<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BLOUNT INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 63-0780521
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4520 EXECUTIVE PARK DRIVE
MONTGOMERY, AL 36116
(334) 244-4000
------------------------
RICHARD H. IRVING, III, ESQ.
BLOUNT INTERNATIONAL, INC.
4520 EXECUTIVE PARK DRIVE
MONTGOMERY, AL 36116
(334) 244-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN G. FINLEY, ESQ. PHILIP A. GELSTON, ESQ.
SIMPSON THACHER & BARTLETT CRAVATH, SWAINE & MOORE
425 LEXINGTON AVENUE 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10019
(212) 455-2000 (212) 474-1000
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND UPON
CONSUMMATION OF THE TRANSACTIONS DESCRIBED IN THE ENCLOSED PROXY STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share..................... 2,966,666 shares $15 $44,499,990 $12,371
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Relates to the number of shares of common stock of the Registrant issued to
existing security holders in the proposed merger of Red Dog Acquisition,
Corp. with and into the Registrant, with the Registrant as the surviving
corporation in such merger.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933, based on the
proposed cash consideration of $30 per share or two shares of common stock
offered to existing security holders in the merger.
(3) Pursuant to rule 457(b), the required fee of $12,371 is reduced by the fee
of $232,779 previously paid at the time of filing of preliminary proxy
materials in connection with this transaction on May 13, 1999, resulting in
a net payment of $0.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
(Blount Logo)
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED
Dear Stockholder:
Blount International, Inc. has signed an Agreement and Plan of Merger and
Recapitalization under which Blount will merge with Red Dog Acquisition, Corp.,
a Delaware corporation, which is wholly owned by Lehman Brothers Merchant
Banking Partners II L.P. In the merger, Blount will be the surviving
corporation, which we will refer to as "New Blount".
If the merger is completed:
- each share of Blount class A common stock and Blount class B common stock
will be converted into the right to receive, at your election and
depending on proration, either $30 in cash or two shares of common stock
of New Blount;
- 2,966,666 shares of common stock of New Blount will be issued to existing
stockholders; and
- 27,833,334 shares of common stock of New Blount will be issued to Lehman
Brothers Merchant Banking Partners, its affiliated co-investors and some
senior members of the management of Blount.
Before we can complete these transactions, stockholders must adopt the
merger agreement. The affirmative vote of holders of a majority in voting power
of the outstanding shares of Blount common stock voting together as a single
class is required to adopt the merger agreement. The adoption of the merger
agreement is assured since The Blount Holding Company, L.P., the principal
stockholder of Blount, has entered into an agreement with Red Dog Acquisition,
Corp. in which it has agreed to vote its shares, which as of the record date
represent approximately 62% of the voting power of the outstanding shares of
Blount common stock, in favor of adopting the merger agreement.
Whether or not you plan to attend the special meeting, you can vote by
completing and mailing the enclosed proxy card. If you wish to receive shares of
New Blount common stock in the merger instead of cash, include with your proxy
card a completed form of non-cash election, which must be received by 5:00 p.m.
Eastern time, on August 11, 1999.
If we have not received a properly completed form of non-cash election by
5:00 p.m., Eastern time, on August 11, 1999, the effect will be that you will be
treated as if you had elected to receive cash for all your Blount common stock.
The special meeting will be held at Blount's office located at 4520
Executive Park Drive, Montgomery, Alabama 36116. The date and time of the
special meeting is August 18, 1999, 10:00 a.m. local time.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE STOCKHOLDERS. YOUR
BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, DECLARED ITS
ADVISABILITY AND RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE MERGER AGREEMENT
AT THE SPECIAL MEETING. IN CONSIDERING THIS RECOMMENDATION, YOU SHOULD BE AWARE
OF THE CONFLICT OF INTEREST THAT SOME DIRECTORS AND MEMBERS OF SENIOR MANAGEMENT
HAVE IN THE MERGER. SEE "THE MERGER -- INTERESTS OF SOME PERSONS IN THE MERGER;
CONFLICTS OF INTEREST" ON PAGE 58.
<TABLE>
<S> <C>
/S/ JOHN M. PANETTIERE /S/ WINTON M. BLOUNT
JOHN M. PANETTIERE WINTON M. BLOUNT
PRESIDENT AND CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
THIS DOCUMENT PROVIDES YOU WITH DETAILED INFORMATION ABOUT THE PROPOSED
MERGER. WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY. FOR A
DISCUSSION OF CERTAIN RISK FACTORS WHICH YOU SHOULD CONSIDER IN EVALUATING THE
MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMON STOCK OF NEW BLOUNT TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT-PROSPECTUS IS DATED JULY 15, 1999 AND WAS FIRST MAILED TO
STOCKHOLDERS ON JULY 19, 1999.
<PAGE> 3
BLOUNT INTERNATIONAL, INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 18, 1999
------------------------
Blount International, Inc. will hold a special meeting of stockholders at
its offices located at 4520 Executive Park Drive, Montgomery, Alabama 36116, at
10:00 a.m. local time on August 18, 1999, for the following purposes:
- To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger and Recapitalization, dated as of April 18, 1999, between Blount
International, Inc. and Red Dog Acquisition, Corp.
- To transact such other business as may properly come before the special
meeting or any adjournments or postponements of the special meeting.
A copy of the merger agreement is attached as Appendix A to the proxy
statement-prospectus accompanying this notice.
Record holders of Blount class A common stock and class B common stock at
the close of business on July 9, 1999 will receive notice of and will be
entitled to vote at the special meeting, including any adjournments or
postponements of the special meeting. The affirmative vote of the holders of a
majority in voting power of the outstanding shares of Blount common stock
entitled to vote on the merger agreement and voting together as a single class
is required for the adoption of the merger agreement.
The adoption of the merger agreement is assured since The Blount Holding
Company, L.P., the principal stockholder of Blount, has entered into an
agreement with Red Dog Acquisition, Corp. in which it has agreed to vote its
shares, which as of the record date represent approximately 62% of the voting
power of the outstanding shares of Blount common stock, in favor of adopting the
merger agreement.
We urge you to complete, sign, date and return your proxy card as promptly
as possible, whether or not you expect to attend the special meeting. If you are
unable to attend in person and you return your proxy card, your shares will be
voted at the special meeting. A return envelope is included for your
convenience. If you sign, date and mail your proxy card without indicating how
you want to vote, we will vote your proxy in favor of adopting the merger
agreement. If you do not return your card, the effect will be a vote against the
merger agreement. If your shares are held in "street name" by your broker or
other nominee, only that holder can vote your shares. You should follow the
directions provided by your broker or nominee regarding how to instruct them to
vote your shares.
D. JOSEPH MCINNES
Secretary
Montgomery, Alabama
July 15, 1999
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
The Merger................................................ 3
What You Will Be Entitled to Receive in the Merger........ 3
Treatment of Outstanding Options.......................... 4
The Special Meeting and Record Date....................... 4
Vote Required............................................. 4
The Stockholder Agreement................................. 4
Percentage of Shares Held by Directors and Executive
Officers............................................... 4
Reasons for the Recommendation to Stockholders............ 5
Opinion of Financial Advisor.............................. 5
Conflicts of Interest of Some Persons Involved in the
Merger................................................. 5
Conditions to Completion of the Merger.................... 6
Termination of the Merger Agreement....................... 6
Termination Fees and Expenses............................. 7
Stock Exchange Listing.................................... 7
Merger Financings......................................... 7
Material Federal Income Tax Consequences.................. 8
Appraisal Rights.......................................... 8
Description of Capital Stock of Blount and New Blount..... 8
Conversion of Red Dog Acquisition Common Stock............ 9
The Companies............................................. 9
Market Price and Dividend Information..................... 10
Selected Historical Condensed Consolidated Financial
Data................................................... 11
Selected Pro Forma Condensed Consolidated Financial Data
(Unaudited)............................................ 14
Results of Operations For the First Half of 1999.......... 15
RISK FACTORS................................................ 16
We Will Be Substantially Leveraged Which May Restrict Our
Operations and Ability to Obtain Additional
Financing -- Payments on Indebtedness Will Require a
Substantial Portion of Our Cash Flow and Will Have a
Negative Effect on Our Net Income...................... 16
Stockholders Other Than Lehman Brothers Merchant Banking
Partners Will Have Little or No Influence After the
Merger................................................. 16
We Do Not Expect to Pay Dividends......................... 17
Loss of Liquidity May Make It Difficult for You to Sell
Shares and Could Result in Increased Volatility of
Market Prices.......................................... 17
Issuance of Stock Options to Management May Dilute Your
New Blount Stockholding................................ 17
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
As a Result of Proration, You May Not Receive the Type of
Consideration You Want and Cash Payments Could Be
Treated As Dividends Instead of Capital Gains.......... 18
We May Have Liabilities Related to Litigation Matters
Which Could Adversely Affect Our Earnings and Financial
Condition.............................................. 18
Any Loss of A Few Key Customers and Suppliers Would
Substantially Decrease Our Sales....................... 18
Regulation of Firearm Ammunition Could Restrict Our
Manufacture and Sale of Ammunition or Decrease Demand
for Ammunition Resulting in Lower Sales Levels......... 19
Slowdowns in Forestry Industry Negatively Affect Sales
Levels for Our Industrial and Power Equipment
Segment................................................ 19
A Warning About Forward-Looking Statements................ 19
THE SPECIAL MEETING......................................... 20
General................................................... 20
Matters to be Considered.................................. 20
Proxies................................................... 20
Solicitation of Proxies................................... 20
Forms of Non-Cash Election................................ 21
Record Date and Voting Rights............................. 21
Recommendation of the Blount Board of Directors........... 22
INFORMATION ABOUT BLOUNT.................................... 23
General................................................... 23
Outdoor Products.......................................... 23
Sporting Equipment........................................ 23
Industrial and Power Equipment............................ 23
Management and Additional Information..................... 24
Financial Projections..................................... 24
THE MERGER.................................................. 26
Background of the Merger.................................. 26
Purpose and Structure for the Merger...................... 34
Reasons for the Merger; Recommendation to Stockholders.... 35
The Merger................................................ 35
Fairness Opinion of Financial Advisor..................... 39
Merger Consideration...................................... 50
Conversion/Retention of Shares; Procedures for Exchange of
Certificates........................................... 52
Fractional Shares......................................... 53
Governmental and Regulatory Approval...................... 54
Appraisal Rights under the General Corporation Law of the
State of Delaware...................................... 54
Treatment of Options...................................... 57
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Board of Directors and Executive Officers of New Blount
Following the Merger................................... 57
Other Information Regarding Directors and Executive
Officers............................................... 58
Interests of Some Persons in the Merger; Conflicts of
Interest............................................... 58
Stock Exchange Listing.................................... 63
Resale of New Blount Common Stock After the Merger........ 63
Merger Financings......................................... 63
Conversion of Red Dog Acquisition Stock................... 65
Accounting Treatment...................................... 65
Conduct of Business Pending the Merger.................... 65
Material Federal Income Tax Consequences.................. 65
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)............................................... 70
THE MERGER AGREEMENT........................................ 81
The Merger................................................ 81
Closing of the Merger; Completion of the Merger; Surviving
Corporation............................................ 81
Closing of the Merger..................................... 81
Completion of the Merger.................................. 81
Surviving Corporation..................................... 82
Representations and Warranties............................ 82
Covenants................................................. 83
No Solicitation........................................... 84
Employee Benefits......................................... 85
Access to Information..................................... 85
Cooperation and Reasonable Best Efforts................... 86
Indemnification and Insurance............................. 86
Stock Exchange Listing.................................... 86
Conditions to the Completion of the Merger................ 87
Termination............................................... 88
Termination Fees and Expenses............................. 89
Amendment and Waiver...................................... 89
THE STOCKHOLDER AGREEMENT................................... 90
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT...... 92
DESCRIPTION OF BLOUNT AND NEW BLOUNT CAPITAL STOCK.......... 95
INFORMATION CONCERNING RED DOG ACQUISITION, CORP. AND LEHMAN
BROTHERS MERCHANT BANKING PARTNERS II L.P................. 96
WHERE YOU CAN FIND MORE INFORMATION......................... 96
Blount Incorporated Documents............................. 96
LEGAL OPINIONS.............................................. 97
</TABLE>
iii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT ACCOUNTANTS..................................... 97
STOCKHOLDER PROPOSALS....................................... 98
OTHER MATTERS............................................... 98
APPENDIX A -- Agreement and Plan of Merger and
Recapitalization.......................................... A-1
APPENDIX B -- Stockholder Agreement......................... B-1
APPENDIX C -- Opinion of The Beacon Group Capital Services,
LLC....................................................... C-1
APPENDIX D -- Section 262 of the General Corporation Law of
the State of Delaware..................................... D-1
</TABLE>
iv
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE MERGER
<TABLE>
<S> <C> <C>
1. Q: WHAT WILL BLOUNT
STOCKHOLDERS BE ENTITLED TO
RECEIVE FOR EACH BLOUNT
SHARE?
A:
Each stockholder of Blount
International, Inc., which
we will refer to in this
document as "Blount," will
have the right to elect to
receive in exchange for each
share of Blount common stock
either $30 in cash or two
shares of common stock of
the surviving corporation,
which we will refer to in
this document as "New
Blount", after the merger.
You may elect to receive any
combination of cash and
shares of New Blount common
stock for any or all of your
holdings of Blount common
stock. New Blount will have
only one class of common
stock, unlike Blount which
has class A common stock and
class B common stock.
2. Q: WILL I RECEIVE THE TYPE OF
CONSIDERATION IN THE MERGER
I ELECT TO RECEIVE?
A:
You may not receive the type
or amount of consideration
that you elect and will not
know at the time of your
vote or election what you
will ultimately receive in
exchange for your shares of
Blount common stock. This is
because only 1,483,333 out
of 37,066,317 outstanding
shares of Blount common
stock will be exchanged for
2,966,666 shares of common
stock of New Blount. The
allocation of these shares
among Blount stockholders
depends on the elections
made by all of the
stockholders of Blount.
3. Q: HOW MANY VOTES WILL I GET AT
THE SPECIAL MEETING FOR THE
CURRENT SHARES I OWN?
A:
Holders of Blount class A
common stock are entitled to
1/10 of a vote per share,
while holders of Blount
class B common stock are
entitled to one vote per
share. The two classes of
common stock will vote on
the merger together as a
single class.
4. Q: WILL THE SHARES OF NEW
BLOUNT BE LISTED ON A
NATIONAL STOCK EXCHANGE?
A:
Yes. We expect shares of New
Blount to be listed on the
New York Stock Exchange.
5. Q: WHAT DO I NEED TO DO NOW?
A:
After carefully reading and
considering the information
contained in this document,
please fill out and sign
your proxy card. Then mail
your completed, signed and
dated proxy card in the
enclosed return envelope as
soon as possible so that
your shares can be voted at
the Blount special meeting.
Include with your proxy card
a completed form of non-cash
election, where you indicate
whether you elect to receive
cash or shares of New Blount
common stock or a
combination of both. If you
do not return a properly
completed form of non-cash
election, you will be
treated as if you had
elected to receive cash for
all your Blount common
stock.
</TABLE>
1
<PAGE> 9
<TABLE>
<S> <C> <C>
6. Q: IF MY SHARES ARE HELD IN
"STREET NAME" BY MY BROKER,
WILL MY BROKER VOTE MY
SHARES FOR ME?
A:
Your broker will not be able
to vote your shares without
instructions from you. You
should follow the directions
provided by your broker to
vote your shares.
7. Q: HOW DO I CHANGE MY VOTE OR
NON-CASH ELECTION TO RECEIVE
SHARES AFTER I HAVE MAILED
MY SIGNED PROXY CARD AND
FORM OF NON-CASH ELECTION?
A:
You may change your vote by
sending a written notice
stating that you would like
to revoke your proxy or by
completing and submitting a
new, later dated proxy card
to the Secretary of Blount.
You also can attend the
Blount special meeting and
vote in person. You may
change your election by
sending a written notice
stating that you would like
to revoke your election or
by completing and submitting
a new, later dated form of
non-cash election to the
exchange agent.
8. Q: SHOULD I SEND IN MY STOCK
CERTIFICATES NOW?
A:
If you have elected to
receive shares of New Blount
common stock for some or all
of your shares of Blount
common stock, you must send
in your Blount stock
certificates for such shares
with your form of non-cash
election and proxy card. If
you have not elected to
receive shares of New Blount
common stock, you should not
send in your stock
certificates now. After the
merger is completed, you
will receive written
instructions for exchanging
your Blount stock
certificates for cash and,
if applicable, New Blount
stock certificates or both
cash and New Blount stock
certificates.
9. Q: WHEN DO YOU EXPECT THE
MERGER TO BE COMPLETED?
A:
We are working toward
completing the merger as
quickly as possible after
the Blount special meeting.
We hope to complete the
merger in the third calendar
quarter of 1999.
10. Q: WHO CAN HELP ANSWER MY
QUESTIONS?
A:
If you have more questions
about the merger, you should
contact:
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116
(334) 244-4000
Attention: D. Joseph
McInnes,
Secretary
</TABLE>
2
<PAGE> 10
SUMMARY
This Summary, together with the "Questions and Answers About the Merger" on
the preceding pages, highlights important selected information from this proxy
statement-prospectus and may not contain all of the information that is
important to you due to your particular circumstances. To understand fully the
merger and related transactions and for a more complete description of the legal
terms of the merger and related transactions, you should read carefully this
entire document and the other documents to which we have referred you. For more
information about Blount, see "Where You Can Find More Information" (page 96).
To the extent applicable, we have included page references parenthetically to
direct you to more complete descriptions of the topics presented in this
summary.
THE MERGER (SEE PAGE 26)
The merger agreement is attached as Appendix A to this proxy statement-
prospectus. We encourage you to read the merger agreement since it is the legal
document that governs the merger.
If the merger agreement is adopted by Blount stockholders and all other
conditions to the merger are satisfied or, where permissible, waived, Blount
will merge with Red Dog Acquisition, Corp., which we will refer to in this proxy
statement-prospectus as "Red Dog Acquisition," with Blount surviving the merger
and retaining the name of Blount International, Inc. Lehman Brothers Merchant
Banking Partners, its affiliated co-investors and some members of senior
management of Blount will own approximately 90.4% of New Blount, while existing
stockholders of Blount will own approximately 9.6%. As a result, Blount will
become a subsidiary of Lehman Brothers Merchant Banking Partners and its
affiliated co-investors and Blount stockholders will become stockholders of New
Blount.
WHAT YOU WILL BE ENTITLED TO RECEIVE IN THE MERGER (SEE PAGE 50)
For each share of Blount common stock owned before the merger, a Blount
stockholder who does not perfect his or her appraisal rights will be entitled to
receive, at his or her election and subject to proration, $30 in cash or two
shares of common stock of New Blount. In the aggregate, Blount stockholders will
exchange 1,483,333 out of a total of 37,066,317 outstanding shares of Blount
common stock for 2,966,666 shares of New Blount common stock in the merger. The
aggregate cash consideration that Blount will pay to holders of Blount common
stock in the merger is approximately $1,067 million.
You may elect to receive all cash, all stock or some cash and some stock
for your Blount shares. You should make this election on the form of non-cash
election which has been mailed to you along with this proxy
statement-prospectus. You should mail the completed form of non-cash election to
BankBoston, N.A., Blount's exchange agent, at the following address: if by mail,
P.O. Box 9573, Boston, MA 02266-9573, attention: Corporate Actions or, if by
street delivery, 100 Williams Street Galleria, New York, NY 10038 Attention:
Securities Transfer and Reporting Services Inc. c/o Equiserve, or, if by
overnight carrier, to 40 Campanelli Drive, Braintree, MA 02184. Attention:
Corporate Actions, or, if by facsimile, (781) 575-4826. If you have elected to
receive shares of New Blount common stock, you must also send your certificates
for shares of Blount common stock that correspond to the number of New Blount
shares you have elected with your form of non-cash election. BankBoston, N.A.
must receive the completed form of non-cash election and common stock
certificates by 5:00 p.m., Eastern time, on August 11, 1999, the fifth business
day preceding the date of the special meeting.
3
<PAGE> 11
Because only 2,966,666 shares of New Blount common stock will be issued in
the merger, you may not receive the type of consideration that you elect and
will not know at the time of your vote or election what you will ultimately
receive in exchange for your shares of Blount. See "The Merger -- Merger
Consideration" on page 50.
TREATMENT OF OUTSTANDING OPTIONS (SEE PAGE 57)
When we complete the merger, each holder of outstanding options issued by
Blount to purchase Blount common stock, whether or not those options are then
exercisable, will receive a cash payment for each of his or her options equal to
the excess of $30 over the exercise price per share of Blount common stock
subject to each of his or her options.
THE SPECIAL MEETING AND RECORD DATE (SEE PAGE 20)
At the special meeting, the holders of Blount common stock will be asked to
adopt the merger agreement. You may vote at the special meeting in person or by
proxy if you were the record owner of Blount common stock at the close of
business on July 9, 1999, the record date.
VOTE REQUIRED (SEE PAGE 21)
The vote by the holders of a majority in voting power of the outstanding
shares of Blount common stock entitled to vote is required to adopt the merger
agreement. Holders of class A common stock will be entitled to 1/10 of a vote
per share, while holders of class B common stock will be entitled to one vote
per share. The holders of class A common stock and class B common stock will
vote together as a single class. Because adoption of the merger agreement
requires the affirmative vote of a majority in voting power of outstanding
shares of Blount common stock, abstentions and broker non-votes will have the
same effect as negative votes.
THE STOCKHOLDER AGREEMENT
(SEE PAGE 90)
The Blount Holding Company, L.P. has entered into a stockholder agreement
with Red Dog Acquisition in which The Blount Holding Company has agreed to vote
its shares of Blount common stock in favor of the adoption of the merger
agreement. As of the record date, The Blount Holding Company owned and had the
right to vote 2,892,144 shares of Blount class A common stock and 8,409,696
shares of Blount class B common stock, representing as of the record date
approximately 62% of the voting power of the outstanding shares of Blount common
stock. Therefore, upon the casting of such votes, the merger agreement will be
adopted by Blount's stockholders. We have attached the stockholder agreement as
Appendix B to this document. The stockholder agreement terminates if the merger
agreement terminates.
PERCENTAGE OF SHARES HELD BY
DIRECTORS AND EXECUTIVE OFFICERS
(SEE PAGE 92)
On the record date, directors and executive officers of Blount owned or had
the right to vote 6,170,532 shares of Blount class A common stock, including
2,134,164 shares which are subject to a right to acquire beneficial ownership
within 60 days under Blount's existing executive option plans, and 9,758,597
shares of Blount class B common stock. These shares in total represent
approximately 74% of the voting power of the outstanding shares of Blount common
stock voting together as a single class. Shares representing more than 50% of
the voting power of Blount common stock are needed to adopt the merger
agreement. In addition to the votes to be cast in favor of adopting the merger
agreement in accordance with the stockholder agreement, we
4
<PAGE> 12
expect that the directors and executive
officers will vote all of their shares in favor of the adoption of the merger
agreement.
REASONS FOR THE RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 35)
Your board of directors believes that the proposed merger is in the best
interests of Blount stockholders in light of the value to be paid to Blount
stockholders in the merger.
OPINION OF FINANCIAL ADVISOR
(SEE PAGE 39)
In deciding to approve the merger agreement, your board of directors
considered the opinion delivered to it by The Beacon Group Capital Services,
LLC, which we will refer to in this document as "The Beacon Group," that, as of
the date of the opinion, and based on the assumptions, and subject to,
limitations and qualifications described in the opinion, the consideration to be
received by the holders of Blount common stock pursuant to the merger is fair
from a financial point of view to such holders. We have attached as Appendix C
the written opinion of The Beacon Group, dated April 18, 1999. You should read
this opinion to understand the assumptions made, matters considered and
limitations of the review undertaken by The Beacon Group in providing its
opinion.
CONFLICTS OF INTEREST OF SOME PERSONS INVOLVED IN THE MERGER (SEE PAGE 58)
In considering the recommendation of your board of directors regarding the
merger agreement, you should be aware of the conflicts of interests that some
directors and members of senior management of Blount have in the merger. Some of
these interests are listed below.
- Each of John M. Panettiere, Harold E. Layman, James S. Osterman, Gerald
W. Bersett, Donald B. Zorn and Richard H. Irving, III will continue to
serve as executive officers of New Blount after the merger. Each of them
has entered into a new employment agreement which will become effective
upon completion of the merger. Mr. Panettiere's employment agreement
provides that he is to be the Chairman of the board of New Blount and is
to receive a $75,000 increase in his annual base salary.
- As part of these employment agreements, each of the six executive
officers listed above plus some other members of senior management of
Blount will make a minimum equity investment in New Blount. It is
expected that the aggregate amount of the investments will be
approximately $15 million, for which the executives will own
approximately 3.3% of New Blount's common stock.
- Each of the six executive officers listed above plus some other members
of senior management of Blount will receive stock options to acquire
shares of New Blount common stock representing in the aggregate
approximately 8% of New Blount's fully diluted common stock immediately
after giving effect to the merger.
- In connection with the merger, Lehman Brothers Merchant Banking Partners
and Winton M. Blount, the Chairman of the board of directors and
controlling stockholder of Blount, agreed that Mr. Blount would be
retained to provide consulting services to New Blount for a period of two
years in exchange for total compensation of $1,000,000 ($500,000 per
year), the right to continue to occupy the office space after the merger
which he is currently occupying, continued administrative and secretarial
services and the right to use
5
<PAGE> 13
the corporate aircraft for personal use of up to 75 hours per year so
long as he pays the agreed upon cost of such use. In addition, Mr.
Blount, who has been employed by Blount for 54 years, will receive a
severance benefit calculated in a manner consistent with Blount's
standard policy, payable in January 2000, of $1,566,333.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 87)
The completion of the merger depends on the satisfaction of a number of
conditions, including the following:
- Blount stockholders must adopt the merger agreement;
- the representations and warranties made by us in the merger agreement
must be true and correct in all material respects at the closing date,
except to the extent that any failures to be so true and correct would
not have a "material adverse effect" (for the definition of material
adverse effect, see "The Merger Agreement -- Representations and
Warranties" on page 82), and we must have performed in all material
respects our material obligations under the merger agreement;
- we must not have suffered any event which has had or would reasonably be
likely to have a material adverse effect;
- we must have financing for the transactions contemplated by the merger
agreement;
- Red Dog Acquisition must be reasonably satisfied that the merger will be
recorded as a recapitalization for financial reporting purposes;
- we must receive all required consents and approvals of governmental
authorities, including regulatory approvals, and any waiting periods
required by law must have expired; and
- there must be no order of any U.S. court or governmental authority
blocking completion of the merger and no proceedings by any U.S. federal
governmental authority trying to block or limit the merger.
Unless prohibited by law, Blount or Red Dog Acquisition could elect to
waive a condition that has not been satisfied and complete the merger anyway. We
cannot be certain whether or when any of these conditions will be satisfied, or,
where permissible, waived, or that we will complete the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 88)
Blount and Red Dog Acquisition may agree at any time to terminate the
merger agreement before completing the merger.
Either of them may also terminate the merger agreement if, among other
reasons:
- the merger is not completed by September 30, 1999;
- a U.S. governmental authority has issued a final order blocking the
merger, or a foreign governmental authority has issued a similar order
which would have or would reasonably be likely to have a material adverse
effect;
- Blount stockholders do not adopt the merger agreement at the special
meeting; or
- the other party is in material breach of any of its obligations under the
merger agreement and the breach is not cured within 10 business days.
6
<PAGE> 14
In addition, Red Dog Acquisition may terminate the merger agreement if,
among other reasons:
- our board has withdrawn or modified its recommendation of the merger
agreement in a manner adverse to Red Dog Acquisition;
- our board has approved a takeover proposal other than the merger; or
- The Blount Holding Company is in material breach of any of its
obligations under the stockholder agreement and the breach is not cured
within 10 business days.
Finally, we may terminate the merger agreement prior to adoption of the
merger agreement by Blount stockholders if our board has approved, in compliance
with the terms of the merger agreement, another proposal which is superior to
the merger.
TERMINATION FEES AND EXPENSES (SEE PAGE 89)
We have agreed to pay Red Dog Acquisition a $34 million termination fee if
any of the following events occur:
- our board terminates the merger agreement because it has approved another
proposal which is superior to the merger;
- Red Dog Acquisition terminates the merger agreement because our board has
withdrawn or modified its recommendation of the merger agreement in a
manner adverse to Red Dog Acquisition;
- Red Dog Acquisition terminates the merger agreement because we have
breached our obligation not to solicit other takeover proposals; or
- our board or Red Dog Acquisition terminates the merger agreement after
the Blount stockholders fail to adopt the merger agreement and while
another takeover proposal is pending. However, the termination fee is not
payable in this case unless Blount enters into an agreement for another
takeover proposal or another takeover is completed within 18 months after
termination of the merger agreement.
STOCK EXCHANGE LISTING
(SEE PAGE 86)
Once the merger is completed, the New Blount common stock is expected to be
listed on the New York Stock Exchange.
MERGER FINANCINGS (SEE PAGE 63)
New Blount, through its principal operating subsidiary, expects to incur at
least $725 million of funded long-term debt, and Lehman Brothers Merchant
Banking Partners and its affiliated co-investors expect to make an equity
investment in Red Dog Acquisition immediately prior to the merger, of
approximately $417.5 million, less the amount of any equity investments in New
Blount made by members of the senior management of Blount immediately following
the merger, which is expected to be approximately $15 million. These amounts
will be used to
- fund payment of the cash consideration in the merger;
- repay or repurchase indebtedness of Blount; and
- pay the fees and expenses incurred in connection with the merger.
The transactions contemplated by the merger agreement are expected to be
funded by at least $400 million of bank borrowings by New Blount under senior
secured credit facilities with a group of lenders arranged and syndicated by
Lehman Brothers Inc. and Lehman Commercial Paper Inc. and approximately $325
million in senior subordinated notes to be placed or underwritten by Lehman
Brothers Inc. New Blount also expects to
7
<PAGE> 15
enter into a $100 million senior secured revolving credit facility with a group
of lenders arranged and syndicated by Lehman Brothers Inc. and Lehman Commercial
Paper Inc. to provide any additional funding necessary for the merger and for
New Blount's working capital requirements following the merger. We refer to
these financing arrangements as the "merger financings." Red Dog Acquisition has
received executed commitments from Lehman Brothers Inc. and Lehman Commercial
Paper Inc. regarding the debt portion of the merger financings. These
commitments are subject to customary conditions, including the negotiation and
signing of definitive agreements.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 65)
For a complete summary of the material U.S. federal income tax consequences
of the merger, see "The Merger -- Material Federal Income Tax Consequences" on
page 65.
BECAUSE SOME TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT HOLDERS OF
BLOUNT COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY
STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
APPRAISAL RIGHTS (SEE PAGE 54)
Blount stockholders have the right under Delaware law to demand that the
Delaware Court of Chancery appraise the fair value of their shares of Blount
common stock and to receive payment in cash for the appraised value of the
shares instead of $30 or two shares of New Blount common stock in accordance
with the merger. In order to demand appraisal, a Blount stockholder must make a
written demand for appraisal prior to the vote on the merger agreement at the
special meeting, must not vote in favor of the adoption of the merger agreement
and must satisfy the other requirements for the proper exercise of appraisal
rights under Delaware law. The procedures relating to the exercise of appraisal
rights are described in this proxy statement-prospectus, and we have attached
the provision of Delaware law that grants appraisal rights and governs those
procedures as Appendix D.
DESCRIPTION OF CAPITAL STOCK OF BLOUNT AND NEW BLOUNT (SEE PAGE 95)
Blount currently is authorized to issue 78,456,855 shares of capital stock,
of which 4,456,855 shares, par value $0.01 per share, are preferred stock,
60,000,000 shares, par value $0.01 per share, are class A common stock and
14,000,000 shares, par value $0.01 per share, are class B common stock. As of
July 9, 1999, there are no shares of preferred stock, 25,711,622 shares of class
A common stock and 11,387,858 shares of class B common stock outstanding. On
some matters, including the adoption of the merger agreement, holders of class A
common stock and class B common stock vote together as a single class. Holders
of class A common stock are entitled to 1/10 of a vote per share on most
matters, and holders of class B common stock are entitled to one vote per share
on all matters.
If the merger is completed, the certificate of incorporation of New Blount
will provide, among other things, for the issuance of only one class of common
stock. The authorized number of shares of common stock of New Blount will be
100,000,000 shares. All stockholders of New Blount will have equal voting
rights. Holders of New Blount common stock will be entitled to share ratably in
assets available for distribution on liquidation, dissolution or winding up,
subject to, if preferred stock of New Blount is then authorized and outstanding,
any preferential rights of the preferred stock. New Blount common stock will not
be redeemable, will have no subscription or conver-
8
<PAGE> 16
sion rights and will not entitle its holders to any pre-emptive rights.
In addition, if the board of directors of New Blount declares and pays
dividends on New Blount common stock, all holders of New Blount common stock
will be paid the same amount of dividends per share. In the case of Blount
common stock, the restated certificate of incorporation of Blount provides that
holders of Blount class A common stock shall be paid $0.0083 1/3 per share in
addition to the amount payable for each share of Blount class B common stock for
each quarter in respect of which a cash dividend is declared and paid. As a
result of the merger, holders of Blount class A common stock will give up their
preferential dividend payment treatment while holders of Blount class B common
stock will give up their preferential voting rights.
CONVERSION OF RED DOG ACQUISITION COMMON STOCK (SEE PAGE 65)
In connection with the merger and because of an equity investment in Red
Dog Acquisition, which is expected to be approximately, $402.5 million, Lehman
Brothers Merchant Banking Partners and its affiliated co-investors will receive
26,833,334 shares of New Blount common stock, which will represent approximately
87.1% of the shares of New Blount expected to be outstanding after the merger.
The amount of Lehman Brothers Merchant Banking Partners' and its affiliated
co-investors' equity investment and the number of shares of New Blount common
stock they obtain could be higher or lower in immaterial amounts depending on
the ultimate amount of the management contribution described in this proxy
statement-prospectus.
THE COMPANIES (SEE PAGE 23)
Blount International, Inc.
4520 Executive Park Drive
Montgomery, AL 36116
(334) 244-4000
Blount International, Inc., through its wholly owned subsidiary Blount,
Inc., operates in three principal business segments: outdoor products, sporting
equipment and industrial and power equipment. Blount is an international
manufacturer with sales in over 100 countries.
Red Dog Acquisition, Corp.
c/o Lehman Brothers Merchant Banking Partners II L.P.
3 World Financial Center
200 Vesey Street
New York, NY 10028
Red Dog Acquisition is a Delaware corporation and a wholly owned subsidiary
of Lehman Brothers Merchant Banking Partners. Red Dog Acquisition was formed
solely for purposes of the merger. Lehman Brothers Merchant Banking Partners, a
Delaware limited partnership, and its affiliated co-investors together comprise
a $2.0 billion institutional merchant banking fund which focuses on investments
in established operating companies.
9
<PAGE> 17
MARKET PRICE AND DIVIDEND INFORMATION(1)
Shares of Blount class A common stock and Blount class B common stock are
traded on the New York Stock Exchange under the symbol "BLT.A" and "BLT.B,"
respectively. The table below shows, for the fiscal quarters indicated, the high
and low closing prices of shares of Blount class A common stock and Blount class
B common stock as reported by the New York Stock Exchange and dividend
information.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- --------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
1997
First quarter.................. $21.63 $18.81 $.063 $21.25 $18.75 $.059
Second quarter................. 22.75 19.00 .063 22.25 19.63 .059
Third quarter.................. 25.25 20.75 .063 23.69 21.13 .059
Fourth quarter................. 26.88 23.00 .071 27.00 25.28 .067
1998
First quarter.................. $29.75 $23.00 $.071 $29.88 $23.50 $.067
Second quarter................. 34.38 26.50 .071 32.25 26.44 .067
Third quarter.................. 29.50 19.94 .071 28.50 22.06 .067
Fourth quarter................. 24.94 18.94 .071 24.63 19.50 .067
1999
First quarter.................. $29.50 $23.88 $.071 $28.00 $23.81 $.067
Second quarter................. 28.75 26.06 .071 28.31 27.25 .067
Third quarter (through July 9,
1999)........................ 27.31 26.94 -- -- -- --
</TABLE>
On March 30, 1999, the last full trading day prior to the public
announcement by Blount that it was in advanced negotiations to sell itself, the
reported closing prices of the Blount class A common stock and the Blount class
B common stock on the New York Stock Exchange were $29.50 per share and $27.38
per share, respectively.
On April 16, 1999, the last full trading day prior to the public
announcement by Blount of the merger agreement, the reported closing prices of
the Blount class A common stock and the Blount class B common stock on the New
York Stock Exchange were $27.69 per share and $27.25 per share, respectively.
On July 9, 1999, the most recent practicable date prior to the printing of
this proxy statement-prospectus, the reported closing price of the Blount class
A common stock on the New York Stock Exchange was $27 per share and the reported
closing price of the Blount class B common stock on the New York Stock Exchange
on June 22, 1999, the most recent date of trading of the Blount class B common
stock, was $27.81 per share.
Blount's ability to pay dividends depends upon limitations under applicable
law and other factors your board of directors considers relevant, including
results of operations, financial condition and capital and surplus requirements.
New Blount is not expected to pay dividends on the New Blount common stock
following the merger. The agreements relating to the financing of the merger are
expected to contain covenants prohibiting New Blount from paying dividends.
- -------------------------
(1) The following information had been adjusted to take account of a two for one
stock split effected on December 8, 1997.
10
<PAGE> 18
SELECTED HISTORICAL CONDENSED CONSOLIDATED FINANCIAL DATA
The following selected historical condensed consolidated financial data of
Blount for the years ended December 31, 1998 and 1997, for the ten months ended
December 31, 1996, and for the years ended the last day of February of 1996 and
1995, are derived from the consolidated financial statements of Blount for such
years and period which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The selected historical condensed consolidated
financial data for the twelve months ended December 31, 1996 and for the three
months ended March 31, 1999 and 1998 are derived from unaudited consolidated
financial statements of Blount and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring accruals, necessary to present
fairly the data presented for such periods. The following information should be
read in conjunction with the consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" included in Blount's Annual Report on Form 10-K for the
year ended December 31, 1998 and the Quarterly Report on Form 10-Q for the
period ended March 31, 1999, both of which are incorporated by reference in this
proxy statement-prospectus.
<TABLE>
<CAPTION>
FOR THE 12 MONTHS
FOR THE 3 MONTHS ENDED
ENDED FOR THE 12 MONTHS ENDED FOR THE THE LAST DAY OF
MARCH 31, DECEMBER 31, 10 MONTHS FEBRUARY,
------------------- ---------------------------------- ENDED -------------------
1999 1998 1998 1997 1996(1) 12/31/96(1) 1996 1995
-------- -------- -------- --------- ----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
(amounts in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Sales................... $185,103 $199,734 $831,930 $ 716,942 $649,312 $526,644 $644,301 $588,419
Cost of sales(2)........ 131,524 139,229 573,658 482,934 426,890 346,484 427,322 390,818
Selling, general and
administrative
expenses(2)........... 34,960 35,565 143,703 134,632 130,006 105,200 126,508 121,051
Infrequent or
non-recurring
items:(2)
Strategic review costs
(merger expenses)... 650 334
Plant closing expenses
and organizational
consolidation
costs............... 637 575
Non-cash charitable
contributions....... 1,495 --
Income from
operations............ 15,837 24,940 113,660 99,376 92,416 74,960 90,471 76,550
Interest expense, net... (2,881) (2,653) (11,774) (7,010) (7,479) (5,631) (7,349) (8,470)
Income from continuing
operations before
income taxes and
extraordinary loss.... 12,907 22,287 102,218 93,661 85,388 69,600 83,676 67,384
Income from continuing
operations before
extraordinary loss.... 8,843 13,707 63,276 59,125 53,794 44,006 53,555 40,731
Net income.............. 8,843 13,707 61,292 59,125 55,220 45,432 53,555 40,731
Per share:
Basic:
Income from continuing
operations before
extraordinary
loss................ 0.24 0.37 1.69 1.57 1.40 1.14 1.41 1.08
Net income............ 0.24 0.37 1.64 1.57 1.44 1.18 1.41 1.08
Diluted:
Income from continuing
operations before
extraordinary
loss................ 0.23 0.36 1.65 1.53 1.38 1.13 1.38 1.05
Net income............ 0.23 0.36 1.60 1.53 1.41 1.16 1.38 1.05
Cash dividends declared
per common share:
Class A................. 0.071 0.071 0.285 0.261 0.228 0.228 0.198 0.173
Class B................. 0.067 0.067 0.268 0.244 0.212 0.212 0.181 0.156
</TABLE>
11
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE 12 MONTHS
FOR THE 3 MONTHS ENDED
ENDED FOR THE 12 MONTHS ENDED FOR THE THE LAST DAY OF
MARCH 31, DECEMBER 31, 10 MONTHS FEBRUARY,
------------------- ---------------------------------- ENDED -------------------
1999 1998 1998 1997 1996(1) 12/31/96(1) 1996 1995
-------- -------- -------- --------- ----------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
(amounts in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(3)............... $ 23,467 $ 32,270 $143,954 $ 125,404 $115,823 $ 94,259 $112,886 $ 98,351
Net cash provided by
(used in) operating
activities............ (26,139) (1,085) 88,843 80,275 87,526 83,196 40,226 34,674
Net cash used in
investing
activities............ (2,856) (6,058) (37,159) (149,390) (19,301) (16,842) (50,875) (16,989)
Net cash provided by
(used in) financing
activities............ (2,530) 6,609 (11,425) 15,255 (22,054) (22,236) (18,151) (28,383)
Depreciation and
amortization.......... 8,042 7,396 30,938 24,995 23,261 19,248 22,181 22,949
Property, plant and
equipment
additions(4).......... 2,896 6,089 21,685 78,435 21,337 18,698 19,281 14,822
Ratio of long-term debt
to total
capitalization(5)..... 31.0% 29.9% 31.3% 30.5% 22.5% 22.5% 27.3% 32.1%
BALANCE SHEET DATA (AT END
OF APPLICABLE PERIOD):
Working capital......... $245,879 $185,739 $232,050 $171,081 $166,214 $166,214 $136,161 $123,296
Total assets............ 671,936 664,899 668,783 637,811 533,839 533,839 546,486 520,792
Short-term notes and
current maturities of
long-term debt........ 619 7,720 689 1,464 1,250 1,250 11,692 7,791
Long-term debt (less
current maturities)... 161,650 140,426 161,604 138,837 84,592 84,592 95,920 98,254
Stockholders' equity.... 360,534 328,533 354,614 316,088 290,766 290,766 254,998 207,714
</TABLE>
- -------------------------
(1) In April 1996, Blount changed its fiscal year from one ending on the last
day of February to one ending on December 31. Unaudited financial data for
the twelve months ended December 31, 1996 is presented in the table above
for comparative purposes.
(2) Certain items have been reclassified for presentation purposes.
(3) EBITDA represents income from continuing operations before income taxes and
extraordinary loss, interest expense, interest income, depreciation and
amortization (excluding amortization charged to interest expense). EBITDA
should not be considered as an alternative to, or more meaningful than, (a)
operating income, as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance or (b) cash
flows from operating, financing or investing activities, as determined in
accordance with generally accepted accounting principles, as a measure of
liquidity. EBITDA is presented as additional information because management
believes it is a useful indicator of the ability to meet debt service and
because it is expected that certain debt covenants of New Blount will
utilize EBITDA to measure compliance with such covenants.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to similarly titled measures of
other companies.
