS MANUFACTURING CORP DATE OF NAME CHANGE: 19920518 10-K405 1 KERR GROUP FORM 10-K FOR THE YEAR ENDED 12/31/96 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission file number 1-7272 KERR GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 95-0898810 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 New Holland Avenue, Lancaster, Pennsylvania 17602 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (717) 299-6511 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock New York Stock Exchange $1.70 Class B Cumulative Convertible Preferred Stock, Series D New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None -Continued- 2 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of February 28, 1997, was $7,708,974. The number of shares of the Registrant's Common Stock, $.50 par value, outstanding as of February 28, 1997, was 3,933,095. (ii) 2 3 KERR GROUP, INC. Form 10-K Annual Report For The Fiscal Year Ended December 31, 1996 PART I ITEM 1. BUSINESS 1. General Kerr Group, Inc. (the "Registrant" or the "Company"), a Delaware corporation which was founded in 1903, is a major producer of plastic packaging products and, until March 15, 1996, also operated the Consumer Products Business. Present operations include the manufacture and sale of plastic packaging products, including child-resistant closures, tamper-evident closures, prescription packaging products, jars, other closures and containers and the sale of glass prescription bottles ("Continuing Operations"). Operations in the discontinued Consumer Products Business included the manufacture and sale of caps and lids and the sale of glass jars and a line of pickling spice and pectin products for home canning together with the sale of other related products, including iced tea tumblers and beverage mugs ("Discontinued Operations"). On March 15, 1996, the Company sold to Alltrista Corporation ("Buyer") for $14,417,000 certain assets of the Consumer Products Business, consisting of the manufacturing assets, supplies, work in process inventory and certain trademarks and a perpetual and exclusive license to use the name "Kerr" in the sale of home canning supplies. The Company also assigned to Buyer the lease on the Jackson, Tennessee plant where the Company manufactured metal caps and lids for the Consumer Products Business. The Company also appointed the Buyer as sales agent to sell the inventory of home canning supplies produced by the Company before March 15, 1996. The Company received $17,391,000 during the remainder of 1996 from the sale of its Consumer Products Business inventory and the collection of accounts receivable of the Consumer Products Business. The Company used the proceeds i) to reduce debt and the level of advances under the Company's Accounts Receivable Agreement, ii) to fund the cash costs of the restructuring of the Company undertaken during 1996 and iii) for working capital purposes. On March 15, 1996, the Company announced a restructuring which involved the consolidation of the Company's wide mouth jar and closure manufacturing facility into its existing tamper-evident closure facility in Bowling Green, Kentucky and the relocation of the Company's principal executive office from Los Angeles, California to Lancaster, Pennsylvania where the headquarters of the Company's plastic products business was located. The 3 4 restructuring, which was completed by the end of 1996, is expected to result in annualized pretax cost savings of approximately $6,500,000 primarily from reduced costs for employment, rent payments, manufacturing overhead, utilities and freight. The full benefit of these cost savings should be realized in 1997. a. Principal Products and Markets; Sales and Customers Plastic closures are sold to customers in the pharmaceutical, food, distilled spirits, toiletries and cosmetics and household chemical industries. Prescription plastic closures and containers and glass prescription bottles are sold to drug wholesalers, drug chains and independent pharmacists. Plastic bottles and jars are sold to customers in the pharmaceutical and toiletries and cosmetics industries. The products of the Company are sold nationally, principally by the Company's sales force. No customer accounted for more than 10% of the Company's net sales in 1996, 1995 or 1994. Information regarding revenue and sales for the Company's last three fiscal years is set forth in Item 8, Financial Statements and Supplemental Data. b. Competition Competition in the markets in which the Company operates is highly fragmented and the Company has a number of large competitors who compete for sales on the basis of price, service and quality of product. The Company believes that it is one of the three largest manufacturers of child-resistant plastic closures. The Company has one major competitor in the market for prescription plastic closures and containers and glass prescription bottles, who has substantially larger market share than the Company. The Company also believes it is the largest domestic manufacturer of plastic closures incorporating a tamper-evident feature for the liquor market and that it is one of the largest suppliers of single and double walled jars to the personal care and cosmetic markets. c. Backlog The Company does not believe that recorded sales backlog is a significant factor in its business. d. Raw Materials and Supplies; Fuel and Energy Matters The primary raw materials used by the Company are resins. The Company has historically been able to obtain adequate supplies of resins from a number of sources. However, since resins are derived from petroleum or fossil fuel, shortages of petroleum or fossil fuel could affect the supply of resins. From time to time, the Company has experienced substantial fluctuations in the cost of resin. To the extent that the Company is unable to pass on resin cost increases, the cost increases could have a significant impact on the results of operations of the Company. The Company, consistent with industry practice, is generally able to pass through resin cost increases for all product lines except the prescription packaging product line. 4 5 However, in times of rapidly increasing resin prices, as occurred in late 1994 and during the first half of 1995, the Company's ability to pass through the full impact of resin price increases on a timely basis is limited. e. Product Development, Engineering, Patents and Licensing The Company maintains active research and development, and engineering groups. These groups are responsible for i) developing new products and enhancements to existing products, ii) improving manufacturing technology in order to reduce costs, and iii) ensuring that products meet stringent quality standards. The Company believes that its ability to market innovative, high-quality products provides the Company with a competitive advantage. To the extent competitors are more successful than the Company in introducing and marketing new products, the Company's sales and profitability could be adversely affected. Expenditures related to the Company's research and development group during the years ended December 31, 1996, 1995 and 1994 were $1,991,000, $1,708,000 and $2,110,000, respectively. Expenditures related to the Company's engineering group during the years ended December 31, 1996, 1995 and 1994 were $1,493,000, $1,618,000 and $1,496,000, respectively. Although the Company owns a number of United States patents, including patents for its tamper-evident closures and certain of its child-resistant closures, it is of the opinion that no one or combination of these patents is of material importance to its business. The Company has granted licenses on some of its patents, although the income from these sources is not material. f. Environmental Matters; Legislation The Company is subject to laws and regulations governing the protection of the environment, including, among others, laws and regulations governing disposal of waste, discharges into water and emissions into the atmosphere. The Company's expenditures for environmental control equipment in each of the last three years have not been material and the standards required by such regulations have not significantly affected the Company's operations. The Company is a party or a potentially responsible party in several administrative proceedings and lawsuits involving liability for cleanup of certain offsite disposal facilities under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") and similar state laws. See "Legal Proceedings". g. Employees As of December 31, 1996, the Company had approximately 875 employees, of which approximately 200 were office, supervisory and sales personnel. 5 6 h. Seasonality Seasonality does not have a material effect on the operations of the Company. i. Working Capital In general, the working capital practices followed by the Company are typical of the businesses in which it operates. As of December 31, 1996, the Company had an Accounts Receivable Agreement that met the working capital needs of the Company. The Agreement permitted the Company to sell its trade accounts receivable on a nonrecourse basis. Under the Agreement, the maximum amount that could be advanced to the Company pursuant to the sale of trade accounts receivable at any time was $8,500,000. The Company retained collection and service responsibility, as agent for the purchaser, over any receivables sold. The Company is presently in default with respect to interest coverage and net worth covenants under the Loan Agreements which govern the unsecured Senior Notes and Bank Note issued by the Company. Under the terms of the Loan Agreements relating to the Senior Notes and the Bank Note, the Company is not permitted to sell the accounts receivable under the Accounts Receivable Agreement because of the default. The Company is in discussions with the owners of the Senior Notes and Bank Note regarding obtaining an extension of the waiver which expired on March 7, 1997. The discussions with the owners also include negotiations for the purchase by the Company of the Senior Notes and the Bank Note. The funds for the purchase of the Senior Notes and Bank Note would be obtained from a senior secured loan and a subordinated secured loan which the Company is discussing with institutional lenders and with respect to which loan agreements are being negotiated. Consummation of any purchase of the Senior Notes and Bank Note is subject to definitive agreements being reached with the new lenders as well as the holders of the Senior Notes and Bank Note. There can be no assurance that the owners of the Senior Notes and the Bank Note will extend the waiver of the defaults, or agree to sell the Senior Notes and the Bank Note for a purchase price that is acceptable to the Company or that the senior secured loan and the subordinated secured loan can be obtained to finance the purchase. In the event the Company does not obtain an extension of the waiver, the Company does not intend to make its quarterly payment of interest due under the Senior Notes and Bank Note due on March 31, 1997. The lender proposing to make the subordinated secured loan to the Company has indicated that it is willing to purchase the accounts receivable of the Company through June 30, 1997 on terms and conditions acceptable to the lender in its sole and reasonable discretion. The terms and conditions to be negotiated include, without limitation, pricing, credit criteria, reserves, servicing and recourse. The lender's willingness to purchase the Company's accounts receivable will be subject to the negotiation, execution and delivery of purchase documents in form and substance satisfactory to the lender. There can be no assurance that the Company and the lender will reach definitive agreement on the terms of such purchase. The sale of the accounts receivable to this lender, in the absence of a waiver of the existing default, will constitute a further default by the Company under the existing Loan Agreements. 6 7 As part of its overall restructuring, the Company is involved in discussions with the Pension Benefit Guaranty Corporation relating to the Company's pension liabilities. The Company expects these discussions to continue. The Company expects to receive approximately $3,500,000 from the sale of real property located in Santa Ana, California in April 1997. The Company had $5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company reaches satisfactory agreement with the lender regarding the new accounts receivable facility, the Company believes that it will have sufficient funds available to finance its working capital requirements through June 30, 1997. ITEM 2. PROPERTIES The Company's manufacturing activities are conducted at the four facilities described in the following table.
Building Area Location Purpose of Facility (square feet) - -------- ------------------- ------------- Lancaster, Pennsylvania Plastic Closure and 490,000 Container Plant; Warehouses Jackson, Tennessee Plastic Closure, Vial and 198,000 Bottle Plant; Warehouse Ahoskie, North Carolina Plastic Closure Plant; 153,000 Warehouse Bowling Green, Kentucky Plastic Closure Plant; 168,000 Warehouse
The Lancaster, Pennsylvania and Ahoskie, North Carolina facilities are owned by the Company. The Jackson, Tennessee and Bowling Green, Kentucky facilities are leased by the Company. The Company's principal executive offices are located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602. In addition, the Company rents three area sales offices. In the opinion of the Company's management, its manufacturing facilities are suitable and adequate for the purposes for which they are being used. The Company has for sale land in Santa Ana, California that was the site of a glass container manufacturing plant. In 1996, the Company's plastic products manufacturing facilities operated at approximately 72% of capacity. 7 8 ITEM 3. LEGAL PROCEEDINGS On February 11, 1997, the State Teachers Retirement System ("Teachers") filed and served a complaint against the Company for unlawful detainer of certain premises located at 1840 Century Park East, Los Angeles, California, the Company's former principal executive offices (Teachers v. Kerr Group, Inc., et al., No. BC165 718, Superior Court of California, County of Los Angeles). On February 18, 1997, after the Company relinquished possession of the premises, Teachers agreed that the Company need not file an answer to the complaint. However, counsel for Teachers advised that Teachers may elect to amend the complaint to state a claim for breach of contract. In November 1996, the Company was named a third-party defendant in Adhesives Research, Inc., et al. v. Alford Industries, et al. v. A&A Waste Oil Co., Inc., et al., No. 1:CV-95-1975 (M.D.Pa.). This suit was brought in the United States District Court for the Middle District of Pennsylvania initially by numerous plaintiffs seeking to recover from named defendants their costs to clean up environmental contamination at a site in Newberry Township, York County, Pennsylvania known as the Industrial Solvents & Chemical Company ("ISCC") site. Certain defendants identified other parties, including the Company, as third-party defendants in this litigation. The third-party complaint alleges that the Company and other parties generated hazardous substances that have been or are threatened to be released at the ISCC site. The third-party complaint further alleges claims for cost recovery and contribution under federal and state law for costs incurred or to be incurred in connection with those releases or threatened releases. The Company is participating in negotiations to resolve its liability through payment based on a formula that takes into account the Company's allocated share of liability. The Company has already paid certain past costs associated with cleanup of the ISCC site. Under current settlement proposals, the Company's remaining payment would be approximately $20,000. There can be no assurance, however, that settlement will be reached or that settlement will be reached on the terms currently being proposed. A reserve has been established for the estimated cost of settlement. As the Company reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, on April 12, 1990, the State of New Jersey, Department of Environmental Protection and Energy ("NJDEPE"), filed a lawsuit in the United States District Court for the District of New Jersey against the Company, among others, entitled State of New Jersey, Department of Environmental Protection v. Gloucester Environmental Management Services, Inc., et al., No. 84-0152 (D.N.J.). The suit alleges that the Company was a "generator" of hazardous wastes and other hazardous substances which were disposed of at the Gloucester Environmental Management Services, Inc. ("GEMS") facility in the Township of Gloucester. The suit seeks cleanup costs, compensatory and treble damages, and a declaration that the Company and others are responsible for NJDEPE's past and future response costs at the GEMS site. On March 27, 1990, NJDEPE issued a Directive to the Company and other parties pursuant to the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. Pursuant to the Directive, the Company and other parties have been ordered to undertake the second phase of remedial action at the site, including the construction and operation of a groundwater treatment system and operation of the remedial action performed in the first phase, and to reimburse NJDEPE's alleged past and future response costs. The estimated cost of second phase remedial 8 9 action related to the GEMS site is approximately $20 million. The amount that the NJDEPE is seeking as reimbursement for past costs and damages is approximately $10 million. In October, 1995 the Company entered into a de minimis settlement agreement with the State of New Jersey and the United States to resolve all outstanding claims. In exchange for a payment of approximately $205,000, the Company will be dismissed from the lawsuit in accordance with the terms of a Consent Decree which is expected to be entered by the Court within six months. The Company has not admitted any liability for disposal of wastes at the GEMS site. The Company is one of approximately ninety companies participating in the de minimis settlement. One of the Company's insurance carriers has agreed to pay the cost of settlement and defense of this matter, subject to an agreement to arbitrate whether coverage is available for approximately $75,000 in settlement funds. Thus, the Company's maximum exposure in connection with this site is $75,000, however, the Company believes it will incur no costs related to this site. As the Company reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, in March 1986, the Company and other parties were designated by the United States Environmental Protection Agency ("EPA") as potentially responsible parties ("PRPs") responsible for the cleanup of certain hazardous wastes that have been disposed of at the Wayne Waste Oil ("WWO") site located near Columbia City, Indiana. In October 1986, the Company and other PRPs entered into a Consent Order with the EPA which allowed the PRPs to complete a Remedial Investigation and Feasibility Study for the WWO site. In March 1990, the EPA issued a Record of Decision ("ROD") for the site. The ROD documents the EPA's cleanup plan for the site, which includes capping the former municipal landfill, groundwater extraction and treatment, and soil vapor extraction. On July 20, 1992, a Consent Decree between the EPA and the PRPs at the site was entered in the United States District Court for the Northern District of Indiana, captioned United States v. Active Products Corp., No. F91-00247. Remedial construction has been completed, however, operation and maintenance obligations remain. At this time the Company does not anticipate further expenditures in connection with this matter. As the Company reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, in September 1985, the Company and other parties were designated by the EPA as PRPs responsible for the cleanup of certain hazardous wastes that have been disposed of at the Northside Sanitary Landfill ("NSL") site located northwest of Indianapolis, Indiana. The EPA has combined the NSL site with the adjacent Environmental Conservation and Chemical Corporation ("ECC") site. On November 12, 1991, a Consent Decree between the EPA and the PRPs at the site was entered by the United States District Court for the Southern District of Indiana, captioned United States v. Aluminum Corporation of America, No. IP91 591C. Based upon the Company's percentage share of the total amount of wastes disposed of at the site, the Company estimates its remaining share of the costs under the Consent Decree will be approximately $5,000. A reserve has been established for such costs. As the Company reported in its Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, in November 1981, the EPA advised the Company that it was one of several companies that had disposed of wastes at the Carolawn Company ("CC") site located in Chester County, South Carolina. At the time of notice, the EPA had completed certain cleanup activities at the CC site and requested that the Company and other parties which had disposed of wastes at the site contribute to the cost of these activities. On August 31, 1983, an action, United 9 10 States of America v. Carolawn Company, Inc., et al., No. 83-2162-0, was commenced in the United States District Court for the District of South Carolina. On June 23, 1988, a Partial Consent Decree was entered in the United States District Court for the District of South Carolina (No. 83-2162-0). On December 4, 1991, a Partial Consent Decree For Remedial Design And Construction at the CC site was entered by the United States District Court for the District of South Carolina (No. 0-91-2177-0). Negotiations are currently underway to amend the Partial Consent Decree to address operations and maintenance of the remedy. Based upon the Company's percentage share of the total amount of wastes disposed of at the CC site, the Company estimates its share of operation and maintenance costs will be approximately $16,500. A reserve has been established for such costs. 10 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names, ages, positions and offices held, and a brief account of the business experience during the past five years of each executive officer of the Registrant.
