<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K


                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                   For the fiscal year ended December 31, 1996
                          Commission file number 1-7272


                                KERR GROUP, INC.
             (Exact name of Registrant as specified in its charter)

              Delaware                                95-0898810
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                   Identification Number)

500 New Holland Avenue, Lancaster, Pennsylvania       17602
(Address of principal executive office)               (Zip Code)

Registrant's telephone number,
     including area code:                             (717) 299-6511


Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of each exchange
Title of each class                                   on which registered

Common Stock                                          New York Stock Exchange
$1.70 Class B Cumulative Convertible
    Preferred Stock, Series D                         New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None


                                   -Continued-
<PAGE>   2
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   Yes  X    No    .
                                         ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of February 28, 1997, was $7,708,974.

The number of shares of the Registrant's Common Stock, $.50 par value,
outstanding as of February 28, 1997, was 3,933,095.




                                      (ii)




                                        2
<PAGE>   3
                                KERR GROUP, INC.

                             Form 10-K Annual Report

                   For The Fiscal Year Ended December 31, 1996


                                     PART I

ITEM 1.  BUSINESS

         1.  General

         Kerr Group, Inc. (the "Registrant" or the "Company"), a Delaware
corporation which was founded in 1903, is a major producer of plastic packaging
products and, until March 15, 1996, also operated the Consumer Products
Business.

         Present operations include the manufacture and sale of plastic
packaging products, including child-resistant closures, tamper-evident closures,
prescription packaging products, jars, other closures and containers and the
sale of glass prescription bottles ("Continuing Operations"). Operations in the
discontinued Consumer Products Business included the manufacture and sale of
caps and lids and the sale of glass jars and a line of pickling spice and pectin
products for home canning together with the sale of other related products,
including iced tea tumblers and beverage mugs ("Discontinued Operations").

         On March 15, 1996, the Company sold to Alltrista Corporation ("Buyer")
for $14,417,000 certain assets of the Consumer Products Business, consisting of
the manufacturing assets, supplies, work in process inventory and certain
trademarks and a perpetual and exclusive license to use the name "Kerr" in the
sale of home canning supplies. The Company also assigned to Buyer the lease on
the Jackson, Tennessee plant where the Company manufactured metal caps and lids
for the Consumer Products Business. The Company also appointed the Buyer as
sales agent to sell the inventory of home canning supplies produced by the
Company before March 15, 1996. The Company received $17,391,000 during the
remainder of 1996 from the sale of its Consumer Products Business inventory and
the collection of accounts receivable of the Consumer Products Business. The
Company used the proceeds i) to reduce debt and the level of advances under the
Company's Accounts Receivable Agreement, ii) to fund the cash costs of the
restructuring of the Company undertaken during 1996 and iii) for working capital
purposes.

         On March 15, 1996, the Company announced a restructuring which involved
the consolidation of the Company's wide mouth jar and closure manufacturing
facility into its existing tamper-evident closure facility in Bowling Green,
Kentucky and the relocation of the Company's principal executive office from Los
Angeles, California to Lancaster, Pennsylvania where the headquarters of the
Company's plastic products business was located. The




                                        3
<PAGE>   4
restructuring, which was completed by the end of 1996, is expected to result in
annualized pretax cost savings of approximately $6,500,000 primarily from
reduced costs for employment, rent payments, manufacturing overhead, utilities
and freight. The full benefit of these cost savings should be realized in 1997.

         a.  Principal Products and Markets; Sales and Customers

         Plastic closures are sold to customers in the pharmaceutical, food,
distilled spirits, toiletries and cosmetics and household chemical industries.
Prescription plastic closures and containers and glass prescription bottles are
sold to drug wholesalers, drug chains and independent pharmacists. Plastic
bottles and jars are sold to customers in the pharmaceutical and toiletries and
cosmetics industries. The products of the Company are sold nationally,
principally by the Company's sales force.

         No customer accounted for more than 10% of the Company's net sales in
1996, 1995 or 1994. Information regarding revenue and sales for the Company's
last three fiscal years is set forth in Item 8, Financial Statements and
Supplemental Data.

         b.  Competition

         Competition in the markets in which the Company operates is highly
fragmented and the Company has a number of large competitors who compete for
sales on the basis of price, service and quality of product. The Company
believes that it is one of the three largest manufacturers of child-resistant
plastic closures. The Company has one major competitor in the market for
prescription plastic closures and containers and glass prescription bottles, who
has substantially larger market share than the Company. The Company also
believes it is the largest domestic manufacturer of plastic closures
incorporating a tamper-evident feature for the liquor market and that it is one
of the largest suppliers of single and double walled jars to the personal care
and cosmetic markets.

         c.  Backlog

         The Company does not believe that recorded sales backlog is a
significant factor in its business.

         d.  Raw Materials and Supplies; Fuel and Energy Matters

         The primary raw materials used by the Company are resins. The Company
has historically been able to obtain adequate supplies of resins from a number
of sources. However, since resins are derived from petroleum or fossil fuel,
shortages of petroleum or fossil fuel could affect the supply of resins. From
time to time, the Company has experienced substantial fluctuations in the cost
of resin. To the extent that the Company is unable to pass on resin cost
increases, the cost increases could have a significant impact on the results of
operations of the Company. The Company, consistent with industry practice, is
generally able to pass through resin cost increases for all product lines except
the prescription packaging product line.



                                        4
<PAGE>   5
However, in times of rapidly increasing resin prices, as occurred in late 1994
and during the first half of 1995, the Company's ability to pass through the
full impact of resin price increases on a timely basis is limited.

         e.  Product Development, Engineering, Patents and Licensing

         The Company maintains active research and development, and engineering
groups. These groups are responsible for i) developing new products and
enhancements to existing products, ii) improving manufacturing technology in
order to reduce costs, and iii) ensuring that products meet stringent quality
standards. The Company believes that its ability to market innovative,
high-quality products provides the Company with a competitive advantage. To the
extent competitors are more successful than the Company in introducing and
marketing new products, the Company's sales and profitability could be adversely
affected.

         Expenditures related to the Company's research and development group
during the years ended December 31, 1996, 1995 and 1994 were $1,991,000,
$1,708,000 and $2,110,000, respectively.

         Expenditures related to the Company's engineering group during the
years ended December 31, 1996, 1995 and 1994 were $1,493,000, $1,618,000 and
$1,496,000, respectively.

         Although the Company owns a number of United States patents, including
patents for its tamper-evident closures and certain of its child-resistant
closures, it is of the opinion that no one or combination of these patents is of
material importance to its business. The Company has granted licenses on some of
its patents, although the income from these sources is not material.

         f.  Environmental Matters; Legislation

         The Company is subject to laws and regulations governing the protection
of the environment, including, among others, laws and regulations governing
disposal of waste, discharges into water and emissions into the atmosphere. The
Company's expenditures for environmental control equipment in each of the last
three years have not been material and the standards required by such
regulations have not significantly affected the Company's operations.

         The Company is a party or a potentially responsible party in several
administrative proceedings and lawsuits involving liability for cleanup of
certain offsite disposal facilities under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund") and similar
state laws. See "Legal Proceedings".

         g.  Employees

         As of December 31, 1996, the Company had approximately 875 employees,
of which approximately 200 were office, supervisory and sales personnel.




                                        5
<PAGE>   6
         h.  Seasonality

         Seasonality does not have a material effect on the operations of the
Company.

         i.  Working Capital

         In general, the working capital practices followed by the Company are
typical of the businesses in which it operates.

         As of December 31, 1996, the Company had an Accounts Receivable
Agreement that met the working capital needs of the Company. The Agreement
permitted the Company to sell its trade accounts receivable on a nonrecourse
basis. Under the Agreement, the maximum amount that could be advanced to the
Company pursuant to the sale of trade accounts receivable at any time was
$8,500,000. The Company retained collection and service responsibility, as agent
for the purchaser, over any receivables sold.

         The Company is presently in default with respect to interest coverage
and net worth covenants under the Loan Agreements which govern the unsecured
Senior Notes and Bank Note issued by the Company. Under the terms of the Loan
Agreements relating to the Senior Notes and the Bank Note, the Company is not
permitted to sell the accounts receivable under the Accounts Receivable
Agreement because of the default. The Company is in discussions with the owners
of the Senior Notes and Bank Note regarding obtaining an extension of the waiver
which expired on March 7, 1997. The discussions with the owners also include
negotiations for the purchase by the Company of the Senior Notes and the Bank
Note. The funds for the purchase of the Senior Notes and Bank Note would be
obtained from a senior secured loan and a subordinated secured loan which the
Company is discussing with institutional lenders and with respect to which loan
agreements are being negotiated. Consummation of any purchase of the Senior
Notes and Bank Note is subject to definitive agreements being reached with the
new lenders as well as the holders of the Senior Notes and Bank Note. There can
be no assurance that the owners of the Senior Notes and the Bank Note will
extend the waiver of the defaults, or agree to sell the Senior Notes and the
Bank Note for a purchase price that is acceptable to the Company or that the
senior secured loan and the subordinated secured loan can be obtained to finance
the purchase. In the event the Company does not obtain an extension of the
waiver, the Company does not intend to make its quarterly payment of interest
due under the Senior Notes and Bank Note due on March 31, 1997.

         The lender proposing to make the subordinated secured loan to the
Company has indicated that it is willing to purchase the accounts receivable of
the Company through June 30, 1997 on terms and conditions acceptable to the
lender in its sole and reasonable discretion. The terms and conditions to be
negotiated include, without limitation, pricing, credit criteria, reserves,
servicing and recourse. The lender's willingness to purchase the Company's
accounts receivable will be subject to the negotiation, execution and delivery
of purchase documents in form and substance satisfactory to the lender. There
can be no assurance that the Company and the lender will reach definitive
agreement on the terms of such purchase. The sale of the accounts receivable to
this lender, in the absence of a waiver of the existing default, will constitute
a further default by the Company under the existing Loan Agreements.


                                        6
<PAGE>   7
         As part of its overall restructuring, the Company is involved in
discussions with the Pension Benefit Guaranty Corporation relating to the
Company's pension liabilities. The Company expects these discussions to
continue.

         The Company expects to receive approximately $3,500,000 from the sale
of real property located in Santa Ana, California in April 1997. The Company had
$5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company
reaches satisfactory agreement with the lender regarding the new accounts
receivable facility, the Company believes that it will have sufficient funds
available to finance its working capital requirements through June 30, 1997.


ITEM 2.  PROPERTIES

         The Company's manufacturing activities are conducted at the four
facilities described in the following table.

<TABLE>
<CAPTION>
                                                                Building Area
Location                       Purpose of Facility              (square feet)
--------                       -------------------              -------------

<S>                            <C>                              <C>
Lancaster, Pennsylvania        Plastic Closure and                 490,000
                               Container Plant;
                               Warehouses

Jackson, Tennessee             Plastic Closure, Vial and           198,000
                               Bottle Plant; Warehouse

Ahoskie, North Carolina        Plastic Closure Plant;              153,000
                               Warehouse

Bowling Green, Kentucky        Plastic Closure Plant;              168,000
                               Warehouse
</TABLE>

         The Lancaster, Pennsylvania and Ahoskie, North Carolina facilities are
owned by the Company. The Jackson, Tennessee and Bowling Green, Kentucky
facilities are leased by the Company. The Company's principal executive offices
are located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602. In
addition, the Company rents three area sales offices.

         In the opinion of the Company's management, its manufacturing
facilities are suitable and adequate for the purposes for which they are being
used.

         The Company has for sale land in Santa Ana, California that was the
site of a glass container manufacturing plant.

         In 1996, the Company's plastic products manufacturing facilities
operated at approximately 72% of capacity.


                                       7
<PAGE>   8
ITEM 3.  LEGAL PROCEEDINGS

         On February 11, 1997, the State Teachers Retirement System ("Teachers")
filed and served a complaint against the Company for unlawful detainer of
certain premises located at 1840 Century Park East, Los Angeles, California, the
Company's former principal executive offices (Teachers v. Kerr Group, Inc., et
al., No. BC165 718, Superior Court of California, County of Los Angeles). On
February 18, 1997, after the Company relinquished possession of the premises,
Teachers agreed that the Company need not file an answer to the complaint.
However, counsel for Teachers advised that Teachers may elect to amend the
complaint to state a claim for breach of contract.

         In November 1996, the Company was named a third-party defendant in
Adhesives Research, Inc., et al. v. Alford Industries, et al. v. A&A Waste Oil
Co., Inc., et al., No. 1:CV-95-1975 (M.D.Pa.). This suit was brought in the
United States District Court for the Middle District of Pennsylvania initially
by numerous plaintiffs seeking to recover from named defendants their costs to
clean up environmental contamination at a site in Newberry Township, York
County, Pennsylvania known as the Industrial Solvents & Chemical Company
("ISCC") site. Certain defendants identified other parties, including the
Company, as third-party defendants in this litigation. The third-party complaint
alleges that the Company and other parties generated hazardous substances that
have been or are threatened to be released at the ISCC site. The third-party
complaint further alleges claims for cost recovery and contribution under
federal and state law for costs incurred or to be incurred in connection with
those releases or threatened releases. The Company is participating in
negotiations to resolve its liability through payment based on a formula that
takes into account the Company's allocated share of liability. The Company has
already paid certain past costs associated with cleanup of the ISCC site. Under
current settlement proposals, the Company's remaining payment would be
approximately $20,000. There can be no assurance, however, that settlement will
be reached or that settlement will be reached on the terms currently being
proposed. A reserve has been established for the estimated cost of settlement.

         As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, on April 12, 1990, the State of New Jersey,
Department of Environmental Protection and Energy ("NJDEPE"), filed a lawsuit in
the United States District Court for the District of New Jersey against the
Company, among others, entitled State of New Jersey, Department of Environmental
Protection v. Gloucester Environmental Management Services, Inc., et al., No.
84-0152 (D.N.J.). The suit alleges that the Company was a "generator" of
hazardous wastes and other hazardous substances which were disposed of at the
Gloucester Environmental Management Services, Inc. ("GEMS") facility in the
Township of Gloucester. The suit seeks cleanup costs, compensatory and treble
damages, and a declaration that the Company and others are responsible for
NJDEPE's past and future response costs at the GEMS site. On March 27, 1990,
NJDEPE issued a Directive to the Company and other parties pursuant to the New
Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. Pursuant
to the Directive, the Company and other parties have been ordered to undertake
the second phase of remedial action at the site, including the construction and
operation of a groundwater treatment system and operation of the remedial action
performed in the first phase, and to reimburse NJDEPE's alleged past and future
response costs. The estimated cost of second phase remedial


                                       8
<PAGE>   9
action related to the GEMS site is approximately $20 million. The amount that
the NJDEPE is seeking as reimbursement for past costs and damages is
approximately $10 million. In October, 1995 the Company entered into a de
minimis settlement agreement with the State of New Jersey and the United States
to resolve all outstanding claims. In exchange for a payment of approximately
$205,000, the Company will be dismissed from the lawsuit in accordance with the
terms of a Consent Decree which is expected to be entered by the Court within
six months. The Company has not admitted any liability for disposal of wastes at
the GEMS site. The Company is one of approximately ninety companies
participating in the de minimis settlement. One of the Company's insurance
carriers has agreed to pay the cost of settlement and defense of this matter,
subject to an agreement to arbitrate whether coverage is available for
approximately $75,000 in settlement funds. Thus, the Company's maximum exposure
in connection with this site is $75,000, however, the Company believes it will
incur no costs related to this site.

         As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, in March 1986, the Company and other parties were
designated by the United States Environmental Protection Agency ("EPA") as
potentially responsible parties ("PRPs") responsible for the cleanup of certain
hazardous wastes that have been disposed of at the Wayne Waste Oil ("WWO") site
located near Columbia City, Indiana. In October 1986, the Company and other PRPs
entered into a Consent Order with the EPA which allowed the PRPs to complete a
Remedial Investigation and Feasibility Study for the WWO site. In March 1990,
the EPA issued a Record of Decision ("ROD") for the site. The ROD documents the
EPA's cleanup plan for the site, which includes capping the former municipal
landfill, groundwater extraction and treatment, and soil vapor extraction. On
July 20, 1992, a Consent Decree between the EPA and the PRPs at the site was
entered in the United States District Court for the Northern District of
Indiana, captioned United States v. Active Products Corp., No. F91-00247.
Remedial construction has been completed, however, operation and maintenance
obligations remain. At this time the Company does not anticipate further
expenditures in connection with this matter.

         As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, in September 1985, the Company and other parties
were designated by the EPA as PRPs responsible for the cleanup of certain
hazardous wastes that have been disposed of at the Northside Sanitary Landfill
("NSL") site located northwest of Indianapolis, Indiana. The EPA has combined
the NSL site with the adjacent Environmental Conservation and Chemical
Corporation ("ECC") site. On November 12, 1991, a Consent Decree between the EPA
and the PRPs at the site was entered by the United States District Court for the
Southern District of Indiana, captioned United States v. Aluminum Corporation of
America, No. IP91 591C. Based upon the Company's percentage share of the total
amount of wastes disposed of at the site, the Company estimates its remaining
share of the costs under the Consent Decree will be approximately $5,000. A
reserve has been established for such costs.

         As the Company reported in its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, in November 1981, the EPA advised the Company that
it was one of several companies that had disposed of wastes at the Carolawn
Company ("CC") site located in Chester County, South Carolina. At the time of
notice, the EPA had completed certain cleanup activities at the CC site and
requested that the Company and other parties which had disposed of wastes at the
site contribute to the cost of these activities. On August 31, 1983, an action,
United


                                       9
<PAGE>   10
States of America v. Carolawn Company, Inc., et al., No. 83-2162-0, was
commenced in the United States District Court for the District of South
Carolina. On June 23, 1988, a Partial Consent Decree was entered in the United
States District Court for the District of South Carolina (No. 83-2162-0). On
December 4, 1991, a Partial Consent Decree For Remedial Design And Construction
at the CC site was entered by the United States District Court for the District
of South Carolina (No. 0-91-2177-0). Negotiations are currently underway to
amend the Partial Consent Decree to address operations and maintenance of the
remedy. Based upon the Company's percentage share of the total amount of wastes
disposed of at the CC site, the Company estimates its share of operation and
maintenance costs will be approximately $16,500. A reserve has been established
for such costs.




                                       10
<PAGE>   11
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below are the names, ages, positions and offices held, and a
brief account of the business experience during the past five years of each
executive officer of the Registrant.