12
<PAGE> 20
The following table shows all adjustments between income from continuing
operations before extraordinary loss and EBITDA:
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY LOSS
TO EBITDA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE 12 MONTHS
ENDED
FOR THE 3 MONTHS FOR THE 12 MONTHS ENDED FOR THE THE LAST DAY OF
ENDED MARCH 31, DECEMBER 31, 10 MONTHS FEBRUARY,
----------------- ------------------------------ ENDED ------------------
1999 1998 1998 1997 1996(1) 12/31/96(1) 1996 1995
------- ------- -------- -------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
extraordinary
loss................ $ 8,843 $13,707 $ 63,276 $ 59,125 $ 53,794 $44,006 $ 53,555 $40,731
Provision for income
taxes............... 4,064 8,580 38,942 34,536 31,594 25,594 30,121 26,653
Depreciation and
amortization
(excluding
amortization charged
to interest
expense)............ 7,679 7,330 29,962 24,733 22,956 19,028 21,861 22,497
Interest expense...... 3,510 3,031 14,323 9,511 9,868 7,931 10,793 11,078
Interest income....... (629) (378) (2,549) (2,501) (2,389) (2,300) (3,444) (2,608)
------- ------- -------- -------- -------- ------- -------- -------
EBITDA................ $23,467 $32,270 $143,954 $125,404 $115,823 $94,259 $112,886 $98,351
======= ======= ======== ======== ======== ======= ======== =======
</TABLE>
(4) Includes property, plant and equipment of acquired companies at date of
purchase of $59.8 million in the twelve months ended December 31, 1997 and
$0.6 million and $5.0 million in the twelve months ended the last day of
February 1996 and 1995, respectively.
(5) Total capitalization is defined as the sum of long-term debt (excluding
current maturities) and stockholders' equity.
13
<PAGE> 21
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following table sets forth selected pro forma condensed consolidated
financial data of Blount which have been derived by the application of pro forma
adjustments to Blount's historical audited and unaudited consolidated financial
statements incorporated by reference in this proxy statement-prospectus. The pro
forma financial statements have been prepared giving effect to the merger and
the merger financings, accounting for the merger as a recapitalization under
generally accepted accounting principles and giving effect to the other
adjustments described in the notes accompanying the pro forma financial
statements found on pages 72 and 76. Accordingly, the historical basis of
Blount's assets and liabilities has not been impacted by the merger and related
transactions.
The pro forma condensed consolidated balance sheet gives effect to the
merger, the recapitalization and related transactions as of March 31, 1999. The
pro forma condensed consolidated statements of income give effect to the merger,
the recapitalization and related transactions as if such transactions were
completed as of the beginning of 1998. You should not consider the pro forma
condensed consolidated financial data indicative of actual results that would
have been achieved had the merger and related transactions been completed on the
dates indicated. The pro forma condensed consolidated financial data do not
purport to indicate balance sheet data or results of operations as of any future
date or for any future period.
You should read this data in conjunction with Blount's historical financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," incorporated in this
proxy statement- prospectus by reference. See "Where You Can Find More
Information" on page 96.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -----------------
(amounts in thousands,
except share data)
<S> <C> <C>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME:
Sales....................................................... $ 185,103 $ 831,930
Cost of sales............................................... 131,524 573,658
----------- -----------
Gross profit................................................ 53,579 258,272
Selling, general and administrative expenses................ 34,715 142,243
Infrequent or non-recurring items:
Non-cash charitable contributions......................... 1,495 --
Plant closing expenses and organizational consolidation
costs................................................... 637 575
----------- -----------
Income from operations...................................... 16,732 115,454
Interest expense............................................ (21,963) (87,918)
Other income (expense), net................................. (49) 332
----------- -----------
Income (loss) before income taxes and extraordinary loss.... (5,280) 27,868
Provision (benefit) for income taxes........................ (3,094) 10,562
----------- -----------
Income (loss) before extraordinary loss..................... $ (2,186) $ 17,306
=========== ===========
Earnings per share before extraordinary loss:
Basic..................................................... $ (0.07) $ 0.56
=========== ===========
Diluted................................................... $ (0.07) $ 0.56
=========== ===========
Shares for EPS calculation
Basic..................................................... 30,800,000 30,800,000
Diluted................................................... 30,800,000 30,800,000
EBITDA...................................................... $ 24,362 $ 145,748
CONDENSED BALANCE SHEET DATA (AT MARCH 31, 1999):
Working capital............................................. $ 229,168
Total assets................................................ 708,634
Total debt.................................................. 898,347
Stockholders' deficit....................................... (338,846)
</TABLE>
14
<PAGE> 22
RESULTS OF OPERATIONS FOR THE FIRST HALF OF 1999
For the first half of 1999, net income was $17.7 million as compared to
$27.5 million for the first half of 1998, representing a decrease of 36%. Each
of our outdoor products and sporting equipment segments achieved record
performances in sales and operating income. Outdoor products' operating income
of $35.7 million was 8% higher as compared to the first half of 1998 and
sporting equipment's operating income improved 62% as compared to the first half
of 1998 on a 15% increase in sales. However, our industrial power equipment
segment continues to experience a very difficult marketplace, particularly in
its primary market, the southeast United States. This segment's sales are
impacted by the price of pulp which dropped 23% from an average of $598 per ton
in the fourth quarter of 1997 to an average of $460 per ton in the first quarter
of 1999. The average price of pulp in the second quarter was $500 per ton, an
increase of 9% from the first quarter. The effects of lower production levels
and related temporary plant closings and $1.9 million costs incurred for the
permanent closure of two facilities which will be completed during the third
quarter, together with the need to offer discounts in response to competitive
pressures within the marketplace, resulted in an operating loss of $5.0 million
compared to record operating income the prior year of $18.5 million. In response
to these conditions, manpower has been reduced 37% from the year earlier period
and actions, including production facilities' consolidations and realignment,
have been taken to address costs in all areas. With recent pulp price increases,
low pulp inventory levels, increased demand for pulp and pulp products from the
recovering economies of Southeast Asia and our improved order backlog, a
recovery in the forestry equipment marketplace may have begun, although the
extent and timing of any recovery is highly uncertain. See "Risk
Factors -- Slowdowns in Forestry Industry Negatively Affect Sales Levels for Our
Industrial and Power Equipment Segment" on page 19.
For the first six months of 1999, $2.3 million of merger costs were
incurred. The table below presents selected condensed consolidated financial
data for the six months ended and as of June 30, 1999 and 1998 (amounts in
millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1999 1998
------- -------
<S> <C> <C>
Sales by segment
Outdoor Products............................................ $160.5 $158.4
Sporting Equipment.......................................... 141.5 123.2
Industrial Power Equipment.................................. 66.3 123.2
------ ------
$368.3 $404.8
====== ======
Operating income (loss) by segment
Outdoor Products............................................ $ 35.7 $ 33.2
Sporting Equipment.......................................... 15.1 9.4
Industrial and Power Equipment.............................. (5.0) 18.5
------ ------
$ 45.8 $ 61.1
====== ======
Income from continuing operations before income taxes
and extraordinary loss.................................... $ 27.4 $ 44.7
Net income.................................................. 17.7 27.5
Total assets................................................ 688.9 731.6
</TABLE>
15
<PAGE> 23
RISK FACTORS
You should carefully consider the following factors, together with the
other information contained in this proxy statement-prospectus, before
determining whether to vote to adopt the merger agreement or make an election to
receive shares of New Blount. If any of the following risks actually occur, our
business, financial condition or results of operations could be seriously
harmed. If that happens, the value of New Blount common stock could decline, and
you may lose all or part of your investment.
WE WILL BE SUBSTANTIALLY LEVERAGED WHICH MAY RESTRICT OUR OPERATIONS
AND ABILITY TO OBTAIN ADDITIONAL FINANCING -- PAYMENTS ON INDEBTEDNESS
WILL REQUIRE A SUBSTANTIAL PORTION OF OUR CASH FLOW AND WILL HAVE A
NEGATIVE EFFECT ON OUR NET INCOME
As of March 31, 1999, after giving pro forma effect to the merger, the
recapitalization and the merger financing, New Blount would have had
approximately $1,047.5 million of total liabilities, $898.3 million of total
debt and a stockholders' deficit of $338.8 million. This substantial leverage
may have important consequences for New Blount, including the following:
- our ability to obtain additional financing for working capital, capital
expenditures or other purposes may be impaired or that kind of financing
may not be on terms favorable to us;
- a substantial portion of our cash flow available from operations will be
dedicated to the payment of principal and interest expense, which will
reduce the funds that would otherwise be available to us for operations
and future business opportunities;
- a substantial decrease in net operating income and cash flows or an
increase in expenses may make it difficult for us to meet our debt
service requirements or force us to modify our operations; and
- our substantial leverage may make us more vulnerable to economic
downturns and competitive pressure.
In addition, substantial leverage will have a negative effect on our net
income. Pro forma income before extraordinary loss for the 1998 fiscal year
would have been $17.3 million as compared to $63.3 million for the same period
on a historical basis, and pro forma interest expense for the 1998 fiscal year
would have been approximately $87.9 million compared to $14.3 million for the
same period on a historical basis.
The definitive terms of the merger financing have not been finalized.
However, based on commitment letters Red Dog Acquisition has received from
Lehman Brothers, Inc. and Lehman Brothers Commercial Paper, Inc., we expect that
these terms will include significant operating and financial restrictions, such
as limits on our ability to incur indebtedness, create liens, sell assets,
engage in mergers or consolidations, make investments and pay dividends. The
merger financing could be completed on terms and conditions materially different
from those contained in the commitment letters. See "The Merger -- Merger
Financings" on page 63.
STOCKHOLDERS OTHER THAN LEHMAN BROTHERS MERCHANT BANKING PARTNERS WILL HAVE
LITTLE OR NO INFLUENCE AFTER THE MERGER
Lehman Brothers Merchant Banking Partners and its affiliated co-investors
will own approximately 87.1% of the outstanding shares of New Blount after the
merger. Lehman
16
<PAGE> 24
Brothers Merchant Banking Partners and its affiliated co-investors will have the
power to control the direction and policies of New Blount, the election of all
of the directors and the outcome of any matter requiring stockholder approval,
including adopting amendments to New Blount's certificate of incorporation and
approving mergers or sales of all or substantially all of New Blount's assets.
The directors elected by Lehman Brothers Merchant Banking Partners and its
affiliated co-investors will have the authority to make decisions affecting the
appointment of new management and the capital structure of New Blount, including
the issuance of additional capital stock, the implementation of stock repurchase
programs and the declaration of dividends. Stockholders other than Lehman
Brothers Merchant Banking Partners and its affiliated co-investors will have
little or no influence on decisions regarding such matters.
In addition, the existence of a controlling stockholder of New Blount may
have the effect of making it virtually impossible for a third party to acquire,
or of discouraging a third party from seeking to acquire, New Blount without the
consent of Lehman Brothers Merchant Banking Partners and its affiliated
co-investors. A third party would be required to negotiate any such transaction
with Lehman Brothers Merchant Banking Partners and its affiliated co-investors
and the interests of such persons may be different from the interests of other
New Blount stockholders.
WE DO NOT EXPECT TO PAY DIVIDENDS
We do not expect that New Blount will pay dividends to stockholders
following the merger. New Blount will be substantially leveraged. The agreements
governing the terms of the merger financing will contain covenants prohibiting
the payment of dividends by New Blount. In addition, it is likely that New
Blount will use any retained earnings for the payment of principal and interest
expense on its indebtedness, for working capital and to finance strategic plans,
and not to pay dividends.
LOSS OF LIQUIDITY MAY MAKE IT DIFFICULT FOR YOU TO SELL SHARES AND COULD RESULT
IN INCREASED VOLATILITY OF MARKET PRICES
Following the completion of the merger, in comparison to shares of Blount
common stock prior to the merger, there will be a substantial decrease in the
number of shares of New Blount common stock which are held publicly because
Lehman Brothers Merchant Banking Partners and its affiliated co-investors will
own approximately 87.1% of the outstanding shares. This is expected to result in
a substantial decrease in liquidity of New Blount common stock, which may make
it more difficult for holders of New Blount common stock to sell their shares.
Although New Blount common stock is expected to be listed on the New York Stock
Exchange for at least three years, we expect that the volume of New Blount
shares traded following the merger will be substantially smaller than the
trading volume of Blount common stock prior to the merger.
The market price of Blount common stock has fluctuated widely in the past
and the reduction in the number of publicly held shares after the merger could
contribute to continued or increased fluctuations in the market price of New
Blount common stock in the future.
ISSUANCE OF STOCK OPTIONS TO MANAGEMENT MAY DILUTE YOUR NEW BLOUNT STOCKHOLDING
Following the merger, New Blount will grant to senior management of New
Blount options to purchase shares of New Blount common stock representing an
aggregate of
17
<PAGE> 25
approximately 8% of New Blount's initially fully diluted common stock. These new
options will vest in general over a five year period. In addition, New Blount
may from time to time issue additional options with similar vesting schedules.
As these options vest and are exercised, the number of shares of New Blount
common stock outstanding will increase and the interest of the stockholders
receiving New Blount common stock from the merger will be diluted. See "The
Merger -- Interests of Some Persons in the Merger; Conflicts of Interest" on
page 58.
AS A RESULT OF PRORATION, YOU MAY NOT RECEIVE THE TYPE OF CONSIDERATION
YOU WANT AND CASH PAYMENTS COULD BE TREATED AS DIVIDENDS
INSTEAD OF CAPITAL GAINS
The right of holders of Blount common stock to elect to receive either two
shares of New Blount common stock or $30 in cash for each of their shares is
subject to the proration procedures described in the merger agreement. If the
merger is completed, you will not necessarily receive exactly the type of
consideration specified in your election. See "The Merger -- Merger
Consideration" on page 50 for a description of the proration procedures.
If, as a result of the proration procedures, you receive some cash for a
portion of your Blount common stock, you may have dividend treatment (rather
than the more favorable capital gain treatment) for such cash received. See "The
Merger -- Material Federal Income Tax Consequences" on page 65 for a more
detailed discussion of the tax consequences of receiving cash.
WE MAY HAVE LIABILITIES RELATED TO LITIGATION MATTERS WHICH COULD ADVERSELY
AFFECT OUR EARNINGS AND FINANCIAL CONDITION
The historical business operations of Blount have resulted in a number of
various litigation matters, including litigation involving alleged personal
injury or death as a result of design or manufacturing defects of Blount's
products. It is difficult to predict, however, the amount and type of litigation
that Blount will have in the future. Future litigation could include litigation
related to Blount's sale of ammunition products for firearms. Future litigation
and insurance and other related costs could result in future liabilities that
are significant and could be material.
ANY LOSS OF A FEW KEY CUSTOMERS AND SUPPLIERS WOULD
SUBSTANTIALLY DECREASE OUR SALES
In 1998, approximately 16% of the sales by the outdoor products segment
were to one customer, 20% of the sales of the sporting equipment segment were to
one customer and 27% of the sales of the industrial and power equipment segment
were to two customers. The loss of any of these customers would most likely
substantially decrease Blount's sales.
Each of Blount's business segments purchases some important materials from
a limited number of suppliers that meet quality criteria. Blount does not
generally operate under long-term written supply contracts with its suppliers.
The sudden elimination of certain suppliers could result in manufacturing
delays, a reduction in product quality and a possible loss of sales in the near
term.
18
<PAGE> 26
REGULATION OF FIREARM AMMUNITION COULD RESTRICT OUR MANUFACTURE
AND SALE OF AMMUNITION OR DECREASE DEMAND FOR AMMUNITION
RESULTING IN LOWER SALES LEVELS
Bills have been introduced in Congress in the past several years that would
restrict or result in decreased levels of manufacturing and sales of handgun
ammunition, including bills to regulate or prohibit the manufacture, importation
and sale of some ammunition or to impose increased or new taxes on handgun
ammunition. If enacted, these bills would restrict Blount from manufacturing or
selling some types of ammunition or result in increased ammunition prices
discouraging consumers from purchasing Blount's handgun ammunition. In addition,
some states have enacted, and others are considering, legislation restricting or
prohibiting the ownership, use or sale of some categories of firearms and
ammunition. Regulatory proposals, even if never enacted, may result in decreased
firearms or ammunition sales as a result of consumer perceptions.
SLOWDOWNS IN FORESTRY INDUSTRY NEGATIVELY AFFECT SALES LEVELS FOR OUR INDUSTRIAL
AND POWER EQUIPMENT SEGMENT
The results of operations of Blount's industrial and power equipment
segment are closely linked to the strength of the forestry industry. In the
past, the strength of the forestry industry has been cyclical, experiencing
recurring periods of economic growth and slowdown which, correspondingly, have
impacted the amount of Blount's industrial and power equipment segment sales and
caused the amounts of the sales to vary significantly. The forestry industry is
currently experiencing a slowdown, and this slowdown has resulted in lower sales
for Blount's industrial and power equipment segment. If this slowdown continues,
it would be difficult for this segment to achieve historical or projected levels
of sales and sales growth. See "Summary -- Results of Operations For the First
Half of 1999" on page 15.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Blount makes forward-looking statements in this proxy statement-prospectus
and in the Blount public documents to which we have referred you. These
forward-looking statements are subject to risks and uncertainties and there can
be no assurance that these statements will prove to be correct. Forward looking
statements include some of the statements described under "Summary -- Selected
Pro Forma Condensed Consolidated Financial Data (Unaudited)," "Risk
Factors -- We Will Be Substantially Leveraged Which May Restrict Our Operations
and Ability to Obtain Additional Financing -- Payments on Indebtedness Will
Require a Substantial Portion of Our Cash Flow and Will Have a Negative Effect
on Our Net Income," "Information About Blount -- Financial Projections," "The
Merger -- Merger Financings" and "Pro Forma Condensed Consolidated Financial
Statements (Unaudited)." In addition, when we use any of the words "believes,"
"expects," "anticipates," "plans," "intends," "hopes," "will" or similar
expressions, we are making forward-looking statements. Many possible events or
factors could affect the future financial results and performance of New Blount
after the merger. This could cause results or performance to differ materially
from those expressed in our forward-looking statements. You should consider
these risks when you vote on the merger agreement.
19
<PAGE> 27
THE SPECIAL MEETING
GENERAL
This proxy statement-prospectus is accompanied by the Notice of Special
Meeting, a form of non-cash election and a form of proxy that is solicited by
the Blount board of directors for use at the special meeting of Blount
stockholders to be held on August 18, 1999, at 10:00 a.m. local time, at
Blount's office located at 4520 Executive Park Drive, Montgomery, Alabama 36116
and at any adjournments or postponements thereof.
MATTERS TO BE CONSIDERED
At the special meeting, Blount stockholders will be asked to consider and
vote upon a proposal to adopt the merger agreement.
If the merger agreement is adopted, we anticipate that the merger will
occur as promptly as practicable after the Blount special meeting. You may also
be asked to vote upon a proposal to adjourn or postpone the Blount special
meeting.
PROXIES
If you are a Blount stockholder, you may use the accompanying proxy if you
are unable to attend the special meeting in person or wish to have your shares
voted by proxy even if you do attend the special meeting. You may revoke any
proxy given by you in accordance with this solicitation by delivering to D.
Joseph McInnes, the Secretary of Blount, prior to or at the special meeting, a
written notice revoking the proxy or a duly executed proxy relating to the same
shares bearing a later date or by attending the special meeting and voting in
person. However, your attendance at the special meeting will not in and of
itself constitute a revocation of a proxy; rather you must vote in person at the
meeting to effect a revocation. You should address any written notice of
revocation and other communications regarding the revocation of Blount proxies
to the Secretary of Blount at 4520 Executive Park Drive, Montgomery, Alabama
36116. In all cases, the latest dated proxy revokes an earlier dated proxy,
regardless of which method is used to give or revoke a proxy, or if different
methods are used to give and revoke a proxy. For a notice of revocation or later
proxy to be valid, however, it must actually be received by Blount prior to the
vote of the Blount stockholders at the special meeting. If your broker has been
instructed to vote your shares, you must follow directions received from your
broker in order to change your vote.
All shares represented by valid proxies received in accordance with this
solicitation and not revoked before they are exercised will be voted in the
manner specified in the proxy. If you do not specify how your proxy is to be
voted, it will be voted in favor of adoption of the merger agreement. The Blount
board of directors is currently unaware of any other matters that may be
presented for action at the special meeting. If other matters do properly come
before the special meeting, however, it is intended that shares represented by
proxies in the accompanying form will be voted or not voted by the persons named
in the proxies, in their discretion.
SOLICITATION OF PROXIES
The cost of soliciting the proxies from the Blount stockholders will be
borne by Blount. In addition to the solicitation of proxies by mail, Blount will
request banks, brokers and other record holders to send proxies and proxy
material to the beneficial owners of
20
<PAGE> 28
shares of Blount and secure their voting instructions, if necessary. Blount will
reimburse such record holders for their reasonable out-of-pocket expenses in
doing so.
FORMS OF NON-CASH ELECTION
Blount has mailed a form for making a non-cash election with this proxy
statement-prospectus to stockholders of record of Blount common stock. If you do
not wish to receive shares of New Blount common stock in the merger, you should
not submit the form of non-cash election, although this will not guarantee that
you will not receive some shares. See "The Merger -- Merger Consideration" on
page 50.
For a form of non-cash election to be effective, you must properly complete
the form of non-cash election, and send the form, together with share
certificates for the shares of Blount common stock for which you have elected to
receive shares of New Blount common stock, duly endorsed in blank or otherwise
in a form which is acceptable for transfer on the books of Blount or by
appropriate guarantee of delivery as described in the form of non-cash election,
to BankBoston, N.A., Blount's exchange agent. BankBoston, N.A. must receive the
completed form of non-cash election and share certificates by 5:00 p.m., Eastern
time, on August 11, 1999, the fifth business day preceding the date of the
special meeting.
RECORD DATE AND VOTING RIGHTS
Record Date. The Blount board of directors has fixed July 9, 1999 as the
record date for the determination of the Blount stockholders entitled to receive
notice of and to vote at the special meeting. Accordingly, only Blount
stockholders of record at the close of business on that date will be entitled to
notice of and to vote at the special meeting.
Quorum Requirement. The presence, in person or by proxy, of shares of
Blount common stock representing a majority in total voting power of the
outstanding shares of Blount common stock as of the record date is necessary to
constitute a quorum at the special meeting.
Each share of Blount class A common stock outstanding on the record date
entitles its holder to 1/10 of a vote at the special meeting. Each share of
Blount class B common stock outstanding on the record date entitles its holder
to one vote at the special meeting.
Vote Required and Voting Rights. Under the General Corporation Law of the
State of Delaware, or the "DGCL", the adoption of the merger agreement requires
the affirmative vote of the holders of a majority in voting power of the
outstanding shares of Blount common stock entitled to vote on the merger
agreement. Holders of class A common stock and class B common stock will vote as
a single class, with holders of class A common stock receiving 1/10 of a vote
per share and holders of class B common stock receiving one vote per share on
the proposal to adopt the merger agreement.
Agreement and Plan of Merger and Recapitalization. We have attached the
merger agreement as Appendix A to this proxy statement-prospectus.
Abstentions and Broker Non-Votes. Blount intends to count shares of Blount
common stock present in person at the special meeting but not voting, and shares
of Blount common stock for which it has received proxies but for which holders
of such shares have abstained, as present at the Blount special meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business. Brokers who hold shares of Blount common stock in "street" name for
customers who are the beneficial owners of the shares are prohibited from giving
a proxy to vote shares held for those
21
<PAGE> 29
customers regarding the matters to be considered and voted at the special
meeting without specific instructions from those customers. Shares of Blount
common stock represented by proxies returned by a broker holding shares in
nominee or "street" name will be counted for purposes of determining whether a
quorum exists, even if the shares are broker non-votes.
Because adoption of the merger agreement requires the affirmative vote of a
majority in voting power of the outstanding shares of Blount common stock voting
as a single class, abstentions and broker non-votes will have the same effect as
negative votes. Accordingly, the Blount board of directors urges Blount
stockholders to complete, date and sign the accompanying proxy and return it
promptly in the enclosed, postage-paid envelope.
Unless the merger agreement is terminated in accordance with its terms, its
adoption is assured since The Blount Holding Company has agreed in the
stockholder agreement to vote its shares of Blount common stock, which in the
aggregate represent approximately 62% in voting power of the outstanding shares
of Blount common stock as of the close of business on the record date, in favor
of the adoption of the merger agreement. On the record date, directors and
executive officers of Blount owned or had the right to vote 6,170,532 shares of
Blount class A common stock, including 2,134,164 shares which are subject to a
right to acquire beneficial ownership within 60 days under Blount's existing
executive option plans, and 9,758,597 shares of Blount class B common stock.
These shares in total represent approximately 74% of the voting power of the
outstanding shares of Blount common stock voting together as a single class of
Blount. In addition to the votes to be cast in favor of adopting the merger
agreement in accordance with the stockholder agreement, we expect that each
director and executive officer will vote the shares of the Blount common stock
beneficially owned by him or her for adoption of the merger agreement.
RECOMMENDATION OF THE BLOUNT BOARD OF DIRECTORS
THE BLOUNT BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED IN THE MERGER AGREEMENT ARE ADVISABLE, FAIR TO AND IN
THE BEST INTERESTS OF THE BLOUNT STOCKHOLDERS, AND RECOMMENDS THAT THE BLOUNT
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. IN CONSIDERING THE
RECOMMENDATION OF THE BLOUNT BOARD OF DIRECTORS REGARDING THE MERGER AGREEMENT,
THE BLOUNT STOCKHOLDERS SHOULD BE AWARE OF THE CONFLICTS OF INTEREST THAT SOME
DIRECTORS AND MEMBERS OF SENIOR MANAGEMENT OF BLOUNT HAVE IN THE MERGER. SEE
"THE MERGER -- INTERESTS OF SOME PERSONS IN THE MERGER; CONFLICTS OF INTEREST"
ON PAGE 58.
22
<PAGE> 30
INFORMATION ABOUT BLOUNT
GENERAL
Blount is an international manufacturing and marketing company with sales
in over 100 countries and operations in three business segments: outdoor
products, sporting equipment, and industrial and power equipment. Blount was
founded in 1946 as a general construction company. In 1994, the construction
business was discontinued.
OUTDOOR PRODUCTS
Blount's outdoor products segment is comprised of the Oregon Cutting
Systems Division, or "Oregon", Dixon Industries, Inc., or "Dixon" and Frederick
Manufacturing Corporation, or "Frederick".
Oregon, headquartered in Portland, Oregon, produces a wide variety of
cutting chain, chain saw guide bars, cutting chain drive sprockets and
maintenance tools for use primarily on portable gasoline and electric chain
saws, and mechanical timber harvesting equipment.
Dixon, located in Coffeyville, Kansas, was acquired in 1990 and has
manufactured zero turning radius lawn mowers and related attachments since 1974.
Dixon pioneered the development of zero turning radius lawn mowers and is the
only manufacturer to offer a full line of zero turning radius lawn mowers for
both homeowner and commercial applications.
Frederick, located in Kansas City, Missouri, was acquired in January 1997.
Frederick is a well-known and highly respected manufacturer that supplies
quality Silver Streak(TM) brand accessories for lawn mowers and other outdoor
products. Frederick fits well into Blount's operations and is provided
international sales opportunities through Oregon's worldwide distribution
outlets.
SPORTING EQUIPMENT
On November 4, 1997, Blount acquired the Federal Cartridge Company, or
"Federal". Federal manufactures and markets shotshell, centerfire and rimfire
cartridges, ammunition components and clay targets.
Blount's other sporting equipment segment operations manufacture small arms
ammunition, reloading equipment, primers, gun care products and accessories, and
distribute imported sports optical products. Blount believes that it is a market
leader in the domestic gun care and ammunition reloading markets with high
levels of brand name recognition in each of these areas. Blount believes that
the sporting equipment segment is also a world leader in the production of
industrial powerloads which are used in the construction industry to drive
fastening pins into metal or concrete.
These products are distributed throughout the United States through a
network of distributors and directly to large retail chains, the U.S. government
and federal, state, local and international law enforcement agencies.
Blount's sporting equipment segment has manufacturing facilities in
Lewiston, Idaho; Anoka, Minnesota; Oroville, California; Onalaska, Wisconsin;
and Richmond, Indiana.
INDUSTRIAL AND POWER EQUIPMENT
Blount's industrial and power equipment segment manufactures equipment for
the timber harvesting industry and for industrial use, industrial tractors for
land and utility
23
<PAGE> 31
right-of-way clearing, and components for the gear industry. Major users of
these products include logging contractors, harvesters, land reclamation
companies, utility contractors, building materials distributors, scrap yard
operators and original equipment manufacturers of hydraulic equipment.
Blount believes that it is a world leader in the manufacture of hydraulic
timber harvesting equipment, which includes a line of truck-mounted,
trailer-mounted, stationary-mounted and self-propelled loaders and crawler
feller bunchers (tractors with hydraulic attachments for felling timber) under
the Prentice(R) brand name; a line of rubber-tired feller bunchers and related
attachments under the Hydro-Ax(R) brand name; and a line of delimbers, slashers
and firewood processors under the CTR(R) brand name.
Blount sells its timber harvesting products through a network of
approximately 250 dealers in over 400 locations in the United States and
currently has an additional 20 offshore dealers, primarily in the timber
harvesting regions of South America and Southeast Asia. Gear Products, Inc.
sells its products to over 350 original equipment manufacturers servicing the
utility, construction, forestry and marine industries.
Blount's industrial and power equipment segment has manufacturing
facilities in Owatonna, Minnesota; Prentice and Spencer, Wisconsin; Tulsa,
Oklahoma; and Zebulon and Union Grove, North Carolina.
MANAGEMENT AND ADDITIONAL INFORMATION
Information relating to executive compensation, various benefits plans,
including Blount's stock option plans, certain relationships and related
transactions and other related matters as to Blount is provided in the Blount
Annual Report on Form 10-K for the year ended December 31, 1998 and Blount's
Proxy Statement for Annual Meeting, filed on March 10, 1999, both of which are
incorporated by reference in this proxy statement-prospectus. See "Where You Can
Find More Information" on page 96.
FINANCIAL PROJECTIONS
Blount provided The Beacon Group in April, 1999, in connection with its
analyses described below under "The Merger -- Fairness Opinion of Financial
Advisor" on page 39, with some non-public financial projections for Blount
prepared by its management. Blount also provided these projections to the
potential acquirors described under "The Merger -- Background of the Merger" on
page 26, including Lehman Brothers Merchant Banking Partners, in connection with
their evaluation of potential transactions with Blount. The material portions of
these projections are set forth below:
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR
------------------------------------------
1999 2000 2001 2002 2003
---- ---- ------ ------ ------
(amounts in millions)
<S> <C> <C> <C> <C> <C>
Sales............................... $859 $984 $1,045 $1,110 $1,178
Gross profit........................ 267 337 363 390 418
Selling, general and administrative
expense........................... 137 151 158 164 171
Income from operations.............. 130 186 205 226 247
Net income.......................... 73 109 124 140 157
</TABLE>
24
<PAGE> 32
BLOUNT DOES NOT USUALLY PUBLICLY DISCLOSE PROJECTIONS OF FUTURE REVENUES,
EARNINGS OR OTHER FINANCIAL INFORMATION. WE ARE NOT INCLUDING THESE PROJECTIONS
IN THIS PROXY STATEMENT-PROSPECTUS TO INFLUENCE YOUR VOTE WITH RESPECT TO THE
MERGER AGREEMENT. OUR PROJECTIONS WERE BASED UPON A VARIETY OF ASSUMPTIONS,
INCLUDING OUR ABILITY TO ACHIEVE STRATEGIC GOALS, OBJECTIVES AND TARGETS OVER
THE APPLICABLE PERIODS. THESE ASSUMPTIONS ALSO INCLUDED THE ACHIEVEMENT OF
SIGNIFICANT COST SAVINGS AND AN IMPROVEMENT IN THE RESULTS OF OPERATIONS OF THE
INDUSTRIAL AND POWER EQUIPMENT SEGMENT. ASSUMED COST SAVINGS FOR 1999 TOTALLED
APPROXIMATELY $19 MILLION, INCREASING TO AN AGGREGATE OF $30 MILLION FOR 1999
AND 2000 AND AN AGGREGATE OF $33 MILLION FOR THE FIVE-YEAR PERIOD OF 1999 TO
2003. ALL OF THESE ASSUMPTIONS INVOLVE JUDGMENTS REGARDING, AMONG OTHER THINGS,
FUTURE ECONOMIC, COMPETITIVE AND REGULATORY CONDITIONS, FINANCIAL MARKET
CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND OUR CONTROL OR,
AFTER THE MERGER, NEW BLOUNT'S CONTROL. AS PART OF BLOUNT'S ONGOING REVIEW OF
CURRENT BUSINESS CONDITIONS, AND PARTICULARLY IN LIGHT OF THE WORSE THAN
EXPECTED MARKETPLACE EXPERIENCED DURING THE FIRST HALF OF 1999 IN FORESTRY
HARVESTING EQUIPMENT, WE HAVE REVISED OUR 1999 FINANCIAL PROJECTIONS. WE HAVE
LOWERED OUR 1999 PROJECTIONS FOR SALES TO APPROXIMATELY $811 MILLION, INCOME
FROM OPERATIONS TO $101 MILLION AND NET INCOME TO $55 MILLION (EXCLUDING FROM
INCOME FROM OPERATIONS AND NET INCOME MERGER COSTS AND PLANT CLOSING COSTS,
EXCEPT FOR THOSE INCURRED IN THE FIRST QUARTER). WHILE A RECOVERY IN THE
FORESTRY EQUIPMENT MARKETPLACE MAY HAVE BEGUN, SUPPORTED BY RECENT PRICE
INCREASES FOR PULP AND LUMBER, THE EXTENT AND TIMING OF ANY RECOVERY IS HIGHLY
UNCERTAIN. OUR ABILITY TO ACHIEVE OUR REVISED 1999 FINANCIAL PROJECTIONS REMAINS
DEPENDENT UPON, AMONG OTHER FACTORS, A MARKET RECOVERY IN FORESTRY EQUIPMENT.
SEE "RISK FACTORS -- SLOWDOWNS IN FORESTRY INDUSTRY NEGATIVELY AFFECT SALES
LEVELS FOR OUR INDUSTRIAL AND POWER EQUIPMENT SEGMENT" ON PAGE 19 AND
"SUMMARY -- RESULTS OF OPERATIONS FOR THE FIRST HALF OF 1999" ON PAGE 15.
BLOUNT'S PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE, FOR USE
IN THIS PROXY STATEMENT-PROSPECTUS OR IN COMPLIANCE WITH PUBLISHED GUIDELINES OF
THE COMMISSION, NOR WERE THEY PREPARED IN ACCORDANCE WITH THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FOR
PREPARATION AND PRESENTATION OF FINANCIAL PROJECTIONS. PRICEWATERHOUSECOOPERS
LLP, BLOUNT'S ACCOUNTANTS, HAS NOT EXAMINED, COMPILED OR APPLIED ANY PROCEDURES
TO THESE PROJECTIONS AND ASSUMES NO RESPONSIBILITY FOR THEM OR THEIR
ACHIEVABILITY. IN ADDITION, NONE OF LEHMAN BROTHERS MERCHANT BANKING PARTNERS,
RED DOG ACQUISITION, THE BEACON GROUP OR THEIR RESPECTIVE AFFILIATES ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OF ANY OF THE PROJECTIONS. THE INCLUSION OF
THESE PROJECTIONS SHOULD NOT BE REGARDED AS AN INDICATION THAT BLOUNT OR ANY
OTHER PERSON WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION
OF FUTURE EVENTS. NEITHER BLOUNT NOR NEW BLOUNT WILL UPDATE, REVISE OR CORRECT
THESE PROJECTIONS IF THEY BECOME INACCURATE, EVEN IN THE SHORT TERM. IN THE
PAST, WE HAVE MADE PROJECTIONS WHICH WE DID NOT ACHIEVE. SEE "RISK FACTORS" ON
PAGE 16.
25
<PAGE> 33
THE MERGER
The following summary of the material terms and provisions of the merger
agreement is qualified in its entirety by reference to the merger agreement,
which is incorporated by reference in this proxy statement-prospectus and, with
the exception of certain schedules and exhibits, is attached as Appendix A to
this proxy statement-prospectus.
BACKGROUND OF THE MERGER
The Blount board has from time to time evaluated various alternatives for
Blount to enhance stockholder value, including strategic acquisitions and
alliances and operating, administrative and financial measures. In addition,
Blount's senior management and the board periodically discuss these efforts with
Blount's controlling stockholder, Winton M. Blount, the founder of Blount and
the Chairman of the board. As part of these efforts and with a view to exploring
an orderly transition for all Blount stockholders in light of potential change
of control issues raised by Mr. Blount's age, John M. Panettiere, the chief
executive officer and president of Blount, under the direction of the executive
committee of the board, contacted representatives of The Beacon Group in August
1998 concerning the evaluation of various strategies, including possible
business combinations. To this end, Mr. Panettiere and other members of the
executive committee met with representatives of The Beacon Group on August 26,
1998.
Representatives of The Beacon Group were subsequently invited to attend a
meeting of the executive committee of the board held on September 24 and 25,
1998. The members of the executive committee consist of Mr. Blount, Samuel R.
Blount, R. Eugene Cartledge, H. Corbin Day and Mr. Panettiere. At this meeting,
the executive committee and representatives of The Beacon Group assessed
Blount's current market valuation and stock price and discussed in various
detail alternatives for enhancing stockholder value, including possible business
combinations. Representatives of The Beacon Group also outlined a possible
approach for soliciting proposals from potentially interested parties designed
to elicit the most attractive transaction if the board decided to explore a
business combination for Blount. In addition, representatives of The Beacon
Group reviewed potential candidates, both strategic and financial, which it had
identified as possible acquirors of either all of Blount or certain of its three
business segments.
At a meeting of the executive committee of the board held on October 23,
1998, with representatives of The Beacon Group and Simpson Thacher & Bartlett,
Blount's special outside legal counsel, participating by telephone conference
call, the executive committee discussed the desirability of engaging The Beacon
Group to explore strategic alternatives. In this meeting, representatives of The
Beacon Group reviewed with the executive committee recent stock market
fluctuations and other considerations affecting the mergers and acquisitions
market generally and discussed with the executive committee various other issues
regarding the advisability of Blount exploring strategic alternatives at that
time. These discussions included Blount's financial performance, the manner in
which The Beacon Group would organize a process that would elicit interest in
acquiring Blount or any of its three business segments or other alternative
proposals, the timing for pursuing a transaction and the relationship of the
Blount common stock price to the acquisition valuation of Blount. After lengthy
discussion, the executive committee agreed to meet again on October 25, 1998 to
continue this discussion.
At its October 25, 1998 meeting, the executive committee reviewed its
deliberations of October 23, 1998 and agreed to recommend to the full board at
its meeting on
26
<PAGE> 34
October 26, 1998 that the board approve a resolution authorizing the retention
of The Beacon Group to assist Blount with exploring its strategic alternatives.
At the regular meeting of the board held on October 26, 1998, with Blount's
outside legal counsel in attendance, Mr. Panettiere explained to the board the
factors that were considered by the executive committee in reaching its decision
that the exploration of strategic alternatives was in the best interests of
Blount's stockholders. These factors included the likelihood that Blount would
continue to achieve historical levels of growth, the benefits of a value
enhancing transaction, management succession issues and the advantages of
exploring an orderly change of control at this time in light of the age of the
controlling stockholder. Mr. Panettiere stressed that the status quo remained an
alternative that was available, depending on the results from the exploration of
strategic alternatives and that no decision had been made to effect a business
combination, including a sale of Blount.
After reviewing The Beacon Group's qualifications, and the terms and
conditions of the proposed engagement, the board authorized the formal retention
of The Beacon Group as financial advisor to Blount and the solicitation of
indications of interests from third parties for engaging in a business
combination with Blount. In accordance with the board's directives, Blount
formally retained The Beacon Group on October 28, 1998 to explore strategic
alternatives.
Representatives of The Beacon Group and Blount, based upon their collective
experience and knowledge of the industries in which Blount operates and the
private equity markets, compiled a list of prospective strategic and financial
acquirors to be contacted directly by representatives of The Beacon Group
regarding their potential interest in a possible transaction. Representatives of
The Beacon Group also assisted Blount in preparing a confidential memorandum
describing Blount for use in discussions with interested parties. The executive
committee discussed the status of The Beacon Group's activities and the proposed
process for soliciting interest from potential acquirors at a meeting held by
telephone conference call on November 6, 1998.
After the November 6, 1998 meeting, representatives of The Beacon Group
began to contact potential entities which had been identified and continued to
work with management in identifying additional interested parties which were
also contacted as part of the ongoing process. Initial contacts were made with
senior executives or directors of a total of 65 parties and generally consisted
of a brief discussion of Blount's possible interest in engaging in a business
combination and an inquiry as to whether the potential party would be interested
in receiving further information. Representatives of The Beacon Group then sent
a package of publicly available information on Blount to each potential party
that indicated an interest in pursuing a possible transaction and requested
further information and, together with management and Blount's outside legal
counsel, negotiated confidentiality agreements with 28 interested parties,
including strategic and financial acquirors, which had requested the
confidential memorandum.
Representatives of The Beacon Group contacted the 28 interested parties,
including both strategic and financial acquirors, seeking preliminary
indications of interest from these parties during the week of January 4, 1999.
Of the 28 parties, nine expressed an interest in acquiring Blount as a whole
although two of these nine declined to provide a written indication of interest,
nine expressed an interest in one of Blount's business segments only and ten
declined to pursue further their interest in Blount. Management, based on the
indications of interest received and the advice of representatives of The Beacon
Group, determined to invite six of the seven interested parties that had
submitted written
27
<PAGE> 35
indications of interest to acquire Blount as a whole to continue to participate
in the strategic review process.
Between January 13, 1999 and January 21, 1999, each of the six potential
acquirors spent one day participating in presentations by Blount's management
and commencing their review of Blount's due diligence data room. Representatives
of The Beacon Group distributed a form of merger agreement to the six interested
acquirors. As the six interested acquirors continued their due diligence review
of Blount through January 1999 and into February 1999, representatives of The
Beacon Group requested that they submit, during the week of February 8, 1999, a
second written indication of interest, including a summary of their significant
comments regarding the proposed form of merger agreement. All six of the
interested acquirors submitted further indications of interest, although only
four of the indications were in writing and one of these four was limited to
only one of Blount's three business segments plus a small division of a second
business segment.
At a meeting of the executive committee held on February 14, 1999, with
representatives of The Beacon Group and outside legal counsel in attendance, the
executive committee reviewed in further detail the ongoing process for enhancing
stockholder value, including the indications of interest received during the
week of February 8, 1999, and recommended to the board that the process be
continued.
At a regular meeting of the board held on February 15, 1999, with
representatives of The Beacon Group and outside legal counsel in attendance, the
board reviewed in further detail the ongoing process for enhancing stockholder
value, including a description of The Beacon Group's process in soliciting
interest in the acquisition of Blount, the indications of interest received
during the week of February 8, 1999, a description of the prospective acquirors
and a possible timetable and proposed next steps. Because the two highest
indications of interest received were based on a leveraged recapitalization
structure, the board discussed with its financial and legal advisors the various
elements of that structure. The board also discussed the economic detriments and
tax-related inefficiencies of selling individual business segments. After
discussing the matter at length, including the benefits and risks associated
with continuing the process, and evaluating whether the process was designed to
elicit the best transaction reasonably available to Blount and its stockholders,
the board recommended that the process be continued.
Based on the comparative values of the indications of interest received,
the representatives of The Beacon Group invited the two potential acquirors that
had expressed the highest indications of interest, one of which was Lehman
Brothers Merchant Banking Partners, to continue with a final phase of due
diligence review, including visits to selected Blount facilities. A revised form
of merger agreement based on a leveraged recapitalization structure was
distributed to each of the potential acquirors, and they were instructed to
submit comments on this agreement by the beginning of the week of March 8, 1999.