Positions Held With Registrant and Periods Name and Age During Which Held ------------------------- ----------------------------- D. Gordon Strickland (50) President and Chief Executive Officer, since March 15, 1996; Senior Vice President, Finance and Chief Financial Officer, since 1986; Robert S. Reeves (67) Senior Vice President, Sales, since 1992; Senior Vice President, General Manager, Commercial Glass Container Division, since 1985 Geoffrey A. Whynot (38) Vice President, Finance, Chief Financial Officer, since March 15, 1996; Vice President, Treasurer since 1991
Business Experience D. Gordon Strickland has served in an executive capacity with the Registrant for more than the past five years. Robert S. Reeves has served in an executive capacity with the Registrant for more than the past five years. Geoffrey A. Whynot has served as Vice President, Treasurer of Registrant since 1991. 11 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock and Preferred Stock are both listed on the New York Stock Exchange. As of February 28, 1997, there were approximately 1,257 and 109 holders of record of the Company's Common Stock and Preferred Stock, respectively. The following table summarizes the prices of the Common Stock and Preferred Stock on the New York Stock Exchange Composite Tape and quarterly cash dividends:
- -------------------------------------------------------------------------------------------------- Common Stock Preferred Stock - -------------------------------------------------------------------------------------------------- Cash Cash Calendar Year High Low Dividends High Low Dividends - -------------------------------------------------------------------------------------------------- 1996 First Quarter $9 7/8 $5 3/4 $ -- $20 $17 3/4 $.425 Second Quarter 6 1/4 3 3/4 -- 18 1/8 13 1/2 -- Third Quarter 4 3/8 2 3/8 -- 14 12 1/8 -- Fourth Quarter 4 3/8 2 1/8 -- 12 3/8 7 1/2 -- 1995 First Quarter $9 3/8 $6 7/8 $ -- $20 5/8 $19 1/8 $.425 Second Quarter 8 3/8 7 1/8 -- 20 1/8 19 1/4 .425 Third Quarter 8 1/2 7 -- 20 1/4 19 .425 Fourth Quarter 10 3/8 6 1/2 -- 20 16 3/8 .425
The cumulative Preferred Stock dividend requirement as of December 31, 1996, was $829,000. The Company has not declared a dividend on its Class B, Series D Preferred Stock since the first quarter of 1996. The cumulative amount of undeclared dividends as of December 31, 1996 is $622,000. Under the terms of an agreement with its lenders, the Company is not permitted to declare or pay any dividends on its preferred stock at December 31, 1996. The payment of Common Stock dividends is restricted by the Company's Senior Note agreement. Under such restrictions, the payment of Common Stock dividends is not permitted at December 31, 1996. 12 13 ITEM 6. SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Net sales $ 107,369 $ 109,187 $106,792 $ 98,533 $ 92,557 Gross profit 24,305 24,582 33,012 29,121 25,731 Earnings (loss) from continuing operations before interest and income taxes (a) (12,722) (1,416) 7,152 6,562 3,953 Earnings (loss) from continuing operations before income taxes (17,425) (6,024) 3,534 2,576 287 Provision (benefit) for income taxes (b) 6,837 (2,401) 1,441 (711) 119 --------- --------- -------- -------- -------- Earnings (loss) from continuing operations (24,262) (3,623) 2,093 1,865 168 Earnings (loss) from discontinued operations -- Consumer Products Business (c) 1,969 (1,684) 1,311 (2,198) 2,419 Metal Crown Business (d) -- -- -- -- (5,284) Extraordinary loss on retirement of debt -- -- -- (1,300) -- --------- --------- -------- -------- -------- Net earnings (loss) (22,293) (5,307) 3,404 (1,633) (2,697) Preferred stock dividends (e) 829 829 829 829 829 --------- --------- -------- -------- -------- Net earnings (loss) applicable to common stockholders $ (23,122) $ (6,136) $ 2,575 $ (2,462) $ (3,526) ========= ========= ======== ======== ======== Earnings (loss) per common share: Earnings (loss) per common share from continuing operations (a) (b) $ (6.38) $ (1.16) $ 0.34 $ 0.28 $ (0.18) Earnings (loss) per common share from discontinued operations -- Consumer Products Business (c) 0.50 (0.44) 0.36 (0.60) 0.66 Metal Crown Business (d) -- -- -- -- (1.44) Extraordinary loss per common share on retirement of debt -- -- -- (0.35) -- --------- --------- -------- -------- -------- Net earnings (loss) per common share $ (5.88) $ (1.60) $ 0.70 $ (0.67) $ (0.96) ========= ========= ======== ======== ======== Cash dividends per common share $ -- $ -- $ -- $ -- $ --
13 14 ITEM 6. SELECTED FINANCIAL DATA (continued)
- ---------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------- (in thousands) Net property, plant and equipment $ 38,890 $ 46,818 $ 48,341 $ 40,424 $ 36,383 Depreciation and amortization 9,398 8,675 7,495 7,167 6,447 Capital expenditures 2,091 10,859 14,176 9,336 7,758 Total assets 85,526 119,497 122,660 115,866 102,501 Senior debt (f) 45,044 50,000 50,000 50,000 -- Subordinated long-term debt -- -- -- -- 40,000 Stockholders' equity before pension adjustment $ 11,547 $ 34,047 $ 38,260 $ 34,899 $ 36,464 Excess of additional pension liability over unrecognized prior service cost, net of tax benefits (8,245) (10,140) (5,207) (6,835) -- --------- --------- -------- -------- -------- Stockholders' equity $ 3,302 $ 23,907 $ 33,053 $ 28,064 $ 36,464 ========= ========= ======== ======== ======== Weighted average number of common shares outstanding 3,933 3,842 3,674 3,669 3,675
(a) The loss from continuing operations before interest and income taxes for 1996 includes pretax restructuring costs of $10,011,000 and financing costs of $1,600,000. See Note 3 of notes to financial statements for further discussion. The loss from continuing operations before interest and income taxes for 1995 includes a pretax loss on revaluation of land of $1,000,000. (b) The provision for income taxes for 1996 includes a charge of $13,691,000 ($3.48 per common share) to provide a valuation reserve against its deferred income tax asset. The benefit for income taxes for 1993 includes a tax benefit of $369,000 ($0.10 per common share) related to a reduction in the income tax valuation reserve. See Note 5 of notes to consolidated financial statements for further information. (c) Earnings from discontinued operations for 1996 include a $2,102,000 after-tax gain ($0.53 per common share) on the sale of the manufacturing assets of the Consumer Products Business. See Note 4 of notes to financial statements. The 1993 loss for the Consumer Products Business includes a $2,754,000 after-tax loss ($0.75 per common share) associated with the relocation of the Company's home canning cap and lid manufacturing operations. (d) Loss from discontinued operations - Metal Crown Business in 1992 includes a $2,600,000 after-tax loss ($0.71 per common share) on sale of the business. (e) The Company has not declared a dividend on its Class B, Series D Preferred Stock since the first quarter of 1996. The cumulative amount of undeclared dividends as of December 31, 1996 is $622,000. Under the terms of an agreement with its lenders, the Company is not permitted to declare or pay any dividends on its preferred stock at December 31, 1996. (f) As of December 31, 1996 and 1995, the Company's outstanding senior debt was classified as a current liability because the Company was in default of certain financial covenants for which waivers have been received for a period of less than one year. 14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995 CONTINUING OPERATIONS Net sales of the Company decreased 1.7% to $107,369,000 in 1996 from $109,187,000 in 1995 due primarily to lower unit sales of tamper-evident closures and, to a lesser degree, wide-mouth jars and closures. The Company's manufacturing facilities operated at approximately 72% of capacity during 1996. Cost of sales of the Company decreased to $83,064,000 in 1996 compared to $84,605,000 in 1995 primarily due to lower unit sales. Gross profit as a percent of net sales increased slightly to 22.6% for 1996 as compared to 22.5% for 1995. Research, selling, warehouse, general and administrative expenses decreased $418,000 or 1.7% during 1996, as compared to 1995. The Company manufactures a variety of plastic closures, prescription packaging products, bottles and jars. Sales and profitability of these products are affected by the cost of resin, which can fluctuate significantly. Under industry practice, the Company generally passes through resin cost increases and decreases for all products except for prescription packaging products. However, during periods in which resin costs increase substantially, results could be adversely affected because the Company may not be able to obtain general price increases from customers due to the magnitude of resin price increases and the Company may not be able to pass on resin price increases because of competitive pricing. The Company maintains active research and development, and engineering groups. These groups are responsible for i) developing new products and enhancements to existing products, ii) improving manufacturing technology in order to reduce costs, and iii) ensuring that products meet stringent quality standards. The Company believes that its ability to market innovative, high-quality products provides the Company with a competitive advantage. To the extent competitors are more successful than the Company in introducing and marketing new products, the Company's sales and profitability could be adversely affected. The loss before unusual items, interest and taxes increased to $1,111,000 in 1996 as compared to $416,000 in 1995. Although full-year results have worsened, the trend in earnings has improved. Earnings before unusual items, interest and taxes for the second half of 1996 improved to $2,750,000, as compared to a loss before unusual items, interest and taxes for the first half of 1996 of $3,861,000. This improvement was the result of reduced unit costs due to increased production and lower costs resulting from the effects of restructuring the Company. The loss in the first half of 1996 also reflected increased reserves for customer rebates and inventory obsolescence. The increase in reserves for customer rebates is due to the completion of a detailed analysis by the Company in the first quarter of 1996 of the historical amount and timing of customer deductions, and credit memos and other payments issued by the Company, by customer category, which required an increase in the accrual. The increase in reserves for inventory obsolescence is the result of including certain additional types of closures in the calculation of the reserve beginning in 1996, because the Company believed it represented a more accurate measure of such contingency. 15 16 Unusual items for 1996 consist of i) restructuring costs of $7,500,000 recorded during the first quarter, ii) additional restructuring costs of $2,511,000 recorded subsequent to the first quarter and iii) financing costs of $1,600,000. The unusual item for 1995 relates to the write-down in the book value of land of $1,000,000. During the first quarter of 1996, the Company recorded an unusual pretax loss of $7,500,000 for certain costs associated with the restructuring of the Company, which included moving the corporate headquarters from Los Angeles, California to Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of reserves for i) severance pay, workers' compensation claims and insurance continuation costs of $3,000,000, ii) costs associated with terminating the leases of the two vacated facilities of $2,300,000, iii) asset retirements of $1,600,000 and iv) other costs of $600,000. During 1996, the Company made cash payments related to such reserves for i) severance pay and related costs of $2,638,000, ii) costs associated with terminating the leases of the two facilities of $478,000 and iii) other costs of $89,000. In addition, during 1996, the Company incurred unusual pretax losses of $2,511,000 for restructuring costs primarily related to relocation of personnel and equipment. Accounting rules require these costs to be expensed as incurred. The relocation of the corporate headquarters and the wide-mouth jar manufacturing operation have been completed. The cost to complete the restructuring is expected to approximate the original estimate. The restructuring is expected to result in annualized pretax cost savings of approximately $6,500,000 primarily from reduced costs for employment, rent payments, manufacturing overhead, utilities and freight. The full benefit of these cost savings should be realized in 1997. During 1996, the Company incurred financing costs of $1,600,000 consisting of i) fees paid to the Company's advisors in its negotiations with lenders, ii) reimbursement of the lenders' fees paid to their advisors in the negotiations, iii) certain fees associated with prospective lenders and iv) expensing of a portion of the previously capitalized financing costs associated with the existing debt. Net interest expense increased $95,000 during 1996 compared to 1995. The change in the provision for income taxes during 1996 as compared to 1995 was the result of the Company recording a charge of $13,691,000 to provide a valuation reserve against its deferred income tax asset. The valuation reserve was provided due to the uncertainty related to the Company's financing as described below under "Liquidity and Capital Resources". Due to competitive pressures, there are occasions when the Company is unable to pass on cost increases to customers. Other than the inability on all occasions to pass on cost increases, inflation and changes in prices did not have a material effect on the Company's results of operations. DISCONTINUED OPERATIONS During 1996, the Company sold the manufacturing assets and liquidated primarily all of the working capital of its discontinued Consumer Products Business. In connection with such sale, the Company recorded $4,900,000 of reserves consisting of i) severance pay, workers' compensation claims and insurance continuation of $1,400,000, ii) retiree health care and pension expenses of $1,200,000, iii) estimated net costs associated with elimination of operations and liquidation of working capital of $1,100,000, iv) professional fees of $700,000, v) asset retirements of $300,000, and vi) other costs of $200,000. After deductions for such reserves, the Company incurred in 1996 a pretax gain of $3,503,000 ($2,102,000 after-tax) in connection with the sale of the manufacturing assets of the Consumer Products Business. 16 17 During 1996, the Company made cash payments related to such reserves for i) net costs associated with elimination of operations and liquidation of working capital of $1,079,000, ii) severance pay and related costs of $1,215,000, iii) professional fees of $665,000 and iv) other costs of $199,000. The aggregate amount of reserves related to the disposal of the Consumer Products Business is expected to approximate the original estimate. Net sales of the Consumer Products Business declined to $18,317,000 in 1996 compared to $29,808,000 in 1995 due to the sale of the business. The after-tax loss related to the operations of the Consumer Products Business declined to $133,000 in 1996 compared to a loss of $1,684,000 in 1995 due to the sale of the business. RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994 CONTINUING OPERATIONS Net sales of the Company increased 2.2% to $109,187,000 in 1995 from 1994 due primarily to the pass through of resin price increases. The Company's manufacturing facilities operated at approximately 72% of capacity during 1995. Cost of sales of the Company increased to $84,605,000 in 1995 compared to $73,780,000 in 1994 primarily due to higher resin costs. Gross profit as a percent of net sales decreased to 22.5% for 1995 as compared to 30.9% for 1994 due to substantially higher resin costs and competitive pricing, primarily in the wide mouth jar and closure business. Research, selling, warehouse, general and administrative expenses decreased $862,000 or 3.3% during 1995, as compared to 1994. The loss before unusual items, interest and taxes was $416,000 in 1995 compared to earnings before unusual items, interest and taxes of $7,152,000 in 1994 primarily due to substantially higher resin costs and competitive pricing, primarily in the wide mouth jar and closure business. In 1995, the Company incurred a $1,000,000 unusual loss related to the write-down in the book value of land formerly used by the Company as a glass container manufacturing plant. Such write-down was necessitated by additional declines in the market value of commercial real estate in Southern California during 1995. Net interest expense increased $990,000 during 1995 compared to 1994 due to higher levels of debt and interest charged on advances under the Accounts Receivable Agreement. The decrease in the income tax provision in 1995 compared to 1994 is due to lower pretax results. DISCONTINUED OPERATIONS Net sales of the Consumer Products Business decreased 7.9% to $29,808,000 in 1995 compared to 1994 due primarily to lower unit sales as a result of adverse growing conditions in 1995. The after-tax loss related to the operations of the Consumer Products Business was $1,684,000 in 1995 compared to net earnings of $1,311,000 in 1994. The 1995 loss was due to the sale of higher cost inventory produced during 1994, higher customer rebates and lower sales volume due to adverse weather conditions. 17 18 LIQUIDITY AND CAPITAL RESOURCES On March 15, 1996, the Company sold certain assets, including the manufacturing assets, of the Consumer Products Business for a purchase price of $14,417,000. From March 16, 1996, through December 31, 1996, the Company received $17,391,000 from the sale by the Company of the inventory of the Consumer Products Business and from the collection of the related accounts receivable. The Company used these proceeds primarily to i) reduce debt by $9,100,000, ii) reduce the level of advances under the Company's Accounts Receivable Agreement by $4,342,000, iii) fund the $5,716,000 cash costs of the restructuring of the Company, iv) fund the $3,158,000 of cash costs associated with the sale of assets, and elimination of operations and liquidation of working capital of the Consumer Products Business, and v) increase its cash balances by $5,203,000. Other significant uses of cash during 1996 were payments to the pension plan of $6,989,000, of which $3,224,000 was related to the 1995 plan year minimum pension contribution. During 1995, the principal use of cash flow was to fund investing activities, primarily capital expenditures of $10,859,000. Cash flow was provided primarily through net advances on accounts receivable sold under the Company's Accounts Receivable Agreement of $7,357,000. During 1994, the principal use of cash flow was to fund capital expenditures of $14,176,000. Cash flow was provided through the reduction of the Company's cash balances of $9,068,000 and cash from financing activities of $5,457,000. During 1994, inventories increased by $5,578,000, due primarily to higher quantities and costs of resin, and higher quantities of finished goods. During 1995, the Company contributed 250,000 shares of its Common Stock, at a price of $7.56 per share, to the Kerr Group, Inc. Retirement Income Plan. The contribution reduced the Company's recorded pension liability by $1,891,000. During 1996 and 1995, the Company funded its defined benefit pension plan by $3,245,000 more than the accrued pension expense related to the 1995 plan year. Although the amount of the annual pension contribution is dependent upon a variety of factors, the Company expects to fund amounts in excess of its accrued pension expense for the foreseeable future. Capital expenditures of approximately $9,000,000 are planned for 1997. The Company has not declared a dividend on its Class B, Series D Preferred Stock since the first quarter of 1996. The cumulative amount of undeclared dividends as of December 31, 1996 is $622,000. Under accounting rules, such dividends are not accrued until declared, however, for financial reporting purposes the amount of such dividends are shown on the face of the income statement as a deduction to arrive at net earnings (loss) applicable to common stockholders. Under the terms of an agreement with its lenders, the Company is not permitted to declare or pay any dividends on its preferred stock at December 31, 1996. Since the third quarter of 1990, the Company has not declared any dividends on its Common Stock. The Company's Senior Note Agreement restricts the payment of dividends on Common Stock. Under such restrictions, the payment of Common Stock dividends is not permitted at December 31, 1996. The ratio of current assets to current liabilities at December 31, 1996 and 1995 was 0.5 and 0.6, respectively. The ratio of current assets to current liabilities is less than 1.0 due to the classification of the Company's outstanding Senior Notes as a current liability because the Company was in default of certain financial covenants for which waivers have been received for a period of less than one year. At December 31, 1996 and 1995, the ratio of total debt to total capitalization was 94% and 70%, respectively. The increase in the ratio of total debt to total capitalization is due to lower stockholders' equity, primarily the result of providing a valuation reserve against the Company's net deferred tax asset. 18 19 The Company's net deferred income tax assets as of December 31, 1996 have been eliminated by a valuation reserve of $13,691,000. The valuation reserve has been provided due to the uncertainty related to the Company's financing as described below. As of December 31, 1996, the Company had an Accounts Receivable Agreement (Receivable Agreement) which matured on March 7, 1997 that met the working capital needs of the Company. The Receivable Agreement permitted the Company to sell its trade accounts receivable on a nonrecourse basis. Under the Receivable Agreement, the maximum amount that could be advanced to the Company pursuant to the sale of trade accounts receivable at any time was $8,500,000. The Company retained collection and service responsibility, as agent for the purchaser, over any receivables sold. Advances under such Receivable Agreement were subject to certain limitations. As of December 31, 1996, receivables as shown on the accompanying Consolidated Balance Sheet have been reduced by net proceeds of $3,861,000 from advances pursuant to the sale of receivables under the Company's Receivable Agreement. The Receivable Agreement contained covenants identical to the Senior Notes. The Company is presently in default with respect to interest coverage and net worth covenants under the Loan Agreements which govern the unsecured Senior Notes and Bank Note issued by the Company. Under the terms of the Loan Agreements relating to the Senior Notes and the Bank Note, the Company is not permitted to sell the accounts receivable under the Accounts Receivable Agreement because of the default. The Company is in discussions with the owners of the Senior Notes and Bank Note regarding obtaining an extension of the waiver which expired on March 7, 1997. The discussions with the owners also include negotiations for the purchase by the Company of the Senior Notes and the Bank Note. The funds for the purchase of the Senior Notes and Bank Note would be obtained from a senior secured loan and a subordinated secured loan which the Company is discussing with institutional lenders and with respect to which loan agreements are being negotiated. Consummation of any purchase of the Senior Notes and Bank Note is subject to definitive agreements being reached with the new lenders as well as the holders of the Senior Notes and Bank Note. There can be no assurance that the owners of the Senior Notes and the Bank Note will extend the waiver of the defaults, or agree to sell the Senior Notes and the Bank Note for a purchase price that is acceptable to the Company or that the senior secured loan and the subordinated secured loan can be obtained to finance the purchase. In the event the Company does not obtain an extension of the waiver, the Company does not intend to make its quarterly payment of interest due under the Senior Notes and Bank Note due on March 31, 1997. The lender proposing to make the subordinated secured loan to the Company has indicated that it is willing to purchase the accounts receivable of the Company through June 30, 1997 on terms and conditions acceptable to the lender in its sole and reasonable discretion. The terms and conditions to be negotiated include, without limitation, pricing, credit criteria, reserves, servicing and recourse. The lender's willingness to purchase the Company's accounts receivable will be subject to the negotiation, execution and delivery of purchase documents in form and substance satisfactory to the lender. There can be no assurance that the Company and the lender will reach definitive agreement on the terms of such purchase. The sale of the accounts receivable to this lender, in the absence of a waiver of the existing default, will constitute a further default by the Company under the existing Loan Agreements. As part of its overall restructuring, the Company is involved in discussions with the Pension Benefit Guaranty Corporation relating to the Company's pension liabilities. The Company expects these discussions to continue. The Company expects to receive approximately $3,500,000 from the sale of real property located in Santa Ana, California in April 1997. The Company had $5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company reaches satisfactory agreement with the lender regarding the new accounts receivable facility, the Company believes that it will have sufficient funds available to finance its working capital requirements through June 30, 1997. 19 20 At December 31, 1996, the Company had unused sources of liquidity consisting of cash and cash equivalents of $9,107,000, additional advances available under the Receivable Agreement of $3,965,000, a tax net operating loss carryforward of $28,300,000, a minimum tax credit carryforward of $1,068,000 and other tax credit carryforwards of $417,000. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This Form 10-K contains statements which may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of Kerr Group, Inc. and members of its management team. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. 20 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s) ------- Independent Auditors' Report 22 Balance Sheets - December 31, 1996 and 1995 23-24 Statements of Earnings (Loss) - Three Years Ended December 31, 1996 25 Statements of Cash Flows - Three Years Ended December 31, 1996 26 Statements of Common Stockholders' Equity - Three Years Ended December 31, 1996 27 Notes to Financial Statements 28-46 Schedule VIII - Valuation and Qualifying Accounts - Three Years Ended December 31, 1996 67