<TABLE>
<CAPTION>
                                       Positions Held With
                                       Registrant and Periods
          Name and Age                 During Which Held
     -------------------------         -----------------------------
<S>                                    <C>
     D. Gordon Strickland (50)         President and Chief Executive
                                       Officer, since March 15, 1996;
                                       Senior Vice President, Finance and
                                       Chief Financial Officer, since 1986;

     Robert S. Reeves (67)             Senior Vice President, Sales, since 1992;
                                       Senior Vice President, General Manager,
                                       Commercial Glass Container Division, since
                                       1985

     Geoffrey A. Whynot (38)           Vice President, Finance, Chief Financial
                                       Officer, since March 15, 1996; Vice
                                       President, Treasurer since 1991
</TABLE>


Business Experience

         D. Gordon Strickland has served in an executive capacity with the
Registrant for more than the past five years.

         Robert S. Reeves has served in an executive capacity with the
Registrant for more than the past five years.

         Geoffrey A. Whynot has served as Vice President, Treasurer of
Registrant since 1991.




                                       11
<PAGE>   12
                                     PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

         The Company's Common Stock and Preferred Stock are both listed on the
New York Stock Exchange. As of February 28, 1997, there were approximately 1,257
and 109 holders of record of the Company's Common Stock and Preferred Stock,
respectively. The following table summarizes the prices of the Common Stock and
Preferred Stock on the New York Stock Exchange Composite Tape and quarterly cash
dividends:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                      Common Stock                     Preferred Stock
--------------------------------------------------------------------------------------------------
                                                   Cash                                   Cash
Calendar Year                 High        Low    Dividends        High        Low        Dividends
--------------------------------------------------------------------------------------------------
<S>                           <C>        <C>     <C>            <C>         <C>          <C>
1996
First Quarter                 $9 7/8     $5 3/4    $ --         $20         $17 3/4       $.425
Second Quarter                 6 1/4      3 3/4      --          18 1/8      13 1/2          --
Third Quarter                  4 3/8      2 3/8      --          14          12 1/8          --
Fourth Quarter                 4 3/8      2 1/8      --          12 3/8       7 1/2          --

1995
First Quarter                 $9 3/8     $6 7/8    $ --         $20 5/8     $19 1/8       $.425
Second Quarter                 8 3/8      7 1/8      --          20 1/8      19 1/4        .425
Third Quarter                  8 1/2      7          --          20 1/4      19            .425
Fourth Quarter                10 3/8      6 1/2      --          20          16 3/8        .425
</TABLE>

The cumulative Preferred Stock dividend requirement as of December 31, 1996, was
$829,000. The Company has not declared a dividend on its Class B, Series D
Preferred Stock since the first quarter of 1996. The cumulative amount of
undeclared dividends as of December 31, 1996 is $622,000. Under the terms of an
agreement with its lenders, the Company is not permitted to declare or pay any
dividends on its preferred stock at December 31, 1996.

The payment of Common Stock dividends is restricted by the Company's Senior Note
agreement. Under such restrictions, the payment of Common Stock dividends is not
permitted at December 31, 1996.




                                       12
<PAGE>   13
ITEM 6.  SELECTED FINANCIAL DATA



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Years Ended December 31,                              1996          1995         1994        1993         1992
-----------------------------------------------------------------------------------------------------------------
                                                              (in thousands, except per share amounts)
<S>                                                <C>           <C>           <C>         <C>          <C>
Net sales                                          $ 107,369     $ 109,187     $106,792    $ 98,533     $ 92,557

Gross profit                                          24,305        24,582       33,012      29,121       25,731

Earnings (loss) from continuing operations
    before interest and income taxes (a)             (12,722)       (1,416)       7,152       6,562        3,953

Earnings (loss) from continuing operations
    before income taxes                              (17,425)       (6,024)       3,534       2,576          287
Provision (benefit) for income taxes (b)               6,837        (2,401)       1,441        (711)         119
                                                   ---------     ---------     --------    --------     --------

Earnings (loss) from continuing operations           (24,262)       (3,623)       2,093       1,865          168

Earnings (loss) from discontinued operations --
    Consumer Products Business (c)                     1,969        (1,684)       1,311      (2,198)       2,419
    Metal Crown Business (d)                              --            --           --          --       (5,284)
Extraordinary loss on retirement of debt                  --            --           --      (1,300)          --
                                                   ---------     ---------     --------    --------     --------

Net earnings (loss)                                  (22,293)       (5,307)       3,404      (1,633)      (2,697)

Preferred stock dividends (e)                            829           829          829         829          829
                                                   ---------     ---------     --------    --------     --------

Net earnings (loss) applicable to common
    stockholders                                   $ (23,122)    $  (6,136)    $  2,575    $ (2,462)    $ (3,526)
                                                   =========     =========     ========    ========     ========

Earnings (loss) per common share:
    Earnings (loss) per common share from
        continuing operations (a) (b)              $   (6.38)    $   (1.16)    $   0.34    $   0.28     $  (0.18)
    Earnings (loss) per common share from
        discontinued operations --
            Consumer Products Business (c)              0.50         (0.44)        0.36       (0.60)        0.66
            Metal Crown Business (d)                      --            --           --          --        (1.44)
    Extraordinary loss per common share
        on retirement of debt                             --            --           --       (0.35)          --
                                                   ---------     ---------     --------    --------     --------

Net earnings (loss) per common share               $   (5.88)    $   (1.60)    $   0.70    $  (0.67)    $  (0.96)
                                                   =========     =========     ========    ========     ========

Cash dividends per common share                    $      --     $      --     $     --    $     --     $     --
</TABLE>




                                       13
<PAGE>   14
ITEM 6.  SELECTED FINANCIAL DATA  (continued)


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Years Ended December 31,                             1996           1995         1994        1993         1992
----------------------------------------------------------------------------------------------------------------
                                                                          (in thousands)
<S>                                                <C>           <C>           <C>         <C>          <C>
Net property, plant and equipment                  $  38,890     $  46,818     $ 48,341    $ 40,424     $ 36,383
Depreciation and amortization                          9,398         8,675        7,495       7,167        6,447
Capital expenditures                                   2,091        10,859       14,176       9,336        7,758

Total assets                                          85,526       119,497      122,660     115,866      102,501

Senior debt (f)                                       45,044        50,000       50,000      50,000           --
Subordinated long-term debt                               --            --           --          --       40,000

Stockholders' equity before
   pension adjustment                              $  11,547     $  34,047     $ 38,260    $ 34,899     $ 36,464
Excess of additional pension liability over
   unrecognized prior service cost,
   net of tax benefits                                (8,245)      (10,140)      (5,207)     (6,835)          --
                                                   ---------     ---------     --------    --------     --------

Stockholders' equity                               $   3,302     $  23,907     $ 33,053    $ 28,064     $ 36,464
                                                   =========     =========     ========    ========     ========

Weighted average number of
   common shares outstanding                           3,933         3,842        3,674       3,669        3,675
</TABLE>

(a)  The loss from continuing operations before interest and income taxes for
     1996 includes pretax restructuring costs of $10,011,000 and financing costs
     of $1,600,000. See Note 3 of notes to financial statements for further
     discussion. The loss from continuing operations before interest and income
     taxes for 1995 includes a pretax loss on revaluation of land of $1,000,000.

(b)  The provision for income taxes for 1996 includes a charge of $13,691,000
     ($3.48 per common share) to provide a valuation reserve against its
     deferred income tax asset. The benefit for income taxes for 1993 includes a
     tax benefit of $369,000 ($0.10 per common share) related to a reduction in
     the income tax valuation reserve. See Note 5 of notes to consolidated
     financial statements for further information.

(c)  Earnings from discontinued operations for 1996 include a $2,102,000
     after-tax gain ($0.53 per common share) on the sale of the manufacturing
     assets of the Consumer Products Business. See Note 4 of notes to financial
     statements. The 1993 loss for the Consumer Products Business includes a
     $2,754,000 after-tax loss ($0.75 per common share) associated with the
     relocation of the Company's home canning cap and lid manufacturing
     operations.

(d)  Loss from discontinued operations - Metal Crown Business in 1992 includes a
     $2,600,000 after-tax loss ($0.71 per common share) on sale of the business.

(e)  The Company has not declared a dividend on its Class B, Series D Preferred
     Stock since the first quarter of 1996. The cumulative amount of undeclared
     dividends as of December 31, 1996 is $622,000. Under the terms of an
     agreement with its lenders, the Company is not permitted to declare or pay
     any dividends on its preferred stock at December 31, 1996.

(f)  As of December 31, 1996 and 1995, the Company's outstanding senior debt was
     classified as a current liability because the Company was in default of
     certain financial covenants for which waivers have been received for a
     period of less than one year.




                                       14
<PAGE>   15
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995


CONTINUING OPERATIONS

Net sales of the Company decreased 1.7% to $107,369,000 in 1996 from
$109,187,000 in 1995 due primarily to lower unit sales of tamper-evident
closures and, to a lesser degree, wide-mouth jars and closures.

The Company's manufacturing facilities operated at approximately 72% of capacity
during 1996.

Cost of sales of the Company decreased to $83,064,000 in 1996 compared to
$84,605,000 in 1995 primarily due to lower unit sales.

Gross profit as a percent of net sales increased slightly to 22.6% for 1996 as
compared to 22.5% for 1995.

Research, selling, warehouse, general and administrative expenses decreased
$418,000 or 1.7% during 1996, as compared to 1995.

The Company manufactures a variety of plastic closures, prescription packaging
products, bottles and jars. Sales and profitability of these products are
affected by the cost of resin, which can fluctuate significantly. Under industry
practice, the Company generally passes through resin cost increases and
decreases for all products except for prescription packaging products. However,
during periods in which resin costs increase substantially, results could be
adversely affected because the Company may not be able to obtain general price
increases from customers due to the magnitude of resin price increases and the
Company may not be able to pass on resin price increases because of competitive
pricing.

The Company maintains active research and development, and engineering groups.
These groups are responsible for i) developing new products and enhancements to
existing products, ii) improving manufacturing technology in order to reduce
costs, and iii) ensuring that products meet stringent quality standards. The
Company believes that its ability to market innovative, high-quality products
provides the Company with a competitive advantage. To the extent competitors are
more successful than the Company in introducing and marketing new products, the
Company's sales and profitability could be adversely affected.

The loss before unusual items, interest and taxes increased to $1,111,000 in
1996 as compared to $416,000 in 1995. Although full-year results have worsened,
the trend in earnings has improved. Earnings before unusual items, interest and
taxes for the second half of 1996 improved to $2,750,000, as compared to a loss
before unusual items, interest and taxes for the first half of 1996 of
$3,861,000. This improvement was the result of reduced unit costs due to
increased production and lower costs resulting from the effects of restructuring
the Company. The loss in the first half of 1996 also reflected increased
reserves for customer rebates and inventory obsolescence.

The increase in reserves for customer rebates is due to the completion of a
detailed analysis by the Company in the first quarter of 1996 of the historical
amount and timing of customer deductions, and credit memos and other payments
issued by the Company, by customer category, which required an increase in the
accrual. The increase in reserves for inventory obsolescence is the result of
including certain additional types of closures in the calculation of the reserve
beginning in 1996, because the Company believed it represented a more accurate
measure of such contingency.




                                       15
<PAGE>   16
Unusual items for 1996 consist of i) restructuring costs of $7,500,000 recorded
during the first quarter, ii) additional restructuring costs of $2,511,000
recorded subsequent to the first quarter and iii) financing costs of $1,600,000.
The unusual item for 1995 relates to the write-down in the book value of land of
$1,000,000.

During the first quarter of 1996, the Company recorded an unusual pretax loss of
$7,500,000 for certain costs associated with the restructuring of the Company,
which included moving the corporate headquarters from Los Angeles, California to
Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa
Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of
reserves for i) severance pay, workers' compensation claims and insurance
continuation costs of $3,000,000, ii) costs associated with terminating the
leases of the two vacated facilities of $2,300,000, iii) asset retirements of
$1,600,000 and iv) other costs of $600,000. During 1996, the Company made cash
payments related to such reserves for i) severance pay and related costs of
$2,638,000, ii) costs associated with terminating the leases of the two
facilities of $478,000 and iii) other costs of $89,000.

In addition, during 1996, the Company incurred unusual pretax losses of
$2,511,000 for restructuring costs primarily related to relocation of personnel
and equipment. Accounting rules require these costs to be expensed as incurred.

The relocation of the corporate headquarters and the wide-mouth jar
manufacturing operation have been completed. The cost to complete the
restructuring is expected to approximate the original estimate. The
restructuring is expected to result in annualized pretax cost savings of
approximately $6,500,000 primarily from reduced costs for employment, rent
payments, manufacturing overhead, utilities and freight. The full benefit of
these cost savings should be realized in 1997.

During 1996, the Company incurred financing costs of $1,600,000 consisting of i)
fees paid to the Company's advisors in its negotiations with lenders, ii)
reimbursement of the lenders' fees paid to their advisors in the negotiations,
iii) certain fees associated with prospective lenders and iv) expensing of a
portion of the previously capitalized financing costs associated with the
existing debt.

Net interest expense increased $95,000 during 1996 compared to 1995.

The change in the provision for income taxes during 1996 as compared to 1995 was
the result of the Company recording a charge of $13,691,000 to provide a
valuation reserve against its deferred income tax asset. The valuation reserve
was provided due to the uncertainty related to the Company's financing as
described below under "Liquidity and Capital Resources".

Due to competitive pressures, there are occasions when the Company is unable to
pass on cost increases to customers. Other than the inability on all occasions
to pass on cost increases, inflation and changes in prices did not have a
material effect on the Company's results of operations.

DISCONTINUED OPERATIONS

During 1996, the Company sold the manufacturing assets and liquidated primarily
all of the working capital of its discontinued Consumer Products Business. In
connection with such sale, the Company recorded $4,900,000 of reserves
consisting of i) severance pay, workers' compensation claims and insurance
continuation of $1,400,000, ii) retiree health care and pension expenses of
$1,200,000, iii) estimated net costs associated with elimination of operations
and liquidation of working capital of $1,100,000, iv) professional fees of
$700,000, v) asset retirements of $300,000, and vi) other costs of $200,000.
After deductions for such reserves, the Company incurred in 1996 a pretax gain
of $3,503,000 ($2,102,000 after-tax) in connection with the sale of the
manufacturing assets of the Consumer Products Business.




                                       16
<PAGE>   17
During 1996, the Company made cash payments related to such reserves for i) net
costs associated with elimination of operations and liquidation of working
capital of $1,079,000, ii) severance pay and related costs of $1,215,000, iii)
professional fees of $665,000 and iv) other costs of $199,000.

The aggregate amount of reserves related to the disposal of the Consumer
Products Business is expected to approximate the original estimate.

Net sales of the Consumer Products Business declined to $18,317,000 in 1996
compared to $29,808,000 in 1995 due to the sale of the business. The after-tax
loss related to the operations of the Consumer Products Business declined to
$133,000 in 1996 compared to a loss of $1,684,000 in 1995 due to the sale of the
business.

RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994

CONTINUING OPERATIONS

Net sales of the Company increased 2.2% to $109,187,000 in 1995 from 1994 due
primarily to the pass through of resin price increases. The Company's
manufacturing facilities operated at approximately 72% of capacity during 1995.

Cost of sales of the Company increased to $84,605,000 in 1995 compared to
$73,780,000 in 1994 primarily due to higher resin costs.

Gross profit as a percent of net sales decreased to 22.5% for 1995 as compared
to 30.9% for 1994 due to substantially higher resin costs and competitive
pricing, primarily in the wide mouth jar and closure business.

Research, selling, warehouse, general and administrative expenses decreased
$862,000 or 3.3% during 1995, as compared to 1994.

The loss before unusual items, interest and taxes was $416,000 in 1995 compared
to earnings before unusual items, interest and taxes of $7,152,000 in 1994
primarily due to substantially higher resin costs and competitive pricing,
primarily in the wide mouth jar and closure business.

In 1995, the Company incurred a $1,000,000 unusual loss related to the
write-down in the book value of land formerly used by the Company as a glass
container manufacturing plant. Such write-down was necessitated by additional
declines in the market value of commercial real estate in Southern California
during 1995.

Net interest expense increased $990,000 during 1995 compared to 1994 due to
higher levels of debt and interest charged on advances under the Accounts
Receivable Agreement.

The decrease in the income tax provision in 1995 compared to 1994 is due to
lower pretax results.

DISCONTINUED OPERATIONS

Net sales of the Consumer Products Business decreased 7.9% to $29,808,000 in
1995 compared to 1994 due primarily to lower unit sales as a result of adverse
growing conditions in 1995.

The after-tax loss related to the operations of the Consumer Products Business
was $1,684,000 in 1995 compared to net earnings of $1,311,000 in 1994. The 1995
loss was due to the sale of higher cost inventory produced during 1994, higher
customer rebates and lower sales volume due to adverse weather conditions.




                                       17
<PAGE>   18
LIQUIDITY AND CAPITAL RESOURCES

On March 15, 1996, the Company sold certain assets, including the manufacturing
assets, of the Consumer Products Business for a purchase price of $14,417,000.
From March 16, 1996, through December 31, 1996, the Company received $17,391,000
from the sale by the Company of the inventory of the Consumer Products Business
and from the collection of the related accounts receivable. The Company used
these proceeds primarily to i) reduce debt by $9,100,000, ii) reduce the level
of advances under the Company's Accounts Receivable Agreement by $4,342,000,
iii) fund the $5,716,000 cash costs of the restructuring of the Company, iv)
fund the $3,158,000 of cash costs associated with the sale of assets, and
elimination of operations and liquidation of working capital of the Consumer
Products Business, and v) increase its cash balances by $5,203,000. Other
significant uses of cash during 1996 were payments to the pension plan of
$6,989,000, of which $3,224,000 was related to the 1995 plan year minimum
pension contribution.

During 1995, the principal use of cash flow was to fund investing activities,
primarily capital expenditures of $10,859,000. Cash flow was provided primarily
through net advances on accounts receivable sold under the Company's Accounts
Receivable Agreement of $7,357,000.

During 1994, the principal use of cash flow was to fund capital expenditures of
$14,176,000. Cash flow was provided through the reduction of the Company's cash
balances of $9,068,000 and cash from financing activities of $5,457,000. During
1994, inventories increased by $5,578,000, due primarily to higher quantities
and costs of resin, and higher quantities of finished goods.

During 1995, the Company contributed 250,000 shares of its Common Stock, at a
price of $7.56 per share, to the Kerr Group, Inc. Retirement Income Plan. The
contribution reduced the Company's recorded pension liability by $1,891,000.

During 1996 and 1995, the Company funded its defined benefit pension plan by
$3,245,000 more than the accrued pension expense related to the 1995 plan year.
Although the amount of the annual pension contribution is dependent upon a
variety of factors, the Company expects to fund amounts in excess of its accrued
pension expense for the foreseeable future.