The Beacon Group sent a letter to each of the potential acquirors requesting
that they submit a final proposal by March 24, 1999, including the final price
per share, details of their sources of financing and any final comments on the
form of merger agreement.
After the February 15, 1999 board meeting, representatives of The Beacon
Group also recontacted a limited number of parties to reconfirm their lack of
interest in pursuing a transaction with Blount and contacted the potential
acquiror which had indicated an interest in acquiring only one of the three
business segments plus a small division of a second business segment. This
latter contact resulted in the receipt of a further indication of interest for
the acquisition of two of Blount's three business segments, but an unwillingness
to proceed with a transaction to acquire all of Blount.
28
<PAGE> 36
During the week of March 22, 1999, Blount received a formal written
proposal from Lehman Brothers Merchant Banking Partners and a second formal
written proposal from the other interested financial acquiror.
The Lehman Brothers Merchant Banking Partners' proposal provided for a
leveraged recapitalization transaction in accordance with which Lehman Brothers
Merchant Banking Partners and its affiliated co-investors would acquire 96% of
the outstanding Blount common stock at $31.00 per share in cash. The Lehman
Brothers Merchant Banking Partners' proposal also included term sheets in
connection with financing commitments from Lehman Brothers Inc. and Lehman
Commercial Paper Inc. to provide and arrange all of the debt financing for its
proposed transaction. Lehman Brothers Merchant Banking Partners had previously
provided its comments on the proposed form of merger agreement. These comments
did not include provisions that would, in general, permit the board to terminate
the merger agreement if a superior proposal were to be received at a later date
and required The Blount Holding Company to enter into a stockholder agreement to
vote its shares in favor of adopting the merger agreement. The Lehman Brothers
Merchant Banking Partners' proposal stated that it would remain open until April
16, 1999 and that negotiations with Blount would be conditioned upon Blount
agreeing to proceed with Lehman Brothers Merchant Banking Partners on an
exclusive basis. The proposal was also conditioned on the completion of
confirmatory due diligence, including a satisfactory analysis of Blount's
results for the first quarter 1999 when available, and satisfactory employment
and other arrangements with certain of Blount's senior management. Later in the
week of March 22, 1999, Lehman Brothers Merchant Banking Partners delivered
complete copies of its proposed financing commitment letters to Blount. The
Beacon Group, management and Blount's outside legal counsel reviewed the
materials submitted by Lehman Brothers Merchant Banking Partners, and The Beacon
Group and Lehman Brothers Merchant Banking Partners had additional conversations
concerning the terms of the proposal prior to the March 29, 1999 meeting of the
board.
The proposal of the other interested financial acquiror was also structured
as a leveraged recapitalization transaction. The amount of the proposed cash
consideration in this alternative proposal was lower than that included in the
Lehman Brothers Merchant Banking Partners' proposal. This alternative proposal
included copies of financing commitment letters and complete comments on the
proposed form of merger agreement which expanded on preliminary comments
previously delivered on March 19, 1999. These comments did not include
provisions that, in general, would permit the board to terminate the merger
agreement if a superior proposal were to be received at a later date and
required The Blount Holding Company to enter into a stockholder agreement to
vote its shares in favor of adopting the merger agreement. Representatives of
The Beacon Group, management and Blount's outside legal counsel reviewed the
materials submitted as part of this alternative proposal. In addition, prior to
the March 29, 1999 board meeting, representatives of The Beacon Group and this
potential acquiror had additional conversations concerning the terms of its
alternative proposal.
A special meeting of the board, with representatives of The Beacon Group
and outside legal counsel in attendance, was held on March 29, 1999. The board
reviewed the current status of the process for enhancing stockholder value, the
advantages and disadvantages of an acquisition of Blount at this time and the
two proposals to acquire Blount which had been received. The Beacon Group
representatives provided:
- a detailed review of the entire process which it had completed to date in
soliciting potential parties or business combination proposals;
29
<PAGE> 37
- a detailed comparison of the two proposals received, including the
various financial valuations undertaken by representatives of The Beacon
Group, and a review of each potential acquiror's proposed financing; and
- an analysis of the principal components of a leveraged recapitalization
transaction.
This presentation to the board included The Beacon Group's analysis
regarding whether the terms of the Lehman Brothers Merchant Banking Partners'
proposal were fair from a financial point of view and a lengthy and thorough
discussion with the board regarding its findings which are summarized below
under "-- Fairness Opinion of Financial Advisor" on page 39. The Beacon Group
advised the board that, if called upon, The Beacon Group would be prepared to
deliver an opinion that the consideration in the Lehman Brothers Merchant
Banking Partners' proposal to be received by Blount stockholders was fair from a
financial point of view to such stockholders.
Following comprehensive presentations by Blount's financial and legal
advisors and after lengthy discussion and numerous questions, the board
evaluated the two proposals in order to determine whether either of them
represented the best transaction reasonably available to Blount and its
stockholders. The other interested financial acquiror advised representatives of
The Beacon Group during the course of the board meeting that it would raise the
value of the cash consideration in its offer. The consensus of the board, after
taking into account the advice of Blount's financial and legal advisors, was
that the consideration in Lehman Brothers Merchant Banking Partners' proposal
was superior to this increased alternative proposal and that the proposed terms
and conditions of the Lehman Brothers Merchant Banking Partners' proposal were,
in the aggregate, at least as favorable to Blount as those of the alternative
proposal and that The Beacon Group should continue to pursue the Lehman Brothers
Merchant Banking Partners' proposal.
On March 30, 1999, representatives of The Beacon Group and Blount's outside
legal counsel met with Lehman Brothers Merchant Banking Partners and its outside
legal counsel to discuss outstanding issues and a schedule for negotiating
definitive agreements. The parties agreed that Blount would negotiate with only
Lehman Brothers Merchant Banking Partners at that time and that Lehman Brothers
Merchant Banking Partners would work quickly to finish its confirmatory due
diligence. Lehman Brothers Merchant Banking Partners indicated that it was not
prepared to execute a merger agreement until it had concluded satisfactory
management arrangements and, as stated in its written proposal, reviewed
Blount's first quarter 1999 financial results. The Beacon Group informed Lehman
Brothers Merchant Banking Partners that Blount had authorized it to begin
negotiating management arrangements directly with some members of senior
management of Blount, including Mr. Panettiere.
On March 31, 1999, in order to address unusual trading activity in the
Blount common stock, Blount issued a press release announcing that it was
engaged in advanced negotiations to sell itself at a price of $31 per share.
During the period from March 30, 1999 to April 8, 1999, the parties
negotiated as to the outstanding business and principal legal terms of the
Lehman Brothers Merchant Banking Partners' proposal. The terms and conditions of
the merger agreement and the financing commitments were negotiated, including
the "lock-ups," fiduciary out provisions, material adverse change definition and
provisions relating to certainty of financing.
On March 31, 1999, Lehman Brothers Merchant Banking Partners informed Mr.
Panettiere of its desire to begin negotiations of new management arrangements.
Meetings were scheduled for April 5 and April 6, 1999 at the offices of Lehman
Brothers Merchant
30
<PAGE> 38
Banking Partners' outside legal counsel. Lehman Brothers Merchant Banking
Partners also asked Mr. Panettiere to submit drafts of proposed employment
agreements, and it delivered a term sheet outlining proposals relating to the
management's equity investment and continuing equity stake in New Blount.
Outside legal counsel for management delivered a draft employment agreement for
Mr. Panettiere, which it proposed would serve as a model for the other senior
managers, on April 2, 1999.
On April 5 and April 6, 1999, representatives of Lehman Brothers Merchant
Banking Partners and its outside legal counsel met with Mr. Panettiere and
Harold Layman, Blount's chief financial officer, and their outside legal counsel
to discuss management arrangements. At these meetings, the parties agreed to the
terms of Mr. Panettiere's employment agreement and agreed to use this employment
agreement as the model for the non-financial terms of the other employment
agreements. In addition, the parties also agreed that the definitive option
agreements and an employee stockholders agreement would be negotiated and
finalized after execution of the merger agreement. The parties, however, agreed
to base these definitive agreements on comprehensive term sheets, the principal
terms of which were negotiated during the week of April 4, 1999. At these
meetings, Lehman Brothers Merchant Banking Partners asked Mr. Panettiere to
propose the names of other senior managers he considered important for the
success of New Blount and to propose the financial terms of employment
arrangements for these senior managers. Mr. Panettiere agreed to do so and
provided a preliminary list of managers, which included Mr. Layman.
Representatives of The Beacon Group, management and Blount's outside legal
counsel met with Lehman Brothers Merchant Banking Partners and its outside legal
counsel on April 8, 1999 to discuss remaining issues. During the course of this
meeting, Lehman Brothers Merchant Banking Partners expressed concern over a
shortfall in Blount's earnings before income taxes, depreciation and
amortization for the twelve months ended March 31, 1999 as compared to the
projected amount. Depending on the inclusion or exclusion of non-recurring
items, Blount's earnings before income taxes, depreciation and amortization for
the twelve months ended March 31, 1999 were at the lower end of or approximately
$2 million below the projected range of $138 million to $141 million. Lehman
Brothers Merchant Banking Partners' $31 per share proposal was premised on
Blount's earnings before income taxes, depreciation and amortization for the
twelve months ended March 31, 1999 equaling at least $144.7 million. Primarily
as a result of this shortfall, Lehman Brothers Merchant Banking Partners
indicated that it was considering proposing a reduction in the amount of the per
share cash consideration offered in its proposal.
At a meeting of the executive committee held on April 8, 1999 by telephone
conference call, with Mr. Panettiere, a member of the executive committee, being
excused and with representatives of The Beacon Group and outside legal counsel
participating, representatives of The Beacon Group reviewed the current status
of the negotiations with Lehman Brothers Merchant Banking Partners, including
the proposed price reduction. The Beacon Group representatives discussed with
the executive committee the first quarter 1999 earnings before income taxes,
depreciation and amortization. Blount's outside legal counsel reviewed the
principal outstanding legal issues regarding the merger agreement and the
proposed financing commitments of Lehman Brothers Merchant Banking Partners. The
executive committee recommended that Blount's advisors should continue to resist
any reduction in the $31 per share cash consideration while at the same time
trying to improve the terms and conditions of the merger agreement and the
financing commitments, especially as they related to the likelihood of closing
the merger. After this meeting, The
31
<PAGE> 39
Beacon Group continued its negotiations with Lehman Brothers Merchant Banking
Partners.
At a meeting of the executive committee held on April 9, 1999 by telephone
conference call, with Mr. Panettiere, a member of the executive committee, being
excused and with representatives of The Beacon Group and outside legal counsel
participating, The Beacon Group representatives advised the executive committee
that Lehman Brothers Merchant Banking Partners was now willing to offer cash
consideration of $30 per share in the merger, which was still in excess of the
cash consideration of the increased proposal of the other financial acquiror
described above, and reviewed the status of the negotiations with Lehman
Brothers Merchant Banking Partners, including other outstanding business issues.
The $30 per share cash consideration represented a $1 per share decrease from
the original proposal of Lehman Brothers Merchant Banking Partners of $31 per
share. The executive committee recommended that Blount's advisors should attempt
to preserve the $31 per share cash consideration and to negotiate a reasonable
compromise on the outstanding legal issues in the merger agreement. After this
meeting, The Beacon Group continued its negotiations with Lehman Brothers
Merchant Banking Partners.
At a meeting held on April 11, 1999 by telephone conference call, with Mr.
Panettiere, a member of the executive committee, being excused and with
representatives of The Beacon Group and outside legal counsel participating, The
Beacon Group representatives again reviewed with the executive committee the
current status of the negotiations with Lehman Brothers Merchant Banking
Partners, including the fact that neither Blount nor Lehman Brothers Merchant
Banking Partners had changed its position regarding the price. Blount's outside
legal counsel reviewed the principal outstanding legal issues regarding the
merger agreement and the proposed financing commitments. The executive committee
concluded that Blount's advisors should continue to resist any reduction in the
$31 per share cash consideration and attempt to improve the terms and conditions
of the merger agreement and the financing commitments and the likelihood of
closing the merger. In light of the proposed price reduction, The Beacon Group
representatives discussed with the executive committee other alternatives, such
as a self tender by Blount for shares of Blount common stock and maintaining the
status quo by continuing to operate the business. The executive committee
instructed its financial and legal advisors to consider further the possibility
of a self tender by Blount and, at such time, to wait for Lehman Brothers
Merchant Banking Partners to initiate further negotiations.
During the period from April 12, 1999 to April 16, 1999, Blount's financial
and legal advisors continued to negotiate with Lehman Brothers Merchant Banking
Partners and its legal advisors. In addition, during this period, Mr. Panettiere
proposed that employment arrangements be made with, in addition to himself and
Mr. Layman, James S. Osterman, Gerald W. Bersett, Donald B. Zorn and Richard H.
Irving, III. Mr. Panettiere informed Lehman Brothers Merchant Banking Partners
that each of these individuals were willing to enter into such arrangements. Mr.
Panettiere also proposed financial terms for such arrangements. Lehman Brothers
Merchant Banking Partners found these proposed arrangements and terms acceptable
with some minor modifications. Outside legal counsel for management delivered
draft agreements relating to these individuals on April 4, 1999 to Lehman
Brothers Merchant Banking Partners and its outside counsel. These agreements
were then distributed to each of the individuals for their review following the
executive committee meeting of April 16, 1999 described below.
32
<PAGE> 40
At a meeting of the executive committee held on April 16, 1999 by telephone
conference call, with Mr. Panettiere, a member of the executive committee, being
excused and with representatives of The Beacon Group and outside legal counsel
participating, The Beacon Group representatives informed the executive committee
that Lehman Brothers Merchant Banking Partners insisted on maintaining the cash
consideration in the proposed merger at $30 per share. Blount's outside legal
counsel reviewed the progress that had been achieved in improving some of the
terms and conditions in the merger agreement and the proposed financing
commitments that had been agreed with Lehman Brothers Merchant Banking Partners.
After an extensive discussion focused largely on issues as to the likelihood of
closing and Blount's ability to accept a superior proposal, the executive
committee held a private conference without its financial and legal advisors.
Following this private conference, the executive committee confirmed its belief
that the revised Lehman Brothers Merchant Banking Partners' proposal still
represented the best alternative reasonably available for maximizing stockholder
value and authorized Blount's advisors to pursue a transaction at $30 per share,
subject to the successful resolution of a number of remaining issues. As part of
these final negotiations, the parties agreed to include a provision in the
merger agreement which would permit the board to terminate the merger agreement
if a superior proposal were to be received at a later date and to strengthen the
financing commitments. The exercise of the termination right is, however,
subject in some circumstances to the payment by Blount of a breakup fee of $34
million. The parties also agreed to exclude any change in Blount's future
prospects from the definition of material adverse effect and to list the New
Blount common stock on the New York Stock Exchange for at least three years from
the completion of the merger. Some of the closing conditions to the merger will
not be satisfied if there is a material adverse effect. By narrowing the
definition of material adverse effect, it will be less likely that these
conditions will not be satisfied. Each of these issues had previously been
resisted by Lehman Brothers Merchant Banking Partners.
After the amount of consideration in the merger and the other principal
terms and conditions of the merger agreement had been agreed by Blount and
Lehman Brothers Merchant Banking Partners, Lehman Brothers Merchant Banking
Partners and The Blount Holding Company and their respective outside legal
counsels negotiated and reached an agreement on the terms of the stockholder
agreement proposed by Lehman Brothers Merchant Banking Partners.
On April 18, 1999, some of the members of senior management asked for
clarifications and modifications of some of the terms of the proposed employment
agreements. Lehman Brothers Merchant Banking Partners agreed to most of these
modifications, and each of the employment agreements summarized below under
"-- Interests of Some Persons in the Merger; Conflicts of Interest" were
executed and delivered by Blount and the senior managers of Blount.
At a regular meeting of the board held on April 18, 1999, with
representatives of The Beacon Group and outside legal counsel in attendance, the
board reviewed the final agreement negotiated with Lehman Brothers Merchant
Banking Partners as authorized by the executive committee of the board. At this
meeting, The Beacon Group representatives provided an update of their
presentation at the board meeting held on March 29, 1999 taking into account,
among other matters, the reduction in the cash consideration from $31 per share
to $30 per share. The Beacon Group representatives advised the board of three
inquiries it had received regarding alternative transactions involving Blount,
including the proposal of the other interested financial acquiror, which was
still a lower cash value as compared to the revised Lehman Brothers Merchant
Banking Partners' proposal at $30 per
33
<PAGE> 41
share. The Beacon Group also analyzed the alternative of a self tender by Blount
and indicated the reasons why the board could reasonably conclude that this
alternative was not as favorable as the revised Lehman Brothers Merchant Banking
Partners' proposal from a financial point of view. The Beacon Group indicated
that a self tender by Blount would not be able to generate the same aggregate
amount of cash consideration to be paid to stockholders as provided for in the
Lehman Brothers Merchant Banking Partners' proposal and could also have adverse
tax consequences. The presentation to the board by The Beacon Group
representatives also included an update of The Beacon Group's analysis of the
fairness of the terms of the revised Lehman Brothers Merchant Banking Partners'
proposal and a further discussion with the board regarding its findings which
are summarized below under "-- Fairness Opinion of Financial Advisor" on page
39. The Beacon Group representatives advised the board that the consideration in
the proposal to be received by Blount stockholders in accordance with the merger
was fair from a financial point of view to such stockholders.
Outside legal counsel addressed certain legal issues for the board and
presented a summary of the principal legal terms of the proposed merger
agreement and financing commitments which had changed since the March 29 board
meeting.
After further deliberations and questions, resolutions were unanimously
adopted by the board:
- determining that the merger and the transactions contemplated by the
merger agreement are advisable and fair to and in the best interests of
the stockholders of Blount;
- authorizing the execution and delivery of the merger agreement and the
execution and delivery of all other agreements ancillary to the merger
agreement;
- declaring the advisability of and approving the merger agreement and the
stockholder agreement; and
- recommending that the stockholders of Blount adopt the merger agreement.
The meeting was then adjourned.
On the evening of April 18, 1999, the merger agreement was executed and
delivered by Blount and Red Dog Acquisition. Later that evening, the stockholder
agreement was executed and delivered by The Blount Holding Company and Red Dog
Acquisition. On the morning of April 19, 1999, Blount and Lehman Brothers
Merchant Banking Partners issued a joint press release announcing the proposed
merger.
PURPOSE AND STRUCTURE FOR THE MERGER
The purpose of the merger is for Lehman Brothers Merchant Banking Partners
and its affiliated co-investors to acquire a substantial majority of New Blount
common stock and thus control of New Blount. Blount, Inc., Blount's operating
company, will remain wholly owned by New Blount.
If the merger agreement is adopted by Blount stockholders and all other
conditions to the merger are satisfied or, where permissible, waived, the merger
will be completed by merging Red Dog Acquisition, a newly formed and wholly
owned subsidiary of Lehman Brothers Merchant Banking Partners, with and into
Blount, with Blount surviving the merger and retaining the name of Blount
International, Inc.
Following the merger, existing stockholders of Blount will own
approximately 9.6% of New Blount and Lehman Brothers Merchant Banking Partners,
its affiliated co-investors
34
<PAGE> 42
and some members of senior management of New Blount will own approximately 90.4%
of New Blount. In exchange for their equity investment in New Blount, members of
senior management of Blount are expected to own at least 1,000,000 shares or
approximately 3.3% of the New Blount common stock. To the extent they elect or
are subject to proration, members of senior management will also own additional
shares of New Blount common stock received by them upon conversion of their
previously owned shares of Blount common stock in the merger.
The structure of the merger is known as a "leveraged recapitalization."
Blount expects that New Blount will incur substantial indebtedness to pay the
cash consideration and the transaction costs and fees relating to the merger. It
is expected that New Blount will incur at least $725 million in long-term debt,
consisting of at least $400 million in senior secured indebtedness and
approximately $325 million in senior subordinated indebtedness. In addition,
Lehman Brothers Merchant Banking Partners and its affiliated co-investors will
make an equity cash contribution of $417.5 million to New Blount in connection
with the merger, less any equity investment in New Blount made by members of
senior management. As described below in greater detail under "-- Interests of
Some Persons in the Merger; Conflicts of Interest" on page 58, these members of
senior management will use some of the after tax proceeds from the cancellation
of their options as part of the merger to make this equity investment. We
estimate that the aggregate amount of the equity investment by senior management
will be approximately $15 million. However, this amount could be higher in
immaterial amounts depending whether the management members invest more than the
minimum required by their employment agreements.
If the merger is completed, Blount stockholders who receive only cash for
their Blount common stock and do not elect to receive any shares of New Blount
common stock will not have an equity interest in New Blount and will therefore
not share in the future earnings and potential growth of New Blount.
The merger requires the vote of the holders of a majority in voting power
of the outstanding shares of Blount common stock voting together as a single
class. As described elsewhere in this proxy statement-prospectus, the adoption
of the merger agreement is assured since The Blount Holding Company has entered
into a stockholder agreement with Red Dog Acquisition in which The Blount
Holding Company has agreed to vote its shares, which as of the record date
represent approximately 62% of the voting power of the outstanding shares of
Blount common stock, in favor of adopting the merger agreement.
REASONS FOR THE MERGER; RECOMMENDATION TO STOCKHOLDERS
The Merger
At its April 18 meeting, the board of directors, after evaluating the
merger and following presentations by its financial advisor and outside legal
counsel, determined that the merger is advisable and fair to, and in the best
interests of, the stockholders of Blount and recommended to Blount stockholders
that they adopt the merger agreement. Blount's directors proceeded to approve
unanimously the merger agreement and the transactions contemplated in the merger
agreement.
The board, in approving and declaring the advisability of the merger
agreement and recommending to Blount stockholders that they adopt the merger
agreement, consulted with Blount's legal and financial advisors and considered a
number of factors. The board
35
<PAGE> 43
considered the following material factors as supporting its recommendation in
favor of the merger:
- The presentations made by representatives of The Beacon Group at the
March 29 and April 18 board meetings as well as previous meetings and The
Beacon Group's oral opinion of April 18 (which was subsequently confirmed
in writing) that, as of the date of such opinion and based upon the
assumptions, and subject to the limitations and qualifications, reviewed
with the board, the consideration to be received by the holders of Blount
common stock pursuant to the merger is fair from a financial point of
view to such holders.
- Possible alternatives to the merger, including continuing to operate
Blount as it has in the recent past, a sale of any or all of Blount's
three business segments separately and a self tender by Blount for shares
of Blount common stock; the board determined not to pursue such
alternatives in light of its belief that the merger maximized stockholder
value and represented the best transaction reasonably available to
stockholders.
- The broad based search conducted by representatives of The Beacon Group
for potential acquirors at the request of the board as described above
under "Background of the Merger," the issuance by Blount of a press
release on March 31, 1999 stating that it was in advanced negotiations to
sell itself at a price of $31 per share and the fact that such search and
public announcement had not yielded any proposals which were more
attractive to Blount stockholders from a financial point of view than the
proposal of Lehman Brothers Merchant Banking Partners even after the
proposal was reduced to $30 per share cash consideration.
- The relationship of the merger consideration to the historical and recent
trading activity of shares of Blount common stock; the $30 per share
consideration to be received by Blount stockholders who receive cash for
their shares of Blount common stock representing:
- a premium of approximately 8% over the $27.69 per share closing price
for shares of Blount class A common stock on the New York Stock
Exchange on April 16, 1999, the last trading day before Blount
announced that it had entered into the merger agreement; and
- a premium of approximately 19% over the $25.13 per share average
closing price for shares of Blount class A common stock on the New York
Stock Exchange for the one hundred twenty days before March 31, 1999,
the day Blount announced that it was in advanced negotiations to sell
itself for $31 per share.
- The fact that the various business segments of Blount make a sale of the
whole of Blount to a strategic buyer less likely and the "conglomerate"
discount reflected in the $30 per share consideration relative to
premiums generally paid for non-diversified or "pure play" companies.
- The costs and risks of deferring a sale of Blount at this time in the
hope of achieving a higher price at a later date; information and the
reports of Blount's management regarding the financial condition, results
of operations, business and prospects of Blount and each of its three
business segments, including the current weakness in the market for
forestry products and the uncertainty as to when a turnaround in this
market might occur; and the board's belief, on the basis of its knowledge
of these matters and the financial analyses provided by representatives
of
36
<PAGE> 44
The Beacon Group, that the consideration to be received by Blount's
stockholders in the merger fairly reflects Blount's intrinsic value,
including its potential for future growth and the risks of not achieving
such growth.
- Regarding Lehman Brothers Merchant Banking Partners and the proposed
merger financing:
- the experience and past success of Lehman Brothers Merchant Banking
Partners in structuring and closing transactions similar to the merger;
- the amount of the equity investment to be made by Lehman Brothers
Merchant Banking Partners;
- the strength and favorable terms of the commitments for the merger
financing arranged by Lehman Brothers Merchant Banking Partners,
including commitments from Lehman Brothers Inc. and Lehman Commercial
Paper Inc. to provide $400 million of senior secured credit facilities,
$325 million of senior subordinated indebtedness and a $100 million
senior secured revolving credit facility, the conditions to the
obligations of such institutions to fund such financing arrangements
and the commitment in some circumstances to provide an interim loan if
the offering of senior subordinated notes has not been completed when
the other closing conditions to the merger have been satisfied;
- the lack of any obligations on the part of Blount to pay fees,
reimburse expenses or make indemnity payments to such financial
institutions if the merger does not occur; and
- an analysis of the solvency of New Blount after giving effect to the
merger; this analysis was based on a review of the proposed merger
financing and New Blount's pro forma consolidated financial statements,
financial projections, liabilities and business operations and
concluded that New Blount would have the ability to pay its debts and
liabilities as they become due.
- The merger agreement permits the board to negotiate and approve an
unsolicited third party takeover proposal submitted after April 18, 1999
if the board concludes in good faith that such proposal is a superior
proposal, subject to Blount paying Red Dog Acquisition a termination fee
of $34 million.
- Blount's controlling stockholder, Winton M. Blount, having indicated to
the board in his capacity as a stockholder that he found acceptable the
proposal of Lehman Brothers Merchants Banking Partners.
- The difficulties associated with addressing senior management succession
issues as well as the benefits of effecting an orderly transition of
control of Blount at this time in view of the age of Winton M. Blount,
Blount's controlling stockholder and Chairman of the board.
- The conditioning by Lehman Brothers Merchant Banking Partners of their
proposal upon The Blount Holding Company, a limited partnership
controlled by Winton M. Blount and which is the principal stockholder of
Blount, entering into the stockholder agreement and agreeing to vote in
favor of the adoption of the merger agreement; the agreement of The
Blount Holding Company to enter into such stockholder agreement if the
merger agreement was approved by the board; and the terms of the proposed
stockholder agreement, including the provision allowing The Blount
Holding Company to vote in favor of a superior proposal approved by the
37
<PAGE> 45
board in accordance with, and upon termination of, the merger agreement
as described above.
- All stockholders, including The Blount Holding Company, members of the
Blount family and the directors and executive officers of Blount, having
the same opportunity to elect to receive cash and/or shares of New Blount
common stock, subject to proration, on an equitable basis in the merger.
- Stockholders having the ability to achieve substantial liquidity if they
so desire with the consideration to be received by Blount stockholders in
the merger consisting, in the aggregate, of approximately 96% cash.
- The right of the stockholders of Blount to elect to receive cash or
2,966,666 shares of New Blount common stock in the aggregate, which right
the board believed would provide some flexibility to any of Blount's
stockholders who might desire to receive more New Blount common stock in
the merger than would automatically be received under a non-election
based formula; and the possibility for Blount's stockholders to receive
more cash for their shares than would be provided under a non-election
based formula if other stockholders ultimately elect to receive shares of
New Blount common stock.
- The undertaking of Red Dog Acquisition in the merger agreement not to
take any action for at least three years from the completion of the
merger to cause the listing of the New Blount common stock on the New
York Stock Exchange or the quotation for trading on the NASDAQ Stock
Market to be terminated, subject to the qualifications described under
"The Merger Agreement -- Stock Exchange Listing" on page 63.
The board also considered the following factors, none of which supported
the board's recommendation in favor of the merger:
- The possible conflicts of interest based on:
- some members of senior management of Blount holding an additional
equity interest in New Blount and participating to a greater extent
than other stockholders in any future growth of New Blount;
- the new employment agreements for six members of senior management
which would become effective upon completion of the merger;
- the stock options for New Blount common stock which would be granted to
some members of senior management upon completion of the merger;
- the agreement of Winton M. Blount to provide consulting services to New
Blount; and
- the release of The Blount Holding Company's obligation to indemnify
Blount for some matters relating to Blount's corporate reorganization
in 1995 after The Blount Holding Company deposited into escrow a
mutually agreed upon amount for the benefit of Blount.
See "-- Interests of Some Persons in the Merger; Conflicts of Interest" on
page 58.
- The requirement of the proposal of Lehman Brothers Merchant Banking
Partners that the merger be treated as a recapitalization for accounting
purposes and the increased uncertainty that the merger would not be
completed if this accounting treatment was not obtained.
38
<PAGE> 46
- The possible consequences of Lehman Brothers Merchant Banking Partners'
control of Blount upon completion of the merger, the substantial leverage
to be incurred by Blount in connection with the merger financing, the
potential dilution after the merger of the holdings of New Blount common
stock of existing stockholders arising from the issuance of stock
options, the fact that dividends are not expected to be paid by New
Blount, the risk that proration might result in stockholders not
receiving the type of consideration elected and the potential decrease in
the liquidity of the New Blount common stock as compared to the Blount
common stock. See "Risk Factors" on page 16 for a more detailed
discussion of these factors.
The board also considered the other terms and conditions of the merger
agreement, including the definition of material adverse effect; the fact that
Red Dog Acquisition's obligation to complete the merger is subject to the
receipt of financing and that the merger agreement contemplates the payment to
Red Dog Acquisition of a termination fee in certain circumstances; the costs and
risks of not completing the merger in light of such terms and conditions; and
the effect of the termination fee provision in increasing the costs to a third
party other than Red Dog Acquisition of acquiring Blount in the event the merger
did not occur for certain reasons, which amount would not, in the view of the
board, preclude a third party from making an offer that was more favorable to
Blount's stockholders. In view of the wide variety of factors considered in
connection with its evaluation of the merger, the board did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
individual factors considered in reaching its determination. Of primary
importance to the board was the opinion delivered by The Beacon Group to the
board on April 18, 1999, that, as of the date of its opinion, the consideration
to be received by holders of shares of Blount's class A common stock and class B
common stock is fair from a financial point of view to those holders.
FAIRNESS OPINION OF FINANCIAL ADVISOR
The Beacon Group acted as financial advisor to Blount in connection with
the merger. On March 29, 1999, representatives of The Beacon Group presented an
analysis to the board of directors of Blount concerning the fairness from a
financial point of view of the merger consideration proposed at that time by
Lehman Brothers Merchant Banking Partners. On April 18, 1999, The Beacon Group
rendered its oral opinion to the Blount board of directors to the effect that,
as of that date and based on and subject to the assumptions made, matters
considered and limits of the reviews undertaken by The Beacon Group described in
the Beacon Opinion, the consideration to be received by the holders of Blount
common stock, other than shares of Blount common stock held by Blount as
treasury stock or by Red Dog Acquisition and other than "dissenting shares" as
defined in the merger agreement, in accordance with the merger is fair from a
financial point of view to such holders. The Beacon Group subsequently confirmed
this opinion in writing and has consented to the inclusion of this opinion, its
summary and all references to the opinion and The Beacon Group in this proxy
statement-prospectus. This written opinion is referred to in this proxy
statement-prospectus as the "Beacon Opinion."
THE FULL TEXT OF THE BEACON OPINION IS INCLUDED IN THIS PROXY
STATEMENT-PROSPECTUS AS APPENDIX C. THE BEACON OPINION IS ADDRESSED TO THE BOARD
OF DIRECTORS OF BLOUNT FOR ITS INFORMATION CONCERNING THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE MERGER CONSIDERATION AND DOES NOT ADDRESS THE
MERITS OF THE UNDERLYING DECISION OF BLOUNT TO ENGAGE IN THE MERGER OR THE OTHER
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF SHARES OF BLOUNT COMMON STOCK AS TO HOW SUCH
HOLDER SHOULD RESPOND OR VOTE REGARDING THE MERGER AGREEMENT, WHETHER ANY
39
<PAGE> 47
STOCKHOLDER SHOULD ELECT TO RECEIVE CASH OR SHARES OF NEW BLOUNT COMMON STOCK IN
THE MERGER, THE TRADING PRICES OF SHARES OF NEW BLOUNT COMMON STOCK AFTER THE
MERGER IS COMPLETED OR ANY OTHER MATTER RELATING TO THE MERGER. YOU SHOULD READ
THE ENTIRE BEACON OPINION AS THIS SUMMARY IS NOT A COMPLETE DESCRIPTION. THE
BEACON OPINION SHOULD BE READ IN ITS ENTIRETY FOR SPECIFIC INFORMATION
CONCERNING THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
QUALIFICATIONS AND LIMITATIONS OF THE REVIEW UNDERTAKEN BY THE BEACON GROUP IN
CONNECTION WITH THE BEACON OPINION.
In connection with the Beacon Opinion, The Beacon Group reviewed, among
other things:
- the merger agreement;
- Annual Reports to stockholders and Annual Reports on Form 10-K of Blount
for the five years ended December 31, 1998;
- some interim reports to stockholders of Blount and Quarterly Reports on
Form 10-Q of Blount;
- some other communications from Blount to its stockholders;
- internal financial analyses and forecasts of Blount prepared by Blount's
management; and
- the potential pro forma impact of the merger on New Blount.
In addition, The Beacon Group held discussions with members of the senior
management of Blount regarding the past and current business, operations and
financial condition and future prospects of Blount, reviewed the reported price
and trading activity of the shares of Blount common stock, compared certain
financial and stock market information concerning Blount with similar
information for some other companies the securities of which are publicly
traded, reviewed the financial terms of some recent business combinations in
industries and markets The Beacon Group considered relevant and performed other
studies and analyses that The Beacon Group considered appropriate, including an
analysis of the pro forma capitalization of Blount after giving effect to the
merger and proposed financing arrangements related to the merger.
In preparing the Beacon Opinion, The Beacon Group assumed and relied
without independent verification on the accuracy and completeness of the
financial and other information reviewed by it for purposes of the Beacon
Opinion. Regarding the financial forecasts reviewed and discussed, The Beacon
Group assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Blount's management as to
the future financial performance of Blount. We refer to these financial
forecasts in this proxy statement-prospectus as the "Blount Management
Forecasts." The relevant projections in the Blount Management Forecasts,
including significant assumed cost savings, are included in "Information About
Blount -- Financial Projections" on page 24. The Beacon Group did not make an
independent evaluation or appraisal of the assets and liabilities of Blount or
any of its subsidiaries, and The Beacon Group was not furnished with any such
evaluation or appraisal. The Beacon Opinion is necessarily based on economic,
market, financial and other conditions as they existed on, and could be
evaluated as of, the date of the Beacon Opinion.
In evaluating the fairness of the merger consideration from a financial
point of view, The Beacon Group also reviewed with the Blount board of directors
the breadth of the process undertaken by The Beacon Group to identify parties
potentially interested in effecting a transaction with Blount. In rendering the
Beacon Opinion, The Beacon Group
40
<PAGE> 48
considered the fact that, after contacting 65 potentially interested parties and
the issuance by Blount of a press release stating that it was in advanced
negotiations to sell itself, no proposal was forthcoming that was more
attractive to Blount stockholders than the proposal of Lehman Brothers Merchant
Banking Partners.
The following is a summary of the material financial analyses used by The
Beacon Group in preparing the Beacon Opinion and presented by The Beacon Group
to the board of directors of Blount on March 29, 1999 and April 18, 1999.
This summary of the material financial analyses includes information
presented in tabular form. In order to understand fully the financial analyses
performed by The Beacon Group, the tables must be read together with the text of
each description. The tables alone do not constitute a complete description of
the financial analyses. Considering the data in the tables without considering
the full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of the financial analyses performed by The Beacon Group.
Implied Premium (Discount) Analysis. The Beacon Group reviewed the
historical trading prices for Blount class A common stock and performed an
implied premium (discount) analysis which was compared to the consideration in
the merger. The Beacon Group also performed an analysis of premiums paid in
selected acquisitions of manufacturing companies with transaction values between
$750 million and $1.5 billion from January 1, 1990 to March 24, 1999 which was
also compared to the consideration in the merger.
Comparable Public Company Analyses. The Beacon Group reviewed and compared
financial information and public market multiples for Blount to corresponding
financial information and public market multiples for selected publicly traded
diversified manufacturing companies and selected publicly traded companies in
the industries of Blount's primary business segments, which companies were in
each case considered by The Beacon Group to be reasonably comparable to Blount
for purposes of this analysis. The companies listed in the following table,
which are referred to in this proxy statement-prospectus as the "Comparable
Companies" are the companies that The Beacon Group used for this analysis.
<TABLE>
<S> <C>
COMPARABLE DIVERSIFIED MANUFACTURING COMPARABLE INDUSTRIAL AND POWER COMPANIES
COMPANIES
Cooper Industries Case Corporation
Crane Co. Caterpillar Inc.
Danaher Corporation Deere & Company
Dover Corporation New Holland N.V.
Scott Technologies, Inc. Rauma Corporation
Idex Corporation Terex Corporation
Ingersoll-Rand Co.
Pentair, Inc.
Regal-Beloit Corporation
</TABLE>
41
<PAGE> 49
<TABLE>
<S> <C>
COMPARABLE SPORTING GOODS COMPANIES COMPARABLE OUTDOOR PRODUCTS COMPANIES
Brunswick Corporation Alamo Group Inc.
Johnson Sporting Goods Briggs & Stratton Corporation
K2 Inc. Deere & Company
Rawlings Sporting Goods Kennametal Inc.
Sturm, Ruger & Company, Inc. The Black & Decker Corporation
The Toro Company
</TABLE>
Using publicly available information, The Beacon Group calculated and
analyzed, among other things:
- the Equity Value (as defined below) of the Comparable Companies and
Blount as a multiple of certain historical and projected financial
criteria, including net income and book value; and
- the Aggregate Value (as defined below) of the Comparable Companies and
Blount as a multiple of the latest twelve months', or "LTM," sales,
earnings before interest, taxes, depreciation and amortization, or
"EBITDA," and earnings before interest and taxes, or "EBIT."
The "Equity Value" of each company was calculated by multiplying the number
of shares of common stock outstanding for each company by the closing market
price of the company's shares of stock on April 15, 1999, adjusted to include
the impact, if any, of outstanding options. The "Aggregate Value" of each
company was calculated by adding the Equity Value of the company to the Net Debt
(as defined below). The "Net Debt" of each company was calculated by adding the
book value of the company's debt, preferred stock and minority interest and
subtracting cash and cash equivalents. The estimated net income data for Blount
and for each Comparable Company was based on information obtained from
Institutional Brokers Estimate System.
The following table sets forth information concerning the overall ranges of
Equity Value as a multiple of net income and book value and the overall ranges
of Aggregate Value as a multiple of sales, EBITDA and EBIT for all the
Comparable Companies and the multiples of the same financial metrics for Blount
based on the $27.88 per share closing price of the Blount class A common stock
as of April 15, 1999:
<TABLE>
<CAPTION>
EQUITY VALUE
AS A MULTIPLE OF:
---------------------------- AGGREGATE VALUE
NET INCOME AS A MULTIPLE OF LTM:
-------------------- BOOK ---------------------
LTM 1999E 2000E VALUE SALES EBITDA EBIT
---- ----- ----- ----- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF APRIL 15, 1999
OVERALL COMPARABLE COMPANIES MULTIPLES
Mean............................ 15.8x 15.1x 12.7x 2.75x 1.09x 8.1x 11.1x
Median.......................... 14.0 14.3 14.3 1.99 0.90 8.0 11.0
High............................ 43.1 45.0 32.5 8.85 3.27 20.0 26.0
Low............................. 7.1 6.3 5.6 0.50 0.35 3.0 3.7
Blount Trading Multiples........ 16.9x 15.9x 13.9x 3.03x 1.43x 8.3x 10.5x
</TABLE>
The Equity Value as a multiple of estimated net income for 2000 was not
available for three of the Comparable Companies.
42
<PAGE> 50
The Beacon Group calculated implied equity per share values for Blount
common stock by applying:
- Aggregate Value to LTM EBITDA multiples ranging from 5.7x to 9.1x,
- Aggregate Value to LTM EBIT multiples ranging from 7.4x to 11.4x,
- Equity Value to LTM net income multiples ranging from 12.5x to 18.7x and
- Equity Value to 1999 estimated net income multiples ranging from 9.7x to
15.1x, which in each case were derived from the preceding analyses, to the LTM
EBITDA, LTM EBIT, LTM net income and estimated 1999 net income obtained from
Institutional Brokers Estimate System, respectively, for Blount.
The following table presents the ranges of implied equity per share values
for Blount common stock implied by these analyses compared with the $30 per
share merger consideration:
<TABLE>
<CAPTION>
IMPLIED EQUITY PER
SHARE VALUE OF
BLOUNT
COMMON STOCK
------------------
SELECTED COMPARABLE COMPANIES MULTIPLE RANGES APPLIED TO: LOW HIGH
- --------------------------------------------------------- ------- -------
<S> <C> <C>
Blount LTM EBITDA.................................. $18.92 $30.84
Blount LTM EBIT.................................... $19.34 $30.36
Blount LTM Net Income.............................. $20.60 $30.82
Blount Estimated 1999 Net Income................... $16.98 $26.43
Per Share Merger Consideration..................... $30.00
</TABLE>
Comparable Merger and Acquisition Transaction Analyses. Using publicly
available information, The Beacon Group reviewed and analyzed selected merger
and acquisition transactions involving other companies in the industrial and
power equipment industry, sporting goods industry, firearms and ammunition
industry and outdoor products industry, which we refer to in this proxy
statement-prospectus as the "Comparable M&A Transactions," and derived certain
financial ratios which it compared with like financial ratios for the merger.
Because of the diversified nature of Blount's three business segments, there
were no reasonably comparable transactions for the sale of Blount as a whole;
therefore, The Beacon Group undertook separate analyses for Blount's three
business segments, including, for purposes of Blount's sporting goods segment,
separate analyses of Comparable M&A Transactions in the sporting goods industry
and the firearms and ammunition industry. In reviewing and presenting this data,
The Beacon Group noted that the merger and acquisition transaction environment
varies over time because of macroeconomic factors, including interest rate and
equity market fluctuations, and microeconomic factors, including industry
results and growth expectations, that no transaction reviewed was identical to
the merger, and that, accordingly, an assessment of the results of the
Comparable M&A Transactions analysis necessarily involves considerations and
judgments concerning differences in financial and operating characteristics of
Blount and other factors that would affect the acquisition value of the
companies to which Blount was being compared. The Comparable M&A Transactions
for the industrial and power equipment industry, the sporting goods industry,
the firearms and ammunition industry and the outdoor products industry are from
the periods of 1992 to 1998, 1988 to 1998, 1987 to 1997 and 1990 to 1999,
respectively.
43
<PAGE> 51
The Comparable M&A Transactions consisted of the following:
INDUSTRIAL AND POWER EQUIPMENT INDUSTRY
<TABLE>
<CAPTION>
ACQUIROR ACQUIRED COMPANY
- -------- ----------------
<S> <C>
Manitowoc Co. Inc. ...................... USTC Inc.
Keystone Inc. ........................... Grove Worldwide
J Richard Industries..................... Portec Inc.
Gehl Co. ................................ Mustang Manufacturing
Terex Corp. ............................. Simon Engineering's Simon Access
Division
FKI PLC.................................. Amdura Corp
Ingersoll-Rand Co. ...................... Clark Equipment Co.
Simon-Telelect........................... Hi-Ranger Inc.