21 22 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Kerr Group, Inc. We have audited the financial statements of Kerr Group, Inc. as listed in the accompanying index. In connection with our audits of the financial statements, we have also audited the financial statement schedule as listed in the accompanying index. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kerr Group, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. The accompanying financial statements for 1996 have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in default of its current loan agreements and has not been successful as yet in securing a new credit facility which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG PEAT MARWICK LLP Harrisburg, Pennsylvania March 25, 1997 22 23 BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 - ----------------------------------------------------------------------------------------------------------- (in thousands) ASSETS Current assets Cash and cash equivalents $ 9,107 $ 3,904 Receivables - primarily trade accounts, less allowance for doubtful accounts of $287 in 1996 and $212 in 1995 9,710 7,154 Inventories Raw materials and work in process 6,702 7,815 Finished goods 8,034 9,933 --------- --------- Total inventories 14,736 17,748 Prepaid expenses and other current assets 27 3,106 Current net assets related to discontinued operations 4 12,847 --------- --------- Total current assets 33,584 44,759 --------- --------- Property, plant and equipment, at cost Land 427 427 Buildings and improvements 8,624 12,881 Machinery and equipment 87,207 86,646 Furniture and office equipment 2,890 5,771 --------- --------- 99,148 105,725 Accumulated depreciation and amortization (60,258) (58,907) --------- --------- Net property, plant and equipment 38,890 46,818 Deferred income taxes -- 8,057 Goodwill and other intangibles, net of amortization of $2,749 in 1996 and $2,247 in 1995 5,682 6,983 Other assets 7,370 8,026 Non-current net assets related to discontinued operations -- 4,854 --------- --------- $ 85,526 $ 119,497 ========= =========
See accompanying notes to consolidated financial statements. 23 24 BALANCE SHEETS (continued)
- ------------------------------------------------------------------------------------------------ Years Ended December 31, 1996 1995 - ------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term debt $ 5,856 $ 6,500 Senior debt due 1997 through 2003 classified as current 45,044 50,000 Accounts payable 7,373 9,707 Current pension liability -- 3,777 Other current liabilities 5,622 5,113 --------- --------- Total current liabilities 63,895 75,097 --------- --------- Pension liability 13,935 18,318 Other long-term liabilities 4,394 2,175 Stockholders' equity Preferred Stock, 487 shares authorized and issued, liquidation value of $21.28 per share at December 31, 1996 and $20 per share at December 31, 1995 9,748 9,748 Common Stock, $.50 par value per share, 20,000 shares authorized, 4,226 shares issued 2,113 2,113 Additional paid-in capital 27,239 27,239 Retained earnings (accumulated deficit) (20,640) 1,860 Treasury Stock, at cost, 293 shares (6,913) (6,913) Excess of additional pension liability over unrecognized prior service cost, net of tax benefits (8,245) (10,140) --------- --------- Total stockholders' equity 3,302 23,907 --------- --------- $ 85,526 $ 119,497 ========= =========
See accompanying notes to consolidated financial statements. 24 25 STATEMENTS OF EARNINGS (LOSS)
- --------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Net sales $ 107,369 $ 109,187 $106,792 Cost of sales 83,064 84,605 73,780 --------- --------- -------- Gross profit 24,305 24,582 33,012 Research and development expenses 1,991 1,708 2,110 Plant administrative expenses 5,013 4,490 4,707 Selling and warehouse expenses 8,031 7,680 7,790 General corporate expenses 10,381 11,120 11,253 Restructuring costs 10,011 -- -- Financing costs 1,600 -- -- Loss on revaluation of land -- 1,000 -- Interest expense, net 4,703 4,608 3,618 --------- --------- -------- Earnings (loss) from continuing operations before income taxes (17,425) (6,024) 3,534 Provision (benefit) for income taxes 6,837 (2,401) 1,441 --------- --------- -------- Net earnings (loss) from continuing operations (24,262) (3,623) 2,093 Discontinued operations: Gain on sale of discontinued operations, net of income tax provision of $1,401 2,102 -- -- Earnings (loss) from discontinued operations, net of income tax provision (benefit) of ($89), ($1,117) and $904 (133) (1,684) 1,311 --------- --------- -------- Net earnings (loss) related to discontinued operations 1,969 (1,684) 1,311 --------- --------- -------- Net earnings (loss) (22,293) (5,307) 3,404 Preferred stock dividends 829 829 829 --------- --------- -------- Net earnings (loss) applicable to common stockholders $ (23,122) $ (6,136) $ 2,575 ========= ========= ======== Earnings (loss) per common share: Earnings (loss) per common share from continuing operations $ (6.38) $ (1.16) $ 0.34 Earnings (loss) per common share from discontinued operations 0.50 (0.44) 0.36 --------- --------- -------- Net earnings (loss) per common share $ (5.88) $ (1.60) $ 0.70 ========= ========= ======== Weighted average shares outstanding 3,933 3,842 3,674
See accompanying notes to consolidated financial statements. 25 26 STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ (in thousands) CASH FLOW PROVIDED (USED) BY OPERATIONS Earnings (loss) from continuing operations $(24,262) $ (3,623) $ 2,093 Add (deduct) noncash items included in earnings (loss) Expenses associated with restructuring, in excess of cash payments 4,307 -- -- Expenses associated with financing 1,600 -- -- Depreciation and amortization 9,398 8,675 7,495 Change in deferred income taxes 7,080 (2,482) 1,705 Reduction in total pension liability, net (4,813) 294 (242) Other, net (98) 130 258 Changes in other operating working capital Receivables (2,556) 7,268 (2,254) Inventories 1,964 661 (5,578) Other current assets 937 1,267 (94) Accounts payable (2,366) (2,936) 3,929 Accrued expenses (1,138) 1,674 (567) Cash flow provided (used) by discontinued operations 11,640 2,078 (4,420) -------- -------- -------- Total cash flow provided (used) by operations 1,693 13,006 2,325 CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES Continuing Operations: Capital expenditures (2,091) (10,859) (14,176) Proceeds from liquidation of long-term certificates of deposit -- 375 1,000 Other, net 377 (1,301) (2,587) Discontinued Operations: Capital expenditures (234) (981) (1,472) Proceeds from sale of assets of Consumer Products Business 14,417 -- -- Other, net (1,840) 1,200 385 -------- -------- -------- Cash flow provided (used) by investing activities 10,629 (11,566) (16,850) CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES Repayment of Senior Notes and Note payable to bank (5,600) -- -- Net borrowings under lines of credit -- 1,000 5,500 Payments associated with financing (1,312) -- -- Dividends paid (207) (829) (829) Other, net -- 32 786 -------- -------- -------- Cash flow provided (used) by financing activities (7,119) 203 5,457 CASH AND CASH EQUIVALENTS Increase (decrease) during the year 5,203 1,643 (9,068) Balance at beginning of the year 3,904 2,261 11,329 -------- -------- -------- Balance at end of the year $ 9,107 $ 3,904 $ 2,261 ======== ======== ======== SIGNIFICANT NON-CASH TRANSACTIONS Contribution of 250,000 shares of Common Stock to Pension Plan $ -- $ 1,891 $ -- ======== ======== ========
See accompanying notes to consolidated financial statements. 26 27 STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996, 1995 and 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Number Of Excess Of Shares Of Retained Additional Pension Notes Common Additional Earnings Liability Over Receivable Stock Common Paid-In (Accum. Treasury Unrecognized From ESOP Outstanding Stock Capital Deficit) Stock Prior Service Cost Trusts - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance, December 31, 1993 3,667 $2,105 $27,145 $ 9,420 $(12,803) $ (6,835) $(716) Net earnings -- -- -- 3,404 -- -- -- Dividends on Preferred Stock -- -- -- (829) -- -- -- Pension adjustment -- -- -- -- -- 1,628 -- Repayments on ESOP Trusts notes receivable -- -- -- -- -- -- 716 Issuance of Common Stock under stock option plans 10 5 65 -- -- -- -- ----- ------ ------- -------- -------- -------- ----- Balance, December 31, 1994 3,677 2,110 27,210 11,995 (12,803) (5,207) -- Net loss -- -- -- (5,307) -- -- -- Dividends on Preferred Stock -- -- -- (829) -- -- -- Pension adjustment -- -- -- -- -- (4,933) -- Contribution of Treasury Stock to pension fund 250 -- -- (3,999) 5,890 -- -- Issuance of Common Stock under stock option plans 6 3 29 -- -- -- -- ----- ------ ------- -------- -------- -------- ----- Balance, December 31, 1995 3,933 2,113 27,239 1,860 (6,913) (10,140) -- Net loss -- -- -- (22,293) -- -- -- Dividends on Preferred Stock -- -- -- (207) -- -- -- Pension adjustment -- -- -- -- -- 1,895 -- ----- ------ ------- -------- -------- -------- ----- Balance, December 31, 1996 3,933 $2,113 $27,239 $(20,640) $ (6,913) $ (8,245) $ -- ===== ====== ======= ======== ======== ======== =====
See accompanying notes to consolidated financial statements. 27 28 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL DESCRIPTION OF BUSINESS The Company's operations consist of the manufacture and sale of a variety of plastic packaging products including child-resistant closures, tamper-evident closures, prescription packaging products, jars and other plastic closures and containers. The Company uses a significant amount of resin in its manufacturing process. From time to time, the Company has experienced substantial increases in the cost of resin. To the extent that the Company is unable to pass on resin cost increases, the cost increases could have a significant impact on the results of operations of the Company. CASH EQUIVALENTS Cash equivalents consist only of investments that have an original maturity of three months or less, are readily convertible to known amounts of cash and have insignificant risk of changes in value because of changes in interest rates. INVENTORIES Inventories are valued at the lower of cost or market, determined by the use of the first-in, first-out method. DEPRECIATION, MAINTENANCE AND REPAIRS Depreciation of property, plant and equipment is provided by the use of the straight-line method over the estimated useful lives of the assets. The estimated useful lives used in computing the depreciation provisions are as follows: Buildings and improvements 5 to 30 years Machinery and equipment 3 to 15 years Furniture and equipment 5 to 10 years
The policy of the Company is to charge amounts expended for maintenance and repairs to expense and to capitalize expenditures for major replacements and betterments. GOODWILL AND OTHER INTANGIBLES The excess of cost over fair value of net tangible assets acquired during 1987 is amortized on a straight-line basis over 40 years. Other intangible assets are being amortized by the straight-line method over their respective initial estimated lives ranging from 2 to 17 years. Effective January 1, 1996, the Company adopted Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (FASB No. 121). FASB 121 requires that impairments, measured using fair market value, are recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. Adoption of this statement did not affect the Company's results of operations. The assessment of the recoverability of goodwill will be impacted if future operating cash flows are not achieved. REVENUE RECOGNITION The Company recognizes revenue at the time the product is shipped to the customer. PENSIONS AND OTHER POSTRETIREMENT BENEFITS Financial Accounting Standards Board Statement No. 87 (FASB No. 87) requires that a company record an additional minimum pension liability to the extent that a company's accumulated pension benefit obligation exceeds the fair value of pension plan assets and accrued pension liabilities. This additional minimum pension liability is offset by an intangible asset, not to exceed prior service costs of the pension plan. Amounts in excess of prior service costs are reflected as a reduction in stockholders' equity. 28 29 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company accounts for postretirement benefits in accordance with Financial Accounting Standards Board Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (FASB No. 106). As more fully described in Note 7, the Company has elected to amortize the impact of FASB No. 106 ratably over 20 years. STOCK OPTIONS Effective January 1, 1996, the Company adopted the Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FASB No. 123). FASB No. 123 requires the Company to choose between two different methods of accounting for stock options. The statement defines a fair-value-based method of accounting for stock options but allows an entity to continue to measure compensation cost for stock options using the accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). The Company has elected to continue using the accounting methods prescribed by APB No. 25. The amount of the proforma compensation expense, required to be disclosed under the FASB No. 123, is not material. INCOME TAXES The Company accounts for income taxes under the Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes (FASB No. 109). Under the asset and liability method of FASB No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FASB No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. EARNINGS (LOSS) PER COMMON SHARE Primary net earnings (loss) per common share are based on the weighted average number of common shares outstanding and are after Preferred Stock dividends (both declared and undeclared dividends). Fully diluted net earnings (loss) per common share reflect when dilutive i) the incremental common shares issuable upon the assumed exercise of outstanding stock options and ii) the assumed conversion of the Preferred Stock and the elimination of the related Preferred Stock dividends. The calculation of fully diluted net earnings (loss) per common share for 1996, 1995 and 1994 was not dilutive. FINANCIAL STATEMENT PREPARATION AND PRESENTATION The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of December 31, 1996 and 1995, and the reported amounts of income and expenses for each of the three years ended December 31, 1996. Actual results could differ from those estimates. Included in other assets are certain assets held for sale consisting of real property and buildings. Management has obtained a recent appraisal to support the carrying value of such assets, however, the ultimate sales proceeds received by the Company could differ from the appraisal amount depending on changes in market conditions. Certain reclassifications have been made to prior years' financial statements to conform to the 1996 presentation. 29 30 NOTE 2 - ISSUES AFFECTING LIQUIDITY During the fourth quarter of 1996, the holders of $50,900,000 of the Company's existing unsecured debt sold the debt. Representatives of the new owners of the debt informed the Company that they do not intend to pursue the previously announced restructuring of this debt, pursuant to which a portion of this debt was to have been repaid with the proceeds of a new secured credit facility, and the balance of which was to have been converted into preferred stock and subordinated debt. The new owners initially indicated that they preferred a restructuring that would involve the exchange of debt for substantially all of the equity of the Company. The Company rejected such exchange and there is no assurance that the Company and the owners of the debt will reach an agreement on the terms of any such exchange. The Company is presently in default with respect to interest coverage and net worth covenants under the Loan Agreements which govern the unsecured Senior Notes and Bank Note issued by the Company. Under the terms of the Loan Agreements relating to the Senior Notes and the Bank Note, the Company is not permitted to sell the accounts receivable under the Accounts Receivable Agreement because of the default. The Company is in discussions with the owners of the Senior Notes and Bank Note regarding obtaining an extension of the waiver which expired on March 7, 1997. The discussions with the owners also include negotiations for the purchase by the Company of the Senior Notes and the Bank Note. The funds for the purchase of the Senior Notes and Bank Note would be obtained from a senior secured loan and a subordinated secured loan which the Company is discussing with institutional lenders and with respect to which loan agreements are being negotiated. Consummation of any purchase of the Senior Notes and Bank Note is subject to definitive agreements being reached with the new lenders as well as the holders of the Senior Notes and Bank Note. There can be no assurance that the owners of the Senior Notes and the Bank Note will extend the waiver of the defaults, or agree to sell the Senior Notes and the Bank Note for a purchase price that is acceptable to the Company or that the senior secured loan and the subordinated secured loan can be obtained to finance the purchase. In the event the Company does not obtain an extension of the waiver, the Company does not intend to make its quarterly payment of interest due under the Senior Notes and Bank Note due on March 31, 1997. The lender proposing to make the subordinated secured loan to the Company has indicated that it is willing to purchase the accounts receivable of the Company through June 30, 1997 on terms and conditions acceptable to the lender in its sole and reasonable discretion. The terms and conditions to be negotiated include, without limitation, pricing, credit criteria, reserves, servicing and recourse. The lender's willingness to purchase the Company's accounts receivable will be subject to the negotiation, execution and delivery of purchase documents in form and substance satisfactory to the lender. There can be no assurance that the Company and the lender will reach definitive agreement on the terms of such purchase. The sale of the accounts receivable to this lender, in the absence of a waiver of the existing default, will constitute a further default by the Company under the existing Loan Agreements. As part of its overall restructuring, the Company is involved in discussions with the Pension Benefit Guaranty Corporation relating to the Company's pension liabilities. The Company expects these discussions to continue. The Company expects to receive approximately $3,500,000 from the sale of real property located in Santa Ana, California in April 1997. The Company had $5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company reaches satisfactory agreement with the lender regarding the new accounts receivable facility, the Company believes that it will have sufficient funds available to finance its working capital requirements through June 30, 1997. 30 31 NOTE 3 - RESTRUCTURING AND FINANCING COSTS During the first quarter of 1996, the Company recorded a pretax loss of $7,500,000 for certain costs associated with the restructuring of the Company, which included moving the corporate headquarters from Los Angeles, California to Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of reserves for i) severance pay, workers' compensation claims and insurance continuation costs of $3,000,000, ii) costs associated with terminating the leases of the two vacated facilities of $2,300,000, iii) asset retirements of $1,600,000 and iv) other costs of $600,000. During 1996, the Company made cash payments related to such reserves for i) severance pay and related costs of $2,638,000, ii) costs associated with terminating the leases of the two facilities of $478,000 and iii) other costs of $89,000. In addition to such cash costs, during 1996 charges were made to reserves relating to asset retirements of $1,499,000. In addition, during 1996, the Company incurred pretax losses of $2,511,000 for restructuring costs primarily related to relocation of personnel and equipment. Accounting rules require these costs to be expensed as incurred. The relocation of the corporate headquarters and the wide mouth jar manufacturing operation have been completed. The cost to complete the restructuring is expected to approximate the original estimate. During 1996, the Company incurred financing costs of $1,600,000 consisting of i) fees paid to the Company's advisors in its negotiations with lenders, ii) reimbursement of the lenders' fees paid to their advisors in the negotiations, iii) certain fees associated with prospective lenders and iv) expensing a portion of the previously capitalized financing costs associated with the existing debt. NOTE 4 - DISCONTINUED OPERATIONS On March 15, 1996, the Company sold certain assets, including the manufacturing assets, of the Consumer Products Business for a purchase price of $14,417,000. From March 16, 1996 through December 31, 1996, the Company received $17,391,000 from the sale by the Company of the inventory of the Consumer Products Business and from the collection of the related accounts receivable. In connection with such sale, the Company recorded $4,900,000 of reserves consisting of i) severance pay, workers' compensation claims and insurance continuation of $1,400,000, ii) retiree health care and pension expenses of $1,200,000, iii) estimated net costs associated with elimination of operations and liquidation of working capital of $1,100,000, iv) professional fees of $700,000, v) asset retirements of $300,000, and vi) other costs of $200,000. After deduction for such reserves, the Company incurred in 1996 a pretax gain of $3,503,000 ($2,102,000 after-tax) in connection with the sale of the manufacturing assets of the Consumer Products Business. During 1996, the Company made cash payments related to such reserves for i) net costs associated with elimination of operations and liquidation of working capital of $1,079,000, ii) severance pay and related costs of $1,215,000, iii) professional fees of $665,000 and iv) other costs of $199,000. In addition to such cash costs, charges were made to such reserves relating to i) reclassifications to retiree benefit plan liabilities of $1,220,000 and ii) asset retirements of $251,000. The aggregate amount of reserves related to the disposal of the Consumer Products Business is expected to approximate the original estimate. 31 32 NOTE 4 - DISCONTINUED OPERATIONS (continued) The results of the discontinued operations have been reported separately in the Statement of Earnings (Loss). Summarized results of the discontinued operations for the years ended December 31, 1996, 1995 and 1994 are as follows:
- --------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------- (in thousands) Net sales $ 18,317 $ 29,808 $32,364 Costs and expenses 17,851 31,398 29,151 Allocated interest expense 688 1,211 998 -------- -------- ------- Earnings (loss) before income taxes (222) (2,801) 2,215 Provision (benefit) for income taxes (89) (1,117) 904 -------- -------- ------- Earnings (loss) from discontinued operations (133) (1,684) 1,311 Gain on sale of manufacturing assets 2,102 -- -- -------- -------- ------- Total earnings (loss) related to discontinued operations $ 1,969 $ (1,684) $ 1,311 ======== ======== =======
Interest expense was allocated to the Consumer Products Business based upon the ratio of the Consumer Products Business net assets to total Company net assets. NOTE 5 - INCOME TAXES Total income tax provision (benefit) for the years ended December 31, 1996, 1995 and 1994 was allocated as follows:
- ---------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- (in thousands) Tax provision (benefit) from continuing operations before valuation reserve $ (6,854) $(2,401) $1,441 Income tax valuation reserve adjustment related to continuing operations 13,691 -- -- -------- ------- ------ Subtotal 6,837 (2,401) 1,441 Tax provision (benefit) from discontinued operations 1,312 (1,117) 904 Stockholders' equity, related to excess of pension liability over unrecognized prior service costs before valuation reserve 1,328 (3,281) 878 -------- ------- ------ $ 9,477 $(6,799) $3,223 ======== ======= ======
32 33 NOTE 5 - INCOME TAXES (continued) The provision (benefit) for income taxes related to continuing operations for the years ended December 31, 1996, 1995 and 1994 consists of the following:
- -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- (in thousands) Current U.S. Federal $ -- $ -- $ 81 State -- -- -- ------ ------- ------ Total current -- -- 81 Deferred U.S. Federal 5,402 (1,880) 1,090 State 1,435 (521) 270 ------ ------- ------ Total deferred 6,837 (2,401) 1,360 ------ ------- ------ Total provision (benefit) for income taxes $6,837 $(2,401) $1,441 ====== ======= ======
The significant components of deferred income taxes (benefits) related to continuing operations for the years ended December 31, 1996, 1995 and 1994 are as follows:
- -------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- (in thousands) Reduction of deferred income taxes attributable to recognition of alternative minimum tax credits and tax net operating loss carryforwards $ (5,200) $(3,782) $ (16) Temporary differences associated with restructuring costs (1,108) -- -- Temporary differences associated with the sales of discontinued operations 150 (466) 1,531 Additional costs inventoried for tax purposes (638) (44) 64 Excess (deficit) of pension contributions paid over pension expense 517 1,513 46 Excess (deficit) of tax over book depreciation, including assets retired or sold 418 668 (19) Other, net (993) (290) (246) Plus: Increase in balance of valuation reserve for deferred income tax assets related to the income tax provision 13,691 -- -- -------- ------- ------- Total $ 6,837 $(2,401) $ 1,360 ======== ======= =======
33 34 NOTE 5 - INCOME TAXES (continued) Total provision (benefit) for income taxes from continuing operations for the years ended December 31, 1996, 1995 and 1994 differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to earnings (loss) before income taxes as a result of the following:
- ----------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- (in thousands) Computed "expected" tax provision (benefit) $ (5,925) $(2,048) $1,202 Increase (reduction) in provision resulting from: State income tax provision (benefit), net of Federal tax effect (983) (358) 210 Increase in balance of valuation reserve for deferred income tax assets related to the income tax provision 13,691 -- -- Other, net 54 5 29 -------- ------- ------ Actual tax provision (benefit) $ 6,837 $(2,401) $1,441 ======== ======= ======
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities at December 31, 1996 and 1995 are as follows:
- ----------------------------------------------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------------------------------------------- (in thousands) Deferred income tax assets: Net operating loss carryforwards $ 11,577 $ 6,882 Pension liabilities -- Excess of additional pension liability over unrecognized prior service cost 5,415 6,742 Accrued pension liability (464) (19) Tax credit carryforwards 1,485 1,158 Accrued retiree health liability 1,001 551 Accrued reserves associated with discontinued operations 215 274 Inventory 1,064 675 Accrued vacation pay 532 461 Reserves associated with restructuring 1,108 -- Other 507 670 -------- -------- Total gross deferred income tax assets 22,440 17,394 Less valuation reserve for deferred income tax assets (13,691) -- -------- -------- Deferred income tax assets, net of valuation reserve 8,749 17,394 Deferred income tax liabilities: Property, plant and equipment, principally due to differences in depreciation (6,116) (5,744) Excess of book basis over tax basis of land and buildings formerly used as a glass container manufacturing plant (1,337) (1,252) Other (1,296) (590) -------- -------- Total gross deferred income tax liabilities (8,749) (7,586) -------- -------- Net deferred income tax assets $ -- $ 9,808 ======== ========
34 35 NOTE 5 - INCOME TAXES (continued) The Company's net deferred income tax assets as of December 31, 1996 have been eliminated by a valuation reserve of $13,691,000. The valuation reserve has been provided due to the uncertainty related to the Company's financing as described in Note 2 of the notes to the financial statements. At December 31, 1996, the Company had net operating loss carryforwards for Federal income tax purposes of $28,300,000 which are available to offset future Federal taxable income, expiring in the years 2006 through 2011. The Company also has an alternative minimum tax credit carryforward of $1,068,000 and other tax credit carryforwards (primarily investment tax credits) of $417,000, expiring in the years 1999 through 2009, which are available to reduce future Federal income taxes, if any. The total net cash payments related to income taxes, which represent Federal alternative minimum taxes and state taxes, were $0, $24,000 and $761,000 for 1996, 1995 and 1994, respectively. NOTE 6 - OTHER CURRENT LIABILITIES At December 31, 1996 and 1995, other current liabilities were as follows:
- -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- (in thousands) Accrued wages and vacation pay $1,671 $1,994 Accrued interest 1,267 2,617 Accrued and withheld taxes 236 29 Accrued reserves associated with restructuring 1,483 -- Other accrued expenses 965 473 ------ ------ Total accrued expenses $5,622 $5,113 ====== ======
NOTE 7 - RETIREMENT BENEFITS PENSIONS The Company has a defined benefit pension plan (the "Retirement Income Plan"), which covers substantially all employees. The Retirement Income Plan generally provides benefits based on years of service and average final pay. The Company's policy is to fund amounts sufficient to satisfy the funding requirements of the Employee Retirement Income Security Act of 1974. During 1996 and 1995, the Company funded the Retirement Income Plan by $3,245,000 more than the accrued pension expense related to the 1995 plan year. During 1995 and 1994, the Company funded the Retirement Income Plan by $1,983,000 more than the accrued pension expense related to the 1994 plan year. During 1995, the Company contributed 250,000 shares of its Common Stock, at a price of $7.56 per share, to the Retirement Income Plan. The contribution was valued at $1,891,000 which was based upon the current market value of the stock on the date of the contribution. During 1995, the Company adopted a Pension Restoration Plan which is an unfunded plan providing benefits to participants not payable by the Company's Retirement Income Plan because of the limitations on benefits imposed by the Internal Revenue Code of 1986, as amended. The aggregate annual accrued benefit for each participant under the combination of the Retirement Income Plan and the Pension Restoration Plan when expressed as a single-life annuity is limited to $200,000. 35 36 NOTE 7 - RETIREMENT BENEFITS (continued) Net pension expense related to continuing operations for the years ended December 31, 1996, 1995 and 1994 included the following components:
- ---------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------- (in thousands) Service cost (benefit earned during period) $ 668 $ 468 $ 534 Interest cost on projected benefit obligation 7,380 7,364 7,018 Actual loss (return) on assets (6,474) (16,080) 597 Net amortization and deferral 579 9,460 (6,552) ------- -------- ------- Net pension expense $ 2,153 $ 1,212 $ 1,597 ======= ======== =======
The funded status of the defined benefit plans at December 31, 1996 and 1995 was as follows:
- ------------------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------------------ (in thousands) Actuarial present value of benefit obligation Vested benefit obligation $ 95,731 $ 99,237 Nonvested benefit obligation 2,385 1,942 --------- --------- Accumulated benefit obligation 98,116 101,179 Effect of future salary increases 2,610 2,812 --------- --------- Projected benefit obligation 100,726 103,991 Plan assets at fair value (a) 84,182 79,084 --------- --------- Projected benefit obligation in excess of plan assets 16,544 24,907 Unrecognized net transition obligation (394) (474) Unrecognized prior service costs (826) (936) Unrecognized net loss (16,201) (19,660) --------- --------- Accrued pension (asset) liability before adjustment (877) 3,837 Adjustment required to recognize additional minimum pension liability 14,812 18,258 --------- --------- Accrued pension liability related to the defined benefit plan $ 13,935 $ 22,095 ========= =========
(a) Plan assets include 368,200 shares of Company Common Stock at a value of $874,000 at December 31, 1996 and $3,682,000 at December 31, 1995. In connection with recording the additional minimum pension liability pursuant to the provisions of FASB No. 87, the Company recorded a reduction in stockholders' equity of $8,245,000 at December 31, 1996, and $10,140,000 at December 31, 1995, and an intangible pension asset of $1,152,000 at December 31, 1996, and $1,376,000 at December 31, 1995. The majority of all pension plan assets are held by a master trust created for the collective investment of the plan's funds, as well as in private placement insurance contracts. At December 31, 1996, assets held by the master trust consisted primarily of cash, U.S. government obligations, corporate bonds and common stocks. 36 37 NOTE 7 - RETIREMENT BENEFITS (continued) The defined benefit plan assumptions as of December 31, 1996, 1995 and 1994 were as follows:
- -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Discount rate 7.75% 7.25% 8.75% Increase in compensation rate 5 % 5 % 5 % Long-term rate of return on assets 9.5 % 9.5 % 9.5 %
The Company retained the pension benefit obligations for service prior to the date of the sale and the pension assets related to the Company's discontinued Consumer Products Business. In connection with the sale of the business, the Company's pension plan had a curtailment loss of $100,000 pursuant to FASB Statement No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. Such curtailment loss was included as component of the gain on the sale of the Consumer Products Business. RETIREE HEALTH CARE AND LIFE INSURANCE The Company provides certain health care and life insurance benefits for retired employees and their spouses. The costs of such benefits are shared by retirees through one or more of the following: a) deductibles, b) copayments and c) retiree contributions. Salaried employees hired prior to September 1, 1992, and certain hourly employees may become eligible for those benefits if they reach retirement age while working for the Company. The Company will not provide retiree health care and life insurance benefits for salaried employees hired after September 1, 1992. Health care and life insurance benefits provided by the Company are not funded in advance, but rather are paid by the Company as the costs are actually incurred by the retirees. Effective January 1, 1993, the Company adopted FASB No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The adoption of FASB No. 106 at January 1, 1993, created a previously unrecognized accumulated postretirement benefit obligation of $13,195,000. As permitted under FASB No. 106, the Company has elected to amortize the $13,195,000 accumulated postretirement benefit obligation ratably over 20 years. Retiree health care and life insurance expense related to continuing operations for the years ended December 31, 1996, 1995 and 1994 included the following components:
- ----------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------- (in thousands) Service cost (benefit earned during period) $ 51 $ 41 $ 54 Interest cost on accumulated benefit obligation 690 855 1,082 Actual return on assets -- -- -- Net amortization and deferral 509 478 525 ------ ------ ------ Net retiree health care and life insurance expense $1,250 $1,374 $1,661 ====== ====== ======
37 38 NOTE 7 - RETIREMENT BENEFITS (continued) The funded status of the retiree health care and life insurance plans at December 31, 1996 and 1995 was as follows:
- -------------------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------------------- (in thousands) Actuarial present value of accumulated postretirement benefit obligation: Retirees $ 7,692 $ 9,210 Fully eligible active participants 691 735 Other active participants 955 1,055 ------- -------- Accumulated benefit obligation 9,338 11,000 Plan assets at fair value -- -- ------- -------- Accumulated benefit obligation in excess of plan assets 9,338 11,000 Unrecognized net transition obligation (8,405) (10,612) Unrecognized prior service costs -- -- Unrecognized net gain (loss) 1,594 992 ------- -------- Accrued postretirement benefit liability $ 2,527 $ 1,380 ======= ========
The retiree health care and life insurance plans assumptions are as follows:
- ----------------------------------------------------------------------------------------------------------- December 31, December 31, December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- Discount rate 7.75% 7.25% 8.75% Health care cost trend rates -- Indemnity plans 8.75% trending down 8.75% trending down 8.75% trending down to 6% to 6% to 6% Managed care plans 6.75% trending down 6.75% trending down 6.75% trending down to 4% to 4% to 4% - -----------------------------------------------------------------------------------------------------------
The effect of a one percentage point annual increase in these assumed cost trend rates at December 31, 1996, would increase the postretirement benefit obligation by approximately $370,000 and would increase the service and interest cost components of the annual expense by approximately $35,000. 38 39 NOTE 8 - FINANCING At December 31, 1996, the Company's debt consists of $50,900,000 of Senior Notes and an unsecured Bank Note held by a group of investors. The Company is in discussions with these investors regarding the possible exchange of such debt for equity or possible repayment through the refinancing of the debt. This debt consists of the following components as of December 31, 1996 and December 31, 1995 (in thousands):
December 31, ------------ 1996 1995 ---- ---- Senior Notes - Series A, 10-year notes originally issued September 21, 1993, original principal amount of $41,000,000, bearing interest at 9.45% $36,936 $41,000 Senior Notes - Series B, 6-year notes originally issued September 21, 1993, original principal amount of $9,000,000, bearing interest at 8.99% 8,108 9,000 Bank Note, due date extended to March 7, 1997, bearing interest at the Prime rate (8.25% at December 31, 1996) 5,856 6,500 ------- ------- $50,900 $56,500 ======= =======
Sinking fund payments were scheduled to begin under the 10-year notes in 1998 and under the 6-year notes in 1997. The Senior Notes and Bank Note are unsecured. The Senior Notes and Bank Note contain various covenants including covenants relating to coverage of fixed charges, minimum level of tangible net worth, limitation on leverage and limitation on restricted payments, for which payments are defined to include Common Stock dividends. Under the most restrictive covenant related to the payment of dividends, the payment of Common Stock dividends is not permitted at December 31, 1996. As of December 31, 1996, the Company is not in compliance with certain of the financial covenants and has obtained waivers of such covenants through March 7, 1997. The Senior Notes contain a provision which requires the payment of a prepayment penalty in the event the Senior Notes are repaid prior to their scheduled maturity date. If the Senior Notes had been repaid on March 25, 1997, the prepayment penalty would have equaled approximately $3,000,000. As of December 31, 1996, the Company's $45,044,000 of outstanding Senior Notes is classified as a current liability because the Company was in default of certain financial covenants for which waivers have been received for a period of less than one year (currently through March 7, 1997). See further discussion at Note 2 of notes to financial statements. As of December 31, 1996, the Company had an Accounts Receivable Agreement (Receivable Agreement) which matured on March 7, 1997 that met the working capital needs of the Company. The Receivable Agreement permitted the Company to sell its trade accounts receivable on a nonrecourse basis. Under the Receivable Agreement, the maximum amount that could be advanced to the Company pursuant to the sale of trade accounts receivable at any time was $8,500,000. The Company retained collection and service responsibility, as agent for the purchaser, over any receivables sold. Advances under such Receivable Agreement were subject to certain limitations. As of December 31, 1996, receivables as shown on the accompanying Balance Sheet have been reduced by net proceeds of $3,861,000 from advances pursuant to the sale of receivables under the Receivable Agreement. The Receivable Agreement contained covenants identical to the Senior Notes. The Company is not permitted to sell accounts receivable under the Receivable Agreement as long as there exists a default under the Senior Notes. 39 40 NOTE 8 - FINANCING (continued) The Bank Note was originally related to a $10,000,000 bank line of credit, which effective October 24, 1995 was reduced by the lender to the then outstanding balance of $6,500,000 due to a decline in the Company's financial performance. During early 1995, the Company had an additional bank line of credit which was replaced by the Receivable Agreement. During 1996, the Company had maximum borrowings under the Senior Notes and Bank Note of $60,000,000. During 1996, the weighted average interest rate under the Senior Notes and Bank Note was 9.3% and the weighted average borrowings outstanding was $53,199,000. During 1995, the Company had maximum borrowings outstanding under the lines of credit of $12,000,000. During 1995, the weighted average interest rate under its lines of credit was 8.7% and the weighted average borrowings outstanding under its lines of credit was $7,528,000. Total cash payments of interest related to continuing operations during 1996, 1995 and 1994 were $5,618,000, $2,752,000, and $3,794,000, respectively. See discussion of issues affecting liquidity at Note 2 of notes to consolidated financial statements. NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of cash, accounts receivable and payable, and advances pursuant to the sale of receivables under the Company's Receivable Agreement approximate their carrying amount because of their short maturity. The fair value of the Bank Note approximates its carrying amount because such debt has a floating interest rate tied to the Prime rate. The fair value of the Company's $45,044,000 principal amount of Senior Notes would be expected to be higher than the carrying amount because market interest rates have declined since such debt was incurred. However, since it is unlikely the Company could obtain similar unsecured financing at comparable rates today, determining a fair value of such debt is not appropriate. NOTE 10 - PREFERRED STOCK CLASS B PREFERRED STOCK At December 31, 1996 and 1995, the Company was authorized to issue 1,302,300 shares of Class B Preferred Stock, par value $.50 per share, which may be issued in series from time to time at the discretion of the Board of Directors. Holders of all series of Class B Preferred Stock share ratably as to rights to payment of dividends and to amounts payable in event of liquidation, dissolution or winding up of the Company. No dividends or payments in liquidation may be made with respect to Common Stock or any other stock ranking junior as to dividends or assets to the Class B Preferred Stock unless all accumulated dividends and sinking fund payments on the Class B Preferred Stock have been paid in full and, in the event of liquidation, unless the accumulated dividends and the liquidation preference of the Class B Preferred Stock have been paid. SERIES D At December 31, 1996 and 1995, the Company had 487,400 shares of Class B Cumulative Convertible Preferred Stock, Series D (Preferred Stock), issued and outstanding. Holders of the Preferred Stock are entitled to a cumulative dividend, payable quarterly, at the annual rate of 8.5% ($1.70 per share). The Preferred Stock is redeemable at the option of the Company at any time, in whole or in part, at a price of $20.00 per share plus cumulative unpaid dividends. No purchases or redemptions of or dividends on Common Stock may occur unless all accumulated dividends have been paid on the Preferred Stock. 40 41 NOTE 10 - PREFERRED STOCK (continued) At December 31, 1996, each share of Preferred Stock had a liquidating value of $21.28 per share and is convertible into Common Stock at the rate of 1.4545 shares of Common Stock for each share of Preferred Stock (equivalent to a conversion price of $13.75 per common share), subject to adjustment under certain conditions. At December 31, 1996, a total of 708,923 shares of Common Stock was reserved for issuance upon conversion of the Preferred Stock. If six quarterly dividends on the Preferred Stock are unpaid, the holders of Preferred Stock shall have the right, voting as a class, to elect two additional persons to the Board of Directors of the Company until all such dividends have been paid. The Company has not declared a dividend on its Class B, Series D Preferred Stock since the first quarter of 1996. The cumulative amount of undeclared dividends as of December 31, 1996 is $622,000. Under accounting rules, such dividends are not accrued until declared, however, for financial reporting purposes the amount of such dividends are shown on the face of the income statement as a deduction to arrive at net earnings (loss) applicable to common stockholders. The Company was not permitted to declare or pay any dividends on its preferred stock at December 31, 1996 NOTE 11 - COMMON STOCK EMPLOYEE STOCK OWNERSHIP PLANS The Company has two employee stock ownership plans, the Kerr Group, Inc. Employee Incentive Stock Ownership Plan Trust formed in 1985 (ESOP I) and the Kerr Group, Inc. 1987 Employee Incentive Stock Ownership Plan Trust formed in 1987 (ESOP II). Both plans are for the benefit of employees of the Company. The Company borrowed funds from a group of banks, which in turn were loaned to the plans for the purpose of purchasing shares of the Company's Common Stock. The bank loans were repaid on February 28, 1992. The related Company loan to ESOP I was repaid during 1993 and the loan to ESOP II was repaid during 1994. ESOP I and ESOP II obtained the funds to repay loans primarily through the receipt of tax deductible contributions made by the Company. The Company funded such contributions primarily through the reduction of compensation and benefits, and deferral of salary increases which it would otherwise have provided to its employees. Total contribution expense from continuing operations for these plans was $396,000 in 1994. For financial statement purposes, the bank loans were reflected as a liability and the Company's loans to ESOP I and ESOP II were reflected as a reduction in stockholders' equity. STOCK OPTIONS Under the Company's Stock Option Plans for employees, options may be granted at a price determined by the Stock Option Committee of the Board of Directors, which may be less than market value. Options may be exercised during periods established by such Committee; however, in no event may any option be exercised more than ten years after the date of grant. Options granted in 1996 and 1995 were fully vested on the date of grant. All of the Company's currently outstanding options issued prior to 1995 generally vest in cumulative installments of 20% per year commencing on the date of grant. Such options become exercisable in full upon the occurrence of certain enumerated events, including certain changes in control of the Company. The options granted beginning in 1992 provide that the Company's stock price must equal or exceed a triggering price per Common Share, which is higher than the exercise price of the option, for ten consecutive trading days for the options to be exercisable. The options granted during 1996 had triggering prices of $10.00 per common share. The options granted during 1995, 1994 and 1993 had triggering prices of $12.50 per Common Share. The options granted during 1992 had triggering prices of $10.00 per Common Share, which requirement was met during 1994, and the options issued during 1992 are now exercisable. 41 42 NOTE 11 - COMMON STOCK (continued) The following tabulation summarizes changes under the Company's Stock Option Plans for employees during the years ended December 31, 1996, 1995 and 1994.