Capital expenditures of approximately $9,000,000 are planned for 1997.

The Company has not declared a dividend on its Class B, Series D Preferred Stock
since the first quarter of 1996. The cumulative amount of undeclared dividends
as of December 31, 1996 is $622,000. Under accounting rules, such dividends are
not accrued until declared, however, for financial reporting purposes the amount
of such dividends are shown on the face of the income statement as a deduction
to arrive at net earnings (loss) applicable to common stockholders. Under the
terms of an agreement with its lenders, the Company is not permitted to declare
or pay any dividends on its preferred stock at December 31, 1996.

Since the third quarter of 1990, the Company has not declared any dividends on
its Common Stock. The Company's Senior Note Agreement restricts the payment of
dividends on Common Stock. Under such restrictions, the payment of Common Stock
dividends is not permitted at December 31, 1996.

The ratio of current assets to current liabilities at December 31, 1996 and 1995
was 0.5 and 0.6, respectively. The ratio of current assets to current
liabilities is less than 1.0 due to the classification of the Company's
outstanding Senior Notes as a current liability because the Company was in
default of certain financial covenants for which waivers have been received for
a period of less than one year. At December 31, 1996 and 1995, the ratio of
total debt to total capitalization was 94% and 70%, respectively. The increase
in the ratio of total debt to total capitalization is due to lower stockholders'
equity, primarily the result of providing a valuation reserve against the
Company's net deferred tax asset.



                                       18
<PAGE>   19
The Company's net deferred income tax assets as of December 31, 1996 have been
eliminated by a valuation reserve of $13,691,000. The valuation reserve has been
provided due to the uncertainty related to the Company's financing as described
below.

As of December 31, 1996, the Company had an Accounts Receivable Agreement
(Receivable Agreement) which matured on March 7, 1997 that met the working
capital needs of the Company. The Receivable Agreement permitted the Company to
sell its trade accounts receivable on a nonrecourse basis. Under the Receivable
Agreement, the maximum amount that could be advanced to the Company pursuant to
the sale of trade accounts receivable at any time was $8,500,000. The Company
retained collection and service responsibility, as agent for the purchaser, over
any receivables sold. Advances under such Receivable Agreement were subject to
certain limitations. As of December 31, 1996, receivables as shown on the
accompanying Consolidated Balance Sheet have been reduced by net proceeds of
$3,861,000 from advances pursuant to the sale of receivables under the Company's
Receivable Agreement. The Receivable Agreement contained covenants identical to
the Senior Notes.

The Company is presently in default with respect to interest coverage and net
worth covenants under the Loan Agreements which govern the unsecured Senior
Notes and Bank Note issued by the Company. Under the terms of the Loan
Agreements relating to the Senior Notes and the Bank Note, the Company is not
permitted to sell the accounts receivable under the Accounts Receivable
Agreement because of the default. The Company is in discussions with the owners
of the Senior Notes and Bank Note regarding obtaining an extension of the waiver
which expired on March 7, 1997. The discussions with the owners also include
negotiations for the purchase by the Company of the Senior Notes and the Bank
Note. The funds for the purchase of the Senior Notes and Bank Note would be
obtained from a senior secured loan and a subordinated secured loan which the
Company is discussing with institutional lenders and with respect to which loan
agreements are being negotiated. Consummation of any purchase of the Senior
Notes and Bank Note is subject to definitive agreements being reached with the
new lenders as well as the holders of the Senior Notes and Bank Note. There can
be no assurance that the owners of the Senior Notes and the Bank Note will
extend the waiver of the defaults, or agree to sell the Senior Notes and the
Bank Note for a purchase price that is acceptable to the Company or that the
senior secured loan and the subordinated secured loan can be obtained to finance
the purchase. In the event the Company does not obtain an extension of the
waiver, the Company does not intend to make its quarterly payment of interest
due under the Senior Notes and Bank Note due on March 31, 1997.

The lender proposing to make the subordinated secured loan to the Company has
indicated that it is willing to purchase the accounts receivable of the Company
through June 30, 1997 on terms and conditions acceptable to the lender in its
sole and reasonable discretion. The terms and conditions to be negotiated
include, without limitation, pricing, credit criteria, reserves, servicing and
recourse. The lender's willingness to purchase the Company's accounts receivable
will be subject to the negotiation, execution and delivery of purchase documents
in form and substance satisfactory to the lender. There can be no assurance that
the Company and the lender will reach definitive agreement on the terms of such
purchase. The sale of the accounts receivable to this lender, in the absence of
a waiver of the existing default, will constitute a further default by the
Company under the existing Loan Agreements.

As part of its overall restructuring, the Company is involved in discussions
with the Pension Benefit Guaranty Corporation relating to the Company's pension
liabilities. The Company expects these discussions to continue.

The Company expects to receive approximately $3,500,000 from the sale of real
property located in Santa Ana, California in April 1997. The Company had
$5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company
reaches satisfactory agreement with the lender regarding the new accounts
receivable facility, the Company believes that it will have sufficient funds
available to finance its working capital requirements through June 30, 1997.



                                       19
<PAGE>   20
At December 31, 1996, the Company had unused sources of liquidity consisting of
cash and cash equivalents of $9,107,000, additional advances available under the
Receivable Agreement of $3,965,000, a tax net operating loss carryforward of
$28,300,000, a minimum tax credit carryforward of $1,068,000 and other tax
credit carryforwards of $417,000.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-K contains statements which may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Those statements include statements regarding the intent, belief or current
expectations of Kerr Group, Inc. and members of its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes to future operating results over time.




                                       20
<PAGE>   21
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                                         Page(s)
                                                                         -------
<S>                                                                      <C>
Independent Auditors' Report                                                22

Balance Sheets - December 31, 1996 and 1995                              23-24

Statements of Earnings (Loss) - Three Years Ended December 31, 1996         25

Statements of Cash Flows - Three Years Ended December 31, 1996              26

Statements of Common Stockholders' Equity -
    Three Years Ended December 31, 1996                                     27

Notes to Financial Statements                                            28-46

Schedule VIII - Valuation and Qualifying Accounts -
    Three Years Ended December 31, 1996                                     67
</TABLE>




                                       21
<PAGE>   22
INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of Kerr Group, Inc.

We have audited the financial statements of Kerr Group, Inc. as listed in the
accompanying index. In connection with our audits of the financial statements,
we have also audited the financial statement schedule as listed in the
accompanying index. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kerr Group, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.

The accompanying financial statements for 1996 have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in default of its current loan agreements
and has not been successful as yet in securing a new credit facility which raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



KPMG PEAT MARWICK  LLP
Harrisburg, Pennsylvania
March 25, 1997




                                       22
<PAGE>   23
BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                              1996          1995
-----------------------------------------------------------------------------------------------------------
                                                                                        (in thousands)
<S>                                                                                <C>           <C>
ASSETS
Current assets
   Cash and cash equivalents                                                       $   9,107     $   3,904
   Receivables - primarily trade accounts, less allowance for doubtful accounts
      of $287 in 1996 and $212 in 1995                                                 9,710         7,154
   Inventories
      Raw materials and work in process                                                6,702         7,815
      Finished goods                                                                   8,034         9,933
                                                                                   ---------     ---------
      Total inventories                                                               14,736        17,748
   Prepaid expenses and other current assets                                              27         3,106
   Current net assets related to discontinued operations                                   4        12,847
                                                                                   ---------     ---------

      Total current assets                                                            33,584        44,759
                                                                                   ---------     ---------

Property, plant and equipment, at cost
   Land                                                                                  427           427
   Buildings and improvements                                                          8,624        12,881
   Machinery and equipment                                                            87,207        86,646
   Furniture and office equipment                                                      2,890         5,771
                                                                                   ---------     ---------

                                                                                      99,148       105,725
   Accumulated depreciation and amortization                                         (60,258)      (58,907)
                                                                                   ---------     ---------

      Net property, plant and equipment                                               38,890        46,818

Deferred income taxes                                                                     --         8,057
Goodwill and other intangibles, net of amortization of $2,749 in 1996 and
   $2,247 in 1995                                                                      5,682         6,983
Other assets                                                                           7,370         8,026

Non-current net assets related to discontinued operations                                 --         4,854
                                                                                   ---------     ---------

                                                                                   $  85,526     $ 119,497
                                                                                   =========     =========
</TABLE>



See accompanying notes to consolidated financial statements.




                                       23
<PAGE>   24
BALANCE SHEETS (continued)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Years Ended December 31,                                                   1996          1995
------------------------------------------------------------------------------------------------
                                                        (in thousands, except per share amounts)
<S>                                                                     <C>           <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Short-term debt                                                      $   5,856     $   6,500
   Senior debt due 1997 through 2003 classified as current                 45,044        50,000
   Accounts payable                                                         7,373         9,707
   Current pension liability                                                   --         3,777
   Other current liabilities                                                5,622         5,113
                                                                        ---------     ---------

      Total current liabilities                                            63,895        75,097
                                                                        ---------     ---------


Pension liability                                                          13,935        18,318
Other long-term liabilities                                                 4,394         2,175


Stockholders' equity
   Preferred Stock, 487 shares authorized and issued,
      liquidation value of $21.28 per share at December 31, 1996
      and $20 per share at December 31, 1995                                9,748         9,748
   Common Stock, $.50 par value per share, 20,000 shares authorized,
      4,226 shares issued                                                   2,113         2,113
   Additional paid-in capital                                              27,239        27,239
   Retained earnings (accumulated deficit)                                (20,640)        1,860
   Treasury Stock, at cost, 293 shares                                     (6,913)       (6,913)
   Excess of additional pension liability over unrecognized
      prior service cost, net of tax benefits                              (8,245)      (10,140)
                                                                        ---------     ---------

      Total stockholders' equity                                            3,302        23,907
                                                                        ---------     ---------

                                                                        $  85,526     $ 119,497
                                                                        =========     =========
</TABLE>



See accompanying notes to consolidated financial statements.




                                       24
<PAGE>   25
STATEMENTS OF EARNINGS (LOSS)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                1996          1995         1994
---------------------------------------------------------------------------------------------------------
                                                                 (in thousands, except per share amounts)
<S>                                                                  <C>           <C>           <C>
Net sales                                                            $ 107,369     $ 109,187     $106,792
Cost of sales                                                           83,064        84,605       73,780
                                                                     ---------     ---------     --------

   Gross profit                                                         24,305        24,582       33,012
Research and development expenses                                        1,991         1,708        2,110
Plant administrative expenses                                            5,013         4,490        4,707
Selling and warehouse expenses                                           8,031         7,680        7,790
General corporate expenses                                              10,381        11,120       11,253

Restructuring costs                                                     10,011            --           --
Financing costs                                                          1,600            --           --
Loss on revaluation of land                                                 --         1,000           --
Interest expense, net                                                    4,703         4,608        3,618
                                                                     ---------     ---------     --------

   Earnings (loss) from continuing operations before income taxes      (17,425)       (6,024)       3,534

Provision (benefit) for income taxes                                     6,837        (2,401)       1,441
                                                                     ---------     ---------     --------

   Net earnings (loss) from continuing operations                      (24,262)       (3,623)       2,093

Discontinued operations:
   Gain on sale of discontinued operations, net of income tax
      provision of $1,401                                                2,102            --           --
   Earnings (loss) from discontinued operations, net of income
      tax provision (benefit) of ($89), ($1,117) and $904                 (133)       (1,684)       1,311
                                                                     ---------     ---------     --------
Net earnings (loss) related to discontinued operations                   1,969        (1,684)       1,311
                                                                     ---------     ---------     --------

      Net earnings (loss)                                              (22,293)       (5,307)       3,404

Preferred stock dividends                                                  829           829          829
                                                                     ---------     ---------     --------

      Net earnings (loss) applicable to common stockholders          $ (23,122)    $  (6,136)    $  2,575
                                                                     =========     =========     ========


Earnings (loss) per common share:
   Earnings (loss) per common share from continuing operations       $   (6.38)    $   (1.16)    $   0.34
   Earnings (loss) per common share from discontinued operations          0.50         (0.44)        0.36
                                                                     ---------     ---------     --------

      Net earnings (loss) per common share                           $   (5.88)    $   (1.60)    $   0.70
                                                                     =========     =========     ========


Weighted average shares outstanding                                      3,933         3,842        3,674
</TABLE>



See accompanying notes to consolidated financial statements.




                                       25
<PAGE>   26
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                         1996         1995         1994
------------------------------------------------------------------------------------------------------------------
                                                                                         (in thousands)
<S>                                                                            <C>          <C>          <C>
CASH FLOW PROVIDED (USED) BY OPERATIONS
   Earnings (loss) from continuing operations                                  $(24,262)    $ (3,623)    $  2,093
   Add (deduct) noncash items included in earnings (loss)
         Expenses associated with restructuring, in excess of cash payments       4,307           --           --
         Expenses associated with financing                                       1,600           --           --
         Depreciation and amortization                                            9,398        8,675        7,495
         Change in deferred income taxes                                          7,080       (2,482)       1,705
         Reduction in total pension liability, net                               (4,813)         294         (242)
         Other, net                                                                 (98)         130          258
   Changes in other operating working capital
      Receivables                                                                (2,556)       7,268       (2,254)
      Inventories                                                                 1,964          661       (5,578)
      Other current assets                                                          937        1,267          (94)
      Accounts payable                                                           (2,366)      (2,936)       3,929
      Accrued expenses                                                           (1,138)       1,674         (567)
   Cash flow provided (used) by discontinued operations                          11,640        2,078       (4,420)
                                                                               --------     --------     --------

      Total cash flow provided (used) by operations                               1,693       13,006        2,325

CASH FLOW PROVIDED (USED) BY INVESTING ACTIVITIES
   Continuing Operations:
      Capital expenditures                                                       (2,091)     (10,859)     (14,176)
      Proceeds from liquidation of long-term certificates of deposit                 --          375        1,000
      Other, net                                                                    377       (1,301)      (2,587)
   Discontinued Operations:
      Capital expenditures                                                         (234)        (981)      (1,472)
      Proceeds from sale of assets of Consumer Products Business                 14,417           --           --
      Other, net                                                                 (1,840)       1,200          385
                                                                               --------     --------     --------

      Cash flow provided (used) by investing activities                          10,629      (11,566)     (16,850)

CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES
   Repayment of Senior Notes and Note payable to bank                            (5,600)          --           --
   Net borrowings under lines of credit                                              --        1,000        5,500
   Payments associated with financing                                            (1,312)          --           --
   Dividends paid                                                                  (207)        (829)        (829)
   Other, net                                                                        --           32          786
                                                                               --------     --------     --------

      Cash flow provided (used) by financing activities                          (7,119)         203        5,457

CASH AND CASH EQUIVALENTS
   Increase (decrease) during the year                                            5,203        1,643       (9,068)
   Balance at beginning of the year                                               3,904        2,261       11,329
                                                                               --------     --------     --------

      Balance at end of the year                                               $  9,107     $  3,904     $  2,261
                                                                               ========     ========     ========

SIGNIFICANT NON-CASH TRANSACTIONS
   Contribution of 250,000 shares of Common Stock to Pension Plan              $     --     $  1,891     $     --
                                                                               ========     ========     ========
</TABLE>

See accompanying notes to consolidated financial statements.




                                       26
<PAGE>   27
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996, 1995 and 1994
-----------------------------------------------------------------------------------------------------------------------------------
                                        Number Of                                                        Excess Of
                                        Shares Of                          Retained                  Additional Pension    Notes
                                         Common               Additional   Earnings                    Liability Over    Receivable
                                          Stock      Common    Paid-In      (Accum.    Treasury         Unrecognized      From ESOP
                                       Outstanding   Stock     Capital     Deficit)      Stock       Prior Service Cost    Trusts
-----------------------------------------------------------------------------------------------------------------------------------
                                                                              (in thousands)
<S>                                    <C>           <C>      <C>          <C>         <C>           <C>                 <C>
Balance, December 31, 1993                3,667      $2,105    $27,145     $  9,420    $(12,803)         $ (6,835)         $(716)

Net earnings                                 --          --         --        3,404          --                --             --
Dividends on Preferred Stock                 --          --         --         (829)         --                --             --
Pension adjustment                           --          --         --           --          --             1,628             --
Repayments on ESOP Trusts
   notes receivable                          --          --         --           --          --                --            716
Issuance of Common Stock under
   stock option plans                        10           5         65           --          --                --             --
                                          -----      ------    -------     --------    --------          --------          -----

Balance, December 31, 1994                3,677       2,110     27,210       11,995     (12,803)           (5,207)            --

Net loss                                     --          --         --       (5,307)         --                --             --
Dividends on Preferred Stock                 --          --         --         (829)         --                --             --
Pension adjustment                           --          --         --           --          --            (4,933)            --
Contribution of Treasury Stock to
   pension fund                             250          --         --       (3,999)      5,890                --             --
Issuance of Common Stock under
   stock option plans                         6           3         29           --          --                --             --
                                          -----      ------    -------     --------    --------          --------          -----

Balance, December 31, 1995                3,933       2,113     27,239        1,860      (6,913)          (10,140)            --

Net loss                                     --          --         --      (22,293)         --                --             --
Dividends on Preferred Stock                 --          --         --         (207)         --                --             --
Pension adjustment                           --          --         --           --          --             1,895             --
                                          -----      ------    -------     --------    --------          --------          -----


Balance, December 31, 1996                3,933      $2,113    $27,239     $(20,640)   $ (6,913)         $ (8,245)         $  --
                                          =====      ======    =======     ========    ========          ========          =====
</TABLE>


See accompanying notes to consolidated financial statements.




                                       27
<PAGE>   28
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL DESCRIPTION OF BUSINESS

The Company's operations consist of the manufacture and sale of a variety of
plastic packaging products including child-resistant closures, tamper-evident
closures, prescription packaging products, jars and other plastic closures and
containers.

The Company uses a significant amount of resin in its manufacturing process.
From time to time, the Company has experienced substantial increases in the cost
of resin. To the extent that the Company is unable to pass on resin cost
increases, the cost increases could have a significant impact on the results of
operations of the Company.

CASH EQUIVALENTS

Cash equivalents consist only of investments that have an original maturity of
three months or less, are readily convertible to known amounts of cash and have
insignificant risk of changes in value because of changes in interest rates.

INVENTORIES

Inventories are valued at the lower of cost or market, determined by the use of
the first-in, first-out method.