</TABLE>
SPORTING GOODS INDUSTRY
<TABLE>
<CAPTION>
ACQUIROR ACQUIRED COMPANY
- -------- ----------------
<S> <C>
Cornerstone Equity Investors............. True Temper Sports
JEN Sports............................... Escalade Inc.
Sunbeam Corp. ........................... The Coleman Co. Inc.
Teardrop Golf Co. ....................... Tommy Armour Gold Co.
The Hedstrom Corporation................. NBF Inc.
Callaway Golf Co. ....................... Odyssey Sports Inc.
Action Performance Cos. Inc. ............ Sports Image Inc.
Kohlberg Kravis Roberts.................. Spalding & Evenflo
Brunswick Corp. ......................... Nelson Weather Rite
Blount International, Inc. .............. Simmons Outdoor Corp.
American Brands, Inc. ................... Cobra Golf Inc. II
Worldwide Sports & Recreation Inc. ...... Bausch & Lomb's Sports Optics Divisions
Investor Group........................... Rawlings Sporting Goods
MacAndrews & Forbes Holdings............. The Coleman Co. Inc.
American Group Limited................... Wilson Sporting Goods Co.
Cosmo World Corp. ....................... The Ben Hogan Company
</TABLE>
44
<PAGE> 52
FIREARMS AND AMMUNITION INDUSTRY
<TABLE>
<CAPTION>
ACQUIROR ACQUIRED COMPANY
- -------- ----------------
<S> <C>
Blount International, Inc. .............. Federal Cartridge Company
Fleet Equity Partners Investor Group..... Savage Industries
Clayton, Dubilier & Rice Investor
Group.................................. Remington Arms Co.
Zilkha & Co. Investor Group.............. Colt's Manufacturing Co., Inc.
Alliant Techsystems, Inc. ............... Astra UPC Corp.
State of Connecticut and Management
Investor Group......................... Colt's Firearms Division
New Haven Arms Co. ...................... U.S. Repeating Arms Co.
Tomkins plc.............................. Smith & Wesson
</TABLE>
OUTDOOR PRODUCTS INDUSTRY
<TABLE>
<CAPTION>
ACQUIROR ACQUIRED COMPANY
- -------- ----------------
<S> <C>
U.S. Industries, Inc. ............... True Temper Hardware
Woods Equipment Company.............. Alamo Group Inc.
Toro Co. ............................ Exmark Manufacturing Co.
Fiskars Oy AB........................ Alterra Holdings Corporation
Blount International, Inc. .......... Frederick Manufacturing Corp. & Orbex
Co.
Deere & Co. ......................... Textron Inc-Homelite Division
Barefoot Grass Lawn Svc.............. Ever-Green Lawns Corp.
Furukawa Co., Ltd. .................. Gougler Industries Inc.
Blount International, Inc. .......... Dixon Industries, Inc.
</TABLE>
Regarding the Comparable M&A Transactions and the merger, The Beacon Group,
among other things, compared:
- the Equity Consideration Value (as defined below) of the acquired
companies and Blount as a multiple of LTM net income and book value; and
- the Aggregate Consideration Value (as defined below) of the acquired
companies and Blount as a multiple of the LTM sales, EBITDA, EBIT and net
book capital.
The "Equity Consideration Value" of each acquired company and Blount was
calculated by multiplying the number of shares of common stock outstanding for
each company by the aggregate consideration payable per share of common stock in
each Comparable M&A Transaction and in the merger, adjusted to include the
impact, if any, of outstanding options. The "Aggregate Consideration Value" of
each acquired company and Blount was calculated by adding the Equity
Consideration Value of each company to the company's Net Debt.
The following table presents the overall ranges of the Equity Consideration
Value as a multiple of net income and book value and the overall ranges of
Aggregate Consideration Value as a multiple of sales, EBITDA, EBIT and net book
capital for all the Comparable
45
<PAGE> 53
M&A Transactions and the multiples of the same financial metrics for Blount
based on the $30 per share merger consideration.
<TABLE>
<CAPTION>
EQUITY CONSIDERATION AGGREGATE CONSIDERATION
AS A MULTIPLE OF LTM: AS A MULTIPLE OF LTM:
---------------------- ---------------------------------
OVERALL COMPARABLE M&A NET NET BOOK
TRANSACTION MULTIPLES INCOME BOOK VALUE SALES EBITDA EBIT CAPITAL
- ---------------------- ------- ----------- ----- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
Mean........................ 19.4x 2.12x 0.96x 8.8x 10.8x 2.25x
Median...................... 16.6 1.84 0.89 8.6 10.8 1.68
High........................ 39.7 6.66 3.70 15.0 19.6 6.66
Low......................... 10.6 1.18 0.28 5.7 5.0 1.12
Blount Merger Consideration
Multiples................. 18.2x 3.28x 1.54x 8.9x 11.3x 2.72x
</TABLE>
The Equity Consideration Value as a multiple of LTM net income and book
value was not available for 22 of the Comparable M&A Transactions. Aggregate
Consideration Value as a multiple of LTM sales, EBITDA, EBIT and net book
capital was not available for three, 23, 19 and 24, respectively, of the
Comparable M&A Transactions.
The Beacon Group calculated implied equity per share values for Blount
common stock by applying:
- the Aggregate Consideration Value to LTM EBITDA multiples ranging from
6.0x to 9.0x,
- the Aggregate Consideration Value to LTM EBIT multiples ranging from 8.0x
to 11.0x and
- the Equity Consideration Value to LTM net income multiples ranging from
13.3x to 19.4x, which in each case were derived from the preceding
analyses, to the LTM EBITDA, LTM EBIT and LTM net income, respectively,
for Blount.
The following table presents the range of implied equity per share values
for Blount common stock implied by these analyses compared with the $30 per
share merger consideration:
<TABLE>
<CAPTION>
IMPLIED EQUITY PER
SHARE VALUE OF
BLOUNT COMMON
STOCK
------------------
SELECTED M&A TRANSACTION MULTIPLES APPLIED TO: LOW HIGH
- ---------------------------------------------- ------ ------
<S> <C> <C>
Blount LTM EBITDA........................... $19.97 $30.48
Blount LTM EBIT............................. $20.99 $29.25
Blount LTM Net Income....................... $21.92 $31.97
Per Share Merger Consideration.............. $30.00
</TABLE>
Discounted Cash Flow Analysis. The Beacon Group performed a discounted
cash flow analysis of the projected unlevered free cash flows of Blount, which
is defined as cash flow available after changes in working capital, capital
spending and tax obligations for the period 1999 through 2003. This analysis
determines the potential value of Blount at the end of 2003 based on a multiple
of projected 2003 EBITDA (a terminal multiple) discounted to the present and the
present value of the unlevered free cash flows of Blount
46
<PAGE> 54
for the period 1999 through 2003. The Beacon Group based this analysis on the
Blount Management Forecasts, without any discounts or adjustments to such
forecasts, and a range of discount rates and terminal values to determine the
theoretical present value of the entire company.
Applying discount rates ranging from 11.5% to 15.5% and terminal value
multiples of estimated Blount EBITDA in 2003 ranging from 6.0x to 8.0x, The
Beacon Group calculated the theoretical implied equity per share value of Blount
common stock to range from $28.43 to $41.79 per share of Blount common stock.
The Beacon Group arrived at these discount rates based on its judgment of
various factors, including analysis of the estimated cost of capital and capital
structures of selected reasonably comparable public companies, and arrived at
these terminal multiples based on its review of the trading characteristics of
the common stock of selected reasonably comparable public companies and of
reasonably comparable acquisitions of selected companies.
The Beacon Group noted that a discounted cash flow analysis was generally
of more significance to a strategic buyer than a financial buyer such as Lehman
Brothers Merchant Banking Partners or the other alternative acquiror of Blount.
The Beacon Group also noted the significant degree of dependency of the
discounted cash flow analysis on the estimated terminal value and therefore on
the estimated Blount EBITDA for 2003.
Leveraged Recapitalization Analysis. The Beacon Group performed a
leveraged recapitalization analysis to determine the potential implied equity
value per share of Blount common stock that might be achieved in an acquisition
of Blount in a leveraged recapitalization transaction based on current market
conditions. In conducting this analysis, The Beacon Group utilized the Blount
Management Forecasts, without any discounts or adjustments to such forecasts,
and assumed that merger financing could be obtained in the high yield and bank
finance markets in an amount not in excess of 5.75x the LTM EBITDA and that a
minimum internal rate of return ranging from 25% to 30% on equity invested
during a five year period would be required by the acquiror. This analysis
resulted in an estimated implied equity value per share of Blount common stock
on a leveraged recapitalization basis of approximately $30.00 to $32.00 per
share. However, The Beacon Group pointed out the dependency of key financing
assumptions on LTM EBITDA and the impact of the weakness of Blount's first
quarter EBITDA on potential returns on equity and therefore on implied equity
value per share. The Beacon Group performed an analysis of the theoretical
internal rates of return to Lehman Brothers Merchant Banking Partners based on
the Blount Management Forecasts, without any discounts or adjustments to such
forecasts, and the proposed capital structure provided by Lehman Brothers
Merchant Banking Partners for New Blount after giving effect to the merger.
Employing a range of multiples of 7.0x to 8.5x to projected 2003 EBITDA, based
on the assumption that Lehman Brothers Merchant Banking Partners would divest
its investment in New Blount at the end of 2003, yielded implied internal rates
of return of 24.9% to 31.3% to Lehman Brothers Merchant Banking Partners based
on the $30 per share merger consideration. The Beacon Group determined the range
of applicable multiples based on its review of the Comparable Companies and the
Comparable M&A Transactions.
Implied Business Segment Analysis. The Beacon Group performed an analysis
of the implied equity value per share of Blount common stock based on separate
valuations of each of Blount's three business segments. This analysis consisted
of determining implied pre-tax asset values for each of the business segments
based on 1998 EBITDA for each of the segments and relevant multiples of EBITDA
for each of the segments selected on the basis of multiples applicable to the
Comparable M&A Transactions and the Comparable
47
<PAGE> 55
Companies and indications of interest regarding particular business segments
received in the process of soliciting business combination proposals for Blount.
The implied pre-tax net asset values for each of the business segments at the
selected EBITDA multiples were then calculated by adjusting the aggregate of the
implied pre-tax asset values for the three business segments by subtracting
estimated capitalized amounts for corporate expense and by adding estimated
amounts for corporate assets. The amount of Blount's Net Debt as of December 31,
1998 was then subtracted from these implied pre-tax net asset values to
determine implied equity values for Blount, which when divided by the number of
shares outstanding (adjusted for outstanding options) yielded implied equity
values per share. Implied after-tax equity values per share of Blount common
stock arising from the separate sales of the three business segments, after
corporate-level tax effects, were similarly analyzed on the same basis using
estimated tax basis and tax rate information supplied by Blount management.
The following table presents the ranges of implied equity per share values
for Blount common stock implied by these analyses compared with the $30 per
share merger consideration:
<TABLE>
<CAPTION>
IMPLIED EQUITY PER
SHARE VALUE
OF BLOUNT
COMMON STOCK
------------------
IMPLIED BUSINESS SEGMENT ANALYSIS LOW HIGH
- --------------------------------- ------- -------
<S> <C> <C>
Implied Pre-Tax Value of Blount Business
Segments................................... $25.56 $32.55
Implied After-Tax Value of Blount Business
Segments................................... $19.83 $22.99
Per Share Merger Consideration............... $30.00
</TABLE>
The information above is a brief summary of the material financial analyses
presented by The Beacon Group to the board of directors of Blount on March 29,
1999 and April 18, 1999. This summary does not purport to be a complete
description of the analyses performed by The Beacon Group in connection with the
rendering of the Beacon Opinion. The preparation of a fairness opinion is a
complex analytical process involving various qualitative judgments as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to particular circumstances and is not susceptible to partial
analysis or summary description. The Beacon Group believes that its analyses
must be considered as a whole and that selecting portions of its analyses,
without considering all factors and analyses, would create an incomplete view of
the process underlying the Beacon Opinion. In addition, The Beacon Group
considered the significance and relevance of the results of every portion of its
analyses and did not assign relative weights to any portion of its analyses, so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be The Beacon Group's view of the actual value of
Blount.
In performing its analyses, The Beacon Group made numerous assumptions
regarding industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Blount. The analyses
performed by The Beacon Group are not necessarily indicative of actual values,
trading values or actual future results that might be achieved, all of which may
be significantly more or less favorable than suggested by such analyses. No
public company utilized as a comparison is identical or directly
48
<PAGE> 56
comparable to Blount, and none of the Comparable M&A Transactions or other
business combinations utilized as a comparison is identical or directly
comparable to the merger and other transactions contemplated by the merger
agreement. Accordingly, a purely mathematical analysis of publicly traded
comparable companies and comparable business combinations resulting from the
Comparable Companies and Comparable M&A Transactions analyses is not a
meaningful method of using the relevant data; rather, these analyses involve
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the transaction or
the public trading or other values of the companies to which they are being
compared.
In connection with its analyses, The Beacon Group utilized estimates and
forecasts of future operating results provided by the management of Blount,
including the Blount Management Forecasts. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by the analyses.
Because the analyses are inherently subject to uncertainty, being based on
numerous factors or events beyond the control of Blount, neither The Beacon
Group nor Blount assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions. The analyses were
prepared solely as part of The Beacon Group's analysis of the fairness from a
financial point of view of the consideration to be received by the holders of
Blount common stock (other than shares of Blount common stock held by Blount as
treasury stock or by Red Dog Acquisition and other than "dissenting shares" as
defined in the merger agreement) in accordance with the merger, and were
provided to the Blount board of directors in connection with the delivery of the
Beacon Opinion. The Beacon Group's analyses do not purport to be an appraisal or
to reflect the prices at which a company might actually be sold or the prices at
which any securities may be traded in the future. In addition, the Beacon
Opinion was one of many factors taken into consideration by the Blount board of
directors in making its determination to approve the merger agreement.
Consequently, the analyses described above should not be viewed as determinative
of the opinion of either the board of directors or management of Blount
regarding the value of Blount or whether either the board of directors or
management of Blount would have been willing to agree to different terms for the
merger.
Fee Arrangements. In accordance with a letter agreement dated September
25, 1998, Blount paid The Beacon Group a non-refundable retainer of $100,000. In
addition, in accordance with an engagement letter agreement dated October 28,
1998, Blount has agreed to pay The Beacon Group total compensation in an amount
equal to 0.550% of the merger consideration, or $6,400,000, including the
non-refundable retainer, if the merger is completed during the term of The
Beacon Group's engagement, or, in some circumstances, if a similar transaction
is completed with another party. Blount has also agreed to reimburse The Beacon
Group for its reasonable out-of-pocket expenses (estimated to be approximately
$150,000), including travel and assorted other expenses, and to indemnify The
Beacon Group and some related persons against some liabilities in connection
with their engagement, including liabilities under the federal securities laws.
The Blount board of directors retained The Beacon Group on the basis of its
experience and expertise. As part of its strategic advisory business, The Beacon
Group engages in the valuation of businesses and their securities in connection
with mergers and acquisitions, financings, private placements, principal
investments and other purposes. The Beacon Group participated in some of the
negotiations relating to the merger agreement and related transactions. R.
Eugene Cartledge, who is a member of the Blount board and the executive
committee of the board, is also the Chairman of the board of directors of a
49
<PAGE> 57
company controlled by an affiliate of The Beacon Group. Other than his regular
compensation as a Blount director and board Chairman of the affiliate of The
Beacon Group, Mr. Cartledge has not received and is not entitled to receive any
compensation as a result of this relationship.
MERGER CONSIDERATION
Except for shares owned by stockholders who do not vote in favor of or
consent to the merger and who are entitled to demand appraisal rights (the
"dissenting shares") and shares owned by Blount and Red Dog Acquisition, and
subject to proration, each issued and outstanding share of Blount Class A common
stock and Blount Class B common stock will be converted into the right to
receive:
- $30 in cash, or
- where an election has been made and not withdrawn, two fully paid and
non-assessable shares of New Blount common stock.
Blount stockholders will be entitled to receive a total of 2,966,666 shares
of common stock of New Blount in the merger, which will represent approximately
9.6% of the total outstanding shares of common stock of New Blount after the
merger. If Blount stockholders elect to receive, in the aggregate, less than
2,966,666 shares, the amount of shares equal to the difference between 2,966,666
and the number of shares elected to be received will be allocated pro rata among
all stockholders based on the number of shares for which an election to receive
shares was not made. If Blount stockholders elect to receive, in the aggregate,
more than 2,966,666 shares, then the 2,966,666 shares will be allocated pro rata
among all Blount stockholders who have elected to receive shares based on the
number of shares each stockholder has elected to receive. See "Risk
Factors -- As a Result of Proration, You May Not Receive the Type of
Consideration You Want and Cash Payments Could Be Treated As Dividends Instead
of Capital Gains" on page 18.
The following examples illustrate the potential effects of the proration
described above.
- Example A. Holder A owns 100 shares and does not elect to receive any
shares.
If other stockholders elect to receive 2,966,666 or more shares in the
aggregate, then Holder A will be entitled to receive $3,000 in cash, or $30 for
each of his or her 100 shares.
If other stockholders elect to receive fewer than 2,966,666 shares in the
aggregate, then Holder A will not receive only cash for his or her 100 shares
and will be required to receive some shares of New Blount common stock. In this
case, each stockholder will be required to retain a small number of shares in
order to increase the number of shares of New Blount common stock to 2,966,666.
However, even in the case where no stockholder elects to receive shares of New
Blount common stock, Holder A will still be assured of receiving at least $2,880
in cash (96 shares at $30 per share) and will be entitled to receive eight
shares of New Blount common stock.
- Example B. Holder B owns 100 shares and elects to receive 200 New Blount
shares.
If the stockholders, including Holder B, elect to receive more than
2,966,666 shares in the aggregate, the number of shares of New Blount common
stock received by stockholders must be reduced to 2,966,666 and Holder B will
not receive only shares of New Blount common stock and will be required to
receive some cash. For example, if
50
<PAGE> 58
stockholders elected to receive 3,371,211 shares in the aggregate, each holder
electing to receive shares, including Holder B, would receive only 88%
(2,966,666 divided by 3,371,211) of the shares he or she elected to receive in
order to reduce the number of issued shares to 2,966,666. Therefore, Holder B
would receive only 176 shares (only 88% of his 100 shares would be converted
into the right to receive New Blount common stock) and would be entitled to
receive $360 in cash (12 shares at $30 per share). If all stockholders elect to
receive shares and no cash, Holder B would receive only eight shares of New
Blount common stock (only 4% of his or her 100 shares would be converted into
the right to receive New Blount common stock) and would be entitled to receive
$2,880 in cash.
If the stockholders, including Holder B, elect to receive fewer than
2,966,666 shares of New Blount common stock in the aggregate, all 100 of Holder
B's shares of Blount common stock will be converted into the right to receive
200 shares of New Blount common stock in the merger.
- Example C. Holder C owns 100 shares and elects to receive 100 New Blount
shares and convert 50 Blount shares into the right to receive cash.
In the unlikely event that stockholders, including Holder C, elect to
receive exactly 2,966,666 shares in the aggregate, Holder C will receive 100
shares of New Blount common stock and will be entitled to receive $1,500 in cash
(50 Blount shares at $30 per share).
If the stockholders, including Holder C, elect to receive more than
2,966,666 shares in the aggregate, then Holder C will not receive all 100 shares
of New Blount common stock. For example, if stockholders elected to receive
3,371,211 shares in the aggregate, each holder, including Holder C, would
receive only 88% (2,966,666 divided by 3,371,211) of the shares he or she
elected to receive in order to reduce the number of received shares to
2,966,666. Therefore, Holder C would receive only 88 shares (only 88% of his or
her 50 shares would be converted into the right to receive New Blount common
stock) and would be entitled to receive $1,680 in cash (56 shares at $30 per
share). If the stockholders, including Holder C, elected to receive more than
3,371,211 shares in the aggregate, Holder C would receive fewer shares than in
the example above, but would receive a proportionately greater amount of cash.
If the stockholders, including Holder C, elect to receive fewer than
2,966,666 shares in the aggregate, Holder C would be required to receive more
than 100 shares of New Blount common stock. For example, if stockholders elected
to receive 1,086,396 shares, all stockholders must collectively receive an
additional 1,880,270 shares in order to reach the 2,966,666 share threshold. In
this example, Holder C would be required to convert an additional share of
Blount common stock (for a total of 51 shares) into the right to receive 102
shares of New Blount common stock and would be entitled to receive $1,470 in
cash (49 shares at $30 per share). The additional share is calculated by
multiplying the 50 shares Holder C wants to convert to cash by a fraction, the
numerator of which is 940,135 (1,880,270 divided by two) and the denominator of
which is the total number of outstanding shares less the number of shares for
which elections to receive shares have been made. If the stockholders elected to
receive fewer than 1,086,396 shares than in the example above, Holder C would
receive more shares than in the example above, but would receive proportionately
less cash.
51
<PAGE> 59
The following chart illustrates the results of the proration under basic
circumstances.
<TABLE>
<CAPTION>
WHAT STOCKHOLDER IS ENTITLED TO WHAT STOCKHOLDER IS ENTITLED TO
RECEIVE IF OTHER STOCKHOLDERS RECEIVE IF OTHER STOCKHOLDERS
STOCKHOLDER'S ELECTION WITH ELECT TO RECEIVE 2,966,666 OR ELECT TO RECEIVE LESS THAN
RESPECT TO 100 SHARES OF BLOUNT MORE SHARES OF NEW BLOUNT 2,966,666 SHARES OF NEW BLOUNT
COMMON STOCK COMMON STOCK COMMON STOCK
- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
- - All cash ($3,000) - All cash ($3,000) - No more than eight shares of
New Blount common stock and
no less than $2,880 in cash
- - All shares (200 shares of New - At least eight shares of New - All shares (200 shares of New
Blount common stock) Blount common stock and no Blount common stock)
more than $2,880 in cash
- - Half cash and half shares - If all stockholders elect to - No more than 102 shares of
($1,500 and 100 shares of New receive exactly 2,966,666 New Blount common stock and
Blount common stock) shares of New Blount common no less than $1,470 in cash
stock, half cash and half
shares ($1,500 and 100
shares)
Otherwise, at least two
shares of New Blount common
stock and no more than $2,970
in cash
</TABLE>
Fractional shares of New Blount common stock will not be issued in the
merger. Holders otherwise entitled to a fractional share of New Blount common
stock will be paid cash instead of a fractional share. For more information
regarding the treatment of fractional shares, see "-- Fractional Shares" on page
53.
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of shares of Blount common stock into the right to receive
cash or the right to receive shares of New Blount common stock will occur at the
completion of the merger.
Blount has mailed a form for making a non-cash election with this proxy
statement-prospectus to stockholders of record of Blount common stock. If you do
not wish to receive shares of New Blount common stock in the merger, you should
not submit the form of non-cash election, although this will not guarantee that
you will not receive shares. See "The Merger -- Merger Consideration" on page
50.
For a form of non-cash election to be effective, you must first properly
complete the form of non-cash election. After completion, you should send the
form, together with share certificates for the shares of Blount common stock for
which you have elected to receive shares of New Blount common stock, to
BankBoston, N.A., Blount's exchange agent at the following address: if by mail,
P.O. Box 9573, Boston, MA 02266-9573, attention: Corporate Actions or, if by
delivery, 100 Williams St. Galleria, New York, NY 10038 Attention: Securities
Transfer and Reporting Services, Inc. c/o Equiserve, or, if by overnight
courier, 40 Campanelli Drive, Braintree, MA 02184, Attention: Corporate Actions,
or, if by facsimile, (781) 575-4826. BankBoston, N.A. must receive the completed
form of non-
52
<PAGE> 60
cash election and share certificates by 5:00 p.m., Eastern time, on August 11,
1999, the fifth business day preceding the date of the special meeting. Please
remember to endorse the Blount common stock certificates in blank or otherwise
in a form that is acceptable for transfer on the books of Blount or by
appropriate guarantee of delivery as described in the form of non-cash election.
Once you surrender your outstanding certificates representing shares of
Blount common stock to the exchange agent (and the exchange agent accepts those
certificates), you will be entitled to receive the cash merger consideration,
certificates representing the number of full shares of New Blount common stock
and cash in lieu of fractional shares into which the shares formerly represented
by your Blount share certificates have been converted in accordance with the
merger agreement. You will receive this consideration as soon as reasonably
practicable after the completion of the merger. The exchange agent will accept
your certificates upon compliance with such reasonable terms and conditions as
the exchange agent may impose to effect an orderly exchange in accordance with
normal exchange practices. After the completion of the merger, there will be no
further transfer on the records of New Blount or its transfer agent of
certificates representing shares of Blount common stock which have been
converted in accordance with the merger. If such certificates are presented to
New Blount for transfer, they will be canceled against delivery of cash, and if
appropriate, certificates for shares of New Blount common stock. Until
surrendered as contemplated by the merger agreement, each certificate
representing shares of Blount common stock issued and outstanding as of the
completion of the merger will be considered at any time after the completion of
the merger to represent only the right to receive upon surrender the
consideration contemplated by the merger agreement. No interest will be paid or
will accrue on any cash payable as consideration in the merger or in lieu of any
fractional shares of New Blount common stock.
No dividends or other distributions on New Blount common stock that may be
issued in connection with the merger with a record date after the completion of
the merger will be paid to the holder of any unsurrendered certificate. No cash
payment in lieu of fractional shares will be paid to any such holder in
accordance with the merger agreement until the surrender of such certificate in
accordance with the merger agreement. Subject to the effect of applicable laws,
following surrender of any certificate, there will be paid to the holder of any
new certificate representing whole shares of New Blount common stock issued in
connection with such surrendered certificates without interest:
- at the time of such surrender, the amount of any cash payable in
lieu of a fractional share of New Blount common stock to which such holder
is entitled in accordance with the merger agreement and the proportionate
amount of dividends or other distributions, if any, with a record date
after the completion of the merger previously paid regarding whole shares
of New Blount common stock, and
- at the appropriate payment date, the proportionate amount of
dividends or other distributions, if any, with a record date after the
completion of the merger but prior to such surrender and a payment date
subsequent to such surrender payable regarding such whole shares of New
Blount common stock.
FRACTIONAL SHARES
New Blount will not issue certificates or scrip representing fractional
shares of New Blount common stock in connection with the merger. Any fractional
interests will not entitle the owner of these interests to vote or to have any
other rights of a stockholder of New Blount after the merger. Each Blount
stockholder who would otherwise be entitled to
53
<PAGE> 61
receive a fraction of a share of New Blount common stock will be entitled to
receive, in lieu of a fractional share, a cash payment, without interest, in an
amount equal to the product of the fraction multiplied by $30.
GOVERNMENTAL AND REGULATORY APPROVAL
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or "HSR
Act," and the rules of the Federal Trade Commission, or "FTC," the merger may
not be completed until notification has been given and certain information has
been furnished to the FTC and the Antitrust Division of the Department of
Justice and specified waiting period requirements have been satisfied. Blount
and Red Dog Acquisition filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on May 6, 1999 and the specified waiting
period expired on June 5, 1999. At any time before or, in limited circumstances,
after completion of the merger, the Antitrust Division, the FTC or state
attorneys' general could take such action under the antitrust laws as they
consider to be necessary or desirable in the public interest, including seeking
to enjoin the completion of the merger. Private parties may also seek to take
legal action under the antitrust laws in limited circumstances.
Based on the information available to them, Blount and Red Dog Acquisition
believe that the merger can be effected in compliance with federal and state
antitrust laws. However, there can be no assurance that a challenge to the
completion of the merger on antitrust grounds will not be made or that, if a
challenge were made, Blount and Red Dog Acquisition would prevail or would not
be required to accept certain conditions, including the divestitures of certain
assets, in order to complete the merger.
APPRAISAL RIGHTS UNDER THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Blount stockholders have the right under Delaware law to demand that the
Delaware Court of Chancery appraise the fair value of their shares and to
receive payment in cash for the appraised value instead of $30 or two shares of
New Blount common stock pursuant to the merger. Section 262 of the General
Corporation Law of the State of Delaware, or "DGCL," governs appraisal rights.
The full text of this section is reprinted as Appendix D to this proxy
statement-prospectus. Because the description contained in this section is a
summary, it does not contain all the information that may be important to you
due to your particular circumstances. You should read carefully the entire
Appendix D.
All references in Section 262 and in this summary to a "stockholder" are to
the record holder of the shares of Blount common stock immediately prior to the
completion of the merger as to which appraisal rights are asserted. A person
having a beneficial interest in shares of Blount common stock held of record in
the name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect appraisal rights.
Under Section 262 of the DGCL, holders of shares of Blount common stock who
make a written demand for appraisal prior to the vote on the merger agreement at
the special meeting, who do not vote in favor of the adoption of the merger
agreement and who satisfy the other requirements under Section 262 of the DGCL
will have the right to have their shares of Blount common stock appraised by the
Delaware Court of Chancery and to receive payment for the fair value of such
shares.
Under Section 262, Blount must notify each of the holders of shares of
Blount common stock 20 days before the special meeting that appraisal rights are
available. This proxy statement-prospectus constitutes the notice concerning
those appraisal rights. Any
54
<PAGE> 62
stockholder who wants to exercise his or her appraisal rights should review the
following discussion and Appendix D carefully because his or her rights will be
forfeited under the DGCL if the procedures outlined below and in the DGCL are
not followed.
Before the taking of the vote on the merger agreement at the special
meeting, Blount stockholders who wish to exercise their appraisal rights must
submit a written demand for appraisal for their Blount common stock to Blount.
The demand must reasonably inform Blount of the identity of the stockholder as
well as the intention of the stockholder to demand an appraisal of the "fair
value" of the shares held by the holder. Blount stockholders who wish to
exercise their appraisal rights must hold their Blount shares of record on the
date the written demand for appraisal is made and must continue to hold their
shares through the completion of the merger.
Only a holder of record of Blount common stock is entitled to assert
appraisal rights for the shares of Blount common stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
holder of record fully and correctly as the holder's name appears on the stock
certificates, and must state that the person intends to demand appraisal of the
person's shares of Blount common stock in connection with the merger.
If the Blount common stock is owned of record by a fiduciary of the
stockholder, such as a trustee, guardian or custodian, the fiduciary should
execute the demand for appraisal rights for the stockholder. If the shares of
Blount common stock are owned of record by more than one person, such as in a
joint tenancy or tenancy in common, the demand for appraisal rights should be
executed by or on behalf of all joint owners. An authorized agent, including one
or more joint owners, may execute a demand for appraisal on behalf of a holder
of record of Blount common stock; however, the agent must identify the record
owner or owners and disclose that he or she is acting as an agent for the owner
or owners. A record holder such as a broker who holds shares of Blount common
stock as nominee for several beneficial owners may exercise appraisal rights
regarding the shares of Blount common stock held for one or more beneficial
owners while not exercising such rights regarding shares of Blount common stock
held for other beneficial owners; in that case, the written demand should
describe the number of shares in seeking the appraisal. If no number of shares
is expressly mentioned, the demand will be presumed to cover all shares of
Blount common stock held in the name of the record owner. Holders of shares of
Blount common stock who hold their shares in brokerage accounts or other nominee
forms and who wish to exercise appraisal rights should consult with their
brokers to determine the procedures for the demand of appraisal rights. All
written demands for appraisal of shares of Blount common stock must be mailed or
delivered to Blount, and these demands must be received by Blount before the
taking of the vote on the merger agreement at the special meeting.
All written demands for appraisal in accordance with Section 262 should be
sent or delivered to Blount at 4520 Executive Park Drive, Montgomery, Alabama
36116, Attention: Richard H. Irving, III, General Counsel.
Within 10 days after the completion of the merger, New Blount must send a
notice as to the effectiveness of the merger to each person who has satisfied
the appropriate provisions of Section 262. Within 120 days after the completion
of the merger, but not thereafter, New Blount or any holder of shares of Blount
common stock who has appraisal rights under Section 262 and who has complied
with the requirements of Section 262 may file a petition in the Delaware Court
of Chancery demanding a determination of the fair value of the shares. Blount is
not under any obligation, and has no present intention, to file
55
<PAGE> 63
a petition regarding the appraisal of the fair value of the shares of Blount
common stock. Accordingly, it is the obligation of the stockholders to initiate
all necessary action to perfect their appraisal rights within the time provided
in Section 262.
Within 120 days after the completion of the merger, any record holder of
shares of Blount common stock who has complied with the requirements for
exercise of appraisal rights will be entitled, upon written request, to receive
from New Blount a statement setting forth the aggregate number of shares of
Blount common stock for which demands for appraisal have been received and the
aggregate number of holders of those shares. New Blount must mail these
statements within 10 days after New Blount has received the written request.
If a Blount stockholder timely files a petition for an appraisal and a copy
of the petition is served upon New Blount, New Blount will be obligated within
20 days to file with the Delaware Register in Chancery a list containing the
names and addresses of all Blount stockholders who have demanded an appraisal of
their shares and with whom agreements as to the value of their shares have not
been reached. After notice to those stockholders as required by the court, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine those stockholders who have complied with Section 262 and who have
become entitled to appraisal rights. The Delaware Court of Chancery may require
the stockholders who demanded payments for their shares to submit their stock
certificates to the Register in Chancery for a notation on them of the appraisal
proceeding; and if any stockholder fails to comply with this direction, the
Delaware Court of Chancery may dismiss the proceedings as to the stockholder.
After determining the former holders of Blount common stock entitled to
appraisal, the Delaware Court of Chancery will appraise the "fair value" of the
shares of Blount common stock. The fair value will exclude any element of value
which is derived from the completion or the expectation of the merger, together
with any fair rate of interest to be paid on the amount determined to be the
fair value. Holders considering seeking appraisal should be aware that the fair
value of their shares of Blount common stock as determined under Section 262
could be more than, the same as or less than the value of the consideration that
they would otherwise receive in the merger if they did not seek appraisal of
their shares of Blount common stock. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in the appraisal proceedings. More specifically, the Delaware
Supreme Court has stated that: "Fair value, in an appraisal context, measures
'that which has been taken from the stockholder, viz., his proportionate
interest in a going concern.' In the appraisal process the corporation is valued
'as an entity,' not merely as a collection of assets or by the sum of the market
price of each share of its stock. Moreover, the corporation must be viewed as an
on-going enterprise, occupying a particular market position in the light of
future prospects." In addition, Delaware courts have decided that the appraisal
remedy provided by statute, depending on factual circumstances, may or may not
be a stockholder's exclusive remedy. The court will also determine the amount of
interest, if any, to be paid on the amounts to be received by persons whose
shares of Blount common stock have been appraised. The costs of the action may
be determined by the court and taxed on the parties as the court considers
equitable. The court may also order that all or a portion of the expenses
incurred by any holder of shares of Blount common stock in connection with an
appraisal, including (but not limited to) reasonable attorneys' fees and the
fees and expenses of experts hired in connection with the appraisal proceeding,
be charged pro rata against the value of all of the shares of Blount common
stock entitled to appraisal.
56
<PAGE> 64
Any holder of shares of Blount common stock who has rightfully demanded
appraisal in accordance with Section 262 will not, after the completion of the
merger, be able to vote the shares of Blount common stock subject to the demand
of appraisal for any purpose. This Blount common stock also will not be entitled
to the payment of dividends or other distributions on those shares, except
dividends or other distributions payable to holders of record of shares of
Blount common stock as of a date prior to the completion of the merger.
If any holder of shares of Blount common stock who demands appraisal of
shares under Section 262 fails to perfect, or effectively withdraws or loses,
the right to appraisal, as provided in the DGCL, the shares of Blount common
stock of that holder will be converted into the right to receive $30 in
accordance with the merger agreement, as more fully described under "-- Merger
Consideration." A holder of shares of Blount common stock will fail to perfect,
or will effectively lose, the right to appraisal if no petition for appraisal is
filed within 120 days after the completion of the merger. A holder may withdraw
a demand for appraisal by delivering to Blount a written withdrawal of the
demand for appraisal and acceptance of the merger, except that any attempt to
withdraw made more than 60 days after the completion of the merger will require
the written approval of New Blount and, once a petition for appraisal is filed,
the appraisal proceeding may not be dismissed as to any holder absent court
approval.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of those rights, in which
event the holder shall be entitled to receive $30 per share.
This section is a summary of the material provisions and requirements of
Section 262 of the DGCL. You should read the full text of Section 262, a copy of
which is attached to this proxy statement-prospectus as Appendix D.
TREATMENT OF OPTIONS
At the completion of the merger, each outstanding option issued by Blount
to acquire shares of Blount common stock will be canceled and replaced with the
right to receive a cash payment equal to the excess of $30 over the exercise
price per share of Blount common stock previously subject to each option.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF NEW BLOUNT FOLLOWING THE MERGER
The merger agreement requires all directors of Blount to resign effective
as of the completion of the merger. After the completion of the merger, the
board of directors of New Blount will be subject to change from time to time.
The total number of members of the board of directors is expected to be reduced
from the current number of eleven to five.
The new employment agreement for John M. Panettiere, the president and
chief executive officer of Blount and a member of the board, provides that Mr.
Panettiere shall act as Chairman of the board of New Blount if the merger is
completed. Blount has also agreed that Harold E. Layman, the chief financial
officer of Blount, shall be appointed to the board of New Blount if the merger
is completed.
The current directors of Red Dog Acquisition are Alan Magdovitz and E.
Daniel James. Mr. Magdovitz and Mr. James are employees of an affiliate of
Lehman Brothers Merchant Banking Partners, and it is expected that each of them
and at least one additional individual designated by Lehman Brothers Merchant
Banking Partners will become directors of New Blount.
57
<PAGE> 65
Alan Magdovitz, age 42, is currently a Managing Director of Lehman Brothers
Inc. and a Principal of Lehman Brothers Merchant Banking Partners. He has held
these positions since December 1996. Prior to joining Lehman in December 1996,
Mr. Magdovitz served as a Principal of Seaport Capital, Inc., a firm formed in
1992 to manage two private equity partnerships on behalf of Prudential
Securities. From 1987 to 1992, he served as a Managing Director of Prudential
Bache Interfunding, a leveraged buyout firm that invested $1.4 billion in debt
and equity securities across 14 transactions. Mr. Magdovitz holds an M.B.A. from
Harvard University and a B.A. with distinction from Cornell University.
E. Daniel James, age 34, is currently a Senior Vice President of Lehman
Brothers Inc. Mr. James joined Lehman in 1988. Since 1996, Mr. James has worked
in Lehman's Merchant Banking Group. Prior to joining the Merchant Banking Group,
Mr. James served in the Mergers & Acquisitions Group and the Financial
Institutions Group.
It is expected that most of the executive officers of Blount at the
completion of the merger will be executive officers of New Blount in the same
capacities following the merger, including John M. Panettiere, Harold E. Layman,
James S. Osterman, Gerald W. Bersett, Donald B. Zorn, and Richard H. Irving,
III, until such time as may be determined by the board of directors following
the merger. See "-- Interests of Some Persons in the Merger; Conflicts of
Interest" below. Biographical information regarding these individuals can be
found in reports, statements and other information filed with the Commission.
See "Where You Can Find More Information" beginning on page 96.
OTHER INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Information concerning existing directors and executive officers of Blount
and executive compensation is contained in Blount's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 and Blount's Proxy Statement for
Annual Meeting, filed on March 10, 1999, both of which are incorporated by
reference in this proxy statement-prospectus. See "Where You Can Find More
Information" on page 96.
INTERESTS OF SOME PERSONS IN THE MERGER; CONFLICTS OF INTEREST
Some directors and executive officers of Blount may have interests which
present them with potential conflicts of interest in connection with the merger.
The board of directors was aware of the conflicts described below and considered
them in addition to the other matters described under "-- Reasons for the
Merger; Recommendation to Stockholders" on page 35.
Shares of Blount common stock held by officers and directors of Blount will
be converted into the right to receive the same consideration as shares of
Blount common stock held by other stockholders. Blount stock options held by the
officers and directors of Blount will be treated in the same manner as stock
options held by other option holders.
Following the merger, through the sixth anniversary of the completion of
the merger, New Blount will indemnify and hold harmless each present or former
officer, director or employee of Blount and its subsidiaries against all claims,
losses, liabilities, damages and other costs and expenses arising out of or
pertaining to
- the fact that the indemnified party is or was an officer, director or
employee of Blount or its subsidiaries or
- matters existing or occurring prior to the merger. See "The Merger
Agreement -- Indemnification and Insurance" on page 86.
58
<PAGE> 66
The following are summaries of employment agreements, each dated April 18,
1999, entered into by Blount with six members of senior management of Blount and
other employment arrangements anticipated to be in place prior to the completion
of the merger. None of these agreements or arrangements will be effective until
the merger is completed, at which time the obligations of Blount under these
agreements and arrangements will become the obligations of New Blount. If the
merger agreement is terminated, each of these agreements and arrangements will
automatically terminate. Each of these agreements has been filed with the
Commission as an exhibit to the registration statement in which this proxy
statement-prospectus is included.
Agreement with John M. Panettiere. John M. Panettiere's employment
agreement provides that Mr. Panettiere will be employed as Chairman of New
Blount's board and as president and chief executive officer of New Blount. In
exchange for these services, Mr. Panettiere will receive, among other things, a
base annual salary of $875,000 (representing an increase of $75,000 as compared
to his current base annual salary) with bonuses consistent with existing bonus
levels and benefits under various benefit plans to be offered by New Blount to
its executives. Mr. Panettiere has agreed in his employment agreement to make a
minimum equity investment in New Blount equal to 60% of the aggregate amount of
after tax proceeds that he receives from the cancellation of his 1,330,164
existing options to purchase Blount common stock. In addition, after the merger
is completed, Mr. Panettiere will be granted non-qualified options to purchase
730,000 shares of the common stock of New Blount, which shall contain the terms
described below. The term of Mr. Panettiere's employment agreement expires on
July 31, 2002. Mr. Panettiere agrees that during the term of the employment
agreement and for a period of 12 months following the date that the employment
agreement is terminated or, if longer, the period ending on the date he no
longer receives severance benefits, he will refrain from competing against New
Blount. In the event that Mr. Panettiere's employment is terminated by New
Blount without cause, or he resigns from employment for good reason, Mr.
Panettiere will be eligible to receive, among other things, his base salary,
continuing bonuses and other executive benefits, for the remaining term of his
agreement.
Agreement with Harold E. Layman. Harold E. Layman's employment agreement
provides that Mr. Layman will be employed as executive vice president, finance
operations and chief financial officer of New Blount. In exchange for these
services, Mr. Layman will receive, among other things, a base annual salary of
$334,000 with bonuses consistent with existing bonus levels and benefits under
various benefit plans to be offered by New Blount to its executives. Mr. Layman
has agreed in his employment agreement to make a minimum equity investment in
New Blount equal to 60% of the aggregate amount of after tax proceeds that he
receives from the cancellation of his 457,500 existing options to purchase
Blount common stock. In addition, after the merger is completed, Mr. Layman will
be granted non-qualified options to purchase 320,000 shares of the common stock
of New Blount, which shall contain the terms described below. The term of Mr.
Layman's employment under his employment agreement will be on a rolling two-year
basis. In addition, Mr. Layman agrees that during the term of the employment
agreement and for a period of 12 months following the date that the employment
agreement is terminated or, if longer, the period ending on the date he no
longer receives severance benefits, he will refrain from competing against New
Blount. In the event that Mr. Layman's employment is terminated by New Blount
without cause, or he resigns from employment for good reason, Mr. Layman will be
eligible to receive, among other things, his base salary, continuing bonuses and
other executive benefits for a period of 24 months from his date of termination.