- ---------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Number Of Number Of Number Of Options Price Range Options Price Range Options Price Range - ---------------------------------------------------------------------------------------------------------------------------------- Options Outstanding: Beginning of year 427,100 $5 3/8 - 10 3/8 252,100 $5 3/8 - 10 3/8 274,000 $5 3/8 - 8 5/16 Granted 75,000 3 15/16 204,000 7 9/16 6,500 9 7/16 - 10 3/8 Exercised -- (6,000) 5 3/8 (10,400) 5 3/8 - 7 1/8 Canceled (134,900) 5 3/8 - 8 5/16 (23,000) 5 3/8 - 8 5/16 (18,000) 5 3/8 - 8 5/16 Expired (40,000) 7 1/8 -- -- -------- ------- ------- End of year 327,200 3 15/16 - 10 3/8 427,100 5 3/8 - 10 3/8 252,100 5 3/8 - 10 3/8 Exercisable at end of year: Currently exercisable 49,500 83,200 70,900 Exercisable if Common Stock trades at triggering price of $10.00 75,000 -- -- Exercisable if Common Stock trades at triggering price of $12.50 185,900 277,300 57,501 -------- ------- ------- Total 310,400 360,500 128,401 Available for grant at end of year 81,397 21,497 22,497
In addition, the 1988 Stock Option Plan for Non-Employee Directors (the 1988 Plan), consisting of 80,000 shares, and 1993 Stock Option Plan for Non-Employee Directors (the 1993 Plan), consisting of 60,000 shares, provide for the grant of options to purchase Common Stock to members of the Board of Directors of the Company who are not employees of the Company or any of its subsidiaries or affiliates. The option price of each option granted under these plans is the fair market value of Common Stock on the date of grant. Options under the 1988 Plan are immediately exercisable upon grant and will expire five years from the date of grant. Future grants of options under the 1988 Plan can only be made to Directors other than the Company's current Directors. Options under the 1993 Plan are exercisable six months after date of grant, provided that the Company's stock price equals or exceeds $12.50 per Common Share for ten consecutive trading days. Options under the 1993 Plan expire ten years from the date of grant. 42 43 NOTE 11 - COMMON STOCK (continued) The following tabulation summarizes changes under the Company's Stock Option Plans for Non-Employee Directors during the years ended December 31, 1996, 1995 and 1994.
- ------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Number Of Number Of Number Of Options Price Range Options Price Range Options Price Range - ------------------------------------------------------------------------------------------------------------------------- Options Outstanding: Beginning of year 60,000 $8 3/16 60,000 $8 3/16 60,000 $8 3/16 Granted 10,000 3 15/16 -- -- Exercised -- -- -- Expired -- -- -- ------ ------ ------ End of year 70,000 3 15/16 - 8 3/16 60,000 8 3/16 60,000 8 3/16 Exercisable at end of year: Currently exercisable -- -- -- Exercisable if Common Stock trades at $10.00 per share or above 10,000 -- -- Exercisable if Common Stock trades at $12.50 per share or above 60,000 60,000 60,000 ------ ------ ------ Total 70,000 60,000 60,000 Available for grant at end of year 70,000 80,000 80,000
The aggregate option price for all outstanding options at December 31, 1996, 1995 and 1994 was $2,696,000, $3,698,000, and $2,359,000, respectively. At the time options are exercised, the common stock account is credited with the par value of the shares issued and additional paid-in capital is credited with the cash proceeds in excess of par value. The Company's Stock Option Plans permit the grant of both incentive stock options and nonstatutory stock options. Effective January 1, 1996, the Company adopted the Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FASB No. 123). FASB No. 123 requires the Company to choose between two different methods of accounting for stock options. The statement defines a fair-value-based method of accounting for stock options but allows an entity to continue to measure compensation cost for stock options using the accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). The Company has elected to continue using the accounting methods prescribed by APB No. 25. The amount of the proforma compensation expense, required to be disclosed under the FASB No. 123, is not material. 43 44 NOTE 12 - RENTAL EXPENSE AND LEASE COMMITMENTS The Company occupies certain manufacturing facilities, warehouse facilities and office space and uses certain automobiles, machinery and equipment under noncancelable lease arrangements. Rent expense related to continuing operations under these agreements was $3,465,000, $2,842,000 and $2,381,000 in 1996, 1995 and 1994, respectively. At December 31, 1996, the Company was obligated under various noncancelable leases. Calendar year minimum rental commitments under the Company's leases are as follows:
- -------------------------------------------------------------------------------- Total Real Personal Years Ended December 31, Commitment Property Property - -------------------------------------------------------------------------------- (in thousands) 1997 $1,708 $1,288 $420 1998 1,636 1,255 381 1999 1,462 1,224 238 2000 1,355 1,224 131 2001 1,321 1,224 97 2002 through 2014 8,546 8,542 4
Future minimum rental commitments are lower than in prior years due to the cancellation of the lease for the Santa Fe Springs facility as a result of the plant closing and the relinquishing of possession of the Company's former principal executive office. The amounts above exclude rentals related to the Company's former principal executive office of which the Company relinquished possession in early 1997. The Company has provided a reserve for the estimated cost to settle potential claims of the landlord of this location. Real estate taxes, insurance and maintenance expenses are obligations of the Company. Generally, in the normal course of business, leases that expire will be renewed or replaced by leases on other properties. 44 45 NOTE 13 - COMMITMENTS AND CONTINGENCIES In connection with the Company's Workers' Compensation insurance programs, the Company has pledged a certificate of deposit in the amount of $500,000 to secure surety bonds. The Company's estimate of its ultimate liability relating to these programs has been reflected on the Company's consolidated balance sheet as a liability. The Company has been designated by the Environmental Protection Agency as a potentially responsible party to share in the remediation costs of several waste disposal sites. Pursuant to the sale of the Metal Crown Business, the Company has indemnified the buyer for certain environmental remediation costs. In addition, pursuant to the sale of the Commercial Glass Container Business, the Company has indemnified the buyer for certain environmental remediation costs and has retained ownership of certain real property used in the Commercial Glass Container Business which may require environmental remediation. The estimated ultimate liability of the environmental indemnities related to these businesses is not material to the consolidated results of operations or the consolidated balance sheet of the Company. During 1996, the Company made cash payments related to environmental remediation of $256,000. As of December 31, 1996, the Company has accrued a reserve of approximately $212,000 for the expected remaining costs associated with environmental remediation described above and in connection with its current manufacturing plants. The amount of the reserve was based in part on an environmental study performed by an independent environmental engineering firm. The Company believes that this reserve is adequate. 45 46 NOTE 14 - CONDENSED QUARTERLY DATA FOR 1996 AND 1995 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------- Three Months Ended March 31 June 30 Sept. 30 Dec. 31 - --------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) 1996 Net sales $ 25,096 $ 27,368 $ 28,024 $ 26,881 Gross profit 2,952 6,646 7,833 6,874 Net loss from continuing operations (a) (b) (7,666) (1,120) (4,498) (10,978) Net earnings related to discontinued operations (c) 1,431 0 0 538 -------- -------- -------- -------- Net loss (6,235) (1,120) (4,498) (10,440) Preferred stock dividends (d) 207 207 207 208 -------- -------- -------- -------- Net loss applicable to common stockholders $ (6,442) $ (1,327) $ (4,705) $(10,648) ======== ======== ======== ======== Net loss per common share: From continuing operations $ (2.00) $ (0.34) $ (1.20) $ (2.84) From discontinued operations 0.36 -- -- 0.13 -------- -------- -------- -------- Net loss $ (1.64) $ (0.34) $ (1.20) $ (2.71) ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------- Three Months Ended March 31 June 30 Sept. 30 Dec. 31 - ----------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) 1995 Net sales $ 27,362 $ 26,189 $ 28,240 $ 27,396 Gross profit 6,895 6,180 6,339 5,168 Net loss from continuing operations (e) (375) (736) (786) (1,726) Net earnings related to discontinued operations (12) 451 (313) (1,810) -------- -------- -------- -------- Net loss (387) (285) (1,099) (3,536) Preferred stock dividends 207 207 207 208 -------- -------- -------- -------- Net loss applicable to common stockholders $ (594) $ (492) $ (1,306) $ (3,744) ======== ======== ======== ======== Net loss per common share: From continuing operations $ (0.16) $ (0.25) $ (0.25) $ (0.49) From discontinued operations -- 0.12 (0.08) (0.46) -------- -------- -------- -------- Net loss $ (0.16) $ (0.13) $ (0.33) $ (0.95) ======== ======== ======== ========
(a) Net loss from continuing operations includes after-tax costs associated with restructuring and financing of $4,500,000 for the quarter ended March 31, 1996, $541,000 for the quarter ended June 30, 1996, $768,000 for the quarter ended September 30, 1996 and $1,930,000 for the quarter ended December 31, 1996. See Note 3 of notes to financial statements for further discussion. (b) Net loss from continuing operations includes charges to provide valuation reserves against the Company's deferred income tax asset of $4,000,000 for the quarter ended September 30, 1996 and $9,691,000 for the quarter ended December 31, 1996. See Note 5 of notes to financial statements for further discussion. (c) Net earnings from discontinued operations includes an after-tax gain of $1,564,000 for the quarter ended March 31, 1996 and a subsequent adjustment to increase such after-tax gain by $538,000 during the quarter ended December 31, 1996. The increase in such gain was primarily related to a reduction in the reserve previously provided related to pension accounting. (d) The Company has not declared a dividend on its Class B, Series D Preferred Stock since the first quarter of 1996. The cumulative amount of undeclared dividends as of December 31, 1996 is $622,000. The Company was not permitted to declare or pay any dividends on its preferred stock at December 31, 1996. (e) Net loss from continuing operations for the quarter ended December 31, 1995 includes a pretax loss of $1,000,000 related to the write-down in the book value of land formerly used by the Company as a glass container manufacturing plant. 46 47 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 47 48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain of the information required by Item 10 of Form 10-K is included in a separate item captioned "Executive Officers of the Registrant" in Part I of this Form 10-K. The following table sets forth the name, the age, the principal occupation for the last five years of each director of the Company. Mr. Strickland has been President and Chief Executive Officer and a director since 1996. Mr. Strickland had served as Senior Vice President, Finance and Chief Financial Officer of the Company since 1986. Mr. Elish has been Chairman of the Board since 1996 having recently retired from his position as Chairman and Chief Executive Officer of Weirton Steel Corporation, a position he had held for more than the preceding five years. Messrs. O'Hara, Hurlbert, Jackson, Mellor and Sperry have been executives and a partner, respectively, with the corporations, including subsidiaries, or the firm, as the case may be, with which they are now associated or its predecessor for more than the past five years. Mr. Kyle retired in 1993 from his position as Senior Vice President of Chemical Bank, a position he had held for more than the preceding five years.
Name Principal Occupation Director Since - ---- -------------------- -------------- Herbert Elish Age 63 (1) (2) Chairman of the Board; Previously Chairman and 1996 Chief Executive Officer of Weirton Steel Corporation from 1987 through December 1995; Director Hampshire Group, Limited. Gordon C. Hurlbert, Age 72 (3) Chairman of the Board of Directors, CSC 1985 Industries, Inc. (Copperweld Steel); Director of Carolina Power & Light Company. Michael C. Jackson, Age 56 (1) Advisory Director, Lehman Brothers, Inc., 1985 investment bankers; Director of Hampshire Group, Limited. John D. Kyle, Age 61 (2) (3) Retired Senior Vice President, Chemical Bank. 1973 James R. Mellor, Age 66 (1) Chairman, Chief Executive Officer and Director of 1980 General Dynamics Corporation, a defense, aerospace, and shipbuilding company; Director of Bergen Brunswig Corporation and Computer Sciences Corporation. Robert M. O'Hara, Age 70 (3) Chairman and Chief Executive Officer of Falcon 1980 Management (formerly OMS Company), investments and management services; Director of TBC Corp.
48 49 Harvey L. Sperry, Age 66 (2) Partner, Willkie Farr & Gallagher, attorneys, 1973 Director of Hampshire Group, Limited. D. Gordon Strickland, Age 50 (2) President and Chief Executive Officer of the 1996 Company; previously Senior Vice President, Finance and Chief Financial Officer of the Company since 1986.
(1) Member of the Stock Option and Compensation Committee. (2) Member of the Executive Committee. (3) Member of the Audit Committee. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Company's executive officers, directors and ten percent stockholders are required under Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange. Copies of these reports must also be furnished to the Company. Based solely upon its review of copies of such reports furnished to the Company through the date hereof, or written representations that no reports were required to be filed, the Company believes that during the fiscal year ended December 31, 1996, all filing requirements applicable to its officers, directors and ten percent stockholders were complied with in a timely manner. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information regarding the compensation of the Company's Chief Executive Officer and the two other most highly compensated executive officers (the "Executive Group") for each of the last three fiscal years. Information is also provided for Mr. Roger W. Norian, who served as the Company's Chief Executive Officer from June 6, 1980 until March 15, 1996. 49 50 Summary Compensation Table
Long Term Compensation ---------------------------------------- Annual Compensation Awards ------------------------------------------ -------------------------- Restricted Securities Other Annual Stock Underlying All Other Name and Bonus Compensation Award(s) Options/SARs Compensation Principal Position Year Salary ($) ($) (4) ($)(1) ($)(4) (#) ($)(2) - ------------------ ---- ---------- ------- ------ ------ --- ------ D. Gordon Strickland 1996 300,000 25,000 520,956(3) -- 100,000 -- President and 1995 289,000 -- -- -- 20,000 -- Chief Executive 1994 267,000 9,000 -- 10,302 -- -- Officer Robert S. Reeves 1996 224,000 10,000 -- -- 30,000 1,500 Senior Vice 1995 224,000 -- -- -- 12,000 1,500 President, Sales 1994 224,000 6,200 -- 7,097 -- 1,500 Geoffrey A. Whynot, 1996 133,013 10,000 175,130(3) -- 16,000 -- Vice President, 1995 131,693 -- -- -- 16,000 1,257 Finance, Chief 1994 127,700 5,000 -- 5,545 8,000 2,339 Financial Officer Roger W. Norian 1996 118,750 -- 1,203,432(5) -- -- -- 1995 570,000 -- -- -- 75,000 1,500 1994 570,000 15,000 -- 17,178 -- 1,500
(1) Except as otherwise noted, perquisites and other personal benefits received by each named executive officer (including, for certain of the named executive officers, payments of premiums on life insurance policies, tax preparation fees and car use allowances) in each instance aggregated less than the lesser of $50,000 or 10% of such officer's annual salary and bonus. (2) Includes for Messrs. Strickland, Reeves, Whynot and Norian, respectively, $0, $1,500, $0 and $0 for 1996 contributions by the Company pursuant to the Company's Employees' Savings Plan. (3) Includes reimbursements to Messrs. Strickland and Whynot of $230,000 and $69,000, respectively, which was equal to the loss on the sale of their residences in Los Angeles plus $217,438 and $56,911, respectively, gross up for federal and state taxes resulting from the reimbursements. In both cases the reimbursements were part of the 1996 restructuring of the Company, which included moving the Company headquarters from Los Angeles, California to Lancaster, Pennsylvania. (4) Pursuant to the Kerr Group, Inc. Key Executive Incentive Bonus Plan (the "Bonus Plan"), Messrs. Strickland, Reeves, Whynot and Norian received 50% of their total bonus ($18,000, $12,400, $10,000 and $30,000, respectively) for 1994 in cash on or about March 1, 1995. These amounts are reflected in the respective bonus columns for 1994. The remaining 50% is reflected as an award of restricted stock received by them on March 1, 1997 except in the case of Mr. Norian, who was not eligible under the Plan to receive the restricted stock. No dividends have been paid on the restricted stock. The number of shares of restricted stock awarded to Messrs. Strickland, Reeves and Whynot was 1,212, 835 and 673, respectively. The number of shares of restricted stock awarded was calculated by dividing the dollar equivalent of the remaining portion of their respective bonuses ($9,000, $6,200 and $5,000, respectively) by a number equal to 90% of the 50 51 average closing price of the Common Stock during the month of December 1994. The average closing price of the Common Stock during December 1994 was $8.24. The aggregate restricted stock holdings for Messrs. Strickland, Reeves and Whynot as of December 31, 1996 was 1,212, 835 and 673, respectively. The dollar value of such restricted stock holdings for Messrs. Strickland, Reeves and Whynot as of December 31, 1996 was $2,878, $1,983 and $1,598, respectively, which was calculated using the closing price of the Common Stock on December 31, 1996, which was $2.375 per share. (5) Includes a $1,140,000 severance payment in accordance with Mr. Norian's employment agreement and a $60,932 payment for unused and pro-rata vacation. Option/SAR Grants in Last Fiscal Year The following table sets forth information regarding grants of stock options made to the Executive Group and Mr. Norian during the last fiscal year.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term (2) - ------------------------------------------------------------------------------------------- -------------------------- Number of Percent of Total Securities Options Granted Exercise or Underlying to Employees in Base Price Expiration Name Options Granted Fiscal Year (3) ($/sh) Date 5% 10% - -------------------- --------------- ---------------- ----------- ---------- -------- -------- D. Gordon Strickland 65,000 86.7 $3.9375(4) 6/20/01 $70,688 $156,163 Robert S. Reeves -- -- -- -- -- -- Geoffrey A. Whynot -- -- -- -- -- -- Roger W. -- -- -- -- -- -- Norian (1)
(1) Mr. Norian served as the Company's Chief Executive Officer from June 6, 1980 until March 15, 1996. (2) The Potential Realizable Value is calculated based on an assumption that the fair market value of the Common Stock appreciates at the annual rates shown (5% and 10%), compounded annually, from the date of grant until the end of the option term. The 5% and 10% assumed rates are mandated by the Securities and Exchange Commission for the purposes of calculating realizable value and do not represent the Company's estimate or projection of future stock prices. (3) Based on 75,000 options granted to employees in 1996. (4) None of these options granted in 1996 are exercisable unless and until the stock price reaches $10.00 per share and remains at or above that level for at least 10 consecutive trading days. 51 52 Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values The following table provides information regarding the exercise of options during the Company's last fiscal year and the number and value of unexercised options held at year end by each of the named executive officers and Mr. Norian.
Number of Securities Underlying Value of Unexercised Unexercised Options/SARs In-the-money at FY-End (#) Options/SARs at FY-End ($) ------------- -------------------------- Shares Acquired Value Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable (2) ---- --------------- ------------ ----------- ------------- ----------- ----------------- D. Gordon Strickland 0 0 10,000 90,000 0 0 Robert S. Reeves 0 0 5,000 17,000 0 0 Geoffrey A. Whynot 0 0 7,000 9,000 0 0 Roger W. Norian (1) 0 0 0 0 0 0
(1) Mr. Norian served as the Company's Chief Executive Officer from June 6, 1980 until March 15, 1996. (2) In 1996, Mr. Strickland was granted options to purchase 65,000 shares of Common Stock at an exercise price of $3.9375 per share. In 1995, Messrs. Strickland, Reeves and Whynot were granted options to purchase 20,000, 12,000 and 8,000 shares of Common Stock, respectively at an exercise price of $7.56 per share. In 1993, Messrs. Strickland and Reeves were each granted options to purchase 5,000 shares of Common Stock at an exercise price of $8.3125 per share. The amounts set forth in this column were calculated using the difference in the fiscal year-end closing price of the Common Stock, $2.375 per share, from the exercise price per share. Options granted in 1996 are not exercisable unless and until the stock price reaches $10.00 per share and remains at or above that level for at least 10 consecutive trading days. None of the options granted in 1993 or 1995 are exercisable unless and until the stock price reaches $12.50 per share and remains at or above that level for at least 10 consecutive trading days. In addition, options granted in 1992 were not exercisable unless and until the stock price reached $10.00 per share and remained at or above that level for at least ten consecutive trading days, which occurred in 1994. Pension Plans The Company maintains a funded Retirement Income Plan which provides eligible employees with retirement benefits equal to 28% of final five year average remuneration up to social security covered compensation, plus 43% of final five year average remuneration in excess of social security covered compensation for 30 years of service, with a proportionate reduction for less than 30 years of service. Five years of service are required in order to vest under the Retirement Income Plan. The Company also maintains a Pension Restoration Plan which is an unfunded plan providing benefits to participants not payable by the Company's Retirement Income Plan because of the limitations on benefits imposed by the Internal Revenue Code of 1986, as amended. The aggregate annual accrued benefit under the Retirement Income Plan and the Pension Restoration Plan when expressed as a single-life annuity on the life of the participant is limited to $200,000. 52 53 The following table sets forth estimated annual retirement benefits payable on a straight life annuity basis upon retirement at age 65 under the Company's Retirement Income Plan and Pension Restoration Plan (without regard to lower accruals on earnings below social security covered compensation) for covered employees based on their average remuneration and years of service. Remuneration covered by the Retirement Income Plan primarily includes salary and bonus (including such bonus amounts paid in the form of stock), as set forth in the Summary Compensation Table. Upon a Change of Control of the Company, as defined in the Pension Restoration Plan, amounts accrued under the Pension Restoration Plan will be paid out in a lump sum. Messrs. Strickland, Reeves and Whynot have, as of December 31, 1996, 10, 13 and 9 years, respectively, of credited service under the pension plans.
