-----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, FkCa1nd/EuGHRoc2Copa8Ysdi7DSPz8y4FQknxlRXOTJAUtdTKh2z3E9Cb7QTYiT RBLMbJES0dru7GA1jZCETw== 0000950128-98-001165.txt : 19981126 0000950128-98-001165.hdr.sgml : 19981126 ACCESSION NUMBER: 0000950128-98-001165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TUSCARORA INC CENTRAL INDEX KEY: 0000821538 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086] IRS NUMBER: 251119372 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17051 FILM NUMBER: 98760178 BUSINESS ADDRESS: STREET 1: 800 FIFTH AVE CITY: NEW BRIGHTON STATE: PA ZIP: 15066 BUSINESS PHONE: 4128438200 MAIL ADDRESS: STREET 1: 800 FIFTH AVENUE CITY: NEW BRIGHTON STATE: PA ZIP: 15066 FORMER COMPANY: FORMER CONFORMED NAME: TUSCARORA PLASTICS INC DATE OF NAME CHANGE: 19920703 10-K 1 TUSCARORA INCORPORATED 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ . Commission file number 000-17051 TUSCARORA INCORPORATED (Exact name of registrant as specified in its charter) Pennsylvania 25-1119372 (State or other jurisdiction of (IRS employer incorporation or organization) Identification No.) 800 Fifth Avenue New Brighton, Pennsylvania 15066 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 724-843-8200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, without par value Preferred Share Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The registrant estimates that as of October 23, 1998, the aggregate market value of the shares of its Common Stock held by non-affiliates of the registrant was approximately $90,629,000. As of October 23, 1998, 9,528,136 shares of Common Stock of the registrant were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Annual Report to Shareholders for its fiscal year ended August 31, 1998 are incorporated by reference into Parts I and II of this annual report. Portions of the Proxy Statement for the registrant's Annual Meeting of Shareholders to be held on December 17, 1998 are incorporated by reference into Part III of this annual report. 2 PART I ITEM 1. BUSINESS. Tuscarora Incorporated (the "Company") was incorporated in 1962 as Tuscarora Plastics, Inc. The corporate name was changed in 1992 to reflect changes in the Company's business. The Company custom designs and manufactures interior protective packaging and material handling products and supplies customers with custom designed components for industrial and consumer products. In each of its markets, the Company's focus is to engineer a practical, cost effective solution to meet each customer's specific end-use requirements. The Company is the largest manufacturer of custom molded products made from expanded foam plastic materials in the United States. Interior protective packaging and material handling products and components are manufactured at the Company's custom molding facilities. Interior protective packaging products are also manufactured using materials, including corrugated paperboard, molded and/or diecut foam plastic shapes, thermoformed plastic shapes and wood, either alone or in various combinations, at the Company's integrated materials facilities. The range of material options offered enables the Company to be competitive vis-a-vis companies that offer only a single material capability. Interior protective packaging and material handling products and components are also manufactured at the Company's custom thermoforming facilities. For the 1998, 1997 and 1996 fiscal years, the interior protective packaging and material handling products contributed approximately 86% of the Company's net sales. The remainder is accounted for by the component products. The Company's principal markets are the high technology, consumer electronics, automotive and major appliance industries, but the Company competes in other market segments as well. For the 1998 fiscal year, the four major markets accounted for approximately 21%, 18%, 15% and 13%, respectively, of the Company's net sales. For the 1998, 1997 and 1996 fiscal years, the four major markets accounted in total for approximately 67%, 67% and 65%, respectively, of the Company's' net sales. The Company serves more than 3,500 customers, substantially all of which are located in the United States, Mexico, Canada and the United Kingdom. For the 1998 fiscal year, no customer accounted for more than 5%, and the Company's ten largest customers accounted for approximately 26%, of the Company's net sales. 3 For information with respect to the Company's manufacturing facilities, see "Manufacturing" below and Item 2 of this annual report. INTERIOR PROTECTIVE PACKAGING AND MATERIAL HANDLING PRODUCTS The interior protective packaging products made from foam plastic materials and integrated materials are used to protect a wide range of finished consumer and industrial goods during shipment. The products are designed to reduce or eliminate damage that may occur during shipment and handling as a result of shock, vibration or wide temperature fluctuations. Goods packaged in the Company's protective packaging include such items as: Computers and computer peripherals Water heaters and air conditioners Televisions and VCRs Refrigerators Satellite dishes Microwave ovens Office equipment Coffee makers and other kitchen Vaccine containers appliances Liquid chemicals Toys Pharmaceuticals Outboard motors Military equipment Office furniture These goods, together with the Company's interior protective packaging, are generally placed inside exterior shipping containers prior to shipment. The material handling products generally serve the same purposes and functions as the packaging products but are used primarily in intra-plant and inter-plant movement of parts and components rather than shipment of finished goods. For example, automobile manufacturers and their suppliers transport parts to assembly plants using foam dunnage trays made by the Company. Material handling products also frequently serve as carriers to position parts for automated assembly. The Company also manufactures insulated shippers which transport temperature-sensitive materials for the chemical and pharmaceutical industries. The material handling products are generally more durable than the interior protective packaging products and are usually reusable, providing a cost-effective means of transporting materials that are sensitive or difficult to handle. Most of the material handling products are foam plastic shapes manufactured at the Company's custom molding facilities; however, certain material handling products, such as durable returnable material handling pallets and trays, are made from thermoformed materials and are manufactured in the Company's custom thermoforming operations. The interior protective packaging and material handling products made from expanded foam plastic materials possess an unusual combination of useful properties such as exceptional lightness, impact resistance and shock absorbency, -2- 4 toughness and strength, thermal insulating efficiency, temperature tolerance, buoyancy and chemical and biological neutrality. The cost of the products to the customer is often less than alternative types of materials because, pound for pound, less material is required to provide equal or better protection. These products can also be easily and quickly handled thus reducing the customer's labor costs. Because foam plastic packaging shapes frequently require less space and are lighter than most other packaging materials, the customer is often able to reduce its product shipping costs. Similarly, properly designed foam plastic material handling devices often increase total yield per transportation container, thus reducing intra-plant or inter-plant freight cost. At the Company's integrated material facilities, foam plastics are combined with other materials such as corrugated paperboard to produce protective packaging products with superior properties and/or lower costs compared to products made from a single material. Thermoformed interior protective packaging products are generally used to hold finished goods in place inside an exterior container during shipment and handling. Thermoformed products are used where the shock absorbency or thermal insulating properties of foam plastic are not required. Because transparent plastic materials can be thermoformed, these materials are often used to create a package that allows the consumer to view the enclosed product. The Company supplies thermoformed packaging to most of the principal markets the Company serves as well as other markets. For the 1998, 1997 and 1996 fiscal year, sales of products manufactured by the Company's integrated materials facilities accounted for approximately 19%, 18% and 20%, respectively, of the Company's net sales. During the 1998 fiscal year, sales of products manufactured by the Company's thermoforming facilities, including components (see below), accounted for approximately 6% of the Company's net sales, as compared with 4% of net sales during the 1997 fiscal year. COMPONENTS The Company manufactures foam plastic shapes which are used as components in automobiles, watercraft and recreational vehicles. Due to their light weight and high energy-absorbing properties, molded foam shapes are used as bumper cores and are positioned in door panels, steering wheels and dashboards to provide added passenger protection. Flotation and/or seating assemblies are made for the watercraft and recreational vehicles. The Company manufactures thermal insulation components which are foam plastic shapes used by appliance manufacturers to provide insulation in products such as home and commercial -3- 5 refrigerators, freezers, air conditioners and water coolers. The construction industry also uses these shapes as insulation in poured concrete or block walls, in prefabricated metal buildings and as core material for factory-manufactured steel exterior doors. In the high tech area, the Company has a license for E-PAC, a design-for-assembly technology, utilizing foam plastic shapes, developed by Hewlett Packard in Germany. E-PAC is a concept for the internal assembly of electronic components that enables electronic device manufacturers to reduce both material cost and assembly time by bundling delicate electronic componentry into a lightweight, protective carrier that is placed inside an exterior housing. The Company makes components such as garage door panels and motor vehicle trim from thermoformed materials manufactured at the Company's custom thermoforming facilities. CUSTOM DESIGN Virtually all the Company's products are custom designed. The Company has seven design and testing centers ("tech centers") which support the Company's manufacturing operations. The tech centers are staffed by design and engineering personnel who study and evaluate the requirements of the Company's customers. Four of the tech centers are certified International Safe Transit Association (ISTA) testing laboratories. The Company's customers make extensive use of the tech centers. With respect to the custom molding operations, prototype foam shapes are developed at the tech centers. After a shape is approved by the customer, one or more aluminum production molds are made and then shipped to a custom molding facility, generally the one nearest the customer, for production. The Company makes most of the production molds for its manufacturing operations in the United States and Mexico at a single mold making facility in the United States. In the United Kingdom, the making of the production molds is outsourced to a third party. The tech centers and mold making facility are equipped with and extensively use computer-aided design (CAD) and computer-aided manufacturing (CAM) systems. MANUFACTURING The Company has 33 manufacturing facilities, including the mold making facility. All but six of the facilities are located in the United States. Four are located in the United Kingdom and two in Mexico. Prior to 1990, all the manufacturing facilities were located east of the Mississippi River. Since that time, the Company has established or acquired facilities in California, Colorado, Iowa, New Mexico and Texas. -4- 6 The Company's manufacturing facilities are generally strategically situated near manufacturing facilities of major customers. The location of the manufacturing facilities, as well as the tech centers and sales offices, is set forth in Item 2 of this annual report. Custom molded foam plastic products are produced by causing plastic beads to be blown into an aluminum production mold inserted in an automatic molding machine. Time and pressure controlled heat (in the form of steam) is applied to the beads in the mold, causing the beads to further expand, soften and fuse together to form the shape of the product which is then stabilized before removal from the molding machine. Significant capital expenditures for molding machines and other process equipment are required to manufacture custom molded products. Process equipment includes air compressors, steam boilers, cooling towers, conveyors, drying equipment and a wide variety of other standard industrial machinery items. The major items of expense in the manufacture of the custom molded products are the plastic resins from which the products are made, labor and the utilities needed to operate the process equipment. The manufacture of the integrated materials and thermoformed products is less capital intensive. In the integrated materials operations, the machinery and equipment consists primarily of machining and fabricating equipment for forming foam plastic and corrugated paperboard products. Fabrication of foam plastic involves the cutting of shapes from billets or planks of foam plastic using specialized cutting tools and hot wire equipment. Fabrication of corrugated paperboard involves slitting, die-cutting, folding and gluing the paperboard. Thermoforming is the process by which rigid sheets of hard thermoplastic, such as ABS or high density polyethylene, are heated and then vacuum and/or pressure formed over molds to create specific shapes. As a result of two acquisitions during the 1997 fiscal year (see "Business Acquisitions" below), the Company has the ability to produce products from thin gauge material in a roll-fed in-line manufacturing process as well as from heavy gauge material through a sheet-fed process. Molded foam plastic shapes and thermoformed shapes used in the integrated materials products are shipped from the facility where these shapes are made to the appropriate integrated materials facility for integration with other materials. -5- 7 The major items of expense in the manufacture of the integrated materials and thermoformed products are the materials from which the products are made, labor and electricity costs. In general, the Company receives purchase orders from its customers which do not specify quantity production and delivery dates. Production against orders is determined by the customers' production schedules with the result that products are generally required to be produced and delivered on short notice. Accordingly, production levels are generally determined by customer release patterns rather than the backlog of purchase orders. The proximity of the Company's manufacturing facilities to the Company's customers ensures timely delivery of products and enables the Company to provide products without a significant shipping cost. Production flexibility also exists among the Company's facilities since molds and/or molding machines and other manufacturing equipment can be moved quickly from one facility to another. All the Company's manufacturing facilities have warehousing capacity for inventories of finished goods. Warehouses are located at other locations as well. Distribution of products from the manufacturing facilities and warehouses to customers is made by Company operated tractor-trailers and by common carrier. Most of the Company operated tractor-trailers are leased. SALES Sales are made primarily by the Company's own sales force which, including supporting technical personnel at the Company's tech centers, consists of 91 salaried employees. Sales offices are located at all but one of the tech centers. In addition, sales in certain geographic areas and certain accounts are handled by sales representatives paid on a commission basis who are assisted and supported by Company personnel. FOREIGN OPERATIONS The Company commenced doing business in the United Kingdom as a result of a business acquisition during the 1995 fiscal year. The business there has since been expanded through other business acquisitions and site development (see "Business Acquisitions" and "New Site Development" below). -6- 8 The Company has had a manufacturing facility in Juarez, Chih., Mexico since May 1994. This facility has enabled the Company to provide interior protective packaging for domestic customers that have established "Maquiladora" operations along the U.S.-Mexican border. Maquiladora programs permit domestic companies to ship component parts in bond into Mexico, assemble them and then ship the assembled product in bond back into the United States for sale to their domestic customers. During the 1998 fiscal year, the Company established a second similar facility in Tijuana, B.C., Mexico. Over time, it is expected that the Mexican facilities will also serve customers manufacturing and selling their products in Mexico. The performance of the United Kingdom operations during the 1998 and 1997 fiscal years has been disappointing. The decline in the Company's gross profit margin in each of the fiscal years was largely due to below-objective gross profit margins at the Company's UK facilities. In addition, during the 1998 fiscal year, there was a substantial decline in the operating income of the Mexican operations due primarily to the costs associated with the establishment of the new custom molding facility in Tijuana. For further information with respect to the foreign operations, see Note 14 of the Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Results of Operations and Financial Condition contained in the Company's Annual Report to Shareholders for the 1998 fiscal year and incorporated in this annual report of reference. The Company's operations in the United Kingdom and Mexico are conducted through subsidiaries. The Company has no other subsidiaries which play an important role in the Company's business. The Company's export sales from the United States to customers in Canada are not significant. RAW MATERIALS The materials from which the Company's custom molded products are made are expandable polystyrene ("EPS"), expanded polypropylene ("EPP"), expanded polyethylene ("EPE"), ARCEL(TM) and high heat-resistant styrene-based resins. All the resins are petroleum based. EPP and EPE are polyolefin resins and ARCEL(TM) is a co-polymer of polyethylene and polystyrene. EPS is received by the Company in an unexpanded state and in its raw form has an appearance much like table salt. ARCEL(TM) and the high heat-resistant resins are also received by the Company in an unexpanded state. Under conditions of time and pressure controlled heat, the raw material beads can be expanded to many times their original size with no increase in -7- 9 weight. The Company expands the beads to various densities depending upon the properties desired and stores the expanded beads until the final products are molded. In contrast, the EPP and EPE beads are already expanded when received by the Company and do not require further expansion before molding. Most of the Company's custom molded products are made from EPS. The other resins are particularly suitable for certain applications and are significantly more expensive. Accordingly, the products made from the other resins sell at higher prices than the products made from EPS. During the 1998, 1997 and 1996 fiscal years, approximately 26%, 20% and 22%, respectively, of the Company's net sales of custom molded products have been attributable to products made from the premium resins. The increase in net sales attributable to products made from premium resins reflects the use of these resins in the manufacture of custom molded products made to protect computers and other high technology equipment and as components in automobiles, watercraft and recreational vehicles. The Company has never experienced a shortage of the resins used in the manufacture of the custom molded products and does not foresee that any shortage will occur. EPS, EPP and EPE are generally available from a number of suppliers who sell to any prospective purchaser. The high heat-resistant resins and ARCEL(TM) are each sold by a single supplier but are also generally available. The price of EPS has declined during the last three fiscal years and has resulted in some reductions in the selling price of products made from EPS. The materials used in the manufacture of the integrated materials products (including corrugated paperboard and foam billets and planks) and the thermoformed products are also readily available. COMPETITION The Company's interior protective packaging and material handling products compete with similar products made by others as well as with other types of protective products. A majority of the similar products is produced by independent manufacturers who generally market their products in a particular geographic area from a single or limited number of facilities. While the Company is considerably larger than most of the manufacturers of similar products, the Company's penetration in the total interior protective packaging market is still relatively small. A number of the companies which produce competing products, particularly paper and corrugated packaging products, are well established and have substantially greater financial resources than the Company. The components manufactured by the Company for thermal insulation represent a small portion of the overall market for insulation products. Because of the specialized nature of this market, the Company competes primarily with other manufacturers of similar foam plastic products, rather than with -8- 10 manufacturers of alternative insulation products. With the exception of E-PAC which is licensed technology, the other components manufactured by the Company can be provided by other vendors using similar or alternative materials. Competition between the Company and manufacturers of similar products is based primarily on product engineering, price and customer service. CAPITAL EXPENDITURES Capital expenditures for property, plant and equipment during the 1998, 1997 and 1996 fiscal years (not including expenditures in connection with business acquisitions) amounted to $24,153,000, $21,318,000 and $23,129,000, respectively. Capital expenditures included above for land, buildings and improvements during the 1998, 1997 and 1996 fiscal years amounted to $5,702,000, $5,892,000 and $5,029,000, respectively. The 1998 fiscal year expenditures included $1,953,000 to purchase the Company's custom thermoforming facility in Sandusky, Ohio which was formerly leased. Capital expenditures included above for machinery and equipment during the 1998, 1997 and 1996 fiscal years amounted to $18,451,000, $15,426,000 and $18,100,000, respectively. During the 1998 fiscal year, $7,976,000 of these expenditures was for automatic molding machines used in the custom molding operations, $1,422,000 for manufacturing equipment used in the integrated materials and custom thermoforming operations and $7,148,000 for auxiliary process equipment primarily for the custom molding operations. In addition, $1,316,000 was expended during the 1998 fiscal year for environmental control equipment (see "Environmental Considerations" below). Capital expenditures during the 1998 fiscal year were higher than expected, primarily as a result of higher than expected machinery and equipment costs associated with the Company's new custom molding facilities in Brenham, Texas and Tijuana, B.C., Mexico where production commenced during the 1998 fiscal year. Capital expenditures during the 1999 fiscal year are expected to be less than during the 1998 fiscal year. BUSINESS ACQUISITIONS Expenditures in connection with business acquisitions during the 1998 fiscal year were not significant. In June 1998,the Company acquired a small EPS custom molding business in Meriden, Connecticut and moved the business acquired to the Company's existing custom molding facility in Putnam, Connecticut. The aggregate purchase price recorded for this acquisition was $713,000, including contingent consideration of $187,500. -9- 11 During the 1997 fiscal year, the Company acquired two custom molding facilities, two integrated materials facilities and two custom thermoforming facilities through business acquisitions. In September 1996, the Company acquired the custom thermoforming business of FormPac Corporation in Sandusky, Ohio; in October 1996, the Company acquired all the outstanding capital stock of EPS (Moulders) Ltd., a custom molding business in Livingston, Scotland; in April 1997, the Company acquired the custom thermoforming business of Thermoformers Plus in Chula Vista, California (near San Diego); in May 1997, the Company acquired the integrated materials business of Allgood Industries, Inc. in Hayward, California (near San Francisco); and in July 1997, the Company acquired all the outstanding capital stock of Arrowtip Mouldings Limited, a custom molding and fabricating business with separate custom molding and integrated materials facilities in London, England. The aggregate purchase price recorded for these acquisitions during the 1997 fiscal year, totaled $16,694,000, including notes and other obligations payable valued at $2,116,000 and contingent consideration valued at $754,000. During the 1996 fiscal year, the Company acquired one integrated materials business. In December 1995, the Company acquired all the outstanding capital stock of Alpine Packaging, Inc., a custom designer and manufacturer of specialty corrugated and technical/military specification packaging and wood pallets in Colorado Springs, Colorado. For this acquisition, the Company issued 101,046 shares of its Common Stock and paid cash having an aggregate value of $1,691,000. Approximately 59% of the increase in the Company's net sales during the 1998 fiscal year was attributable to acquisitions. The balance of the increase in net sales was attributable to higher sales in the Company's core custom molding operations and the thermoforming operations. For further information with respect to the business acquisitions during the last three fiscal years, see Note 10 of the Notes to Consolidated Financial Statements included in the Company's Annual Report to Shareholders for the 1998 fiscal year and incorporated in this annual report by reference. The Company will continue to look for acquisitions which mesh well with the Company's business. NEW SITE DEVELOPMENT The Company has established a number of custom molding facilities through new site development during the last three fiscal years. -10- 12 As indicated above, the Company completed the construction of, and began production at, new custom molding facilities in Brenham, Texas and Tijuana, B.C., Mexico during the 1998 fiscal year. Strategically located between Houston and Austin, Texas, the Brenham facility serves Compaq Computer Corporation and other high tech companies in southeast Texas. The Tijuana facility will serve domestic companies that have established "Maquiladora" operations along the U.S.- Mexican border (see "Foreign Operations" above). During the 1997 fiscal year, production commenced at a new custom molding facility which the Company constructed in Storm Lake, Iowa. In May 1998, this facility was sold by the Company to, and then leased back by the Company from, an industrial development authority. The lease has been reflected as a capitalized lease for financial reporting purposes. During the 1996 fiscal year, the Company leased and totally renovated a building in Spennymoor, England where production commenced prior to end of the fiscal year. The Company will continue to develop new production sites as they are needed to meet the needs of its customers. SEASONALITY The Company's net sales and net income are subject to some seasonal variation both in the United States and the United Kingdom. In both areas, the Company's business generally declines in December due to a reduction in manufacturing activity by the Company's customers. Net income in the second fiscal quarter is also generally adversely affected by higher operating costs during the winter months. See Note 15 of the Notes to Consolidated Financial Statements included in the Company's Annual Report to Shareholders for the 1998 fiscal year and incorporated in this annual report by reference. EMPLOYEES As of August 31, 1998, the Company had 1,826 employees, of which 476 were employed in the United Kingdom and Mexico. Of the total, 419 were salaried employees and 1,407 were paid on an hourly basis. Of the hourly employees, 314 at eight manufacturing facilities, including one in the United Kingdom, are covered by collective bargaining agreements with seven different unions. The agreements expire at various dates from November 30, 1998 through October 2003. Negotiations regarding a new agreement are in progress with respect to the agreement which is about to -11- 13 expire. The Company considers its labor relations to be good and has never suffered a work stoppage as a result of a labor conflict. ENVIRONMENTAL CONSIDERATIONS The Company has obtained air quality and other applicable environmental permits for all the custom molding facilities in the United States and Mexico. Air quality permits are not required in the United Kingdom. Certain of the permits restrict the amount of pentane (a blowing agent contained in the Company's foam plastic resins) which may be released during the manufacturing process and have resulted in capital expenditures for batch pre-expanders which allow the Company to use low pentane content EPS. Pentane abatement systems have also been acquired for certain facilities. Air quality permits have not been required in connection with the manufacture of the Company's integrated materials and thermoformed products. The Company has acquired recycling equipment for all its custom molding and integrated materials facilities. The equipment includes (i) regrinders which enable the Company to reuse in-house scrap and molded foam received from original equipment manufacturers, customers and consumers, (ii) EPS densifiers which enable the Company to compact scrap and molded foam collected for reprocessing in the polystyrene recycling market and (iii) balers which enable the Company to compact in-house corrugated paperboard scrap for reprocessing. In-house scrap resulting from the manufacture of thermoformed products is returned to the raw material suppliers of these materials for recycling. If necessary, the Company's products may also be safely landfilled or incinerated. During the 1998, 1997 and 1996 fiscal years, the Company's capital expenditures for environmental matters, including environmental control equipment, amounted to $1,341,000, $1,745,000 and $848,000, respectively. Capital expenditures for environmental matters during the 1999 fiscal year are expected to amount to approximately $1,500,000. During the 1995 fiscal year, the Company commenced a program under which environmental compliance audits are being conducted at all the Company's manufacturing facilities in the United States. At the end of the 1998 fiscal year, 20 audits had been completed. The audits have been conducted by an independent environmental consulting firm and have not resulted -12- 14 in plans for any significant additional capital expenditures for environmental matters. There has been public concern that using chloro-fluoro-carbons ("CFCs ") in the manufacture of plastic products may deplete the Earth's upper atmospheric ozone layer. The Company does not use, nor has it ever used, CFCs in the manufacture of any of its products. REORGANIZATION In May 1997, the Company announced a plan to reorganize into seven groups which would be managed as separate profit centers. During the 1998 fiscal year, the plan was revised to consist of five operating divisions organized on a geographical basis with each division responsible for a group of five to nine manufacturing facilities. Vice Presidents were appointed to be in charge of the operating divisions who report directly to David C. O'Leary, the Company's Chief Operating Officer. OTHER DEVELOPMENTS In February 1998, the Company initiated a restructuring plan to reduce costs and increase future financial performance. The total restructuring costs amounted to approximately $3,500,000. For further information with respect to the restructuring plan, see Note 12 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the 1998 fiscal year and incorporated in this annual report by reference. In August 1998, the Company adopted a Shareholder Rights Plan. For further information with respect to the plan, see Note 5 of the Notes to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the 1998 fiscal year and incorporated in this annual report by reference. The Company filed a current report to Form 8-K with respect to the Shareholder Rights Plan on August 21, 1998. -13- 15 ITEM 2. PROPERTIES. The Company's headquarters are located at 800 Fifth Avenue, New Brighton, Pennsylvania 15066. Custom Molding Facilities. The Company has 24 custom molding facilities at the following locations: Colorado Springs, Colorado Greeneville, Tennessee Putnam, Connecticut Lewisburg, Tennessee Conyers, Georgia (two facilities) Streator, Illinois Brenham, Texas Storm Lake, Iowa Sterling, Virginia Chesaning, Michigan Pardeeville, Wisconsin Tupelo, Mississippi Juarez, Chih., Mexico Las Cruces, New Mexico Tijuana, B.C., Mexico Cortland, New York London, England Butner, North Carolina Northampton, England Marion, Ohio Spennymoor, England New Brighton, Pennsylvania Livingston, Scotland During the 1998 fiscal year, the Company (i) completed construction of, and commenced production at, the custom molding facilities in Brenham, Texas and Tijuana, B.C., Mexico (see "New Site Development" under Item 1) and (ii) closed its custom molding facility in Martinsville, Indiana. The Martinsville closure resulted from the Company's major customer for this facility moving its production to a plant near the Company's custom molding facility in Juarez, Chih., Mexico. The Company continues to serve this customer from the Juarez facility. The Company is in the process of installing custom molding equipment at its integrated materials facility in Hayward, California (see below). The Company acquired the custom molding facilities in London, England and Livingston, Scotland (see "Business Acquisitions" under Item 1) and completed construction of, and commenced production at, the custom molding facility in Storm Lake, Iowa (see "New Site Development" under