59
<PAGE> 67
Agreement with James S. Osterman. James S. Osterman's employment agreement
provides that Mr. Osterman will be employed as group president of New Blount's
outdoor products segment. In exchange for these services, Mr. Osterman will
receive, among other things, a base annual salary of $355,000 with bonuses
consistent with existing bonus levels and benefits under various benefit plans
to be offered by New Blount to executives. Mr. Osterman has agreed in his
employment agreement to make a minimum equity investment in New Blount equal to
50% of the aggregate amount of after tax proceeds that he receives from the
cancellation of his 252,500 existing options to purchase Blount common stock. In
addition, after the merger is completed, Mr. Osterman will be granted
non-qualified options to purchase 120,000 shares of the common stock of New
Blount, which shall contain the terms described below. The term of Mr.
Osterman's employment agreement expires on the third anniversary of the
completion of the merger. In addition, Mr. Osterman agrees that during the term
of the employment agreement and for a period of 12 months following the date
that the employment agreement is terminated or, if longer, the period ending on
the date he no longer receives severance benefits, he will refrain from
competing against New Blount. In the event that Mr. Osterman's employment is
terminated by New Blount without cause, or he resigns from employment for good
reason, Mr. Osterman will be eligible to receive, among other things, his base
salary, continuing bonuses and other executive benefits for a period of 24
months from his date of termination.
Agreement with Gerald W. Bersett. Gerald W. Bersett's employment agreement
provides that Mr. Bersett will be employed as group president of New Blount's
sporting equipment segment. In exchange for these services, Mr. Bersett will
receive, among other things, a base annual salary of $340,000 with bonuses
consistent with existing bonus levels and benefits under various benefit plans
to be offered by New Blount to its executives. Mr. Bersett has agreed in his
employment agreement to make a minimum equity investment in New Blount equal to
100% of the aggregate amount of after tax proceeds that he receives from the
cancellation of his 57,000 existing options to purchase Blount common stock. In
addition, after the merger is completed, Mr. Bersett will be granted
non-qualified options to purchase 120,000 shares of the common stock of New
Blount, which shall contain the terms described below. The term of Mr. Bersett's
employment under his employment agreement will be on a rolling, two-year basis.
In addition, Mr. Bersett agrees that during the term of the employment agreement
and for a period of 12 months following the date that the employment agreement
is terminated or, if longer, the period ending on the date he no longer receives
severance benefits, he will refrain from competing against New Blount. In the
event that Mr. Bersett's employment under his employment agreement is terminated
by New Blount without cause, or he resigns from employment for good reason, Mr.
Bersett will be eligible to receive, among other things, his base salary,
continuing bonuses and other executive benefits for a period of 24 months from
his date of termination.
Agreement with Donald B. Zorn. Donald B. Zorn's employment agreement
provides that Mr. Zorn will be employed as group president of New Blount's
industrial and power equipment segment. In exchange for these services, Mr. Zorn
will receive, among other things, a base annual salary of $323,000 with bonuses
consistent with existing bonus levels and benefits under various benefit plans
to be offered by New Blount to executives. Mr. Zorn has agreed in his employment
agreement to make a minimum equity investment in New Blount equal to 50% of the
aggregate amount of after tax proceeds that he receives from the cancellation of
his 257,832 existing options to purchase Blount common stock. In addition, after
the merger is completed, Mr. Zorn will be granted non-qualified options to
purchase 120,000 shares of the common stock of New Blount, which shall contain
the
60
<PAGE> 68
terms described below. The term of Mr. Zorn's employment agreement expires on
the second anniversary of the completion of the merger. In addition, Mr. Zorn
agrees that during the term of the employment agreement and for a period of 12
months following the date that the employment agreement is terminated or, if
longer, the period ending on the date he no longer receives severance benefits,
he will refrain from competing against New Blount. In the event that Mr. Zorn's
employment is terminated by New Blount without cause, or he resigns from
employment for good reason, Mr. Zorn will be eligible to receive, among other
things, his base salary, continuing bonuses and other executive benefits for a
period of 24 months from his date of termination.
Agreement with Richard H. Irving, III. Richard H. Irving, III's employment
agreement provides that Mr. Irving will be employed as senior vice president and
general counsel of New Blount. In exchange for these services, Mr. Irving will
receive, among other things, a base annual salary of $292,000 with bonuses
consistent with existing bonus levels and benefits under various benefit plans
to be offered by New Blount to its executives. Mr. Irving has agreed in his
employment agreement to make a minimum equity investment in New Blount equal to
60% of the aggregate amount of after tax proceeds that he receives from the
cancellation of his 231,000 existing options to purchase Blount common stock. In
addition, after the merger is completed, Mr. Irving will be granted
non-qualified options to purchase 100,000 shares of the common stock of New
Blount, which shall contain the terms described below. The term of Mr. Irving's
employment under his employment agreement will be on a rolling two-year basis.
In addition, Mr. Irving agrees that during the term of the employment agreement
and for a period of 12 months following the date that the employment agreement
is terminated or, if longer, the period ending on the date he no longer receives
severance benefits, he will refrain from competing against New Blount. In the
event that Mr. Irving's employment is terminated by New Blount without cause, or
he resigns from employment for good reason, Mr. Irving will be eligible to
receive, among other things, his base salary, continuing bonuses and other
executive benefits for a period of 24 months from his date of termination.
New Blount Stock Options. New Blount will grant to senior management of
New Blount as soon as practicable after the closing of the merger non-qualified
options to purchase shares of New Blount common stock representing an aggregate
of approximately 8% of New Blount's initial fully diluted common stock. One-half
of these options will be "time options," and one-half of these options will be
"performance options". All of the New Blount options have a term of 10 years
from the date of the completion of the merger. These options are subject to
earlier termination upon the occurrence of certain customary events. For
example, if an executive's employment is terminated without cause, the term of
the options expires one year after termination. Time options will generally vest
in 20% increments over a period of five years. Performance options will
generally vest in 20% increments over a period of five years so long as certain
earnings targets are achieved. In any event, all performance options will
generally vest on the sixth anniversary of the completion of the merger. The
vesting of these options will accelerate upon the occurrence of certain
customary events. For example, all time options of an executive will fully vest
upon his death or disability.
Employee Stockholders Agreement. Each employment agreement described above
has annexed to it a summary of terms of an employee stockholders agreement. A
definitive employee stockholders agreement is to be entered prior to the closing
of the merger by Blount, Lehman Brothers Merchant Banking Partners and each
executive who has executed an employment agreement. The employee stockholders
agreement will restrict the transfer of
61
<PAGE> 69
common stock and options of New Blount owned by these executives for a period of
five years from the closing of the merger. Exceptions to this restriction
include transfers to heirs and trusts, so long as the transferee agrees to be
bound by the terms of the employee stockholders agreement. In addition,
executives will have rights to sell their shares on a pro rata basis with Lehman
Brothers Merchant Banking Partners whenever Lehman Brothers Merchant Banking
Partners is selling its shares to third parties. These rights will not be
available for sales of less than $100 million that Lehman Brothers Merchant
Banking Partners makes during the six month period after completion of the
merger. Similarly, Lehman Brothers Merchant Banking Partners has the right to
cause each of the executives to sell his shares of New Blount on a pro rata
basis with Lehman Brothers Merchant Banking Partners to a third party that has
made an offer to purchase the shares of New Blount owned by Lehman Brothers
Merchant Banking Partners. In the event that New Blount is registering its
shares under the Securities Act (except for registrations related exchange
offers or benefit plans) and Lehman Brothers Merchant Banking Partners is
selling its shares in connection with this registration, the executives will
have the right to have their shares concurrently registered and sold on a pro
rata basis with Lehman Brothers Merchant Banking Partners. The common stock and
options of New Blount owned by the executives will also be subject to "put" and
"call" rights, which entitle New Blount to purchase from the executives, and the
executives will be entitled to sell to New Blount, such common stock and options
at fair market value upon the termination of the executive's employment by New
Blount without "cause", by the executive for "good reason", or as a result of
the executive's retirement, death or disability.
Blount has two deferred compensation trusts which require that they be
fully funded by Blount upon a change of control or threatened change of control,
such as the merger. For one of these trusts, Blount has obtained waivers of
these funding requirements from John M. Panettiere, Harold E. Layman, James S.
Osterman and Donald B. Zorn regarding their previously unfunded deferred
compensation totaling in the aggregate $14.2 million. The beneficiaries of the
other trust, including Winton M. Blount, John M. Panettiere, Harold E. Layman,
James S. Osterman, Donald B. Zorn, D. Joseph McInnes and Winton M. Blount III,
in his capacity as a former executive of Blount, were not permitted by the terms
of such trust to waive the applicable funding requirements. The aggregate amount
funded under this other trust, together with the amount funded for one other
beneficiary under the former trust, equaled $10.4 million.
The six executive officers listed above plus some other members of senior
management of Blount have existing employment agreements entitling them to
enhanced severance benefits, following a change of control, such as the merger,
Blount or its successors were to materially breach their agreements or if they
terminate their employment for "good reason".
In connection with the merger, and after the amount of consideration in the
merger and the other principal terms and conditions of the merger agreement had
been agreed by Blount and Lehman Brothers Merchant Banking Partners, Lehman
Brothers Merchant Banking Partners and Winton M. Blount, the Chairman of the
board of directors and controlling stockholder of Blount, agreed that Mr. Blount
would be retained to provide consulting services to New Blount for a period of
two years in exchange for total compensation of $1,000,000 ($500,000 per year),
the right to continue to occupy the office space after the merger which he is
currently occupying, continued administrative and secretarial services and the
right to use the corporate aircraft for personal use of up to 75 hours per year
so long as he pays the agreed upon cost of such use. In addition, Mr. Blount,
who has been employed by Blount for 54 years, will receive a severance
62
<PAGE> 70
benefit calculated in a manner consistent with Blount's standard policy, payable
in January 2000, of $1,566,333.
The Blount Holding Company, a limited partnership controlled by Winton M.
Blount and which is the principal stockholder of Blount, and Blount have entered
into an escrow and termination of indemnification agreement for which The Blount
Holding Company has been released from its agreement entered into in connection
with a corporate reorganization of Blount in 1995 to indemnify Blount for some
possible liabilities associated with matters arising prior to the 1995
reorganization. The Blount Holding Company was released from its indemnity on
May 5, 1999 after it deposited into escrow a mutually agreed upon amount for the
benefit of Blount. The amount deposited into escrow to be held and disbursed in
accordance with the escrow agreement was $100,000, representing the maximum
estimated indemnification obligation of The Blount Holding Company for any known
potential liabilities.
STOCK EXCHANGE LISTING
Blount expects that the New Blount common stock will be listed on the New
York Stock Exchange for at least three years after the merger. After the merger,
New Blount will use its reasonable best efforts to maintain the listing of the
New Blount common stock on the New York Stock Exchange for at least three years.
If the New Blount shares are subsequently determined to be ineligible for
listing on the New York Stock Exchange, New Blount will use its reasonable best
efforts to cause the New Blount shares to be accepted for quotation on the
NASDAQ Stock Market for at least three years. However, we cannot guarantee that
New Blount shares will be listed on the New York Stock Exchange or quoted on the
NASDAQ Stock Market. Blount stockholders who receive shares of New Blount common
stock after the merger may experience reduced liquidity as to their New Blount
common stock. See also "Risk Factors -- Loss of Liquidity May Make It Difficult
for You to Sell Shares and Could Result in Increased Volatility of Market
Prices" on page 17.
RESALE OF NEW BLOUNT COMMON STOCK AFTER THE MERGER
The New Blount common stock to be issued in the merger will be freely
transferable, except that shares of New Blount common stock received by any
stockholder who may be considered an "affiliate", as the term is defined under
the Securities Act of 1933, of Blount or New Blount may be resold by the
stockholder only in transactions permitted by the resale provisions of Rule 145,
Rule 144 in the case of persons who become affiliates of New Blount, or as
otherwise permitted under the Securities Act of 1933. Federal securities laws
generally consider directors, certain executive officers and beneficial owners
of 10% or more of a class of capital stock of a company as "affiliates" of that
company. This proxy statement-prospectus does not cover sales of New Blount
common stock received by any person in the merger who may be deemed to be an
affiliate of New Blount. In addition, some members of the management will be
subject to further restrictions on their ability to sell shares of New Blount
common stock in accordance with the employee stockholders agreement as described
under " -- Interests of Some Persons in the Merger; Conflicts of Interest" on
page 58.
MERGER FINANCINGS
New Blount, through its principal operating subsidiary, expects to incur at
least $725 million of funded long-term debt and Lehman Brothers Merchant Banking
Partners and its affiliated co-investors expect to make an equity investment in
New Blount, in connection
63
<PAGE> 71
with the merger, of approximately $417.5 million, less the amount of any equity
investments in New Blount made by members of the senior management of Blount,
which is expected to be approximately $15 million. These amounts will be used
to:
- fund payment of the cash consideration in the merger;
- repay or repurchase indebtedness of Blount; and
- pay the fees and expenses incurred in connection with the merger.
The transactions contemplated by the merger agreement are expected to be
funded by at least $400 million of bank borrowings by New Blount in accordance
with senior secured credit facilities with a group of lenders arranged and
syndicated by Lehman Brothers Inc. and Lehman Commercial Paper Inc. and
approximately $325 million in senior subordinated notes to be placed or
underwritten by Lehman Brothers Inc. New Blount also expects to enter into a
$100 million senior secured revolving credit facility with a group of lenders
arranged and syndicated by Lehman Brothers Inc. and Lehman Commercial Paper Inc.
to provide any additional funding necessary for the merger and for New Blount's
working capital requirements following the merger. Red Dog Acquisition has
received executed commitment letters from Lehman Brothers Inc. and Lehman
Commercial Paper Inc. regarding the debt portion of the merger financings. These
commitment letters are subject to customary conditions, including the
negotiation and signing of definitive agreements.
The merger financing documents will include covenants that will require New
Blount to meet some financial ratios and financial conditions that may require
that New Blount take action to reduce debt or to act in a manner contrary to its
business objectives. In addition, the new financing documents will contain some
restrictions that may affect our operations, including New Blount's ability to
incur additional indebtedness and make acquisitions and capital expenditures
beyond a certain level.
One of Red Dog Acquisition's closing conditions under the merger agreement
provides that Blount must receive the merger financing on the terms and
conditions contained in the commitment letters or upon terms and conditions that
are substantially equivalent or reasonably satisfactory to Red Dog Acquisition.
If the terms and conditions of the merger financing are not the same as or
substantially equivalent to those contained in the commitment letters, they
could nonetheless be reasonably satisfactory to Red Dog Acquisition. For
example, Blount could obtain overall indebtedness that consists of different
portions of senior secured and senior subordinated indebtedness than as provided
for by the commitment letters but which is still reasonably satisfactory to Red
Dog Acquisition. If Lehman Brothers Merchant Banking Partners is not able to
arrange the merger financing on the terms and conditions provided for in the
commitment letters or on other terms and conditions that are substantially
equivalent or reasonably satisfactory, then Red Dog Acquisition will not be
required to complete the merger. Such a situation could cause the parties to
modify or renegotiate the provisions of the merger agreement and could result in
a reduction of the merger consideration. Any amendment to the merger agreement
that alters or changes the merger consideration or which would adversely affect
Blount stockholders and, to the extent required by applicable law, other
modifications or waivers of the closing condition regarding the merger financing
will be subject to the further approval of Blount stockholders.
In connection with the merger, New Blount will assume Blount's existing
guarantee of $150 million of outstanding Senior Notes due 2005 of Blount, Inc.,
a direct wholly owned subsidiary of Blount.
64
<PAGE> 72
CONVERSION OF RED DOG ACQUISITION STOCK
In the merger, the shares of stock of Red Dog Acquisition issued and
outstanding immediately prior to the completion of the merger will be converted
into a number of shares of New Blount common stock equal to (1) $417.5 million,
less the amount of any equity investments in New Blount made by members of
senior management of Blount, which is expected to be approximately $15 million,
divided by 30 (2) multiplied by two. Assuming the senior management's
contribution equals $15 million, Lehman Brothers Merchant Banking Partners and
its affiliated co-investors are expected to hold 26,833,334 shares, or
approximately 87.1% of the outstanding shares, and those members of senior
management are expected to hold 1,000,000 shares, or 3.3% of the outstanding
shares, in addition to any shares received by the management as a result of the
conversion of their shares of Blount common stock in the merger. The amount of
Lehman Brothers Merchant Banking Partners' and its affiliated co-investors'
equity contribution and the number of shares of New Blount common stock they
obtain could be higher or lower in immaterial amounts depending on the ultimate
amount of the management contribution.
It is anticipated that Lehman Brothers Merchant Banking Partners will
transfer some of its ownership interests in New Blount immediately following the
merger to some of its affiliated co-investors.
ACCOUNTING TREATMENT
In the merger, Blount will continue as the surviving company and the
proceeds resulting from new indebtedness and equity investments will be used to
acquire Blount's common stock. As a result of the merger, New Blount will be
approximately 9.6% owned by existing stockholders of Blount and approximately
90.4% owned by Lehman Brothers Merchant Banking Partners, its affiliated
co-investors and some members of senior management. Because Lehman Brothers
Merchant Banking Partners, its affiliated co-investors will acquire, for
accounting purposes, less than substantially all of Blount's common stock, the
merger will be accounted for as a recapitalization under generally accepted
accounting principles. As a result, "push-down" accounting is not required, and,
accordingly, the historical basis of Blount's assets and liabilities will not be
impacted by the transaction. If push-down accounting were required, substantial
goodwill would be created in the transaction. The amortization of this goodwill
would have a significant negative impact on New Blount's reported financial
results in future years. The closing of the merger is conditioned upon Red Dog
Acquisition being reasonably satisfied that the merger will be recorded as a
recapitalization for financial reporting purposes.
CONDUCT OF BUSINESS PENDING THE MERGER
In accordance with the merger agreement, Blount has agreed that prior to
the completion of the merger agreement its business and that of its subsidiaries
will be conducted in its ordinary course of business consistent with past
practice. See "The Merger Agreement -- Covenants" on page 83.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, the following are, under
currently applicable law, the material U.S. federal income tax considerations
generally applicable to the merger to a stockholder who holds Blount common
stock as a capital asset. The tax treatment described in this section may vary
depending upon each stockholder's particular circumstances and tax position.
Some stockholders, including insurance companies, tax-
65
<PAGE> 73
exempt organizations, financial institutions or broker-dealers, foreign
corporations, persons who are not citizens or residents of the United States,
stockholders who do not hold their shares as capital assets and stockholders who
have acquired their existing stock upon the exercise of options or otherwise as
compensation, may be subject to special rules not discussed below. The
discussion below is based upon the provisions of the Internal Revenue Code of
1986, which we will refer to in this document as the "Code," and regulations,
rulings and judicial decisions under the Code as of the date of this proxy
statement-prospectus. These authorities may be repealed, revoked or modified
with the result that the U.S. federal income tax consequences may be different
from those discussed below. In addition, this discussion does not address any
applicable foreign, state, local or other tax laws. EACH STOCKHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM
OR HER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FOREIGN,
STATE, LOCAL OR OTHER TAX LAWS.
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, Red Dog Acquisition will be disregarded as a
transitory entity. As a result, a stockholder will be treated as receiving a
portion of the cash consideration for his or her Blount common stock from Lehman
Brothers Merchant Banking Partners and a portion from Blount. Blount intends to
take the position that the portion of the cash consideration received by a
stockholder from Lehman Brothers Merchant Banking Partners will be a percentage
of such cash consideration equal to:
- the amount contributed to Red Dog Acquisition by Lehman Brothers Merchant
Banking Partners divided by
- the aggregate amount of cash paid to all stockholders.
The remainder of the cash consideration received by the stockholder will be
treated as paid by Blount.
A stockholder will recognize capital gain or loss on the shares of Blount
common stock treated as sold to Lehman Brothers Merchant Banking Partners equal
to the excess of the cash received for those shares over their adjusted tax
basis. The gain or loss will be long-term capital gain or loss if those shares
have been held by the stockholder for more than one year.
A stockholder who receives from Blount only cash and no shares of New
Blount common stock will be treated as having received the cash in a redemption.
It is unclear whether the cash paid by Blount to stockholders who also receive
New Blount common stock will be treated as paid in redemption of a portion of
their Blount common stock or as part of a transaction treated as a
recapitalization for tax purposes. The difference between redemption and
recapitalization treatment is as described below.
Redemption. If the cash is treated as received in a redemption, a
stockholder will recognize capital gain or loss equal to the difference between
the cash received from Blount and the adjusted tax basis of the shares redeemed,
provided that, under section 302 of the Code, the receipt of cash:
- is "not essentially equivalent to a dividend" for the stockholder;
- is "substantially disproportionate" for the stockholder; or
- results in a "complete termination" of the stockholder's equity interest
in Blount.
The gain generally will be long-term capital gain if Blount common stock has
been held by the stockholder for more than one year.
66
<PAGE> 74
In determining whether any of the section 302 tests is satisfied,
stockholders must take into account not only the New Blount common stock that
they actually own, but also any New Blount common stock they are treated as
owning under the constructive ownership rules described in section 318 of the
Code. Under these constructive ownership rules, a stockholder is treated as
constructively owning any New Blount common stock that is owned by certain
related individuals or entities and any New Blount common stock that the
stockholder has the right to acquire by exercise of an option or by conversion
or exchange of a security.
A stockholder will satisfy the "not essentially equivalent to a dividend"
test if the reduction in the stockholder's proportionate interest in Blount
resulting from the merger constitutes a "meaningful reduction" given the
stockholder's particular facts and circumstances. Even a small reduction in a
stockholder's proportionate equity interest may satisfy this test.
A stockholder will satisfy the "substantially disproportionate" test if the
percentage of the then outstanding New Blount common stock actually and
constructively owned by the stockholder immediately after the completion of the
merger is less than 80% of the percentage of the Blount common stock actually
and constructively owned by the stockholder immediately before the completion of
the merger.
A stockholder who receives New Blount common stock may be able to satisfy
the "complete termination" test if the stockholder sells or otherwise disposes
of all of the New Blount common stock for cash contemporaneously with the
completion of the merger.
If none of the section 302 tests is satisfied, no loss would be recognized,
and the entire amount of cash received by the stockholder from Blount would be
treated as the distribution of a dividend, subject to tax as ordinary income, to
the extent of Blount's current and accumulated earnings and profits, then as a
tax-free return of capital to the extent of the stockholder's adjusted tax basis
in the shares redeemed and then as capital gain. In the case of a corporate
stockholder, if the cash paid is treated as a dividend, such dividend income may
be eligible for the 70% dividends-received deduction. The dividends-received
deduction is subject to certain limitations, and may not be available if the
corporate stockholder does not satisfy certain holding period requirements
regarding the Blount common stock or if the Blount common stock is treated as
"debt financed portfolio Blount common stock" within the meaning of Section
246A(c) of the Code. Additionally, if a dividends-received deduction is
available, the dividend may be treated as an "extraordinary dividend" under
Section 1059(a) of the Code, in which case a corporate stockholder's adjusted
tax basis in the Blount common stock received by such stockholder would be
reduced, but not below zero, by the amount of the nontaxed portion of such
dividend and any excess will be treated as gain from the sale of the Blount
common stock. Corporate stockholders are urged to consult their own tax advisors
as to the effect of Section 1059 of the Code on the adjusted tax basis of their
Blount common stock.
No gain or loss will be recognized on the exchange of New Blount common
stock for Blount common stock. The adjusted tax basis of each share of Blount
common stock exchanged must be allocated equally between the two shares of New
Blount common stock received.
Recapitalization. If the cash is treated as received in a recapitalization
for tax purposes, a stockholder who receives New Blount common stock and cash in
exchange for his or her Blount common stock will recognize gain, but not loss,
on the exchange equal to the lesser of:
- the cash received from Blount or
67
<PAGE> 75
- the excess of (x) the sum of the cash received from Blount plus the fair
market value of the New Blount common stock received by the stockholder
over (y) the stockholder's aggregate adjusted tax basis in his or her
Blount common stock (not including any tax basis attributable to Blount
common stock treated as sold to Lehman Brothers Merchant Banking
Partners).
Any such gain will be capital gain provided that one of the section 302 tests
described above is satisfied. The gain generally will be long-term capital gain
if Blount common stock has been held by the stockholder for more than one year.
If none of the section 302 tests is satisfied, the gain would be treated as the
distribution of a dividend, subject to tax as ordinary income, to the extent of
the stockholder's ratable share of Blount's undistributed earnings and profits
and then as capital gain. In the case of a corporate stockholder, if the cash
paid is treated as a dividend, such dividend income may be eligible for the 70%
dividends-received deduction. See the discussion of the dividends-received
deduction under "-- Redemption" above.
The aggregate adjusted tax basis of the New Blount common stock received by
a stockholder will be equal to (1) the stockholder's aggregate adjusted tax
basis in his or her Blount common stock (not including any tax basis
attributable to Blount common stock treated as sold to Lehman Brothers Merchant
Banking Partners) increased by (2) the amount of gain recognized by the
stockholder on such Blount common stock, and decreased by (3) the cash received
by the stockholder from Blount. The holding period for the New Blount common
stock will include the period that the stockholder held the Blount common stock
for which it was exchanged.
Foreign Stockholders -- Withholding. The following is a general discussion
of certain U.S. federal withholding tax requirements that may be applicable to
consideration payable to foreign stockholders in the merger. For this purpose, a
foreign stockholder is any person who is, for U.S. federal income tax purposes,
a foreign corporation, a non-resident alien individual, a foreign partnership or
a foreign estate or trust.
In the case of any foreign stockholder, the exchange agent will withhold
30% of the amount paid by Blount for the Blount common stock of the stockholder
in order to satisfy certain U.S. withholding requirements, unless the foreign
stockholder proves in a manner satisfactory to Blount and the exchange agent
that:
- the disposition of his or her Blount common stock will qualify for
capital gain treatment, rather than dividend treatment, in which case no
withholding will be required;
- the foreign stockholder is eligible for a reduced tax treaty rate for
dividend income, in which case the exchange agent will withhold at the
reduced treaty rate; or
- no U.S. withholding is otherwise required.
Foreign stockholders should consult their own tax advisors regarding the
application of these withholding rules.
Backup Withholding. Some holders of Blount common stock may be subject to
backup withholding at a rate of 31% on cash received by the stockholders. Backup
withholding will not apply, however, to a stockholder who:
- is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or
- provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules.
68
<PAGE> 76
Any amount withheld under these rules will be credited against the stockholder's
U.S. federal income tax liability, provided that certain required information is
furnished to the IRS. A stockholder who does not provide his or her correct
taxpayer identification number may be subject to penalties imposed by the IRS.
THOUGH THE DISCUSSION ABOVE DESCRIBES THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT THE STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO THE STOCKHOLDER, IN THE LIGHT OF
HIS OR HER PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF BLOUNT COMMON STOCK
IN ACCORDANCE WITH THE MERGER.
69
<PAGE> 77
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pages contain the unaudited pro forma condensed consolidated
financial statements of Blount which have been derived by the application of pro
forma adjustments to Blount's historical audited and unaudited consolidated
financial statements incorporated by reference in this proxy
statement-prospectus. The pro forma financial statements have been prepared
giving effect to the merger and merger financings, accounting for the merger as
a recapitalization under generally accepted accounting principles and giving
effect to the other adjustments described in the notes accompanying the pro
forma financial statements found on pages 72 and 76. Accordingly, the historical
basis of Blount's assets and liabilities has not been impacted by the merger and
related transactions.
The pro forma condensed consolidated balance sheet gives effect to the
merger, the recapitalization and related transactions as of March 31, 1999. The
pro forma condensed consolidated statements of income give effect to the merger
and related transactions as if such transactions were completed as of the
beginning of 1998. You should not consider the pro forma condensed consolidated
financial statements indicative of actual results that would have been achieved
had the merger and related transactions been completed on the dates indicated.
The pro forma condensed consolidated financial statements do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period.
You should read this data in conjunction with Blount's historical financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" incorporated in this
proxy statement- prospectus by reference. See "Where You Can Find More
Information" on page 96.
70
<PAGE> 78
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
BLOUNT ----------------------------
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
(amounts in thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 13,582 $ (13,582)(1) $ 0
Account receivable..................... 173,287 173,287
Inventories............................ 122,327 122,327
Deferred income taxes.................. 22,024 22,024
Other current assets................... 5,624 20,990(2) 26,614
-------- --------- ----------
Total current assets........... 336,844 7,408 344,252
Property, plant and equipment, net....... 177,556 177,556
Cost in excess of net assets of acquired
businesses, net........................ 113,746 113,746
Other assets............................. 43,790 29,290(3) 73,080
-------- --------- ----------
Total assets............................. $671,936 $ 36,698 $ 708,634
======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Notes payable and current maturities of
long-term debt...................... $ 619 $ 24,119(4) $ 24,738
Accounts payable....................... 29,968 29,968
Accrued expenses....................... 60,378 60,378
-------- --------- ----------
Total current liabilities...... 90,965 24,119 115,084
Long-term debt, exclusive of current
maturities............................. 161,650 711,959(4) 873,609
Deferred income taxes, exclusive of
current portion........................ 13,108 13,108
Other liabilities........................ 45,679 45,679
-------- --------- ----------
Total liabilities.............. 311,402 736,078 1,047,480
Stockholders' equity (deficit)........... 360,534 (699,380)(5) (338,846)
-------- --------- ----------
Total liabilities and stockholders'
equity (deficit)....................... $671,936 $ 36,698 $ 708,634
======== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
71
<PAGE> 79
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARE DATA)
(1) The estimated sources and uses of cash required to complete the merger as of
March 31, 1999 are as follows:
<TABLE>
<S> <C>
Sources:
Capital contribution -- Lehman Brothers Merchant Banking
Partners.............................................. $ 402,500
Capital contribution -- Blount management................ 15,000
Senior term loans........................................ 400,000
Senior subordinated notes................................ 325,000
Revolving credit facility................................ 24,715
Reduction of existing Blount cash and cash equivalents... 13,582
----------
Total sources.................................... $1,180,797
==========
Uses:
Payment of cash merger consideration (35,578,963 shares
at $30 per share)..................................... $1,067,369
Settlement of stock options outstanding.................. 51,903
Payoff of existing Blount debt -- net of restricted cash
of $3,461............................................. 10,176
Estimated transaction fees and costs..................... 48,070
Additional funding of executive benefits and benefits
protection trusts..................................... 3,279
----------
Total uses....................................... $1,180,797
==========
</TABLE>
In addition, equity of Blount's existing stockholders in the amount of
$44.5 million, representing 1,483,333 shares at $30 per share, and Blount's
existing senior notes of $148.6 million are assumed to have been carried
forward to the recapitalized New Blount. The actual components of the
estimated sources and uses may ultimately be different than the preceding
estimates.
(2) The estimated tax benefit of deductible merger related expenses not
capitalized is:
<TABLE>
<S> <C>
Transaction fees and costs.................................. $ 3,000
Settlement of stock options outstanding..................... 51,903
Write-off of existing deferred financing costs.............. 334
-------
Total expenses.................................... $55,237
Estimated effective tax rate................................ 38%
-------
Estimated tax benefit....................................... $20,990
=======
</TABLE>
72
<PAGE> 80
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(AMOUNTS IN TABLES IN THOUSANDS, EXCEPT SHARE DATA)
(3) The estimated net increase in other assets consists of:
<TABLE>
<S> <C>
Estimated deferred financing costs associated with the issue
of new debt............................................... $29,806
Write-off of deferred financing costs associated with the
existing Blount debt to be repaid and with the
cancellation of Blount's existing $150 million revolving
credit facility........................................... (334)
Use of restricted industrial development revenue bond cash
funds to retire the related debt.......................... (3,461)
Additional funding of executive benefits and benefits
protection trusts......................................... 3,279
-------
Increase in other assets.......................... $29,290
=======
</TABLE>
(4) The estimated net increase in debt consists of:
<TABLE>
<S> <C>
Issue of new senior term loans.............................. $400,000
Issue of new senior subordinated notes...................... 325,000
New revolving credit facility (classified as a current
liability)................................................ 24,715
Retirement of existing Blount debt -- principally industrial
development revenue bonds (including current portion of
$596)..................................................... (13,637)
--------
Increase in debt.................................. $736,078
========
</TABLE>
(5) The pro forma net reduction in stockholders' equity of $(699,380) results
from:
<TABLE>
<S> <C>
Payment of cash merger consideration...................... $(1,067,369)
Settlement of stock options outstanding, net of tax....... (32,180)
Transaction fees and costs not capitalized, net of tax.... (17,124)
Write-off of existing deferred financing costs, net of
tax..................................................... (207)
Less:
Capital contribution -- Lehman Brothers Merchant Banking
Partners................................................ 402,500
Capital contribution -- Blount management................. 15,000
-----------
$ (699,380)
===========
</TABLE>
73
<PAGE> 81
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
BLOUNT --------------------------------
HISTORICAL ADJUSTMENTS(1) AS ADJUSTED
----------- -------------- -----------
(amounts in thousands, except share data)
<S> <C> <C> <C>
Sales............................. $ 831,930 $ 831,930
Cost of sales..................... 573,658 573,658
----------- -----------
Gross profit...................... 258,272 258,272
Selling, general and
administrative expenses......... 143,703 $ (1,460)(2) 142,243
Infrequent or non-recurring items:
Strategic review costs (merger
expenses).................... 334 (334)(2) 0
Plant closing expenses and
organizational consolidation
costs........................ 575 575
----------- -------- -----------
Income from operations............ 113,660 1,794(2) 115,454
Interest expense.................. (14,323) (73,595)(3) (87,918)
Interest income................... 2,549 (2,549)(3) 0
Other income, net................. 332 332
----------- -------- -----------
Income before income taxes and
extraordinary loss.............. 102,218 (74,350) 27,868
Provision for income taxes........ 38,942 (28,380)(4) 10,562
----------- -------- -----------
Income before extraordinary
loss............................ $ 63,276 $(45,970) $ 17,306
=========== ======== ===========
Earnings per share before
extraordinary loss:
Basic........................... $ 1.69 $ 0.56
=========== ===========
Diluted......................... $ 1.65 $ 0.56
=========== ===========
Shares for EPS computations:
Basic EPS -- Weighted average
shares outstanding........... 37,371,647 30,800,000
Dilutive effect of stock
options...................... 1,022,210
----------- -----------
Diluted EPS..................... 38,393,857 30,800,000
=========== ===========
EBITDA(5)......................... $ 143,954 $ 1,794(2) $ 145,748
=========== ======== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
74
<PAGE> 82
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
BLOUNT ----------------------------------
HISTORICAL ADJUSTMENTS(1) AS ADJUSTED
----------- -------------- -------------
(amounts in thousands, except share data)
<S> <C> <C> <C>
Sales............................. $ 185,103 $ 185,103
Cost of sales..................... 131,524 131,524
----------- -----------
Gross profit...................... 53,579 53,579
Selling, general and
administrative expenses......... 34,960 (245)(2) 34,715
Infrequent or non-recurring items:
Strategic review costs (merger
expenses).................... 650 (650)(2) 0
Plant closing expenses and
organizational consolidation
costs........................ 637 637
Non-cash charitable
contributions................ 1,495 1,495
----------- -------- -----------
Income from operations............ 15,837 895(2) 16,732
Interest expense.................. (3,510) (18,453)(3) (21,963)
Interest income................... 629 (629)(3) 0
Other expense, net................ (49) (49)
----------- -------- -----------
Income before income taxes........ 12,907 (18,187) (5,280)
Provision (benefit) for income
taxes........................... 4,064 (7,158)(4) (3,094)
----------- -------- -----------
Net income (loss)................. $ 8,843 $(11,029) $ (2,186)
=========== ======== ===========
Earnings (loss) per share:
Basic........................... $ 0.24 $ (0.07)
=========== ===========
Diluted......................... $ 0.23 $ (0.07)
=========== ===========
Shares for EPS computations:
Basic EPS -- Weighted average
shares outstanding........... 37,061,509 30,800,000
Dilutive effect of stock
options...................... 998,258
----------- -----------
Diluted EPS..................... 38,059,767 30,800,000
=========== ===========
EBITDA(5)......................... $ 23,467 $ 895(2) $ 24,362
=========== ======== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
75
<PAGE> 83
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(1) A pretax amount of approximately $70.5 million representing transaction fees
and costs not capitalized, the settlement of outstanding stock options and
write-off of existing deferred financing costs will be reflected as an
expense to Blount in the period the merger is completed and has not been
included as a pro forma adjustment in the pro forma condensed consolidated
statements of income.
Management continuously reviews for potential cost reductions. At any time
in this review process, there are projects that will begin in the near future,
and projects that are under study and consideration for future implementation.
At the present time, the status of that review process is as follows ($ in
millions):
<TABLE>
<CAPTION>
EXPECTED
ESTIMATED ANNUAL
COSTS SAVINGS TIMING
----------- -------- ---------------------
<S> <C> <C> <C>
PROJECTS RECENTLY COMPLETED
Consolidation of sales and marketing
organizations of the sporting
equipment segment in the fourth
quarter of 1998 following
November 1997 acquisition of
Federal Cartridge Company. Costs
incurred, primarily severance,
were recognized in the fourth Completed December
quarter of 1998. $0.6 $1.0 1998.
Consolidation of raw materials
purchasing within the sporting
equipment segment was completed
in the third quarter of 1998.
This consolidation involved no
cost, but based on 1998 volumes,
annual savings from combined
purchasing of common raw
materials would be $1.0 million
with $0.3 million achieved in
1998. Consolidation of production
at the lowest cost facility and
the elimination of outsourcing in
the sporting equipment segment
was completed in the third
quarter of 1998 at a cost of less
than $0.1 million. Outsourcing of
pistol bullet plating eliminated
due to available capacity at
Federal Cartridge Company and
consolidation of the production
of some ammunition of Lewiston
operations results in annual
savings of $1.7 million with $0.5
million achieved in the second Third quarter of
half of 1998. $0.1 $2.7 1998.
</TABLE>
76
<PAGE> 84
<TABLE>
<CAPTION>
EXPECTED
ESTIMATED ANNUAL
COSTS SAVINGS TIMING
----------- -------- ---------------------
<S> <C> <C> <C>
PROJECTS UNDERWAY
Closing of one industrial and power
equipment segment manufacturing
facility and consolidation within
two existing facilities. Costs of
$0.6 million, primarily
severance, were recognized in the
first quarter of 1999. Costs of
$1.3 million, primarily in moving
inventory and equipment and plant
rearrangement expenses, were
recognized in the second quarter
of 1999. Remaining costs will be
recognized in the third quarter Began March 1999 --
when expected savings will begin completion expected
to be realized. $2.0 - $2.1 $3.1 July 1999.
Closing of a smaller manufacturing
facility in the industrial and
power equipment segment and
outsourcing manufacturing of
components. Estimated costs of
$0.1 million were recorded in the
second quarter of 1999. The
remaining costs will be
recognized in the third quarter
of 1999 when the expected savings Completion in third
will begin to be realized. $0.2 $0.6 quarter 1999.
PROJECTS TO BEGIN IN NEAR FUTURE
Elimination of the office of the
Chairman, consolidation of
similar corporate and segment
functions, and outsourcing of
corporate administrative
functions following the merger.
Approximately $3.7 million of the
costs to be incurred (severance
and consulting) will be
recognized in the third quarter
of 1999. Remaining costs are
expected to be recognized in the
fourth quarter of 1999 when
expected savings will begin to be
recognized. The expected savings
do not include the payroll costs
of the office of the Chairman Begin August 1999 --
which are in the pro-forma completion expected
financials (see note 2). $4.1 - $5.0 $5.8 January 2000.
</TABLE>
These expected annual savings are not included in the pro forma adjustments
to the pro forma condensed consolidated statements of income for the year ended
December 31, 1998 and the three months ended March 31, 1999. The savings from
the projects recently completed are reflected in Blount's historical
consolidated financial statements as noted above.
77
<PAGE> 85
PROJECTS UNDER REVIEW AND CONSIDERATION
Studies are underway to evaluate distribution processes and distribution
facility needs. These studies are expected to be completed in late 1999 with
implementation beginning in 2000 and completion expected in 2001. Preliminary
estimates indicate potential annual savings of from $2 to $4 million with
implementation expenses of $1.5 to $2.5 million. Until such time as the studies
are completed and implemented, no assurance can be given that these savings can
be achieved or that these projects will be implemented. Actual results could
vary significantly from our estimate.
(2) To recognize payroll cost savings from the elimination of the office of the
Chairman of Blount and eliminate non-recurring strategic review costs
(merger expenses) as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Elimination of payroll costs of the
office of the Chairman of Blount..... $(1,460) $(245)
Strategic review costs (merger
expenses)............................ (334) (650)
------- -----
Adjustments to income from operations
and EBITDA........................... $(1,794) $(895)
======= =====
</TABLE>
The duties of the Chairman now performed by Mr. Blount will be assumed by
Mr. Panettiere who is President and Chief Executive Officer. Management
believes that no other amounts would have been affected as a result of this
change.
(3) Adjustments to reflect the estimated increase in interest expense and
reduction in interest income resulting from the merger and transactions.
Interest rates assumed on the new indebtedness were 8.0%, 8.5% and 10.5% on
the revolving credit facility, senior term loans and senior subordinated
notes, respectively.
78
<PAGE> 86
The pro forma adjustments to interest expense for the periods presented
reflect the following items:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Interest expense on existing senior
debt ($150 million at 7%)............ $(10,500) $ (2,625)
Interest expense on new senior term
loans ($400 million at 8.5%)......... (34,000) (8,500)
Interest expense on new senior
subordinated notes ($325 million at
10.5%)............................... (34,125) (8,531)
Interest expense on new revolving
credit facility ($24.7 million at
8%).................................. (1,977) (494)
Amortization of new deferred financing
costs................................ (3,631) (908)
Other interest expense................. (3,685) (905)
-------- --------
Total pro forma interest
expense......................... (87,918) (21,963)
Less historical interest expense....... (14,323) (3,510)
-------- --------
Pro Forma Adjustment................... $(73,595) $(18,453)
======== ========
</TABLE>
An increase in the assumed interest rates on the new indebtedness of 0.125%
would increase the pro forma interest expense by $937,000 for 1998 and
$234,000 for the three months ended March 31, 1999.
(4) Adjustments to reflect the estimated income tax effect at 38% of the pro
forma adjustments described in note (3) and the payroll costs of the office
of the Chairman of Blount in note (2).
(5) EBITDA represents income from continuing operations before income taxes and
extraordinary loss, interest expense, interest income, depreciation and
amortization (excluding amortization charged to interest expense). EBITDA
should not be considered as an alternative to or more meaningful than, (a)
operating income, as determined in accordance with generally accepted
accounting principles, as an indicator of operating performance or (b) cash
flows from operating, financing or investing activities, as determined in
accordance with generally accepted accounting principles, as a measure of
liquidity. EBITDA is presented as additional information because management
believes it is a useful indicator of the ability to meet debt service and
because it is expected that certain debt covenants will utilize EBITDA to
measure compliance with such covenants.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to similarly titled measures of
other companies.
79
<PAGE> 87
The following table shows all adjustments between income before
extraordinary loss and EBITDA:
RECONCILIATION OF INCOME BEFORE EXTRAORDINARY LOSS TO EBITDA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Income before extraordinary loss................ $ 8,843 $ 63,276
Provision for income taxes...................... 4,064 38,942
Depreciation and amortization (excluding
amortization charged to interest expense)..... 7,679 29,962
Interest expense................................ 3,510 14,323
Interest income................................. (629) (2,549)
------- --------
EBITDA.......................................... $23,467 $143,954
======= ========
</TABLE>
80
<PAGE> 88
THE MERGER AGREEMENT
The merger agreement provides for the acquisition by Lehman Brothers
Merchant Banking Partners of control of New Blount in the merger. This section
of the document describes the material provisions of the merger agreement.
Because the description of the merger agreement contained in this proxy
statement-prospectus is a summary, it does not contain all the information that
may be important to you due to your particular circumstances. You should read
carefully the entire copy of the merger agreement attached as Appendix A to this
proxy statement-prospectus before you decide how to vote.