DEPRECIATION, MAINTENANCE AND REPAIRS

Depreciation of property, plant and equipment is provided by the use of the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives used in computing the depreciation provisions are as
follows:

<TABLE>
<S>                                                           <C>
   Buildings and improvements                                 5 to 30 years
   Machinery and equipment                                    3 to 15 years
   Furniture and equipment                                    5 to 10 years
</TABLE>

The policy of the Company is to charge amounts expended for maintenance and
repairs to expense and to capitalize expenditures for major replacements and
betterments.

GOODWILL AND OTHER INTANGIBLES

The excess of cost over fair value of net tangible assets acquired during 1987
is amortized on a straight-line basis over 40 years. Other intangible assets are
being amortized by the straight-line method over their respective initial
estimated lives ranging from 2 to 17 years.

Effective January 1, 1996, the Company adopted Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of (FASB No. 121). FASB 121 requires that
impairments, measured using fair market value, are recognized whenever events or
changes in circumstances indicate that the carrying amount of long-lived assets
may not be recoverable. Adoption of this statement did not affect the Company's
results of operations. The assessment of the recoverability of goodwill will be
impacted if future operating cash flows are not achieved.

REVENUE RECOGNITION

The Company recognizes revenue at the time the product is shipped to the
customer.

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Financial Accounting Standards Board Statement No. 87 (FASB No. 87) requires
that a company record an additional minimum pension liability to the extent that
a company's accumulated pension benefit obligation exceeds the fair value of
pension plan assets and accrued pension liabilities. This additional minimum
pension liability is offset by an intangible asset, not to exceed prior service
costs of the pension plan. Amounts in excess of prior service costs are
reflected as a reduction in stockholders' equity.




                                       28
<PAGE>   29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company accounts for postretirement benefits in accordance with Financial
Accounting Standards Board Statement No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (FASB No. 106). As more fully
described in Note 7, the Company has elected to amortize the impact of FASB No.
106 ratably over 20 years.

STOCK OPTIONS

Effective January 1, 1996, the Company adopted the Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FASB
No. 123). FASB No. 123 requires the Company to choose between two different
methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity to
continue to measure compensation cost for stock options using the accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25). The Company has elected to continue using the accounting methods
prescribed by APB No. 25. The amount of the proforma compensation expense,
required to be disclosed under the FASB No. 123, is not material.

INCOME TAXES

The Company accounts for income taxes under the Financial Accounting Standards
Board Statement No. 109, Accounting for Income Taxes (FASB No. 109). Under the
asset and liability method of FASB No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under FASB No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.

EARNINGS (LOSS) PER COMMON SHARE

Primary net earnings (loss) per common share are based on the weighted average
number of common shares outstanding and are after Preferred Stock dividends
(both declared and undeclared dividends).

Fully diluted net earnings (loss) per common share reflect when dilutive i) the
incremental common shares issuable upon the assumed exercise of outstanding
stock options and ii) the assumed conversion of the Preferred Stock and the
elimination of the related Preferred Stock dividends. The calculation of fully
diluted net earnings (loss) per common share for 1996, 1995 and 1994 was not
dilutive.

FINANCIAL STATEMENT PREPARATION AND PRESENTATION

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of December 31, 1996 and 1995, and the
reported amounts of income and expenses for each of the three years ended
December 31, 1996. Actual results could differ from those estimates.

Included in other assets are certain assets held for sale consisting of real
property and buildings. Management has obtained a recent appraisal to support
the carrying value of such assets, however, the ultimate sales proceeds received
by the Company could differ from the appraisal amount depending on changes in
market conditions.

Certain reclassifications have been made to prior years' financial statements to
conform to the 1996 presentation.




                                       29
<PAGE>   30
NOTE 2 - ISSUES AFFECTING LIQUIDITY

During the fourth quarter of 1996, the holders of $50,900,000 of the Company's
existing unsecured debt sold the debt. Representatives of the new owners of the
debt informed the Company that they do not intend to pursue the previously
announced restructuring of this debt, pursuant to which a portion of this debt
was to have been repaid with the proceeds of a new secured credit facility, and
the balance of which was to have been converted into preferred stock and
subordinated debt. The new owners initially indicated that they preferred a
restructuring that would involve the exchange of debt for substantially all of
the equity of the Company. The Company rejected such exchange and there is no
assurance that the Company and the owners of the debt will reach an agreement on
the terms of any such exchange.

The Company is presently in default with respect to interest coverage and net
worth covenants under the Loan Agreements which govern the unsecured Senior
Notes and Bank Note issued by the Company. Under the terms of the Loan
Agreements relating to the Senior Notes and the Bank Note, the Company is not
permitted to sell the accounts receivable under the Accounts Receivable
Agreement because of the default. The Company is in discussions with the owners
of the Senior Notes and Bank Note regarding obtaining an extension of the waiver
which expired on March 7, 1997. The discussions with the owners also include
negotiations for the purchase by the Company of the Senior Notes and the Bank
Note. The funds for the purchase of the Senior Notes and Bank Note would be
obtained from a senior secured loan and a subordinated secured loan which the
Company is discussing with institutional lenders and with respect to which loan
agreements are being negotiated. Consummation of any purchase of the Senior
Notes and Bank Note is subject to definitive agreements being reached with the
new lenders as well as the holders of the Senior Notes and Bank Note. There can
be no assurance that the owners of the Senior Notes and the Bank Note will
extend the waiver of the defaults, or agree to sell the Senior Notes and the
Bank Note for a purchase price that is acceptable to the Company or that the
senior secured loan and the subordinated secured loan can be obtained to finance
the purchase. In the event the Company does not obtain an extension of the
waiver, the Company does not intend to make its quarterly payment of interest
due under the Senior Notes and Bank Note due on March 31, 1997.

The lender proposing to make the subordinated secured loan to the Company has
indicated that it is willing to purchase the accounts receivable of the Company
through June 30, 1997 on terms and conditions acceptable to the lender in its
sole and reasonable discretion. The terms and conditions to be negotiated
include, without limitation, pricing, credit criteria, reserves, servicing and
recourse. The lender's willingness to purchase the Company's accounts receivable
will be subject to the negotiation, execution and delivery of purchase documents
in form and substance satisfactory to the lender. There can be no assurance that
the Company and the lender will reach definitive agreement on the terms of such
purchase. The sale of the accounts receivable to this lender, in the absence of
a waiver of the existing default, will constitute a further default by the
Company under the existing Loan Agreements.

As part of its overall restructuring, the Company is involved in discussions
with the Pension Benefit Guaranty Corporation relating to the Company's pension
liabilities. The Company expects these discussions to continue.

The Company expects to receive approximately $3,500,000 from the sale of real
property located in Santa Ana, California in April 1997. The Company had
$5,164,000 in cash and cash equivalents on March 25, 1997. Assuming the Company
reaches satisfactory agreement with the lender regarding the new accounts
receivable facility, the Company believes that it will have sufficient funds
available to finance its working capital requirements through June 30, 1997.




                                       30
<PAGE>   31
NOTE 3 - RESTRUCTURING AND FINANCING COSTS

During the first quarter of 1996, the Company recorded a pretax loss of
$7,500,000 for certain costs associated with the restructuring of the Company,
which included moving the corporate headquarters from Los Angeles, California to
Lancaster, Pennsylvania and relocating the wide-mouth jar operations from Santa
Fe Springs, California to Bowling Green, Kentucky. The pretax loss consisted of
reserves for i) severance pay, workers' compensation claims and insurance
continuation costs of $3,000,000, ii) costs associated with terminating the
leases of the two vacated facilities of $2,300,000, iii) asset retirements of
$1,600,000 and iv) other costs of $600,000. During 1996, the Company made cash
payments related to such reserves for i) severance pay and related costs of
$2,638,000, ii) costs associated with terminating the leases of the two
facilities of $478,000 and iii) other costs of $89,000. In addition to such cash
costs, during 1996 charges were made to reserves relating to asset retirements
of $1,499,000.

In addition, during 1996, the Company incurred pretax losses of $2,511,000 for
restructuring costs primarily related to relocation of personnel and equipment.
Accounting rules require these costs to be expensed as incurred.

The relocation of the corporate headquarters and the wide mouth jar
manufacturing operation have been completed. The cost to complete the
restructuring is expected to approximate the original estimate.

During 1996, the Company incurred financing costs of $1,600,000 consisting of i)
fees paid to the Company's advisors in its negotiations with lenders, ii)
reimbursement of the lenders' fees paid to their advisors in the negotiations,
iii) certain fees associated with prospective lenders and iv) expensing a
portion of the previously capitalized financing costs associated with the
existing debt.


NOTE 4 - DISCONTINUED OPERATIONS

On March 15, 1996, the Company sold certain assets, including the manufacturing
assets, of the Consumer Products Business for a purchase price of $14,417,000.
From March 16, 1996 through December 31, 1996, the Company received $17,391,000
from the sale by the Company of the inventory of the Consumer Products Business
and from the collection of the related accounts receivable.

In connection with such sale, the Company recorded $4,900,000 of reserves
consisting of i) severance pay, workers' compensation claims and insurance
continuation of $1,400,000, ii) retiree health care and pension expenses of
$1,200,000, iii) estimated net costs associated with elimination of operations
and liquidation of working capital of $1,100,000, iv) professional fees of
$700,000, v) asset retirements of $300,000, and vi) other costs of $200,000.
After deduction for such reserves, the Company incurred in 1996 a pretax gain of
$3,503,000 ($2,102,000 after-tax) in connection with the sale of the
manufacturing assets of the Consumer Products Business.

During 1996, the Company made cash payments related to such reserves for i) net
costs associated with elimination of operations and liquidation of working
capital of $1,079,000, ii) severance pay and related costs of $1,215,000, iii)
professional fees of $665,000 and iv) other costs of $199,000. In addition to
such cash costs, charges were made to such reserves relating to i)
reclassifications to retiree benefit plan liabilities of $1,220,000 and ii)
asset retirements of $251,000.

The aggregate amount of reserves related to the disposal of the Consumer
Products Business is expected to approximate the original estimate.




                                       31
<PAGE>   32
NOTE 4 - DISCONTINUED OPERATIONS (continued)



The results of the discontinued operations have been reported separately in the
Statement of Earnings (Loss). Summarized results of the discontinued operations
for the years ended December 31, 1996, 1995 and 1994 are as follows:



<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Years Ended December 31,                                        1996         1995        1994
---------------------------------------------------------------------------------------------
                                                                     (in thousands)
<S>                                                         <C>          <C>          <C>
Net sales                                                   $ 18,317     $ 29,808     $32,364
Costs and expenses                                            17,851       31,398      29,151
Allocated interest expense                                       688        1,211         998
                                                            --------     --------     -------

   Earnings (loss) before income taxes                          (222)      (2,801)      2,215
   Provision (benefit) for income taxes                          (89)      (1,117)        904
                                                            --------     --------     -------

   Earnings (loss) from discontinued operations                 (133)      (1,684)      1,311
   Gain on sale of manufacturing assets                        2,102           --          --
                                                            --------     --------     -------

Total earnings (loss) related to discontinued operations    $  1,969     $ (1,684)    $ 1,311
                                                            ========     ========     =======
</TABLE>


Interest expense was allocated to the Consumer Products Business based upon the
ratio of the Consumer Products Business net assets to total Company net assets.


NOTE 5 - INCOME TAXES

Total income tax provision (benefit) for the years ended December 31, 1996, 1995
and 1994 was allocated as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                       1996         1995       1994
----------------------------------------------------------------------------------------------------
                                                                             (in thousands)
<S>                                                                  <C>          <C>         <C>
Tax provision (benefit) from continuing operations
   before valuation reserve                                          $ (6,854)    $(2,401)    $1,441
Income tax valuation reserve adjustment related to
   continuing operations                                               13,691          --         --
                                                                     --------     -------     ------
      Subtotal                                                          6,837      (2,401)     1,441
Tax provision (benefit) from discontinued operations                    1,312      (1,117)       904
Stockholders' equity, related to excess of pension liability
   over unrecognized prior service costs before valuation reserve       1,328      (3,281)       878
                                                                     --------     -------     ------


                                                                     $  9,477     $(6,799)    $3,223
                                                                     ========     =======     ======
</TABLE>




                                       32
<PAGE>   33
NOTE 5 - INCOME TAXES (continued)

The provision (benefit) for income taxes related to continuing operations for
the years ended December 31, 1996, 1995 and 1994 consists of the following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                     1996       1995       1994
--------------------------------------------------------------------------------
                                                           (in thousands)
<S>                                                 <C>       <C>         <C>
Current
   U.S. Federal                                     $   --    $    --     $   81
   State                                                --         --         --
                                                    ------    -------     ------
Total current                                           --         --         81

Deferred
   U.S. Federal                                      5,402     (1,880)     1,090
   State                                             1,435       (521)       270
                                                    ------    -------     ------

Total deferred                                       6,837     (2,401)     1,360
                                                    ------    -------     ------

      Total provision (benefit) for income taxes    $6,837    $(2,401)    $1,441
                                                    ======    =======     ======
</TABLE>



The significant components of deferred income taxes (benefits) related to
continuing operations for the years ended December 31, 1996, 1995 and 1994 are
as follows:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                         1996         1995        1994
--------------------------------------------------------------------------------------------------------
                                                                                (in thousands)
<S>                                                                    <C>          <C>         <C>
Reduction of deferred income taxes attributable to
   recognition of alternative minimum tax credits and
   tax net operating loss carryforwards                                $ (5,200)    $(3,782)    $   (16)
Temporary differences associated with restructuring costs                (1,108)         --          --
Temporary differences associated with the sales of
   discontinued operations                                                  150        (466)      1,531
Additional costs inventoried for tax purposes                              (638)        (44)         64
Excess (deficit) of pension contributions paid over pension expense         517       1,513          46
Excess (deficit) of tax over book depreciation,
   including assets retired or sold                                         418         668         (19)
Other, net                                                                 (993)       (290)       (246)

Plus:  Increase in balance of valuation reserve for deferred
   income tax assets related to the income tax provision                 13,691          --          --
                                                                       --------     -------     -------
      Total                                                            $  6,837     $(2,401)    $ 1,360
                                                                       ========     =======     =======
</TABLE>




                                       33
<PAGE>   34
NOTE 5 - INCOME TAXES (continued)

Total provision (benefit) for income taxes from continuing operations for the
years ended December 31, 1996, 1995 and 1994 differed from the amounts computed
by applying the U.S. Federal income tax rate of 34% to earnings (loss) before
income taxes as a result of the following:



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                                        1996         1995       1994
-----------------------------------------------------------------------------------------------------
                                                                              (in thousands)
<S>                                                                   <C>          <C>         <C>
Computed "expected" tax provision (benefit)                           $ (5,925)    $(2,048)    $1,202
Increase (reduction) in provision resulting from:
   State income tax provision (benefit), net of Federal tax effect        (983)       (358)       210
   Increase in balance of valuation reserve for deferred income
      tax assets related to the income tax provision                    13,691          --         --
   Other, net                                                               54           5         29
                                                                      --------     -------     ------
      Actual tax provision (benefit)                                  $  6,837     $(2,401)    $1,441
                                                                      ========     =======     ======
</TABLE>


The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at December 31, 1996 and 1995
are as follows:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                         1996         1995
-----------------------------------------------------------------------------------------------------------
                                                                                         (in thousands)
<S>                                                                                  <C>          <C>
Deferred income tax assets:
   Net operating loss carryforwards                                                  $ 11,577     $  6,882
   Pension liabilities --
      Excess of additional pension liability over unrecognized prior service cost       5,415        6,742
      Accrued pension liability                                                          (464)         (19)
   Tax credit carryforwards                                                             1,485        1,158
   Accrued retiree health liability                                                     1,001          551
   Accrued reserves associated with discontinued operations                               215          274
   Inventory                                                                            1,064          675
   Accrued vacation pay                                                                   532          461
   Reserves associated with restructuring                                               1,108           --
   Other                                                                                  507          670
                                                                                     --------     --------

      Total gross deferred income tax assets                                           22,440       17,394
      Less valuation reserve for deferred income tax assets                           (13,691)          --
                                                                                     --------     --------

      Deferred income tax assets, net of valuation reserve                              8,749       17,394
Deferred income tax liabilities:
   Property, plant and equipment, principally due to differences in depreciation       (6,116)      (5,744)
   Excess of book basis over tax basis of land and buildings formerly
      used as a glass container manufacturing plant                                    (1,337)      (1,252)
   Other                                                                               (1,296)        (590)
                                                                                     --------     --------

      Total gross deferred income tax liabilities                                      (8,749)      (7,586)
                                                                                     --------     --------

Net deferred income tax assets                                                       $     --     $  9,808
                                                                                     ========     ========
</TABLE>


                                       34
<PAGE>   35
NOTE 5 - INCOME TAXES (continued)

The Company's net deferred income tax assets as of December 31, 1996 have been
eliminated by a valuation reserve of $13,691,000. The valuation reserve has been
provided due to the uncertainty related to the Company's financing as described
in Note 2 of the notes to the financial statements.

At December 31, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of $28,300,000 which are available to offset future
Federal taxable income, expiring in the years 2006 through 2011.

The Company also has an alternative minimum tax credit carryforward of
$1,068,000 and other tax credit carryforwards (primarily investment tax credits)
of $417,000, expiring in the years 1999 through 2009, which are available to
reduce future Federal income taxes, if any.

The total net cash payments related to income taxes, which represent Federal
alternative minimum taxes and state taxes, were $0, $24,000 and $761,000 for
1996, 1995 and 1994, respectively.


NOTE 6 - OTHER CURRENT LIABILITIES

At December 31, 1996 and 1995, other current liabilities were as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                               1996        1995
--------------------------------------------------------------------------------
                                                                (in thousands)
<S>                                                           <C>         <C>
Accrued wages and vacation pay                                $1,671      $1,994
Accrued interest                                               1,267       2,617
Accrued and withheld taxes                                       236          29
Accrued reserves associated with restructuring                 1,483          --
 Other accrued expenses                                          965         473
                                                              ------      ------

   Total accrued expenses                                     $5,622      $5,113
                                                              ======      ======
</TABLE>


NOTE 7 - RETIREMENT BENEFITS

PENSIONS

The Company has a defined benefit pension plan (the "Retirement Income Plan"),
which covers substantially all employees. The Retirement Income Plan generally
provides benefits based on years of service and average final pay. The Company's
policy is to fund amounts sufficient to satisfy the funding requirements of the
Employee Retirement Income Security Act of 1974. During 1996 and 1995, the
Company funded the Retirement Income Plan by $3,245,000 more than the accrued
pension expense related to the 1995 plan year. During 1995 and 1994, the Company
funded the Retirement Income Plan by $1,983,000 more than the accrued pension
expense related to the 1994 plan year.

During 1995, the Company contributed 250,000 shares of its Common Stock, at a
price of $7.56 per share, to the Retirement Income Plan. The contribution was
valued at $1,891,000 which was based upon the current market value of the stock
on the date of the contribution.