Final 5 Year Years of Service Average ------------------------------------------- Remuneration 10 20 30 or more ------------ -- -- ---------- $ 100,000 ........... $14,333 $28,667 $ 43,000 150,000 ........... 21,500 43,000 64,500 200,000 ........... 28,667 57,333 86,000 250,000 ........... 35,833 71,667 107,500 300,000 ........... 43,000 86,000 129,000
Compensation of Directors The directors who are not employees of the Company are currently compensated for services as directors at the rate of $22,500 per year and $500 for each meeting of the Board of Directors attended. Mr. Elish, for serving as Chairman of the Board, also receives an annual fee of $50,000. In addition, the Company has established an unfunded retirement plan for directors of the Company who serve in such capacity for ten years or more, retire after February 1, 1985, and do not receive any other retirement benefits from the Company. Pursuant to such plan, the Company will pay $1,000 per month for not more than ten years to a qualifying director. In 1993, the six directors who were not employees of the Company each received options to purchase 10,000 shares of Common Stock at a price of $8.19 per share pursuant to the Company's Stock Option Plan For Non-Employee Directors. These options are not exercisable unless and until the closing price of the Common Stock on the New York Stock Exchange reaches $12.50 per share and remains at or above that level for at least 10 consecutive trading days. Upon his election to the Board in 1996, Mr. Elish received options to purchase 10,000 shares of Common Stock at a price of $3.9375 per share pursuant to the Company's Stock Option Plan for Non-Employee Directors. These options are not exercisable unless and until the closing price of the Common Stock on the New York Stock Exchange reaches $10.00 per share and remains at or above that level for at least 10 consecutive trading days. In 1992, the Board of Directors adopted the Director Stock Purchase Plan pursuant to which non-employee directors may elect to defer the receipt of all or a portion of their fees. The amounts deferred are contributed to a trust which will then purchase Common Stock using such amounts on behalf of the participating directors. The Common Stock Purchase Plan for Directors became effective on October 1, 1992. 53 54 Employment Contracts and Termination of Employment and Change-in-Control Arrangements Each member of the Executive Group currently has an employment agreement with the Company. Mr. Strickland has an employment agreement with the Company for an indefinite term until terminated by either Mr. Strickland or the Company as set forth in the agreement. Mr. Strickland's employment agreement provides for a salary of $300,000 annually. Mr. Strickland's employment agreement also provides for the continued payment of his salary and certain insurance benefits for a period of two years following his termination of employment by the Company for reasons other than "just cause" or permanent disability, or in the event that Mr. Strickland elects to terminate his employment following his reassignment or relocation. Mr. Strickland's employment agreement also provides that if a change of control (including a sale of all of the assets) of the Company occurs, the obligations of the Company terminate, except for the continuation of certain insurance benefits for a two year period, and the Company will pay $600,000 to Mr. Strickland. The Company entered into an employment agreement with Mr. Reeves as of February 17, 1983 for an indefinite term until terminated by either Mr. Reeves or the Company as set forth in the agreement. Mr. Reeves' employment agreement provides for a salary of $224,000 annually. Mr. Reeves' employment agreement also provides for the continued payment of his salary and certain insurance benefits for a period of eighteen months following his termination of employment by the Company without cause. The Company entered into an employment agreement with Mr. Whynot as of November 16, 1989 for an indefinite term until terminated by either Mr. Whynot or the Company as set forth in the agreement. Mr. Whynot's employment agreement provides for a salary of $145,000 annually. Mr. Whynot's employment agreement also provides for the continued payment of his salary and certain insurance benefits for a period of twelve months following his termination of employment by the Company without cause. Compensation Committee Interlocks and Insider Participation During the last completed fiscal year, Messrs. Elish, Jackson and Mellor served as members of the Compensation Committee. None of such members of the Compensation Committee are or have been officers or employees of the Company. Mr. Jackson is an Advisory Director of Lehman Brothers, Inc., which performs investment banking services for the Company from time to time. Messrs. Elish, Sperry and Jackson currently serve as directors of Hampshire Group, Limited. 54 55 Report of the Compensation Committee of the Board of Directors In establishing and monitoring the executive compensation program for the Company, the Compensation Committee looks at both the total compensation program and each component thereof to assure that it is both competitive and sensitive to individual and Company performance. In addition, the compensation determined by the Compensation Committee is subject to the terms of existing employment agreements with each member of the Executive Group. The Company utilizes a consultant in the field of executive compensation matters to assist the Compensation Committee in establishing and implementing compensation programs that are consistent with these objectives and reflective of the Company's financial performance. In 1993, the Compensation Committee established and implemented the Bonus Plan. Under the Bonus Plan, each participating executive, including Mr. Strickland, the Company's Chief Executive Officer, is eligible to receive incentive compensation which is determined both qualitatively and quantitatively. The qualitative portion is based on the achievement of specific objectives for each participant and the quantitative portion is based on the achievement of financial objectives established by the Compensation Committee for the particular year. For 1996, each participant received a qualitative portion of the incentive compensation. However, in early 1996, the Compensation Committee determined that it was not reasonable or appropriate to establish quantitative bonus targets, in view of the Company's anticipated financial results. COMPENSATION COMMITTEE Herbert Elish Michael C. Jackson James R. Mellor Performance Graph The graph set forth below charts the yearly percentage change in the Company's cumulative total stockholder return against each of the Standard & Poor's 500 Index and the Manufacturing-Diversified Industries Index, in each case assuming an investment of $100 on December 31, 1991 and the cumulation and reinvestment of dividends paid thereafter through December 31, 1996. 55 56 [LINE GRAPH]
- ----------------------------------------------------------------------------------------------------------------------- Dec. 1991 Dec. 1992 Dec. 1993 Dec. 1994 Dec. 1995 Dec. 1996 - ----------------------------------------------------------------------------------------------------------------------- Kerr Group, Inc. 100.00 104.00 134.00 134.00 160.00 38.00 S & P 500 Index 100.00 107.72 118.48 120.04 165.05 203.23 MFG-DIVFD Industrials 100.00 108.38 131.55 136.20 191.72 264.17 - -----------------------------------------------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information available to the Company with respect to the ownership of the Company's Common Stock, par value $.50 per share ("Common Stock") by i) each person known to the Company to be the beneficial owner of more than 5% of the outstanding Common Stock, ii) each director of the Company, iii) each named executive officer designated in Item 11 of Form 10-K captioned "Executive Compensation", and iv) all directors and executive officers as a group. Unless otherwise indicated, all shares of common stock are owned directly and of record and the person owning such shares has sole voting and investment power with respect thereto. 56 57
Amount and Nature of Percent of Beneficial Shares Beneficial Owner Ownership Outstanding ---------------- --------- ----------- The Gabelli Funds, Inc. 655 Third Avenue New York, New York 626,479 (1) 15.4% Wynnefield Partners Small Cap Value, L.P. One Penn Plaza, Suite 4720 New York, New York 392,500 (2) 10.0% U.S. Trust Company of California, N.A. Kerr Retirement Income Plan Trust 515 S. Flower Street, Suite 2800 Los Angeles, California 368,200 (3) 9.4% Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, Suite 650 Santa Monica, California 282,700 (4) 7.1% Harvey L. Sperry 22,696 (5) * D. Gordon Strickland 22,410 (6) * Robert S. Reeves 19,023 (6) * James R. Mellor 15,788 (5) * Gordon C. Hurlbert 14,455 (5) * Geoffrey A. Whynot 12,806 (6) * Herbert Elish 11,149 (5) * Michael C. Jackson 10,938 (5) (7) * Robert M. O'Hara 9,905 (5) * John D. Kyle 6,625 (5) * All Directors and Executive Officers as a Group (10 in number) 145,795 (8) 3.7%
* Less than one percent. (1) According to Amendment No. 41 to the Schedule 13D filed jointly by Gabelli Funds, Inc., GAMCO Investors, Inc., Gabelli Performance Partnership, Gabelli International Limited and Gabelli Asset Management Company International Advisory Services, Ltd. (collectively, the "Gabelli Entities") with the Securities and Exchange Commission (the "SEC") on March 8, 1997 (as amended, the "Schedule 13D"), the Gabelli Entities beneficially owned 490,000 shares of Common Stock. Under applicable SEC rules, the Gabelli Entities are also deemed to own beneficially an additional 136,479 shares of Common Stock which the Gabelli Entities 57 58 have the right to acquire at any time upon conversion of the 93,832 shares of Convertible Preferred Stock beneficially owned by the Gabelli Entities. The additional shares of Common Stock which may be acquired by the Gabelli entities upon such conversion, together with the 490,000 shares of Common Stock indicated as beneficially owned by the Gabelli Entities in the table above, represent an aggregate of 626,479 shares, or approximately 15.4% of the total shares of Common Stock outstanding as of March 14, 1997, including, for this calculation only, the number of shares of Common Stock that the Gabelli Entities have the right to acquire upon conversion of the Convertible Preferred Stock reported as beneficially owned by them. The Schedule 13D states that the Gabelli Entities have not acquired the shares of Common Stock for the purpose of changing or influencing the control of the Company. (2) According to Amendment No. 3 to the Schedule 13D filed by Wynnefield Partners Small Cap Value, L.P. and Wynnefield Small Cap Value Offshore Fund, Ltd. (collectively, "Wynnefield Partners") with the SEC on February 25, 1997 (as amended, the "Scheduled 13D"), Wynnefield Partners beneficially owned 392,500 shares or 10.0% of the Common Stock. The schedule 13D states that Wynnefield Partners purchased the shares for investment and to enhance the partnership's ability to monitor and evaluate the Company's efforts to restructure its existing debt and to carefully evaluate any proposed related recapitalization which would affect shareholder value. (3) U.S. Trust Company of California, N.A., Kerr Retirement Income Plan Trust (the "Trust") filed a Schedule 13G with the SEC on February 9, 1996 stating that it held 368,200 shares or 9.4% of the Common Stock. The Trust holds these shares for the benefit of the participants in the Company's Retirement Income Plan. The Schedule 13G states that the Trust has not acquired the shares of Common Stock for the purpose of changing or influencing the control of the Company. (4) According to Amendment No. 9 to the Schedule 13G filed by Dimensional Fund Advisors, Inc. ("Dimensional") with the SEC on February 5, 1997 (as amended, the "Schedule 13G"), Dimensional, a registered investment adviser, is deemed to have beneficial ownership of 282,700 shares or 7.1% of the Common Stock as of December 31, 1996. Dimensional reported that it had the power to make investment decisions regarding all shares of Common Stock owned beneficially by it on behalf of its clients, which are unrelated and no one of whom owns beneficially more than 5% of the outstanding shares of Common Stock. The Schedule 13G states that Dimensional has not acquired the shares of Common Stock for the purpose of changing or influencing the control of the Company. Dimensional reported that it had sole voting power with respect to 173,700 shares of the Common Stock. Persons who are officers of Dimensional also serve as officers of DFA Investment Dimensions Group Inc. ("Dimensional Fund") and DFA Investment Trust Company ("Dimensional Trust"), each a registered open-end investment company. Dimensional reported that in their capacities as officers of Dimensional Fund and Dimensional Trust these persons vote 35,400 additional shares which are owned by Dimensional Fund and 73,600 shares which are owned by Dimensional Trust. (5) Includes 14,455, 10,938, 11,149, 6,625, 22,696, 15,788 and 9,905 shares of Common Stock purchased for the accounts of Messrs. Hurlbert, Jackson, Elish, Kyle, Sperry, Mellor and O'Hara, respectively, by the trustee under the Director Stock Purchase Plan. Currently, the participating directors have voting and dispositive power with respect to such shares only upon termination of their services as a director of the Company. Excludes 10,000 shares issuable under stock options granted to each non-employee director pursuant to the Company's 1993 Stock Option Plan for Non-Employee Directors. These options are not exercisable unless and until the closing price of the Common Stock on the New York Stock Exchange reaches $12.50 per share, or $10.00 per share for stock options issued to Mr. Elish in 1996, and remains at or above that level for at least 10 consecutive trading days. Does not include 10,000 shares of Common Stock held by Mr. Sperry in a self-directed Keogh Plan. (6) Includes, respectively for Messrs. Strickland, Reeves and Whynot, 10,000, 5,000 and 7,000 shares issuable under presently exercisable stock options held by such person. Also includes, respectively for Messrs. Strickland, Reeves and Whynot, 4,306, 5,937 and 2,072 shares which have been allocated for voting and all other purposes under ESOP I, and 5,369, 5,731 and 2,649 shares which have been allocated for voting and all other purposes under ESOP II. 58 59 (7) Includes 1,088 shares issuable upon conversion of 748 shares of Convertible Preferred Stock held by Mr. Jackson, of which 658 shares are held pursuant to a self-directed Keogh Plan and 90 shares are held directly. (8) Includes 56,038 shares of Common Stock purchased for the accounts of the Company's non-employee directors by the trustee under the Company's Common Stock Purchase Plan for Non-Employee Directors (the "Director Stock Purchase Plan") and 22,000 shares (including shares designated in Note 6 above) issuable upon exercise of stock options. Also includes 12,315 shares (including shares designated in Note 5 above) which have been allocated for voting and all other purposes under ESOP I and 13,749 shares (including shares designated in Note 5 above) which have been allocated for voting and all other purposes under ESOP II, for the Company's present officers included in the group, who have the power to vote such shares, but may not obtain or dispose of such shares except under limited circumstances. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Sperry is a partner in the law firm of Willkie Farr & Gallagher, counsel to the Company. Mr. Jackson is an Advisory Director of Lehman Brothers Inc., which performs investment banking services for the Company from time to time. In 1991, Mr. Strickland received a loan from the Company in the principal amount of $100,000. The loan has $92,000 of principal outstanding, bears interest at 7.76% per annum, and is due in installments payable in 1998 through 2001. Interest accrues on the loan and is due in 2001 when the final installment of principal is due. If Mr. Strickland terminates employment with the Company, the principal and accrued interest becomes due; however, Mr. Strickland's employment agreement provides that in the event the Company elects to terminate its obligations under the employment agreement within 180 days following a change in control, Mr. Strickland's obligation to repay the remaining principal and accrued interest is terminated. In that event, Mr. Strickland would be paid by the Company the amount of federal and state taxes, grossed up, resulting from the termination of Mr. Strickland's obligation to repay the loan. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a. (i) Financial Statements In addition to the Consolidated Financial Statements and Independent Auditors' Report included at Item 8, the following are included herein: Schedules for the three years ended December 31, 1996: VIII - Valuation and Qualifying Accounts, page 67. 59 60 All other Schedules have been omitted as inapplicable, or not required, or because the required information is included in the Consolidated Financial Statements or the notes thereto. (ii) Exhibits 3.1 Restated Certificate of Incorporation of the Registrant is incorporated by reference to Exhibit 3.1 to Form 10-K for the fiscal year ended December 31, 1980. 3.2 Certificate of Retirement of Capital Stock of the Registrant is incorporated by reference to Exhibit 3.2 to Form 10-K for the fiscal year ended December 31, 1989. 3.3 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant is incorporated by reference to Exhibit 3.3 to Form 10-K for the fiscal year ended December 31, 1989. 3.4 By-laws of the Registrant, as amended effective June 15, 1993, is incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended June 30, 1993. 10.1 Amended and Restated Employment Agreement dated as of March 15, 1996 between the Registrant and D. Gordon Strickland. 10.2 Amendment to Amended and Restated Employment Agreement dated as of January 2, 1997 between Registrant and D. Gordon Strickland. 10.3 Employment Agreement between the Registrant and Robert S. Reeves dated as of February 17, 1983 is incorporated by reference to Exhibit 10.6 to Form 10-K for the fiscal year ended December 31, 1983. 10.4 Amendment dated as of January 2, 1996 of the Employment Agreement between Registrant and Robert S. Reeves is incorporated by reference to Exhibit 10.6 to Form 10-K for the fiscal year ended December 31, 1996. 10.5 Employment Agreement, as amended, between Registrant and Geoffrey A. Whynot dated as of November 1, 1989 is incorporated by reference to Exhibit 10.7 to Form 10-K for the fiscal year ended December 31, 1996. 60 61 10.6 Amendment dated as of November 17, 1995 of the Employment Agreement between the Registrant and Geoffrey A. Whynot. 10.7 1984 Stock Option Plan is incorporated by reference to Exhibit 4.7 to Registration Statement No. 2-92722. 10.8 1987 Stock Option Plan is incorporated by reference to Exhibit 10.12 to Form 10-K for the fiscal year ended December 31, 1986. 10.9 Amended and Restated 1993 Employee Stock Option Plan incorporated by reference to Exhibit 10.8 to Form 10-K for the fiscal year ended December 31, 1994. 10.10 1987 Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 1987. 10.11 1993 Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.4 to Form 10-Q for the fiscal quarter ended June 30, 1993. 10.12 Form of Stock Option Agreement used in connection with the 1984 Stock Option Plan is incorporated by reference to Exhibit 4.11 to Registration Statement No. 2-92722. 10.13 Form of Stock Option Agreement used in connection with the 1987 Stock Option Plan is incorporated by reference to Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 1986. 10.14 Form of Stock Option Agreement used in connection with the 1993 Employee Stock Option Plan is incorporated by reference to Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 1993. 10.15 Form of Stock Option Agreement used in connection with the 1987 Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.23 to Form 10-K for the fiscal year ended December 31, 1987. 10.16 Form of Stock Option Agreement used in connection with the 1993 Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 1993. 61 62 10.17 1993 Common Stock Purchase Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended June 30, 1993. 10.18 Directors' Retirement Consulting Plan is incorporated by reference to Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1984. 10.19 Key Executive Bonus Plan is incorporated by reference to Exhibit 10.2 to Form 10-Q for the fiscal quarter ended June 30, 1993. 10.20 Pension Restoration Plan is incorporated by reference to Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 1994. 10.21 Asset Purchase Agreement dated as of November 25, 1991 by and between the Registrant and Ball Corporation is incorporated by reference to Exhibit 1 to Form 8-K dated November 24, 1991. 10.22 Asset Purchase Agreement, dated as of December 11, 1992, by and between Crown Cork & Seal Company, Inc. and Kerr Group, Inc. is incorporated by reference to Exhibit 1 to Form 8-K dated December 11, 1992. 10.23 Asset Purchase Agreement, dated as of March 15, 1996 between Registrant and Alltrista Corporation is incorporated by reference to Exhibit 2.1 to Form 8-K dated March 29, 1996. 10.24 Sales Agent Agreement, dated as of March 15, 1996 between Registrant and Alltrista Corporation is incorporated by reference to Exhibit 99.1 to Form 8-K dated March 29, 1996. 10.25 Lease dated October 5, 1989 between Century 21 Associates, as lessor, and Santa Fe Plastic Corporation, as lessee, is incorporated by reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended September 30, 1994. 10.26 Amendment dated May 18, 1994 between Century 21 Associates and Kerr Group, Inc. related to lease dated October 5, 1989 is incorporated by reference to Exhibit 10.5 to Form 10-Q for the fiscal quarter ended September 30, 1994. 62 63 10.27 Lease agreement dated June 30, 1994 between Bowling Green-Warren County Industrial Authority IV, Inc. and Kerr Group, Inc. is incorporated by reference to Exhibit 10.6 to Form 10-Q for the fiscal quarter ended September 30, 1994. 10.28 Note Agreement dated as of September 15, 1993 between Kerr Group, Inc. and the Purchasers identified therein is incorporated by reference to Exhibit 2 to Form 8-K dated September 21, 1993. 10.29 Receivables Purchase Agreement dated as of January 19, 1995 between Kerr Group, Inc., as the seller, and PNC Bank, N.A., as the purchaser, is incorporated by reference to Exhibit 10.31 to Form 10-K for the fiscal year ended December 31, 1994. 10.30 Amendment dated February 24, 1995 of the Receivables Purchase Agreement dated as of January 19, 1995 between Kerr Group, Inc., as the seller, and PNC Bank, N.A., as the purchaser, is incorporated by reference to Exhibit 10.33 to Form 10-K for the fiscal year ended December 31, 1994. 10.31 Amendment dated March 24, 1995 of the Note Agreement dated as of September 15, 1993 between Registrant and the Purchasers identified therein is incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended March 31, 1995. 10.32 Amendment dated April 18, 1995 of the Receivables Purchase Agreement dated as of January 19, 1995 between Registrant, as the seller, and PNC Bank, N.A., as the purchaser, is incorporated by reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended March 31, 1995. 