THE MERGER
The merger agreement requires that Blount stockholders adopt the merger
agreement by the vote of a majority in voting power of the outstanding shares of
Blount class A common stock and Blount class B common stock voting together as a
single class. Following receipt of this approval and the satisfaction or waiver
of the other conditions to the merger, Blount will complete the merger.
In the merger, Blount will merge with Red Dog Acquisition, with Blount
surviving the merger and retaining the name Blount International, Inc. Red Dog
Acquisition is wholly owned by Lehman Brothers Merchant Banking Partners.
Following the merger, existing stockholders of Blount will own
approximately 9.6% of New Blount, and Lehman Brothers Merchant Banking Partners,
its affiliated co-investors and some members of the senior management of Blount
will own approximately 90.4% of New Blount. Blount expects that the merger will
occur as promptly as practicable after the Blount special meeting.
You may find information regarding the merger consideration in the
following sections of this proxy statement-prospectus: "The Merger -- Merger
Consideration" on page 50, "-- Conversion/Retention of Shares; Procedures for
Exchange of Certificates" on page 52 and "-- Fractional Shares" on page 53.
You may find information regarding the treatment in the merger of
outstanding Blount stock options under "The Merger -- Treatment of Options" on
page 57.
CLOSING OF THE MERGER; COMPLETION OF THE MERGER; SURVIVING CORPORATION
Closing of the Merger
Unless the parties agree otherwise, the closing of the merger will take
place as soon as practicable, but in no event later than the second business
day, after the date on which all closing conditions have been satisfied or
waived. The closing of the merger is expected to take place shortly after the
approval of the Blount stockholders at the special meeting, which is expected to
occur in the third calendar quarter of 1999.
Completion of the Merger
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware or any later date specified
in the certificate of merger. The filing of the certificate of merger will occur
as soon as practicable after the closing.
81
<PAGE> 89
Surviving Corporation
Blount will be the surviving corporation of the merger and will retain the
name of Blount International, Inc. In connection with the merger, the
certificate of incorporation and bylaws of Blount will be amended and will
become the certificate of incorporation and bylaws of New Blount, until
subsequently further amended. The initial directors and senior executive
officers of New Blount following the merger are described in "The Merger --
Board of Directors and Executive Officers of New Blount Following the Merger" on
page 57. See "Description of Blount and New Blount Capital Stock" on page 95 and
the restated certificate of incorporation of New Blount, included as Exhibit A
to the merger agreement, and the bylaws of New Blount, included as Exhibit B to
the merger agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
Blount. The representations and warranties are qualified by any matter publicly
disclosed in Blount's filings with the Commission since January 1, 1998 and
prior to the date of the merger agreement and by matters which are stated on a
separate disclosure schedule prepared by Blount and delivered to Red Dog
Acquisition.
In addition, most of Blount's representations and warranties are qualified
by various materiality standards, including exceptions for any matters that
would not have or would not reasonably be likely to have a "material adverse
effect." "Material adverse effect" means any change or effect that would be
materially adverse to the business, properties, assets, liabilities, financial
condition or results of operations of Blount and its subsidiaries, taken as a
whole, or the ability of Blount to perform its obligations under the merger
agreement or to complete the merger, other than any change or effect resulting
from:
- changes in general economic conditions,
- the performance of the merger agreement and compliance with the covenants
in the merger agreement or
- general changes or developments in the industries in which Blount
operates.
Blount makes representations and warranties in the merger agreement
regarding the following matters:
- due organization, qualification, standing and similar corporate matters
of Blount and its subsidiaries;
- the effectiveness of the certificate of incorporation, bylaws and any
comparable charter and organizational documents of Blount and its
subsidiaries;
- the capitalization of Blount;
- the authorization, execution, delivery, performance and enforceability of
the merger agreement;
- the absence of conflicts and compliance with required filings and
consents;
- compliance with laws and other legal requirements;
- the accuracy of information contained in documents filed by Blount with
the Commission and compliance with all Commission filing requirements
since January 1, 1998;
82
<PAGE> 90
- the absence of certain changes or events since December 31, 1998,
including any events that result in a material adverse effect;
- the absence of pending or threatened material litigation or any order,
writ, judgment, injunction, decree or award;
- employee benefit plans and other related matters;
- the filing of tax returns and payment of taxes;
- the accuracy of information contained in this proxy statement-prospectus;
- the absence of labor unions, strikes or work stoppages;
- real property and other real-estate related matters;
- environmental matters;
- the ownership of adequate rights to use all intellectual property
reasonably necessary for the conduct of the business of Blount;
- compliance with Year 2000 standards;
- the delivery of the written fairness opinion by The Beacon Group;
- brokers' fees and expenses; and
- the inapplicability of any antitakeover statute or regulation to the
merger.
The merger agreement also contains customary representations and warranties
of Red Dog Acquisition. Most of the representations and warranties of Red Dog
Acquisition are qualified by various materiality standards, including exceptions
for any matters that would not be, or would not reasonably be likely to be,
materially adverse to Red Dog Acquisition's ability to perform its obligations
under the merger agreement and the transactions contemplated by the merger
agreement.
Red Dog Acquisition makes representations and warranties in the merger
agreement regarding the following matters:
- due organization, qualification, standing and similar corporate matters
of Red Dog Acquisition;
- the authorization, execution, delivery, performance and enforceability of
the merger agreement and the stockholder agreement;
- the absence of conflicts and compliance with required filings and
consents;
- the accuracy of information contained in this proxy statement-prospectus;
- brokers' fees and expenses;
- the merger financing commitments;
- the capitalization and operations of Red Dog Acquisition; and
- Blount common stock owned by Red Dog Acquisition and its affiliates.
COVENANTS
Blount has agreed that, prior to the completion of the merger, it will
conduct its business only in the ordinary course consistent with past practice
and will use its reasonable best efforts to preserve substantially intact its
current business organization, to
83
<PAGE> 91
keep available the services of its present officers and employees and to
preserve its present relationships with customers, suppliers, governmental
entities and other persons with which it has significant business relations.
Blount has agreed that, except as described below, neither it nor its
subsidiaries will, prior to the completion of the merger, without the prior
written consent of Red Dog Acquisition:
- amend its certificate of incorporation or bylaws;
- issue securities or dispose of assets other than in the ordinary course
of business consistent with past practice;
- pay dividends beyond current levels and subject to increases consistent
with past practice;
- change its share capital by effecting a stock split, combination or
reclassification or repurchase or redeem capital stock;
- acquire or sell material stock or assets of other companies or other
businesses;
- incur long-term debt other than in the ordinary course of business;
- enter into or amend any material contract;
- authorize new capital expenditures which in the aggregate exceed $25
million;
- increase the compensation or fringe benefits of directors, officers or
other employees other than in the ordinary course of business, or provide
new, or change, existing benefit plans;
- sell, lease or otherwise dispose of, or grant any lien regarding material
assets or properties;
- make changes in its accounting methods other than as required by a change
in Commission guidelines or generally accepted accounting principles;
- make any material tax election;
- pay material liabilities other than in ordinary course of business or
liabilities that do not exceed $500,000;
- settle or compromise any litigation if the settlement is more than
$250,000 in excess of the amount reserved;
- adopt a plan of liquidation or dissolution, merger or other
reorganization; or
- agree to take any of the above actions.
NO SOLICITATION
The merger agreement provides that, upon its signing, Blount shall
immediately cease any existing discussions or negotiations with any parties
conducted before the signing regarding any takeover proposal. Blount also cannot
engage in negotiations or discussions concerning, or provide any non-public
information to any person or any of its subsidiaries relating to, any takeover
proposal. In addition, Blount may not solicit, initiate, encourage or otherwise
facilitate any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a takeover proposal, or engage in negotiations or
discussions or provide non-public information to any person. The merger
agreement defines a takeover proposal as any proposal or offer for a merger,
recapitalization or similar transaction, sale of a
84
<PAGE> 92
substantial portion of assets of Blount or any of its subsidiaries, sale of 15%
or more of the shares of capital stock of Blount or any of its subsidiaries or
any similar comparable transactions.
The merger agreement provides that these restrictions will not prohibit
Blount, prior to the adoption of the merger agreement by its stockholders, from
participating in negotiations or discussions with, or furnishing information to,
any person concerning an unsolicited takeover proposal, in accordance with a
customary confidentiality agreement, if the following conditions are met:
- the board of directors of Blount determines in good faith, after
consulting its financial advisor and outside legal counsel, that the
takeover proposal could reasonably be expected to constitute a "superior
proposal"; and
- the board of directors of Blount notifies Red Dog Acquisition of the
negotiations or discussions or that it has provided any information to
another party.
In addition, Blount agreed that if its board of directors receives a
takeover proposal or any request for non-public information in connection with a
takeover proposal, Blount will as promptly as reasonably practicable, but no
later than within 24 hours, inform Red Dog Acquisition, orally and in writing,
of the terms and conditions of the proposal and the identity of the person
making it.
The board of directors of Blount will be permitted to withdraw, modify or
change its approval or recommendation of the merger agreement or to approve or
recommend any takeover proposal if the board of directors concludes in good
faith that the takeover proposal, if completed, would constitute a superior
proposal.
The term "superior proposal" means any written takeover proposal which
relates to any proposal or offer for a merger, recapitalization or similar
transaction involving Blount, sale of 75% or more of the assets of Blount or
sale of 50% or more of the shares of Blount common stock and which the board of
directors of Blount determines in good faith, after consultation with its
financial advisor and legal counsel, taking into account all legal, financial,
regulatory and other aspects of the proposal,
- would result in a transaction that is more favorable to Blount's
stockholders than the merger, from a financial point of view; and
- is reasonably capable of being completed.
EMPLOYEE BENEFITS
Under the merger agreement, New Blount and its subsidiaries will assume all
obligations of Blount under existing employee benefit arrangements. In addition,
for at least 24 months following the merger, New Blount will, and will cause its
subsidiaries to, provide and maintain for their employees wages, compensation
levels and benefits that are no less favorable, in the aggregate, than those
provided to employees of Blount as of April 18, 1999. New Blount or its
subsidiaries may amend or terminate their respective benefit plans and may
terminate employees at any time, so long as New Blount complies with this
covenant.
ACCESS TO INFORMATION
In accordance with existing confidentiality obligations, Blount has agreed
to afford Red Dog Acquisition and its representatives reasonable access at all
reasonable times to its officers, employees, agents, properties, offices,
centers and other facilities and to all of its
85
<PAGE> 93
books, contracts and records. In addition, Blount has agreed to furnish Red Dog
Acquisition with all financial, operating and other data and information that it
may from time to time reasonably request.
COOPERATION AND REASONABLE BEST EFFORTS
Under the merger agreement, in accordance with some conditions and
limitations, Blount and Red Dog Acquisition have agreed to cooperate with each
other and to use their reasonable best efforts to take specified actions,
including compliance with applicable laws and regulations, so that the merger
and other transactions contemplated by the merger agreement may be completed.
INDEMNIFICATION AND INSURANCE
Following the merger and through the sixth anniversary of the merger
agreement, New Blount will indemnify and hold harmless, to the fullest extent
permitted by applicable law, each present or former officer, director or
employee of Blount and its subsidiaries against all claims, losses, liabilities,
damages and other costs and expenses arising out of or pertaining to:
- the fact that the indemnified party is or was an officer, director or
employee of Blount or its subsidiaries or
- matters existing or occurring prior to the merger.
New Blount's certificate of incorporation and bylaws will contain
provisions substantially identical to those existing prior to the merger
regarding the elimination of personal liability and indemnification and
advancement of expenses. These provisions will not be amended, repealed or
otherwise modified for a period of six years in any manner that would adversely
affect the rights of officers, directors or employees of Blount at the time of
the merger.
In addition, New Blount has agreed to continue, at no expense to the
beneficiaries, for six years the directors' and officers' liability insurance
policies maintained by Blount regarding matters existing or occurring at or
prior to the completion of the merger. New Blount may substitute policies of at
least the same coverage containing terms and conditions which are not materially
less advantageous to any beneficiary as the policies in effect on April 18,
1999.
STOCK EXCHANGE LISTING
Upon completion of the merger, New Blount will use its reasonable best
efforts to maintain the listing of the New Blount common stock on the New York
Stock Exchange for at least three years. If the New Blount shares are
subsequently determined to be ineligible for listing on the New York Stock
Exchange, New Blount will use its reasonable best efforts to cause the New
Blount shares to be accepted for quotation on the NASDAQ Stock Market. New
Blount will not take any action, for at least three years from the completion of
the merger, to cause the listing to be terminated, except:
- in accordance with all applicable requirements of the New York Stock
Exchange or NASDAQ, and
- with the approval of a majority of the shares of New Blount common stock,
other than those shares held by Lehman Brothers Merchant Banking Partners
and its affiliates.
86
<PAGE> 94
CONDITIONS TO THE COMPLETION OF THE MERGER
The respective obligations of Blount and Red Dog Acquisition to complete
the merger are subject to the satisfaction of the following conditions:
- the Blount stockholders must adopt the merger agreement;
- the waiting period under the HSR Act must have terminated or expired;
- there may be no statute, rule, regulation, executive order, decree,
ruling, injunction or other order enacted, entered, promulgated or
enforced by any United States or state court or governmental authority
which prohibits, restrains or enjoins the completion of the merger; and
- there may be no stop order, or proceedings seeking a stop order,
suspending the effectiveness of the registration statement of which this
proxy statement-prospectus is a part, and any material state securities
laws applicable to the registration and qualification of New Blount
common stock following the merger must have been complied with.
As of the date of this proxy statement-prospectus, the second condition
described above has been satisfied.
Red Dog Acquisition's obligations to complete the merger are also subject
to the satisfaction or waiver of the following conditions:
- the representations and warranties made by Blount in the merger agreement
must be true and correct in all material respects at the closing date as
though made on the closing date, except to the extent any failures to be
so true and correct would not have or would not reasonably be likely to
have a material adverse effect;
- Blount shall have performed in all material respects all of its material
obligations under the merger agreement;
- Red Dog Acquisition must have received evidence, in form and substance
reasonably satisfactory to it, that all specified consents of
governmental authorities have been obtained, except where the failure to
obtain such consents would not have or would not reasonably be likely to
have a material adverse effect;
- there must be no pending proceeding by any U.S. federal governmental
body:
- challenging or seeking to restrain or prohibit the completion of the
merger or seeking to obtain material damages from Red Dog Acquisition
or any of its affiliates,
- seeking to limit Red Dog Acquisition's ownership or operation of any
material portion of Blount's business or assets or
- seeking to limit the ability of Red Dog Acquisition to acquire or
hold, or exercise full rights of ownership of, any shares of Blount
common stock, including the right to vote Blount common stock on all
matters properly presented to Blount stockholders, except in each case
where any such action would not have or would not reasonably be likely
to have a material adverse effect;
- Red Dog Acquisition must have received agreements from persons who are
affiliates of Blount at the time of the special meeting providing that
these persons will
87
<PAGE> 95
comply with restrictions on the resale of New Blount common stock
required by federal securities laws;
- Blount must have received the proceeds of the merger financing on the
terms and conditions stated in the debt financing commitment letters or
upon terms and conditions which are substantially equivalent or
reasonably satisfactory to Red Dog Acquisition (see "The Merger -- Merger
Financings" on page 63);
- The number of dissenting shares (other than shares held by some
significant investors) shall not exceed 5% of the issued and outstanding
shares of common stock; and
- Red Dog Acquisition must be reasonably satisfied that the merger will be
recorded as a recapitalization for financial reporting purposes.
Blount's obligations to complete the merger are also subject to the
satisfaction or waiver of the following additional conditions:
- the representations and warranties made by Red Dog Acquisition in the
merger agreement must be true and correct in all material respects as of
the closing date as though made on the closing date, except to the extent
failures to be so true and correct would not be, or would not reasonably
be likely to be, materially adverse to the ability of Red Dog Acquisition
to perform its obligations under the merger agreement;
- Red Dog Acquisition shall have performed in all material respects all of
its material obligations under the merger agreement;
- Blount and its board of directors shall have received a reasonably
satisfactory solvency opinion from an appraisal firm; and
- the New Blount common stock shall be approved for listing on the New York
Stock Exchange or for quotation on the NASDAQ Stock Market.
TERMINATION
Blount and Red Dog Acquisition may agree at any time to terminate the
merger agreement before completing the merger.
Either party may also terminate the merger agreement if, among other
reasons:
- the parties do not complete the merger by September 30, 1999;
- a U.S. governmental authority has issued a final order blocking the
merger, or a foreign governmental authority has issued a similar order
which would have or would reasonably be likely to have a material adverse
effect;
- Blount stockholders do not adopt the merger agreement at the special
meeting; or
- the other party is in material breach of any of its obligations under the
merger agreement and the breach is not cured within 10 business days.
In addition, Red Dog Acquisition may terminate the merger agreement if,
among other reasons:
- our board has withdrawn or modified in a manner adverse to Red Dog
Acquisition its recommendation of the merger agreement;
- our board has approved a takeover proposal other than the merger; or
88
<PAGE> 96
- The Blount Holding Company is in material breach of any of its
obligations under the stockholder agreement and the breach is not cured
within 10 business days.
Finally, Blount may terminate the merger agreement prior to adoption of the
merger agreement by its stockholders if the board has approved, in compliance
with the terms of the merger agreement, another proposal which is superior to
the merger, subject to paying the termination fee described below.
TERMINATION FEES AND EXPENSES
Blount has agreed to pay Red Dog Acquisition a $34 million termination fee
if any of the following events occur:
- our board terminates the merger agreement because it has approved another
proposal which is superior to the merger;
- Red Dog Acquisition terminates the merger agreement because our board has
withdrawn or modified in a manner adverse to Red Dog Acquisition its
recommendation of the merger agreement;
- Red Dog Acquisition terminates the merger agreement because Blount has
breached its obligation not to solicit other takeover proposals; or
- our board or Red Dog Acquisition terminates the merger agreement after
the Blount stockholders fail to adopt the merger agreement and while
another takeover proposal is pending. The termination fee is not payable
in this case unless Blount enters into an agreement for another takeover
proposal or another takeover proposal is completed within 18 months after
termination of the merger agreement.
AMENDMENT AND WAIVER
Blount and Red Dog Acquisition may amend the merger agreement by action
taken by or on behalf of their boards of directors at any time prior to the
completion of the merger. After Blount stockholders have adopted the merger
agreement, Blount and Red Dog Acquisition may not amend the merger agreement in
any way which by law would require further stockholder approval, including any
amendment which alters or changes the consideration to be received by the
stockholders in the merger, without stockholder approval. At any time prior to
the completion of the merger, Blount or Red Dog Acquisition may, to the extent
legally allowed:
- extend the time for the performance of any of the obligations or other
acts of the other party;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered in accordance with the
merger agreement; and
- waive compliance with any of the agreements or conditions in the merger
agreement.
Any extension or waiver will be valid if provided for in writing and signed
by the parties to be bound.
89
<PAGE> 97
THE STOCKHOLDER AGREEMENT
The stockholder agreement provides that The Blount Holding Company will
vote its shares of Blount common stock in favor of the adoption of the merger
agreement. This section of the document describes the material provisions of the
stockholder agreement. Because the description of the stockholder agreement
contained in this proxy statement-prospectus is a summary, it does not contain
all the information that may be important to you due to your particular
circumstances. You should read carefully the entire copy of the stockholder
agreement attached as Appendix B to this proxy statement-prospectus before you
decide how to vote.
As a condition to the willingness of Red Dog Acquisition to enter into the
merger agreement, The Blount Holding Company, which holds approximately 62% in
voting power of the outstanding Blount common stock, entered into a stockholder
agreement with Red Dog Acquisition dated as of April 18, 1999.
Subject to certain exceptions and conditions, The Blount Holding Company
has agreed to vote, and has given Red Dog Acquisition its irrevocable proxy to
vote, all the shares of Blount common stock issued and outstanding and
beneficially owned by it, as of the date of the stockholder agreement, as well
as any shares for which The Blount Holding Company becomes the owner after the
date of the stockholder agreement and prior to the record date for the special
meeting:
- in favor of the adoption of the merger agreement; and
- against any takeover proposal, any dissolution, liquidation or winding up
of or by Blount, any amendment of the certificate of incorporation or
bylaws of Blount or any other proposal which would in any manner impede,
frustrate, prevent or nullify any material provision of the merger
agreement or the merger or change in any manner the voting rights of
Blount common stock.
The Blount Holding Company's obligations to vote its shares in favor of the
merger agreement is subject to the following representations and warranties made
by Red Dog Acquisition being true (or waived, if applicable, by The Blount
Holding Company):
- due organization, qualification, standing and similar corporate matters
of Red Dog Acquisition;
- the authorization, execution, delivery, performance and enforceability of
the stockholder agreement and the merger agreement; and
- the absence of conflicts and compliance with required filings and
consents.
The Blount Holding Company has also agreed not to sell or, except as
otherwise contemplated by the stockholder agreement, pledge or take other
similar action as to any Blount common stock which it owns or enter into any
voting agreement regarding the Blount common stock.
Subject to the terms and conditions of the stockholder agreement, The
Blount Holding Company has agreed to:
- refrain from soliciting, initiating or encouraging the submission of any
takeover proposals regarding Blount;
- refrain from entering into any agreement regarding any takeover proposal;
or
90
<PAGE> 98
- refrain from directly or indirectly discussing or negotiating or
furnishing information regarding any takeover proposal.
The stockholder agreement terminates upon the earliest of
- the completion of the merger;
- the termination of the merger agreement;
- the election of The Blount Holding Company following any amendment of any
material provision of the original unamended merger agreement;
- the election of The Blount Holding Company following a material breach of
any provision of the stockholder agreement by Red Dog Acquisition which
shall not have been cured within 10 business days; or
- the election of Red Dog Acquisition following a material breach of any
provision of the stockholder agreement by The Blount Holding Company
which shall not have been cured within 10 business days.
91
<PAGE> 99
SECURITY OWNERSHIP OF
BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of June 10, 1999 regarding the
beneficial ownership of Blount's common stock by each person who is known by
Blount to own beneficially more than 5% of the outstanding shares of Blount's
common stock, each director of Blount, certain executive officers of Blount and
all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIALLY OF OF TOTAL
NAME AND ADDRESS OF BENEFICIAL OWNERS TITLE OF CLASS OWNED CLASS VOTES(1)
-------------------------------------------- --------------------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
(a) Holders of more than 5% of class A common
stock and class B common stock
The Blount Holding Company, L.P............. class A common stock 2,892,144(2) 11.26% 2.07%
4520 Executive Park Drive class B common stock 8,409,696(2) 73.85% 60.25%
Montgomery, Alabama 36116
BHP, Inc.................................... class A common stock 2,892,144(3) 11.26% 2.07%
4520 Executive Park Drive class B common stock 8,409,696(3) 73.85% 60.25%
Montgomery, Alabama 36116
Winton M. Blount............................ class A common stock 3,122,846(7) 12.11% 2.24%
class B common stock 9,631,901(7) 84.58% 69.01%
The Northern Trust Company.................. class A common stock 2,841,785(4) 11.05% 2.04%
50 South LaSalle Street class B common stock None
Chicago, Illinois 60675
Portfolio H Investors, L.P. ................ class A common stock 2,761,200 10.75% 1.98%
201 Main St., Suite 3200 class B common stock None
Fort Worth, Texas 76102
The Prudential Insurance Company of
America..................................... class A common stock 1,474,515 5.74% 1.06%
751 Broad Street class B common stock None
Newark, New Jersey 07102-3777
(b)(i) Directors of Blount
Haley Barbour............................... class A common stock 1,273(5) * *
class B common stock None
C. Todd Conover............................. class A common stock 5,000 * *
class B common stock None
Andrew A. Sorensen.......................... class A common stock 1,298 * *
class B common stock None
Samuel R. Blount............................ class A common stock 819,334(6) 3.19% *
class B common stock 124,032(6) 1.09% *
Winton M. Blount............................ class A common stock 3,122,846(7) 12.11% 2.24%
class B common stock 9,631,901(7) 84.58% 69.01%
W. Houston Blount........................... class A common stock 4,564 * *
class B common stock 2,664 * *
R. Eugene Cartledge......................... class A common stock 5,000 * *
class B common stock None
H. Corbin Day............................... class A common stock 26,912(8) * *
class B common stock None
</TABLE>
92
<PAGE> 100
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIALLY OF OF TOTAL
NAME AND ADDRESS OF BENEFICIAL OWNERS TITLE OF CLASS OWNED CLASS VOTES(1)
-------------------------------------------- --------------------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
Mary D. Nelson.............................. class A common stock 8,266 * *
class B common stock None
John M. Panettiere.......................... class A common stock 1,018,587(9) 3.82% *
class B common stock None
Arthur P. Ronan............................. class A common stock 2,000 * *
class B common stock None
(ii) Named Executive Officers
James S. Osterman........................... class A common stock 197,448(10) * *
class B common stock None
Harold E. Layman............................ class A common stock 376,013(11) 1.44% *
class B common stock None
D. Joseph McInnes........................... class A common stock 324,600(12) 1.25% *
class B common stock None
(iii) All directors and executive officers as a
group (17 persons).......................... class A common stock 6,234,086(13) 22.40% 4.40%
class B common stock 9,758,597 85.69% 69.92%
</TABLE>
- -------------------------
* Less than 1.0% of class or total votes.
(1) Percent of total votes on all matters other than the election of directors.
(2) The Blount Holding Company, L.P. is a limited partnership whose sole
general partner is BHP, Inc., a Delaware corporation controlled by Winton
M. Blount.
(3) Includes 2,892,144 shares of class A common stock and 8,409,696 shares of
class B common stock owned by The Blount Holding Company, L.P.
(4) The Northern Trust Company serves as the Master Trustee for Blount's 401(k)
Retirement Savings Plan, or the "401(k) Plan". The shares listed are held
for the benefit of the participants in the 401(k) Plan. Under the terms of
the 401(k) Plan, as amended, and the Trust, the Trustee is to vote the
allocated shares held by the 401(k) Plan in accordance with the
instructions received from 401(k) Plan participants and to dispose of the
allocated shares in connection with tender offers in accordance with
directions received from 401(k) Plan participants. If no voting
instructions or invalid voting instructions are received with respect to
allocated shares, the Trustee is to vote such shares in the same manner and
in the same proportions as the allocated shares for which the Trustee
received valid voting instructions are voted. Also, regarding allocated
shares, if no directions or invalid directions are received in connection
with tendering shares, the Trustee is to treat such allocated shares as if
401(k) Plan participants instructed the Trustee not to dispose of such
shares. Regarding unallocated shares, the Trustee is to vote such shares,
or dispose of such shares in connection with tender offers, in the same
manner and in the same proportion as the allocated shares with respect to
which the Trustee received valid voting instructions or directions are
voted or disposed. The Northern Trust Company, as Trustee, expressly denies
beneficial ownership in the shares listed.
(5) Includes 200 shares of class A common stock (less than 1.0% of class and
total votes) owned by Haley Barbour's wife.
(6) Includes 21,546 shares of class A common stock (less than 1.0% of class and
total votes) and 19,434 shares of class B common stock (less than 1.0% of
class and total votes) held by Samuel R. Blount as custodian for his
children. Includes 796,910 shares of class A common stock (3.10% of class
and less than 1.0% of total votes) held by SRB-BLTA, L.L.C. and 104,598
shares of class B common stock (less than 1.0% of class and total votes)
held by SRB-BLTB, L.L.C., of which Samuel R. Blount is the managing member
and of which Samuel R. Blount and his wife are the sole members.
93
<PAGE> 101
(7) Includes 122,918 shares of class A common stock (less than 1.0% of class
and total votes) and 184,718 shares of class B common stock (1.62% of class
and 1.32% of total votes) owned by Winton M. Blount's wife. Includes the
2,892,144 shares of class A common stock (11.26% of class, 2.07% of total
votes) and 8,409,696 shares of class B common stock (73.85% of class,
60.25% of total votes) shown in the table as owned by The Blount Holding
Company, L.P. Includes the 100,000 shares of class A common stock (less
than 1.0% of class and total votes) which are subject to a right to acquire
beneficial ownership within 60 days under the 1995 Blount Long-Term
Executive Stock Option Plan.
(8) Includes 15,000 shares of class A common stock (less than 1.0% of class and
total votes) held by the Day Family Foundation, of which H. Corbin Day is a
trustee and shares disposition and voting rights with his wife, the only
other trustee.
(9) Includes 943,641 shares of class A common stock (3.54% of class and less
than 1.0% of total votes) which are subject to a right to acquire
beneficial ownership within 60 days under the 1994 Blount Executive Stock
Option Plan, the 1995 Blount Long-Term Executive Stock Option Plan, the
1992 Blount Incentive Stock Option Plan, and the 1998 Blount Long-Term
Executive Stock Option Plan.
(10) Includes 158,834 shares of class A common stock (less than 1.0% of class
and total votes) which are subject to a right to acquire beneficial
ownership within 60 days under the 1992 Blount Incentive Stock Option Plan,
the 1995 Blount Long-Term Executive Stock Option Plan, and the 1998 Blount
Long-Term Executive Stock Option Plan.
(11) Includes 367,500 shares of class A common stock (1.41% of class and less
than 1.0% of total votes) which are subject to a right to acquire
beneficial ownership within 60 days under the 1992 Blount Incentive Stock
Option Plan, the 1994 Blount Executive Stock Option Plan, the 1995 Blount
Long-Term Executive Stock Option Plan, and the 1998 Blount Long-Term
Executive Stock Option Plan.
(12) Includes 277,500 shares of class A common stock (1.07% of class and less
than 1.0% of total votes) which are subject to a right to acquire
beneficial ownership within 60 days under the 1994 Blount Executive Stock
Option Plan, the 1995 Blount Long-Term Executive Stock Option Plan, and the
1998 Blount Long-Term Executive Stock Option Plan.
(13) Includes 2,134,164 shares of class A common stock (7.67% of class, 1.51% of
total votes) which are subject to a right to acquire beneficial ownership
within 60 days under the 1992 Blount Incentive Stock Option Plan, the 1994
Blount Executive Stock Option Plan, the 1995 Blount Long-Term Executive
Stock Option Plan, and the 1998 Blount Long-Term Executive Stock Option
Plan.
94
<PAGE> 102
DESCRIPTION OF BLOUNT AND NEW BLOUNT CAPITAL STOCK
A description of the capital stock of Blount and New Blount is stated
below. The following statements are summaries of, and are subject to the
detailed provisions of, the Blount and the New Blount certificates of
incorporation and bylaws, and to the relevant provisions of the DGCL.
Blount is authorized to issue up to 78,456,855 shares of capital stock, of
which 4,456,855 shares, par value $0.01 per share, are preferred stock,
60,000,000 shares, par value $0.01 per share, are class A common stock, and
14,000,000 shares, par value $0.01 per share, are class B common stock.
Holders of Blount common stock are entitled to share ratably in the assets
available for distribution on liquidation, dissolution or winding up, subject,
if preferred stock of Blount is authorized and outstanding, to any preferential
rights of the preferred stock. Holders of Blount class A common stock and class
B common stock vote as a single class, with holders of class A common stock
receiving 1/10 of a vote per share, and holders of class B common stock
receiving one vote per share, except for the election and removal of directors,
where holders of class A common stock and class B common stock shall vote as
separate classes. Holders of class A common stock are entitled to elect 25% of
the board, and holders of class B common stock are entitled to elect 75% of the
board.
In the merger, the restated certificate of incorporation of Blount, as
amended, will be amended to read in its entirety as described in Exhibit A to
the merger agreement and, as so amended, shall be the restated certificate of
incorporation of New Blount, until subsequently amended as provided in the
restated certificate of incorporation and under the DGCL. Under its restated
certificate of incorporation, New Blount will be authorized to issue only one
class of common stock, and holders of such stock shall have equal voting rights
on all matters. New Blount will be authorized to issue 100,000,000 shares of
common stock. Holders of New Blount common stock will be entitled to share
ratably in the assets available for distribution on liquidation, dissolution or
winding up, subject, if preferred stock of New Blount is authorized and
outstanding, to any preferential rights of the preferred stock.
In addition, if the board of directors of New Blount declares and pays
dividends on New Blount common stock, all holders of New Blount common stock
will be paid the same amount of dividends per share. In the case of Blount
common stock, the restated certificate of incorporation of Blount provides that
holders of Blount class A common stock shall be paid $0.0083 1/3 per share in
addition to the amount payable for each share of Blount class B common stock for
each quarter for which a cash dividend is declared and paid. As a result of the
merger, holders of Blount class A common stock will give up their preferential
dividend payment treatment while holders of Blount class B common stock will
give up their preferential voting rights.
In addition, the bylaws of New Blount as in effect prior to the completion
of the merger will be amended in connection with the merger to read in their
entirety as described in Exhibit B to the merger agreement.
95
<PAGE> 103
INFORMATION CONCERNING RED DOG ACQUISITION, CORP. AND
LEHMAN BROTHERS MERCHANT BANKING PARTNERS II L.P.
Red Dog Acquisition is a newly formed Delaware corporation and is wholly
owned by Lehman Brothers Merchant Banking Partners. Red Dog Acquisition was
formed solely for purposes of the merger. The principal business and office
address of Red Dog Acquisition, Corp. is c/o Lehman Brothers Merchant Banking
Partners II L.P., 3 World Financial Center, 200 Vesey Street, New York, NY
10285.
Lehman Brothers Merchant Banking Partners and its affiliated co-investors
together comprise a $2.0 billion institutional merchant banking fund focused on
investments in established operating companies. The principal business and
office address of Lehman Brothers Merchant Banking Partners is 3 World Financial
Center, 200 Vesey Street, New York, NY 10285.
WHERE YOU CAN FIND MORE INFORMATION
Blount files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any reports,
statements or other information that Blount files with the Commission at the
Commission's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. These Commission filings are also
available to the public from commercial document retrieval services at the
Internet world wide web site maintained by the Commission at
"http://www.sec.gov." Reports, proxy statements and other information filed by
Blount should also be available for inspection at the offices of the New York
Stock Exchange, 120 Broad Street, New York, New York 10005.
You should rely only on the information contained or incorporated by
reference in this proxy statement-prospectus. Blount has not authorized anyone
to provide you with information that is different from what is contained in this
proxy statement-prospectus. This proxy statement-prospectus is dated July 15,
1999. You should not assume that the information contained in this proxy
statement-prospectus is accurate as of any date other than that date or such
other date as this proxy statement-prospectus indicates. The mailing of this
proxy statement-prospectus to Blount stockholders does not create any
implication to the contrary.
BLOUNT INCORPORATED DOCUMENTS
As allowed by the Commission's rules, this proxy statement-prospectus does
not contain all the information described in Blount's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporates important business and
financial information about Blount that is not included in or delivered with
this proxy statement - prospectus. The Commission allows Blount to "incorporate
by reference" information into this proxy statement-prospectus, which means that
Blount can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is considered part of this proxy statement-prospectus, except for any
information superseded by information contained directly in this proxy
statement-prospectus or in later filed documents incorporated by reference in
this proxy statement-prospectus.
This proxy statement-prospectus incorporates by reference the documents
described below that Blount has previously filed with the Commission. These
documents contain
96
<PAGE> 104
important information about Blount and its finances and should be reviewed
carefully and fully. Some of these filings have been amended by later filings,
which are also listed.
<TABLE>
<CAPTION>
BLOUNT COMMISSION FILINGS
(FILE NO. 1-11549) PERIOD/ AS OF DATE
------------------------- ------------------
<S> <C>
Annual Report on Form 10-K and Form
10-K/A.................................. Year ended December 31, 1998
Quarterly Report on Form 10-Q and Form
10-Q/A.................................. Quarter ended March 31, 1999
Current Reports on Form 8-K............... Filed April 20, 1999 and April 27, 1999
Proxy Statement for Annual Meeting........ Filed March 10, 1999
</TABLE>
All documents filed by Blount under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, subsequent to the date of this proxy
statement-prospectus and prior to the date of the special meeting will be
considered to be incorporated in this proxy statement-prospectus by reference
and to be a part hereof from the date of filing. Any statement contained herein
or in a document incorporated or deemed to be incorporated in this proxy
statement-prospectus by reference will be considered to be modified or
superseded for purposes of this proxy statement-prospectus to the extent that a
statement contained in this proxy statement-prospectus or in any other
subsequently filed document which also is, or is considered to be, incorporated
in this proxy statement-prospectus by reference modifies or supersedes the
statement. Any statement so modified or superseded will not be considered to
constitute a part of this proxy statement-prospectus, except as modified or
superseded.
Any document filed by Blount with the Commission and incorporated by
reference (excluding exhibits, unless specifically incorporated in this proxy
statement-prospectus) are available without charge upon written request to
Blount, 4520 Executive Park Drive, Montgomery, AL 36116. Telephone requests may
be directed to Richard H. Irving, III -- General Counsel at (334) 244-4000.
If you would like to receive documents from Blount, please request them by
August 4, 1999, in order to receive them before the special meeting.
LEGAL OPINIONS
The validity of the shares of New Blount common stock to be issued in
connection with the merger and the material U.S. federal income tax consequences
of the merger will be passed upon by Simpson Thacher & Bartlett, New York, New
York, special outside legal counsel to Blount.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Blount at December 31, 1998 and
December 31, 1997 and for each of the two years in the period ended December 31,
1998 and the ten months ended December 31, 1996, included in Blount's Annual
Report on Form 10-K for the year ended December 31, 1998 incorporated by
reference in this proxy statement-prospectus, have been incorporated by
reference in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of such firm as experts in accounting and
auditing. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the special meeting. Those representatives will be available to
respond to appropriate questions.
97
<PAGE> 105
STOCKHOLDER PROPOSALS
Any proposals of Blount stockholders intended to be presented at the 2000
annual meeting of Blount stockholders must be received by the Secretary of
Blount no later than November 1, 1999 in order to be considered for inclusion in
the Blount 2000 annual meeting proxy materials.
OTHER MATTERS
As of the date of this proxy statement-prospectus, the Blount board knows
of no matters that will be presented for consideration at the special meeting
other than as described in this proxy statement-prospectus. If any other matters
shall properly come before either the special meeting or any adjournments or
postponements thereof to be voted upon, the enclosed proxies will be considered
to confer discretionary authority on the individuals named in the proxies to
vote the shares represented by those proxies as to those matters. The persons
named as proxies intend to vote or not to vote in accordance with the
recommendation of the board of directors of Blount.
We have not authorized anyone to give any information or make any
representation about the merger or Blount that differs from or adds to the
information in this document or in our documents that are publicly filed with
the Commission. Therefore, if anyone does give you different or additional
information, you should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
proxy statement-prospectus or to ask for proxies, or if you are a person to whom
it is unlawful to direct such activities, then the offer presented by this proxy
statement-prospectus does not extend to you.
The information contained in this proxy statement-prospectus speaks only as
of its date unless the information specifically indicates that another date
applies.
98
<PAGE> 106
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
BETWEEN
RED DOG ACQUISITION, CORP.
AND
BLOUNT INTERNATIONAL, INC.