Item 1) during the 1997 fiscal year. The Company manufactures products from EPS at all the custom molding facilities except at one of the facilities in Lewisburg, Tennessee and at Storm Lake, Iowa. These facilities are dedicated polyolefins plants where products are only made from EPP or EPE. Products are also made from one or more of the Company's premium raw material resins at a majority of the other custom molding facilities. Integrated Materials Facilities. The Company has integrated materials operations at 13 locations, including seven sites where custom molding facilities are also located. During the 1998 and 1997 fiscal years, the integrated materials operations in Conyers, Georgia, Greeneville, Tennessee and -14- 16 London, England, which were formerly at separate sites, were transferred to the same sites as the custom molding facilities at these locations. The Company has separate integrated materials facilities at six locations as follows: Hayward, California Saginaw, Michigan Colorado Springs, Colorado Beaver, Pennsylvania Holden, Massachusetts Burlington, Wisconsin The integrated materials facilities in Hayward, California and Colorado Springs, Colorado were acquired during the 1997 and 1996, fiscal years, respectively (see "Business Acquisitions" under Item 1). Thermoforming Facilities. The Company's main thermoforming facility, which was acquired during the 1997 fiscal year (see "Business Acquisitions" under Item 1), is located in Sandusky, Ohio. Other thermoforming operations are conducted in Conyers, Georgia and Tijuana, B.C., Mexico. During the 1998 fiscal year, the Company transferred its thermoforming operations in Chula Vista, California (which had also been acquired during the 1997 fiscal year) to the same site as the new custom molding facility in Tijuana. The thermoforming facility in Conyers, Georgia is at a separate site from the custom molding and integrated materials facility in Conyers. Tech Centers. The Company's custom molding and integrated materials operations are supported by six tech centers. These centers are located at the Company's headquarters in New Brighton, Pennsylvania, at the custom molding facilities in Colorado Springs, Colorado and Northampton, England, at the integrated materials facility in Hayward, California and at separate sites in Conyers, Georgia and Grand Blanc, Michigan. The Grand Blanc tech center primarily serves the automotive industry. The Company's thermoforming operations are supported by a tech center at the facility in Sandusky, Ohio. Sales offices are located at each of the tech centers except in Sandusky. During the 1998 fiscal year, the Company consolidated tech centers at the integrated materials facilities in Holden, Massachusetts and Burlington, Wisconsin with other tech centers in connection with the restructuring plan initiated in February 1998 (see Note 12 of the Notes to Consolidated Financial Statements). Miscellaneous. The Company's mold making facility is in Sun Prairie, Wisconsin. This facility is considered a manufacturing facility because most of the aluminum production molds that are made by the Company at this facility are sold to and are owned by the Company's customers. -15- 17 Most of the facilities where custom molded products are made are owned while a majority of the other facilities are leased. The Company has options to purchase most of the leased facilities and generally makes substantial leasehold improvements to, and exercises its options to purchase, the leased facilities. The leases expire at various dates through November 2007. In many cases, the leases may be extended at the Company's option. The Company has warehouse facilities at each manufacturing location. Additional warehouse facilities are located near the Company's manufacturing facilities and near the manufacturing facilities of major customers. Many of the outside warehouse facilities are leased. The Company believes that its facilities are generally well suited for their respective uses and that they are generally adequately sized and designed to provide the operating efficiencies necessary for the Company to be competitive. The Company continually expands and modernizes its existing facilities and establishes new facilities as necessary to meet the demand for its products. Information with respect to the machinery and equipment used in the Company's manufacturing operations and with respect to the Company's transportation equipment provided in Item 1 of this annual report is incorporated by reference in this Item 2. ITEM 3. LEGAL PROCEEDINGS. John C. Bartram, Administrator of the Estate of Dwayne Scott Mount, Deceased v. Tuscarora Incorporated, et al. - Case No. 96CV-0511 in the Court of Common Pleas for Marion County, Ohio. In December 1996, the Administrator of the Estate of Dwayne Scott Mount (the "Decedent") filed a Complaint for Wrongful Death in the captioned civil action against the Company and Toyo Machine and Metal Co., Ltd. ("Toyo"). Decedent, an employee of the Company, was killed in May 1996 while working on a molding machine at the Company's custom molding plant in Marion, Ohio. The molding machine was manufactured by Toyo. Count I of the Complaint states an intentional employer tort claim and alleges that the Decedent was wrongfully killed as a result of certain alleged intentional conduct of the Company. Under Count I, plaintiff seeks both compensatory and punitive damages from the Company of not less than $5,000,000. Count II of the Complaint stated a products liability claim and alleged that the Decedent was wrongfully killed as a result of the defective design and/or manufacture of the molding machine by Toyo. Under Count II, plaintiff sought both compensatory and punitive damages from Toyo of not less than the $5,000,000. Having learned during discovery that the Company did not own the molding machine but used it under an agreement with -16- 18 Kaneka America Corporation ("Kaneka America"), the plaintiff, upon Motion made to the Court in April 1998, was permitted to file an Amended Complaint which names Kaneka America and Kaneka Texas Corporation ("Kaneka Texas") as additional defendants. Kaneka America, the owner of the molding machine at the time it was acquired by the Company, unbeknownst to the Company leased it to Kaneka Texas in April 1992 and then sold it to Kaneka Texas in March 1995. In its agreement with Kaneka America, the Company agreed to indemnify and hold Kaneka America harmless from any and all claims, demands or causes of action against Kaneka America which may arise out of the use, operation or condition of the molding machine. The agreement to indemnify may not apply to Kaneka Texas. The Amended Complaint amended Count II to assert joint and several liability against Toyo, Kaneka America and Kaneka Texas and added a Count III which states a breach of contract claim against Kaneka America and/or Kaneka Texas alleging that the Decedent was wrongfully killed as a result of the failure of Kaneka America and/or Kaneka Texas to assist the Company in maintaining the safety of the molding machine pursuant to the agreement between the Company and Kaneka America. Under Count III, plaintiff seeks both compensatory and punitive damages from Kaneka America and/or Kaneka Texas of not less than $5,000,000. The Company is vigorously contesting the lawsuit and has filed Answers to the Complaint denying the allegations against the Company and asserting various defenses including that the plaintiff's claim is barred pursuant to the Ohio Workers' Compensation statute. In the opinion of management, the disposition of this proceeding should not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fiscal quarter ended August 31, 1998. EXECUTIVE OFFICERS OF THE COMPANY In accordance with Instruction 3 to Item 401(b) of Regulation S-K, information with respect to the executive officers of the Company is set forth below. Name Age Office with the Company ---- --- ----------------------- John P. O'Leary, Jr. 51 President and Chief Executive Officer David C. O'Leary 49 Senior Vice President and Chief Operating Officer Brian C. Mullins 57 Senior Vice President, Chief Financial Officer and Treasurer James H. Brakebill 61 Senior Vice President, Manufacturing Services -17- 19 John P. O'Leary, Jr. has been President and Chief Executive Officer of the Company since prior to September 1993. He has been a director of the Company since 1974 and became Chairman of the Board of Directors in August 1994. David C. O'Leary has been a Vice President and the chief operating officer of the Company since May 1997. His title was changed to Senior Vice President and Chief Operating Officer in October 1998. He was Vice President-Sales and Marketing from April 1994 to May 1997 and Vice President-Southern Division from prior to September 1993 to April 1994. The Vice Presidents in charge of the Company's five operating divisions (see "Reorganization" in Part I of this annual report) report directly to David C. O'Leary. Brian C. Mullins has been Vice President and Treasurer of the Company as well as its chief financial and accounting officer since prior to September 1993. His title was changed to Senior Vice President, Chief Financial Officer and Treasurer in October 1998. James H. Brakebill has been Vice President, Manufacturing Services of the Company since May 1997. His title was changed to Senior Vice President, Manufacturing Services in October 1998. He was Vice President, Manufacturing from April 1994 to May 1997 and Vice President of Technology from prior to September 1993 to April 1994. John P. O'Leary, Jr. and David C. O'Leary are brothers. The executive officers are elected annually by the Board of Directors at an organization meeting which is held immediately after each Annual Meeting of Shareholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in the over-the-counter market on the National Market System of the National Association of Securities Dealers ("NASDAQ"). The Common Stock trades under the NASDAQ symbol TUSC. As of August 31, 1998, there were 766 holders of record of the Company's Common Stock. Information with respect to the market prices of, and the cash dividends paid with respect to, the Company's Common Stock during the fiscal years ended August 31, 1998 and 1997 appears in Note 15 - Quarterly Financial Data (unaudited) of -18- 20 the Notes to Consolidated Financial Statements on page 21 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998 and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The selected financial data required by this Item 6 is furnished by the "Eleven Year Consolidated Financial Summary" which appears on the bottom half of the inside front cover of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information required by this Item 7 appears under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 22 through 25 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998 and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The quantitative and qualitative disclosure about market risk required by this Item 7A appears in the Management's Discussion and Analysis of Results of Operations and Financial Condition under the caption "Market Risks" on pages 24 and 25 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following financial statements and related notes and report appear on the pages indicated in the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998 and are incorporated herein by reference: Page(s) in Annual Report Financial Statements and Related Report to Shareholders --------------------------------------- --------------- Consolidated Statements of Income for the fiscal years ended August 31, 1998, 1997 and 1996 10 Consolidated Balance Sheets at August 31, 1998 and 1997 11 Consolidated Statements of Cash Flows for the fiscal years ended August 31, 1998, 1997 and 1996 12 Consolidated Statements of Shareholders' Equity for the fiscal years ended August 31, 1998, 1997 and 1996 13 Notes to Consolidated Financial Statements 14-21 Report, dated October 16, 1998, of Ernst & Young LLP 22 -19- 21 The supplementary financial information required by this Item 8 appears in Note 15 - Quarterly Financial Data (unaudited) of the Notes to Consolidated Financial Statements on page 21 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998 and is also incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company changed independent public accountants for the fiscal year ended August 31, 1997. Information with respect to the change in independent public accountants has been previously reported by the Company in current reports on Form 8-K filed by the Company with the Commission on February 15, 1996 and November 14, 1996. PART III ITEMS 10 THROUGH 13. In accordance with the provisions of General Instruction G to Form 10-K, the information required by Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and Related Transactions) is not set forth herein (except for the information concerning "Executive Officers of the Company" which appears at the end of Part I of this annual report) because the Company has already filed its definitive Proxy Statement for its Annual Meeting of Shareholders to be held on December 17, 1998, which includes such information, with the Commission. Such information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. The financial statements, financial statement schedule and exhibits listed below are filed as part of this annual report: (a)(1) Financial Statements: The consolidated financial statements of the Company and its subsidiaries, together with the report of Ernst & Young LLP, dated October 16, 1998, appearing on pages 10 through 22 of the Company's Annual Report to Shareholders for the fiscal year ended August 31, 1998, are incorporated herein by reference (see Item 8 above). The report of Ernst & Young LLP relates to the consolidated financial statements of the Company and its -20- 22 subsidiaries as of August 31, 1998 and 1997 and for each of the two fiscal years then ended. The report of S.R. Snodgrass, A.C., dated October 11, 1996, with respect to the consolidated statements of income, shareholders' equity and cash flows of the Company and its subsidiaries for the fiscal year ended August 31, 1996 is filed with this annual report as Exhibit 99. (a)(2) Financial Statement Schedules: Page in this Schedules and Related Report Annual Report ---------------------------- ------------- Schedule II - Valuation Account for the fiscal years ended August 31, 1998, 1997 and 1996 S-1 The report of Ernst & Young LLP with respect to Schedule II as of and for the fiscal years ended August 31, 1998 and 1997 is included in the consent of Ernst & Young LLP filed with this annual report as Exhibit 23.1. The report of S.R. Snodgrass, A.C., dated October 11, 1996, with respect to Schedule II for the fiscal year ended August 31, 1996 is included in the report of S.R. Snodgrass, A.C. filed with this annual report as Exhibit 99. All other financial statement schedules are omitted either because they are not applicable or are not material, or the information required therein is contained in the consolidated financial statements or notes thereto set forth in the Company's Annual Report to Shareholders for its fiscal year ended August 31, 1998. (a)(3) Exhibits: Exhibit No. Document - ------- -------------------------------------------------------------- 3(i) Restated Articles of Incorporation, as amended by the Company's Board of Directors on April 16, 1998, and Statement with Respect to Shares of Series A Junior Participating Preferred Stock, filed herewith. 3(ii) By-Laws, as Amended and Restated by the Company's Board of Directors on April 16, 1998, filed herewith. -21- 23 Exhibit No. Document - ------- -------------------------------------------------------------- 4 Loan Agreement, dated as of August 14, 1996, between the Company and Mellon Bank, N.A. (the "Mellon Loan Agreement"), with Revolving Credit Note and Term Note attached, filed as Exhibit 4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference. 4.1 First Amendment, effective October 28, 1997, to the Mellon Loan Agreement, filed as Exhibit 4.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1998 and incorporated herein by reference. 4.2 Second Amendment, effective August 31, 1998, to the Mellon Loan Agreement, filed herewith. 4.3 Shareholder Rights Agreement, dated August 17, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, filed as Exhibit 4 to the Company's current report on Form 8-K filed on August 21, 1998 and incorporated herein by reference. 10.1 1985 Incentive Stock Option Plan, as amended by the Company's Board of Directors on October 29, 1987, filed on June 20, 1988 as part of Exhibit 10.2 to Amendment No. 1 to Registration Statement No. 33-17138 on Form S-1 and incorporated herein by reference.* 10.2 1989 Stock Incentive Plan, as amended by the Company's Board of Directors and shareholders effective December 15, 1994, filed as Exhibit 10.3 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.3 1989 Stock Incentive Plan, as amended by the Company's Board of Directors effective August 31, 1996, filed as Exhibit 10.4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.4 1997 Stock Incentive Plan, as adopted by the Company's Board of Directors on October 17, 1997 and approved by the Company's shareholders on December 18, 1997, filed herewith.* 10.5 Common Stock Purchase Plan for Salaried Employees, as amended by the Company's Board of Directors on October 11, 1996, filed as Exhibit 10.5 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* -22- 24 Exhibit No. Document - ------- -------------------------------------------------------------- 10.6 Deferred Compensation Plan for Non-Employee Directors, as adopted by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference.* 10.7 Retirement Policy and Plan for Non-Employee Directors, as amended by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.7 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1995 and incorporated herein by reference.* 10.8 Written description of supplemental retirement benefit for Thomas P. Woolaway, filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.9 First Amendment to the Tuscarora Incorporated and Subsidiary Companies Salaried Employees' Money Purchase Pension Plan, as adopted by the Company's Board of Directors on October 11, 1996, providing for additional employer contributions for certain of the Company's executive officers, filed as Exhibit 10.9 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.10 Tuscarora Incorporated Supplemental Executive Retirement Plan, as adopted by the Company's Board of Directors on February 9, 1996, and related Consent of the Company's Compensation Committee, dated October 11, 1996, designating certain of the Company's executive officers as Plan participants, and form of Participation Agreement, filed as Exhibit 10.10 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.11 Indemnification and Insurance Agreement, dated December 15, 1994, between the Company and Robert W. Kampmeinert (substantially identical agreements have been entered into with all the Company's present directors), filed herewith. 11 Computation of Diluted Net Income Per Share, filed herewith. -23- 25 Exhibit No. Document - ------- -------------------------------------------------------------- 13 Those portions of the Annual Report to Shareholders for the fiscal year ended August 31, 1998 which are expressly incorporated in this annual report by reference, filed herewith. 21 List of subsidiaries of the Company, filed herewith. 23.1 Consent of Ernst & Young LLP, filed herewith. 23.2 Consent of S.R. Snodgrass, A.C., filed herewith. 24 Powers of Attorney, filed herewith. 27.1 Financial Data Schedule for the fiscal year ended August 31, 1998, filed herewith. 27.2 Restated Financial Data Schedule for the fiscal year ended August 31, 1997, filed herewith. 27.3 Restated Financial Data Schedule for the fiscal year ended August 31, 1996, filed herewith. 99 Report, dated October 11, 1996, of S.R. Snodgrass, A.C., filed herewith. - ------------------- * Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K. The Company agrees to furnish to the Commission upon request copies of all instruments defining the rights of holders of long-term debt of the Company and its subsidiaries which are not filed as a part of this annual report. Copies of the exhibits filed as a part of this annual report are available at a cost of $.20 per page to any shareholder upon written request to Brian C. Mullins, Senior Vice President and Treasurer, Tuscarora Incorporated, 800 Fifth Avenue, New Brighton, Pennsylvania 15066. (b) Reports on Form 8-K: The Company filed a current report on Form 8-K on August 21, 1998. Under Item 5, the Company reported the adoption by the Company's Board of Directors on August 17, 1998 of a Shareholder Rights Plan and the declaration on that date of a dividend of Preferred Share Purchase Rights to shareholders of record on August 31, 1998. A copy of the Shareholder Rights Agreement (also filed herewith as Exhibit 4.3) and of the press release issued on August 17, 1998 were filed as Exhibits to the Form 8-K. The Preferred Share Purchase Rights have been registered under Section 12(g) of the Securities Exchange Act of 1934. -24- 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Tuscarora Incorporated By /s/ John P. O'Leary, Jr. ------------------------------- John P. O'Leary, Jr., President and Chief Executive Officer Date: November 25, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities indicated on November 25, 1998: /s/ John P. O'Leary, Jr. /s/ Brian C. Mullins -------------------- --------------------- John P. O'Leary, Jr. Brian C. Mullins (Director and Chief (Principal Financial Executive Officer) Officer and Principal Accounting Officer) Thomas S. Blair David I. Cohen Abe Farkas Karen L. Farkas Robert W. Kampmeinert Jeffery L. Leininger David C. O'Leary Harold F. Reed, Jr. and Thomas P. Woolaway, Directors By /s/ Brian C. Mullins ------------------ Brian C. Mullins, Attorney-in-Fact -25- 27 TUSCARORA INCORPORATED Schedule II - Valuation Account Years Ended August 31, 1998, 1997 and 1996
Balance at Charged to Balance at Beginning Costs and End Description of Period Expenses Deductions(1) of Period - ----------- --------- -------- ------------- --------- Allowance for doubtful accounts Year Ended August 31, 1998 $674,689 $311,711 $334,680 $651,720 Year Ended August 31, 1997 $787,175 $586,582 $699,068 $674,689 Year Ended August 31, 1996 $694,675 $381,196 $288,696 $787,175
- ---------------------- (1) Uncollected receivables written off, net of recoveries. S-1 28 TUSCARORA INCORPORATED Form 10-K for Fiscal Year Ended August 31, 1998 Exhibit Index ------------- The following exhibits are required to be filed with this annual report on Form 10-K. Exhibits are incorporated herein by reference to other documents pursuant to Rule 12b-23 under the Securities Exchange Act of 1934, as amended, as indicated by the index. Exhibits not incorporated herein by reference follow the index. Exhibit No. Document - ------- ------------------------------------------------------------------ 3(i) Restated Articles of Incorporation, as amended by the Company's Board of Directors on April 16, 1998, and Statement with Respect to Shares of Series A Junior Participating Preferred Stock, filed herewith. 3(ii) By-Laws, as Amended and Restated by the Company's Board of Directors on April 16, 1998, filed herewith. 4 Loan Agreement, dated as of August 14, 1996, between the Company and Mellon Bank, N.A. (the "Mellon Loan Agreement"), with Revolving Credit Note and Term Note attached, filed as Exhibit 4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference. 4.1 First Amendment, effective October 28, 1997, to the Mellon Loan Agreement, filed as Exhibit 4.1 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended February 28, 1998 and incorporated herein by reference. 4.2 Second Amendment, effective August 31, 1998, to the Mellon Loan Agreement, filed herewith. 4.3 Shareholder Rights Agreement, dated August 17, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, filed as Exhibit 4 to the Company's current report on Form 8-K filed on August 21, 1998 and incorporated herein by reference. 10.1 1985 Incentive Stock Option Plan, as amended by the Company's Board of Directors on October 29, 1987, filed on June 20, 1988 as part of Exhibit 10.2 to Amendment No. 1 to Registration Statement No. 33-17138 on Form S-1 and incorporated herein by reference.* -1- 29 Exhibit No. Document - ------- ------------------------------------------------------------------ 10.2 1989 Stock Incentive Plan, as amended by the Company's Board of Directors and shareholders effective December 15, 1994, filed as Exhibit 10.3 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.3 1989 Stock Incentive Plan, as amended by the Company's Board of Directors effective August 31, 1996, filed as Exhibit 10.4 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.4 1997 Stock Incentive Plan, as adopted by the Company's Board of Directors on October 17, 1997 and approved by the Company's shareholders on December 18, 1997, filed herewith.* 10.5 Common Stock Purchase Plan for Salaried Employees, as amended by the Company's Board of Directors on October 11, 1996, filed as Exhibit 10.5 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.6 Deferred Compensation Plan for Non-Employee Directors, as adopted by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.6 to the Company's quarterly report on Form 10-Q for the fiscal year ended February 28, 1995 and incorporated herein by reference.* 10.7 Retirement Policy and Plan for Non-Employee Directors, as amended by the Company's Board of Directors on December 14, 1994, filed as Exhibit 10.7 to the Company's quarterly report on Form 10-Q for the fiscal year ended February 28, 1995 and incorporated herein by reference.* 10.8 Written description of supplemental retirement benefit for Thomas P. Woolaway, filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1995 and incorporated herein by reference.* 10.9 First Amendment to the Tuscarora Incorporated and Subsidiary Companies Salaried Employees' Money Purchase Pension Plan, as adopted by the Company's Board of Directors on October 11, 1996, providing for additional employer contributions for certain of the Company's executive officers, filed as Exhibit 10.9 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* -2- 30 Exhibit No. Document - ------- ------------------------------------------------------------------ 10.10 Tuscarora Incorporated Supplemental Executive Retirement Plan, as adopted by the Company's Board of Directors on February 9, 1996, and related Consent of the Company's Compensation Committee, dated October 11, 1996, designating certain of the Company's executive officers as Plan participants, and form of Participation Agreement, filed as Exhibit 10.10 to the Company's annual report on Form 10-K for the fiscal year ended August 31, 1996 and incorporated herein by reference.* 10.11 Indemnification and Insurance Agreement, dated December 15, 1994, between the Company and Robert W. Kampmeinert (substantially identical agreements have been entered into with all the Company's present directors), filed herewith. 11 Computation of Diluted Net Income Per Share, filed herewith. 13 Those portions of the Annual Report to Shareholders for the fiscal year ended August 31, 1998 which are expressly incorporated in this annual report by reference, filed herewith. 21 List of subsidiaries of the Company, filed herewith. 23.1 Consent of Ernst & Young LLP, filed herewith. 23.2 Consent of S.R. Snodgrass, A.C., filed herewith. 24 Powers of Attorney, filed herewith. 27.1 Financial Data Schedule for the fiscal year ended August 31, 1998, filed herewith. 27.2 Restated Financial Data Schedule for the fiscal year ended August 31, 1997, filed herewith. 27.3 Restated Financial Data Schedule for the fiscal year ended August 31, 1996, filed herewith. 99 Report, dated October 11, 1996, of S.R. Snodgrass, A.C., filed herewith. - --------------- * Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K. EX-3.I 2 TUSCARORA INCORPORATED - EXHIBIT 3(I) 1 Exhibit 3(i) TUSCARORA INCORPORATED RESTATED ARTICLES OF INCORPORATION (as amended by the Board of Directors on April 16, 1998) 1st. The name of the Company is Tuscarora Incorporated. 2nd. The location and post office address of its current registered office in this Commonwealth is 800 Fifth Avenue, New Brighton, Beaver County, Pennsylvania 15066. 3rd. The purposes of the Company are to engage in the business of designing, manufacturing and developing all forms of plastics and other synthetic materials and encouraging their widespread use, to make available to its customers all related services, and, in addition, to engage in all other lawful businesses for which a corporation may be incorporated under the Pennsylvania Business Corporation Law, being the Act of May 5, 1933, as amended. 4th. The term of its existence is perpetual. 5th. 5.1. The aggregate number of shares of all classes of capital stock which the Company shall have the authority to issue is 21,000,000 shares, divided into two classes, of which 1,000,000 shares shall be Preferred Stock, par value $.01 per share (the "Preferred Stock"), and 20,000,000 shares shall be Common Stock, without par value. 5.2. The Board of Directors is hereby expressly authorized, at any time or from time to time, to divide any or all of the shares of the Preferred Stock into one or more series, and in the resolution or resolutions establishing a particular series, before issuance of any of the shares of the particular series, to fix and determine the number of shares and the designation of such series, so as to distinguish it from the shares of all other series and classes, and to fix and determine the preferences, voting rights, qualifications, privileges, limitations, options, conversion rights, restrictions and other special or relative rights of the Preferred Stock or of such series, to the fullest extent now or hereafter permitted by the laws of the Commonwealth of Pennsylvania, including, but not limited to, variations between different series in the following respects: (a) the distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased or decreased (but not below the number of shares of such series then outstanding) from time to time by the Board of Directors; (b) the annual dividend rate for such series, the dates in each year on which dividends on such series shall be payable and the date or dates from which such dividends shall commence to accrue; (c) the price or prices at which, and the terms and conditions on which, the shares of such series may be made redeemable; (d) the purchase or sinking fund provisions, if any, for the purchase or redemption of shares of such series; (e) the preferential amount or amounts payable upon shares of such series in the event of the liquidation, dissolution or winding up of the Company; (f) the voting rights, if any, of the holders of shares of such series; (g) the terms and conditions, if any, upon which shares of such series may be converted and the class or classes or series of shares of the Company or other securities into which such shares may be converted; (h) the relative seniority, parity or junior rank of such series as to dividends or assets with respect to any other classes or series of stock then or thereafter to be issued; and (i) such other terms, qualifications, privileges, limitations, options, restrictions and special or relative rights and preferences, if any, of shares of such series as the Board of Directors may, at the time of such resolution or resolutions, lawfully fix and determine under the laws of the Commonwealth of Pennsylvania. 2 Unless otherwise provided in a resolution or resolutions establishing any particular series, the aggregate number of authorized shares of the Preferred Stock may be increased by an amendment of the Restated Articles approved solely by a majority vote of the outstanding shares of Common Stock (or solely with a lesser vote of the Common Stock, or solely by action of the Board of Directors, if permitted by law at the time). All shares of any one series shall be alike in every particular, except with respect to the accrual of dividends prior to the date of issuance. 5.3 Except for and subject to those rights expressly granted to the holders of the Preferred Stock or any series thereof by resolution or resolutions adopted by the Board of Directors pursuant to Section 5.2 of this Article 5th and except as may be provided by the laws of the Commonwealth of Pennsylvania, the holders of the Common Stock shall have exclusively all other rights of shareholders. All or part of the shares of Common Stock of the Company may be uncertificated shares to the extent determined by the Board (or by any officer or other person as the Board may designate) from time to time; however, in no event shall shares of Common Stock represented by a certificate be deemed uncertificated until the certificate is surrendered to the Company. 5.4 No holder of Common Stock or of any other class of stock of the Company shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class or of securities convertible into stock of any class, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend, and the Company may issue shares, option rights or securities having option or conversion rights without first offering them to shareholders of any class. 6th. No Cumulative Voting. The shareholders of the Company shall not have any right of cumulative voting in the election of directors. 7th. Definitions; Interpretation. 7.1. Definitions. For the purposes of Articles 7th, 8th, 9th, and 10th: (a) "Person" means any individual, firm, corporation, partnership, joint venture, trust or other entity. When two or more persons act as a partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, association or group shall be deemed a person. As used herein, the pronouns "which", "that" and "it" in relation to persons that are individuals shall be construed to mean "who" or "whom", "he" or "she" and "him" or "her", as appropriate. (b) "Interested Shareholder" at any particular time means any person (other than the Company or a Subsidiary, or an employee benefit plan of the Company or a Subsidiary, or a trustee or fiduciary of any such plan when acting in such capacity) who or which: (1) is at such time, or is a member of a group acting in concert which is at such time, the beneficial owner, directly or indirectly, of more than 20% of the voting power of the outstanding Voting Stock; (2) is at such time a director or Affiliate of the Company and at any time within the two-year period immediately prior to such time was the beneficial owner, directly or indirectly, of more than 20% of the voting power of the then outstanding Voting Stock; or (3) is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to such time beneficially owned by any interested Shareholder, if such assignment or succession shall have occurred in the course or a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933; With respect to any particular transaction, "Interested Shareholder" means any Interested Shareholder involved in such transaction, any Affiliate or Associate of any such interested Shareholder and any other member of a group acting in concert with any such Interested Shareholder. 