10.33 Amendment dated September 25, 1995 of the Note Agreement dated as of September 15, 1993 between Registrant and the Purchasers identified therein is incorporated by reference to Exhibit 10.5 to Form 10-Q for the fiscal quarter ended September 30, 1995. 10.34 Consent to amendment dated September 25, 1995 pursuant to the Receivables Purchase Agreement dated as of January 19, 1995 between Registrant, as the seller, and PNC Bank, N.A., as the purchaser identified therein, is incorporated by reference to Exhibit 10.6 to Form 10-Q for the fiscal quarter ended September 30, 1995. 63 64 10.35 Amendment Agreement dated November 30, 1995 of the Receivables Purchase Agreement dated as of January 19, 1995 between Registrant, as the seller, and PNC Bank, N.A., as the purchaser, is incorporated by reference to Exhibit 10.47 to Form 10-K for the fiscal year ended December 31, 1995. 10.36 Amended and Restated Loan and Security Agreement dated January 5, 1996 between The First National Bank of Boston and Registrant is incorporated by reference to Exhibit 10.48 to Form 10-K for the fiscal year ended December 31, 1995. 10.37 Amendment Agreement dated January 5, 1996 of the Note Agreement dated as of September 15, 1993 between Registrant and the Purchasers identified therein is incorporated by reference to Exhibit 10.49 to Form 10-K for the fiscal year ended December 31, 1995. 10.38 Intercreditor Agreement dated January 5, 1996 between The First National Bank of Boston and the Purchasers identified in the Note Agreement dated as of September 15, 1993 is incorporated by reference to Exhibit 10.50 to Form 10-K for the fiscal year ended December 31, 1995. 10.39 Consent, Waiver and Amendment Agreement dated February 24, 1997 between PNC Bank, N.A., the Purchasers identified in the Note Agreement dated as of September 15, 1993, the purchasers of Note formerly held by The First National Bank of Boston and the Registrant. 11.1 Statement re: Computation of Per Common Share Earnings (Loss). 23.1 Consent of Independent Certified Public Accountants. 27.1 Financial Data Schedule 99.1 Undertaking is incorporated by reference to Exhibit 28.1 to Form 10-K for the year ended December 31, 1982. The Registrant has no additional long-term debt instruments in which the total amount of securities authorized under any instrument exceeds 10% of total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such long-term debt instrument upon the request of the Securities and Exchange Commission. 64 65 b. Reports on Form 8-K On October 10, 1996, the Company filed a Form 8-K Current Report with respect to a commitment from a lender to provide secured financing for the Company. On November 18, 1996, the Company filed a Form 8-K Current Report with respect to the sale by the holders of the Company's existing unsecured debt. 65 66 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant as duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KERR GROUP, INC. BY: /s/ D. Gordon Strickland ----------------------------------------- D. Gordon Strickland, President and Chief Executive Officer Dated: March 27, 1997 Lancaster, Pennsylvania Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Herbert Elish March 27, 1997 ----------------------------------- Herbert Elish, Director /s/ Gordon C. Hurlbert March 27, 1997 ----------------------------------- Gordon C. Hurlbert, Director /s/ Michael C. Jackson March 27, 1997 ----------------------------------- Michael C. Jackson, Director /s/ John D. Kyle March 27, 1997 ----------------------------------- John D. Kyle, Director /s/ James R. Mellor March 27, 1997 ----------------------------------- James R. Mellor, Director /s/ D. Gordon Strickland March 27, 1997 ----------------------------------- D. Gordon Strickland, Principal Executive Officer; Director /s/ Robert M. O'Hara March 27, 1997 ----------------------------------- Robert M. O'Hara, Director /s/ Harvey L. Sperry March 27, 1997 ----------------------------------- Harvey L. Sperry, Director /s/ Geoffrey A. Whynot March 27, 1997 ----------------------------------- Geoffrey A. Whynot Principal Financial Officer
66 67 SCHEDULE VIII KERR GROUP, INC. Valuation and Qualifying Accounts Three years ended December 31, 1996 (in thousands)
Column A Column B Column C Column D Column E - -------------------------------- ------------ ------------------------- ----------- --------- Additions ------------------------- (1) (2) Balance Charged Charged Deductions Balance at Beginning (Credited) to Other From at End Description of Period to Earnings Account Reserves(a) of Period - -------------------------------- ------------ ----------- -------- ----------- --------- Allowance for doubtful accounts, year ended: December 31, 1994 $433 $ 19 $ -- $ 441 $ 11 ==== ==== ===== ===== ==== December 31, 1995 $ 11 $220 $ -- $ 19 $212 ==== ==== ===== ===== ==== December 31, 1996 $212 $156 $ -- $ 81 $287 ==== ==== ===== ===== ====
Note: Allowance for doubtful accounts presented in the table above is related to continuing operations only. Allowance for doubtful accounts associated with the Consumer Products Business of the Registrant has been reported as a component of net current assets related to discontinued operations in the Registrant's Balance Sheets. (a) These deductions represent uncollectible amounts charged against the reserve. 67 68 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 KERR GROUP, INC. FORM 10-K for year ended December 31, 1996 INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K
Exhibit No. Document - ----------- -------- 10.1 Amended and Restated Employment Agreement dated as of March 15, 1996 between the Registrant and D. Gordon Strickland. 10.2 Amendment to Amended and Restated Employment Agreement dated as of January 2, 1997 between Registrant and D. Gordon Strickland. 10.6 Amendment dated as of November 17, 1995 of the Employment Agreement between the Registrant and Geoffrey A. Whynot. 10.39 Consent, Waiver and Amendment Agreement dated February 24, 1997 between PNC Bank, N.A., the Purchasers identified in the Note Agreement dated as of September 15, 1993, the purchasers of Note formerly held by The First National Bank of Boston and the Registrant. 11.1 Statement re: Computation of Per Common Share Earnings (Loss). 23.1 Consent of Independent Certified Public Accountants. 27.1 Financial Data Schedule
EX-10.1 2 AMENDED & RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT AGREEMENT, originally dated as of June 16, 1986, and amended and restated as of March 15, 1996, between Kerr Group, Inc., a Delaware corporation (the "Company"), and D. Gordon Strickland (the "Employee"). 1. Employment. The Company hereby employs the Employee and the Employee hereby accepts employment upon the terms and conditions hereinafter set forth. 2. Term. a) The Agreement shall commence and take effect on the date hereof, and end on the date this Agreement is terminated by either the Company or the Employee as hereinafter provided in this paragraph 2. (b) The Company may at its election terminate the obligations of the Company under this Agreement as follows: (1) If the Employee becomes ill or is injured so that he is unable to perform the services required of him hereunder and such inability to perform continues for a period in excess of 180 consecutive days and such inability is continuing at the time of such notice, then the Company may terminate its obligations hereunder on 30 days notice provided that the Employee shall receive disability payments under the Company's group disability benefits during the period commencing on the date of such termination and ending on the date such disability ends or age 65, whichever first occurs. (2) For just cause upon notice of such termination to the Employee. Termination of the Employee's 2 employment by the Company shall constitute a termination "for just cause" only if such termination is for one or more of the following reasons: (i) the failure of the Employee to render services to the Company in accordance with his obligations under this Agreement, which failure amounts to an extended and gross neglect of his duties to the Company; (ii) the continued use of non-prescription drugs and alcohol by the Employee to an extent that he is unable to fulfill his duties under this Agreement; and (iii) the commission by the Employee of an act of fraud or embezzlement against the Company or the Employee's having been convicted of a felony involving moral turpitude. (3) Without cause upon notice to the Employee provided that, for a period of two years after such termination, the Company shall (i) pay to Employee an amount each month equal to the Salary which Employee is being paid each month at the date of the notice of termination and (ii) provide for Employee the same fringe benefits, consisting of medical, dental, life and disability insurance, which were provided to Employee at the date of the notice of termination. If the Company may elect, in accordance with paragraph 2(b)(1) hereof, to terminate this Agreement then such election shall be deemed to have been made under paragraph 2(b)(1) and not in accordance with this paragraph 2(b)(3). The Company shall be deemed to have elected to terminate this Agreement in accordance with this paragraph 2(b)(3) if the title or duties of the Employee are, without the written approval of the Employee, changed from that of Chief Executive Officer or the Employee is, without the written -2- 3 approval of the Employee, required to reside other than in the area of Lancaster, Pennsylvania in order to perform his duties for the Company; provided that the Employee, within 30 days after the occurrence of such an event, shall notify the Company that the Company is so deemed to have elected to terminate this Agreement. The Employee shall have no further obligation under this Agreement from and after such termination except as provided in paragraphs 6, 7 and 8 hereof. (c) Employee may terminate his obligations under Paragraphs 4 and 5 hereof upon 90 days prior notice thereof to the Company and, from and after the delivery of such notice, the Company shall have no further obligations under this Agreement unless it shall elect by notice to the Employee, to continue to pay the Employee as herein provided for the 90-day period commencing with the date of delivery of the notice and in such event the Employee shall continue to perform his obligations under paragraphs 4 and 5 during such period. (d) The obligations of the Company under this Employment Agreement shall terminate simultaneously with the occurrence of any of the following events and upon such termination the Company shall pay to Employee, by delivery of a certified or bank check, in an amount determined by multiplying by twenty four the Salary then being paid to Employee in accordance with paragraph 3(a) and provide to Employee for 24 months the fringe benefits described in paragraph 2(b)(3): (i) 50% or more of the shares of the Company's Common Stock is acquired, directly or indirectly, by an -3- 4 individual, partnership, corporation, trust or unincorporated organization (collectively "Person") or by Persons acting with a common design, either formally or informally; (ii) The Company merges with or into another Person and is not the survivor of such merger or because of such merger the Company becomes a wholly-owned subsidiary or the Company sells all of its fixed assets to another Person or Persons; or (iii) The majority of the Board of Directors of the Company consists of directors who were not selected by or nominated with the approval of a majority of the directors of the Company in office on the date hereof (the "Present Directors") or who were not selected by or nominated with the approval of a majority of directors selected or nominated by a majority of the Present Directors. The Employee shall have no further obligation under this Employment Agreement from and after such termination except as provided in paragraphs 6, 7 and 8 hereof. 3. Compensation. The Company shall: (a) pay the Employee a salary ("Salary") at the rate of $25,000.00 per month during each month of the term hereof, payable in equal semi-monthly installments; (b) pay the Employee a bonus each fiscal year during the term hereof in an amount, if any, determined by the Compensation and Stock Option Committee of the Board of Directors -4- 5 or in accordance with any incentive compensation plan approved by such Committee; (c) pay to the Employee the sum of $448,000, which consists of (i) $230,000, which is the loss to be sustained by the Employee upon the sale of his residence in Los Angeles and which sale is required because of the relocation of the Principal Executive Office of the Company to Lancaster, Pennsylvania, and (ii) $218,000, which is the gross up for federal and state income taxes required to be paid to the Employee as a result of the payment of $230,000; (d) pay to the Employee the amount, if any, by which the purchase price for his residence in Lancaster, Pennsylvania exceeds the sale price, with such amount grossed up for federal and state income taxes, if such sale occurs before September 30, 1997 and after this Agreement is terminated in accordance with paragraphs 2(b)(1) or (3) or 2(d); (e) provide the Employee with a car allowance of $870 each month; and (f) reimburse the Employee not in excess of $3,580 annually to pay the premium on a life insurance policy in the amount of $1 million on the life of the Employee, which policy is owned by the Employee. In addition to the foregoing, the Employee shall be eligible for and participate in such fringe benefits as are generally available to executives of the Company and shall be entitled to receive such increases in Salary as the Company may from time to time deem appropriate. -5- 6 4. Duties. The Employee shall be the Chief Executive Officer of the Company, and hereby promises to perform and discharge well and faithfully the duties which may be assigned to him from time to time by the Company in connection with the conduct of its business. Election or appointment as a director or officer of the Company or any subsidiary thereof during the term of this Agreement will not be a basis for the Employee to receive additional compensation. 5. Extent of Services. The Employee shall devote his entire time, attention and energies to the business of the Company and shall not during the term of this Agreement be engaged in any other business activity whether or not such business activity is pursued for gain, profit or other pecuniary advantage; but this shall not be construed as preventing the Employee from investing his personal assets in businesses which do not compete with the Company in such form or manner as will not require any services on the part of the Employee in the operation of the affairs of the companies in which such investments are made and in which his participation is solely that of an investor, and except that the Employee may purchase securities in any corporation whose securities are regularly traded provided that such purchase shall not result in his owning beneficially at any time equity securities of any corporation engaged in a business competitive with that of the Company. 6. Disclosure of Information. The Employee recognizes and acknowledges that the Company's trade secrets, know-how and proprietary processes as they may exist from time to -6- 7 time are valuable, special and unique assets of the Company's business, access to and knowledge of which are essential to the performance of the Employee's duties hereunder. Except when duly authorized by the Company, the Employee will not, during or after the term of his employment by the Company, in whole or in part, disclose such secrets, know-how or processes to any person, firm, corporation, association or other entity, nor shall the Employee make use of any such property for his own purposes or for the benefit of any person, firm, corporation or other entity (except the Company) under any circumstances during or after the term of his employment, provided that after the term of his employment these restrictions shall not apply to such secrets, know-how and processes which are then in the public domain (provided that the Employee was not responsible, directly or indirectly, for such secrets, know-how or processes entering the public domain without the Company's consent). 7. Inventions. The Employee hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Employee in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Employee, solely or jointly, during the term hereof which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under construction or development by the Company or any subsidiary, or which otherwise relate to or pertain to the business, functions or operations of the Company or any -7- 8 subsidiary, or which arise from the efforts of the Employee during the course of his employment for the Company. The Employee shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and the Employee shall execute and deliver to the Company such formal transfers and assignments as may be required of the Employee to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. Any invention relating to the business of the Company or any subsidiary and disclosed by the Employee within one (1) year following the termination of this Agreement shall be deemed to fall within the provisions of this paragraph unless proved to have been first conceived and made following such termination. 8. Injunctive Relief. If there is a breach or threatened breach of the provisions of paragraphs 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining the Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. 9. Insurance. The Company may, at its election and for its benefit, insure the Employee against accidental loss or death and the Employee shall submit to such physical examinations and supply such information as may be required in connection therewith. -8- 9 10. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by registered mail to his residence in the case of the Employee or to the Company at 500 New Holland Avenue, Lancaster, Pennsylvania 17602, Attention: Secretary, or to such officer or address as the Company shall notify Employee. 11. Waiver of Breach. A waiver by the Company or Employee of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the other party. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 13. Entire Agreement. This instrument contains the entire agreement of the parties. It may be changed only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day first hereinabove written. KERR GROUP, INC. By: /s/ Richard H. Dittmar ----------------------------------------- Title: Vice President, Employee Relations ------------------------------------- /s/ D. Gordon Strickland --------------------------------------------- D. GORDON STRICKLAND -9- 10 AMENDMENT TO EMPLOYMENT AGREEMENT WHEREAS, Kerr Group, Inc. (the "Company") and D. Gordon Strickland (the "Employee") have entered into an Employment Agreement, dated as of June 16, 1986 (the "Employment Agreement"); and WHEREAS, pursuant to Paragraph 13 of the Employment Agreement, the Company and the Employee have agreed to amend the Employment Agreement. NOW, THEREFORE, as of the date written below, the Employment Agreement is amended as follows: 1. The third sentence of Paragraph 2(b)(3) shall be deleted and replaced with: Notwithstanding anything in this Paragraph 2(b)(3) to the contrary, the Salary to be paid to Employee upon termination of employment pursuant hereto shall not be reduced by any amounts paid to Employee on account of any compensation received by Employee from other employment. Furthermore, the Company shall not be obligated to provide any such fringe benefit after Employee shall receive such fringe benefit at least as favorable to Employee from another employer. IN WITNESS WHEREOF, the parties have executed this Amendment on the 2nd day of January, 1996. KERR GROUP, INC. By: /s/ D. Gordon Strickland ----------------------------------------- President -10- EX-10.2 3 AMENDMENT TO AMENDED & RESTATED EMPLOYMENT AGMNT 1 EXHIBIT 10.2 AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDMENT AGREEMENT dated as of January 2, 1997 between Kerr Group, Inc., a Delaware corporation (the "Company"), and D. Gordon Strickland (the "Employee"). WHEREAS, the Company and the Employee are parties to an Amended and Restated Employment Agreement dated as of March 15, 1996; and WHEREAS, the Company and the Employee desire to amend the Amended and Restated Employment Agreement as follows: 1. Amendment of Paragraph 2(b)(3). Paragraph 2(b)(3) of the Amended and Restated Employment Agreement is hereby amended to read in its entirety as follows: "(3) Without cause upon notice to the Employee provided that, for a period of two years after such termination, the Company shall (i) pay to Employee an amount each month equal to the Salary which Employee is being paid each month at the date of the notice of termination and (ii) provide for Employee the same fringe benefits, consisting of medical, dental, life and disability insurance, which were provided to Employee at the date of the notice of termination. If the Company may elect, in accordance with paragraph 2(b)(1) hereof, to terminate this Agreement then such election shall be deemed to have been made 2 under paragraph 2(b)(1) and not in accordance with this paragraph 2(b)(3). If the Company elects to terminate the obligations of the Company in accordance with this paragraph 2(b)(3) within 180 days after the occurrence of the events described in paragraph 2(d)(i), (ii) or (iii), then, in lieu of paying any amounts to the Employee in accordance with this paragraph 2(b)(3) except providing the fringe benefits, the Company shall pay to the Employee the amounts provided in paragraph 2(d) when required by paragraph 2(d), terminate the obligations under the promissory notes and pay to the Employee the amount, including the gross up, all as described in paragraph 2(d). The Company shall be deemed to have elected to terminate this Agreement in accordance with this paragraph 2(b)(3) if the title or duties of the Employee are, without the written approval of the Employee, changed from that of Chief Executive Officer or the Employee is, without the written approval of the Employee, required to reside other than in the area of Lancaster, Pennsylvania in order to perform his duties for the Company; provided that the Employee, within 30 days after the occurrence of such an event, shall notify the Company that the Company is so deemed to have elected to terminate this Agreement. The Employee shall have no further obligation under this Agreement from and after such termination except as provided in paragraphs 6, 7, 7A and 8 hereof." 