During 1995, the Company adopted a Pension Restoration Plan which is an unfunded
plan providing benefits to participants not payable by the Company's Retirement
Income Plan because of the limitations on benefits imposed by the Internal
Revenue Code of 1986, as amended. The aggregate annual accrued benefit for each
participant under the combination of the Retirement Income Plan and the Pension
Restoration Plan when expressed as a single-life annuity is limited to $200,000.


                                       35
<PAGE>   36
NOTE 7 - RETIREMENT BENEFITS (continued)

Net pension expense related to continuing operations for the years ended
December 31, 1996, 1995 and 1994 included the following components:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
                                                   1996        1995         1994
----------------------------------------------------------------------------------
                                                          (in thousands)
<S>                                              <C>         <C>          <C>
Service cost (benefit earned during period)      $   668     $    468     $   534
Interest cost on projected benefit obligation      7,380        7,364       7,018
Actual loss (return) on assets                    (6,474)     (16,080)        597
Net amortization and deferral                        579        9,460      (6,552)
                                                 -------     --------     -------
   Net pension expense                           $ 2,153     $  1,212     $ 1,597
                                                 =======     ========     =======
</TABLE>

The funded status of the defined benefit plans at December 31, 1996 and 1995 was
as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                            1996          1995
------------------------------------------------------------------------------------------------
                                                                              (in thousands)
<S>                                                                      <C>           <C>
Actuarial present value of benefit obligation

   Vested benefit obligation                                             $  95,731     $  99,237
   Nonvested benefit obligation                                              2,385         1,942
                                                                         ---------     ---------

   Accumulated benefit obligation                                           98,116       101,179
   Effect of future salary increases                                         2,610         2,812
                                                                         ---------     ---------

   Projected benefit obligation                                            100,726       103,991
Plan assets at fair value (a)                                               84,182        79,084
                                                                         ---------     ---------

Projected benefit obligation in excess of plan assets                       16,544        24,907
Unrecognized net transition obligation                                        (394)         (474)
Unrecognized prior service costs                                              (826)         (936)
Unrecognized net loss                                                      (16,201)      (19,660)
                                                                         ---------     ---------

Accrued pension (asset) liability before adjustment                           (877)        3,837
Adjustment required to recognize additional minimum pension liability       14,812        18,258
                                                                         ---------     ---------
   Accrued pension liability related to the defined benefit plan         $  13,935     $  22,095
                                                                         =========     =========
</TABLE>

(a)  Plan assets include 368,200 shares of Company Common Stock at a value of
     $874,000 at December 31, 1996 and $3,682,000 at December 31, 1995.


In connection with recording the additional minimum pension liability pursuant
to the provisions of FASB No. 87, the Company recorded a reduction in
stockholders' equity of $8,245,000 at December 31, 1996, and $10,140,000 at
December 31, 1995, and an intangible pension asset of $1,152,000 at December 31,
1996, and $1,376,000 at December 31, 1995.

The majority of all pension plan assets are held by a master trust created for
the collective investment of the plan's funds, as well as in private placement
insurance contracts. At December 31, 1996, assets held by the master trust
consisted primarily of cash, U.S. government obligations, corporate bonds and
common stocks.




                                       36
<PAGE>   37
NOTE 7 - RETIREMENT BENEFITS (continued)

The defined benefit plan assumptions as of December 31, 1996, 1995 and 1994 were
as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                   1996        1995        1994
--------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>
   Discount rate                                   7.75%       7.25%       8.75%
   Increase in compensation rate                   5   %       5   %       5   %
   Long-term rate of return on assets              9.5 %       9.5 %       9.5 %
</TABLE>

The Company retained the pension benefit obligations for service prior to the
date of the sale and the pension assets related to the Company's discontinued
Consumer Products Business. In connection with the sale of the business, the
Company's pension plan had a curtailment loss of $100,000 pursuant to FASB
Statement No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits. Such curtailment
loss was included as component of the gain on the sale of the Consumer Products
Business.

RETIREE HEALTH CARE AND LIFE INSURANCE

The Company provides certain health care and life insurance benefits for retired
employees and their spouses. The costs of such benefits are shared by retirees
through one or more of the following: a) deductibles, b) copayments and c)
retiree contributions. Salaried employees hired prior to September 1, 1992, and
certain hourly employees may become eligible for those benefits if they reach
retirement age while working for the Company. The Company will not provide
retiree health care and life insurance benefits for salaried employees hired
after September 1, 1992. Health care and life insurance benefits provided by the
Company are not funded in advance, but rather are paid by the Company as the
costs are actually incurred by the retirees.

Effective January 1, 1993, the Company adopted FASB No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The adoption of FASB
No. 106 at January 1, 1993, created a previously unrecognized accumulated
postretirement benefit obligation of $13,195,000. As permitted under FASB No.
106, the Company has elected to amortize the $13,195,000 accumulated
postretirement benefit obligation ratably over 20 years.

Retiree health care and life insurance expense related to continuing operations
for the years ended December 31, 1996, 1995 and 1994 included the following
components:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
                                                          1996      1995      1994
-----------------------------------------------------------------------------------
                                                               (in thousands)
<S>                                                      <C>       <C>       <C>
Service cost (benefit earned during period)              $   51    $   41    $   54
Interest cost on accumulated benefit obligation             690       855     1,082
Actual return on assets                                      --        --        --
Net amortization and deferral                               509       478       525
                                                         ------    ------    ------

   Net retiree health care and life insurance expense    $1,250    $1,374    $1,661
                                                         ======    ======    ======
</TABLE>




                                       37
<PAGE>   38
NOTE 7 - RETIREMENT BENEFITS (continued)

The funded status of the retiree health care and life insurance plans at
December 31, 1996 and 1995 was as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                               1996        1995
--------------------------------------------------------------------------------------------------
                                                                                (in thousands)
<S>                                                                          <C>         <C>
Actuarial present value of accumulated postretirement benefit obligation:
   Retirees                                                                  $ 7,692     $  9,210
   Fully eligible active participants                                            691          735
   Other active participants                                                     955        1,055
                                                                             -------     --------
   Accumulated benefit obligation                                              9,338       11,000
Plan assets at fair value                                                         --           --
                                                                             -------     --------
Accumulated benefit obligation in excess of plan assets                        9,338       11,000
Unrecognized net transition obligation                                        (8,405)     (10,612)
Unrecognized prior service costs                                                  --           --
Unrecognized net gain (loss)                                                   1,594          992
                                                                             -------     --------

Accrued postretirement benefit liability                                     $ 2,527     $  1,380
                                                                             =======     ========
</TABLE>

The retiree health care and life insurance plans assumptions are as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                           December 31,              December 31,             December  31,
                                                   1996                      1995                      1994
-----------------------------------------------------------------------------------------------------------
<S>                                 <C>                       <C>                       <C>
Discount rate                                     7.75%                     7.25%                     8.75%
Health care cost trend rates --
   Indemnity plans                  8.75% trending down       8.75% trending down       8.75% trending down
                                                  to 6%                     to 6%                     to 6%
   Managed care plans               6.75% trending down       6.75% trending down       6.75% trending down
                                                  to 4%                     to 4%                     to 4%
-----------------------------------------------------------------------------------------------------------
</TABLE>


The effect of a one percentage point annual increase in these assumed cost trend
rates at December 31, 1996, would increase the postretirement benefit obligation
by approximately $370,000 and would increase the service and interest cost
components of the annual expense by approximately $35,000.




                                       38
<PAGE>   39
NOTE 8 - FINANCING

At December 31, 1996, the Company's debt consists of $50,900,000 of Senior Notes
and an unsecured Bank Note held by a group of investors. The Company is in
discussions with these investors regarding the possible exchange of such debt
for equity or possible repayment through the refinancing of the debt. This debt
consists of the following components as of December 31, 1996 and December 31,
1995 (in thousands):

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                        ------------
                                                                                      1996       1995
                                                                                      ----       ----
<S>                                                                                  <C>        <C>
     Senior Notes - Series A, 10-year notes originally issued September 21, 1993,
         original principal amount of $41,000,000, bearing interest at 9.45%         $36,936    $41,000

     Senior Notes - Series B, 6-year notes originally issued September 21, 1993,
         original principal amount of $9,000,000, bearing interest at 8.99%            8,108      9,000

     Bank Note, due date extended to March 7, 1997, bearing interest at the
         Prime rate (8.25% at December 31, 1996)                                       5,856      6,500
                                                                                     -------    -------

                                                                                     $50,900    $56,500
                                                                                     =======    =======
</TABLE>

Sinking fund payments were scheduled to begin under the 10-year notes in 1998
and under the 6-year notes in 1997. The Senior Notes and Bank Note are
unsecured.

The Senior Notes and Bank Note contain various covenants including covenants
relating to coverage of fixed charges, minimum level of tangible net worth,
limitation on leverage and limitation on restricted payments, for which payments
are defined to include Common Stock dividends. Under the most restrictive
covenant related to the payment of dividends, the payment of Common Stock
dividends is not permitted at December 31, 1996. As of December 31, 1996, the
Company is not in compliance with certain of the financial covenants and has
obtained waivers of such covenants through March 7, 1997.

The Senior Notes contain a provision which requires the payment of a prepayment
penalty in the event the Senior Notes are repaid prior to their scheduled
maturity date. If the Senior Notes had been repaid on March 25, 1997, the
prepayment penalty would have equaled approximately $3,000,000.

As of December 31, 1996, the Company's $45,044,000 of outstanding Senior Notes
is classified as a current liability because the Company was in default of
certain financial covenants for which waivers have been received for a period of
less than one year (currently through March 7, 1997). See further discussion at
Note 2 of notes to financial statements.

As of December 31, 1996, the Company had an Accounts Receivable Agreement
(Receivable Agreement) which matured on March 7, 1997 that met the working
capital needs of the Company. The Receivable Agreement permitted the Company to
sell its trade accounts receivable on a nonrecourse basis. Under the Receivable
Agreement, the maximum amount that could be advanced to the Company pursuant to
the sale of trade accounts receivable at any time was $8,500,000. The Company
retained collection and service responsibility, as agent for the purchaser, over
any receivables sold. Advances under such Receivable Agreement were subject to
certain limitations. As of December 31, 1996, receivables as shown on the
accompanying Balance Sheet have been reduced by net proceeds of $3,861,000 from
advances pursuant to the sale of receivables under the Receivable Agreement. The
Receivable Agreement contained covenants identical to the Senior Notes. The
Company is not permitted to sell accounts receivable under the Receivable
Agreement as long as there exists a default under the Senior Notes.




                                       39
<PAGE>   40
NOTE 8 - FINANCING (continued)

The Bank Note was originally related to a $10,000,000 bank line of credit, which
effective October 24, 1995 was reduced by the lender to the then outstanding
balance of $6,500,000 due to a decline in the Company's financial performance.
During early 1995, the Company had an additional bank line of credit which was
replaced by the Receivable Agreement.

During 1996, the Company had maximum borrowings under the Senior Notes and Bank
Note of $60,000,000. During 1996, the weighted average interest rate under the
Senior Notes and Bank Note was 9.3% and the weighted average borrowings
outstanding was $53,199,000.

During 1995, the Company had maximum borrowings outstanding under the lines of
credit of $12,000,000. During 1995, the weighted average interest rate under its
lines of credit was 8.7% and the weighted average borrowings outstanding under
its lines of credit was $7,528,000.

Total cash payments of interest related to continuing operations during 1996,
1995 and 1994 were $5,618,000, $2,752,000, and $3,794,000, respectively.

See discussion of issues affecting liquidity at Note 2 of notes to consolidated
financial statements.


NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of cash, accounts receivable and payable, and advances pursuant
to the sale of receivables under the Company's Receivable Agreement approximate
their carrying amount because of their short maturity.

The fair value of the Bank Note approximates its carrying amount because such
debt has a floating interest rate tied to the Prime rate.

The fair value of the Company's $45,044,000 principal amount of Senior Notes
would be expected to be higher than the carrying amount because market interest
rates have declined since such debt was incurred. However, since it is unlikely
the Company could obtain similar unsecured financing at comparable rates today,
determining a fair value of such debt is not appropriate.


NOTE 10 - PREFERRED STOCK

CLASS B PREFERRED STOCK

At December 31, 1996 and 1995, the Company was authorized to issue 1,302,300
shares of Class B Preferred Stock, par value $.50 per share, which may be issued
in series from time to time at the discretion of the Board of Directors. Holders
of all series of Class B Preferred Stock share ratably as to rights to payment
of dividends and to amounts payable in event of liquidation, dissolution or
winding up of the Company. No dividends or payments in liquidation may be made
with respect to Common Stock or any other stock ranking junior as to dividends
or assets to the Class B Preferred Stock unless all accumulated dividends and
sinking fund payments on the Class B Preferred Stock have been paid in full and,
in the event of liquidation, unless the accumulated dividends and the
liquidation preference of the Class B Preferred Stock have been paid.

SERIES D

At December 31, 1996 and 1995, the Company had 487,400 shares of Class B
Cumulative Convertible Preferred Stock, Series D (Preferred Stock), issued and
outstanding. Holders of the Preferred Stock are entitled to a cumulative
dividend, payable quarterly, at the annual rate of 8.5% ($1.70 per share). The
Preferred Stock is redeemable at the option of the Company at any time, in whole
or in part, at a price of $20.00 per share plus cumulative unpaid dividends. No
purchases or redemptions of or dividends on Common Stock may occur unless all
accumulated dividends have been paid on the Preferred Stock.

                                       40
<PAGE>   41
NOTE 10 - PREFERRED STOCK (continued)

At December 31, 1996, each share of Preferred Stock had a liquidating value of
$21.28 per share and is convertible into Common Stock at the rate of 1.4545
shares of Common Stock for each share of Preferred Stock (equivalent to a
conversion price of $13.75 per common share), subject to adjustment under
certain conditions. At December 31, 1996, a total of 708,923 shares of Common
Stock was reserved for issuance upon conversion of the Preferred Stock.

If six quarterly dividends on the Preferred Stock are unpaid, the holders of
Preferred Stock shall have the right, voting as a class, to elect two additional
persons to the Board of Directors of the Company until all such dividends have
been paid.

The Company has not declared a dividend on its Class B, Series D Preferred Stock
since the first quarter of 1996. The cumulative amount of undeclared dividends
as of December 31, 1996 is $622,000. Under accounting rules, such dividends are
not accrued until declared, however, for financial reporting purposes the amount
of such dividends are shown on the face of the income statement as a deduction
to arrive at net earnings (loss) applicable to common stockholders. The Company
was not permitted to declare or pay any dividends on its preferred stock at
December 31, 1996


NOTE 11 - COMMON STOCK

EMPLOYEE STOCK OWNERSHIP PLANS

The Company has two employee stock ownership plans, the Kerr Group, Inc.
Employee Incentive Stock Ownership Plan Trust formed in 1985 (ESOP I) and the
Kerr Group, Inc. 1987 Employee Incentive Stock Ownership Plan Trust formed in
1987 (ESOP II). Both plans are for the benefit of employees of the Company. The
Company borrowed funds from a group of banks, which in turn were loaned to the
plans for the purpose of purchasing shares of the Company's Common Stock. The
bank loans were repaid on February 28, 1992. The related Company loan to ESOP I
was repaid during 1993 and the loan to ESOP II was repaid during 1994.

ESOP I and ESOP II obtained the funds to repay loans primarily through the
receipt of tax deductible contributions made by the Company. The Company funded
such contributions primarily through the reduction of compensation and benefits,
and deferral of salary increases which it would otherwise have provided to its
employees. Total contribution expense from continuing operations for these plans
was $396,000 in 1994. For financial statement purposes, the bank loans were
reflected as a liability and the Company's loans to ESOP I and ESOP II were
reflected as a reduction in stockholders' equity.

STOCK OPTIONS

Under the Company's Stock Option Plans for employees, options may be granted at
a price determined by the Stock Option Committee of the Board of Directors,
which may be less than market value. Options may be exercised during periods
established by such Committee; however, in no event may any option be exercised
more than ten years after the date of grant. Options granted in 1996 and 1995
were fully vested on the date of grant. All of the Company's currently
outstanding options issued prior to 1995 generally vest in cumulative
installments of 20% per year commencing on the date of grant. Such options
become exercisable in full upon the occurrence of certain enumerated events,
including certain changes in control of the Company.

The options granted beginning in 1992 provide that the Company's stock price
must equal or exceed a triggering price per Common Share, which is higher than
the exercise price of the option, for ten consecutive trading days for the
options to be exercisable. The options granted during 1996 had triggering prices
of $10.00 per common share. The options granted during 1995, 1994 and 1993 had
triggering prices of $12.50 per Common Share. The options granted during 1992
had triggering prices of $10.00 per Common Share, which requirement was met
during 1994, and the options issued during 1992 are now exercisable.

                                       41
<PAGE>   42
NOTE 11 - COMMON STOCK (continued)

The following tabulation summarizes changes under the Company's Stock Option
Plans for employees during the years ended December 31, 1996, 1995 and 1994.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                              1996                              1995                             1994
----------------------------------------------------------------------------------------------------------------------------------
                                Number Of                            Number Of                      Number Of
                                  Options         Price Range          Options     Price Range        Options       Price Range
----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>                   <C>         <C>                <C>           <C>
Options Outstanding:
   Beginning of year              427,100      $5 3/8 - 10 3/8        252,100    $5 3/8 - 10 3/8      274,000     $5 3/8 - 8 5/16
   Granted                         75,000       3 15/16               204,000     7 9/16                6,500      9 7/16 - 10 3/8
   Exercised                           --                              (6,000)    5 3/8               (10,400)     5 3/8 - 7 1/8
   Canceled                      (134,900)      5 3/8 - 8 5/16        (23,000)    5 3/8 - 8 5/16      (18,000)     5 3/8 - 8 5/16
   Expired                        (40,000)      7 1/8                      --                              --
                                 --------                             -------                         -------

   End of year                    327,200       3 15/16 - 10 3/8      427,100     5 3/8 - 10 3/8      252,100      5 3/8 - 10 3/8

Exercisable at end of year:
   Currently exercisable           49,500                              83,200                          70,900
   Exercisable if Common
      Stock trades at
      triggering price of
      $10.00                       75,000                                  --                              --
   Exercisable if Common
      Stock trades at
      triggering price of
      $12.50                      185,900                             277,300                          57,501
                                 --------                             -------                         -------

         Total                    310,400                             360,500                         128,401

Available for grant at
end of year                        81,397                              21,497                          22,497
</TABLE>


In addition, the 1988 Stock Option Plan for Non-Employee Directors (the 1988
Plan), consisting of 80,000 shares, and 1993 Stock Option Plan for Non-Employee
Directors (the 1993 Plan), consisting of 60,000 shares, provide for the grant of
options to purchase Common Stock to members of the Board of Directors of the
Company who are not employees of the Company or any of its subsidiaries or
affiliates. The option price of each option granted under these plans is the
fair market value of Common Stock on the date of grant. Options under the 1988
Plan are immediately exercisable upon grant and will expire five years from the
date of grant. Future grants of options under the 1988 Plan can only be made to
Directors other than the Company's current Directors. Options under the 1993
Plan are exercisable six months after date of grant, provided that the Company's
stock price equals or exceeds $12.50 per Common Share for ten consecutive
trading days. Options under the 1993 Plan expire ten years from the date of
grant.