2 3 (c) A person is a "beneficial owner" of any shares of Voting Stock: (1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (2) which such person or any of its Affiliates or Associates has (A) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, revocation of a trust or otherwise or (B) the right to vote, or to direct the voting of, pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. For the purposes of determining whether a person is an Interested Shareholder pursuant to definition (b) of this Section 7.1, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by an Interested Shareholder through the application of this definition (c) but shall not include any other shares of Voting Stock which may be acquired pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, revocation of a trust or otherwise. (d) "Affiliate" has the meaning ascribed to that term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on August 28, 1987 (the term "registrant" in said Rule 12b-2 meaning in this case the Company). (e) "Associate" has the meaning ascribed to that term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on August 28, 1987 (the term "registrant" in said Rule 12b-2 meaning in this case the Company). (f) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Company, as well as any Affiliate of the Company which is controlled by the Company; provided, however, that for the purposes of the definition of Interested Shareholder set forth in definition (b) of this Section 7.1, "Subsidiary" means only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Company. (g) "Disinterested Director" means a director of the Company who is not an Interested Shareholder or an Affiliate, Associate or representative of an Interested Shareholder and either (1) was a director of the Company immediately prior to the time the Interested Shareholder became an Interested Shareholder or (2) is a successor to a Disinterested Director and is or was recommended or elected to succeed a Disinterested Director by the affirmative vote of a majority of the Disinterested Directors then in office. Whenever the holders of any class or series of stock having a preference over the Common Stock as to dividends or assets shall have the right, voting separately as a class or series, to elect one or more directors of the Company, the term "Disinterested Director" shall not include any director elected by the holders of such class or series. As used with respect to any particular transaction in Article 9th or with respect to a determination or interpretation as to such transaction under definition (h) of this Section 7.1 or Section 7.2, the term "Disinterested Director" includes all directors who are Disinterested Directors with respect to any Interested Shareholder involved in such transaction. In all other cases, unless the context otherwise clearly requires, the term "Disinterested Director" means only those directors who are Disinterested Directors with respect to all persons who are then Interested Shareholders. (h) "Fair Market Value" means (1) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such 3 4 Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing sale price or, if none, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by the affirmative vote of a majority of the Disinterested Directors then in office; and (2) in the case of property other than stock or cash, the fair market value of such property on the date in question as determined in good faith by the affirmative vote of a majority of the Disinterested Directors then in office or by a qualified appraiser retained by them for such purpose. (i) "Voting Stock" means capital stock of the Company entitled to vote generally in an annual election of directors of the Company. (j) "Total Assets" means the consolidated total assets of the Company and its subsidiaries as of the close of the most recent fiscal quarter ended on or prior to the first public announcement of the Business Combination in question, as shown on the consolidated balance sheet published by the Company for such quarter. 7.2 Interpretation. The Disinterested Directors, by the affirmative vote of a majority of the Disinterested Directors then in office, are authorized to interpret all the terms and provisions of Articles 7th, 8th, 9th and 10th and to determine, on the basis of information known to them after reasonable inquiry, any fact necessary to determine compliance with any such term or provision, including, without limitation, (a) whether a person is an Interested Shareholder, (b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or Associate or another person, (d) whether any Articles provision required by clause (a) of Section 9.1 of Article 9th complies with such Section and is valid and enforceable and (e) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Company or any Subsidiary in any Business Combination has, an aggregate Fair Market Value equal to 5% or more of Total Assets. Any such interpretation or determination made in good faith shall be binding and conclusive for all purposes of these Articles. 8th. Board of Directors. The business and affairs of the Company shall be managed by or under the direction of a Board of Directors comprised as follows: (a) Number. The Board of Directors shall consist of such number of persons as may from time to time be fixed by the Board pursuant to a resolution adopted by the affirmative vote of a majority of the Disinterested Directors then in office, plus such number of additional directors as the holders of any class or series of stock having a preference over the Common Stock as to dividends or assets, voting separately as a class or series, shall have the right from time to time to elect. (b) Classes, Election and Terms. The directors elected by the holders of Voting Stock shall be classified in respect of the time for which they shall severally hold office by dividing them into three classes, as nearly equal in number as possible. If such classes of directors are not equal, the Board of Directors, by the affirmative vote of a majority of the Disinterested Directors then in office, shall determine which class shall contain an unequal number of directors. At the annual meeting of shareholders of the Company in 1987, separate elections shall be held for the directors of each class, the term of office of the directors of the first class to expire at the first annual meeting after their election, the term of office of the directors of the second class to expire at the second annual meeting after their election and the term of office of the directors of the third class to expire at the third annual meeting after their election. At each succeeding annual meeting of shareholders, the shareholders shall elect directors of the class whose term then expires, to hold office until the third succeeding annual meeting. Except as otherwise expressly provided in these Articles, 4 5 each director shall hold office for the term for which elected and until his or her successor shall be elected and shall qualify. (c) Removal of Directors. Any director, any class of directors or the entire Board of Directors may be removed from office by shareholder vote at any time, without assigning any cause, but only if shareholders entitled to cast at least 75% of the votes which all shareholders would be entitled to cast at an annual election of directors or of such class of directors shall vote in favor of such removal; provided, however, that the shareholders shall have such power of removal without cause only if and so long as the general corporate law of the Company's state of incorporation specifically mandates such power. If such power of removal without cause is not mandated by statute, the shareholders may remove a director or directors from office at any time only for cause and only if, in addition to any affirmative vote required by law, these Articles or otherwise, such removal is approved by the holders of at least a majority of the voting power of the then outstanding shares of Voting Stock of the Company which are not beneficially owned by any Interested Shareholder, voting together as a single class. (d) Vacancies. Vacancies in the members of the Board of Directors elected by the holders of Voting Stock, including vacancies resulting from an increase in the number of directors, shall be filled only by the affirmative vote of a majority of the Disinterested Directors then in office, though less than a quorum, except as otherwise required by law. All directors elected to fill vacancies shall hold office for a term expiring at the annual meeting of shareholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (e) Nominations of Director Candidates. Nominations for the election of directors may be made only by the Board of Directors or a committee appointed by the Board of Directors or by a holder of record of stock entitled to vote in the election of the directors to be elected; provided, however, that a nomination may be made by a shareholder only if written notice of such nomination is received by the Secretary of the Company not later than (1) with respect to an election to be held at an annual meeting of shareholders, 90 days prior to the anniversary date of the immediately preceding annual meeting, and (2) with respect to an election to be held at a special meeting of shareholders, the close of business on the 10th day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth (1) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (2) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (3) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (4) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated by the Board of Directors; and (5) the consent of each nominee to serve as a director of the Company if so elected. Only candidates who have been nominated in accordance with this Article 8th shall be eligible for election by the shareholders as directors of the Company. (f) Exception for Preferred Stock. Whenever the holders of any class or series of stock having a preference over the Common Stock as to dividends or assets shall have the right, voting separately as a class or series, to elect one or more directors of the Company or to take any other action, none of the provisions of this Article 8th above shall apply with respect to the director or directors elected or the action taken by the holders of such class or series. 5 6 9th. Votes Required For Certain Business Combinations. 9.1 Special Votes for Certain Business Combinations. In addition to any affirmative vote required by law, these Articles or otherwise, and except as otherwise expressly provided in Section 9.2 below: (a) any merger, consolidation or share exchange of the Company or any Subsidiary with (1) any Interested Shareholder or with (2) any other person (whether or not itself an Interested Shareholder) which is, or after such merger, consolidation or share exchange would be, an Affiliate or Associate of an Interested Shareholder or which does not include in its Articles the substance of the terms of this Article 9th, in each case without regard to which person is the surviving person; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extention of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) to, with or for the benefit of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder involving any assets, securities or commitments of the Company or any Subsidiary having an aggregate Fair Market Value and/or involving aggregate commitments equal to 5% or more of Total Assets; (c) the issuance or transfer by the Company or any Subsidiary (in one transaction or a series of transactions) of any securities of the Company or any Subsidiary to any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder in exchange for cash, securities or other consideration (or a combination thereof) having an aggregate Fair Market Value equal to 5% or more of Total Assets; (d) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; (e) any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any Subsidiary or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the Company or any Subsidiary which is directly or indirectly beneficially owned by any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; or (f) any other transaction or series of transactions similar in purpose or effect to, or any agreement, contract or other arrangement providing for, any one or more of the transactions specified in the foregoing clauses (a) through (e); shall require the affirmative votes of (i) the holders of at least 75% of the voting power of all then outstanding shares of Voting Stock, voting together as a single class, and (ii) the holders of at least a majority of the voting power of the then outstanding shares of Voting Stock which are not beneficially owned by such Interested Shareholder, voting together as a single class. Such affirmative votes shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. The term "Business Combination" as used in this Article 9th shall mean any transaction which is referred to in any one or more of clauses (a) through (f) above. 9.2 Exception to Special Vote Requirements. The provisions of Section 9.1 shall not be applicable to any Business Combination, and such Business Combination shall require only such affirmative vote (if any) as is required by law, any other provision of these Articles, any agreement with any national securities exchange or otherwise, if the Business Combination is approved by the affirmative vote of a majority of the Disinterested Directors then in office. 6 7 9.3 No Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article 9th shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law or equity. 10th. Amendments. 10.1 Amendments to By-Laws. The Board of Directors may adopt, amend and repeal the By-Laws with respect to those matters which are not, by statute, reserved exclusively to the shareholders, provided that such power may be exercised only by the affirmative vote of a majority of the Disinterested Directors then in office. No By-Law may be adopted, amended or repealed by the shareholders unless, in addition to any other affirmative vote required by law, these Articles or otherwise, such action is approved by the affirmative votes of (a) the holders of at least 75% of the voting power of all then outstanding shares of Voting Stock, voting together as a single class, and (b) the holders of at least a majority of the voting power of the then outstanding shares of Voting Stock which are not beneficially owned by any Interested Shareholder, voting together as a single class; provided, however, that the additional affirmative votes required by this Section 10.1 shall not apply to any shareholder adoption, amendment or repeal of any By-Law provision if such action is recommended and submitted to the shareholders for their consideration by the affirmative vote of a majority of the Disinterested Directors then in office. 10.2 Amendments to Articles. In addition to any affirmative vote required by law, these Articles or otherwise, any amendment, alteration change or repeal of any provision of these Articles, or the adoption of any provision inconsistent therewith, shall require the affirmative votes of (a) the holders of at least 75% of the voting power of all then outstanding shares of Voting Stock, voting together as a single class, and (b) the holders of at least a majority of the voting power of the then outstanding shares of Voting Stock which are not beneficially owned by any Interested shareholder, voting together as a single class; provided, however, that the additional affirmative votes required by this Section 10.2 shall not apply to any amendment, alteration, change, repeal or provision if it is recommended and submitted to the shareholders for their consideration by the affirmative vote of a majority of the Disinterested Directors then in office. 11th. Director Liability. 11.1 To the fullest extent that the Laws of the Commonwealth of Pennsylvania, as in effect on January 27, 1987, or as thereafter amended, permit elimination or limitation of the liability of directors, no director of the Company shall be personally liable for monetary damages as such for any action taken, or any failure to take any action, as a director. 11.2 This Article 11th shall not apply to any actions filed prior to January 27, 1987, or to any breach of performance of duty or any failure of performance of duty by any director of the Company occurring prior to January 27, 1987. The provisions of this Article 11th shall be deemed to be a contract with each director of the Company who serves as such at any time while this Article 11th is in effect, and each such director shall be deemed to be so serving in reliance on the provisions of this Article 11th. Any amendment or repeal of this Article 11th or adoption of any By-Law of this Company or other provision of the Articles of this Company which has the effect of increasing director liability shall operate prospectively only and shall not have any effect with respect to any action taken, or any failure to act, by a director prior to such amendment, repeal, By-Law or other provision becoming effective. 12. Indemnification of, and Advancement of Expenses to, Directors, Officers and Others. 12.1 Right to Indemnification. Except as prohibited by law, every director and officer of the Company shall be entitled as of right to be indemnified by the Company against all expenses and liability (as those terms are defined below in this Section 12.1) incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, whether civil, criminal, administrative, investigative or other, or whether brought by or against such person or by or in the right of the Company or otherwise, in which such person may be involved in any manner, as a party or otherwise, by reason of such person being or having been a director or officer of the Company or of a subsidiary of 7 8 the Company or by reason of the fact that such person is or was serving at the request of the Company as a director, officer, employee, fiduciary or other representative of another company, partnership, joint venture, trust, employee benefit plan or other entity (such claim, action, suit or proceeding hereinafter being referred to as an "Action"); provided, that no such right to indemnification shall exist with respect to an Action brought by an indemnitee (as defined below) against the Company (an "Indemnitee Action") except as provided in the last sentence of this Section 12.1. Persons who are not directors or officers of the Company may be similarly indemnified in respect of service to the Company or a subsidiary of the Company or to another such entity at the request of the Company to the extent the Board of Directors of the Company at any time designates any of such persons as entitled to the benefits of this Article 12th. As used in this Article 12th, "indemnitee" includes each director and officer of the Company and each other person designated by the Board of Directors of the Company as entitled to the benefits of this Article 12th; "expenses" means all expenses actually and reasonably incurred, including fees and expenses of counsel selected by an indemnitee; and "liability" means all liability incurred, including the amounts of any judgments, excise taxes, fines or penalties and any amounts paid in settlement. An indemnitee shall be entitled to be indemnified pursuant to this Section 12.1 against expenses incurred in connection with an Indemnitee Action if (a) the Indemnitee Action is instituted under Section 12.3 below and the indemnitee is successful in whole or in part in such Indemnitee Action, (b) the indemnitee is successful in whole or in part in another Indemnitee Action for which expenses are claimed or (c) if the indemnification for expenses is included in a settlement of, or is awarded by a court in, such other Indemnitee Action. 12.2. Right to Advancement of Expenses. Every indemnitee shall be entitled as of right to have the expenses of the indemnitee in defending any Action or in bringing and pursuing an Indemnitee Action under Section 12.3 below paid in advance by the Company prior to final disposition of the Action or Indemnitee Action, provided that the Company receives a written undertaking by or on behalf of the indemnitee to repay the amount advanced if it should ultimately be determined that the indemnitee is not entitled to be indemnified for the expenses. 12.3. Right of Indemnitee to Initiate Action. If a written claim for indemnification under Section 12.1 above or for advancement of expenses under Section 12.2 above is not paid in full by the Company within 30 days after the claim has been received by the Company, the indemnitee may at any time thereafter bring an Indemnitee Action to recover the unpaid amount of the claim, and, if successful in whole or in part, the indemnitee shall also be entitled to be paid the expense of bringing and pursuing such Indemnitee Action. The only defense to an Indemnitee Action to recover on a claim for indemnification under Section 12.1 above shall be that the conduct of the indemnitee was such that under Pennsylvania law the Company is prohibited from indemnifying the indemnitee for the amount claimed but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel and shareholders) to have made a determination prior to the commencement of such Indemnitee Action that indemnification of the indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors, independent Legal counsel or shareholders) that the conduct of the indemnitee was such that indemnification is prohibited by law, shall be a defense to such Indemnitee Action or create a presumption that the conduct of the indemnitee was such that indemnification is prohibited by law. The only defense to an Indemnitee Action to recover a claim for advancement of expenses under Section 12.2 above shall be the failure by the indemnitee to provide the undertaking required by Section 12.2 above. 12.4. Funding and Insurance. The Company may create a trust fund, grant a security interest, cause a letter of credit to be issued or use other means (whether or not similar to the foregoing) to ensure the payment of all sums required to be paid by the Company to effect indemnification as provided in this Article 12th. 12.5. Non-Exclusivity; Nature and Extent of Rights. The rights to indemnification and advancement of expenses provided for in this Article 12th shall (a) not be deemed exclusive of any other rights, whether now existing or hereafter created, to which any indemnitee may be entitled under any agreement, provision in the Articles or By-Laws of the Company, vote of shareholders or directors or 8 9 otherwise, (b) be deemed to create contractual rights in favor of each indemnitee who serves at any time while this Article 12th is in effect (and each such indemnitee shall be deemed to be so serving in reliance on the provisions of this Article 12th and (c) continue as to each indemnitee who has ceased to have the status pursuant to which the indemnitee was entitled or was designated as entitled to indemnification under this Article 12th and inure to the benefit of the heirs and legal representatives of each indemnitee. Any amendment or repeal of this Article 12th or adoption of any By-Law of this Company or other provision of the Articles of this Company which has the effect of limiting in any way the rights to indemnification or advancement of expenses provided for in this Article 12th shall operate prospectively only and shall not affect any action taken, or failure to act, by an indemnitee prior to such amendment, repeal, By-Law or other provision becoming effective. 12.6. Partial Indemnity. If an indemnitee is entitled under any provision of this Article 12th to indemnification by the Company for some or a portion of the expenses or liability incurred by the indemnitee in the preparation, investigation, defense, appeal or settlement of any Action or Indemnitee Action but not, however, for the total amount thereof, the Company shall indemnify the indemnitee for the portion of such expenses or liability to which the indemnitee is entitled. 12.7. Applicability of Section. This Article 12th shall apply to every Action other than an Action filed prior to January 27, 1987, except that it shall not apply to the extent that Pennsylvania law does not permit its application to any breach of performance of duty or any failure of performance of duty by an indemnitee occurring prior to January 27, 1987. 13th. Articles Defined. Henceforth, the Articles as defined in the Pennsylvania Business Corporation Law shall not include any prior documents. 9 10 STATEMENT WITH RESPECT TO SHARES OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF TUSCARORA INCORPORATED (as filed with the Department of State on August 21, 1998) In compliance with the requirements of Section 1522(c) of the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"), the undersigned company, a corporation organized and existing under the BCL (the "COMPANY") hereby certifies that: 1. The name of the Company is Tuscarora Incorporated. 2. The resolution duly adopted by the Board of Directors of the Company establishing and designating the Series A Junior Participating Preferred Stock, which is the first series of the Preferred Stock, par value $.01 per share, of the Company, and fixing and determining the relative rights and preferences thereof (the "RESOLUTION") is as follows: RESOLVED, that this Board of Directors, pursuant to authority expressly vested on it by the provisions of the Restated Articles of Incorporation of Tuscarora Incorporated (hereinafter called the "COMPANY") hereby authorizes the issue of the first series of Preferred Stock, par value $.01 per share, of the Company and hereby fixes the designation and relative rights and preferences thereof in addition to those set forth in said Restated Articles of Incorporation, as follows: SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK" (the "SERIES A PREFERRED STOCK") and the number of shares constituting the Series A Preferred Stock shall be 200,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series A Preferred Stock. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of the Common Stock, without par value (the "COMMON STOCK"), of the Company, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, semi-annual dividends payable in cash on the 6th day of January and July in each year (or if the Board of Directors commences declaration of quarterly cash dividends instead of semi-annual dividends to the holders of Common Stock, commencing with the date of the declaration of the first such quarterly cash dividend, quarterly dividends payable in cash on such dates as such quarterly dividends would normally be paid to the holders of the Common Stock) (each such date being referred to herein as a "DIVIDEND PAYMENT DATE"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of 11 shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Company. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Statement With Respect to Shares creating a series of Preferred Stock or any similar stock, or in any By-Law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 2 12 SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. RE-ACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Restated Articles of Incorporation or in any other Statement With Respect to Shares creating a series of Preferred Stock or any similar stock or as otherwise required by law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time declare or pay any dividend on the Common 3 13 Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 8. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. SECTION 9. RANK. Except as otherwise set forth in the Restated Articles of Incorporation or in the Statement With Respect to Shares creating another series of Preferred Stock or any other class or series of stock, the Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all other series of the Company's Preferred Stock and to any other class or series of stock other than the Common Stock, whether now existing or hereafter created. SECTION 10. AMENDMENT. The Restated Articles of Incorporation of the Company shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without a majority vote of the outstanding shares of Series A Preferred Stock, voting together as a single class. 3. (i) The aggregate number of shares of the Series A Preferred Stock established and designated by the Resolution is 200,000, (ii) the Company has not previously established and designated any other shares of its stock pursuant to Section 1522 of the BCL or any corresponding provision of prior law with respect thereto and (iii) the aggregate number of shares established and designated by the Restated Articles of Incorporation of the Company is 21,000,000, of which 1,000,000 shares are Preferred Stock, par value $.01 per share, issuable in one or more series, and 20,000,000 shares are Common Stock, without par value. 4. The Resolution was duly adopted at a meeting of the Board of Directors of the Company duly called and held on August 17, 1998, at which meeting a quorum was present and acted throughout. 5. The Resolution is to be effective upon the filing of this Statement With Respect to Shares with the Secretary of State of the Commonwealth of Pennsylvania. 4 14 IN WITNESS WHEREOF, this Statement With Respect to Shares is executed on behalf of the Company by its President and Chief Executive Officer and attested by its Assistant Secretary this 17th day of August, 1998. [CORPORATE SEAL] Attest: TUSCARORA INCORPORATED /s/ BRIAN C. MULLINS By:/s/ JOHN P. O'LEARY, JR. - -------------------------- -------------------------------------- Brian C. Mullins, John P. O'Leary, Jr., Assistant Secretary President and Chief Executive Officer 5 EX-3.II 3 TUSCARORA INCORPORATED - EXHIBIT 3(II) 1 Exhibit 3(ii) BY-LAWS of TUSCARORA INCORPORATED (a Pennsylvania corporation) As Amended Effective April 16, 1998 2 Index to By-Laws ----------------
Section Page - ------- ---- ARTICLE I SHAREHOLDERS ------------ 1.01 Annual Meetings................................................................ 1 1.02 Special Meetings............................................................... 1 1.03 Organization................................................................... 2 1.04 Meetings by Telephone.......................................................... 2 ARTICLE II DIRECTORS ---------- 2.01 Number, Election and Term of Office............................................ 3 2.02 Regular Meetings; Notice....................................................... 3 2.03 Annual Meetings................................................................ 3 2.04 Special Meetings; Notice....................................................... 4 2.05 Organization................................................................... 4 2.06 Meetings by Telephone.......................................................... 5 2.07 Presumption of Assent.......................................................... 6 2.08 Catastrophe.................................................................... 6 2.09 Resignations................................................................... 6 2.10 Committees..................................................................... 7 2.11 Personal Liability of Directors................................................ 8 ARTICLE III OFFICERS AND EMPLOYEES ---------------------- 3.01 Officers....................................................................... 9 3.02 Additional Officers; Other Agents and Employees.................................................................... 9 3.03 The President.................................................................. 10 3.04 The Vice Presidents............................................................ 10 3.05 The Secretary and Assistant Secretaries........................................ 11 3.06 The Treasurer and Assistant Treasurers......................................... 12 3.07 Vacancies...................................................................... 13 3.08 Delegation of Duties........................................................... 13 ARTICLE IV SHARES OF CAPITAL STOCK ----------------------- 4.01 Share Certificates............................................................. 14 4.02 Transfer of Shares............................................................. 14 4.03 Lost, Stolen or Destroyed Certificates......................................... 15 4.04 Holders of Record.............................................................. 15 4.05 Uncertificated Shares.......................................................... 15
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Section Page - ------- ---- 4.06 Determinations as to Issuance, Transfer and Registration............................................................. 16 ARTICLE V MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS -------------------------------------------------- 5.01 Execution of Notes, Checks, Contracts and Other Instruments.......................................................... 16 5.02 Voting Securities Owned by the Company......................................... 17 ARTICLE VI GENERAL PROVISIONS ------------------ 6.01 Offices........................................................................ 18 6.02 Corporate Seal................................................................. 18 6.03 Fiscal Year.................................................................... 18 6.04 Conflict with Articles......................................................... 18 ARTICLE VII AMENDMENTS ----------- 7.01 Amendments..................................................................... 19