2. Amendment of Paragraph 2(d). Paragraph 2(d) is hereby amended to read in its entirety as follows: -2- 3 "(d) Within 180 days after the occurrence of any of the following events, the Employee may elect to terminate the obligations of the Employee under this Agreement, except as hereinafter provided, and the Company shall pay to the Employee, upon such termination, by delivery of a certified or bank check, an amount determined by multiplying by 24 the Salary then being paid to the Employee in accordance with paragraph 3(a), provide to Employee for 24 months the fringe benefits described in paragraph 2(b)(3), terminate the obligations of the Employee then existing under promissory notes, dated September 3, 1986 and June 11, 1991, delivered by the Employee to the Company and pay to the Employee the amount of federal and state taxes, grossed up, resulting from the termination of the obligations under the promissory notes: (i) 50% or more of the shares of the Company's Common Stock are acquired, directly or indirectly, by an individual, partnership, corporation, trust or unincorporated organization (collectively "Person") or by Persons acting with a common design, either formally or informally; (ii) The Company merges with or into another Person and is not the survivor of such merger or because of such merger the Company becomes a wholly-owned subsidiary or the Company sells all of its fixed assets to another Person or Persons; or -3- 4 (iii) The majority of the Board of Directors of the Company consists of directors who were not selected by or nominated with the approval of a majority of the directors of the Company in office on the date hereof (the "Present Directors") or who were not selected by or nominated with the approval of a majority of directors selected or nominated by a majority of the Present Directors. The Employee shall have no further obligation under this Employment Agreement from and after such termination except as provided in paragraphs 6, 7, 7A and 8 hereof." 3. New Paragraph 7A. A new paragraph to be entitled, "7A. Noncompetition" is hereby added to the Amended and Restated Employment Agreement and shall read in its entirety as follows: "7A. Noncompetition. If the Employee shall terminate this Agreement in accordance with paragraphs 2(c) or 2(d) or if the Company shall terminate this Agreement in accordance with paragraph 2(b)(3) and the Company shall have performed, and continues to perform, all of its obligations under this Agreement, then for a period of 2 years after the date of termination the Employee shall not (i) engage in any business which competes directly or indirectly with the business conducted by the Company at the date of such termination in any area where -4- 5 the Company is conducting the business on such date and (ii) shall not induce any employee, customer or lessee or lessor to terminate his, her or its relationship with the Company." 4. Amendment of Paragraph 8. Paragraph 8 is hereby amended to read in its entirety as follows: "8. Injunctive Relief. If there is a breach or threatened breach of the provisions of paragraphs 6, 7 or 7A of this Agreement, the Company shall be entitled to an injunction restraining the Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach." 5. Ratification. Except as hereby amended, the Amended and Restated Agreement is hereby ratified, confirmed and approved in all respects. IN WITNESS WHEREOF, the Company and the Employee have executed this Amendment to the Amended and Restated Employment Agreement as of the date first above written. KERR GROUP, INC. By: /s/ Herbert Elish ------------------------ /s/ D. Gordon Strickland ------------------------ D. Gordon Strickland -5- EX-10.6 4 AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.6 AMENDMENT TO EMPLOYMENT AGREEMENT WHEREAS, Kerr Group, Inc. (The "Company") and Geoffrey A. Whynot (the "Employee") have entered into an Employment Agreement, dated as of November 1, 1989 and amended as of November 17, 1995 (the "Employment Agreement"); and WHEREAS, pursuant to Paragraph 13 of the Employment Agreement, the Company and the Employee have agreed to amend the Employment Agreement. NOW, THEREFORE, effective as of the date written below, the Employment Agreement is amended as follows: 1. The second sentence of Paragraph 2(b)(3) shall be deleted and replaced with: Notwithstanding anything in this Paragraph 2(b)(3) to the contrary, the Salary to be paid to Employee upon termination of employment pursuant hereto shall not be reduced by any amounts paid to Employee on account of any compensation received by Employee from other employment. Furthermore, the Company shall not be obligated to provide any such fringe benefit after Employee shall receive such fringe benefit at least as favorable to Employee from another employer. IN WITNESS WHEREOF, the parties have executed this Amendment on the 2nd day of January, 1996. KERR GROUP, INC. By: /s/ Roger W. Norian ---------------------- President /s/ Geoffrey A. Whynot ---------------------- EX-10.39 5 WAIVER AGREEMENT 1 EXHIBIT 10.39 WAIVER AGREEMENT Waiver Agreement (this "Agreement"), dated as of February 24, 1997, by and among Kerr Group, Inc., a Delaware corporation (the "Company"); PNC Bank, National Association ("PNC"); Bear, Stearns Securities Corp. ("Bear, Stearns Securities"); Silver Oak Capital, L.L.C., as agent for Angelo, Gordon & Co. and certain managed funds and accounts ("Angelo, Gordon"); Bear Stearns & Co., Inc. ("Bear Stearns"); Halcyon/Alan B. Slifka Management Company LLC ("Halcyon"); Intermarket Corp. ("Intermarket"); and Swiss Bank (together with Bear, Stearns Securities; Angelo, Gordon; Bear Stearns; Halcyon; and Intermarket, the "Current Debt Holders," and, collectively, together with PNC, the "Lenders"). R E C I T A L S: WHEREAS, PNC and the Company entered into that certain Receivables Purchase Agreement, dated as of January 1, 1995 (as amended, the "Receivables Purchase Agreement"); and WHEREAS, John Hancock Mutual Life Insurance Company ("John Hancock"), New York Life Insurance Company ("New York Life"), Massachusetts Mutual Life Insurance Company ("Massachusetts Mutual"), Massmutual/Carlson CBO, N.V. ("Massmutual" and, together with John Hancock, New York Life and Massachusetts Mutual, the "Former Note Holders"), predecessors in interest to the Current Debt Holders, and the Company entered into certain Note Agreements, each dated as of September 15, 1993, providing for the issuance and sale of $41,000,000 aggregate principal amount of the Company's 9.45% Series A Senior Notes due September 15, 2003 (the "Series A Senior Notes")and $9,000,000 aggregate principal amount of the Company's 8.99% Series B Senior Notes due September 15, 1999 (collectively with the Series A Senior Notes, the "Senior Notes")(as amended, the "Note Agreements"); and WHEREAS, The First National Bank of Boston ("Bank of Boston"), a predecessor in interest to the Current Debt Holders, and the Company entered into that certain Letter Agreement, dated February 9, 1995 pursuant to which Bank of Boston extended certain financial accommodations to the Company, including a loan in the maximum principal amount of $10,000,000 evidenced by a promissory note dated February 1, 1995 to Bank of Boston in the 2 original principal amount of $10,000,000 (collectively, the "Letter Agreement"); and WHEREAS, Bank of Boston and the Company further entered into that certain Amended and Restated Loan and Security Agreement, dated as of January 5, 1996, pursuant to which Bank of Boston amended and restated the financial accommodations extended to the Company under the Letter Agreement, which are presently evidenced by an amended and restated commercial promissory note dated January 5, 1996 to Bank of Boston in the original principal amount of $10,000,000 (collectively, the "Restated Loan Agreement"); and WHEREAS, pursuant to a certain Agreement, dated as of January 5, 1996 (the "January Consent"), PNC waived certain provisions of the Receivables Purchase Agreement, the Former Note Holders waived certain provisions of the Note Agreements and Bank of Boston waived certain provisions of the Letter Agreement; and WHEREAS, pursuant to a certain Amendment Agreement, dated as of January 5, 1996 (the "Amendment Agreement"), the Former Note Holders and the Company amended certain provisions of the Note Agreements; and WHEREAS, in consideration of Bank of Boston entering into the Restated Loan Agreement, the Company granted to Bank of Boston liens on and security interests in certain of its assets, which liens and security interests were consented to by PNC and the Former Note Holders in accordance with the terms of the January Consent; and WHEREAS, in further consideration of Bank of Boston entering into the Restated Loan Agreement, Santa Fe Plastics Corporation, a California corporation ("Santa Fe"), executed and delivered to Bank of Boston a Continuing Guaranty, dated as of January 5, 1996 (the "Santa Fe Guaranty"), pursuant to which Santa Fe guaranteed the payment of the Additional Obligations (as such term is defined in the Restated Loan Agreement) to Bank of Boston; and WHEREAS, on March 15, 1996, the Company sold to Alltrista Corporation, an Indiana corporation ("Alltrista"), substantially all of its equipment, contract rights (other than those relating to the sale of finished home canning inventory), trademarks, and licenses used by the Company in its consumer products/home canning business, and retained Alltrista as its 2 3 sales agent for its finished home canning inventory (the "Alltrista Transaction"); and WHEREAS, in connection with the Alltrista Transaction, pursuant to a certain Agreement dated as of March 15, 1996 (the "March Consent"), PNC agreed to waive certain provisions, and to amend certain other provisions, of the Receivables Purchase Agreement, the Former Note Holders agreed to waive certain provisions of the Note Agreements, and Bank of Boston agreed to waive certain provisions, and to amend certain other provisions, of the Restated Loan Agreement, such waivers having been extended by subsequent agreements, dated, respectively, as of May 15, 1996, as of June 10, 1996 (the "June Consent"), as of July 1, 1996 (the "July Consent"), as of July 31, 1996, as of August 30, 1996 (the "September Consent"), as of September 30, 1996 (the "October Consent"), as of December 6, 1996, as of December 31, 1996, and as of January 25, 1997 (collectively, the "Consents"), to and including February 22, 1997; and WHEREAS, the Current Debt Holders are the successors in interest to the Former Note Holders under the Note Agreements and to Bank of Boston under the Letter Agreement and the Restated Loan Agreement, and Bear, Stearns Securities is the registered holder, as the case may be, and legal owner of the indebtedness of the Company under the Note Agreements, the Letter Agreement and the Restated Loan Agreement; and WHEREAS, the Company now further requests that PNC waive certain provisions of the Receivables Purchase Agreement, the Current Debt Holders waive certain provisions of the Note Agreements, and the Current Debt Holders waive certain provisions, and amend certain other provisions, of the Restated Loan Agreement. WHEREAS, the Company and the Current Debt Holders are discussing a restructuring of the debt of the Company involving the exchange of debt of the Company for equity in the Company; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 3 4 SECTION 1. Waiver. Subject to the further provisions of this Agreement: (a) The Current Debt Holders (i) waive from and including March 30, 1996 through and including March 7, 1997 any Default or Event of Default (each as defined in the Note Agreements) solely arising out of the Company's failure to comply with the provisions of Section 10.1 or 10.9 of the Note Agreements, and (ii) waive from and including March 1, 1996 through and including March 7, 1997 any Default or Event of Default solely arising out of the Company's failure to comply with the provisions of Section 10.8 or 10.16 of the Note Agreements; (b) PNC (i) waives from and including March 30, 1996 through and including March 7, 1997 any default or Termination Event (each as defined in the Receivables Purchase Agreement) solely arising out of the Company's failure to comply with Section 10.1 or 10.9 of the Note Agreements, including without limitation any default or Termination Event arising under Section 6.17 of the Receivables Purchase Agreement to the extent such default or Termination Event solely relates to Section 10.1 or 10.9 of the Note Agreements, and (ii) waives from and including March 1, 1996 through and including March 7, 1997 any default or Termination Event solely arising out of the Company's failure to comply with Section 10.8 or 10.16 of the Note Agreements, including without limitation any default or Termination Event arising under Section 6.17 of the Receivables Purchase Agreement to the extent such default or Termination Event solely relates to Section 10.8 or 10.16 of the Note Agreements. (c) The Current Debt Holders (i) waive from and including March 30, 1996 through and including March 7, 1997 any default or Event of Default (each as defined in the Restated Loan Agreement) solely arising out of the Company's failure to comply with Section 10.1 or 10.9 of the Note Agreements, and (ii) waive from and including March 1, 1996 through and including March 7, 1997 any default or Event of Default solely arising out of the Company's failure to comply with Section 10.8 or 10.16 of the Note Agreements. SECTION 2. Amendment to Restated Loan Agreement and Receivables Purchase Agreement. 4 5 (a) Amendment to Restated Loan Agreement. The Current Debt Holders and the Company hereby agree that the definition of "Maturity Date" in the Restated Loan Agreement is amended by deleting "February 22, 1997" and inserting therefor "March 7, 1997." (b) Receivables Purchase Agreement. PNC and the Company hereby agree that the definition of "Termination Date" in the Receivables Purchase Agreement is amended by deleting "February 22, 1997" and inserting therefor "March 7, 1997." SECTION 3. Expenses. Without limiting the generality of any provision of the Receivables Purchase Agreement (as amended), the Note Agreements (each as amended), or the Restated Loan Agreement (as amended), the Company agrees that it will pay the reasonable fees, expenses and client charges of counsel for each of the Lenders, for any service rendered in connection with the transactions contemplated hereby (including, but not limited to, negotiations between the Company and the Current Debt Holders involving a restructuring of the debt involving the exchange of debt of the Company for equity in the Company) and with respect to this Agreement, and the Company further agrees that it will hereafter promptly pay any additional reasonable fees, expenses and client charges of counsel for the Lenders, for any services rendered in connection with the transactions contemplated hereby (including, but not limited to, any negotiations between the Company and the Lenders involving a restructuring of the debt involving the exchange of debt of the Company for equity in the Company) and with respect to this Agreement. SECTION 4. Representations, Warranties and Covenants. (a) Corporate Power and Authority. Each party hereto represents that it has all requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of each such party. (b) Compliance with Other Instruments, etc. The Company represents that the consummation of the transactions contemplated by this Agreement will not result in any breach of, or constitute a default under, or result in the creation of any mortgage, lien, pledge, charge, security interest or other encumbrance in respect of any property of the Company under, any 5 6 indenture, mortgage, deed of trust, bank loan or credit agreement, corporate charter, by-law, or other agreement or instrument to which the Company is a party or by which the Company or any of its properties may be bound or affected, or violate any existing law, governmental rule or regulations, or any order of any court, arbitrator or governmental body, applicable to the Company or any of its properties. (c) Governmental Consent. The Company represents that no consent, approval or authorization of, or registration, filing or declaration with, any governmental authority is required for the validity of the execution and delivery by the Company of this Agreement or the consummation of the transactions contemplated hereby or thereby. (d) Dividends. The Company shall not declare or pay any dividends on its preferred stock on or before March 7, 1997. SECTION 5. Effectiveness. This Agreement shall become effective upon the delivery to the Company of a copy of this Agreement executed by each of the Lenders. SECTION 6. Counterparts; Separate Agreements. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles. SECTION 8. Headings. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of this Agreement. SECTION 9. No Other Changes. (a) Except as expressly stated herein, the Receivables Purchase Agreement (as amended), the Note Agreements (each as amended), the Restated Loan Agreement (as amended), and the Consents are unaffected hereby and shall remain in full force and effect in accordance with the respective terms thereof. (b) Except as expressly set forth herein, the Lenders do not waive, and nothing herein shall be deemed a waiver of, (i) 6 7 any breaches or defaults under the Note Agreements (each as amended), the Receivables Purchase Agreement (as amended), the Restated Loan Agreement (as amended), or any of the Consents, as the case may be, or any other agreements executed concurrently therewith or pursuant thereto, whether known or unknown, previously or hereafter arising, or of any nature or character whatsoever, or (ii) any of their respective rights or remedies thereunder or under applicable law, including (but not limited to) any Make-Whole Premium (as such term is defined in the Note Agreements) to which the Note Purchasers may be entitled pursuant to the terms of Section 9 of the Note Agreements (including, without limitation, on account of the payments due under the terms of (A) Section 4(a) and Schedule 1 to the March Consent, (B) Section 3 and Schedule 1 to the June Consent, (C) Section 3 and Schedule 1 to the July Consent, (D) Section 3 and Schedule 1 to the August Consent, (E) Section 3 and Schedule 1 to the September Consent, and (F) Section 3 of the October Consent). Notwithstanding anything potentially to the contrary herein, the Current Debt Holders do not waive any of their respective rights or remedies to any Make-Whole Premiums to which the Current Debt Holders may be entitled pursuant to the terms of Section 9 of the Note Agreements (including, without limitation, on account of any of the payments made pursuant to the Consents, including those listed in the previous sentence). SECTION 10. Reaffirmation. The Company hereby represents and warrants to the applicable Lender that each of the representations and warranties contained in the Restated Loan Agreement, the Note Agreements or the Receivables Purchase Agreement, as the case may be, were true and correct in all material respects when made and, except to the extent (a) that a particular representation or warranty by its terms expressly applies only to an earlier date, or (b) the Company has previously advised such Lender in writing as contemplated under the respective agreement, are true and correct in all material respects as of the date of this Agreement. SECTION 11. Conflict of Terms. In the event of any inconsistency between the provisions of this Agreement and any provision of the Note Agreements (each as amended), the Receivables Purchase Agreement (as amended), the Letter Agreement or the Restated Loan Agreement (as amended), as the case may be, the terms and provisions of this Agreement shall govern and control. 7 8 IN WITNESS WHEREOF, the parties hereto have signed, or caused their duly elected officer to sign on the date first written above. KERR GROUP, INC. By: /s/ Geoffrey A. Whynot ------------------------------------ PNC BANK, NATIONAL ASSOCIATION By: /s/ Thomas J. McCool ------------------------------------ BEAR, STEARNS SECURITIES CORP. By: /s/ W. Grant Jones ------------------------------------ SILVER OAK CAPITAL, L.L.C. By: /s/ Michael L. Gordon ------------------------------------ BEAR STEARNS & CO., INC. By: /s/ Gregory A. Hanley ------------------------------------ HALCYON/ALAN B. SLIFKA MANAGEMENT COMPANY LLC By: /s/ James W. Snyder ------------------------------------ 8 9 INTERMARKET CORP. By: /s/ Thomas P. Borger ------------------------------------ SWISS BANK By: /s/ Leila Shakkoor ------------------------------------ By: /s/ Christine Daley ------------------------------------ 9 EX-11.1 6 COMPUTATION OF PER SHARE EARNINGS (LOSS) 1 EXHIBIT 11.1 KERR GROUP, INC. Statement Re: Computation of Per Share Earnings (Loss)
Years Ended December 31, ------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands, except per share data) ------------------------------------- Primary Net Earnings (Loss) Per Common Share Net earnings (loss) ($22,293) ($5,307) $ 3,404 ($1,633) ($2,697) Less Preferred Stock dividends (829) (829) (829) (829) (829) -------- ------- ------- ------- ------- Net earnings (loss) applicable to primary earnings (loss) per common share ($23,122) ($6,136) $ 2,575 ($2,462) ($3,526) ======== ======= ======= ======= ======= Weighted average number of common shares outstanding 3,933 3,842 3,674 3,669 3,675 ======== ======= ======= ======= ======= Primary net earnings (loss) per common share ($ 5.88) ($ 1.60) $ 0.70 ($ 0.67) ($ 0.96) ======== ======= ======= ======= ======= Fully Diluted Net Earnings (Loss) Per Common Share Net earnings (loss) applicable to primary earnings (loss) per common share ($23,122) ($6,136) $ 2,575 ($2,462) ($3,526) Add Preferred Stock dividends 829 829 829 829 829 -------- ------- ------- ------- ------- Net earnings (loss) applicable to fully diluted earnings (loss) per common share ($22,293) ($5,307) $ 3,404 ($1,633) ($2,697) ======== ======= ======= ======= ======= Weighted average number of common shares outstanding 3,933 3,842 3,674 3,669 3,675 Common shares issuable from assumed conversion of Preferred Stock 709 709 709 709 709 Incremental common shares issuable upon assumed exercise of outstanding stock options 0 31 22 6 3 -------- ------- ------- ------- ------- Adjusted weighted average number of common shares outstanding 4,642 4,582 4,405 4,384 4,387 ======== ======= ======= ======= ======= Fully diluted net earnings (loss) common share: As computed ($ 4.80) ($ 1.16) $ 0.77 ($ 0.37) ($ 0.61) ======== ======= ======= ======= ======= As reported (a) ($ 5.88) ($ 1.60) $ 0.70 ($ 0.67) ($ 0.96) ======== ======= ======= ======= =======
(a) The calculation of fully diluted net earnings (loss) per common share for all years was not dilutive. EX-23.1 7 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCNTS. 1 EXHIBIT 23.1 Consent of Independent Certified Public Accountants To the Board of Directors of Kerr Group, Inc.: We consent to the incorporation by reference in the Registration Statement No. 2-92721 on Form S-3, Registration Statement No. 33-3517 on Form S-3, Registration Statement No. 33-18463 on Form S-8 and Registration Statement No. 33-31347 on Forms S-3 and S-8 of Kerr Group, Inc. (Kerr or the Company) of our report relating to the balance sheets of Kerr as of December 31, 1996 and 1995 and the related statements of earnings (loss), common stockholders' equity and cash flows and related schedule for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of Kerr. Our report dated March 25, 1997, contains an explanatory paragraph that states that the Company is in default of its current loan agreement and has not been successful in securing a new credit facility which raises substantial doubt about its ability to continue as a going concern. The financial statements and financial statement schedule do not include any adjustments that might result from the outcome of that uncertainty. KPMG Peat Marwick LLP Harrisburg, Pennsylvania March 27, 1997 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 9,107 0 9,997 287 14,736 33,584 99,148 60,258 85,526 63,895 0 0 9,748 2,113 (8,559) 85,526 107,369 107,369 83,064 83,064 37,027 0 4,703 (17,425) 6,837 (24,262) 1,969 0 0 (22,293) (5.88) (5.88)
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