                                       42
<PAGE>   43
NOTE 11 - COMMON STOCK (continued)

The following tabulation summarizes changes under the Company's Stock Option
Plans for Non-Employee Directors during the years ended December 31, 1996, 1995
and 1994.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                           1996                               1995                         1994
-------------------------------------------------------------------------------------------------------------------------
                             Number Of                             Number Of                      Number Of
                               Options          Price Range          Options      Price Range       Options   Price Range
-------------------------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>                   <C>            <C>             <C>         <C>
Options Outstanding:
   Beginning of year            60,000       $8 3/16                  60,000        $8 3/16          60,000     $8 3/16

   Granted                      10,000        3 15/16                     --                             --
   Exercised                        --                                    --                             --
   Expired                          --                                    --                             --
                                ------                                ------                         ------

   End of year                  70,000        3 15/16 - 8 3/16        60,000         8 3/16          60,000      8 3/16

Exercisable at end of year:
   Currently exercisable            --                                    --                             --

   Exercisable if Common
      Stock trades at $10.00
      per share or above        10,000                                    --                             --

   Exercisable if Common
      Stock trades at $12.50
      per share or above        60,000                                60,000                         60,000
                                ------                                ------                         ------

   Total                        70,000                                60,000                         60,000

Available for grant at
   end of year                  70,000                                80,000                         80,000
</TABLE>

The aggregate option price for all outstanding options at December 31, 1996,
1995 and 1994 was $2,696,000, $3,698,000, and $2,359,000, respectively. At the
time options are exercised, the common stock account is credited with the par
value of the shares issued and additional paid-in capital is credited with the
cash proceeds in excess of par value. The Company's Stock Option Plans permit
the grant of both incentive stock options and nonstatutory stock options.

Effective January 1, 1996, the Company adopted the Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation (FASB
No. 123). FASB No. 123 requires the Company to choose between two different
methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity to
continue to measure compensation cost for stock options using the accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25). The Company has elected to continue using the accounting methods
prescribed by APB No. 25. The amount of the proforma compensation expense,
required to be disclosed under the FASB No. 123, is not material.




                                       43
<PAGE>   44
NOTE 12 - RENTAL EXPENSE AND LEASE COMMITMENTS

The Company occupies certain manufacturing facilities, warehouse facilities and
office space and uses certain automobiles, machinery and equipment under
noncancelable lease arrangements. Rent expense related to continuing operations
under these agreements was $3,465,000, $2,842,000 and $2,381,000 in 1996, 1995
and 1994, respectively.

At December 31, 1996, the Company was obligated under various noncancelable
leases. Calendar year minimum rental commitments under the Company's leases are
as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                        Total             Real          Personal
Years Ended December 31,           Commitment         Property          Property
--------------------------------------------------------------------------------
                                                  (in thousands)
<S>                                <C>                <C>               <C>
1997                                   $1,708           $1,288              $420
1998                                    1,636            1,255               381
1999                                    1,462            1,224               238
2000                                    1,355            1,224               131
2001                                    1,321            1,224                97
2002 through 2014                       8,546            8,542                 4
</TABLE>


Future minimum rental commitments are lower than in prior years due to the
cancellation of the lease for the Santa Fe Springs facility as a result of the
plant closing and the relinquishing of possession of the Company's former
principal executive office.

The amounts above exclude rentals related to the Company's former principal
executive office of which the Company relinquished possession in early 1997. The
Company has provided a reserve for the estimated cost to settle potential claims
of the landlord of this location.

Real estate taxes, insurance and maintenance expenses are obligations of the
Company. Generally, in the normal course of business, leases that expire will be
renewed or replaced by leases on other properties.




                                       44
<PAGE>   45
NOTE 13 - COMMITMENTS AND CONTINGENCIES

In connection with the Company's Workers' Compensation insurance programs, the
Company has pledged a certificate of deposit in the amount of $500,000 to secure
surety bonds. The Company's estimate of its ultimate liability relating to these
programs has been reflected on the Company's consolidated balance sheet as a
liability.

The Company has been designated by the Environmental Protection Agency as a
potentially responsible party to share in the remediation costs of several waste
disposal sites. Pursuant to the sale of the Metal Crown Business, the Company
has indemnified the buyer for certain environmental remediation costs. In
addition, pursuant to the sale of the Commercial Glass Container Business, the
Company has indemnified the buyer for certain environmental remediation costs
and has retained ownership of certain real property used in the Commercial Glass
Container Business which may require environmental remediation. The estimated
ultimate liability of the environmental indemnities related to these businesses
is not material to the consolidated results of operations or the consolidated
balance sheet of the Company. During 1996, the Company made cash payments
related to environmental remediation of $256,000. As of December 31, 1996, the
Company has accrued a reserve of approximately $212,000 for the expected
remaining costs associated with environmental remediation described above and in
connection with its current manufacturing plants. The amount of the reserve was
based in part on an environmental study performed by an independent
environmental engineering firm. The Company believes that this reserve is
adequate.




                                       45
<PAGE>   46
NOTE 14 - CONDENSED QUARTERLY DATA FOR 1996 AND 1995 (UNAUDITED)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Three Months Ended                                       March 31        June 30       Sept. 30        Dec. 31
---------------------------------------------------------------------------------------------------------------
                                                                (in thousands, except per share amounts)
<S>                                                      <C>            <C>            <C>            <C>
1996
Net sales                                                $ 25,096       $ 27,368       $ 28,024       $ 26,881
Gross profit                                                2,952          6,646          7,833          6,874

Net loss from continuing operations (a) (b)                (7,666)        (1,120)        (4,498)       (10,978)
Net earnings related to discontinued operations (c)         1,431              0              0            538
                                                         --------       --------       --------       --------
   Net loss                                                (6,235)        (1,120)        (4,498)       (10,440)
      Preferred stock dividends (d)                           207            207            207            208
                                                         --------       --------       --------       --------
Net loss applicable to common stockholders               $ (6,442)      $ (1,327)      $ (4,705)      $(10,648)
                                                         ========       ========       ========       ========

Net loss per common share:
   From continuing operations                            $  (2.00)      $  (0.34)      $  (1.20)      $  (2.84)
   From discontinued operations                              0.36             --             --           0.13
                                                         --------       --------       --------       --------
      Net loss                                           $  (1.64)      $  (0.34)      $  (1.20)      $  (2.71)
                                                         ========       ========       ========       ========
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Three Months Ended                                   March 31        June 30       Sept. 30        Dec. 31
-----------------------------------------------------------------------------------------------------------
                                                            (in thousands, except per share amounts)
<S>                                                  <C>            <C>            <C>            <C>
1995
Net sales                                            $ 27,362       $ 26,189       $ 28,240       $ 27,396
Gross profit                                            6,895          6,180          6,339          5,168

Net loss from continuing operations (e)                  (375)          (736)          (786)        (1,726)
Net earnings related to discontinued operations           (12)           451           (313)        (1,810)
                                                     --------       --------       --------       --------
   Net loss                                              (387)          (285)        (1,099)        (3,536)
      Preferred stock dividends                           207            207            207            208
                                                     --------       --------       --------       --------
Net loss applicable to common stockholders           $   (594)      $   (492)      $ (1,306)      $ (3,744)
                                                     ========       ========       ========       ========

Net loss per common share:
   From continuing operations                        $  (0.16)      $  (0.25)      $  (0.25)      $  (0.49)
   From discontinued operations                            --           0.12          (0.08)         (0.46)
                                                     --------       --------       --------       --------
      Net loss                                       $  (0.16)      $  (0.13)      $  (0.33)      $  (0.95)
                                                     ========       ========       ========       ========
</TABLE>

(a)  Net loss from continuing operations includes after-tax costs associated
     with restructuring and financing of $4,500,000 for the quarter ended March
     31, 1996, $541,000 for the quarter ended June 30, 1996, $768,000 for the
     quarter ended September 30, 1996 and $1,930,000 for the quarter ended
     December 31, 1996. See Note 3 of notes to financial statements for further
     discussion.

(b)  Net loss from continuing operations includes charges to provide valuation
     reserves against the Company's deferred income tax asset of $4,000,000 for
     the quarter ended September 30, 1996 and $9,691,000 for the quarter ended
     December 31, 1996. See Note 5 of notes to financial statements for further
     discussion.

(c)  Net earnings from discontinued operations includes an after-tax gain of
     $1,564,000 for the quarter ended March 31, 1996 and a subsequent adjustment
     to increase such after-tax gain by $538,000 during the quarter ended
     December 31, 1996. The increase in such gain was primarily related to a
     reduction in the reserve previously provided related to pension accounting.

(d)  The Company has not declared a dividend on its Class B, Series D Preferred
     Stock since the first quarter of 1996. The cumulative amount of undeclared
     dividends as of December 31, 1996 is $622,000. The Company was not
     permitted to declare or pay any dividends on its preferred stock at
     December 31, 1996.

(e)  Net loss from continuing operations for the quarter ended December 31, 1995
     includes a pretax loss of $1,000,000 related to the write-down in the book
     value of land formerly used by the Company as a glass container
     manufacturing plant.

                                       46
<PAGE>   47
ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         None.




                                       47
<PAGE>   48
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                  Certain of the information required by Item 10 of Form 10-K is
included in a separate item captioned "Executive Officers of the Registrant" in
Part I of this Form 10-K.

                  The following table sets forth the name, the age, the
principal occupation for the last five years of each director of the Company.
Mr. Strickland has been President and Chief Executive Officer and a director
since 1996. Mr. Strickland had served as Senior Vice President, Finance and
Chief Financial Officer of the Company since 1986. Mr. Elish has been Chairman
of the Board since 1996 having recently retired from his position as Chairman
and Chief Executive Officer of Weirton Steel Corporation, a position he had held
for more than the preceding five years. Messrs. O'Hara, Hurlbert, Jackson,
Mellor and Sperry have been executives and a partner, respectively, with the
corporations, including subsidiaries, or the firm, as the case may be, with
which they are now associated or its predecessor for more than the past five
years. Mr. Kyle retired in 1993 from his position as Senior Vice President of
Chemical Bank, a position he had held for more than the preceding five years.

<TABLE>
<CAPTION>
Name                                Principal Occupation                                    Director Since
----                                --------------------                                    --------------
<S>                                 <C>                                                     <C>
Herbert Elish
  Age 63 (1) (2)                    Chairman of the Board; Previously Chairman and               1996
                                    Chief Executive Officer of Weirton Steel
                                    Corporation from 1987 through December 1995;
                                    Director Hampshire Group, Limited.

Gordon C. Hurlbert,
  Age 72 (3)                        Chairman of the Board of Directors, CSC                      1985
                                    Industries, Inc. (Copperweld Steel);
                                    Director of Carolina Power & Light Company.

Michael C. Jackson,
  Age 56 (1)                        Advisory Director, Lehman Brothers, Inc.,                    1985
                                    investment bankers; Director of Hampshire
                                    Group, Limited.

John D. Kyle,
  Age 61 (2) (3)                    Retired Senior Vice President, Chemical Bank.                1973

James R. Mellor,
  Age 66 (1)                        Chairman, Chief Executive Officer and Director of            1980
                                    General Dynamics Corporation, a defense,
                                    aerospace, and shipbuilding company;
                                    Director of Bergen Brunswig Corporation and
                                    Computer Sciences Corporation.

Robert M. O'Hara,
  Age 70 (3)                        Chairman and Chief Executive Officer of Falcon               1980
                                    Management (formerly OMS Company), investments
                                    and management services; Director of TBC Corp.
</TABLE>



                                       48
<PAGE>   49
<TABLE>
<S>                                 <C>                                                     <C>
Harvey L. Sperry,
  Age 66 (2)                        Partner, Willkie Farr & Gallagher, attorneys,                1973
                                    Director of Hampshire Group, Limited.

D. Gordon Strickland,
  Age 50 (2)                        President and Chief Executive Officer of the                 1996
                                    Company; previously Senior Vice President,
                                    Finance and Chief Financial Officer of the
                                    Company since 1986.
</TABLE>


(1)    Member of the Stock Option and Compensation Committee.

(2)    Member of the Executive Committee.

(3)    Member of the Audit Committee.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

                  The Company's executive officers, directors and ten percent
stockholders are required under Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to file reports of ownership and changes
in ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange.
Copies of these reports must also be furnished to the Company. Based solely upon
its review of copies of such reports furnished to the Company through the date
hereof, or written representations that no reports were required to be filed,
the Company believes that during the fiscal year ended December 31, 1996, all
filing requirements applicable to its officers, directors and ten percent
stockholders were complied with in a timely manner.


ITEM 11. EXECUTIVE COMPENSATION

                  The following table sets forth information regarding the
compensation of the Company's Chief Executive Officer and the two other most
highly compensated executive officers (the "Executive Group") for each of the
last three fiscal years. Information is also provided for Mr. Roger W. Norian,
who served as the Company's Chief Executive Officer from June 6, 1980 until
March 15, 1996.




                                       49
<PAGE>   50
                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                                                Long Term Compensation
                                                                                       ----------------------------------------
                                                 Annual Compensation                             Awards
                                       ------------------------------------------      --------------------------
                                                                                       Restricted     Securities
                                                                     Other Annual        Stock        Underlying    All Other
Name and                                                Bonus        Compensation       Award(s)     Options/SARs  Compensation
Principal Position          Year       Salary ($)      ($) (4)          ($)(1)           ($)(4)          (#)          ($)(2)
------------------          ----       ----------      -------          ------           ------          ---          ------
<S>                         <C>        <C>             <C>           <C>               <C>           <C>           <C>
D. Gordon Strickland        1996        300,000        25,000          520,956(3)            --        100,000           --
President and               1995        289,000            --               --               --         20,000           --
Chief Executive             1994        267,000         9,000               --           10,302             --           --
Officer

Robert S. Reeves            1996        224,000        10,000               --               --         30,000        1,500
Senior Vice                 1995        224,000            --               --               --         12,000        1,500
President, Sales            1994        224,000         6,200               --            7,097             --        1,500

Geoffrey A. Whynot,         1996        133,013        10,000          175,130(3)            --         16,000           --
Vice President,             1995        131,693            --               --               --         16,000        1,257
Finance, Chief              1994        127,700         5,000               --            5,545          8,000        2,339
Financial Officer

Roger W. Norian             1996        118,750            --        1,203,432(5)            --             --           --
                            1995        570,000            --               --               --         75,000        1,500
                            1994        570,000        15,000               --           17,178             --        1,500
</TABLE>

(1)    Except as otherwise noted, perquisites and other personal benefits
       received by each named executive officer (including, for certain of the
       named executive officers, payments of premiums on life insurance
       policies, tax preparation fees and car use allowances) in each instance
       aggregated less than the lesser of $50,000 or 10% of such officer's
       annual salary and bonus.

(2)    Includes for Messrs. Strickland, Reeves, Whynot and Norian, respectively,
       $0, $1,500, $0 and $0 for 1996 contributions by the Company pursuant to
       the Company's Employees' Savings Plan.

(3)    Includes reimbursements to Messrs. Strickland and Whynot of $230,000 and
       $69,000, respectively, which was equal to the loss on the sale of their
       residences in Los Angeles plus $217,438 and $56,911, respectively, gross
       up for federal and state taxes resulting from the reimbursements. In both
       cases the reimbursements were part of the 1996 restructuring of the
       Company, which included moving the Company headquarters from Los Angeles,
       California to Lancaster, Pennsylvania.

(4)    Pursuant to the Kerr Group, Inc. Key Executive Incentive Bonus Plan (the
       "Bonus Plan"), Messrs. Strickland, Reeves, Whynot and Norian received 50%
       of their total bonus ($18,000, $12,400, $10,000 and $30,000,
       respectively) for 1994 in cash on or about March 1, 1995. These amounts
       are reflected in the respective bonus columns for 1994. The remaining 50%
       is reflected as an award of restricted stock received by them on March 1,
       1997 except in the case of Mr. Norian, who was not eligible under the
       Plan to receive the restricted stock. No dividends have been paid on the
       restricted stock. The number of shares of restricted stock awarded to
       Messrs. Strickland, Reeves and Whynot was 1,212, 835 and 673,
       respectively. The number of shares of restricted stock awarded was
       calculated by dividing the dollar equivalent of the remaining portion of
       their respective bonuses ($9,000, $6,200 and $5,000, respectively) by a
       number equal to 90% of the




                                       50
<PAGE>   51
       average closing price of the Common Stock during the month of December
       1994. The average closing price of the Common Stock during December 1994
       was $8.24. The aggregate restricted stock holdings for Messrs.
       Strickland, Reeves and Whynot as of December 31, 1996 was 1,212, 835 and
       673, respectively. The dollar value of such restricted stock holdings for
       Messrs. Strickland, Reeves and Whynot as of December 31, 1996 was $2,878,
       $1,983 and $1,598, respectively, which was calculated using the closing
       price of the Common Stock on December 31, 1996, which was $2.375 per
       share.

(5)    Includes a $1,140,000 severance payment in accordance with Mr. Norian's
       employment agreement and a $60,932 payment for unused and pro-rata
       vacation.


                      Option/SAR Grants in Last Fiscal Year

         The following table sets forth information regarding grants of stock
options made to the Executive Group and Mr. Norian during the last fiscal year.

<TABLE>
<CAPTION>
                                                                                                   Potential Realizable Value
                                                                                                   at Assumed Annual Rates of
                                                                                                    Stock Price Appreciation
                                       Individual Grants                                               for Option Term (2)
-------------------------------------------------------------------------------------------        --------------------------
                            Number of      Percent of Total
                           Securities      Options Granted      Exercise or
                           Underlying      to Employees in      Base Price       Expiration
        Name             Options Granted   Fiscal Year (3)        ($/sh)            Date              5%              10%
--------------------     ---------------   ----------------     -----------      ----------        --------         --------
<S>                      <C>               <C>                  <C>              <C>                <C>             <C>
D. Gordon Strickland         65,000              86.7           $3.9375(4)         6/20/01          $70,688         $156,163

Robert S. Reeves                 --                --                --                 --               --               --

Geoffrey A. Whynot               --                --                --                 --               --               --

Roger W.                         --                --                --                 --               --               --
Norian (1)
</TABLE>

(1)    Mr. Norian served as the Company's Chief Executive Officer from June 6,
       1980 until March 15, 1996.