-ii- 4 TUSCARORA INCORPORATED BY-LAWS ARTICLE I SHAREHOLDERS Section 1.01. Annual Meetings. Annual meetings of the shareholders shall be held on the third Friday of December in each year if not a legal holiday, and if a legal holiday, then on the next succeeding day which is not a legal holiday, at 11:00 a.m. at the principal business office of the Company, or at such other date, time and place as may be fixed by the Board of Directors. Written notice of the annual meeting shall be given at least ten days prior to the meeting to each shareholder entitled to vote thereat. Any business may be transacted at the annual meeting regardless of whether the notice calling such meeting contains a reference thereto, except as otherwise required by law. Section 1.02. Special Meetings. Special meetings of the shareholders may be called at any time, for the purpose or purposes set forth in the call, by the President or the Board of Directors, by delivering a written request to the Secretary. Special meetings shall be held at the principal business office of 5 the Company, or at such other place as may be fixed by the Board of Directors. The Secretary shall thereupon fix the time and date of such special meeting, which shall be held not more than sixty days after the receipt of such request, and shall give due notice thereof. Written notice of each special meeting shall be given at least five days prior to the meeting to each shareholder entitled to vote thereat. Such notice shall specify the general nature of the business to be transacted at such special meeting, and no other business may be transacted at such special meeting. Section 1.03. Organization. A Chairman of the Board and Vice Chairman shall be designated by the Directors. The Chairman of the Board, or in his absence, the Vice Chairman, or in his absence, the President, or in his absence, a Director designated by the Board, shall preside, and the Secretary, or in his absence any Assistant Secretary, shall take the minutes, at all meetings of the shareholders. In the absence of the Secretary and an Assistant Secretary, the presiding officer shall designate any person to take the minutes of the meeting. Section 1.04. Meetings by Telephone. One or more shareholders may participate in any annual or special meeting of the shareholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation -2- 6 in a meeting in this manner by a shareholder will be considered to be attendance in person for all purposes under these By-Laws. ARTICLE II DIRECTORS Section 2.01. Number, Election and Term of Office. The number, election and term of office of Directors shall be as set forth in Article 8th (or any successor article thereto) of the Articles of the Company. Section 2.02. Regular Meetings; Notice. Regular meetings of the Board of Directors shall be held at such time and place as shall be designated by the Board of Directors from time to time. Notice of such regular meetings shall not be required, except as otherwise expressly required herein or by law, and except that whenever the time or place of regular meetings shall be initially fixed and then changed, notice of such action shall be given promptly by telephone or otherwise to each Director not participating in such action. Any business may be transacted at any regular meeting. Section 2.03. Annual Meetings. A regular meeting of the Board of Directors shall be held immediately after and at the -3- 7 same place as the annual meeting of the shareholders. Such regular meeting shall be the annual organization meeting at which the Board of Directors shall organize itself by electing officers and appointing members of standing committees of the Board of Directors and may transact any other business. Section 2.04. Special Meetings; Notice. Special meetings of the Board of Directors may be called at any time by the Board itself, or by the President, or by at least one-fourth of the Directors, to be held at such place and day and hour as shall be specified by the person or persons calling the meeting. Notice of every special meeting of the Board of Directors shall be given by the Secretary to each Director at least two days before the meeting. Any business may be transacted at any special meeting regardless of whether the notice calling such meeting contains a reference thereto, except as otherwise required by law. Section 2.05. Organization. At all meetings of the Board of Directors, the presence of at least a majority of the Directors in office shall be necessary and sufficient to constitute a quorum for the transaction of business. If a quorum is not present at any meeting, the meeting may be adjourned from time to time by a majority of the Directors present until a quorum as aforesaid shall be present, but notice of the time and place to which such meeting is adjourned shall be given to any Directors -4- 8 not present either by being sent by telegraph or given personally or by telephone at least eight hours prior to the hour of reconvening. Except as otherwise provided in the Articles of the Company, resolutions of the Board shall be adopted, and any action of the Board upon any matter shall be valid and effective, with the affirmative vote of a majority of the Directors present at a meeting duly convened and at which a quorum is present. The Chairman of the Board, if he is present, or if not, the Vice Chairman, if he is present, or if not, the President, if he is present, or if not, a Director designated by the Board, shall preside at each meeting of the Board. The Secretary, or in his absence any Assistant Secretary, shall take the minutes at all meetings of the Board of Directors. In the absence of the Secretary and an Assistant Secretary, the presiding officer shall designate any person to take the minutes of the meeting. Section 2.06. Meetings by Telephone. One or more Directors may participate in any regular or special meeting of the Board of Directors or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting in this manner by a Director will be considered to be attendance in person for all purposes under these By-Laws. -5- 9 Section 2.07. Presumption of Assent. Minutes of each meeting of the Board shall be made available to each Director at or before the next succeeding meeting. Each Director shall be presumed to have assented to such minutes unless his objection thereto shall be made to the Secretary at or within two days after such succeeding meeting. Section 2.08. Catastrophe. Notwithstanding any other provisions of the Pennsylvania Business Corporation Law, the Articles or these By-Laws, if any emergency resulting from warlike damage or an attack on the United States or any nuclear or atomic disaster, or any other national or local disaster, causes a majority of the Board to be incapable of acting as such because of death or other physical disability or difficulties of communication or transportation, the other Director or Directors shall constitute a quorum for the sole purpose of electing Directors to replace the Directors so incapable of acting. The Directors so elected shall serve until such replaced Directors are able to attend meetings of the Board or until the shareholders act to elect Directors for such purpose. Questions as to the existence of such an emergency or disaster or as to the fact of such incapacity shall be conclusively determined by such other Director or Directors. -6- 10 Section 2.09. Resignations. Any Director may resign by submitting his resignation to the Secretary. Such resignation shall become effective upon its receipt by the Secretary or as otherwise specified therein. Section 2.10. Committees. By resolution adopted by a majority of the whole Board, standing or temporary committees, which may include an Executive Committee, consisting of at least two Directors may be appointed by the Board of Directors from time to time. Each such committee shall have and exercise such authority of the Board of Directors in the management of the business and affairs of the Company as the Board may specify from time to time, which may include declaration of dividends, authorization of the issuance and terms of sale of stock or debt securities, fixing the relative rights and preferences of preferred stock or other securities issued by the Company and any other action which the Pennsylvania Business Corporation Law provides shall or may be taken by the Board of Directors. The Board may designate one or more Directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee, and in the event of such absence or disqualification, the member or members of such committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in the place of any -7- 11 such absent or disqualified member. Any action taken by any committee shall be subject to alteration or revocation by the Board of Directors; provided, however, that third parties shall not be prejudiced by such alteration or revocation. Section 2.11. Personal Liability of Directors. (a) Elimination of Liability. To the fullest extent that the laws of the Commonwealth of Pennsylvania, as in effect on January 27, 1987 or as thereafter amended, permit elimination or limitation of the liability of directors, no Director of the Company shall be personally liable for monetary damages as such for any action taken, or any failure to take any action, as a Director. (b) This Section 2.11 shall not apply to any actions filed prior to January 27, 1987, nor to any breach of performance of duty or any failure of performance of duty by any Director of the Company occurring prior to January 27, 1987. The provisions of this Section 2.11 shall be deemed to be a contract with each Director of the Company who serves as such at any time while this Section 2.11 is in effect, and each such Director shall be deemed to be so serving in reliance on the provisions of this Section 2.11. Any amendment or repeal of this Section 2.11 or adoption of any other By-Law of this Company or provision of the Articles of this Company which has the effect of increasing Director liability -8- 12 shall operate prospectively only and shall not have any effect with respect to any action taken, or any failure to act, by a Director prior to such amendment, repeal, By-Law or other provision becoming effective. (c) This Section 2.11 can be amended, altered, changed or repealed only if the Article of the Company which is substantially identical to this Section 2.11 is at the same time amended, altered, changed or repealed in a substantially identical manner. ARTICLE III OFFICERS AND EMPLOYEES Section 3.01. Officers. The officers of the Company shall be the President, the Secretary and the Treasurer, and may include one or more Vice Presidents as the Board may from time to time determine, all of whom shall be elected by the Board. Any two or more offices may be held by the same person. Each officer shall hold office at the pleasure of the Board, or until his death or resignation. Section 3.02. Additional Officers; Other Agents and Employees. The Board of Directors may from time to time elect or -9- 13 employ such additional officers, assistant officers, agents, employees and independent contractors as the Board deems advisable; the Board or the Chief Executive Officer shall prescribe their duties, conditions of employment and compensation; and the Board shall have the right to dismiss them at any time, without prejudice to their contract rights, if any. The Chief Executive Officer may employ from time to time such other agents, employees and independent contractors as he may deem advisable for the prompt and orderly transaction of the business of the Company, and he may prescribe their duties and the conditions of their employment, fix their compensation and dismiss them at any time, without prejudice to their contract rights, if any. Section 3.03. The President. The President shall be the Chief Executive Officer. Subject to the control of the Board of Directors, the President shall have general management and executive powers over all the business, property and employees of the Company and shall see that the policies and programs adopted or approved by the Board of Directors are carried. Section 3.04. The Vice Presidents. Each Vice President shall have such powers and duties as from time to time may be prescribed by the Board of Directors or the officer of the Company to whom such Vice President is directly responsible as determined by the Board of Directors or the Chief Executive Officer. -10- 14 Section 3.05. The Secretary and Assistant Secretaries. It shall be the duty of the Secretary (a) to keep an original or duplicate record of the proceedings of the shareholders and the Board of Directors, and a copy of the Articles and of the By-Laws; (b) to give such notices as may be required by law or these By-Laws; (c) to be custodian of the corporate records and of the seal of the Company and see that the seal is affixed to such documents as may be necessary or advisable; (d) to have charge of and keep, or cause to be kept by a transfer agent or registrar, the stock books of the Company and such records as to the identity of the shareholders, and as to the shares issued to and held of record by them, as may be required by law; and (e) to exercise all powers and duties incident to the office of Secretary; and the Secretary shall have such further powers and duties as from time to time may be prescribed in these By-Laws or by the Board of Directors or the Chief Executive Officer. The Secretary by virtue of his office shall be an Assistant Treasurer. Each officer of the Company by virtue of his office shall be an Assistant Secretary. The Assistant Secretaries shall assist the Secretary in the performance of his duties and shall also exercise such further powers and duties as from time to time may be prescribed by the Board of Directors, the Chief Executive Officer or the Secretary. At the direction of the Secretary or in his absence or -11- 15 disability, an Assistant Secretary shall exercise the powers and duties of the Secretary. Section 3.06. The Treasurer and Assistant Treasurers. It shall be the duty of the Treasurer (a) to keep the Company's contracts, insurance policies, leases, deeds and other business records; (b) to see that the Company's lists, books, reports, statements, tax returns, certificates and other documents and records required by law are properly prepared, kept and filed; (c) to be the principal officer in charge of tax and financial matters, budgeting and accounting of the Company; (d) to have charge and custody of and be responsible for the Company's funds, securities and investments; (e) to receive and give receipts for checks, notes, obligations, funds and securities of the Company, and deposit monies and other valuable effects in the name and to the credit of the Company, in such depositories as shall be designated by the Board of Directors; (f) subject to the provisions of Section 5.01 hereof, to cause the funds of the Company to be disbursed by payment in cash or by checks or drafts upon the authorized depositories of the Company, and to cause to be taken and preserved proper vouchers for such disbursements; (g) to render to the Board of Directors and the Chief Executive Officer whenever they may require it an account of all his transactions as Treasurer, and reports as to the financial position and operations of the Company; (h) to keep appropriate, -12- 16 complete and accurate books and records of account of all the Company's business and transactions; and (i) to exercise all powers and duties incident to the office of Treasurer; and the Treasurer shall have such further duties from time to time as may be prescribed in these By-Laws or by the Board of Directors or the Chief Executive Officer. The Assistant Treasurers shall assist the Treasurer in the performance of his duties and shall also exercise such further powers and duties as from time to time may be prescribed by the Board of Directors, the Chief Executive Officer or the Treasurer. At the direction of the Treasurer or in his absence or disability, an Assistant Treasurer shall exercise the powers and duties of the Treasurer. Section 3.07. Vacancies. Any vacancy in any office or position by reason of death, resignation, removal, disqualification, disability or other cause shall be filled in the manner provided in this Article III for regular election or appointment to such office. Section 3.08. Delegation of Duties. The Board of Directors may in its discretion delegate for the time being the powers and duties, or any of them, of any officer to any other person whom it may select. -13- 17 ARTICLE IV Shares of Capital Stock Section 4.01. Share Certificates. Shares of stock of the Company shall be represented by certificates or, to the extent provided in Sections 4.05 and 4.06 below or as otherwise permitted or required by law, shall be uncertificated. Share certificates shall be in such form as the Board of Directors may from time to time prescribe in accordance with law. Such certificates shall be signed by the Chief Executive Officer, countersigned by the Secretary or any other officer so authorized by the Board and sealed with the seal of the Company, and such signatures and seal may be facsimile or otherwise as permitted by law. In case any officer of the Company who has signed, or whose facsimile signature has been placed upon any share certificate, shall have ceased to be such officer because of death, resignation, or otherwise, before the certificate is issued, the share certificate may, nonetheless, be issued by the Company with the same effect as if such person had not ceased to be such officer at the date of issue of the share certificate. Section 4.02. Transfer of Shares. Except as otherwise provided by law, transfers of shares of stock of the Company shall be made only upon the books of the Company. Transfers of shares shall be made on the books of the Company in accordance with the -14- 18 provisions of the Pennsylvania Uniform Commercial Code, as the same may be amended or supplemented from time to time, applicable commercial practices and the other provisions of these By-Laws. Section 4.03. Lost, Stolen or Destroyed Certificates. The holder of any certificate representing shares of stock of the Company shall immediately notify the Company of any loss, theft or destruction of such certificate. New certificates for shares of stock may be issued to replace such certificates upon satisfactory proof of the loss, theft or destruction and upon such other terms and conditions as the Board of Directors, the Chief Executive Officer or any person designated by either of them may from time to time determine. Section 4.04. Holders of Record. The Company shall be entitled to treat any person in whose name shares of stock of the Company stand on its books as the holder and owner in fact thereof for all purposes, and it shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Section 4.05. Uncertificated Shares. All or part of the shares of Common Stock of the Company may be uncertificated -15- 19 shares to the extent determined by the Board of Directors (or by any officer or other person as the Board may designate) from time to time; however, in no event shall shares of Common Stock represented by a certificate be deemed uncertificated until the certificate is surrendered to the Company. Section 4.06. Determinations as to Issuance, Transfer and Registration. The Board of Directors (or any officer or other person as the Board may designate) from time to time may make such rules, policies and procedures as it or such person may deem appropriate concerning the issue, transfer and registration of shares of stock of the Company, whether certificated or uncertificated. ARTICLE V MISCELLANEOUS CORPORATE TRANSACTIONS AND DOCUMENTS Section 5.01. Execution of Notes, Checks, Contracts and Other Instruments. All notes, bonds, drafts, acceptances, checks, endorsements (other than for deposit), guarantees and all evidences of indebtedness of the Company whatsoever, and all deeds, mortgages, contracts and other instruments requiring execution by the Company, may be signed by the Chairman of the Board, if an officer of the Company, the Vice Chairman, if an officer of the Company, the President, any Vice President or the -16- 20 Treasurer, and authority to sign any of the foregoing, which may be general or confined to specific instances, may be conferred by the Board upon any other person or persons. Any person having authority to sign on behalf of the Company may delegate, from time to time, by instrument in writing, all or any part of such authority to any other person or persons if authorized to do so by the Board, which authority may be general or confined to specific instances. Facsimile signatures on checks may be used if authorized by the Board. Section 5.02. Voting Securities Owned by the Company. Securities owned by the Company and having voting power in any other Company may be voted by the Chairman of the Board, if an officer of the Company, the Vice Chairman, if an officer of the Company, the President, any Vice President or the Treasurer, unless the Board confers authority to vote with respect thereto, which may be general or confined to specific investments, upon some other person. Any person authorized to vote such securities shall have the power to appoint proxies, with general power of substitution. -17- 21 ARTICLE VI GENERAL PROVISIONS Section 6.01. Offices. The principal business office of the Company shall be at 800 Fifth Avenue, New Brighton, Pennsylvania 15066. The Company may also have offices at such other places within or without the Commonwealth of Pennsylvania as the business of the Company may require. Section 6.02. Corporate Seal. The Board of Directors shall prescribe the form of a suitable corporate seal, which shall contain the full name of the Company and the year and state of incorporation. Section 6.03. Fiscal Year. The fiscal year of the Company shall end on August 31 or such other day as shall be fixed by the Board of Directors. Section 6.04. Conflict with Articles. To the extent any of the provisions hereof conflict with the terms of the Articles of the Company, the terms of the Articles shall control. -18- 22 ARTICLE VII AMENDMENTS Section 7.01. Amendments. Subject to Section 2.11 hereof, these By-Laws may be amended, altered or repealed, and new by-laws may be adopted, in the manner provided for in Section 10.1 of Article 10th of the Articles of the Company (or any successor section thereto). No provision of these By-Laws shall vest any property or contract right in any person. -19- EX-4.2 4 TUSCARORA INCORPORATED 1 Exhibit 4.2 SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT TO LOAN AGREEMENT dated as of October 12, 1998, (the "Second Amendment") by and between TUSCARORA INCORPORATED, a Pennsylvania corporation (the "Borrower"), and MELLON BANK, N.A., a national banking association, (the "Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank entered into a Loan Agreement dated as of August 14, 1996, as amended by a First Amendment to Loan Agreement dated as of February 20, 1998 (collectively, the "Agreement"); and WHEREAS, the Bank and the Borrower have agreed to amend certain provisions of the Agreement for the purpose of, inter alia, extending the Revolving Credit Expiry Date. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Section 1.01 of the Agreement is hereby amended by deleting the definition "Revolving Credit Expiry Date" and restating it as follows: "Revolving Credit Expiry Date" shall mean August 31, 2001, or such earlier date on which the Revolving Credit Facility Commitment shall have been terminated pursuant to this Agreement. 2. This Second Amendment does not evidence or represent in any way new indebtedness or satisfaction of the indebtedness evidenced by the Note. 3. Borrower hereby represents and warrants to Bank that: (a) Borrower has and will continue to have corporate power and authority to execute, deliver and perform the provisions of this Second Amendment, the Revolving Credit Note, the Term Note and all other agreements executed and delivered by Borrower in connection with the Agreement (the "Loan Documents"); (b) The execution and delivery of this Second Amendment and the carrying out of the Agreement and the other Loan Documents will not violate any provisions of law or any instrument, agreement, order, decree, writ or ruling to which such Borrower is a party or by which it is bound or to which it is subject; (c) This Second Amendment, which has been duly and validly executed and delivered by such Borrower, and the other Loan Documents constitute legal, valid and binding obligations of such Borrower enforceable in accordance with the terms hereof and thereof; (d) The representations and warranties of Borrower contained in the Agreement, as amended by this Second Amendment and the other Loan Documents are correct and accurate on and as of the date hereof; and (e) The Bank has acted in good faith in the performance and enforcement of its rights under the Loan Documents and the negotiation of this Second Amendment. 4. The effective date of this Second Amendment shall be August 31, 1998. 5. The provisions of the Notes shall remain in full force and effect except as modified hereby. All representations, warranties and covenants contained herein or made in writing by Borrower in connection herewith shall apply to the borrowings and shall survive the execution and delivery of this Second Amendment, and will bind and inure to the benefit of the successors and assigns of the parties hereto, provided that, without the prior written consent of Bank, Borrower may not assign any of its obligations under the Agreement or any of the other Loan Documents, and any such attempted assignment shall be null and void. 2 6. Borrower's obligations under the Agreement, as amended by this Second Amendment and under the Revolving Credit Note and the Term Note, as amended, modified or supplemented from time to time, (collectively, the "Notes"), are and will continue to be secured by the security interest granted to Bank by Borrower under the Notes, as the same may be amended, modified or supplemented from time to time, and such obligations are and will continue to be a part of the "Obligations" (as that term is defined in the Notes) which is secured by the security interests granted in the Notes. 7. The Borrower hereby reaffirms the Notes and the Agreement and all obligations and liabilities of the Borrower to the Bank thereunder, and warrants to the Bank that as of the date hereof the Borrower has no defense or counterclaim whatsoever to any action or proceeding that may be brought to enforce the Bank's rights and remedies under the Notes or the Agreement. 8. This Second Amendment and the Agreement shall be governed in all respects by and construed in accordance with the laws of the Commonwealth of Pennsylvania, except the rules applicable to the conflicts of law. 9. Except as stated in this Second Amendment, the terms, covenants, conditions and provisions of the Agreement shall remain in full force and effect. 10. The Borrower hereby directs the Bank to affix this Second Amendment to the Agreement, whereupon the Agreement and this Second Amendment will become and constitute a single instrument. 11. All terms used in this Second Amendment and not otherwise defined herein shall have the meanings ascribed to them in the Agreement, unless the context clearly indicates otherwise. WITNESS the due execution and delivery of this Second Amendment on behalf of the Bank and the Borrower as of the date first above written. ATTEST: TUSCARORA INCORPORATED By: /s/ Edward R. Wolford By: /s/ Brian C. Mullins ------------------------------- --------------------------------------- Title: Vice President & Controller Title: Sr. Vice President, CFO & Treasurer ---------------------------- ------------------------------------ MELLON BANK, N.A. By: Dwayne R. Finney --------------------------------------- Title: Vice President ----------------------------- EX-10.4 5 TUSCARORA INCORPORATED 1 Exhibit 10.4 TUSCARORA INCORPORATED 1997 STOCK INCENTIVE PLAN ------------------------ ADOPTED BY BOARD OF DIRECTORS ON OCTOBER 17, 1997 APPROVED BY SHAREHOLDERS ON DECEMBER 18, 1997 EFFECTIVE DECEMBER 18, 1997 2 TUSCARORA INCORPORATED 1997 STOCK INCENTIVE PLAN A purpose of the 1997 Stock Incentive Plan (the "Plan") is to encourage eligible employees of Tuscarora Incorporated (the "Company") and its Subsidiaries to increase their efforts to make the Company and each Subsidiary more successful, to provide an additional inducement for such employees to remain with the Company or a Subsidiary, to reward such employees by providing an opportunity to acquire shares of the Common Stock, without par value, of the Company (the "Common Stock") on favorable terms and to provide a means through which the Company may attract able persons to enter the employ of the Company or one of its Subsidiaries. Another purpose of the Plan is to promote the long-term success of the Company by creating a long-term mutuality of interest between the Company's non-employee directors (the "Nonemployee Directors") and the Company's shareholders, to provide an additional inducement for the Nonemployee Directors to remain with the Company and to provide a means through which the Company may attract able persons to serve as Nonemployee Directors. For the purposes of the Plan, the term "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing at least fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. SECTION 1 ADMINISTRATION The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board shall interpret the Plan and prescribe such rules, regulations and procedures in connection with the operations of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. The Board shall keep records of action taken. A majority of the Board shall constitute a quorum at any meeting, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Board, shall be the acts of the Board. SECTION 2 ELIGIBILITY Those employees of the Company or any Subsidiary, including employees who are directors of the Company, who share responsibility for the management, growth or protection of the business of the Company or any Subsidiary shall be eligible to be granted stock options (with or without alternative stock appreciation rights and/or cash payment rights) and to receive awards of restricted, performance and other shares as described herein. The Nonemployee Directors shall be eligible to be granted nonstatutory stock options (with or without alternative stock appreciation rights and/or cash payment rights) and to receive awards of restricted shares as described herein. Subject to the provisions of the Plan, the Board shall have full and final authority, in its discretion, to grant stock options (with or without alternative stock appreciation rights and/or cash payment rights) and to award restricted, performance and other shares as described herein and to determine the persons to whom any such grant or award shall be made and the number of shares to be covered thereby. In determining the eligibility of any person, as well as in determining the number of shares covered by each grant or award and whether alternative stock appreciation rights and/or cash payment rights shall be granted in conjunction with a stock option, the Board shall consider the position and the responsibilities of the person being considered, the nature and value to the Company or a Subsidiary of his or her services, his or her present and/or potential contribution to the success of the Company or a Subsidiary and such other factors as the Board may deem relevant. 3 SECTION 3 SHARES AVAILABLE UNDER THE PLAN The aggregate number of shares of the Common Stock that may be issued and as to which grants or awards may be made under the Plan is 750,000 shares, subject to adjustment and substitution as set forth in Section 7. If any stock option granted under the Plan is canceled by mutual consent or terminates or expires for any reason without having been exercised in full, the number of shares subject thereto shall again be available for purposes of the Plan, except that to the extent that alternative stock appreciation rights granted in conjunction with a stock option under the Plan are exercised and the related stock option surrendered the number of shares available for purposes of the Plan shall be reduced by the number of shares of Common Stock issued upon exercise of such alternative stock appreciation rights. Any restricted shares which are surrendered or forfeited to the Company and any performance shares which are not earned shall again be available for issuance under the Plan. The shares which may be issued under the Plan may be either authorized but unissued shares or treasury shares or partly each. SECTION 4 GRANT OF STOCK OPTIONS, ALTERNATIVE STOCK APPRECIATION RIGHTS AND CASH PAYMENT RIGHTS AND AWARD OF RESTRICTED, PERFORMANCE AND OTHER SHARES The Board shall have authority, in its discretion, (i) to grant "incentive stock options" pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to grant "nonstatutory stock options" (i.e., stock options which do not qualify under Sections 422 or 423 of the Code) or to grant both types of stock options (but not in tandem), (ii) to award restricted shares, (iii) to award performance shares and (iv) to make other share awards, all as provided herein. The Board also shall have the authority, in its discretion, to grant alternative stock appreciation rights in conjunction with incentive stock options or nonstatutory stock options with the effect provided in Section 5(D) and to grant cash payment rights in conjunction with nonstatutory stock options with the effect provided in Section 5(E). Alternative stock appreciation rights granted in conjunction with an incentive stock option may only be granted at the time the incentive stock option is granted. Cash payment rights may not be granted in conjunction with incentive stock options. Alternative stock appreciation rights and/or cash payment rights granted in conjunction with a nonstatutory stock option may be granted either at the time the stock option is granted or at any time thereafter during the term of the stock option. Notwithstanding any other provision contained in the Plan or in any agreement referred to in Section 5(I), but subject to the possible exercise of the Board's discretion contemplated in the last sentence of this Section 4, the aggregate fair market value, determined as provided in Section 5(J) on the date of grant, of the shares with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year under all plans of the corporation employing such employee, any parent or subsidiary corporation of such corporation and any predecessor corporation of any such corporation shall not exceed $100,000. If the date on which one or more of such incentive stock options could first be exercised would be accelerated pursuant to any provision of the Plan or any stock option agreement, and the acceleration of such exercise date would result in a violation of the limitation set forth in the preceding sentence, then, notwithstanding any such provision, but subject to the provisions of the next succeeding sentence, the exercise dates of such incentive stock options shall be accelerated only to the date or dates, if any, that do not result in a violation of such limitation and, in such event, the exercise dates of the incentive stock options with the lowest option prices shall be accelerated to the earliest such dates. The Board may, in its discretion, authorize the acceleration of the exercise date of one or more incentive stock options even if such acceleration would violate the $100,000 limitation set forth in the first sentence of this paragraph and even if such incentive stock options are thereby converted in whole or in part to nonstatutory stock options. 