DATED AS OF APRIL 18, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER................................................................ 1
SECTION 1.1 The Merger.................................................. 1
SECTION 1.2 Closing; Effective Time..................................... 2
SECTION 1.3 Effects of the Merger....................................... 2
SECTION 1.4 Certificate of Incorporation; By-Laws....................... 2
SECTION 1.5 Directors and Officers...................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS............................................................ 3
SECTION 2.1 Effect on Capital Stock..................................... 3
SECTION 2.2 Treatment of Employee Options............................... 3
SECTION 2.3 Appraisal Rights............................................ 4
SECTION 2.4 Company Common Stock Elections.............................. 4
SECTION 2.5 Proration................................................... 6
SECTION 2.6 Exchange of Certificates.................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. 9
SECTION 3.1 Organization and Qualification; Subsidiaries................ 9
SECTION 3.2 Certificate of Incorporation and By-laws.................... 9
SECTION 3.3 Capitalization.............................................. 10
SECTION 3.4 Authority Relative to This Agreement........................ 10
SECTION 3.5 No Conflict; Required Filings and Consents.................. 11
SECTION 3.6 Compliance.................................................. 12
SECTION 3.7 SEC Filings; Financial Statements; Liabilities.............. 12
SECTION 3.8 Absence of Certain Changes or Events........................ 13
SECTION 3.9 Absence of Litigation....................................... 13
SECTION 3.10 Employee Benefit Plans...................................... 13
SECTION 3.11 Tax Matters................................................. 15
SECTION 3.12 Form S-4; Proxy Statement................................... 16
SECTION 3.13 Labor Matters............................................... 16
SECTION 3.14 Properties.................................................. 16
SECTION 3.15 Environmental Matters....................................... 17
SECTION 3.16 Intellectual Property....................................... 18
SECTION 3.17 Year 2000................................................... 19
SECTION 3.18 Opinion of Financial Advisor................................ 19
SECTION 3.19 Brokers..................................................... 19
SECTION 3.20 Takeover Statutes; Rights Plans............................. 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO................................... 19
SECTION 4.1 Corporate Organization...................................... 19
SECTION 4.2 Authority Relative to This Agreement........................ 19
SECTION 4.3 No Conflict; Required Filings and Consents.................. 20
SECTION 4.4 Form S-4; Proxy Statement................................... 21
SECTION 4.5 Brokers..................................................... 21
SECTION 4.6 Financing................................................... 21
SECTION 4.7 Operations of Newco......................................... 21
SECTION 4.8 Ownership of Company Common Stock........................... 22
</TABLE>
i
<PAGE> 108
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER.................................... 22
SECTION 5.1 Conduct of Business of the Company Pending the Merger....... 22
ARTICLE VI
ADDITIONAL AGREEMENTS..................................................... 24
SECTION 6.1 Stockholders Meeting........................................ 24
SECTION 6.2 Form S-4 and Proxy Statement................................ 24
SECTION 6.3 Resignation of Directors.................................... 25
SECTION 6.4 Access to Information; Confidentiality...................... 25
SECTION 6.5 No Solicitation of Transactions............................. 25
SECTION 6.6 Employment and Employee Benefits Matters.................... 27
SECTION 6.7 Directors' and Officers' Indemnification and Insurance...... 28
SECTION 6.8 Further Action; Efforts..................................... 29
SECTION 6.9 Public Announcements........................................ 31
SECTION 6.10 Listing..................................................... 31
SECTION 6.11 Letter as to Solvency....................................... 32
SECTION 6.12 Affiliates.................................................. 32
SECTION 6.13 Third Party Standstill Agreements; Tortious Interference.... 32
ARTICLE VII
CONDITIONS OF MERGER...................................................... 32
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger...................................................... 32
SECTION 7.2 Conditions to Obligations of Newco.......................... 33
SECTION 7.3 Conditions to Obligations of the Company.................... 34
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER......................................... 35
SECTION 8.1 Termination................................................. 35
SECTION 8.2 Effect of Termination....................................... 36
SECTION 8.3 Fees and Expenses........................................... 36
SECTION 8.4 Amendment................................................... 37
SECTION 8.5 Waiver...................................................... 37
ARTICLE IX
GENERAL PROVISIONS........................................................ 37
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements.................................................. 37
SECTION 9.2 Notices..................................................... 37
SECTION 9.3 Certain Definitions......................................... 38
SECTION 9.4 Severability................................................ 39
SECTION 9.5 Entire Agreement; Assignment................................ 40
SECTION 9.6 Parties in Interest......................................... 40
SECTION 9.7 Governing Law............................................... 40
SECTION 9.8 Headings.................................................... 40
SECTION 9.9 Counterparts................................................ 40
SECTION 9.10 Specific Performance; Jurisdiction.......................... 40
</TABLE>
Exhibit A -- Certificate of Incorporation of the Company
Exhibit B -- By-laws of the Company
Exhibit C -- Form of Company Affiliate Letter
ii
<PAGE> 109
INDEX OF PRINCIPAL TERMS
<TABLE>
<S> <C>
Affected Employees.......................................... 27
Agreement................................................... 1
Bank Commitment Letter...................................... 21
Cash Election Price......................................... 3
Cash Proration Factor....................................... 6
Certificate of Incorporation................................ 2
Certificate of Merger....................................... 2
Certificates................................................ 7
Closing..................................................... 2
Closing Date................................................ 2
Code........................................................ 13
Company..................................................... 1
Company Affiliated Group.................................... 15
Company Class A Common Stock................................ 1
Company Class B Common Stock................................ 1
Company Common Stock........................................ 1
Company Plans............................................... 13
Company Preferred Stock..................................... 10
Company Securities.......................................... 10
Company's Benefits Protection Trust......................... 15
Confidentiality Agreement................................... 25
Contribution Amount......................................... 21
Controlled Group............................................ 14
Costs....................................................... 28
Debt Financings............................................. 21
DGCL........................................................ 1
Disclosure Schedule......................................... 9
Dissenting Shares........................................... 4
DOJ......................................................... 29
Effective Time.............................................. 2
Electing Shares............................................. 3
Election Date............................................... 5
Employee Option............................................. 3
Employment Agreements....................................... 13
ERISA....................................................... 13
Exchange Act................................................ 5
Exchange Agent.............................................. 4
Exchange Fund............................................... 8
Financial Advisor........................................... 19
Financings.................................................. 21
Form 10-K................................................... 12
Form of Election............................................ 4
Form S-4.................................................... 11
FTC......................................................... 29
Governmental Entity......................................... 11
HSR Act..................................................... 11
Indemnified Parties......................................... 28
Intellectual Property....................................... 18
Listing..................................................... 31
Management Agreements....................................... 1
</TABLE>
iii
<PAGE> 110
<TABLE>
<S> <C>
Material Adverse Effect..................................... 9
Merger...................................................... 1
Merger Consideration........................................ 3
New Certificates............................................ 7
New Employment Agreements................................... 1
Newco....................................................... 1
Non-Cash Election........................................... 4
Non-Cash Election Number.................................... 6
Non-Cash Election Shares.................................... 1
Non-Cash Proration Factor................................... 6
NYSE........................................................ 5
Parent...................................................... 1
Parent Commitment Letter.................................... 21
Policies.................................................... 27
Principal Stockholder....................................... 1
Proxy Statement............................................. 16
Rabbi Trust................................................. 15
Real Properties............................................. 16
Representatives............................................. 25
Rule 145.................................................... 1
SEC......................................................... 1
SEC Reports................................................. 12
Securities.................................................. 1
Securities Act.............................................. 11
Senior Notes................................................ 30
Severance Plans............................................. 13
Shares...................................................... 1
Stockholder Agreement....................................... 1
Stockholders Meeting........................................ 24
Subsidiary.................................................. 39
Superior Proposal........................................... 26
Surviving Corporation....................................... 2
Takeover Proposal........................................... 26
Tax Return.................................................. 16
Taxes....................................................... 15
Termination Date............................................ 35
Termination Fee............................................. 36
The Blount, Inc. Executive Life Insurance Plan.............. 15
</TABLE>
iv
<PAGE> 111
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION, dated as of April 18,
1999 (this "Agreement"), between RED DOG ACQUISITION, CORP., a Delaware
corporation ("Newco"), and a wholly-owned subsidiary of LEHMAN BROTHERS MERCHANT
BANKING PARTNERS II L.P., a Delaware limited partnership ("Parent"), and BLOUNT
INTERNATIONAL, INC., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company and Newco have
determined that the merger (the "Merger") of Newco with and into the Company,
upon the terms and subject to the conditions set forth in this Agreement, would
be fair to and in the best interests of their respective stockholders, and such
Boards of Directors have declared advisable and approved this Agreement and the
transactions contemplated hereby, including the Merger, pursuant to which each
share of (i) Class A Common Stock, par value $0.01 per share, of the Company
(the "Company Class A Common Stock") and (ii) Class B Common Stock, par value
$0.01 per share, of the Company (the "Company Class B Common Stock" and,
together with the Company Class A Common Stock, the "Shares" or "Company Common
Stock") issued and outstanding immediately prior to the Effective Time (as
defined below) (other than (A) shares of Company Common Stock owned, directly or
indirectly, by the Company or Newco and (B) Dissenting Shares (as defined
below)) will, at the election of the holder thereof and subject to the terms
hereof, be converted into either (I) the right to receive Common Stock, par
value $0.01 per share, of the Surviving Corporation (the "Non-Cash Election
Shares") or (II) the right to receive cash;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Newco and The Blount Holding Company, L.P. (the "Principal Stockholder") are
entering into an agreement (the "Stockholder Agreement") pursuant to which the
Principal Stockholder will agree to take specified actions in connection with
the Merger;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Company and certain executives of the Company are entering into several
Employment Agreements (collectively, the "New Employment Agreements" and,
together with the Employee Shareholders Agreement and the Option Agreements
related thereto, the "Management Agreements");
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes; and
WHEREAS, Newco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), at the Effective Time, Newco shall be merged with and
into the
<PAGE> 112
Company. As a result of the Merger, the separate corporate existence of Newco
shall cease and the Company shall continue as the surviving corporation of the
Merger (the "Surviving Corporation").
SECTION 1.2 Closing; Effective Time. Subject to the provisions of Article
VII, the closing of the Merger (the "Closing") shall take place in New York City
at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New
York, as soon as practicable, but in no event later than the second business day
after the satisfaction or waiver of the conditions set forth in Article VII
(excluding conditions that, by their terms, cannot be satisfied until the
Closing), or at such other place or at such other date as Newco and the Company
may mutually agree. The date on which the Closing actually occurs is hereinafter
referred to as the "Closing Date". At the Closing, the parties hereto shall
cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware,
in such form as required by and executed in accordance with the relevant
provisions of the DGCL (the date and time of the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, or such later time
as is specified in the Certificate of Merger and as is agreed to by the parties
hereto, being the "Effective Time") and shall make all other filings or
recordings required under the DGCL in connection with the Merger.
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing and subject thereto, at the Effective Time, all the property,
rights, privileges, immunities, powers and franchises of the Company and Newco
shall vest in the Surviving Corporation and all debts, liabilities and duties of
the Company and Newco shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the Effective
Time and without any further action on the part of the Company and Newco, the
Restated Certificate of Incorporation of the Company (as amended, the
"Certificate of Incorporation") as in effect immediately prior to the Effective
Time shall be amended so as to read in its entirety in the form set forth in
Exhibit A hereto and, as so amended, shall be the Certificate of Incorporation
of the Surviving Corporation until thereafter amended as provided therein and
under the DGCL.
(b) At the Effective Time and without any further action on the part of the
Company and Newco, the by-laws of the Company as in effect immediately prior to
the Effective Time shall be amended so as to read in their entirety in the form
set forth in Exhibit B hereto and, as so amended, shall be the by-laws of the
Surviving Corporation until thereafter amended in accordance with their terms or
the Certificate of Incorporation of the Surviving Corporation and as provided by
law.
SECTION 1.5 Directors and Officers. The directors of Newco and/or any
individuals designated by Newco immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and by-laws of the Surviving
Corporation, and the officers of the Company and/or any individuals designated
by Newco immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
2
<PAGE> 113
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Newco, the Company or the
holders of any of the following securities:
(a) Conversion of Company Common Stock. Except as otherwise provided
herein and subject to Section 2.5, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares canceled
pursuant to Section 2.1(b) and Dissenting Shares) shall be converted into the
following (the "Merger Consideration"):
(i) for each such share of Company Common Stock with respect to which
an election to receive common stock in the Surviving Corporation has been
effectively made and not revoked or lost, pursuant to Sections 2.4(c), (d)
and (e) (the "Electing Shares"), the right to receive, subject to Section
2.6(e), two fully paid and non-assessable Non-Cash Election Shares; and
(ii) for each such share of Company Common Stock (other than Electing
Shares), the right to receive in cash from the Company following the Merger
an amount equal to $30.00, without interest, less any required withholding
taxes (the "Cash Election Price").
(b) Cancellation of Certain Stock. Each share of Company Common Stock held
in the treasury of the Company and each share of Company Common Stock owned by
the Company or Newco, in each case immediately prior to the Effective Time,
shall be canceled and retired without any conversion thereof and no payment of
cash and/or Non-Cash Election Shares or any other distribution shall be made
with respect thereto. Each share of the Company Common Stock held by any direct
or indirect Subsidiary (as defined below) of the Company or Parent (other than
Newco) immediately prior to the Effective Time shall be converted into and
become two Non-Cash Election Shares.
(c) Common Stock of Newco. Each share of common stock of Newco issued and
outstanding immediately prior to the Effective Time shall be converted into and
become a number of Non-Cash Election Shares equal to the quotient of (i) (x) the
quotient of the Contribution Amount divided by 30 (y) multiplied by two divided
by (ii) the number of shares of common stock of Newco outstanding immediately
prior to the Effective Time.
(d) Cancellation of Company Common Stock. As of the Effective Time, all
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled or converted under Section
2.1(b)) shall no longer be outstanding and shall automatically be canceled and
shall cease to exist, and each holder of a Certificate (as defined below)
representing any such shares of Company Common Stock shall, to the extent such
Certificate represents such shares, cease to have any rights with respect
thereto, except the right to receive the Merger Consideration and any cash in
lieu of fractional shares to be issued or paid in consideration therefor upon
surrender of such Certificate in accordance with Section 2.6 or, in the case of
Dissenting Shares, the rights accorded under Section 262 of the DGCL.
SECTION 2.2 Treatment of Employee Options. The Company shall take all
action necessary so that, immediately prior to the Effective Time, each
outstanding employee stock option (an "Employee Option"), whether or not then
exercisable, shall be canceled
3
<PAGE> 114
(provided that any such Employee Options shall be canceled by the Company only
to the extent permitted and otherwise the Company shall use its reasonable best
efforts to cancel any such Employee Options), and the holder thereof shall be
entitled to receive at the Effective Time from the Company or as soon as
practicable thereafter from the Surviving Corporation in consideration for such
cancellation an amount in cash equal to the product of (i) the number of Shares
previously subject to such Employee Option and (ii) the excess, if any, of the
Cash Election Price per Share over the exercise price per Share previously
subject to such Employee Option, less any required withholding taxes.
SECTION 2.3 Appraisal Rights. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders of the Company who have not voted in favor of or consented to the
Merger and who are entitled to demand and have delivered a written demand for
appraisal of such shares of Company Common Stock in the time and manner provided
in Section 262 of the DGCL and shall not fail to perfect or shall not
effectively withdraw or lose their rights to appraisal and payment under the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration, but the holders thereof shall be entitled to receive
the consideration as shall be determined pursuant to Section 262 of the DGCL;
provided that if any such stockholder of the Company shall fail to perfect or
shall effectively withdraw or lose his, her or its right to appraisal and
payment under the DGCL, such holder's shares of Company Common Stock shall
thereupon be treated as shares that are not Electing Shares and shall be deemed
to have been converted, at the Effective Time, into the right to receive the
Merger Consideration set forth in Section 2.1(a)(ii).
(b) The Company shall give Newco (i) notice of any demands for appraisal
pursuant to Section 262 of the DGCL received by the Company, withdrawals of such
demands and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Newco or as otherwise required by
applicable law, make any payment with respect to any such demands for appraisal
or offer to settle or settle any such demands.
SECTION 2.4 Company Common Stock Elections. (a) Each person who, on or
prior to the Election Date (as defined below), is a record holder of shares of
Company Common Stock shall be entitled, with respect to all or any portion of
such person's shares, to make an unconditional election (a "Non-Cash Election")
on or prior to such Election Date to receive Non-Cash Election Shares, on the
basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined below), Newco
shall appoint a bank or trust company as may be approved by the Company (which
approval shall not be unreasonably withheld or delayed) to act as exchange and
paying agent (the "Exchange Agent") for the payment of the Merger Consideration.
(c) Newco shall, subject to applicable requirements of the United States
federal securities laws, prepare a form of election (the "Form of Election")
which Form of Election shall be subject to the approval of the Company (which
approval shall not be unreasonably withheld or delayed) to be mailed by the
Company with the Proxy Statement to the record holders of Company Common Stock
as of the record date for the Stockholders Meeting (as defined below), which
Form of Election shall be used by each record holder of shares of Company Common
Stock who wishes to elect to receive Non-Cash Election Shares for any or all
shares of Company Common Stock held by such holder, subject to the provisions of
Section 2.5. The Company shall use its reasonable best
4
<PAGE> 115
efforts to make the Form of Election and the Proxy Statement available to all
persons who become holders of Company Common Stock during the period between
such record date and the Election Date referred to below. Any such holder's
election to receive Non-Cash Election Shares shall have been properly made only
if the Exchange Agent shall have received at its designated office, by 5:00
p.m., New York City time, on the business day that is five business days prior
to the date of the Stockholders Meeting (the "Election Date"), a Form of
Election properly completed and signed and accompanied by Certificates
representing the shares of Company Common Stock to which such Form of Election
relates, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of the Company (or by an appropriate guarantee of delivery of such
Certificates as set forth in such Form of Election from a firm which is an
"eligible guarantor institution" (as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")); provided that
such Certificates are in fact delivered to the Exchange Agent within seven New
York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of
such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder of the Company
submitting it to the Exchange Agent only by written notice received by the
Exchange Agent prior to 5:00 p.m, New York City time, on the Election Date
(unless Newco and the Company determine not less than two business days prior to
the Election Date that the Closing Date is not likely to occur within five
business days following the date of the Stockholders Meeting, in which case any
Form of Election will remain revocable until a subsequent date which shall be a
date prior to the Closing Date determined by Newco and the Company and, in such
a case, the Company shall provide notice to the stockholders of the Company of
such date in such manner as it may reasonably determine). In addition, all Forms
of Election shall automatically be revoked if the Exchange Agent is notified in
writing by Newco and the Company that this Agreement has been terminated. If a
Form of Election is revoked, the Certificate or Certificates (or guarantees of
delivery, as appropriate) for the shares of Company Common Stock to which such
Form of Election relates shall be promptly returned by the Exchange Agent to the
stockholder of the Company submitting the same.
(e) The determination of the Exchange Agent (or the mutual determination of
the Company and Newco in the event that the Exchange Agent declines to make any
such determination) shall be binding as to whether or not elections to receive
Non-Cash Election Shares have been properly made or revoked pursuant to this
Section 2.4 with respect to shares of Company Common Stock and as to when
elections and revocations were received by it. If the Exchange Agent reasonably
determines in good faith that any election to receive Non-Cash Election Shares
was not properly made with respect to shares of Company Common Stock, such
shares shall be treated by the Exchange Agent as shares which were not Electing
Shares at the Effective Time, and such shares shall be converted in the Merger
into the right to receive cash pursuant to Section 2.1(a)(ii), subject to
proration as provided in Section 2.5. The Exchange Agent (or the Company and
Newco by mutual agreement in the event that the Exchange Agent declines to make
any such determination) shall also make all computations as to the allocation
and the proration contemplated by Section 2.5, and any such computation shall be
conclusive and binding on the stockholders of the Company. The Exchange Agent
may, with the mutual written agreement of the Company and Newco, make such rules
as are consistent with this Section 2.4 for the implementation of the elections
provided for herein and as shall be necessary or desirable fully to effect such
elections.
5
<PAGE> 116
SECTION 2.5 Proration. (a) Notwithstanding anything in this Agreement to
the contrary, the aggregate number of shares of Company Common Stock to be
converted into the right to receive Non-Cash Election Shares at the Effective
Time (the "Non-Cash Election Number") shall be equal to 1,483,333 (excluding for
this purpose any shares of Company Common Stock to be canceled or converted
pursuant to Section 2.1(b)).
(b) If the number of Electing Shares exceeds the Non-Cash Election Number,
each Electing Share shall be converted into the right to receive Non-Cash
Election Shares or cash in accordance with the terms of Section 2.1(a) in the
following manner:
(i) a proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares;
(ii) the number of Electing Shares covered by each Non-Cash Election
to be converted into the right to receive Non-Cash Election Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Non-Cash Election; and
(iii) all Electing Shares, other than those shares converted into the
right to receive Non-Cash Election Shares in accordance with Section
2.5(b)(ii), shall be converted into the right to receive cash (on a
consistent basis among stockholders of the Company who made the election
referred to in Section 2.1(a)(i), pro rata to the number of shares of
Company Common Stock as to which they made such election) as if such
shares were not Electing Shares in accordance with the terms of
Section 2.1(a)(ii).
(c) If the number of Electing Shares is less than the Non-Cash Election
Number:
(i) all Electing Shares shall be converted into the right to receive
Non-Cash Election Shares in accordance with the terms of Section 2.1(a)(i);
(ii) additional shares of Company Common Stock (other than Electing
Shares, Dissenting Shares and Shares canceled pursuant to Section 2.1(b))
shall be converted into the right to receive Non-Cash Election Shares in
accordance with the terms of Section 2.1(a)(i) in the following manner:
(A) a proration factor (the "Cash Proration Factor") shall be
determined by dividing (I) the difference between the Non-Cash Election
Number and the number of Electing Shares by (II) the total number of
Shares outstanding at the Effective Time (other than Electing Shares,
Dissenting Shares and Shares canceled pursuant to Section 2.1(b)); and
(B) the number of shares of Company Common Stock in addition to
Electing Shares to be converted into the right to receive Non-Cash
Election Shares shall be determined by multiplying the Cash Proration
Factor by the total number of Shares outstanding at the Effective Time
(other than Electing Shares, Dissenting Shares and Shares canceled
pursuant to Section 2.1(b)); and
(iii) shares of Company Common Stock subject to clause (ii) of this
paragraph (c) shall be converted into the right to receive Non-Cash
Election Shares in accordance with Section 2.1(a)(i) (on a consistent basis
among stockholders of the Company who held shares of Company Common Stock
as to which they did not make the election referred to in Section
2.1(a)(i), pro rata to the number of shares as to which they did not make
such election).
6
<PAGE> 117
SECTION 2.6 Exchange of Certificates. (a) Exchange Agent. As of or as
soon as reasonably practicable after the Effective Time, the Company shall
deposit with the Exchange Agent, for the benefit of the stockholders of the
Company, for exchange in accordance with this Article II, the Merger
Consideration.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, each holder of an outstanding certificate or certificates which
immediately prior thereto represented shares of Company Common Stock (the
"Certificates") shall, upon surrender to the Exchange Agent of such Certificate
or Certificates and acceptance thereof by the Exchange Agent, be entitled to a
new certificate or new certificates (the "New Certificates") representing the
number of full Non-Cash Election Shares, cash and cash payable in lieu of
fractional shares, in each case, if any, to be received by the holder thereof
pursuant to this Agreement. The Exchange Agent shall accept such Certificates
upon compliance with such reasonable terms and conditions as the Exchange Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. After the Effective Time, there shall be no further transfer
on the records of the Company or its transfer agent of Certificates and, if
Certificates are presented to the Company for transfer, they shall be canceled
against delivery of the Merger Consideration. If any New Certificate for
Non-Cash Election Shares is to be issued in, or if cash is to be remitted to, a
name other than that in which the Certificate surrendered for exchange is
registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer, and that the person requesting such exchange shall
pay to the Company or its transfer agent any transfer or other taxes required by
reason of the issuance of New Certificates for such Non-Cash Election Shares in
a name other than that of the registered holder of the Certificate surrendered,
or establish to the satisfaction of the Company or its transfer agent that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.6(b), each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration as contemplated by Section 2.1.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Non-Cash Election Shares with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the Non-Cash Election Shares to be received in
respect thereof and no cash payment in lieu of fractional shares shall be paid
to any such holder pursuant to Section 2.6(e), in each case until the surrender
of such Certificate in accordance with this Article II. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the New Certificate or New Certificates representing whole
Non-Cash Election Shares issued in connection therewith, without interest, (i)
at the time of such surrender, the amount of any cash payable in lieu of a
fractional Non-Cash Election Share to which such holder is entitled pursuant to
Section 2.6(e) and the proportionate amount of any dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole Non-Cash Election Shares, and (ii) at the appropriate
payment date, the proportionate amount of any dividends or other distributions
with a record date after the Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
Non-Cash Election Shares.
(d) No Further Ownership Rights in Shares. The Merger Consideration paid
upon the surrender for exchange of Certificates in accordance with the terms of
Article I and this Article II (including any cash paid pursuant to Section
2.6(e)) shall be deemed to
7
<PAGE> 118
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock so exchanged.
(e) No Fractional Shares. (i) No New Certificates or scrip representing
fractional Non-Cash Election Shares shall be issued in connection with the
Merger and such fractional share interests shall not entitle the owner thereof
to vote or to any rights of a stockholder of the Company after the Merger, and
(ii) notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a Non-Cash Election Share
(after taking into account all shares of Company Common Stock delivered by such
holder) shall receive, in lieu thereof, a cash payment (without interest)
determined by multiplying the fractional share interest to which such holder
would otherwise be entitled by the Cash Election Price.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.6 (the "Exchange
Fund") which remains undistributed to the holders of the Certificates for twelve
months after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of Certificates who have not theretofore complied
with this Article II shall thereafter look only to the Company and only as
general creditors thereof for payment of their claim for cash, if any, Non-Cash
Election Shares, if any, any cash in lieu of fractional Non-Cash Election Shares
and any dividends or distributions with respect to Non-Cash Election Shares to
which such holders may be entitled, subject to escheat and similar abandoned
property laws.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund as directed by the Company; provided that such
investments shall be in obligations of or guaranteed by the United States of
America, in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1 billion. Any net profit resulting
from, or interest or income produced by, such investments shall be payable to
the Surviving Corporation. If for any reason (including losses) the Exchange
Fund is inadequate to pay the amount to which stockholders of the Company shall
be entitled to receive hereunder, the Company shall in any event be liable for
payment therefor.
(h) No Liability. None of Newco, the Company or the Exchange Agent shall
be liable to any holder of Company Common Stock in respect of Non-Cash Election
Shares (or dividends or distributions with respect thereof) or any cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificate has not been
surrendered prior to five years after the Effective Time (or immediately prior
to such earlier date on which Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any public
official), any such shares, cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
8
<PAGE> 119
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco that, except as
disclosed in the SEC Reports (as defined below) filed, and publicly available,
prior to the date hereof or as set forth on the Disclosure Schedule delivered by
the Company to Newco prior to the execution of this Agreement (the "Disclosure
Schedule") (provided that the listing of an item in one section of the
Disclosure Schedule shall be deemed to be a listing in each section of the
Disclosure Schedule and to apply to any other representation and warranty of the
Company in this Agreement to the extent that is reasonably apparent from a
reading of such disclosure item that it would also qualify or apply to such
other section or representation and warranty) or except as specifically
contemplated by this Agreement, the Stockholder Agreement or the Management
Agreements:
SECTION 3.1 Organization and Qualification; Subsidiaries. The Company and
each of its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. The Company and each
of its Subsidiaries is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for any such failure to be so
qualified or licensed or in good standing which, individually or in the
aggregate, would not have or would not reasonably be likely to have a Material
Adverse Effect (as defined below). When used in connection with the Company or
any of its Subsidiaries, the term "Material Adverse Effect" means any change or
effect that would be materially adverse to the business, properties, assets,
liabilities, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, or to the ability of the Company to perform its
obligations under this Agreement or to consummate the Merger and the other
transactions contemplated hereby, other than any change or effect resulting from
(i) changes in general economic conditions, (ii) the performance of this
Agreement and compliance with the covenants set forth herein or (iii) general
changes or developments in the industries in which the Company and its
Subsidiaries operate. Section 3.1 of the Disclosure Schedule contains a true and
accurate list of all the Subsidiaries of the Company. Except for its interests
in its Subsidiaries, the Company does not own, directly or indirectly, any
capital stock, membership interest, partnership interest, joint venture interest
or other equity interest in any person.
SECTION 3.2 Certificate of Incorporation and By-laws. The Company has
heretofore furnished to Newco a complete and correct copy of the Certificate of
Incorporation and the by-laws of the Company and has made available or, upon
request of Newco, will make available to Newco true and complete copies of the
comparable charter and organizational documents of each Subsidiary of the
Company, in each case, as currently in effect. Such Certificate of Incorporation
and by-laws and such other documents are in full force and effect and no other
organizational documents are applicable to or binding upon the Company or its
Subsidiaries and neither the Company nor any Subsidiary is in violation of any
provisions of its Certificate of Incorporation, by-laws or such other documents,
as the case may be, except for, with respect to any Subsidiary of the Company
(other than Blount, Inc.) (i) any such failure to be in full force or effect,
(ii) any such other organizational document or (iii) any such violation, in
9
<PAGE> 120
each case for clauses (i), (ii) and (iii), which, individually or in the
aggregate, would not have or would not reasonably be likely to have a Material
Adverse Effect.
SECTION 3.3 Capitalization. The authorized capital stock of the Company
consists of (i) 60,000,000 shares of Company Class A Common Stock, (ii)
14,000,000 shares of Company Class B Common Stock and (iii) 4,456,855 shares of
Preferred Stock, par value $0.01 per share (the "Company Preferred Stock"), of
the Company. As of the date hereof, (i) 25,591,113 shares of Company Class A
Common Stock (excluding shares held in the treasury of the Company) and
11,472,071 shares of Company Class B Common Stock were issued and outstanding,
all of which were validly issued, fully paid and nonassessable and were issued
free of preemptive (or similar) rights, (ii) 1,846,635 shares of Company Class A
Common Stock were held in the treasury of the Company, (iii) no shares of
Preferred Stock were issued and outstanding and (iv) an aggregate of 4,177,586
shares of Company Class A Common Stock were reserved for issuance and issuable
upon or otherwise deliverable in connection with the exercise of outstanding
Employee Options issued pursuant to the Company Plans (as defined in Section
3.10) and the dividend reinvestment plan of the Company. Except (i) as set forth
above, (ii) as a result of the exercise of Employee Options, (iii) as a result
of or in connection with the dividend reinvestment plan of the Company or (iv)
as a result of or in connection with the conversion of Class B Common Stock into
Class A Common Stock, (A) there are not outstanding or authorized any (I) shares
of capital stock or other voting securities of the Company, (II) securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (III) options, securities or other rights to
acquire from the Company, or obligation of the Company to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company or (IV) equity equivalents,
including phantom stock rights and stock appreciation rights, interests in the
ownership or earnings of the Company or other similar rights (collectively,
"Company Securities"), (B) there are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any Company Securities, and (C) there
are no other options, calls, warrants or other rights, agreements, arrangements
or commitments of any character relating to the issued or unissued capital stock
of the Company or any of its Subsidiaries to which the Company or any of its
Subsidiaries is a party. Each of the outstanding shares of capital stock of each
of the Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and, except for directors' qualifying shares, all such shares are
owned by the Company or another wholly-owned Subsidiary of the Company and are
owned free and clear of all security interests, liens, claims, pledges,
agreements, limitations in voting rights, charges or other encumbrances of any
nature whatsoever.
SECTION 3.4 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the adoption of this Agreement by the holders of a
majority in voting power of the outstanding shares of Company Common Stock
voting together as a single class and the filing with the Secretary of State of
the State of Delaware of the Certificate of Merger as required by the DGCL). The
Board of Directors of the Company at a meeting duly called and held has
unanimously
10
<PAGE> 121
(i) determined that this Agreement and the transactions contemplated hereby,
including the Merger, are advisable and fair to and in the best interests of the
holders of the Shares, (ii) approved this Agreement and the transactions
contemplated hereby, including the Merger, and (iii) recommended that the
stockholders of the Company adopt this Agreement. This Agreement has been duly
and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Newco, constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing. The only vote of the
stockholders of the Company required to adopt this Agreement is the affirmative
vote by the holders of a majority in voting power of the outstanding Shares
voting together as a single class.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby do not and will not (i) conflict
with or violate the Certificate of Incorporation or by-laws of the Company, (ii)
assuming that all consents, approvals and authorizations contemplated by
subsection (b) below have been obtained and all filings described in such
subsection have been made, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its Subsidiaries
or by which its or any of their respective properties are bound or (iii) result
in any breach or violation of or constitute a default (or an event which with
notice or lapse of time or both would become a default) or result in the loss of
a material benefit under, or give rise to any right of termination,
cancellation, material amendment or material acceleration of, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or its or any of their
respective properties are bound, except, in the case of clauses (ii) and (iii),
for any such conflict, violation, breach, default or other occurrence which,
individually or in the aggregate, would not have or would not be reasonably
likely to have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby do not and
will not require any consent, approval, authorization or permit of, action by,
filing with or notification to, any Federal, state, local or foreign court of
competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity"), except for
(i) compliance with and filings under, to the extent required, the Securities
Act of 1933, as amended (the "Securities Act"), and the Exchange Act and the
rules and regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and state securities,
takeover and Blue Sky laws, (ii) the filing of the registration statement on
Form S-4, including the Proxy Statement, with the SEC by the Company in
connection with the issuance of Non-Cash Election Shares in connection with the
Merger (the "Form S-4"), (iii) the filing with the Secretary of State of the
State of Delaware of the Certificate of Merger as required by the DGCL, (iv)
compliance with and filings under, to the extent required, the applicable
requirements of the Department of Defense and the Bureau of Alcohol, Tobacco and
Firearms, which requirements are not applicable prior to the Effective Time, (v)
compliance with and filings under, to the extent required, the applicable
requirements of the Investment Canada Act and the Canada Competition Act,
11
<PAGE> 122
(vi) compliance with and filings under, to the extent required, the applicable
requirements with the Brazilian Antitrust Authority; (vii) compliance with and
filings under, to the extent required, the applicable requirements of the NYSE
or the Nasdaq Stock Market, as the case may be, and (viii) any such consent,
approval, authorization, permit, action, filing or notification the failure of
which to make or obtain, individually or in the aggregate, would not have or
would not reasonably be likely to have a Material Adverse Effect
SECTION 3.6 Compliance. Neither the Company nor any of its Subsidiaries
is in violation of any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its Subsidiaries or by which its or any of
their respective properties are bound, except for any such violation which,
individually or in the aggregate, would not have or would not reasonably be
likely to have a Material Adverse Effect. The Company and its Subsidiaries have
all permits, licenses, authorizations, exemptions, orders, consents, approvals
and franchises from all Governmental Entities required to conduct their
respective businesses as now being conducted, except for any such permit,
license, authorization, exemption, order, consent, approval or franchise the
absence of which, individually or in the aggregate, would not have or would not
reasonably be likely to have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements; Liabilities. (a) The
Company has filed all forms, reports, statements and documents required to be
filed with the SEC since January 1, 1998, in each case including all exhibits
and schedules thereto and documents incorporated by reference therein
(collectively, the "SEC Reports"), each of which, as finally amended, has
complied as to form in all material respects with the applicable requirements of
the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. None of the SEC
Reports contained, when filed, as finally amended, any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the audited consolidated financial statements of the Company
(including any related notes thereto) for the fiscal years ended December 31,
1997 and December 31, 1998 included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 as filed with the SEC (the "Form 10-K")
complies as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and fairly presents in all material
respects the consolidated financial position of the Company and its Subsidiaries
at the respective dates thereof and the consolidated results of operations, cash
flows and changes in stockholders' equity for the periods indicated.
(c) Except (i) as set forth or reflected in the consolidated financial
statements (including the notes thereto) of the Company included in the Form
10-K, (ii) for liabilities or obligations incurred in the ordinary course of
business consistent with past practice or (iii) for liabilities or obligations
incurred in connection with the transactions contemplated by this Agreement,
since December 31, 1998, neither the Company nor any of its Subsidiaries have
incurred any liabilities or obligations (whether accrued, absolute, contingent
or otherwise) which would be required to be reflected on a consolidated balance
sheet of the Company prepared in accordance with generally accepted accounting
principles as of December 31, 1998 consistently applied, except for any such
liabilities or
12
<PAGE> 123
obligations which, individually or in the aggregate, would have not or would not
reasonably be likely to have a Material Adverse Effect.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1998, except as specifically contemplated by this Agreement, the Company and its
Subsidiaries have conducted their business in the ordinary course and, since
such date, there has not been (i) any change, event or occurrence which has had
or would reasonably be likely to have, individually or in the aggregate, a
Material Adverse Effect or (ii) as of the date hereof, any action which, if it
had been taken or occurred after the execution of this Agreement, would have
required the consent of Newco pursuant to the second sentence of Section 5.1 of
this Agreement.
SECTION 3.9 Absence of Litigation. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries, other than any such
suit, claim, action, proceeding or investigation which, individually or in the
aggregate, would not have or would not reasonably be likely to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree or award having, or which would have or would reasonably be
likely to have, individually or in the aggregate, a Material Adverse Effect.
SECTION 3.10 Employee Benefit Plans. (a) Section 3.10(a) of the
Disclosure Schedule contains a true and complete list of (i) each "employee
benefit plan" (within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), each stock option, stock
purchase, compensation, deferred compensation and each other employee plan,
program, agreement or arrangement (including all director benefit plans, and all
severance guidelines and practices ("Severance Plans"))and each vacation or sick
pay policy, and fringe benefit plan (collectively, the "Company Plans") and (ii)
each compensation or employment agreement (collectively, the "Employment
Agreements") in existence as of the date hereof for any employees (and former
employees) and directors (and former directors) of the Company and its
Subsidiaries (in each case, other than the New Employment Agreements).
(b) Each Company Plan which is intended to be qualified within the meaning
of Code (as defined below) section 401(a) has received a favorable determination
letter as to its qualification (a copy of which has been made available to
Newco). With respect to each Company Plan, the Company has delivered to Newco a
current, accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable, (i) any related
trust agreement or other funding instrument, (ii) the most recent determination
letter, (iii) any summary plan description and other written communications by
the Company or any of its Subsidiaries to their employees concerning the extent
of the benefits provided under a Company Plan and (iv) for the most recent year
(A) the Form 5500 and attached schedules, (B) audited financial statements and
(C) actuarial valuation reports.
(c) Except as would not have or would not reasonably be likely to have a
Material Adverse Effect, (i) each Company Plan has been established and
administered in all material respects in accordance with its terms and in
compliance with the applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended (the "Code"), and other applicable laws, rules and regulations,
(ii) nothing has occurred, whether by action or failure to act, that would cause
the loss of qualification of any Company Plan that has received a favorable
determination letter, (iii) no event has occurred and no condition exists that
would subject the Company or any of its Subsidiaries, either directly or by
13
<PAGE> 124
reason of their affiliation with any member of their "Controlled Group" (defined
as any organization which is a member of a controlled group of organizations
within the meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine,
lien or penalty imposed by ERISA, the Code or other applicable laws, rules and
regulations, (iv) for each Company Plan with respect to which a Form 5500 has
been filed, no material change has occurred with respect to the matters covered
by the most recent Form 5500 since the date thereof,(v) no "reportable event"
(as such term is defined in ERISA section 4043) with respect to which notice has
not been waived, and no "prohibited transaction" (as such term is defined in
ERISA section 406 and Code section 4975) that is not exempt or "accumulated
funding deficiency" (as such term is defined in ERISA section 302 and Code
section 412 (whether or not waived)) has occurred with respect to any Company
Plan, (vi) there has been no termination of any Company Plan which has caused
any liability under Title IV of ERISA and (vii) all contributions to, and
payments from, each Company Plan have been timely made.
(d) Except as would not have or would not reasonably be likely to have a
Material Adverse Effect, neither the Company nor any of its Subsidiaries or any
member of their Controlled Group contributes or has any liability to any
multiemployer plan (within the meaning of ERISA section 4001(a)(3)) and none of
the Company, any of its Subsidiaries or any member of their Controlled Group has
incurred any withdrawal liability under Title IV of ERISA.
(e) With respect to each Company Plan, except as would not have or would
not reasonably be likely to have a Material Adverse Effect, no actions, suits,
or claims (other than routine claims for benefits in the ordinary course) are
pending or, to the knowledge of the Company, threatened.
(f) Except as would not have or would not reasonably be likely to have a
Material Adverse Effect, the information supplied to the plan actuary by the
Company and any Subsidiary of the Company for use in preparing the most recent
actuarial reports or valuations was complete and accurate in all material
respects and the Company has no reason to believe that the conclusions expressed
in those reports or valuations are incorrect.
(g) The list of employee welfare benefit plans (within the meaning of
section 3(1) of ERISA) set forth in Section 3.10(g) of the Disclosure Schedule
discloses whether each welfare plan is (i) unfunded, (ii) funded through a
"welfare benefit fund," as such term is defined in section 419(e) of the Code,
or other funding mechanism, or (iii) insured.
(h) Except as would not have or would not reasonably be likely to have a
Material Adverse Effect, no compensation payable by the Company or any of its
Subsidiaries to any of their employees under any existing contract, Company Plan
or other employment arrangement or understanding (including by reason of any of
the transactions contemplated by this Agreement) would be subject to
disallowance under section 162(m) of the Code.
(i) Other than payments that may be made to the persons listed in Section
3.10(e) of the Disclosure Schedule (the "Primary Company Executives"), any
amount that could be received (whether in cash or property or the vesting of
property) as a result of the Merger by any employee, officer or director of the
Company or any of its affiliates who is a "disqualified individual" (as such
term is defined in the proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Company Plan currently in effect would not be characterized as an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code).
14
<PAGE> 125
(j) No employee of the Company or any of its Subsidiaries will be entitled
to any additional benefits in any material amount or any acceleration of the
time of payment or vesting of any benefits in any material amount under any
Company Plan as a result of the performance of this Agreement.
(k) Based on the assumptions incorporated in the information made available
to Newco as of April 9, 1999, if the Company were to (i) borrow the maximum
amount available from the life insurance policies held by the Company under The
Blount, Inc. Executive Life Insurance Plan and contribute such amount to the
Company's Executive Benefits Trust and (ii) obtain waivers from each of the
Company's executives listed on Section 3.10(k) of the Disclosure Schedule to the
effect that there will be no required funding of the Company's Benefits
Protection Trust (together with the Company's Executive Benefits Trust, the
"Rabbi Trusts") in excess of the amount provided in this Section 3.10(k), the
maximum amount that would be required to be funded pursuant to the provisions of
the Rabbi Trusts would be not more than $1,500,000 as of the date hereof.
SECTION 3.11 Tax Matters. Except for matters which would not have or
would not reasonably be likely to have a Material Adverse Effect, the Company
and each of its Subsidiaries, and any consolidated, combined, unitary or
aggregate group for tax purposes of which the Company or any of its Subsidiaries
is currently a member (a "Company Affiliated Group"), has timely filed all Tax
Returns (as defined below) required to be filed by it in the manner provided by
law, has paid all Taxes (as defined below) shown thereon to be due and has
provided adequate reserves in its financial statements for any Taxes that have
not been paid, whether or not shown as being due on any Tax Returns. Except for
matters which would not have or would not reasonably be likely to have a
Material Adverse Effect: (i) there is no audit examination, deficiency, refund
litigation, proposed adjustment or matter in controversy with respect to any
Taxes due and owing by the Company, any Subsidiary of the Company or any member
of the Company Affiliated Group; (ii) no requests for waivers of the time to
assess any Taxes have been granted or are pending (other than with respect to
years that are currently under examination by the U.S. Internal Revenue Service
or other applicable taxing authorities); (iii) all material assessments for
Taxes due and owing by the Company, any Subsidiary of the Company or any member
of the Company Affiliated Group with respect to completed and settled
examinations or concluded litigation have been paid, unless such amounts are not
yet due or are being contested in good faith; (iv) the statute of limitations on
assessment or collection of any federal or state income taxes due from the
Company or any of its Subsidiaries has expired for all taxable years of the
Company and its Subsidiaries through February 1993; (v) the federal income Tax
Returns of the Company and each of its Subsidiaries have been examined by and
settled with the U.S. Internal Revenue Services for all years through February
1993; (vi) the Company and each of its Subsidiaries have complied in all
material respects with all rules and regulations relating to the withholding of
Taxes; and (vii) to the knowledge of the Company, no liability for Taxes of
another corporation has been asserted against the Company or any of its
Subsidiaries by reason of its being or having been a member of any consolidated,
combined, unitary or aggregate group for tax purposes (other than a Company
Affiliated Group). For purposes of this Agreement, "Taxes" shall mean any taxes
of any kind, including but not limited to those on or measured by or referred to
as income, gross receipts, capital, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, value added, property or windfall profits taxes, customs, duties or
similar fees, assessments or charges of any kind whatsoever, together with any
interest and
15
<PAGE> 126
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. For purposes of this Agreement,
"Tax Return" shall mean any return, report or statement required to be filed
with any governmental authority with respect to Taxes, including any schedule or
attachment thereto or amendment thereof.
SECTION 3.12 Form S-4; Proxy Statement. None of the information supplied
or to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading and (ii) the proxy statement to be
sent to the stockholders of the Company in connection with the Stockholders
Meeting (such proxy statement, as amended or supplemented, is herein referred to
as the "Proxy Statement") will, at the date it is first mailed to the
stockholders of the Company and at the time of the Stockholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Form S-4 will, as of its effective date, and the prospectus
contained therein will, as of its date, comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder. The Proxy Statement will, at the time of the
Stockholders Meeting, comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied by
Newco or any of its affiliates or representatives which is contained or
incorporated by reference in the Form S-4 or the Proxy Statement.
SECTION 3.13 Labor Matters. (i) Neither the Company nor any of its
Subsidiaries is a party to any agreement pursuant to which a labor organization
is certified under applicable labor law as a bargaining agent for any of the
Company's or any of its Subsidiaries' employees or is presently negotiating any
such agreement, (ii) there are no strikes, work stoppages, work slowdowns,
sick-outs, lock-outs, or, to the knowledge of the Company, threats of any of the
foregoing, except as would not have or would not reasonably be likely to have,
individually or in the aggregate, a Material Adverse Effect and (iii) to the
knowledge of the Company, the Company and each of its Subsidiaries is in
compliance with all applicable laws, agreements, contracts and policies relating
to employment, employment practices and wages, except for any such failure to
comply with such laws, agreements, contracts or policies which, individually or
in the aggregate, would not have or would not reasonably be likely to have a
Material Adverse Effect.
SECTION 3.14 Properties. The Company or one of its Subsidiaries has (i)
good and marketable title to the real property owned in fee by the Company or
any of its Subsidiaries and (ii) good and valid leasehold title or other
occupancy right to the real property leased, subleased or licensed by the
Company or any of its Subsidiaries, in each case where any such real property is
reasonably necessary to the conduct of the business of the Company and its
Subsidiaries as it is presently conducted (collectively, the "Real Properties"),
except for any failure to have such title or right which, individually or in the
aggregate, would not have or would not reasonably be likely to have a Material
Adverse Effect. With respect to any Real Property owned by the Company or any of
its Subsidiaries, such property is owned free and clear of all liens and other
encumbrances, except for (i) any such liens or other encumbrances for taxes,
assessments and other
16
<PAGE> 127
governmental charges not yet due and payable or, if due, not delinquent or being
contested in good faith by appropriate proceedings during which collection or
enforcement against the Real Property is stayed, (ii) easements, licenses,
covenants, conditions, rights-of-way and other similar restrictions and
encumbrances, including any other agreements, restrictions or encumbrances which
would be shown by a current title report or other similar report or listing and
other matters of record, so long as any such easements, licenses, covenants,
conditions, rights-of-way and other similar restrictions and encumbrances do not
prevent the use of such Real Property as currently used, (iii) zoning, building
and other similar restrictions, (iv) any such liens or other encumbrances in
respect of pledges or deposits and worker's compensation laws or similar
legislation, unemployment insurance or other types of social security or to
secure the performance of tenders, statutory obligations, and appeal bonds,
bids, leases, government contracts, performance and return of money bonds and
similar obligations or mechanics', artisan's or workmen's liens so long as any
such liens do not prevent the use of such Real Property as currently used or (v)
where the existence of any such liens or other encumbrances, individually or in
the aggregate, would not have or would not reasonably be likely to have a
Material Adverse Effect. There are no pending or, to the knowledge of the
Company, threatened condemnation proceedings against or affecting any owned Real
Property and none of the owned Real Property is subject to any commitment or
other arrangement for its sale to a third party outside the ordinary course of
business, except where the existence of any such proceeding, commitment or other
arrangement which, individually or in the aggregate, would not have or would not
reasonably be likely to have a Material Adverse Effect.