(2)    The Potential Realizable Value is calculated based on an assumption that
       the fair market value of the Common Stock appreciates at the annual rates
       shown (5% and 10%), compounded annually, from the date of grant until the
       end of the option term. The 5% and 10% assumed rates are mandated by the
       Securities and Exchange Commission for the purposes of calculating
       realizable value and do not represent the Company's estimate or
       projection of future stock prices.

(3)    Based on 75,000 options granted to employees in 1996.

(4)    None of these options granted in 1996 are exercisable unless and until
       the stock price reaches $10.00 per share and remains at or above that
       level for at least 10 consecutive trading days.




                                       51
<PAGE>   52
               Aggregated Option/SAR Exercises in Last Fiscal Year
                          and FY-End Option/SAR Values

                  The following table provides information regarding the
exercise of options during the Company's last fiscal year and the number and
value of unexercised options held at year end by each of the named executive
officers and Mr. Norian.

<TABLE>
<CAPTION>
                                                          Number of Securities
                                                               Underlying                    Value of Unexercised
                                                        Unexercised Options/SARs                 In-the-money
                                                             at FY-End (#)                Options/SARs at FY-End ($)
                                                             -------------                --------------------------
                  Shares Acquired        Value
     Name         on Exercise (#)     Realized ($)   Exercisable    Unexercisable     Exercisable     Unexercisable (2)
     ----         ---------------     ------------   -----------    -------------     -----------     -----------------
<S>               <C>                 <C>            <C>            <C>               <C>             <C>
D. Gordon
     Strickland          0                 0            10,000          90,000             0                  0
Robert S.
     Reeves              0                 0             5,000          17,000             0                  0
Geoffrey A.
     Whynot              0                 0             7,000           9,000             0                  0
Roger W.
     Norian (1)          0                 0                 0               0             0                  0
</TABLE>

(1)    Mr. Norian served as the Company's Chief Executive Officer from June 6,
       1980 until March 15, 1996.

(2)    In 1996, Mr. Strickland was granted options to purchase 65,000 shares of
       Common Stock at an exercise price of $3.9375 per share. In 1995, Messrs.
       Strickland, Reeves and Whynot were granted options to purchase 20,000,
       12,000 and 8,000 shares of Common Stock, respectively at an exercise
       price of $7.56 per share. In 1993, Messrs. Strickland and Reeves were
       each granted options to purchase 5,000 shares of Common Stock at an
       exercise price of $8.3125 per share. The amounts set forth in this column
       were calculated using the difference in the fiscal year-end closing price
       of the Common Stock, $2.375 per share, from the exercise price per share.
       Options granted in 1996 are not exercisable unless and until the stock
       price reaches $10.00 per share and remains at or above that level for at
       least 10 consecutive trading days. None of the options granted in 1993 or
       1995 are exercisable unless and until the stock price reaches $12.50 per
       share and remains at or above that level for at least 10 consecutive
       trading days. In addition, options granted in 1992 were not exercisable
       unless and until the stock price reached $10.00 per share and remained at
       or above that level for at least ten consecutive trading days, which
       occurred in 1994.

                                  Pension Plans

                  The Company maintains a funded Retirement Income Plan which
provides eligible employees with retirement benefits equal to 28% of final five
year average remuneration up to social security covered compensation, plus 43%
of final five year average remuneration in excess of social security covered
compensation for 30 years of service, with a proportionate reduction for less
than 30 years of service. Five years of service are required in order to vest
under the Retirement Income Plan. The Company also maintains a Pension
Restoration Plan which is an unfunded plan providing benefits to participants
not payable by the Company's Retirement Income Plan because of the limitations
on benefits imposed by the Internal Revenue Code of 1986, as amended. The
aggregate annual accrued benefit under the Retirement Income Plan and the
Pension Restoration Plan when expressed as a single-life annuity on the life of
the participant is limited to $200,000.



                                       52
<PAGE>   53
                  The following table sets forth estimated annual retirement
benefits payable on a straight life annuity basis upon retirement at age 65
under the Company's Retirement Income Plan and Pension Restoration Plan (without
regard to lower accruals on earnings below social security covered compensation)
for covered employees based on their average remuneration and years of service.
Remuneration covered by the Retirement Income Plan primarily includes salary and
bonus (including such bonus amounts paid in the form of stock), as set forth in
the Summary Compensation Table. Upon a Change of Control of the Company, as
defined in the Pension Restoration Plan, amounts accrued under the Pension
Restoration Plan will be paid out in a lump sum. Messrs. Strickland, Reeves and
Whynot have, as of December 31, 1996, 10, 13 and 9 years, respectively, of
credited service under the pension plans.

<TABLE>
<CAPTION>
           Final 5 Year                           Years of Service
             Average                 -------------------------------------------
           Remuneration                10               20            30 or more
           ------------                --               --            ----------
<S>                                  <C>              <C>             <C>
           $ 100,000 ...........     $14,333          $28,667          $ 43,000
             150,000 ...........      21,500           43,000            64,500
             200,000 ...........      28,667           57,333            86,000
             250,000 ...........      35,833           71,667           107,500
             300,000 ...........      43,000           86,000           129,000
</TABLE>


                            Compensation of Directors

                  The directors who are not employees of the Company are
currently compensated for services as directors at the rate of $22,500 per year
and $500 for each meeting of the Board of Directors attended. Mr. Elish, for
serving as Chairman of the Board, also receives an annual fee of $50,000. In
addition, the Company has established an unfunded retirement plan for directors
of the Company who serve in such capacity for ten years or more, retire after
February 1, 1985, and do not receive any other retirement benefits from the
Company. Pursuant to such plan, the Company will pay $1,000 per month for not
more than ten years to a qualifying director. In 1993, the six directors who
were not employees of the Company each received options to purchase 10,000
shares of Common Stock at a price of $8.19 per share pursuant to the Company's
Stock Option Plan For Non-Employee Directors. These options are not exercisable
unless and until the closing price of the Common Stock on the New York Stock
Exchange reaches $12.50 per share and remains at or above that level for at
least 10 consecutive trading days. Upon his election to the Board in 1996, Mr.
Elish received options to purchase 10,000 shares of Common Stock at a price of
$3.9375 per share pursuant to the Company's Stock Option Plan for Non-Employee
Directors. These options are not exercisable unless and until the closing price
of the Common Stock on the New York Stock Exchange reaches $10.00 per share and
remains at or above that level for at least 10 consecutive trading days. In
1992, the Board of Directors adopted the Director Stock Purchase Plan pursuant
to which non-employee directors may elect to defer the receipt of all or a
portion of their fees. The amounts deferred are contributed to a trust which
will then purchase Common Stock using such amounts on behalf of the
participating directors. The Common Stock Purchase Plan for Directors became
effective on October 1, 1992.




                                       53
<PAGE>   54
               Employment Contracts and Termination of Employment
                       and Change-in-Control Arrangements

                  Each member of the Executive Group currently has an employment
agreement with the Company.

                  Mr. Strickland has an employment agreement with the Company
for an indefinite term until terminated by either Mr. Strickland or the Company
as set forth in the agreement. Mr. Strickland's employment agreement provides
for a salary of $300,000 annually. Mr. Strickland's employment agreement also
provides for the continued payment of his salary and certain insurance benefits
for a period of two years following his termination of employment by the Company
for reasons other than "just cause" or permanent disability, or in the event
that Mr. Strickland elects to terminate his employment following his
reassignment or relocation. Mr. Strickland's employment agreement also provides
that if a change of control (including a sale of all of the assets) of the
Company occurs, the obligations of the Company terminate, except for the
continuation of certain insurance benefits for a two year period, and the
Company will pay $600,000 to Mr. Strickland.

                  The Company entered into an employment agreement with Mr.
Reeves as of February 17, 1983 for an indefinite term until terminated by either
Mr. Reeves or the Company as set forth in the agreement. Mr. Reeves' employment
agreement provides for a salary of $224,000 annually. Mr. Reeves' employment
agreement also provides for the continued payment of his salary and certain
insurance benefits for a period of eighteen months following his termination of
employment by the Company without cause.

                  The Company entered into an employment agreement with Mr.
Whynot as of November 16, 1989 for an indefinite term until terminated by either
Mr. Whynot or the Company as set forth in the agreement. Mr. Whynot's employment
agreement provides for a salary of $145,000 annually. Mr. Whynot's employment
agreement also provides for the continued payment of his salary and certain
insurance benefits for a period of twelve months following his termination of
employment by the Company without cause.


           Compensation Committee Interlocks and Insider Participation

                  During the last completed fiscal year, Messrs. Elish, Jackson
and Mellor served as members of the Compensation Committee. None of such members
of the Compensation Committee are or have been officers or employees of the
Company.

                  Mr. Jackson is an Advisory Director of Lehman Brothers, Inc.,
which performs investment banking services for the Company from time to time.

                  Messrs. Elish, Sperry and Jackson currently serve as directors
of Hampshire Group, Limited.




                                       54
<PAGE>   55
         Report of the Compensation Committee of the Board of Directors

                  In establishing and monitoring the executive compensation
program for the Company, the Compensation Committee looks at both the total
compensation program and each component thereof to assure that it is both
competitive and sensitive to individual and Company performance. In addition,
the compensation determined by the Compensation Committee is subject to the
terms of existing employment agreements with each member of the Executive Group.
The Company utilizes a consultant in the field of executive compensation matters
to assist the Compensation Committee in establishing and implementing
compensation programs that are consistent with these objectives and reflective
of the Company's financial performance.

                  In 1993, the Compensation Committee established and
implemented the Bonus Plan. Under the Bonus Plan, each participating executive,
including Mr. Strickland, the Company's Chief Executive Officer, is eligible to
receive incentive compensation which is determined both qualitatively and
quantitatively. The qualitative portion is based on the achievement of specific
objectives for each participant and the quantitative portion is based on the
achievement of financial objectives established by the Compensation Committee
for the particular year. For 1996, each participant received a qualitative
portion of the incentive compensation. However, in early 1996, the Compensation
Committee determined that it was not reasonable or appropriate to establish
quantitative bonus targets, in view of the Company's anticipated financial
results.


                             COMPENSATION COMMITTEE

                                  Herbert Elish
                               Michael C. Jackson
                                 James R. Mellor

                                Performance Graph

             The graph set forth below charts the yearly percentage change in
the Company's cumulative total stockholder return against each of the Standard &
Poor's 500 Index and the Manufacturing-Diversified Industries Index, in each
case assuming an investment of $100 on December 31, 1991 and the cumulation and
reinvestment of dividends paid thereafter through December 31, 1996.




                                       55
<PAGE>   56
                                  [LINE GRAPH]



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                               Dec. 1991       Dec. 1992       Dec. 1993       Dec. 1994      Dec. 1995       Dec. 1996
-----------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>             <C>             <C>            <C>             <C>
Kerr Group, Inc.                 100.00          104.00          134.00         134.00          160.00           38.00
S & P 500 Index                  100.00          107.72          118.48         120.04          165.05          203.23
MFG-DIVFD Industrials            100.00          108.38          131.55         136.20          191.72          264.17
-----------------------------------------------------------------------------------------------------------------------
</TABLE>




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  The following table sets forth information available to the
Company with respect to the ownership of the Company's Common Stock, par value
$.50 per share ("Common Stock") by i) each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, ii) each
director of the Company, iii) each named executive officer designated in Item 11
of Form 10-K captioned "Executive Compensation", and iv) all directors and
executive officers as a group. Unless otherwise indicated, all shares of common
stock are owned directly and of record and the person owning such shares has
sole voting and investment power with respect thereto.




                                       56
<PAGE>   57
<TABLE>
<CAPTION>
                                                                        Amount and
                                                                        Nature of       Percent of
                                                                        Beneficial        Shares
                          Beneficial Owner                              Ownership       Outstanding
                          ----------------                              ---------       -----------
<S>                                                                   <C>                  <C>
               The Gabelli Funds, Inc.
                  655 Third Avenue
                  New York, New York                                  626,479 (1)          15.4%

               Wynnefield Partners
                  Small Cap Value, L.P.
                  One Penn Plaza, Suite 4720
                  New York, New York                                  392,500 (2)          10.0%

               U.S. Trust Company of California, N.A.
                  Kerr Retirement Income Plan Trust
                  515 S. Flower Street, Suite 2800
                  Los Angeles, California                             368,200 (3)           9.4%

               Dimensional Fund Advisors, Inc.
                  1299 Ocean Avenue, Suite 650
                  Santa Monica, California                            282,700 (4)           7.1%

               Harvey L. Sperry                                        22,696 (5)             *

               D. Gordon Strickland                                    22,410 (6)             *

               Robert S. Reeves                                        19,023 (6)             *

               James R. Mellor                                         15,788 (5)             *

               Gordon C. Hurlbert                                      14,455 (5)             *

               Geoffrey A. Whynot                                      12,806 (6)             *

               Herbert Elish                                           11,149 (5)             *

               Michael C. Jackson                                      10,938 (5) (7)         *

               Robert M. O'Hara                                         9,905 (5)             *

               John D. Kyle                                             6,625 (5)             *

               All Directors and Executive
                  Officers as a Group (10 in number)                  145,795 (8)           3.7%
</TABLE>


* Less than one percent.

(1)    According to Amendment No. 41 to the Schedule 13D filed jointly by
       Gabelli Funds, Inc., GAMCO Investors, Inc., Gabelli Performance
       Partnership, Gabelli International Limited and Gabelli Asset Management
       Company International Advisory Services, Ltd. (collectively, the "Gabelli
       Entities") with the Securities and Exchange Commission (the "SEC") on
       March 8, 1997 (as amended, the "Schedule 13D"), the Gabelli Entities
       beneficially owned 490,000 shares of Common Stock. Under applicable SEC
       rules, the Gabelli Entities are also deemed to own beneficially an
       additional 136,479 shares of Common Stock which the Gabelli Entities

                                       57
<PAGE>   58
       have the right to acquire at any time upon conversion of the 93,832
       shares of Convertible Preferred Stock beneficially owned by the Gabelli
       Entities.

       The additional shares of Common Stock which may be acquired by the
       Gabelli entities upon such conversion, together with the 490,000 shares
       of Common Stock indicated as beneficially owned by the Gabelli Entities
       in the table above, represent an aggregate of 626,479 shares, or
       approximately 15.4% of the total shares of Common Stock outstanding as of
       March 14, 1997, including, for this calculation only, the number of
       shares of Common Stock that the Gabelli Entities have the right to
       acquire upon conversion of the Convertible Preferred Stock reported as
       beneficially owned by them. The Schedule 13D states that the Gabelli
       Entities have not acquired the shares of Common Stock for the purpose of
       changing or influencing the control of the Company.

(2)    According to Amendment No. 3 to the Schedule 13D filed by Wynnefield
       Partners Small Cap Value, L.P. and Wynnefield Small Cap Value Offshore
       Fund, Ltd. (collectively, "Wynnefield Partners") with the SEC on February
       25, 1997 (as amended, the "Scheduled 13D"), Wynnefield Partners
       beneficially owned 392,500 shares or 10.0% of the Common Stock. The
       schedule 13D states that Wynnefield Partners purchased the shares for
       investment and to enhance the partnership's ability to monitor and
       evaluate the Company's efforts to restructure its existing debt and to
       carefully evaluate any proposed related recapitalization which would
       affect shareholder value.

(3)    U.S. Trust Company of California, N.A., Kerr Retirement Income Plan Trust
       (the "Trust") filed a Schedule 13G with the SEC on February 9, 1996
       stating that it held 368,200 shares or 9.4% of the Common Stock. The
       Trust holds these shares for the benefit of the participants in the
       Company's Retirement Income Plan. The Schedule 13G states that the Trust
       has not acquired the shares of Common Stock for the purpose of changing
       or influencing the control of the Company.

(4)    According to Amendment No. 9 to the Schedule 13G filed by Dimensional
       Fund Advisors, Inc. ("Dimensional") with the SEC on February 5, 1997 (as
       amended, the "Schedule 13G"), Dimensional, a registered investment
       adviser, is deemed to have beneficial ownership of 282,700 shares or 7.1%
       of the Common Stock as of December 31, 1996. Dimensional reported that it
       had the power to make investment decisions regarding all shares of Common
       Stock owned beneficially by it on behalf of its clients, which are
       unrelated and no one of whom owns beneficially more than 5% of the
       outstanding shares of Common Stock. The Schedule 13G states that
       Dimensional has not acquired the shares of Common Stock for the purpose
       of changing or influencing the control of the Company. Dimensional
       reported that it had sole voting power with respect to 173,700 shares of
       the Common Stock. Persons who are officers of Dimensional also serve as
       officers of DFA Investment Dimensions Group Inc. ("Dimensional Fund") and
       DFA Investment Trust Company ("Dimensional Trust"), each a registered
       open-end investment company. Dimensional reported that in their
       capacities as officers of Dimensional Fund and Dimensional Trust these
       persons vote 35,400 additional shares which are owned by Dimensional Fund
       and 73,600 shares which are owned by Dimensional Trust.

(5)    Includes 14,455, 10,938, 11,149, 6,625, 22,696, 15,788 and 9,905 shares
       of Common Stock purchased for the accounts of Messrs. Hurlbert, Jackson,
       Elish, Kyle, Sperry, Mellor and O'Hara, respectively, by the trustee
       under the Director Stock Purchase Plan. Currently, the participating
       directors have voting and dispositive power with respect to such shares
       only upon termination of their services as a director of the Company.
       Excludes 10,000 shares issuable under stock options granted to each
       non-employee director pursuant to the Company's 1993 Stock Option Plan
       for Non-Employee Directors. These options are not exercisable unless and
       until the closing price of the Common Stock on the New York Stock
       Exchange reaches $12.50 per share, or $10.00 per share for stock options
       issued to Mr. Elish in 1996, and remains at or above that level for at
       least 10 consecutive trading days. Does not include 10,000 shares of
       Common Stock held by Mr. Sperry in a self-directed Keogh Plan.

(6)    Includes, respectively for Messrs. Strickland, Reeves and Whynot, 10,000,
       5,000 and 7,000 shares issuable under presently exercisable stock options
       held by such person. Also includes, respectively for Messrs. Strickland,
       Reeves and Whynot, 4,306, 5,937 and 2,072 shares which have been
       allocated for voting and all other purposes under ESOP I, and 5,369,
       5,731 and 2,649 shares which have been allocated for voting and all other
       purposes under ESOP II.