2 4 SECTION 5 STOCK OPTIONS, ALTERNATIVE STOCK APPRECIATION RIGHTS AND CASH PAYMENT RIGHTS Stock options, alternative stock appreciation rights and cash payment rights granted under the Plan shall be subject to the following terms and conditions: (A) The purchase price at which each stock option may be exercised (the "option price") shall be such price as the Board, in its discretion, shall determine but shall not be less than one hundred percent (100%) of the fair market value per share of the Common Stock on the date of grant. For purposes of this Section 5(A), the fair market value of the Common Stock shall be determined as provided in Section 5(J). (B) The option price for each stock option shall be payable in cash in United States dollars (including check, bank draft or money order); provided, however, that in lieu of cash the person exercising the stock option may (if authorized by the Board at the time of grant in the case of an incentive stock option, or at any time in the case of a nonstatutory stock option) pay the option price in whole or in part by delivering to the Company shares of the Common Stock having a fair market value on the date of exercise of the stock option, determined as provided in Section 5(J), equal to the option price for the shares being purchased, except that (i) any portion of the option price representing a fraction of a share shall in any event be paid in cash and (ii) no shares of the Common Stock which have been held for less than one year may be delivered in payment of the option price of a stock option. Delivery of shares, if authorized, may also be accomplished through the effective transfer to the Company of shares held by a broker or other agent. The Company will also cooperate with any person exercising a stock option who participates in a cashless exercise program of a broker or other agent under which all or part of the shares received upon exercise of the stock option are sold through the broker or other agent or under which the broker or other agent makes a loan to such person. Notwithstanding the foregoing, unless the Board, in its discretion, shall otherwise determine at the time of grant in the case of an incentive stock option, or at any time in the case of a nonstatutory stock option, the exercise of the stock option shall not be deemed to occur and no shares of Common Stock will be issued by the Company upon exercise of the stock option until the Company has received payment of the option price in full. The date of exercise of a stock option shall be determined under procedures established by the Board, and as of the date of exercise the person exercising the stock option shall be considered for all purposes to be the owner of the shares with respect to which the stock option has been exercised. Payment of the option price with shares shall not increase the number of shares of the Common Stock which may be issued under the Plan as provided in Section 3. (C) Each stock option shall be exercisable at such time or times as the Board, in its discretion, shall determine, except that no stock option shall be exercisable after the expiration of ten years from the date of grant. A stock option to the extent exercisable at any time may be exercised in whole or in part. (D) Alternative stock appreciation rights granted in conjunction with a stock option shall entitle the person exercising the alternative stock appreciation rights to surrender the related stock option, or any portion thereof, and to receive from the Company in exchange therefor that number of shares of the Common Stock having an aggregate fair market value on the date of exercise of the alternative stock appreciation rights equal to the excess of the fair market value of one share of the Common Stock on such date of exercise over the option price per share times the number of shares covered by the related stock option, or portion thereof, which is surrendered. Alternative stock appreciation rights shall be exercisable to the extent that the related stock option is exercisable and only by the same person who is entitled to exercise the related stock option; provided, however, that alternative stock appreciation rights granted in conjunction with an incentive stock option shall not be exercisable unless the then fair market value of the Common Stock exceeds the option price of the shares subject to the incentive stock option. Cash shall be paid in lieu of any fractional share. The Board shall have the authority, in its discretion, to determine that the obligation of the Company shall be paid in cash or part in cash and part in shares. The date of exercise of alternative stock appreciation rights shall be determined under procedures established by the Board, and as of the date of exercise the person exercising the alternative stock appreciation rights shall be considered for all purposes to be the owner of the shares to be received. To the extent that a stock option as to which alternative stock 3 5 appreciation rights have been granted is exercised, canceled, terminates or expires, the alternative stock appreciation rights shall be canceled. For the purposes of this Section 5(D), the fair market value of the Common Stock shall be determined as provided in Section 5(J). (E) Cash payment rights granted in conjunction with a nonstatutory stock option shall entitle the person who is entitled to exercise the stock option, upon exercise of the stock option or any portion thereof, to receive cash from the Company (in addition to the shares to be received upon exercise of the stock option) equal to such percentage as the Board, in its discretion, shall determine not greater than one hundred percent (100%) of the excess of the fair market value of a share of the Common Stock on the date of exercise of the stock option over the option price per share of the stock option times the number of shares covered by the stock option, or portion thereof, which is exercised. Payment of the cash provided for in this Section 5(E) shall be made by the Company as soon as practicable after the time the amount payable is determined. For purposes of this Section 5(E), the fair market value of the Common Stock shall be determined as provided in Section 5(J). (F) Unless the Board, in its discretion, shall otherwise determine, (i) no incentive stock option shall be transferable by the grantee otherwise than by Will, or if the grantee dies intestate, by the laws of descent and distribution of the state of domicile of the grantee at the time of death and (ii) all incentive stock options shall be exercisable during the lifetime of the grantee only by the grantee. Unless the Board, in its discretion, shall otherwise determine, a nonstatutory stock option may be transferred by the grantee by gift to the grantee's spouse or to any of the grantee's lineal descendants or to the trustee(s) of a trust for the benefit of any such person. Any nonstatutory stock option gifted to any such person or trust shall be subject to the restrictions, terms and conditions of the Plan and the agreement referred to in Section 5(I), and any such transferee shall be deemed to be a grantee and shall upon receipt of such stock option, as a condition of effectiveness of the transfer, sign a written agreement with the Company agreeing to such restrictions, terms and conditions. (G) (1) Subject to the provisions of Section 4 in the case of incentive stock options and subject to the restriction on exercise set forth in Section 5(L), unless the Board, in its discretion, shall otherwise determine: (i) If the employment of a grantee is voluntarily terminated with the consent of the Company or a Subsidiary or a grantee retires under any retirement plan of the Company or a Subsidiary, any outstanding stock option granted to the grantee shall be exercisable (but only to the extent exercisable immediately prior to the termination of employment, provided that the restriction on exercise set forth in Section 5(L) shall not be considered solely in determining the extent to which such stock option is exercisable on the date of termination of employment) at any time prior to the expiration date of such stock option or until three years after the date of termination of employment of the grantee, whichever is the shorter period, and to the extent not exercisable shall terminate; (ii) Following the death of a grantee during employment, any outstanding stock option granted to the grantee shall be exercisable in full (whether or not so exercisable immediately prior to the death of the grantee) by the holder of the stock option, or if the grantee held the stock option at the time of death, by the person entitled to do so under the Will of the grantee, or, if the grantee shall fail to make testamentary disposition of the stock option or shall die intestate, by the legal representative of the grantee, at any time prior to the expiration date of the stock option or until three years after the date of death of the grantee, whichever is the shorter period; (iii) Following the death of a grantee after termination of employment during a period when a stock option is exercisable, the stock option shall be exercisable by the holder of the stock option, or if the grantee held the stock option at the time of death, by such person entitled to do so under the Will of the grantee or by such legal representative, at any time during the shorter of the following two periods: (i) until the expiration date of the stock option or (ii) until three years after the termination of employment of the grantee or one year after the date of death of the grantee (whichever is longer); and 4 6 (iv) Unless Section 8(C) applies following termination of employment, if the employment of a grantee terminates for any reason other than voluntary termination with the consent of the Company or a Subsidiary, retirement under any retirement plan of the Company or a Subsidiary or death, any outstanding stock option granted to the grantee (whether or not exercisable immediately prior to termination of employment) shall automatically terminate. Whether termination of employment is a voluntary termination with the consent of the Company or a Subsidiary shall be determined, in its discretion, by the Board and any such determination by the Board shall be final and binding. (G) (2) Unless the Board, in its discretion, shall otherwise determine: (i) If a grantee ceases to serve as a Nonemployee Director for any reason other than resignation, removal for cause or death, any outstanding stock option granted to the grantee shall be exercisable (but only to the extent exercisable immediately prior to ceasing to serve as a Nonemployee Director) at any time prior to the expiration date of such stock option or until three years after the date the grantee ceases to serve as a Nonemployee Director, whichever is the shorter period, and to the extent not exercisable shall terminate; (ii) Following the death of a grantee during service as a Nonemployee Director, any outstanding stock option granted to the grantee shall be exercisable in full (whether or not so exercisable immediately prior to the death of the grantee) by the holder of the stock option, or if the grantee held the stock option at the time of death, by the person entitled to do so under the Will of the grantee, or, if the grantee shall fail to make testamentary disposition of the stock option or shall die intestate, by the legal representative of the grantee, at any time prior to the expiration date of the stock option or until three years after the date of death of the grantee, whichever is the shorter period; (iii) Following the death of a grantee after ceasing to serve as a Nonemployee Director during a period when a stock option is exercisable, the stock option shall be exercisable by the holder of the stock option, or if the grantee held the stock option at the time of death, by such person entitled to do so under the Will of the grantee or by such legal representative, at any time during the shorter of the following two periods: (i) until the expiration date of the stock option or (ii) until three years after the grantee ceased to serve as a Nonemployee Director or one year after the date of death of the grantee (whichever is longer); and (iv) Unless Section 8(C) applies following termination of service, if during his or her term of office as a Nonemployee Director a grantee resigns from the Board or is removed from office for cause, any outstanding stock option granted to the grantee (whether or not exercisable immediately prior to resignation or removal) shall automatically terminate. (H) If a grantee of a stock option (i) engages in the operation or management of a business (whether as owner, partner, officer, director, employee or otherwise) which is in competition with the Company or any of its Subsidiaries (provided, however, that this clause shall not apply if Section 8(C) applies), (ii) induces or attempts to induce any customer, supplier, licensee or other individual, corporation or other business organization having a business relationship with the Company or any of its Subsidiaries to cease doing business with the Company or any of its Subsidiaries or in any way interferes with the relationship between any such customer, supplier, licensee or other person and the Company or any of its Subsidiaries or (iii) solicits any employee of the Company or any of its Subsidiaries to leave the employment thereof or in any way interferes with the relationship of such employee with the Company or any of its Subsidiaries, the Board, in its discretion, may immediately terminate all outstanding stock options granted to the grantee. Whether a grantee has engaged in any of the activities referred to the preceding sentence which would cause the outstanding stock options to be terminated shall be determined, in its discretion, by the Board, and any such determination by the Board shall be final and binding. (I) All stock options, alternative stock appreciation rights and cash payment rights shall be confirmed by an agreement which shall be executed on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President and by the grantee. The agreement confirming a 5 7 stock option shall specify whether the stock option is an incentive stock option or a nonstatutory stock option. The provisions of the agreements need not be identical. (J) Fair market value of the Common Stock shall be the mean between the following prices, as applicable, for the date as of which fair market value is to be determined as quoted in The Wall Street Journal (or in such other reliable publication as the Board, in its discretion, may determine to rely upon): (i) if the Common Stock is listed on the New York Stock Exchange, the highest and lowest sales prices per share of the Common Stock as quoted in the NYSE-Composite Transactions listing for such date, (ii) if the Common Stock is not listed on such exchange, the highest and lowest sales prices per share of Common Stock for such date on (or on any composite index including) the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "1934 Act") on which the Common Stock is listed or (iii) if the Common Stock is not listed on any such exchange, the highest and lowest sales prices per share of the Common Stock for such date on the National Association of Securities Dealers Automated Quotations System or any successor system then in use ("NASDAQ"). If there are no such sale price quotations for the date as of which fair market value is to be determined but there are such sale price quotations within a reasonable period both before and after such date, then fair market value shall be determined by taking a weighted average of the means between the highest and lowest sales prices per share of the Common Stock as so quoted on the nearest date before and the nearest date after the date as of which fair market value is to be determined. The average should be weighted inversely by the respective numbers of trading days between the selling dates and the date as of which fair market value is to be determined. If there are no such sale price quotations on or within a reasonable period both before and after the date as of which fair market value is to be determined, then fair market value of the Common Stock shall be the mean between the bona fide bid and asked prices per share of Common Stock as so quoted for such date on NASDAQ, or if none, the weighted average of the means between such bona fide bid and asked prices on the nearest trading date before and the nearest trading date after the date as of which fair market value is to be determined, if both such dates are within a reasonable period. The average is to be determined in the manner described above in this Section 5(J). If the fair market value of the Common Stock cannot be determined on any basis previously set forth in this Section 5(J) for the date as of which fair market value is to be determined, the Board shall in good faith determine the fair market value of the Common Stock on such date. Fair market value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. (K) The obligation of the Company to issue shares of the Common Stock under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Company, (ii) the condition that the shares shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange, if any, on which the Common Stock may then be listed and (iii) all other applicable laws, regulations, rules and orders which may then be in effect. (L) Notwithstanding any other provision of this Section 5 or any other provision of the Plan or any stock option agreement, any grantee who has made a hardship withdrawal from the Tuscarora Incorporated Savings Plan for Salaried Employees (or any holder of a stock option granted to such a grantee) shall be prohibited, for a period of twelve (12) months following such hardship withdrawal, from exercising any stock option granted under the Plan in such a manner and to the extent that the exercise of such stock option would result in an employee elective contribution or an employee contribution to an employer plan within the meaning of Treasury Regulation section 1.401(k)-1(d)(2)(iv)(B)(4) or any successor regulation thereto. Subject to the foregoing provisions of this Section 5 and the other provisions of the Plan, stock options, alternative stock appreciation rights and cash payment rights granted under the Plan shall be subject to such restrictions and other terms and conditions, if any, as shall be determined, in its discretion, by the Board and set forth in the agreement referred to in Section 5(I). 6 8 SECTION 6 RESTRICTED SHARES, PERFORMANCE SHARES AND OTHER SHARE AWARDS (A) Restricted Shares Awards of restricted shares shall be confirmed by an agreement which shall set forth the number of shares of the Common Stock awarded, the restrictions imposed thereon (including, without limitation, restrictions on the right of the grantee to sell, assign, transfer or encumber such shares (except as provided below) while such shares are subject to other restrictions imposed under this Section 6(A)), the duration of such restrictions, events (which may, in the discretion of the Board, include termination of employment and/or performance-based events) the occurrence of which would cause a forfeiture of the restricted shares and such other terms and conditions as shall be determined, in its discretion, by the Board. The agreement shall be executed on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President and by the grantee. The provisions of the agreements need not be identical. Awards of restricted shares shall be effective on the date determined, in its discretion, by the Board. Following the award of restricted shares and prior to the lapse or termination of the applicable restrictions, share certificates for the restricted shares shall be issued in the name of the grantee and deposited with the Company in escrow together with related stock powers signed by the grantee. Except as provided in Section 7, the Board, in its discretion, may determine that dividends and other distributions on the shares held in escrow shall not be paid to the grantee until the lapse or termination of the applicable restrictions. Unless otherwise provided, in its discretion, by the Board, any such dividends or other distributions shall not bear interest. Upon the lapse or termination of the applicable restrictions (and not before such time), the share certificates for the restricted shares (subject to the provisions of Section 10) shall be released from escrow and unpaid dividends, if any, shall be paid. From the date the award of restricted shares is effective, the grantee shall be a shareholder with respect to all the shares represented by the share certificates and shall have all the rights of a shareholder with respect to all the restricted shares, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares, subject only to the preceding provisions of this paragraph and the other restrictions imposed by the Board. If a grantee of restricted shares (i) engages in the operation or management of a business (whether as owner, partner, officer, director, employee or otherwise) which is in competition with the Company or any of its Subsidiaries (provided, however, that this clause shall not apply if Section 8(D) applies), (ii) induces or attempts to induce any customer, supplier, licensee or other individual, corporation or other business organization having a business relationship with the Company or any of its Subsidiaries to cease doing business with the Company or any of its Subsidiaries or in any way interferes with the relationship between any such customer, supplier, licensee or other person and the Company or any of its Subsidiaries or (iii) solicits any employee of the Company or any of its Subsidiaries to leave the employment thereof or in any way interferes with the relationship of such employee with the Company or any of its Subsidiaries, the Board may immediately declare forfeited all restricted shares awarded to the grantee as to which the restrictions have not yet lapsed. Whether a grantee has engaged in any of the activities referred to in the preceding sentence which would cause the restricted shares to be forfeited shall be determined, in its discretion, by the Board, and any such determination by the Board shall be final and binding. Neither this Section 6(A) nor any other provision of the Plan shall preclude a grantee from transferring restricted shares to (i) the trustee(s) of a trust that is revocable by such grantee alone, both at the time of the transfer and at all times thereafter prior to such grantee's death, or (ii) the trustee(s) of any other trust to the extent approved in advance by the Board. Restricted shares held by such trustee(s) shall be subject to all the restrictions, terms and conditions of the Plan and the applicable agreement as if such trustee(s) were a party to such agreement. (B) Performance Shares An award of performance shares shall entitle the grantee to receive up to the number of shares of Common Stock covered by the award at the end of or at a specified time or times during a specified award 7 9 period contingent upon the extent to which one or more predetermined performance targets have been met during the award period. All the terms and conditions of an award of performance shares shall be determined, in its discretion, by the Board and shall be confirmed by an agreement which shall be executed on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President and by the grantee. The performance target or targets may be expressed in terms of earnings per share, return on shareholder equity, operating profit, return on capital employed or such other measures of accomplishment by the Company or a Subsidiary, or any branch, department or other portion thereof, or the grantee individually, as may be established, in its discretion, by the Board. The performance target or targets may vary for different award periods and need not be the same for each grantee receiving an award for an award period. At any time prior to the end of an award period, the Board may adjust downward (but not upward) the performance target or targets as a result of major events unforeseen at the time of the award, such as changes in the economy, in the industry or laws affecting the operations of the Company or a Subsidiary, or any branch, department or other portion thereof, or any other event the Board determines would have a significant impact upon the probability of attaining the previously established performance target or targets. Payment of earned performance shares shall be made as soon as practicable after the shares have been earned. The Board, in its discretion, may determine that any dividends or other distributions that would have been paid on earned performance shares had the shares been outstanding during the period from the award to the payment of the performance shares shall also be paid. Unless otherwise provided, in its discretion, by the Board, any such dividends or other distributions shall not bear interest. Unless otherwise provided in the agreement confirming the award of the performance shares, if prior to the close of an award period, the employment of a grantee of performance shares is voluntarily terminated with the consent of the Company or a Subsidiary, the grantee retires under any retirement plan of the Company or a Subsidiary or the grantee dies during employment, the Board in its discretion, may determine to pay all or part of the performance shares based upon the extent to which the Board determines the performance target or targets have been achieved as of the date of termination of employment, retirement or death, the period of time remaining until the end of the award period and/or such other factors as the Board may deem relevant. If the Board, in its discretion, determines that all or any part of the performance shares shall be paid, payment shall be made as promptly as practicable following such determination. Except as otherwise provided in Section 8(E), if the employment of a grantee of an award of performance shares terminates prior to the time the performance shares have been earned for any reason other than voluntary termination with the consent of the Company or a Subsidiary, retirement under any retirement plan of the Company or a Subsidiary or death, the unearned performance shares shall be deemed not to have been earned and such shares shall not be paid. Whether termination of employment is a voluntary termination with the consent of the Company or a Subsidiary shall be determined, in its discretion, by the Board and any such determination by the Board shall be final and binding. If a grantee of performance shares (i) engages in the operation or management of a business (whether as owner, partner, officer, director, employee or otherwise) which is in competition with the Company or any of its Subsidiaries (provided, however, that this clause shall not apply if Section 8(E) applies), (ii) induces or attempts to induce any customer, supplier, licensee or other individual, corporation or other business organization having a business relationship with the Company or any of its Subsidiaries to cease doing business with the Company or any of its Subsidiaries or in any way interferes with the relationship between any such customer, supplier, licensee or other person and the Company or any of its Subsidiaries or (iii) solicits any employee of the Company or any of its Subsidiaries to leave the employment thereof or in any way interferes with the relationship of such employee with the Company or any of its Subsidiaries, the Board may immediately cancel the award. Whether a grantee has engaged in any of the activities referred to the preceding sentence which would cause the award of performance shares to be canceled shall be determined, in its discretion, by the Board, and any such determination by the Board shall be final and binding. Neither this Section 6(B) nor any other provision of the Plan shall preclude a grantee from transferring the right to receive performance shares to (i) the trustee(s) of a trust that is revocable by such grantee alone, both at the time of the transfer and at all times thereafter prior to such grantee's death, or (ii) the trustee(s) 8 10 of any other trust to the extent approved in advance by the Board. The right to receive performance shares held by such trustee(s) shall be subject to all the restrictions, terms and conditions of the Plan and the applicable agreement as if such trustee(s) were a party to such agreement. (C) Other Share Awards The Board, in its discretion, may from time to time make other awards of shares of Common Stock under the Plan as an inducement to the grantee to enter the employment of the Company or a Subsidiary, in recognition of the contribution of the grantee to the performance of the Company or a Subsidiary, or any branch, department or other portion thereof, in recognition of the grantee's individual performance or on the basis of such other factors as the Board may deem relevant. Common Stock issued as a bonus pursuant to this Section 6(C) shall be issued for such consideration as the Board shall determine in its sole discretion. SECTION 7 ADJUSTMENT AND SUBSTITUTION OF SHARES If a dividend or other distribution shall be declared upon the Common Stock payable in shares of the Common Stock, the number of shares of the Common Stock subject to any outstanding stock options or performance share awards and the number of shares of the Common Stock which may be issued under the Plan but are not subject to outstanding stock options or performance share awards on the date fixed for determining the shareholders entitled to receive such stock dividend or distribution shall be adjusted by adding thereto the number of shares of the Common Stock which would have been distributable thereon if such shares had been outstanding on such date. Shares of Common Stock so distributed with respect to any restricted shares held in escrow shall also be held by the Company in escrow and shall be subject to the same restrictions as are applicable to the restricted shares on which they were distributed. If the outstanding shares of the Common Stock shall be changed into or exchangeable for a different number or kind of shares of stock or other securities of the Company or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of the Common Stock subject to any then outstanding stock option or performance share award, and for each share of the Common Stock which may be issued under the Plan but which is not then subject to any outstanding stock option or performance share award, the number and kind of shares of stock or other securities into which each outstanding share of the Common Stock shall be so changed or for which each such share shall be exchangeable. Unless otherwise determined by the Board, in its discretion, any such stock or securities, as well as any cash or other property, into or for which any restricted shares held in escrow shall be changed or exchangeable in any such transaction shall also be held by the Company in escrow and shall be subject to the same restrictions as are applicable to the restricted shares in respect of which such stock, securities, cash or other property was issued or distributed. In case of any adjustment or substitution as provided for in the first two paragraphs of this Section 7, the aggregate option price for all shares subject to each then outstanding stock option prior to such adjustment or substitution shall be the aggregate option price for all shares of stock or other securities (including any fraction) to which such shares shall have been adjusted or which shall have been substituted for such shares. Any new option price per share shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number. If the outstanding shares of the Common Stock shall be changed in value by reason of any spin-off, split-off or split-up, or dividend in partial liquidation, dividend in property other than cash or extraordinary distribution to holders of the Common Stock, (i) the Board shall make any adjustments to any then outstanding stock option which it determines are equitably required to prevent dilution or enlargement of the rights of grantees which would otherwise result from any such transaction, and (ii) unless otherwise determined by the Board, in its discretion, any stock, securities, cash or other property distributed with respect to any restricted shares held in escrow or for which any restricted shares held in escrow shall be exchanged in any such transaction shall also be held by the Company in escrow and shall be subject to the same restrictions 9 11 as are applicable to the restricted shares in respect of which such stock, securities, cash or other property was distributed or exchanged. No adjustment or substitution provided for in this Section 7 shall require the Company to issue or sell a fraction of a share or other security. Accordingly, all fractional shares or other securities which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution. Owners of restricted shares held in escrow shall be treated in the same manner as owners of Common Stock not held in escrow with respect to fractional shares created by an adjustment or substitution of shares, except that, unless otherwise determined by the Board, in its discretion, any cash or other property paid in lieu of a fractional share shall be subject to restrictions similar to those applicable to the restricted shares exchanged therefor. If any adjustment or substitution provided for in this Section 7 requires the approval of shareholders in order to enable the Company to grant incentive stock options, then no such adjustment or substitution shall be made without the required shareholder approval. Notwithstanding the foregoing, in the case of incentive stock options, if the effect of any such adjustment or substitution would be to cause the stock option to fail to continue to qualify as an incentive stock option or to cause a modification, extension or renewal of such stock option within the meaning of Section 424 of the Code, the Board may elect that such adjustment or substitution not be made but rather shall use reasonable efforts to effect such other adjustment of each then outstanding stock option as the Board, in its discretion, shall deem equitable and which will not result in any disqualification, modification, extension or renewal (within the meaning of Section 424 of the Code) of the incentive stock option. Except as provided in this Section 7, a grantee shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. SECTION 8 ADDITIONAL RIGHTS IN CERTAIN EVENTS (A) Definitions. For purposes of this Section 8, the following terms shall have the following meanings: (1) The term "Person" shall be used as that term is used in Sections 13(d) and 14(d) of the 1934 Act as in effect on the effective date of the Plan. (2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of the Plan. (3) A specified percentage of "Voting Power" of a company shall mean such number of the Voting Shares as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the common stock of the company to elect directors by a separate class vote); and "Voting Shares" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors (without consideration of the rights of any class of stock other than the common stock of the company to elect directors by a separate class vote). (4) "Tender Offer" shall mean a tender offer or exchange offer to acquire securities of the Company (other than such an offer made by the Company or any Subsidiary), whether or not such offer is approved or opposed by the Board. (5) "Continuing Directors" shall mean a director of the Company who either (a) was a director of the Company on the effective date of the Plan or (b) is an individual whose election, or nomination for election, as a director of the Company was approved by a vote of at least two-thirds of the directors then still in office who were Continuing Directors (other than an individual whose initial assumption of office is in connection 10 12 with an actual or threatened election contest relating to the election of directors of the Company which would be subject to Rule 14a-11 under the 1934 Act, or any successor Rule). (6) "Section 8 Event" shall mean the date upon which any of the following events occurs: (a) The Company acquires actual knowledge that any Person other than the Company, a Subsidiary or any employee benefit plan(s) sponsored by the Company or a Subsidiary has acquired the Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person to 20% or more of the Voting Power of the Company; (b) A Tender Offer is made to acquire securities of the Company entitling the holders thereof to 20% or more of the Voting Power of the Company; or (c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any successor Rule) relating to the election or removal of 50% or more of the members of the Board or any class of the Board shall be made by any person other than the Company or less than 51% of the members of the Board shall be Continuing Directors; or (d) The shareholders of the Company shall approve a merger, consolidation, share exchange, division or sale or other disposition of assets of the Company as a result of which the shareholders of the Company immediately prior to such transaction shall not hold, directly or indirectly, immediately following such transaction a majority of the Voting Power of (i)in the case of a merger or consolidation, the surviving or resulting corporation, (ii) in the case of a share exchange, the acquiring corporation or (iii) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the transaction, holds more than 10% of the consolidated assets of the Company immediately prior to the transaction; provided, however, that (i) if securities beneficially owned by a grantee are included in determining the Beneficial Ownership of a Person referred to in (a) above, (ii) a grantee is required to be named pursuant to Item 2 of the Schedule 14D-1 (or any similar successor filing requirement) required to be filed by the bidder making a Tender Offer referred to in (b) above or (iii) if a grantee is a "participant" as defined in Instruction 3 to Item 4 of Schedule 14A under the 1934 Act (or any successor Rule) in a solicitation (other than a solicitation by the Company) referred to in (c) above, then no Section 8 Event with respect to such grantee shall be deemed to have occurred by reason of such event. (B) Acceleration of the Exercise Date of Stock Options. Subject to the provisions of Section 4 in the case of incentive stock options, unless the agreement referred to in Section 5(I) shall otherwise provide, notwithstanding any other provision contained in the Plan, in case any "Section 8 Event" occurs all outstanding stock options (other than those granted to a person referred to in the proviso to Section 8(A)(6)) shall become immediately and fully exercisable whether or not otherwise exercisable by their terms. (C) Extension of the Expiration Date of Stock Options. Subject to the provisions of Section 4 in the case of incentive stock options, unless the agreement referred to in Section 5(I) shall otherwise provide, notwithstanding any other provision contained in the Plan, all outstanding stock options granted to a grantee (other than a grantee referred to in the proviso to Section 8(A)(6)) whose employment with the Company or a Subsidiary terminates within one year of any Section 8 Event for any reason other than voluntary termination with the consent of the Company or a Subsidiary, retirement under any retirement plan of the Company or a Subsidiary or death, or whose service as a Nonemployee Director ceases within one year of any Section 8 Event for any reason other than removal for cause or death, which are exercisable shall continue to be exercisable for a period of three years from the date of such termination of employment or the date the grantee ceases to be a Nonemployee Director, but in no event after the expiration date of the stock option. 11 13 (D) Lapse of Restrictions on Restricted Shares. Unless the agreement referred to in Section 6(A) shall otherwise provide, notwithstanding any other provision contained in the Plan, if any "Section 8 Event" occurs prior to the scheduled lapse of all restrictions applicable to restricted shares (other than shares awarded to a person referred to in the proviso to Section 8(A)(6)), all such restrictions shall lapse upon the occurrence of any such "Section 8 Event" regardless of the scheduled lapse of such restrictions. (E) Payment of Performance Shares Unless the agreement referred to in Section 6(B) shall otherwise provide, notwithstanding any other provision contained in the Plan, if any "Section 8 Event" occurs prior to the end of an award period with respect to an award of performance shares to a grantee, the performance shares (unless the grantee is a person referred to in the proviso to Section 8(A)(6)) shall be deemed to have been fully earned as of the date of the Section 8 Event, regardless of the attainment or nonattainment of any performance target and shall be paid as promptly as practicable after the Section 8 Event. SECTION 9 EFFECT OF THE PLAN ON THE RIGHTS OF GRANTEES Neither the adoption of the Plan nor any action of the Board pursuant to the Plan shall be deemed to give any employee any right to be granted a stock option (with or without alternative stock appreciation rights and/or cash payment rights) or an award under the Plan. Nothing in the Plan, in any stock option, alternative stock appreciation rights or cash payment rights granted under the Plan or in any award under the Plan or in any agreement providing for any of the foregoing shall confer any right on any employee to continue in the employ of the Company or any Subsidiary or interfere in any way with the rights of the Company or any Subsidiary to terminate the employment of any employee at any time. Neither the adoption of the Plan nor any action of the Board pursuant to the Plan shall confer any right to any person to continue as a Nonemployee Director of the Company or interfere in any way with the rights of the shareholders of the Company or the Board to elect and remove Nonemployee Directors. SECTION 10 WITHHOLDING Income or employment taxes may be required to be withheld by the Company or a Subsidiary in connection with the exercise of a stock option or alternative stock appreciation rights, upon a "disqualifying disposition" of the shares acquired upon exercise of an incentive stock option, at the time restricted shares are awarded or vest, performance shares are earned or other shares are awarded, or upon the receipt by the grantee of cash in payment of cash payment rights or dividends which are treated as compensation. Except as provided below, the grantee shall pay the Company in cash the amount required to be withheld. Unless the Board, in its discretion, shall otherwise determine, a grantee may elect to have any withholding obligation at the time of the exercise of a nonstatutory stock option or alternative stock appreciation rights or at the time restricted shares vest, performance shares are earned or other shares are awarded satisfied in whole or in part by the Company withholding from the shares of Common Stock that would otherwise be received shares of the Common Stock having a fair market value, determined as provided in Section 5(J), on the date that the amount of tax to be withheld is determined (the "Tax Date") equal to or less than the amount required to be withheld, and in this event the Company will request that the grantee pay any additional amount required to be withheld directly to the Company in cash. Unless the Board, in its discretion, shall otherwise determine, a grantee may also elect to have any withholding obligation at the time of the exercise of a stock option or alternative stock appreciation rights, upon a "disqualifying disposition" of the shares acquired upon the exercise of an incentive stock option or at the time restricted shares are granted or vest, performance shares are earned or other shares are awarded 12 14 satisfied in whole or in part by the grantee delivering to the Company shares of the Common Stock having a fair market value, determined as provided in Section 5(J), on the Tax Date equal to or less than the amount required to be withheld, except that no shares of the Common Stock which have been held for less than one year may be delivered, and in this event the Company will request that the grantee pay any additional amount required to be withheld directly to the Company in cash. Unless the Board, in its discretion, shall otherwise determine, any income or employment taxes required to be withheld by the Company or any of its Subsidiaries upon the receipt of cash in payment of cash payment rights or dividends will be satisfied by the Company by withholding the taxes required to be withheld from the cash the grantee would otherwise receive. If a grantee does not pay any income or employment taxes required to be withheld by the Company or any of its Subsidiaries within ten days after a request for the payment of such taxes, the Company or such Subsidiary may withhold such taxes from any other compensation to which the grantee is entitled from the Company or any of its Subsidiaries. The Company shall not be required to deliver any shares or make any cash payment under the Plan until the withholding obligation has been satisfied. SECTION 11 AMENDMENT The right to alter and amend the Plan at any time and from time to time and the right to revoke or terminate the Plan are hereby specifically reserved to the Board; provided that no such alteration or amendment of the Plan shall, without shareholder approval, (i) increase the number of shares which may be issued under the Plan as set forth in Section 3, (ii) decrease the purchase price at which stock options may be granted to less than one hundred percent (100%) of the fair market value per share of the Common Stock on the date of grant, (iii) reprice outstanding stock options or other awards or (iv) extend the duration of the Plan. No alteration, amendment, revocation or termination of the Plan shall, without the written consent of the holder of an outstanding grant or award under the Plan, adversely affect the rights of such holder with respect to such outstanding grant or award. SECTION 12 EFFECTIVE DATE AND DURATION OF PLAN Subject to its approval by the shareholders of the Company, the Plan shall be effective as of December 18, 1997. No stock option or alternative stock appreciation rights granted under the Plan may be exercised and no restricted, performance or other shares may be awarded until after such approval. No stock option, alternative stock appreciation rights or cash payment rights may be granted and no restricted, performance or other share awards may be made under the Plan subsequent to December 17, 2007. 13 EX-10.11 6 TUSCARORA INCORPORATED 1 Exhibit 10.11 TUSCARORA INCORPORATED INDEMNIFICATION AND INSURANCE AGREEMENT THIS AGREEMENT made this 15th day of December, 1994, by and between TUSCARORA INCORPORATED, a Pennsylvania corporation (the "Company"), and Robert W. Kampmeinert (the "Director"). WHEREAS, the Director is an Authorized Representative of the Company, as "Authorized Representative" is defined in Section 1 of this Agreement; and WHEREAS, the Articles of the Company and the indemnification provisions of the Pennsylvania Business Corporation Law (the "State Statute") specifically provide that the rights to indemnification and advancement of expenses provided by such Articles, the State Statute or any other provision of law are not exclusive of any other rights to which any person may be entitled under any by-law, agreement, vote of shareholders or directors or otherwise and thus contemplate that agreements may be entered into with respect to indemnification and advancement of expenses; and WHEREAS, the State Statute permits the Company to purchase and maintain insurance on behalf of Authorized Representatives against any reasonable expenses and liability incurred by such persons; and WHEREAS, developments with respect to the availability of liability insurance at a reasonable cost and the terms on which liability insurance may be procured have raised uncertainties concerning the adequacy and reliability of the protection afforded by such insurance; and WHEREAS, the Board of Directors of the Company (the "Board") has concluded that the continuation of present trends in litigation against Authorized Representatives will make it more difficult for the Company to attract and retain directors, officers, employees, agents and other representatives of the highest degree of competence and commitment; and WHEREAS, the Board deems such consequences to be so detrimental to the best interests of the Company and its shareholders that it has concluded that it is reasonable, prudent and necessary for the Company to act to provide certain of its Authorized Representatives with enhanced protection against inordinate risks attendant on their positions in order to assure that the most capable persons otherwise available will be attracted to such positions; and WHEREAS, in order to ameliorate the uncertainties and provide the protection referred to above and to induce the Director to continue to serve the Company, the Company has 2 determined it to be in the best interests of the Company and its shareholders that the Company enter into this Agreement with the Director; NOW THEREFORE, in consideration of the continued service of the Director to the Company after the date of this Agreement, the Company and the Director, intending to be legally bound by this Agreement, agree as follows: 1. Authorized Representative. For the purpose of this Agreement, the term "Authorized Representative" means a director or officer of the Company or a subsidiary of the Company; a person serving at the request of the Company as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other entity; and any other person designated by the Board as entitled to the benefit of the indemnification provisions of the Articles of the Company or of an agreement similar to this Agreement. 2. Indemnification. Except as provided in Section 7 of this Agreement, the Company shall hold harmless and indemnify the Director against all Expenses and Liability (as those terms are defined below in this Section 2) incurred by the Director in connection with any actual or threatened claim, action, suit or proceeding, whether civil, criminal, administrative, investigative or other, or whether brought by or against the Director or by or in the right of the Company or otherwise, in which the Director may be involved in any manner, as a party, witness or otherwise, or is threatened to be made so involved, by reason of the fact that the Director was or is an Authorized Representative, either as to action by the Director in his or her official capacity as a director or as to action by the Director in another capacity while holding such official capacity (any such claim, action, suit or proceeding being hereinafter referred to as an "Action" and any such claim, action, suit or proceeding brought by the Director against the Company being hereinafter referred to as a "Director Action"). As used in this Agreement, the term "Expenses" means all expenses actually and reasonably incurred, including fees and expenses of counsel selected by the Director, and "Liability" means all liability incurred, including the amounts of any judgments, excise taxes, fines or penalties and any amounts paid in settlement. 3. Advancement of Expenses and Liability. The Company shall pay all Expenses incurred by the Director in defending an Action, or in bringing and pursuing a Director Action under Section 5 of this Agreement, in advance of the final disposition of such Action or Director Action, except that no Expenses shall be advanced in respect of any Director Action brought to obtain payment for failure to maintain insurance under Section 4(c) of this Agreement. Also, if the Director shall become obligated or -2- 3 required to pay any Expenses or Liability that the Company would be obligated to pay under this Agreement except for the exclusion in clause (iv) of Section 7 of this Agreement before payment is reasonably expected to be made to the Director under an Insurance Policy or a Security Arrangement (as those terms are defined in clause (iv) of Section 7 of this Agreement), the Company shall advance the amount of any such Expenses or Liability to the Director. The advances of Expenses and Liability by the Company under this Section 3 are subject to the obligations of the Director set forth in Section 10(b) of this Agreement. 4. Maintenance of Insurance and Self Insurance. (a) The Company represents that it presently has in force and effect the insurance on behalf of the Director against certain liabilities asserted against or incurred by the Director as set forth in Appendix A attached to and made a part of this Agreement. Subject only to the provisions of Section 4(b) of this Agreement, the Company agrees that, so long as the Director shall continue as an Authorized Representative of the Company and thereafter so long as the Director shall be subject to any actual or threatened Action by reason of the fact that the Director served as an Authorized Representative of the Company, the Company shall purchase and maintain in effect for the benefit of the Director such insurance providing, in all respects, coverage at least comparable to that presently provided. (b) The Company shall not be required to maintain the insurance referred to in Section 4(a) of this Agreement if such insurance is not available on terms satisfactory to the then Board or if, in the business judgment of the then Board, either (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage or (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. (c) Without limiting the obligations of the Company to provide indemnification and advancement of Expenses and Liability under Sections 2 and 3 of this Agreement, respectively, if the Company does not purchase and maintain in effect the insurance referred to in Section 4(a) of this Agreement for whatever reason, the Company shall hold harmless and make payment to the Director to the fullest extent of the coverage which would otherwise have been provided by such insurance for the benefit of the Director. -3- 4 5. Right of the Director to Payment Upon Request; Suit to Recover. (a) Any indemnification under Section 2 of this Agreement, advancement of Expenses or Liability under Section 3 of this Agreement, payment for failure to maintain insurance under Section 4 of this Agreement or contribution under Section 8 of this Agreement shall be made no later than 30 days after receipt by the Company of a written request from the Director. If payment in full to the Director pursuant to such a request is not made by the Company within such period, the Director may at any time thereafter bring a Director Action to recover the unpaid amount of the claim and, if successful in whole or in part, the Director shall also be entitled to be paid for the Expenses of the Director incurred in bringing and pursuing such Director Action; and the Company hereby empowers the prothonotary or any attorney of any court of record within the United States or elsewhere to appear for the Company and to confess judgment as often as necessary against the Company in favor of the Director, as of any term, for the amount of the indemnification, advancement of Expenses or Liability, payment for failure to maintain insurance or contribution so requested by the Director, together with costs of suit and an attorney's commission of 15%, with release of all errors. (b) The only defense to a Director Action to recover on a claim for indemnification under Section 2 of this Agreement shall be that the Company is not liable for such payment by reason of Section 7 of this Agreement, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel and shareholders) to have made a determination prior to the commencement of such Director Action that indemnification of the Director is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or shareholders) that the conduct of the Director was such that indemnification is prohibited by law, shall be a defense to such Director Action for indemnification or create a presumption that the conduct of the Director was such that indemnification is prohibited by law. 6. Changes in the Law; Partial Indemnity. (a) If any change after the date of this Agreement in any applicable law, statute or rule expands the power of the Company to indemnify an Authorized Representative, such change shall be within the purview of the rights of the Director and the obligations of the Company under this -4- 5 Agreement. If any change in any applicable law, statute or rule narrows the right of the Company to indemnify an Authorized Representative such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the rights and obligations of the Company and the Director under this Agreement. (b) If the Director is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses or Liability incurred by the Director in the prosecution, defense, appeal or settlement of any Action or Director Action but not, however, for the total amount of such Expenses or Liability, the Company shall indemnify the Director for the portion of such Expenses or Liability to which the Director is entitled. 7. Exclusions. The Company shall not be liable under this Agreement for any of the following payments: (i) any payment for Expenses or Liability under Section 2 of this Agreement if it shall be finally adjudicated that such payment (which may constitute a portion of the total Expenses or Liability incurred by the Director, as contemplated by Section 6(b) of this Agreement) is prohibited by law; or (ii) any payment for Expenses or Liability on account of any Action brought under Section 16(b) of the Securities Exchange Act of 1934, as amended, in which judgment is rendered against the Director for an accounting for profits realized from the purchase and sale, or sale and purchase, by the Director of equity securities of the Company; or (iii) any payment for Expenses in a Director Action unless (1) the Director Action is instituted under Section 5 of this Agreement and the Director is successful in whole or in part in such Director Action, (2) the Director is successful in whole or in part in another Director Action for which Expenses are claimed or (3) the indemnification for Expenses is included in a settlement of, or is awarded by a court in, such other Director Action; or (iv) any payment for Expenses or Liability to the extent payment is actually made to the Director under a valid, enforceable and collectible insurance policy provided by the Company (an "Insurance Policy") or by or out of a trust fund created by the Company, under a letter of credit or from other sources provided by the Company (a "Security Arrangement"). -5- 6 8. Contribution. If the full indemnification provided in Section 2 of this Agreement may not be paid to the Director because of the exclusion in clause (i) of Section 7 of this Agreement, then in respect of any actual or threatened Action in which the Company is jointly liable with the Director (or would be if joined in such Action), the Company shall contribute to the amount of any Expenses or Liability incurred by the Director for which indemnification is not available in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Director on the other hand from the transaction from which the Action arose and (ii) the relative fault of the Company, including its other Authorized Representatives, employees, agents and other representatives, on the one hand, and of the Director on the other hand in connection with the events which resulted in such Expenses or Liability, as well as any other relevant equitable considerations. The relative fault of the Company, including its other Authorized Representatives, employees, agents and other representatives, on the one hand, and of the Director on the other hand shall be determined by reference to, among other things, the relative intent, knowledge, access to information and opportunity of the Company and the Director to correct or prevent the circumstances resulting in such Expenses or Liability. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 9. Continuation of Company Obligations. All obligations of the Company contained in this Agreement shall continue during the period the Director is an Authorized Representative of the Company and shall continue thereafter so long as the Director may be subject to any possible Action by reason of the fact that the Director was an Authorized Representative of the Company. 10. Obligations of the Director. (a) Promptly after receipt by the Director of notice of the commencement of any Action in respect of which the Director may seek indemnification, advancement of Expenses or Liability or payment for failure to maintain insurance, the Director shall notify the Company in writing of the commencement of such Action; but the omission so to notify the Company shall not relieve the Company from any obligation it may have to provide indemnification, advance Expenses or Liability or make payment for failure to maintain insurance to the Director otherwise than under this Agreement. -6- 7 (b) The Director agrees that the Director shall promptly reimburse the Company for all or an appropriate portion of any Expenses or Liability advanced by the Company to the Director pursuant to Section 3 of this Agreement or recovered by the Director pursuant to Section 5 of this Agreement (i) if it shall be finally adjudicated that the Director is not entitled to be indemnified, or not entitled to be fully indemnified, with respect to any such Expenses or Liability for any of the reasons specified in Section 7 of this Agreement or (ii) upon receipt by the Director under an Insurance Policy or a Security Arrangement of the amount of any Expenses or Liability advanced to the Director by the Company. 11. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be invalidated by any court of competent jurisdiction, such provision shall be ineffective only to the extent of such invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12. Miscellaneous. (a) This Agreement shall only be applicable to Actions commenced after the date of this Agreement. Any such Action may, however, arise from acts or omissions occurring before the date of this Agreement. (b) This Agreement shall be deemed to be a contract made under and shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to principles of conflicts of laws. (c) This Agreement shall be binding upon the Director and the heirs and personal representatives of the Director and upon the Company and its successors. This Agreement shall inure only to the benefit of the Director and the heirs and personal representatives of the Director and to the benefit of the Company and its successors and shall not inure to the benefit of any other party. (d) No amendment, termination or claimed waiver of any of the provisions of this Agreement shall be valid unless in writing and signed by the party or an authorized representative of the party against whom such amendment, termination or claimed waiver is sought to be enforced. (e) The rights to indemnification, advancement of Expenses and Liability, payment for failure to maintain insurance and contribution provided by this Agreement shall -7- 8 not be deemed exclusive of any other rights, whether now existing or hereafter created, to which the Director may be entitled under any other agreement, any provision in the Articles or By-Laws of the Company, any vote of shareholders or directors, the State Statute, or otherwise, either as to action by the Director in his or her official capacity as a director or as to action by the Director in another capacity while holding such official capacity. IN WITNESS WHEREOF, the Company and the Director have executed this Agreement as of the day and year first above written. TUSCARORA INCORPORATED By: /s/ John P. O'Leary, Jr. ------------------------------- John P. O'Leary, Jr. Title: ----------------------------- President and Chief Executive Officer /s/ Robert W. Kampmeinert ----------------------------------- Robert W. Kampmeinert, Director -8- EX-11 7 TUSCARORA INCORPORATED 1 Exhibit 11 TUSCARORA INCORPORATED EXHIBIT 11 -- COMPUTATION OF DILUTED NET INCOME PER SHARE
1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Weighted average number of shares of Common Stock outstanding 9,194 9,231 9,362 9,452 9,488 Net effect of dilutive stock options -- based on the treasury stock method using the average market price for the period 125 156 171 167 168 ------ ------ ------ ------ ------ TOTAL 9,318 9,387 9,533 9,619 9,657 ====== ====== ====== ====== ====== Net income $5,703 $8,980 $9,653 $9,295 $8,032 ====== ====== ====== ====== ====== Per share amount $0.61 $0.96 $1.01 $0.97 $0.83 ====== ====== ====== ====== ======
The per share amounts and share numbers have been adjusted to reflect the 50% share distribution declared on December 18, 1996 payable on January 13, 1997 to shareholders of record on December 27, 1996. In thousands, except per share data. EX-13 8 TUSCARORA INCORPORATED 1 EXHIBIT 13
CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------------------- Year Ended August 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------- Net Sales $232,902,210 $209,206,775 $182,589,621 Cost of Sales 180,144,500 160,951,244 139,249,481 - --------------------------------------------------------------------------------------------- Gross profit 52,757,710 48,255,531 43,340,140 - --------------------------------------------------------------------------------------------- Selling and Administrative Expenses 31,195,448 28,636,840 24,524,593 Restructuring Costs (Note 12) 3,495,336 -- -- Interest Expense 4,944,271 3,741,275 2,928,483 Other (Income) Expense-- Net (58,756) 436,154 (18,235) - --------------------------------------------------------------------------------------------- 39,576,299 32,814,269 27,434,841 - --------------------------------------------------------------------------------------------- Income before income taxes 13,181,411 15,441,262 15,905,299 Provision for Income Taxes (Note 8) 5,149,463 6,146,001 6,252,682 - --------------------------------------------------------------------------------------------- Net income $ 8,031,948 $ 9,295,261 $ 9,652,617 ============================================================================================= Basic net income per share of Common Stock (Note 1) $0.85 $0.98 $1.03 Diluted net income per share $0.83 $0.97 $1.01 - --------------------------------------------------------------------------------------------- Weighted average number of shares of Common Stock outstanding: Basic 9,488,436 9,452,082 9,362,409 Diluted 9,656,583 9,619,239 9,533,056 - ---------------------------------------------------------------------------------------------
Basic and diluted net income per share of Common Stock and the weighted average number of shares of Common Stock outstanding have been adjusted to reflect the 50% share distribution paid on January 13, 1997. The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA ANNUAL REPORT 98 10 2
CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------------- Assets (August 31) 1998 1997 - ----------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 5,452,281 $ 5,095,149 Trade accounts receivable, less allowance of $651,720 in 1998; $674,689 in 1997 34,239,819 31,667,668 Inventories (Note 2) 20,158,857 18,238,886 Prepaid expenses and other current assets 1,955,310 1,592,284 - ----------------------------------------------------------------------------------------------------------- Total current assets 61,806,267 56,593,987 - ----------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 3,944,644 3,867,700 Buildings and improvements 58,796,424 55,320,144 Machinery and equipment 131,344,481 128,809,150 - ----------------------------------------------------------------------------------------------------------- Total 194,085,549 187,996,994 - ----------------------------------------------------------------------------------------------------------- Less accumulated depreciation (96,547,340) (94,882,160) - ----------------------------------------------------------------------------------------------------------- Net property, plant and equipment 97,538,209 93,114,834 - ----------------------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill 8,905,355 8,540,479 Other non-current assets 3,916,075 4,138,260 - ----------------------------------------------------------------------------------------------------------- Total other assets 12,821,430 12,678,739 - ----------------------------------------------------------------------------------------------------------- Total assets $172,165,906 $162,387,560 =========================================================================================================== Liabilities and Shareholders' Equity (August 31) - ----------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Current maturities of long-term debt (Note 3) $ 5,321,709 $ 5,133,332 Accounts payable 14,178,763 16,714,670 Accrued income taxes 337,711 390,008 Accrued payroll and related taxes 1,133,192 910,090 Other current liabilities 5,975,400 3,661,408 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 26,946,775 26,809,508 - ----------------------------------------------------------------------------------------------------------- Long-term Debt (Note 3) 61,184,124 57,166,326 Deferred Income Taxes (Note 8) 1,677,978 2,417,725 Other Long-term Liabilities (Note 9) 2,833,072 3,176,653 - ----------------------------------------------------------------------------------------------------------- Total liabilities 92,641,949 89,570,212 - ----------------------------------------------------------------------------------------------------------- Commitments (Note 13) Shareholders' Equity Preferred Stock--par value $.01 per share; authorized shares, 1,000,000; none issued -- -- Common Stock--without par value, authorized shares, 20,000,000; issued shares, 9,530,856 in 1998, 9,479,241 in 1997 (Note 4) 9,530,856 9,479,241 Capital surplus (Note 4) 1,435,582 1,071,878 Retained earnings 68,240,138 62,291,940 Foreign currency translation adjustment 392,150 49,999 - ----------------------------------------------------------------------------------------------------------- Total 79,598,726 72,893,058 - ----------------------------------------------------------------------------------------------------------- Less Common Stock in treasury--4,620 shares in 1998 and 1997; at cost (74,769) (75,710) - ----------------------------------------------------------------------------------------------------------- Total shareholders' equity 79,523,957 72,817,348 - ----------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $172,165,906 $162,387,560 ===========================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA ANNUAL REPORT 98 11 3
CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------------------------------------------------- Year Ended August 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 8,031,948 $ 9,295,261 $ 9,652,617 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 16,080,389 14,429,068 12,364,207 Amortization 1,150,138 857,319 612,773 Provision for losses on receivables 311,711 504,862 378,366 Increase (decrease) in deferred income taxes (748,329) (69,674) 200,468 Loss on sale, abandonment or write-down of property, plant and equipment, net (Note 12) 2,470,209 524,449 80,883 Stock compensation expense 13,513 13,684 12,290 Changes in operating assets and liabilities, net of effects of business acquisitions: Decrease (increase): Trade accounts receivable (3,095,960) 852,227 (2,588,248) Inventories (1,816,520) (521,990) 2,561,825 Prepaid expenses and other current assets (357,209) (961,419) (309,401) Other non-current assets 220,059 (179,702) (226,454) Increase (decrease): Accounts payable (2,490,497) (2,133,551) 726,863 Accrued income taxes (55,307) 96,729 (281,410) Accrued payroll and related taxes 241,914 249,493 100,695 Other current liabilities 2,112,943 (2,256,586) (884,162) Other long-term liabilities (357,788) 311,645 (53,049) - --------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 21,711,214 21,011,815 22,348,263 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, plant and equipment (24,153,483) (21,318,432) (23,128,792) Business acquisitions, net of cash acquired (Note 10) (1,062,744) (14,084,072) (513,239) Proceeds from sale of property, plant and equipment 1,399,612 1,050,319 152,129 - --------------------------------------------------------------------------------------------------------------------------- Cash (used for) investing activities (23,816,615) (34,352,185) (23,489,902) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt 9,221,670 23,000,000 8,000,000 Payments on long-term debt (5,156,164) (6,320,161) (4,854,866) Dividends paid (2,083,750) (1,828,369) (1,626,948) Proceeds from sale of Common Stock 402,746 421,194 323,218 - --------------------------------------------------------------------------------------------------------------------------- Cash provided by financing activities 2,384,502 15,272,664 1,841,404 - --------------------------------------------------------------------------------------------------------------------------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 78,031 (216,921) 20,244 Net increase in cash and cash equivalents 357,132 1,715,373 720,009 - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,095,149 3,379,776 2,659,767 - --------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,452,281 $ 5,095,149 $ 3,379,776 - --------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA Income taxes paid $ 6,058,530 $ 5,944,408 $ 6,243,828 Interest paid $ 5,080,415 $ 3,046,640 $ 3,302,840 ===========================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA ANNUAL REPORT 98 12 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Treasury Shares ------------------ --------------------- Foreign Currency Shares Capital Retained Translation Issued Amount Surplus Earnings Shares Amount Adjustment Total - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1995 9,300,237 $9,300,237 ($840,577) $46,799,379 41,298 ($385,218) ($100,460) $54,773,361 - --------------------------------------------------------------------------------------------------------------------------- Net income 9,652,617 9,652,617 Sale of shares under employee stock purchase plan 9,020 9,020 131,374 140,394 Sale of unissued shares under stock option plans 16,620 16,620 124,214 140,834 Sale of treasury shares under stock option plans (203,729) (31,950) 307,660 103,931 Shares acquired in payment of option price 3,003 (49,652) (49,652) Shares issued in connection with an acquisition 101,046 101,046 1,529,536 1,630,582 Dividends paid ($0.17 per share) (1,626,948) (1,626,948) Foreign currency translation adjustment 61,770 61,770 - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1996 9,426,923 $9,426,923 $740,818 $54,825,048 12,351 ($127,210) ($38,690) $64,826,889 - --------------------------------------------------------------------------------------------------------------------------- Net income 9,295,261 9,295,261 Sale of shares under employee stock purchase plan 9,873 9,873 147,384 157,257 Sale of unissued shares under stock option plans 42,445 42,445 244,929 287,374 Sale of treasury shares under stock option plans (61,253) (21,530) 258,873 197,620 Shares acquired in payment of option price 13,799 (207,373) (207,373) Dividends paid ($0.19 per share) (1,828,369) (1,828,369) Foreign currency translation adjustment 88,689 88,689 - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31, 1997 9,479,241 $9,479,241 $1,071,878 $62,291,940 4,620 ($75,710) $49,999 $72,817,348 - --------------------------------------------------------------------------------------------------------------------------- Net income 8,031,948 8,031,948 Sale of shares under employee stock purchase plan 9,516 9,516 147,461 156,977 Sale of unissued shares under stock option plans 42,099 42,099 216,243 258,342 Sale of treasury shares under stock option plans (4,371) 71,877 71,877 Shares acquired in payment of option price 4,371 (70,936) (70,936) Dividends paid ($0.22 per share) (2,083,750) (2,083,750) Foreign currency translation adjustment 342,151 342,151 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT AUGUST 31, 1998 9,530,856 $9,530,856 $1,435,582 $68,240,138 4,620 ($74,769) $392,150 $79,523,957 ===========================================================================================================================
Share numbers, dollar amounts, and cash dividends paid per share of Common Stock have been adjusted to reflect the 50% share distribution paid on January 13,1997. The accompanying notes are an integral part of the consolidated financial statements. TUSCARORA ANNUAL REPORT 98 13 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Tuscarora Incorporated (the Company) is a multinational designer and manufacturer of interior protective packaging and material handling solutions, made from a variety of materials, for a broad range of manufactured products. The Company also supplies customers with molded foam plastic and thermoformed components for a large number of industrial and consumer product applications. The principal end-user markets that the Company serves are the high technology, consumer electronics, automotive and major appliance industries. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Tuscarora Incorporated and its subsidiaries. Significant inter-company accounts and transactions have been eliminated. FOREIGN CURRENCY TRANSLATION The assets and liabilities of the Company's foreign subsidiaries are translated into U. S. dollars at current exchange rates. The revenues and expenses of these operations are translated at the average exchange rates prevailing during the fiscal year. These translation adjustments are accumulated in a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in determining net income for the fiscal year in which the exchange rate changes. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of 90 days or less to be cash equivalents. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to credit risk consist primarily of trade accounts receivable. However, due to the large number of the Company's customers and their dispersion across many geographic areas, concentrations of credit risk with respect to trade accounts receivable are limited. This risk is further reduced by the Company's maintenance of credit insurance on certain large accounts. INVENTORIES Inventories other than finished goods are stated at the lower of cost or market, cost being determined on the FIFO (first-in, first-out) method. Finished goods are stated at the lower of average cost or market and include the cost of material, labor and manufacturing overhead. PROPERTY, PLANT AND EQUIPMENT Land, buildings and equipment are stated on the basis of cost. Major renewals and betterments are capitalized while replacements and maintenance and repairs, which do not improve or extend the life of the asset, are charged against earnings in the year incurred. When properties are disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is reflected in earnings. Provisions for depreciation of plant and equipment are computed on the straight-line method based on the following estimated useful lives: Buildings and improvements....................... 10-30 years Machinery and equipment.......................... 3-10 years OTHER ASSETS Other assets consist primarily of intangible assets such as goodwill and covenants not to compete which have been acquired in connection with business acquisitions (see Note 10) and are amortized using the straight-line method. Goodwill is amortized over 15 years and the covenants over the period covered by each agreement. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets is less than their carrying value. INTEREST RATE AGREEMENTS The Company has entered into interest rate swap, cap and floor agreements with its principal bank having a combined notional value of $37,750,000 at August 31, 1998. The purpose of these agreements is to reduce the impact of increases in interest rates on the Company's variable rate long-term debt principally under its credit agreement with its principal bank. While there was no net out-of-pocket cost for these agreements, any amounts paid or received under the agreements are recognized as adjustments to interest expense. Neither the fair market value of the agreements nor the interest expense adjustments associated with the agreements has been material. TUSCARORA ANNUAL REPORT 98 14 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- INCOME TAXES The provision for income taxes includes deferred taxes resulting from temporary differences in income for financial reporting and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. STOCK-BASED COMPENSATION Stock options granted by the Company are accounted for in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25"). In accordance with APB No. 25, no stock-based compensation expense has been recognized in the accompanying financial statements for the Company's employee stock options since the exercise price of the outstanding stock options has equalled the market price of the underlying stock on the date of grant of the stock options. Stock-based compensation expense under APB No. 25 has, however, been recognized in the accompanying financial statements for the Company contributions under the Company's Common Stock Purchase Plan. NET INCOME PER SHARE During the fiscal quarter ended February 28,1998, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share". SFAS No. 128 replaced the calculation of primary and fully diluted net income per share with a calculation of basic and diluted net income per share. Basic net income per share computations are based on the weighted average number of shares of Common Stock outstanding. Diluted net income per share computations reflect the assumed exercise of outstanding stock options based on the treasury stock method as prescribed by SFAS No. 128. Net income per share amounts for all prior periods have been restated to conform to SFAS No. 128 requirements. The weighted average number of shares outstanding used in the net income per share calculations at August 31, 1998, 1997 and 1996 were as follows:
- ------------------------------------------------------------------------------- Year Ended August 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Basic weighted average number of shares 9,488,436 9,452,082 9,362,409 Diluted weighted average number of shares 9,656,583 9,619,239 9,533,056 - -------------------------------------------------------------------------------
USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". In 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was issued.These statements will be adopted by the Company when required, and are not expected to have a material effect on the consolidated financial statements. NOTE 2: INVENTORIES Inventories at August 31, 1998 and 1997 are summarized as follows:
- ------------------------------------------------------------------------------- August 31, 1998 1997 - ------------------------------------------------------------------------------- Finished goods $10,454,863 $10,511,267 Work in process 257,055 154,962 Raw materials 7,510,482 5,820,100 Supplies 1,936,457 1,752,557 - ------------------------------------------------------------------------------- Total $20,158,857 $18,238,886 - -------------------------------------------------------------------------------
TUSCARORA ANNUAL REPORT 98 15 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 3: LONG-TERM DEBT The Company's credit agreement with its principal bank provides for a $40,000,000 revolving credit facility expiring on August 31, 2001 and a $37,000,000 eight-year term note repayable in quarterly installments, with final maturity on August 31, 2004. Under the credit agreement, the Company may choose between various interest rate options for specified interest periods for both the revolving credit facility and the term note. The agreement provides for a commitment fee of 0.125% per annum on the average daily unborrowed funds under the revolving credit facility. Long-term debt outstanding at August 31, 1998 and 1997 is summarized as set forth below:
- --------------------------------------------------------------------------------------------------------------------------- Interest Rate at August 31, August 31, 1998 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Notes under credit agreement with principal bank: Variable rate revolving credit note 6.70% $34,215,000 $26,215,000 Variable rate term note payable in quarterly installments, through August 31, 2004 6.97% 27,750,000 32,375,000 Other long-term debt: Variable rate industrial development bonds subject to annual mandatory sinking fund redemption through December 1, 2000, with final payment on December 1, 2001 3.80% 2,450,000 2,875,000 Variable rate mortgage note payable in quarterly installments, through March 30, 2006 9.00% 645,843 729,175 Capital lease obligation payable in monthly installments, through May 25, 2005 8.00% 1,198,838 -- Other 5.75% 246,152 105,483 - --------------------------------------------------------------------------------------------------------------------------- 66,505,833 62,299,658 Less amounts due within one year, included in current liabilities 5,321,709 5,133,332 - --------------------------------------------------------------------------------------------------------------------------- Total long-term debt $61,184,124 $57,166,326 ===========================================================================================================================
The outstanding borrowings by the Company under the credit agreement with its principal bank are unsecured. The credit agreement contains covenants, which require the Company to maintain a certain tangible net worth, as well as certain financial ratios. These covenants also impose limitations on the amount which the Company may pay during any fiscal year for property, plant and equipment, and in transactions accounted for as business acquisitions. At August 31, 1998, approximately $4,300,000 of retained earnings was available for the payment of cash dividends by the Company without causing a violation of any of the financial covenants. The agreement relative to the Company's industrial development bonds also contains financial covenants. TUSCARORA ANNUAL REPORT 98 16 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Aggregate maturities of long-term debt during the next five fiscal years are as follows:
- ------------------------------------------------------------------------------- August 31, - ------------------------------------------------------------------------------- 1999 $5,321,709 2000 5,321,709 2001 39,536,709 2002 5,321,709 2003 5,321,709 - -------------------------------------------------------------------------------
The amount becoming due in the fiscal year ended August 31, 2001 includes the $34,215,000 borrowed under the revolving credit facility with the Company's principal bank. The bank makes an annual determination as to whether to extend the expiration date of the revolving credit facility for an additional fiscal year. NOTE 4: COMMON STOCK In all transactions involving the authorized but unissued shares of the Company's Common Stock, an amount equal to $1.00 times the number of shares which is issued is credited to the Common Stock account and the balance of the purchase price is credited to the Capital Surplus account. NOTE 5: SHAREHOLDER RIGHTS PLAN In August 1998, the Company adopted a Shareholder Rights Plan under which the holder of each share of the Company's outstanding Common Stock has an associated preferred stock purchase right. The rights become exercisable to purchase shares of a series of the Company's authorized Preferred Stock designated as the Series A Junior Participating Preferred Stock under certain circumstances, and in the event a person or group would acquire 20% or more of the Company's Common Stock, if not previously redeemed the rights would entitle the holders (other than such person or a member of such group) to purchase shares of the Common Stock of the Company or an acquiring company at 50% of the respective stocks' current fair market value. The rights expire on August 31, 2008. NOTE 6: STOCK OPTIONS In December 1997, the Company's shareholders approved the 1997 Stock Incentive Plan (the "1997 Plan") under which the Board of Directors may grant options to purchase a total of 750,000 shares of the Company's Common Stock to key employees of the Company and its subsidiaries, and to the Company's non-employee directors. At August 31, 1998, all 750,000 shares remained available for the grant of stock options under the 1997 Plan. The Company also has two prior stock option plans under which options to purchase shares of the Company's Common Stock which remain outstanding have been granted to key employees of the Company and its subsidiaries. All outstanding stock options have been granted at 100% of the fair market value of the Company's Common Stock on the date of grant. The stock options have ten-year option terms. The option price may be paid in cash, in already-owned shares of the Company's Common Stock, or in a combination of cash and shares. Data concerning the outstanding stock options during each of the fiscal years in the three-year period ended August 31, 1998 is as follows:
1998 1997 1996 ------------------ ----------------- ----------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - --------------------------------------------------------------------------------------------------------------------------- Balance at September 1 640,590 $12.08 566,565 $10.87 478,035 $ 8.62 Options granted 202,700 18.92 153,975 14.96 144,750 16.50 Options exercised (46,470) 7.11 (63,975) 7.58 (48,570) 5.04 Options expired (28,225) 17.43 (15,975) 14.89 (7,650) 14.15 - --------------------------------------------------------------------------------------------------------------------------- Balance at August 31 768,595 $13.99 640,590 $12.08 566,565 $10.87 - --------------------------------------------------------------------------------------------------------------------------- Exercisable at August 31 768,595 $13.99 640,590 $12.08 566,565 $10.87 ===========================================================================================================================
Stock options outstanding at August 31, 1998 were as follows:
Range of Options at Weighted Average Weighted Average Exercise Prices August 31, 1998 Exercise Price Remaining Contractual Life - --------------------------------------------------------------------------------------------------------------------------- $5.17-$9.99 110,220 $ 7.32 2.3 years $10.00-$14.99 343,575 12.52 7.7 years $15.00-$19.16 314,900 17.93 8.4 years - --------------------------------------------------------------------------------------------------------------------------- Total 768,695 ===========================================================================================================================
TUSCARORA ANNUAL REPORT 98 17 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The following pro forma information regarding net income and basic net income per share, required by Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting and Disclosure of Stock-Based Compensation", has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for the options granted during the 1998, 1997 and 1996 fiscal years was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: a risk-free interest rate of 5.50% for 1998 and 6.50% for 1997 and 1996; a volatility factor of the expected market price of the Company's Common Stock of 0.25 for 1998 and 0.28 for 1997 and 1996; a weighted average expected option life of seven years; and a 1.00% dividend yield. For purposes of the pro forma disclosure, the estimated fair value of the options granted ($6.72, $5.94 and $6.55 per share for 1998, 1997 and 1996, respectively) is charged to expense during the fiscal year of grant based on the vesting provisions of the grants. For the fiscal years ended August 31, 1998, 1997 and 1996, the Company's reported and pro forma net income and basic net income per share are as follows:
- ------------------------------------------------------------- AS REPORTED: 1998 1997 1996 - ------------------------------------------------------------- Net income $8,032,000 $9,295,000 $9,653,000 Basic net income per share $0.85 $0.98 $1.03 - ------------------------------------------------------------- Pro forma: - ------------------------------------------------------------- Net income $6,779,000 $8,380,000 $8,705,000 Basic net income per share $0.71 $0.89 $0.93 - -------------------------------------------------------------
NOTE 7: COMMON STOCK PURCHASE PLAN The Company has a Common Stock Purchase Plan under which most full-time salaried employees in the U.S. may participate. Employees may authorize salary deductions up to 8% of annual salary but not to exceed $300 per month, and the Company contributes an amount equal to 10% of the contributions of the participating employees. The contributions are used to purchase shares of the Company's Common Stock from the Company at current market value. NOTE 8: INCOME TAXES For the fiscal years ended August 31, 1998, 1997 and 1996, income (loss) before income taxes consists of the following:
- ------------------------------------------------------------------- Year Ended August 31, 1998 1997 1996 - ------------------------------------------------------------------- U.S. operations $15,506,129 $16,251,615 $15,639,009 Foreign operations (2,324,718) (810,353) 266,290 - ------------------------------------------------------------------- Total $13,181,411 $15,441,262 $15,905,299 - -------------------------------------------------------------------
The provision (benefit) for taxes on income consists of the following:
- ------------------------------------------------------------------- Year Ended August 31, 1998 1997 1996 - ------------------------------------------------------------------- Current: Federal $5,780,529 $5,365,323 $4,894,867 State 115,913 741,814 1,140,588 Foreign 21,232 47,450 16,759 - ------------------------------------------------------------------- 5,917,674 6,154,587 6,052,214 Deferred: Federal (295,887) 197,229 110,844 State (86,740) 76,002 34,094 Foreign (385,584) (281,817) 55,530 - ------------------------------------------------------------------- (768,211) (8,586) 200,468 - ------------------------------------------------------------------- Total provision $5,149,463 $6,146,001 $6,252,682 - -------------------------------------------------------------------
The following is a reconciliation of the statutory U.S. corporate federal income tax rate to the effective income tax rate:
- ----------------------------------------------------------- Year Ended August 31, 1998 1997 1996 - ----------------------------------------------------------- U.S. statutory rate applied to pre-tax income 35.0% 35.0% 35.0% State income taxes net of Federal tax benefit 2.4% 5.3% 4.8% Prior years' state income tax overaccruals (2.2%) -- -- Other 3.9% (0.5%) (0.5%) - ----------------------------------------------------------- 39.1% 39.8% 39.3% - -----------------------------------------------------------
TUSCARORA ANNUAL REPORT 98 18 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Deferred tax assets and liabilities at August 31, 1998 and 1997 were comprised of the following:
- -------------------------------------------------------- August 31, 1998 1997 - -------------------------------------------------------- Deferred tax assets: Allowance for bad debts $241,235 $238,445 Foreign net operating loss carry forward 584,248 -- Supplemental pension benefits 502,304 502,317 Other 331,238 142,208 Deferred tax liabilities: Depreciation 2,991,992 3,085,036 Other 345,011 215,659 - -------------------------------------------------------- Net deferred tax liability $1,677,978 $2,417,725 - --------------------------------------------------------
NOTE 9: RETIREMENT BENEFITS The Company maintains non-contributory individual account defined contribution pension plans covering most employees in the U. S. and a contributory individual account defined contribution pension plan covering most salaried employees in the U. K. Under these pension plans, the Company contribution is 5.5% of total compensation for most employees. Benefits generally do not become vested until, but become fully vested upon, five full years of employment in the U. S. and two full years of employment in the U. K. Normal retirement under all plans is age 65. All contributions are made to the plan trustees and invested for the accounts of the participants. The Company contributions for the fiscal years ended August 31, 1998, 1997 and 1996 were $2,237,627, $2,143,754 and $1,557,721, respectively. The Company also maintains Section 401(k) plans covering most salaried and non-union hourly employees in the U. S. The Company makes matching contributions based upon the savings of participants, subject to certain limitations. All contributions are made to the plan trustee, are fully vested and are invested by the plan trustee among various investment options in accordance with instructions from the participants. The Company contributions for the fiscal years ended August 31, 1998, 1997 and 1996 were $163,492, $108,510 and $94,628, respectively. Effective September 1, 1996, the Company adopted a supplemental executive retirement plan under which benefits will be paid by the Company directly to certain key employees following their retirement. Benefits under the plan accrue each fiscal quarter and are reflected as a long-term liability. In addition, certain former executive officers of the Company or their beneficiaries are receiving supplemental retirement benefits directly from the Company, the future liability for which is also reflected as a long-term liability. As of August 31, 1998, the liability for the supplemental retirement benefits amounted to $1,112,356, of which $136,453 represents amounts payable within one year. The Company does not provide any other significant postretirement benefits. NOTE 10: ACQUISITIONS Expenditures in connection with business acquisitions in the 1998 fiscal year were not significant. During the fiscal year ended August 31, 1997, the Company completed five acquisitions. In September 1996, the Company acquired the custom thermoforming business of FormPac Corporation in Sandusky, Ohio; in October 1996, the Company acquired all the outstanding capital stock of EPS (Moulders) Ltd., a custom foam molding business in Livingston, Scotland; in April 1997, the Company acquired the custom thermoforming business of Thermoformers Plus in Chula Vista, California; in May 1997, the Company acquired the integrated materials business of Allgood Industries, Inc. in Hayward, California; and in July 1997, the Company acquired all the outstanding capital stock of Arrowtip Group Ltd., a custom molded and fabricated foam packaging business in the United Kingdom. The aggregate purchase price recorded for these acquisitions has totaled $17,662,000, including contingent consideration payable in certain of the acquisitions. The amount recorded as contingent consideration is based on readily attainable sales or on a specified minimum payment amount, and in the aggregate is not material. TUSCARORA ANNUAL REPORT 98 19 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- In December 1995, the Company acquired all the outstanding capital stock of Alpine Packaging, Inc., a custom designer and manufacturer of specialty corrugated and technical/military specifications packaging and wood pallets in Colorado Springs, Colorado. For this acquisition,the Company issued 101,046 shares of its Common Stock and paid cash having an aggregate value of $1,690,663 during the 1996 fiscal year. The Consolidated Statement of Cash Flows for the fiscal year ended August 31, 1996 excludes the non-cash consideration issued in connection with the acquisition. All the acquisitions during the fiscal years ended August 31,1998, 1997 and 1996 have been accounted for as purchases. The operating results of the acquisitions are included in the Company's consolidated results of operations from the date of acquisition. The combined operating results, including the operating results of the acquired businesses had they been included at the beginning of the fiscal year of acquisition would not be materially different from the consolidated results of operations as reported. In certain of these acquisitions, part of the purchase price has been allocated to goodwill (1998-$967,566; 1997-$5,065,420; and 1996-$1,383,140) and/or covenants not to compete (see Note 1 of the Notes to Consolidated Financial Statements). NOTE 11: LEASE COMMITMENTS Rental expense charged to operations for the fiscal years ended August 31, 1998, 1997 and 1996 amounted to $6,550,994, $5,907,685 and $4,223,461, respectively. The approximate net minimum rentals required to be paid under all non-cancelable operating leases during each of the next five fiscal years is as follows:
- -------------------------------------------------------- August 31, - -------------------------------------------------------- 1999 $3,918,482 2000 3,552,298 2001 3,233,138 2002 2,812,520 2003 2,586,420 Thereafter 4,741,571 - --------------------------------------------------------
Substantially all the rental payments represent commitments under leases for manufacturing and warehouse facilities and under leases for trucking equipment. The Company has the option to purchase certain of the manufacturing and warehouse facilities. NOTE 12: RESTRUCTURING COSTS In February 1998, the Company initiated a restructuring plan to reduce costs and increase future financial performance through a workforce reduction, consolidation of certain product design centers and the write-down of certain buildings and equipment that will no longer be employed in the Company's operations. The total restructuring costs amounted to approximately $3,500,000. The principal component of the restructuring plan was a charge of $2,070,572 to cover the write-down of the carrying values of the property and equipment. In addition, the restructuring costs included estimated employee termination costs of $988,864 of which approximately $739,000 was paid as of August 31, 1998. In connection with the restructuring plan, approximately 30 employees were terminated or accepted an early retirement package. These employees were associated with the Company's field sales, design, manufacturing and marketing activities and general corporate overhead. The balance of the charge, approximately $400,000, relates to other restructuring costs associated with the plan. NOTE 13: CLAIMS AND CONTINGENCIES A lawsuit seeking substantial compensatory and punitive damages as a result of the alleged wrongful death of an employee was filed against the Company in December 1996. In addition, several legal and administrative proceedings against the Company involving claims of employment discrimination are pending. In the opinion of management, the disposition of these proceedings should not have a materially adverse effect on the Company's financial position or results of operations. NOTE 14:BUSINESS SEGMENTS The Company currently operates primarily in a single business segment as a designer and manufacturer of interior protective packaging, material handling solutions and componentry. TUSCARORA ANNUAL REPORT 98 20 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The Company has operations in the United States, the United Kingdom and Mexico. Transfers between geographic regions are not significant. The geographic distribution of sales and operating profit for the fiscal years ended August 31, 1998, 1997 and 1996 and of identifiable assets as of August 31, 1998, 1997 and 1996 is set forth below. A portion of U.S. selling expenses has been allocated to the Mexican operations for all periods presented, since a majority of the design and selling activity is performed by U.S. personnel. Operating profit is gross profit less selling and administrative expenses.