                                       58
<PAGE>   59
(7)    Includes 1,088 shares issuable upon conversion of 748 shares of
       Convertible Preferred Stock held by Mr. Jackson, of which 658 shares are
       held pursuant to a self-directed Keogh Plan and 90 shares are held
       directly.

(8)    Includes 56,038 shares of Common Stock purchased for the accounts of the
       Company's non-employee directors by the trustee under the Company's
       Common Stock Purchase Plan for Non-Employee Directors (the "Director
       Stock Purchase Plan") and 22,000 shares (including shares designated in
       Note 6 above) issuable upon exercise of stock options. Also includes
       12,315 shares (including shares designated in Note 5 above) which have
       been allocated for voting and all other purposes under ESOP I and 13,749
       shares (including shares designated in Note 5 above) which have been
       allocated for voting and all other purposes under ESOP II, for the
       Company's present officers included in the group, who have the power to
       vote such shares, but may not obtain or dispose of such shares except
       under limited circumstances.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  Mr. Sperry is a partner in the law firm of Willkie Farr &
Gallagher, counsel to the Company.

                  Mr. Jackson is an Advisory Director of Lehman Brothers Inc.,
which performs investment banking services for the Company from time to time.

                  In 1991, Mr. Strickland received a loan from the Company in
the principal amount of $100,000. The loan has $92,000 of principal outstanding,
bears interest at 7.76% per annum, and is due in installments payable in 1998
through 2001. Interest accrues on the loan and is due in 2001 when the final
installment of principal is due. If Mr. Strickland terminates employment with
the Company, the principal and accrued interest becomes due; however, Mr.
Strickland's employment agreement provides that in the event the Company elects
to terminate its obligations under the employment agreement within 180 days
following a change in control, Mr. Strickland's obligation to repay the
remaining principal and accrued interest is terminated. In that event, Mr.
Strickland would be paid by the Company the amount of federal and state taxes,
grossed up, resulting from the termination of Mr. Strickland's obligation to
repay the loan.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                  a.  (i)  Financial Statements

                  In addition to the Consolidated Financial Statements and
                  Independent Auditors' Report included at Item 8, the following
                  are included herein:

                  Schedules for the three years ended December 31, 1996:

                  VIII   -     Valuation and Qualifying Accounts, page 67.




                                       59
<PAGE>   60
                           All other Schedules have been omitted as
         inapplicable, or not required, or because the required information is
         included in the Consolidated Financial Statements or the notes thereto.

                            (ii)  Exhibits

                           3.1         Restated Certificate of Incorporation of
                                       the Registrant is incorporated by
                                       reference to Exhibit 3.1 to Form 10-K for
                                       the fiscal year ended December 31, 1980.

                           3.2         Certificate of Retirement of Capital
                                       Stock of the Registrant is incorporated
                                       by reference to Exhibit 3.2 to Form 10-K
                                       for the fiscal year ended December 31,
                                       1989.

                           3.3         Certificate of Amendment to the Restated
                                       Certificate of Incorporation of the
                                       Registrant is incorporated by reference
                                       to Exhibit 3.3 to Form 10-K for the
                                       fiscal year ended December 31, 1989.

                           3.4         By-laws of the Registrant, as amended
                                       effective June 15, 1993, is incorporated
                                       by reference to Exhibit 3.1 to Form 10-Q
                                       for the quarter ended June 30, 1993.

                           10.1        Amended and Restated Employment Agreement
                                       dated as of March 15, 1996 between the
                                       Registrant and D. Gordon Strickland.

                           10.2        Amendment to Amended and Restated
                                       Employment Agreement dated as of January
                                       2, 1997 between Registrant and D. Gordon
                                       Strickland.

                           10.3        Employment Agreement between the
                                       Registrant and Robert S. Reeves dated as
                                       of February 17, 1983 is incorporated by
                                       reference to Exhibit 10.6 to Form 10-K
                                       for the fiscal year ended December 31,
                                       1983.

                           10.4        Amendment dated as of January 2, 1996 of
                                       the Employment Agreement between
                                       Registrant and Robert S. Reeves is
                                       incorporated by reference to Exhibit 10.6
                                       to Form 10-K for the fiscal year ended
                                       December 31, 1996.

                           10.5        Employment Agreement, as amended, between
                                       Registrant and Geoffrey A. Whynot dated
                                       as of November 1, 1989 is incorporated by
                                       reference to Exhibit 10.7 to Form 10-K
                                       for the fiscal year ended December 31,
                                       1996.



                                       60
<PAGE>   61
                           10.6        Amendment dated as of November 17, 1995
                                       of the Employment Agreement between the
                                       Registrant and Geoffrey A. Whynot.

                           10.7        1984 Stock Option Plan is incorporated by
                                       reference to Exhibit 4.7 to Registration
                                       Statement No. 2-92722.

                           10.8        1987 Stock Option Plan is incorporated by
                                       reference to Exhibit 10.12 to Form 10-K
                                       for the fiscal year ended December 31,
                                       1986.

                           10.9        Amended and Restated 1993 Employee Stock
                                       Option Plan incorporated by reference to
                                       Exhibit 10.8 to Form 10-K for the fiscal
                                       year ended December 31, 1994.

                           10.10       1987 Stock Option Plan for Non-Employee
                                       Directors is incorporated by reference to
                                       Exhibit 10.17 to Form 10-K for the fiscal
                                       year ended December 31, 1987.

                           10.11       1993 Stock Option Plan for Non-Employee
                                       Directors is incorporated by reference to
                                       Exhibit 10.4 to Form 10-Q for the fiscal
                                       quarter ended June 30, 1993.

                           10.12       Form of Stock Option Agreement used in
                                       connection with the 1984 Stock Option
                                       Plan is incorporated by reference to
                                       Exhibit 4.11 to Registration Statement
                                       No. 2-92722.

                           10.13       Form of Stock Option Agreement used in
                                       connection with the 1987 Stock Option
                                       Plan is incorporated by reference to
                                       Exhibit 10.17 to Form 10-K for the fiscal
                                       year ended December 31, 1986.

                           10.14       Form of Stock Option Agreement used in
                                       connection with the 1993 Employee Stock
                                       Option Plan is incorporated by reference
                                       to Exhibit 10.17 to Form 10-K for the
                                       fiscal year ended December 31, 1993.

                           10.15       Form of Stock Option Agreement used in
                                       connection with the 1987 Stock Option
                                       Plan for Non-Employee Directors is
                                       incorporated by reference to Exhibit
                                       10.23 to Form 10-K for the fiscal year
                                       ended December 31, 1987.

                           10.16       Form of Stock Option Agreement used in
                                       connection with the 1993 Stock Option
                                       Plan for Non-Employee Directors is
                                       incorporated by reference to Exhibit
                                       10.19 to Form 10-K for the fiscal year
                                       ended December 31, 1993.



                                       61
<PAGE>   62
                           10.17       1993 Common Stock Purchase Plan for
                                       Non-Employee Directors is incorporated by
                                       reference to Exhibit 10.3 to Form 10-Q
                                       for the fiscal quarter ended June 30,
                                       1993.

                           10.18       Directors' Retirement Consulting Plan is
                                       incorporated by reference to Exhibit
                                       10.22 to Form 10-K for the fiscal year
                                       ended December 31, 1984.

                           10.19       Key Executive Bonus Plan is incorporated
                                       by reference to Exhibit 10.2 to Form 10-Q
                                       for the fiscal quarter ended June 30,
                                       1993.

                           10.20       Pension Restoration Plan is incorporated
                                       by reference to Exhibit 10.19 to Form
                                       10-K for the fiscal year ended December
                                       31, 1994.

                           10.21       Asset Purchase Agreement dated as of
                                       November 25, 1991 by and between the
                                       Registrant and Ball Corporation is
                                       incorporated by reference to Exhibit 1 to
                                       Form 8-K dated November 24, 1991.

                           10.22       Asset Purchase Agreement, dated as of
                                       December 11, 1992, by and between Crown
                                       Cork & Seal Company, Inc. and Kerr Group,
                                       Inc. is incorporated by reference to
                                       Exhibit 1 to Form 8-K dated December 11,
                                       1992.

                           10.23       Asset Purchase Agreement, dated as of
                                       March 15, 1996 between Registrant and
                                       Alltrista Corporation is incorporated by
                                       reference to Exhibit 2.1 to Form 8-K
                                       dated March 29, 1996.

                           10.24       Sales Agent Agreement, dated as of March
                                       15, 1996 between Registrant and Alltrista
                                       Corporation is incorporated by reference
                                       to Exhibit 99.1 to Form 8-K dated March
                                       29, 1996.

                           10.25       Lease dated October 5, 1989 between
                                       Century 21 Associates, as lessor, and
                                       Santa Fe Plastic Corporation, as lessee,
                                       is incorporated by reference to Exhibit
                                       10.3 to Form 10-Q for the fiscal quarter
                                       ended September 30, 1994.

                           10.26       Amendment dated May 18, 1994 between
                                       Century 21 Associates and Kerr Group,
                                       Inc. related to lease dated October 5,
                                       1989 is incorporated by reference to
                                       Exhibit 10.5 to Form 10-Q for the fiscal
                                       quarter ended September 30, 1994.




                                       62
<PAGE>   63
                           10.27       Lease agreement dated June 30, 1994
                                       between Bowling Green-Warren County
                                       Industrial Authority IV, Inc. and Kerr
                                       Group, Inc. is incorporated by reference
                                       to Exhibit 10.6 to Form 10-Q for the
                                       fiscal quarter ended September 30, 1994.

                           10.28       Note Agreement dated as of September 15,
                                       1993 between Kerr Group, Inc. and the
                                       Purchasers identified therein is
                                       incorporated by reference to Exhibit 2 to
                                       Form 8-K dated September 21, 1993.

                           10.29       Receivables Purchase Agreement dated as
                                       of January 19, 1995 between Kerr Group,
                                       Inc., as the seller, and PNC Bank, N.A.,
                                       as the purchaser, is incorporated by
                                       reference to Exhibit 10.31 to Form 10-K
                                       for the fiscal year ended December 31,
                                       1994.

                           10.30       Amendment dated February 24, 1995 of the
                                       Receivables Purchase Agreement dated as
                                       of January 19, 1995 between Kerr Group,
                                       Inc., as the seller, and PNC Bank, N.A.,
                                       as the purchaser, is incorporated by
                                       reference to Exhibit 10.33 to Form 10-K
                                       for the fiscal year ended December 31,
                                       1994.

                           10.31       Amendment dated March 24, 1995 of the
                                       Note Agreement dated as of September 15,
                                       1993 between Registrant and the
                                       Purchasers identified therein is
                                       incorporated by reference to Exhibit 10.1
                                       to Form 10-Q for the fiscal quarter ended
                                       March 31, 1995.

                           10.32       Amendment dated April 18, 1995 of the
                                       Receivables Purchase Agreement dated as
                                       of January 19, 1995 between Registrant,
                                       as the seller, and PNC Bank, N.A., as the
                                       purchaser, is incorporated by reference
                                       to Exhibit 10.3 to Form 10-Q for the
                                       fiscal quarter ended March 31, 1995.

                           10.33       Amendment dated September 25, 1995 of the
                                       Note Agreement dated as of September 15,
                                       1993 between Registrant and the
                                       Purchasers identified therein is
                                       incorporated by reference to Exhibit 10.5
                                       to Form 10-Q for the fiscal quarter ended
                                       September 30, 1995.

                           10.34       Consent to amendment dated September 25,
                                       1995 pursuant to the Receivables Purchase
                                       Agreement dated as of January 19, 1995
                                       between Registrant, as the seller, and
                                       PNC Bank, N.A., as the purchaser
                                       identified therein, is incorporated by
                                       reference to Exhibit 10.6 to Form 10-Q
                                       for the fiscal quarter ended September
                                       30, 1995.




                                       63
<PAGE>   64
                           10.35       Amendment Agreement dated November 30,
                                       1995 of the Receivables Purchase
                                       Agreement dated as of January 19, 1995
                                       between Registrant, as the seller, and
                                       PNC Bank, N.A., as the purchaser, is
                                       incorporated by reference to Exhibit
                                       10.47 to Form 10-K for the fiscal year
                                       ended December 31, 1995.

                           10.36       Amended and Restated Loan and Security
                                       Agreement dated January 5, 1996 between
                                       The First National Bank of Boston and
                                       Registrant is incorporated by reference
                                       to Exhibit 10.48 to Form 10-K for the
                                       fiscal year ended December 31, 1995.

                           10.37       Amendment Agreement dated January 5, 1996
                                       of the Note Agreement dated as of
                                       September 15, 1993 between Registrant and
                                       the Purchasers identified therein is
                                       incorporated by reference to Exhibit
                                       10.49 to Form 10-K for the fiscal year
                                       ended December 31, 1995.

                           10.38       Intercreditor Agreement dated January 5,
                                       1996 between The First National Bank of
                                       Boston and the Purchasers identified in
                                       the Note Agreement dated as of September
                                       15, 1993 is incorporated by reference to
                                       Exhibit 10.50 to Form 10-K for the fiscal
                                       year ended December 31, 1995.

                           10.39       Consent, Waiver and Amendment Agreement
                                       dated February 24, 1997 between PNC Bank,
                                       N.A., the Purchasers identified in the
                                       Note Agreement dated as of September 15,
                                       1993, the purchasers of Note formerly
                                       held by The First National Bank of Boston
                                       and the Registrant.

                           11.1        Statement re: Computation of Per Common
                                       Share Earnings (Loss).

                           23.1        Consent of Independent Certified Public
                                       Accountants.

                           27.1        Financial Data Schedule

                           99.1        Undertaking is incorporated by reference
                                       to Exhibit 28.1 to Form 10-K for the year
                                       ended December 31, 1982.

                  The Registrant has no additional long-term debt instruments in
which the total amount of securities authorized under any instrument exceeds 10%
of total assets of the Registrant and its subsidiaries on a consolidated basis.
The Registrant hereby agrees to furnish a copy of any such long-term debt
instrument upon the request of the Securities and Exchange Commission.




                                       64
<PAGE>   65
                  b.     Reports on Form 8-K

                         On October 10, 1996, the Company filed a Form 8-K
                         Current Report with respect to a commitment from a
                         lender to provide secured financing for the Company.

                         On November 18, 1996, the Company filed a Form 8-K
                         Current Report with respect to the sale by the holders
                         of the Company's existing unsecured debt.




                                       65
<PAGE>   66
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant as duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   KERR GROUP, INC.

                                   BY: /s/ D. Gordon Strickland
                                       -----------------------------------------
                                           D. Gordon Strickland, President and
                                           Chief Executive Officer

  Dated: March 27, 1997
         Lancaster, Pennsylvania

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

<TABLE>
<S>                                                         <C>
  /s/ Herbert Elish                                         March 27, 1997
  -----------------------------------
      Herbert Elish, Director

  /s/ Gordon C. Hurlbert                                    March 27, 1997
  -----------------------------------
      Gordon C. Hurlbert, Director

  /s/ Michael C. Jackson                                    March 27, 1997
  -----------------------------------
      Michael C. Jackson, Director

  /s/ John D. Kyle                                          March 27, 1997
  -----------------------------------
      John D. Kyle, Director

  /s/ James R. Mellor                                       March 27, 1997
  -----------------------------------
      James R. Mellor, Director

  /s/ D. Gordon Strickland                                  March 27, 1997
  -----------------------------------
      D. Gordon Strickland, Principal
      Executive Officer; Director

  /s/ Robert M. O'Hara                                      March 27, 1997
  -----------------------------------
      Robert M. O'Hara, Director

  /s/ Harvey L. Sperry                                      March 27, 1997
  -----------------------------------
      Harvey L. Sperry, Director

  /s/ Geoffrey A. Whynot                                    March 27, 1997
  -----------------------------------
      Geoffrey A. Whynot
      Principal Financial Officer
</TABLE>




                                       66
<PAGE>   67
                                  SCHEDULE VIII

                                KERR GROUP, INC.

                        Valuation and Qualifying Accounts

                       Three years ended December 31, 1996
                                 (in thousands)




<TABLE>
<CAPTION>
            Column A                  Column B                  Column C                   Column D         Column E
--------------------------------    ------------        -------------------------         -----------       ---------
                                                                Additions
                                                        -------------------------
                                                            (1)            (2)
                                       Balance            Charged         Charged         Deductions         Balance
                                    at Beginning        (Credited)       to Other            From            at End
          Description                 of Period         to Earnings       Account         Reserves(a)       of Period
--------------------------------    ------------        -----------      --------         -----------       ---------
<S>                                 <C>                 <C>              <C>              <C>               <C>
Allowance for doubtful accounts,
  year ended:


     December 31, 1994                  $433               $ 19            $  --             $ 441            $ 11
                                        ====               ====            =====             =====            ====


     December 31, 1995                  $ 11               $220            $  --             $  19            $212
                                        ====               ====            =====             =====            ====


     December 31, 1996                  $212               $156            $  --             $  81            $287
                                        ====               ====            =====             =====            ====
</TABLE>



Note: Allowance for doubtful accounts presented in the table above is related to
continuing operations only. Allowance for doubtful accounts associated with the
Consumer Products Business of the Registrant has been reported as a component of
net current assets related to discontinued operations in the Registrant's
Balance Sheets.



(a)  These deductions represent uncollectible amounts charged against the
     reserve.




                                       67
<PAGE>   68
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                KERR GROUP, INC.

                                    FORM 10-K
                        for year ended December 31, 1996


                INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K


<TABLE>
<CAPTION>
Exhibit No.                Document
-----------                --------
<S>                        <C>
10.1                       Amended and Restated Employment Agreement dated as of
                           March 15, 1996 between the Registrant and D. Gordon
                           Strickland.

10.2                       Amendment to Amended and Restated Employment
                           Agreement dated as of January 2, 1997 between
                           Registrant and D. Gordon Strickland.

10.6                       Amendment dated as of November 17, 1995 of the
                           Employment Agreement between the Registrant and
                           Geoffrey A. Whynot.

10.39                      Consent, Waiver and Amendment Agreement dated
                           February 24, 1997 between PNC Bank, N.A., the
                           Purchasers identified in the Note Agreement dated as
                           of September 15, 1993, the purchasers of Note
                           formerly held by The First National Bank of Boston
                           and the Registrant.

11.1                       Statement re: Computation of Per Common Share
                           Earnings (Loss).

23.1                       Consent of Independent Certified Public Accountants.

27.1                        Financial Data Schedule
</TABLE>