- --------------------------------------------------------------------------------------------------------------------- August 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------- Net Sales United States $193,470,452 $178,587,326 $165,156,448 United Kingdom 25,696,670 21,078,007 12,398,404 Mexico 13,735,088 9,541,442 5,034,769 - --------------------------------------------------------------------------------------------------------------------- Total $232,902,210 $209,206,775 $182,589,621 - --------------------------------------------------------------------------------------------------------------------- Operating Income (Loss) United States $23,452,719 $18,087,518 $18,585,318 United Kingdom (2,043,964) (34,582) 357,303 Mexico 153,507 1,565,755 (127,074) - --------------------------------------------------------------------------------------------------------------------- Total $21,562,262 $19,618,691 $18,815,547 - --------------------------------------------------------------------------------------------------------------------- Identifiable Assets United States $134,396,269 $132,026,240 $115,485,089 United Kingdom 24,448,713 25,311,617 11,224,548 Mexico 13,320,924 5,049,703 4,459,805 - --------------------------------------------------------------------------------------------------------------------- Total $172,165,906 $162,387,560 $131,169,442 =====================================================================================================================
NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information is as follows: (All per share amounts have been adjusted to reflect the 50% share distribution paid on January 13, 1997.)
- --------------------------------------------------------------------------------------------------------------------------- Fiscal Quarter Ended November 30 February 28 May 31 August 31 - --------------------------------------------------------------------------------------------------------------------------- FISCAL 1998: Net Sales $61,292,000 $55,919,000 $59,608,000 $56,083,000 Gross Profit 15,099,000 11,404,000 13,178,000 13,077,000 Net Income 3,772,000 (889,000) 2,570,000 2,579,000 Per Share of Common Stock: Basic Net Income $0.40 ($0.09) $0.27 $0.27 Diluted Net Income $0.39 ($0.09) $0.27 $0.27 Dividends Paid - $0.11 -- $0.11 Stock Market Prices: High 21-3/8 18-1/2 16-1/2 16-1/4 Low 17 13-3/8 15-3/8 14-3/8 - --------------------------------------------------------------------------------------------------------------------------- November 30 February 28 May 31 August 31 - --------------------------------------------------------------------------------------------------------------------------- FISCAL 1997: Net Sales $53,441,000 $48,977,000 $52,593,000 $54,196,000 Gross Profit 13,706,000 11,522,000 11,398,000 11,630,000 Net Income 3,692,000 2,074,000 1,885,000 1,644,000 Per Share of Common Stock: Basic Net Income $0.39 $0.22 $0.20 $0.17 Diluted Net Income $0.39 $0.21 $0.20 $0.17 Dividends Paid -- $0.09 -- $0.10 Stock Market Prices: High 15-1/2 19 17-1/2 17-5/8 Low 14-7/16 14-15/16 14-1/8 14-7/8 ===========================================================================================================================
TUSCARORA ANNUAL REPORT 98 21 13 REPORT OF INDEPENDENT ACCOUNTANTS - ------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TUSCARORA INCORPORATED We have audited the accompanying consolidated balance sheets of Tuscarora Incorporated and subsidiaries as of August 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Tuscarora Incorporated for the year ended August 31, 1996, were audited by other auditors whose report dated October 11, 1996, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1998 and 1997 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tuscarora Incorporated at August 31, 1998 and 1997 and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Pittsburgh, PA October 16, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS--FISCAL 1998 COMPARED TO FISCAL 1997 Net sales for the fiscal year ended August 31, 1998 were $232.9 million, an increase of $23.7 million, or 11.3% over fiscal 1997. Approximately 59% of the increase in net sales was attributable to the following acquisitions made in fiscal 1997: the acquisition of two custom molding businesses in the United Kingdom in October 1996 and July 1997, the acquisition of an integrated materials business in the United States in May 1997 and the acquisition of a thermoforming business in the United States in April 1997 (see Note 10 of the Notes to Consolidated Financial Statements). The balance of the increase in net sales was attributable to higher sales in the Company's core custom molding operations and the thermoforming operations. The sales increase was achieved despite slightly lower sales at the Company's existing integrated materials operations and some reduction in selling prices compared to the prior fiscal year resulting from lower EPS raw material costs. Net sales in the fourth quarter of fiscal 1998 were $56.1 million compared to $54.2 million in the same period last year, an increase of 3.5%. The fiscal year over prior fiscal year growth rate in net sales in the fourth quarter was well below the growth rate in the three previous quarters of fiscal 1998, principally because sales from the businesses acquired in May and July 1997 had little effect, year over year, on sales increases in the quarter. Gross profit for the fiscal year ended August 31, 1998 was $52.8 million, or 22.7% of net sales, compared to $48.3 million, or 23.1% of net sales, in fiscal 1997. The decrease in gross profit margin for the fiscal year is due primarily to continued well-below-objective gross profit margins at the Company's United Kingdom facilities. Slower than anticipated demand from certain of the Company's high technology customers, particularly as it affected the start up of the Company's new plant in Texas, also adversely affected gross profit. The decrease in gross profit margin occurred despite lowering EPS raw material costs throughout the period, compared to the prior fiscal year. Selling and administrative expenses for the fiscal year ended August 31, 1998 increased 8.9%, or $2.6 million, to $31.2 million but decreased slightly as a percentage of net sales to 13.4% from 13.7% in the previous fiscal year. The dollar increase was due primarily to increased TUSCARORA ANNUAL REPORT 98 22 14 employee and other costs added in connection with the acquisitions of the businesses in October 1996 and May and July 1997. The dollar decrease in the six-month period ended August 31, 1998, compared to the six-month period ended February 28, 1998, was due primarily to the restructuring initiative implemented in February 1998. Net sales and operating loss for the U.K. operations for the twelve months ended August 31, 1998 were $25.7 million and $2.0 million, respectively, compared to $21.1 million and $35,000, respectively, in fiscal 1997. In February 1998, the Company took a $3.5 million restructuring charge. Approximately $1.0 million of the restructuring charge related to the cost of employee terminations and early retirements; approximately $2.1 million related to the write-down of obsolete or impaired assets; and the balance of $400,000 related to other restructuring costs associated with the plan. In addition to the employee terminations and early retirements, the Company consolidated certain product design centers in the United States. Approximately $411,000 of the restructuring charge related to the U.K. operations. Interest expense for the fiscal year ended August 31, 1998 was $4.9 million compared to $3.7 million in fiscal 1997. The increase of $1.2 million was due to a higher level of outstanding debt throughout the year, primarily as a result of additional borrowings to finance the business acquisitions in fiscal 1997 and capital expenditures in the current fiscal year. Income before income taxes for fiscal 1998 decreased to $13.2 million from $15.4 million in fiscal 1997, a decrease of 14.6%. The decrease is due to the pre-tax $3.5 million restructuring charge. The Company's effective tax rate decreased to 39.1% from 39.8% in fiscal 1997. Lower effective state income tax rates were offset by lower income tax benefits resulting from the operating loss in the U.K. Net income for the fiscal year ended August 31, 1998 was $8.0 million, a decrease of 13.6% from the $9.3 million earned in fiscal 1997. The decrease is due to the pre-tax $3.5 million restructuring charge. RESULTS OF OPERATIONS -- FISCAL 1997 COMPARED TO FISCAL 1996 Net sales for the fiscal year ended August 31, 1997 were $209.2 million, an increase of $26.6 million, or 14.6% over fiscal 1996. Approximately 65% of the increase in net sales was attributable to acquisitions in fiscal 1996 and fiscal 1997. The Company acquired two custom molding businesses in the United Kingdom in October 1996 and July 1997, two integrated materials businesses in the United States in December 1995 and May 1997 and two thermoforming businesses in the United States in September 1996 and April 1997 (see Note 10 of the Notes to Consolidated Financial Statements). The balance of the increase in net sales was attributable to higher sales in the Company's core custom molding operations. The sales increase was achieved despite lower sales at the Company's existing integrated materials operations than in the prior fiscal year, two large customers adjusting inventory levels and reducing their packaging requirements and reductions in some selling prices. Net sales in the fourth quarter of fiscal 1997 were $54.2 million compared to $47.0 million in the same period of fiscal 1996, an increase of 15.3%. The fiscal year over prior fiscal year growth rate in net sales in the fourth quarter was comparable to the growth rate in the three previous quarters of fiscal 1997. Gross profit for the fiscal year ended August 31, 1997 was $48.3 million, or 23.1% of net sales, compared to $43.3 million, or 23.7% of net sales, in fiscal 1996. The decrease in gross profit margin for fiscal 1997 was due primarily to well-below-objective gross profit margins at the Company's United Kingdom facilities and at the expanding thermoforming operations. The gross profit margin was also negatively impacted by the lower sales to two major customers and by operational difficulties at two of the Company's older manufacturing facilities. The decrease in gross profit margin occurred despite lower EPS raw material costs than in fiscal 1996. Selling and administrative expenses for the fiscal year ended August 31, 1997 increased 16.8%, or $4.1 million, to $28.6 million and increased as a percentage of net sales to 13.7% from 13.4% in fiscal 1996. The significant dollar increase was due primarily to increased employee and other costs added in connection with the acquisitions of the businesses in December 1995, September and October 1996 and May and July 1997. TUSCARORA ANNUAL REPORT 98 23 15 Interest expense for the fiscal year ended August 31, 1997 was $3.7 million compared to $2.9 million in fiscal 1996. The increase of $800,000 was due to a higher level of outstanding debt throughout the year, primarily as a result of additional borrowings to finance the business acquisitions. Income before income taxes for fiscal 1997 decreased to $15.4 million from $15.9 million in fiscal 1996, a decrease of 2.9%. The Company's effective tax rate increased slightly to 39.8% from 39.3% in fiscal 1996. Net income for the fiscal year ended August 31, 1997 was $9.3 million, a decrease of 3.7% from the $9.7 million earned in fiscal 1996. The decrease was due primarily to the decrease in the gross profit margin. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities amounted to $21.7 million, $21.0 million and $22.3 million in fiscal 1998, 1997 and 1996, respectively. Depreciation and amortization in fiscal 1998,1997 and 1996 amounted to $17.2 million, $15.3 million and $13.0 million, respectively. Because a substantial portion of the Company's operating expenses are attributable to depreciation and amortization, the Company believes that its liquidity would not be adversely affected should a period of reduced earnings occur. At August 31, 1998, the Company's accounts receivable and inventories were higher than at the end of the previous fiscal year due to the higher sales level during the current fiscal year. Capital expenditures for property, plant and equipment during fiscal 1998, 1997 and 1996 amounted to $24.2 million, $21.3 million and $23.1 million, respectively, including approximately $1.3 million, $1.5 million and $900,000, respectively, for environmental control equipment. The largest amount of the capital expenditures during all three years has been for machinery and equipment. For fiscal 1998, the expenditures included machinery and equipment for new custom molding facilities in Brenham, Texas and Tijuana, B.C., Mexico, and for the purchase of the custom thermoforming facility in Sandusky, Ohio, which was previously leased. Expenditures in connection with business acquisitions during fiscal 1998 were not significant. Long-term debt increased from $57.2 at August 31, 1997 to $61.2 million at August 31, 1998, of which $57.3 million was borrowed under a credit agreement with the Company's principal bank, including $34.2 million out of an available $40.0 million under a revolving credit facility. During the twelve months ended August 31, 1998, $8.0 million was borrowed under the revolving credit facility primarily to fund capital expenditures during the fiscal year. At August 31, 1998, $5.8 million of the revolving credit facility remained available. See Note 3 of the Notes to Consolidated Financial Statements for additional information with respect to long-term debt. The Company has initiated discussions with its principal bank to amend and increase the revolving credit facility. Cash dividends amounted to $2.1 million ($0.22 per share), $1.8 million ($0.19 per share) and $1.6 million ($0.17 per share) in fiscal 1998, fiscal 1997 and fiscal 1996, respectively. Cash provided by operating activities as supplemented by the amount available under the bank credit agreement should continue to be sufficient to fund the Company's operating needs, capital requirements and dividend payments. MARKET RISKS The Company is exposed to market risk from changes in interest rates and foreign exchange rates. The Company's primary interest rate risk relates to its long-term debt obligations. At August 31, 1998, the Company had total long-term obligations, including the current portion of those obligations, of $66,505,833. Of that amount, $1,444,990 was in fixed-rate obligations, $37,750,000 was subject to interest rate swap, cap and floor agreements and $27,310,843 was fully subject to variable rates. Assuming a 10% increase in interest rates on the Company's variable rate obligations (i.e., an increase from the August 31, 1998 weighted average interest rate of 6.75% to a weighted average interest rate of 7.21%), annual interest expense would be approximately $309,000 higher based on the August 31, 1998 outstanding balance of variable rate obligations. A substantial majority of the Company's sales, expenses and cash flows are transacted in U.S. dollars. For the fiscal year ended August 31, 1998, sales denominated in currencies other than the U.S. dollar (primarily U.K. pounds sterling) totaled $25.7 million or approximately 11% of total sales. An adverse change of 10% in exchange rates would have resulted in a decrease in sales of $2,570,000. Due to the losses incurred in the U.K. in 1998, an adverse change in exchange rates would have TUSCARORA ANNUAL REPORT 98 24 16 resulted in a reduction in the net loss for the fiscal year ended August 31, 1998. The Company's entities that operate in the U.K. and Mexico have certain accounts receivable and accounts payable denominated in U.S. dollars in addition to receivable and payable accounts in their home currencies which can act to mitigate the impact of foreign exchange rate changes. The Company has no significant foreign currency exchange contracts. OUTLOOK While the Company's net sales continued to grow, the decline in net income for the 1998 fiscal year and, in particular, the increased operating loss incurred by the operations in the United Kingdom, were significant disappointments. Management's focus for the 1999 fiscal year will be to continue to improve on the relatively high level of profitability of the Company's existing U.S. operations, and to improve the profitability in the Company's U.K. and thermoforming operations. Capital expenditures for fiscal 1999 are expected to be below the expenditures during the 1998 fiscal year; however, the Company will continue to look for acquisitions which will mesh well with the Company's business. The Company will also continue to develop new production sites as they are needed to meet the needs of its customers and expand its geographic area. Should a major acquisition develop or new production site be required, it is likely that there would be a refinancing of the Company's credit agreement with its principal bank. YEAR 2000 ISSUES The Company has completed an internal assessment as to whether its computer systems will properly utilize dates beyond December 31, 1999. Where necessary, the Company has installed new computer software that is Year 2000 capable. The Company has also substantially completed an assessment as to whether its manufacturing machinery and equipment is Year 2000 capable. In this regard, it has contacted its major equipment manufacturers, primarily the manufacturers of the Company's molding presses, for confirmation that the equipment should operate without creating Year 2000 problems. Separately, the Company has contacted its major raw material suppliers to determine if the Company should anticipate any delivery problems associated with Year 2000 issues and intends to contact its significant customers whose Year 2000 readiness could cause a loss of business that might be material to the Company. These customers are generally companies with substantial resources. Management believes, based on its own investigation and the information it has obtained, that any significant problems that might arise should be resolved without materially adversely affecting the Company's business, results of operations or financial condition. The cost to the Company of acquiring and installing the new computer software and other costs associated with Year 2000 issues have not been significant. Estimated future costs are also not expected to be of any significance. OTHER The impact of inflation on both the Company's financial position and results of operations has been minimal and is not expected to adversely effect fiscal 1999 results. ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". In 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was issued. These statements will be adopted by the Company when required, and are not expected to have a material effect on the consolidated financial statements. TUSCARORA ANNUAL REPORT 98 25 17 Eleven Year Consolidated Financial Summary
YEAR ENDED AUGUST 31, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Net sales $232,902 $209,207 $182,590 $163,300 $120,085 Income before income taxes 13,181(a) 15,441 15,905 15,034 9,017 Net income 8,032(a) 9,295 9,653 8,980 5,703 Depreciation and amortization 17,231 15,286 12,977 10,890 9,721 Weighted average shares outstanding--basic 9,488 9,452 9,362 9,231 9,194 Basic net income per share 0.85(a) 0.98 1.03 0.97 0.62 Diluted net income per share 0.83(a) 0.97 1.01 0.96 0.61 Margin on sales 3.4% 4.4% 5.3% 5.5% 4.7% Return on beginning shareholders' equity 11.0% 14.3% 17.6% 19.0% 13.4% Working capital 34,859 29,784 23,224 22,390 16,548 Total assets 172,166 162,388 131,169 117,721 94,225 Long-term debt (excluding current portion) 61,184 57,166 39,249 36,510 25,284 Shareholders' equity 79,524 72,817 64,827 54,773 47,180 Shareholders' equity per share 8.38 7.70 6.92 5.93 5.13 Dividends per share 0.22 0.19 0.17 0.15 0.13 - ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1993 1992 1991 1990 1989 1988 - ---------------------------------------------------------------------------------------------------------------------- Net sales $101,075 $95,809 $84,420 $85,458 $77,642 $65,583 Income before income taxes 6,285 8,289 6,856 7,912 7,479 5,644 Net income 4,270(b) 4,981 4,230 4,874 4,478 3,469 Depreciation and amortization 9,206 7,879 7,235 6,591 5,463 4,269 Weighted average shares outstanding-- basic 9,164 9,146 9,086 9,033 9,030 8,034 Basic net income per share 0.47(b) 0.54 0.47 0.54 0.50 0.43 Diluted net income per share 0.46(b) 0.54 0.46 0.53 0.49 0.43 Margin on sales 4.2% 5.2% 5.0% 5.7% 5.8% 5.3% Return on beginning shareholders' equity 10.9% 14.2% 13.4% 17.8% 19.0% 22.0% Working capital 15,893 13,463 13,728 11,385 11,418 10,146 Total assets 79,769 75,510 63,775 60,677 53,138 46,777 Long-term debt (excluding current portion) 23,930 22,121 14,870 16,264 13,165 13,248 Shareholders' equity 42,546 39,280 35,152 31,451 27,360 23,574 Shareholders' equity per share 4.64 4.29 3.87 3.48 3.03 2.93 Dividends per share 0.12 0.11 0.09 0.09 0.08 0.07
In the above table, all dollar amounts, except per share data, are in thousands. The weighted average number of shares of Common Stock outstanding and the dividends and other per share amounts have been adjusted to reflect the 200% share distribution paid on October 1, 1987, the 100% share distribution paid on April 14, 1992 and the 50% share distribution paid on January 13, 1997. (a) Income before income taxes, net income and net income per share amounts for the 1998 fiscal year include the effect of a nonrecurring, pre-tax charge of $3,495,336 for restructuring costs. (See Note 12 to the financial statements.) (b) Net income and net income per share amounts for the 1993 fiscal year include income of $321,218 or $0.03 per share resulting from the cumulative effect of a change in the method of accounting for income taxes. EX-21 9 TUSCARORA INCORPORATED 1 Exhibit 21 TUSCARORA INCORPORATED List of Subsidiaries The following is a complete list of the subsidiaries of the Company:
Name of Jurisdiction of Subsidiary Incorporation ---------- ------------- Alpine Packaging, Inc. (1) Colorado Tuscarora International, Inc. (1) Delaware Tuscarora, S.A. de C.V. (2) Mexico Tuscarora Tijuana, S.A. de C.V. (2) Mexico Tuscarora Investment Corporation (1) Delaware Tuscarora Limited(1) England Tuscarora (Scotland) Limited (3) England Arrowtip Mouldings Limited (3) England Arrowtip Limited (4) England Anglian Expanded Products Limited (4) England
- ----------------- (1) 100% owned by Tuscarora Incorporated. (2) 4,999 shares are owned by Tuscarora International, Inc. and 1 share is owned by Tuscarora Incorporated. (3) 100% owned by Tuscarora Limited. (4) 100% owned by Arrowtip Moldings Limited EX-23.1 10 TUSCARORA INCORPORATED 1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP We consent to the incorporation by reference in this annual report on Form 10-K of Tuscarora Incorporated of our report dated October 16, 1998 included in the 1998 Annual Report to Shareholders of Tuscarora Incorporated. Our audits also included the financial statement schedules of Tuscarora Incorporated as of and for the years ended August 31, 1998 and 1997 listed in Item 14(a)(2) of this annual report. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. The financial statement schedule of Tuscarora Incorporated as of and for the year ended August 31, 1996 was audited by other auditors whose report dated October 11, 1996 expressed an unqualified opinion on that schedule. In our opinion, the financial statement schedules as of and for the years ended August 31, 1998 and 1997, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statements on Form S-8 (No. 33-35373) pertaining to the 1985 Incentive Stock Option Plan of Tuscarora Incorporated; Form S-8 (Nos. 33-35373 and 333-06111) pertaining to the 1989 Stock Incentive Plan of Tuscarora Incorporated; Form S-8 (No. 333-57833) pertaining to the 1997 Stock Incentive Plan of Tuscarora Incorporated; and Form S-8 (No. 333-35587) pertaining to the Tuscarora Incorporated Common Stock Purchase Plan for Salaried Employees of our report dated October 16, 1998 with respect to the financial statements incorporated in this annual report by reference and our report included in the preceding paragraph with respect to the financial statement schedules included in this annual report on Form 10-K of Tuscarora Incorporated. /s/ ERNST & YOUNG LLP ------------------------- ERNST & YOUNG LLP Pittsburgh, Pennsylvania November 25, 1998 EX-23.2 11 TUSCARORA INCORPORATED 1 Exhibit 23.2 CONSENT OF S.R. SNODGRASS, A.C. We consent to the incorporation by reference of our report dated October 11, 1996 on our audit of the consolidated statements of income, shareholders' equity and cash flows of Tuscarora Incorporated and subsidiaries as of and for the year ended August 31, 1996, which report is filed as Exhibit 99 to this annual report on Form 10-K, in the following documents: 1. Registration Statement No. 333-57833 on Form S-8 for the 1997 Stock Incentive Plan of Tuscarora Incorporated, filed under the Securities Act of 1933, as amended, and the Prospectus used in connection with such Registration Statement; 2. Registration Statements No. 33-35373 and No. 333-06111 on Form S-8 for the 1985 Incentive Stock Option Plan and 1989 Stock Incentive Plan of Tuscarora Incorporated, filed under the Securities Act of 1933, as amended, and the Prospectus used in connection with such Registration Statements; and 3. Registration Statement No. 33-35587 on Form S-8 for the Tuscarora Incorporated Common Stock Purchase Plan for Salaried Employees, filed under the Securities Act of 1933, as amended, and the Prospectus used in connection with such Registration Statement. /s/ S.R. Snodgrass, A.C., Beaver Falls, PA November 25, 1998 EX-24 12 TUSCARORA INCORPORATED 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ THOMAS S. BLAIR ------------------------------ Thomas S. Blair 2 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ DAVID I. COHEN ------------------------------ David I. Cohen 3 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ ABE FARKAS ------------------------------ Abe Farkas 4 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ KAREN L. FARKAS ------------------------------ Karen L. Farkas 5 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ ROBERT W. KAMPMEINERT ------------------------------ Robert W. Kampmeinert 6 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ JEFFERY L. LEININGER ------------------------------ Jeffery L. Leininger 7 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ DAVID C. O'LEARY ------------------------------ David C. O'Leary 8 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ HAROLD F. REED, JR. ------------------------------ Harold F. Reed, Jr. 9 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints John P. O'Leary, Jr. and Brian C. Mullins, and each of them, the undersigned's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead, in any all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended August 31, 1998 of Tuscarora Incorporated, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person and hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitutes, may lawfully do or cause to be done by virtue hereof. October 16, 1998 /s/ THOMAS P. WOOLAWAY ------------------------------ Thomas P. Woolaway EX-27.1 13 TUSCARORA INCORPORATED
5 12-MOS AUG-31-1998 SEP-01-1997 AUG-31-1998 5,452,281 0 34,891,539 651,720 20,158,857 61,806,267 194,085,549 96,547,340 172,165,906 26,946,775 61,184,124 0 0 9,530,856 69,993,101 172,165,906 232,902,210 232,902,210 180,144,500 180,144,500 0 311,711 3,495,336 13,181,411 5,149,463 8,031,948 0 0 0 8,031,948 0.85 0.83
EX-27.2 14 TUSCARORA INCORPORATED
5 12-MOS AUG-31-1997 SEP-01-1996 AUG-31-1997 5,095,149 0 32,342,357 674,689 18,238,886 56,593,987 187,996,994 94,882,160 162,387,560 26,809,508 57,166,326 0 0 9,479,241 63,338,107 162,387,560 209,206,775 209,206,775 160,951,244 160,951,244 0 504,862 3,741,275 15,441,262 6,146,001 9,295,261 0 0 0 9,295,261 0.98 0.97 Restated to conform to SFAS No. 128.
EX-27.3 15 TUSCARORA INCORPORATED
5 12-MOS AUG-31-1996 SEP-01-1995 AUG-31-1996 3,379,776 0 26,881,581 787,175 15,666,880 46,912,756 159,239,608 80,529,962 131,169,442 23,688,852 39,249,136 0 0 9,426,923 55,399,966 131,169,442 182,589,621 182,589,621 139,249,481 139,249,481 0 378,366 2,928,483 15,905,299 6,252,682 9,652,617 0 0 0 9,652,617 1.03 1.01 Restated to conform to SFAS No. 128.
EX-99 16 TUSCARORA INCORPORATED 1 Exhibit 99 REPORT OF S.R. SNODGRASS, A.C. To the Board of Directors and Shareholders of Tuscarora Incorporated We have audited the accompanying consolidated statements of income, shareholders' equity and cash flows of Tuscarora Incorporated and subsidiaries for the fiscal year ended August 31, 1996. Our audit also included the financial statement schedule of Tuscarora Incorporated and subsidiaries for the year ended August 31, 1996 listed in the Index at Item 14(a)(2) of this annual report. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flow of Tuscarora Incorporated and subsidiaries for the fiscal year ended August 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ S.R. Snodgrass, A.C. Beaver Falls, PA October 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----