SECTION 3.15 Environmental Matters. (a) Except as would not have or would
not reasonably be likely to have, individually or in the aggregate, a Material
Adverse Effect: (i) the Company and each of its Subsidiaries complies with all
applicable Environmental Laws (as defined below) and possesses and complies with
all applicable Environmental Permits (as defined below) required under such laws
to operate its business as it presently operates; (ii) within the past two years
the Company has not received any (A) written notification alleging that it or
any of its Subsidiaries has violated or is liable under any Environmental Law or
(B) written request for information pursuant to section 104(e) of the U.S.
Comprehensive Environmental Response, Compensation and Liability Act or similar
U.S. state statute concerning disposal of Materials of Environmental Concern (as
defined below) at any location; (iii) there are no Environmental Claims (as
defined below) pending or, to the knowledge of the Company, threatened, against
the Company or any of its Subsidiaries or, to the knowledge of the Company,
against any person or entity whose liability for any Environmental Claim the
Company or any of its Subsidiaries has or is alleged to have retained or assumed
either contractually or by operation of law; and (iv) since January 1, 1992 none
of the Company or any of its Subsidiaries has contractually retained or
contractually assumed any liabilities or obligations that could reasonably be
expected to provide the basis for an Environmental Claim. Notwithstanding the
generality of any other representations and warranties in this Agreement, the
representations and warranties in this Section 3.15 shall be deemed the only
representations and warranties in this Agreement with respect to matters
relating to Environmental Laws or to Materials of Environmental Concern.
(b) To the knowledge of the Company after due inquiry, there have been no
Releases (as defined below) of Materials of Environmental Concern (as defined
below) in a condition or concentration that is reasonably likely to result in a
material Environmental Claim against the Company or any of its Subsidiaries at
any property currently or formerly
17
<PAGE> 128
owned or operated by the Company or any of its Subsidiaries or any properties at
which Materials of Environmental Concern were stored or disposed of or to which
Materials of Environmental Concern were transported by or on behalf of the
Company or any of its Subsidiaries.
(c) For purposes of this Agreement, the following terms are defined as set
forth below:
"Environmental Claim" means any and all administrative, regulatory or
judicial actions, orders, decrees, suits, demands, demand letters, claims,
investigations, liens, proceedings, notices of noncompliance or violation, and,
in the case of the province of Ontario, program approvals, of which the Company
or any of its Subsidiaries has been notified in writing or of which the
Company's general counsel has been notified orally, by any person or entity
(including any Governmental Entity), alleging potential liability (including
potential responsibility or liability for enforcement, investigatory costs,
cleanup costs, governmental response costs, removal costs, remedial costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (A) the presence, Release or
threatened Release of any Materials of Environmental Concern at any location,
whether or not owned, operated, leased or managed by the Company or any of its
Subsidiaries, (B) any violation or alleged violation of any Environmental Law or
(C) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence, Release or threatened Release of any Materials of Environmental
Concern;
"Environmental Laws" means all foreign or U.S. federal, state or local
statutes, regulations, ordinances, codes, decrees, judgments or binding
agreements issued, promulgated or entered into by or with any Governmental
Entity or relating to pollution or protection of the environment (including the
ambient air, soil, surface water or groundwater), in effect as of the date of
the Closing;
"Environmental Permits" means all permits, licenses, registrations and, in
the case of the province of Ontario, certificates of approval, and other
authorizations required under applicable Environmental Laws;
"Materials of Environmental Concern" means: (i) any hazardous, acutely
hazardous or toxic substance or waste defined as such, or any other chemical or
material regulated, under Environmental Laws, including the U.S. Comprehensive
Environmental Response, Compensation and Liability Act and the U.S. Resource
Conservation and Recovery Act; and (ii) petroleum and petroleum by-products; and
"Release" means any release, spill, emission, leaking, dumping, injection,
pouring, deposit, disposal, discharge, dispersal, leaching or migration into the
environment (including ambient air, soil, surface water or groundwater) or
within any building, structure, facility or fixture.
SECTION 3.16 Intellectual Property. To the knowledge of the Company, the
Company and its Subsidiaries own or possess adequate rights to use all patents,
trademarks, trade names, service marks, inventions, processes, designs, know-how
and other proprietary intellectual property rights reasonably necessary for the
conduct of the business of the Company and its Subsidiaries as presently
conducted (the "Intellectual Property"), except for any such failure to own or
possess which, individually or in the aggregate, would not have or would not
reasonably be likely to have a Material Adverse Effect. To the knowledge of the
Company, neither the Company nor any of its Subsidiaries
18
<PAGE> 129
has received any written notice or claim in the past twenty-four months that any
Intellectual Property is invalid or ineffective, infringes in any material way
on similar rights owned or alleged to be owned by others or is being infringed
by others in any material way, except for any such failure to be valid or
effective or any such infringement which, individually or in the aggregate,
would not have or would not reasonably be likely to have a Material Adverse
Effect.
SECTION 3.17 Year 2000. All computer software, computer hardware and
other applicable technology used by the Company or any of its Subsidiaries is
currently designed or in the process of being prepared to operate in all
respects after December 31, 1999 to process accurately data (including
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, except for any such deficiencies which could be
remediated by December 31, 1999 or which, individually or in the aggregate,
would not have or would not reasonably be likely to have a Material Adverse
Effect.
SECTION 3.18 Opinion of Financial Advisor. The Beacon Group Capital
Services, LLC (the "Financial Advisor") has delivered to the Board of Directors
of the Company its written opinion (or oral opinion to be confirmed in writing)
that the consideration to be received by the stockholders of the Company
pursuant to the Merger is fair to such stockholders from a financial point of
view.
SECTION 3.19 Brokers. No broker, finder or investment banker (other than
the Financial Advisor) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company.
SECTION 3.20 Takeover Statutes; Rights Plans. No "fair price",
"moratorium", "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States (with the
exception of Section 203 of the DGCL) applicable to the Company is applicable to
the Merger or the other transactions contemplated hereby. As of the date of this
Agreement, the Company does not have any stockholder rights plan or similar
antitakeover device in effect. Assuming the accuracy of the representation and
warranty of Newco set forth in Section 4.8, the action of the Board of Directors
of the Company in approving the Merger, this Agreement and the Stockholder
Agreement (and the transactions provided for herein and therein) is sufficient
to render inapplicable to the Merger and this Agreement and the Stockholder
Agreement (and the transactions provided for herein and therein) the
restrictions on "business combinations" (as defined in Section 203 of the DGCL)
set forth in Section 203 of the DGCL.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to the Company that:
SECTION 4.1 Corporate Organization. Newco is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power and authority to own, operate or lease its properties and to
carry on its business as it is now being conducted.
SECTION 4.2 Authority Relative to This Agreement. Newco has all necessary
power and authority to execute and deliver this Agreement and the Stockholder
Agreement, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of
19
<PAGE> 130
this Agreement and the Stockholder Agreement by Newco and the consummation by
Newco of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary action (including by the Boards of Directors
or equivalent bodies of Parent and Newco and, prior to the Effective Time, by
Parent as the sole stockholder of Newco), and no other proceedings on the part
of Newco are necessary to authorize this Agreement or the Stockholder Agreement
or to consummate the transactions contemplated hereby and thereby (other than
the filing with the Secretary of State of the State of Delaware of the
Certificate of Merger as required by the DGCL). This Agreement has been duly
executed and delivered by Newco and, assuming due authorization, execution and
delivery hereof by the Company, constitutes a legal, valid and binding
obligation of each such party enforceable against it in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
SECTION 4.3 No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement and the Stockholder Agreement by Newco and the
consummation by Newco of the transactions contemplated hereby and thereby do not
and will not (i) conflict with or violate the respective certificates or
articles of incorporation or by-laws or equivalent organizational documents of
Newco, (ii) assuming that all consents, approvals and authorizations
contemplated by subsection (b) below have been obtained and all filings
described in such subsection have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Newco or by which its
properties are bound or (iii) result in any breach or violation of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) or result in the loss of a material benefit under, or give rise to any
right of termination, cancellation, material amendment or material acceleration
of, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit or other instrument or obligation to which Newco is a party or by which
Newco or any of its properties are bound, except, in the case of clauses (ii)
and (iii), for any such conflict, violation, breach, default or other occurrence
which, individually or in the aggregate, would not have or would not reasonably
be likely to have a Newco Material Adverse Effect (as defined below).
As used herein, "Newco Material Adverse Effect" means any change or effect
that would be materially adverse to the ability of Newco to perform its
obligation under this Agreement or to consummate the Merger and the other
transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the Stockholder
Agreement by Newco and the consummation by Newco of the transactions
contemplated hereby and thereby do not and will not require any consent,
approval, authorization or permit of, action by, filing with or notification to
any Governmental Entity, except for (i) compliance with and filings under, to
the extent required, the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, the HSR Act and state securities, takeover
and Blue Sky laws, (ii) the filing of the Form S-4, including the Proxy
Statement, with the SEC under the Securities Act, (iii) the filing with the
Secretary of State of the State of Delaware of the Certificate of Merger as
required by the DGCL, (iv) compliance with and filings under, to the extent
required, applicable requirements of the Department of Defense and the Bureau of
Alcohol, Tobacco and Firearms, which requirements are not applicable prior to
the Effective Time, (v) compliance with and filings under, to the extent
required, the applicable requirements of the Investment Canada Act and the
Canada Competition Act, (vi) compliance with and filings under, to the
20
<PAGE> 131
extent required, the applicable requirements with the Brazilian Antitrust
Authority, (vii) compliance with and filings under, to the extent required, the
applicable requirements of the NYSE or the Nasdaq Stock Market, as the case may
be, and (viii) any such consent, approval, authorization, permit, action, filing
or notification, the failure of which to make or obtain, individually or in the
aggregate, would not have or would not reasonably be likely to have a Newco
Material Adverse Effect.
SECTION 4.4 Form S-4; Proxy Statement. None of the information supplied
or to be supplied by Newco specifically for inclusion in (i) the Form S-4 will,
at the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading and (ii) the Proxy Statement will, at the date it is first mailed to
the stockholders of the Company and at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, Newco makes no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained or incorporated by reference in the Form S-4
or the Proxy Statement.
SECTION 4.5 Brokers. No broker, finder or investment banker (other than
Lehman Brothers Inc.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Newco or any of its affiliates.
SECTION 4.6 Financing. Newco has received and delivered to the Company
two commitment letters each dated April 17, 1999 addressed to Parent and Newco
(the "Bank Commitment Letters") from Lehman Brothers Inc. and Lehman Commercial
Paper Inc. whereby Lehman Brothers Inc. and Lehman Commercial Paper Inc. have
committed, upon the terms and subject to the conditions set forth therein, to
provide debt financing in the aggregate amount of $825 million (of which $325
million shall be in the form of senior subordinated indebtedness) (collectively,
the "Debt Financings"). Newco has received and delivered to the Company a letter
dated the date hereof (the "Parent Commitment Letter") from Parent addressed to
Newco and the Company whereby Parent has committed, upon the terms and subject
to the conditions set forth therein, to provide a cash contribution in the form
of common equity financing to Newco in the amount of $417.5 million, less the
equity investment in the Company made as part of the Closing by members of the
Company's management pursuant to the Management Agreements (the "Contribution
Amount" and, together with the Debt Financings, the "Financings"). Each of the
Bank Commitment Letters and the Parent Commitment Letter is in effect on the
date hereof and has not been amended or modified and there is no breach or
default existing (or which with notice or lapse of time or otherwise may exist)
thereunder. The aggregate proceeds of the Financings are sufficient to pay the
cash portion of the Merger Consideration, to repay the existing indebtedness of
the Company and its Subsidiaries (excluding any indebtedness the parties agree
shall not be repaid) and to pay all fees and expenses related to the
transactions contemplated by this Agreement.
SECTION 4.7 Operations of Newco. Newco was formed on April 6, 1999 solely
for the purpose of engaging in the transactions contemplated by this Agreement
and the Stockholder Agreement and prior to the Effective Time will have engaged
in no other
21
<PAGE> 132
business activities and will have incurred no liabilities or obligations other
than as contemplated herein. The authorized capital stock of Newco consists of
1,000 shares of common stock, par value $0.01 per share, all shares of which are
issued and outstanding. All of such issued and outstanding shares are validly
issued, fully paid and nonassessable and are owned by Parent, free and clear of
all security interests, liens, claims, pledges, agreements, limitations on
voting rights, charges or other encumbrances of any nature whatsoever. Newco has
no direct or indirect Subsidiaries and does not own, directly or indirectly, any
capital stock, membership interest, partnership interest, joint venture interest
or other equity interest in any person.
SECTION 4.8 Ownership of Company Common Stock. As of the date of this
Agreement, Newco or its affiliates do not own (directly of indirectly,
beneficially or of record) any shares of Company Common Stock, and none of Newco
or its affiliates hold any rights to acquire any shares of Company Common Stock
except pursuant to this Agreement.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date hereof until
the Effective Time, except as specifically contemplated by this Agreement or the
Management Agreements, as set forth on Section 5.1 of the Disclosure Schedule or
as required by law, or unless Newco shall otherwise consent in writing, the
business of the Company and its Subsidiaries shall be conducted in its ordinary
course of business consistent with past practice and the Company shall use its
reasonable best efforts to preserve substantially intact its business
organization, to keep available the services of its officers and employees and
to preserve its present relationships with customers, suppliers, Governmental
Entities and other persons with which it has significant business relations.
Between the date of this Agreement and the Effective Time, except as
specifically contemplated by this Agreement or the Management Agreements, as set
forth on Section 5.1 of the Disclosure Schedule or as required by law, neither
the Company nor any of its Subsidiaries shall without the prior written consent
of Newco:
(a) amend or otherwise change its certificate of incorporation or
by-laws or equivalent organizational documents;
(b) authorize for issuance, issue, deliver, sell, pledge, dispose of
or encumber any shares of capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of capital stock, or any other ownership interest (including but not
limited to stock appreciation rights or phantom stock rights), of the
Company or any of its Subsidiaries (except (i) for the issuance of shares
of Company Class A Common Stock issuable in accordance with the terms of
Employee Options as in effect on the date hereof, (ii) for the conversion
of shares of Company Class B Common Stock into shares of Company Class A
Common Stock, (iii) for the grant of Employee Options, and issuances of
Company Class A Common Stock pursuant thereto, in the ordinary course of
business consistent with past practice or (iv) in connection with the
dividend reinvestment plan of the Company);
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock (except for (i) any dividend or distribution by
a wholly-owned (other than directors' qualifying
22
<PAGE> 133
shares) Subsidiary of the Company or (ii) regular quarterly dividends of
the Company in an amount not to exceed $0.07125 per Share per quarter,
subject to increases consistent with past practice);
(d) effect any reorganization or recapitalization or reclassify,
combine, split, subdivide, redeem, purchase or otherwise acquire any
capital stock of the Company or any of its Subsidiaries (except in
connection with the conversion of shares of Company Class B Common Stock
into shares of Company Class A Common Stock), other than the transactions
contemplated hereby and by the Stockholder Agreement;
(e) (i) acquire (by merger, consolidation or acquisition of stock or
assets) or sell (by merger, consolidation or sale of stock or assets) any
corporation, partnership or other business organization or division thereof
or any assets, in each case, which are material to the Company and its
Subsidiaries taken as a whole, (ii) incur any long-term indebtedness for
borrowed money or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments in,
any other person (other than a Subsidiary of the Company), in each case,
other than (A) in the ordinary course of business consistent with past
practice or (B) any letter of credit entered into in the ordinary course of
business consistent with past practice, (iii) other than in the ordinary
course of business consistent with past practice, enter into or renew or
amend in any material respect any contract or agreement which is or would
be material to the Company and its Subsidiaries taken as a whole or (iv)
authorize any new capital expenditures which are, in the aggregate, in
excess of $25,000,000;
(f) except as contemplated by Section 6.6 or except to the extent
required under the Company Plans and Employment Agreements as in effect on
the date of this Agreement, increase the compensation or fringe benefits of
any of its directors, officers or employees, except for increases for
officers and employees of the Company or its Subsidiaries in the ordinary
course of business consistent with past practice, or establish, adopt,
enter into or amend or terminate any collective bargaining agreement,
Company Plan or bonus, profit sharing, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) sell, lease or otherwise dispose of, or grant any lien with
respect to, any assets or properties of the Company or its Subsidiaries
which are, individually or in the aggregate, material to the Company and
its Subsidiaries, taken as a whole, except for dispositions of excess or
obsolete assets and sales of inventories in the ordinary course of business
consistent with past practice;
(h) change in any material respect any of the accounting principles or
practices used by it, except as may be required as a result of a change in
SEC guidelines or generally accepted accounting principles;
(i) make any material Tax election or settle or compromise any
material Tax liability, other than in the ordinary course of business;
(j) pay, discharge or satisfy any liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than any payment, discharge or satisfaction (i) in the ordinary course of
business consistent with past practice, (ii) in accordance with the terms
of any such liabilities or obligations, (iii) as otherwise
23
<PAGE> 134
permitted by this Agreement or (iv) which does not involve an amount in
excess of $500,000;
(k) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises
of litigation where the amount paid (less the amount reserved for such
matters by the Company) in settlement or compromise in each case does not
exceed $250,000;
(l) adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring, recapitalization, merger or other
reorganization of the Company or any of its Subsidiaries not constituting
an inactive Subsidiary (other than the Merger); or
(m) agree to take any of the actions described in Sections 5.1(a)
through 5.1(l).
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. (a) As soon as reasonably practicable
following the date of this Agreement, the Company, acting through its Board of
Directors, shall (i) duly call, give notice of, convene and hold a meeting of
its stockholders for the purpose of adopting this Agreement (the "Stockholders
Meeting") and (ii) (A) include in the Proxy Statement the recommendation of the
Board of Directors that the stockholders of the Company vote in favor of the
adoption of this Agreement and the written opinion of the Financial Advisor that
the Merger Consideration to be received by the stockholders of the Company
pursuant to the Merger is fair to such stockholders from a financial point of
view and (B) use its reasonable best efforts to obtain the necessary adoption of
this Agreement by the stockholders of the Company; provided that the Board of
Directors of the Company may fail to make or withdraw, modify or change such
recommendation and/or may fail to use such efforts if it shall have determined
in good faith, after consultation with outside counsel to the Company, that such
action is necessary in order for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable law.
(b) Notwithstanding anything to the contrary contained in this Agreement,
this Agreement shall be submitted to the stockholders of the Company whether or
not the Board of Directors determines at any subsequent time after the date of
this Agreement to withdraw, modify or change its recommendation that the
stockholders of the Company vote in favor of the adoption of this Agreement;
provided that the Company shall not be required to hold the Stockholders Meeting
and submit this Agreement if this Agreement is terminated.
SECTION 6.2 Form S-4 and Proxy Statement. As soon as reasonably
practicable following the date of this Agreement, the Company shall prepare the
Form S-4 and the Proxy Statement and shall file with the SEC under the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder the Form S-4, in which the Proxy Statement will be included. Newco
and the Company will cooperate with each other in the preparation of the Form
S-4 and the Proxy Statement. Without limiting the generality of the foregoing,
Newco will furnish to the Company the information relating to it or its
affiliates required by the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder to be set forth in the Form S-4 and the Proxy
Statement. The Company shall use its reasonable best efforts to have the Form
S-4 declared effective under the Securities Act as soon as reasonably
practicable after it is filed with the SEC. The Company shall use its reasonable
best efforts to cause the Proxy
24
<PAGE> 135
Statement to be mailed to the stockholders of the Company as soon as reasonably
practicable after the Form S-4 is declared effective under the Securities Act.
The Company shall also use its reasonable best efforts to take any action
required to be taken under any applicable state securities laws in connection
with the registration and qualification of the Non-Cash Election Shares
following the Merger. Each of Newco and the Company agree to correct any
information provided by it for use in the Form S-4 which shall have become false
or misleading. The Company shall as soon as reasonably practicable notify Newco
of (i) the effectiveness of the Form S-4, (ii) the receipt of any comments from
the SEC with respect to the Form S-4 and the Proxy Statement and (iii) any
request by the SEC for any amendment to the Form S-4 and the Proxy Statement or
for additional information.
SECTION 6.3 Resignation of Directors. At the Closing, the Company shall
deliver to Newco evidence reasonably satisfactory to Newco of the resignation of
all directors of the Company, effective at the Effective Time.
SECTION 6.4 Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, upon reasonable prior written notice, the Company
shall, and shall use its reasonable best efforts to cause its Subsidiaries,
officers, directors and employees to, afford the officers, employees, auditors
and other authorized representatives of Newco reasonable access, consistent with
applicable law, at all reasonable times to its officers, employees, properties,
offices, plants and other facilities and to all books and records, including
security position listings or other information concerning beneficial owners
and/or record owners of the Company's securities, and shall furnish Newco with
all financial, operating and other data and information as Newco, through its
officers, employees or authorized representatives, may from time to time
reasonably request in writing. Notwithstanding the foregoing, any such
investigation or consultation shall be conducted in such a manner as not to
interfere unreasonably with the business or operations of the Company or its
Subsidiaries and shall be in accordance with any other existing agreements or
obligations binding on the Company or any of its Subsidiaries.
(b) Newco shall hold and treat and shall cause its officers, employees,
auditors and other authorized representatives and those of its affiliates to
hold and treat in confidence all documents and information concerning the
Company and its Subsidiaries furnished to Parent or Newco in connection with the
transactions contemplated in this Agreement and the Stockholder Agreement in
accordance with the confidentiality agreement, dated December 7, 1998, between
the Company and Newco (the "Confidentiality Agreement"), which Confidentiality
Agreement shall remain in full force and effect in accordance with its terms.
SECTION 6.5 No Solicitation of Transactions. (a) The Company shall
immediately cease any existing discussions or negotiations, if any, with any
parties conducted heretofore with respect to any Takeover Proposal (as defined
below). The Company shall not directly or indirectly, and it shall use its
reasonable best efforts to cause its officers, directors, employees,
representatives, agents or affiliates, including any investment bankers,
attorneys or accountants (collectively, "Representatives") retained by the
Company or any of its Subsidiaries or affiliates not to, (i) solicit, initiate,
encourage or otherwise facilitate (including by way of furnishing information)
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, recapitalization, consolidation,
business combination, sale of a substantial portion of the assets of the Company
and its Subsidiaries, taken as a whole, sale of 15% or more of the shares of
capital stock (including by way of a tender offer, share exchange or exchange
offer) or
25
<PAGE> 136
similar or comparable transactions involving the Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement (any of
the foregoing inquiries or proposals being referred to in this Agreement as a
"Takeover Proposal"), or (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Takeover Proposal. Notwithstanding anything in this Agreement to the contrary,
the Board of Directors of the Company may, at any time prior to adoption of this
Agreement by the stockholders of the Company, furnish information (pursuant to a
customary confidentiality agreement no more favorable, in the aggregate, to the
party receiving information than the Confidentiality Agreement (it being
understood that the Company may enter into a confidentiality agreement without a
standstill or with a standstill provision less favorable to the Company if it
waives or similarly modifies the standstill provision in the Confidentiality
Agreement; provided that in no circumstances shall any such standstill provision
in any such further confidentiality agreement be more favorable with respect to
the purchase of shares of Company Common Stock)) to, or engage in discussions or
negotiations with, any person in response to an unsolicited bona fide written
Takeover Proposal of such person, if, and only to the extent that, (A) the Board
of Directors of the Company, after consultation with its financial advisors and
outside legal counsel to the Company, determines in good faith that such
Takeover Proposal could reasonably be expected to constitute a Superior Proposal
(as defined herein) and (B) prior to furnishing such information to, or entering
into discussions or negotiations with, such person, the Company provides written
notice to Newco to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person and the Company complies with
Section 6.5(c).
(b) Notwithstanding anything in this Agreement to the contrary, in response
to an unsolicited Takeover Proposal, the Company's Board of Directors shall be
permitted (i) to withdraw, modify or change, or propose to withdraw, modify or
change, the approval or recommendation by the Board of Directors of this
Agreement, the Merger or the other transactions contemplated by this Agreement;
or (ii) to approve or recommend, or propose to approve or recommend, any
Takeover Proposal, but only if, in each case referred to in clauses (i) and
(ii), the Board of Directors of the Company concludes in good faith that such
Takeover Proposal, if consummated, would constitute a Superior Proposal.
"Superior Proposal" means any written Takeover Proposal which the Board of
Directors of the Company determines in good faith (after consultation with its
financial advisors and legal counsel) taking into account all legal, financial,
regulatory and other aspects of the proposal and the person making the proposal,
(i) would, if consummated, result in a transaction that is more favorable to the
Company's stockholders (in their capacity as stockholders), from a financial
point of view, than the transactions contemplated by this Agreement and (ii) is
reasonably capable of being completed (provided that for purposes of this
definition the term Takeover Proposal shall have the meaning assigned to such
term in Section 6.5(b), except that (x) the reference to "15%" in the definition
of Takeover Proposal shall be deemed to be a reference to "50%", (y) "Takeover
Proposal" shall only be deemed to refer to a transaction involving the Company,
or with respect to assets (including the shares of any Subsidiary of the
Company) of the Company and its Subsidiaries, taken as a whole, and not any of
its Subsidiaries alone and (z) no such sale of assets shall be deemed to be
"substantial" unless such sale is for at least 75% of the assets of the Company
and its Subsidiaries, taken as a whole.
(c) The Company shall notify Newco as promptly as reasonably practicable
(and no later than 24 hours) after receipt by the Company of any Takeover
Proposal or any request for non-public information in connection with a Takeover
Proposal or for access to the
26
<PAGE> 137
properties, books or records of the Company by any person or entity that informs
the Company that it is considering making, or has made, a Takeover Proposal.
Such notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact to the extent available to the Company.
(d) Nothing contained in this Section 6.5 shall prohibit the Company or its
Board of Directors (i) from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any legally required disclosure to the stockholders of the Company or (ii) prior
to the adoption of this Agreement by the stockholders of the Company, from
taking any action as contemplated by Section 8.1(e).
SECTION 6.6 Employment and Employee Benefits Matters. (a) As of the
Effective Time, the obligations of the Company and its Subsidiaries under each
Company Plan, Employment Agreement and New Employment Agreement shall continue
as obligations of the Surviving Corporation and its Subsidiaries, respectively.
(b) On and after the Effective Time, the Surviving Corporation shall and
shall cause its Subsidiaries (i) to pay promptly or provide when due all
compensation and benefits earned through or prior to the Effective Time as
provided pursuant to the terms of the Company Plans and the Employment
Agreements and (ii) to pay promptly or provide when due all other compensation
and benefits required to be paid pursuant to the terms of the Company Plans, the
Employment Agreements and the New Employment Agreements.
(c) Subject to any rights that any employee may have under any Company
Plan, Employment Agreement or New Employment Agreement, the Surviving
Corporation shall and shall cause each of its Subsidiaries, for the period
commencing at the Effective Time and ending on the second anniversary thereof,
to maintain for any individual who is actively employed by the Company or any of
its Subsidiaries immediately prior to the Effective Time (the "Affected
Employees") (i) overall compensation levels (such term to include salary, bonus
opportunities and commissions) and Company Plans (other than stock-based plans)
that in the aggregate are no less favorable than the overall compensation levels
and Company Plans and (ii) Severance Plans that are no less favorable than the
Severance Plans, in each case enjoyed by such Affected Employees immediately
prior to the Effective Time; provided that nothing herein shall prevent the
amendment or termination of any Company Plan or require that the Surviving
Corporation provide or permit investment in the securities of the Surviving
Corporation or interfere with the Surviving Corporation's right or obligation to
make such changes as are necessary to conform with applicable law.
(d) Affected Employees shall be given credit for all service with the
Company and its Subsidiaries, to the same extent as such service was credited
for such purpose by the Company, under each benefit plan, program or
arrangement, and the vacation policies, of Newco or its Subsidiaries in which
such Affected Employees are eligible to participate for purposes of eligibility
and vesting; provided that in no event shall the Affected Employees be entitled
to any credit for benefit accrual purposes under any defined benefit pension
plan of Newco, Newco or their respective affiliates or otherwise to the extent
that it would result in a duplication of benefits with respect to the same
period of service.
(e) Prior to the Closing, the Company will use its reasonable best efforts
to borrow from the key man life insurance policies listed on Section 6.6(e) of
the Disclosure Schedule (the "Policies") the maximum amount available under such
Policies and will use
27
<PAGE> 138
the proceeds of such loans to fund the Rabbi Trusts to the extent required under
the Rabbi Trusts as a result of the execution of this Agreement or otherwise.
SECTION 6.7 Directors' and Officers' Indemnification and Insurance. (a)
From the Effective Time through the sixth anniversary of the date on which the
Effective Time occurs, the Surviving Corporation shall indemnify and hold
harmless each present (as of the Effective Time) or former officer, director or
employee of the Company and its Subsidiaries (the "Indemnified Parties"),
against all claims, losses, liabilities, damages, judgments, fines and
reasonable fees, costs and expenses, including attorneys' fees and disbursements
(collectively, "Costs"), incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to (i) the fact that the Indemnified
Party is or was an officer, director or employee of the Company or any of its
Subsidiaries or (ii) matters existing or occurring at or prior to the Effective
Time (including this Agreement and the Stockholder Agreement and the
transactions and actions contemplated hereby and thereby), whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under applicable law; provided that no Indemnified Party may settle
any such claim without the prior approval of the Surviving Corporation (which
approval shall not be unreasonably withheld or delayed). Each Indemnified Party
will be entitled to advancement of expenses incurred in the defense of any
claim, action, suit, proceeding or investigation from the Surviving Corporation
within ten business days of receipt by the Surviving Corporation from the
Indemnified Party of a request therefor; provided that any person to whom
expenses are advanced provides an undertaking, to the extent required by the
DGCL, to repay such advances if it is ultimately determined that such person is
not entitled to indemnification.
(b) The Certificate of Incorporation and by-laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification, advancement of expenses and exculpation of former or present
directors, officers and employees than are presently set forth in the
Certificate of Incorporation and by-laws of the Company, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of any such individuals.
(c) The Surviving Corporation shall maintain, at no expense to the
beneficiaries, in effect for six years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by the
Company with respect to matters existing or occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement and
the Stockholder Agreement); provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less advantageous to any beneficiary
thereof.
(d) Notwithstanding anything herein to the contrary, if any claim, action,
suit, proceeding or investigation (whether arising before, at or after the
Effective Time) is made against any Indemnified Party, on or prior to the sixth
anniversary of the Effective Time, the provisions of this Section 6.7 shall
continue in effect until the final disposition of such claim, action, suit,
proceeding or investigation.
(e) The covenants contained in this Section 6.7 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties and
their respective heirs and legal representatives and shall not be deemed
exclusive of any other rights to which an Indemnified Party is entitled, whether
pursuant to law, contract or otherwise.
28
<PAGE> 139
(f) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, proper provision shall be
made so that the successors or assigns of the Surviving Corporation shall
succeed to the obligations set forth in Section 6.6 and this Section 6.7.
SECTION 6.8 Further Action; Efforts. (a) Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, including but not
limited to (i) cooperation in the preparation and filing of the Form S-4, the
Proxy Statement, any required filings under the HSR Act and any amendments to
any thereof and (ii) using its reasonable best efforts to make all required
regulatory filings and applications (and responding to requests for further
information) and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts as are necessary or reasonably advisable for the
consummation of the transactions contemplated by this Agreement and to fulfill
the conditions to the Merger. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall, to the extent practicable, cause their
respective proper officers and directors to use their reasonable best efforts to
take all such necessary action.
(b) The Company and Newco each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Newco or the Company, as the case may be, or any of
their respective Subsidiaries or affiliates, from any Governmental Entity with
respect to the Merger or any of the other transactions contemplated by this
Agreement. The parties hereto will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with proceedings under or relating to the HSR Act or any other antitrust or
competition law or regulation.
(c) Each party will as promptly as practicable, but in no event later than
ten business days following the execution and delivery of this Agreement, file
with the United States Federal Trade Commission (the "FTC") and the United
States Department of Justice (the "DOJ") the notification and report form, if
any, required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act, and make
similar filings within, to the extent reasonably practicable, a similar time
frame with any other Governmental Entity for which such filing is required. Any
such notification and report form and supplemental information will be in
substantial compliance with the requirements of the HSR Act or other applicable
antitrust or competition law or regulation. Newco shall pay all HSR Act filing
fees. Each party will furnish to the other such necessary information and
reasonable assistance as it may reasonably request in connection with its
preparation of such filings. Each party will supply the other with copies of all
correspondence, filings or communications between such party or its
representatives and the FTC, the DOJ or any other governmental agency or
authority or members of their respective staffs with respect to this Agreement
or the transactions contemplated hereby. Notwithstanding the other provisions of
this Section 6.8, each of the parties will use its best efforts to obtain any
clearance required under the HSR Act or
29
<PAGE> 140
other applicable antitrust or competition law or regulation for the consummation
of the transactions contemplated hereby.
(d) Each of the Company and Newco shall use its reasonable best efforts to
cause the Merger to be accounted for as a recapitalization for financial
reporting purposes and such accounting treatment to be accepted by their
respective accountants and by the SEC. Neither Newco nor any of its officers,
directors, employees, advisors, counsel, accountants or affiliates may hold
discussions or correspond with the SEC regarding the Form S-4, the Proxy
Statement, the Merger, the method of recording the Merger for financial
reporting purposes or the other transactions contemplated hereby without the
prior written consent of the Company (which consent shall not be unreasonably
withheld or delayed) and the Company shall be entitled (with its advisors,
counsel and/or accountants) to attend any meeting with, participate in any
telephone conferences with, and review, comment on and approve any materials to
be submitted to (which review, comment and approval shall not be unreasonably
withheld or delayed), the SEC in connection with the foregoing.
(e) At the written request of Newco, the Company shall on the Closing Date
(i) call for the prepayment or redemption of the 7% Senior Notes Due June 15,
2005 of the Company (the "Senior Notes"); provided that concurrently with any
such request Newco shall provide to the Company reconfirmations of the Bank
Commitment Letters and Parent Commitment Letter in form and substance reasonably
satisfactory to the Company and a new commitment letter or amended Bank
Commitment Letters with respect to the provision of the funds necessary for any
such prepayment or redemption in form and substance, and from an institution,
reasonably satisfactory to the Company or (ii) call for the prepayment or
redemption of or prepay or redeem, as the case may be, any other then existing
indebtedness of the Company; provided that no such prepayment or redemption or
call for prepayment or redemption shall actually be made (nor shall the Company
or any of its Subsidiaries be required to incur any liability in respect of any
such prepayment or redemption) until contemporaneously with or after the
Effective Time.
(f) None of Newco or any of its affiliates shall take any initiatives
involving the Company that would otherwise require the Company to make a public
announcement, make any public comment or proposal with respect to any Takeover
Proposal, become a member of a "group" within the meaning of Section 13(d) of
the Exchange Act, enter into any discussions, negotiations, arrangements or
understanding with any third party with respect to any of the foregoing or
otherwise seek to control or influence the Company, in all cases, except as
expressly contemplated by this Agreement or the Stockholder Agreement.
(g) Without limiting the generality of Section 6.8(a), the Company agrees
to provide, and shall cause its Subsidiaries and shall use its reasonable best
efforts to cause its and their respective officers, employees and advisors to
provide, all reasonable assistance to Newco in connection with the completion of
the Debt Financings contemplated by the Bank Commitment Letters to be
consummated contemporaneous with or at or after the Closing in respect of the
transactions contemplated by this Agreement, including the preparation by the
Company of a Rule 144A private placement memorandum and, upon reasonable advance
notice, (i) participation in meetings, due diligence sessions and road shows and
(ii) the execution and delivery of any underwriting or placement agreements,
pledge and security documents, other definitive financing documents, or other
requested certificates or documents, as may be reasonably requested by Newco;
provided that (A) the terms and conditions of any of the agreements and other
documents referred to in clause (ii) shall be consistent with the terms and
conditions of the financing required to
30
<PAGE> 141
satisfy the condition precedent set forth in Section 7.2(g), shall be customary
for a corporation engaged in the business of the Company and shall be subject to
the prior review and comment of the Company (such review and comment not to be
unreasonably withheld or delayed), (B) the terms and conditions of such
financing may not require the payment of any commitment or other fees by the
Company or any of its Subsidiaries, or the incurrence of any liabilities by the
Company or any of its Subsidiaries, prior to the Effective Time and the
obligation to make any such payment shall be subject to the occurrence of the
Closing and (C) the Company shall not be required to provide any such assistance
which would interfere unreasonably with the business or operations of the
Company or its Subsidiaries.
(h) (i) Without limiting the generality of Section 6.8(a), Newco hereby
agrees to use its reasonable best efforts to obtain the financing in respect of
the transactions contemplated by this Agreement as provided for in the Bank
Commitment Letters and the Parent Commitment Letter, including using its
reasonable best efforts (A) to negotiate definitive agreements with respect
thereto, (B) to satisfy all conditions applicable to Newco in such definitive
agreements and (C) when permitted under the Senior Subordinated Commitment
Letter, to require LCPI (as defined therein) to provide the Interim Loans (as
defined therein). Newco will keep the Company informed on a regular ongoing
basis of the status of its efforts to obtain such financing. In the event any
portion of such financing becomes unavailable in the manner or from the sources
originally contemplated, Newco will use its reasonable best efforts to obtain
any such portion from alternative sources on substantially comparable terms, if
available.
(ii) Subject to the Company having received the proceeds of the financing
described in the Bank Commitment Letters and in Section 7.2(g) and after the
satisfaction or waiver of all of the other conditions set forth in Sections 7.1
and 7.2, Newco at Closing will be capitalized with a cash contribution in the
form of common equity of an amount at least equal to the Contribution Amount.
SECTION 6.9 Public Announcements. No public release or announcement
concerning the transactions contemplated by this Agreement or the Stockholder
Agreement shall be issued by any party without the prior written consent of the
Company and Newco (which consent shall not be unreasonably withheld or delayed),
except as such release or announcement may be required by law or the rules or
regulations of any applicable United States securities exchange, in which case
the party required to make the release or announcement shall use its reasonable
best efforts to allow each other party reasonable time to comment on such
release or announcement in advance of such issuance, it being understood that
the final form and content of any such release or announcement, to the extent so
required, shall be at the final discretion of the disclosing party.
SECTION 6.10 Listing. The parties hereto shall use their reasonable best
efforts to have the Non-Cash Election Shares admitted for listing on the NYSE or
to maintain the listing of the Non-Cash Election Shares on the NYSE, as
applicable, or if the Non-Cash Election Shares do not qualify for listing on the
NYSE, to have the Non-Cash Election Shares admitted for quotation on the Nasdaq
Stock Market (the "Listing"). Any fees in connection with the Listing payable
prior to the Effective Time shall be paid by Newco. Neither Newco nor the
Company will take any action, for at least three years from the Effective Time,
to cause the Listing to be terminated, except (i) in accordance with the
applicable requirements of the NYSE, including compliance with Rule 500 of the
NYSE, as interpreted in Section 806 of the NYSE Listed Company Manual as in
effect on the date hereof, or the Nasdaq Stock Market, as applicable, and (ii)
with the approval of a
31
<PAGE> 142
majority of the Non-Cash Election Shares not held of record or beneficially by
Parent or its affiliates; provided that nothing in this Section 6.10 shall
require Newco or the Company to take any affirmative action to prevent the
Listing from being terminated by the NYSE or the Nasdaq Stock Market, as
applicable, in the event that the Non-Cash Election Shares cease to meet the
applicable Listing standards.
SECTION 6.11 Letter as to Solvency. The parties hereto shall engage, at
the expense of Newco, an appraisal firm to deliver a letter addressed to the
Board of Directors of the Company and the Company (and on which the Board of
Directors of the Company shall be entitled to rely) indicating that immediately
after the Effective Time, and after giving effect to the Merger and the
financings contemplated by this Agreement and any other transactions
contemplated in connection with the Merger, the Surviving Corporation (i) will
not be insolvent and will have assets sufficient to pay its debts and (ii) will
not have unreasonably small capital with which to engage in its business.
SECTION 6.12 Affiliates. Prior to the Closing Date, the Company shall
deliver to Newco a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for the purposes of Rule 145 under the Securities
Act (the parties agreeing that none of Trinity I Fund, L.P., TF Investors, L.P.,
Trinity Capital Management, Inc., Thomas M. Taylor, Portfolio H Investors, L.P.,
Portfolio Associates, Inc. or any of their affiliates shall constitute an
"affiliate" of the Company for the purposes of Rule 145 under the Securities Act
for the purposes of this Agreement). The Company shall use its reasonable best
efforts to cause each such person to deliver to Newco on or prior to the Closing
Date a written agreement substantially in the form attached as Exhibit C hereto.
SECTION 6.13 Third Party Standstill Agreements; Tortious
Interference. During the period from the date of this Agreement through the
Effective Time, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill or similar agreement to which the
Company or any of its Subsidiaries is a party (other than involving Parent or
its affiliates). Subject to the foregoing, during such period, the Company
agrees to enforce, to the fullest extent permitted under applicable law, the
provisions of any such agreements, including obtaining injunctions to prevent
any breaches of such agreements and to enforce specifically the terms and
provisions thereof in any court having jurisdiction. This Section 6.13 shall be
subject to Section 6.5.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been adopted by the affirmative vote of
the stockholders of the Company by the requisite vote in accordance with
the Company's Certificate of Incorporation and the DGCL;
(b) no statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any United
States or state court or governmental authority which prohibits, restrains
or enjoins the consummation of the Merger; provided that prior to invoking
this condition each party shall comply with Section 6.8;
32
<PAGE> 143
(c) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired;
and
(d) the Form S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a
stop order, and any material "blue sky" and other state securities laws
applicable to the registration and qualification of the Non-Cash Election
Shares shall have been complied with in all material respects.
SECTION 7.2 Conditions to Obligations of Newco. The obligations of Newco
to effect the Merger shall be further subject to the satisfaction or waiver at
or prior to the Effective Time of the following conditions:
(a) The representations and warranties of the Company in this
Agreement that are qualified as to materiality shall be true and correct
and those not so qualified shall be true and correct in all material
respects as of the Closing Date as though made on the Closing Date, except
to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties qualified
as to materiality shall be true and correct, and those not so qualified
shall be true and correct in all material respects, on and as of such
earlier date); provided that this paragraph (a) shall be deemed satisfied
so long as the failure of all such representations and warranties to be so
true and correct would not have or would not reasonably be likely to have a
Material Adverse Effect; and Newco shall have received a certificate signed
on behalf of the Company by an executive officer of the Company to such
effect.
(b) The Company shall have performed in all material respects the
material obligations required to be performed by it under this Agreement at
or prior to the Closing Date; and Newco shall have received a certificate
signed on behalf of the Company by an executive officer of the Company to
such effect.
(c) Newco shall have received evidence, in form and substance
reasonably satisfactory to it, that such consents, approvals,
authorizations, permits, actions, filings or notifications of, with or to
all Governmental Entities as specified in Section 3.5(b) have been
obtained, except where the failure to obtain such consents, approvals,
authorizations, permits, actions, filings or notifications would not have
or would not reasonably be likely to have, individually or in the
aggregate, a Material Adverse Effect.
(d) There shall not be pending any suit, action or proceeding by any
U.S. federal Governmental Entity (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the transactions
contemplated by this Agreement or, in connection therewith, seeking to
obtain from Newco or any of its affiliates any damages that are material to
the Company and its Subsidiaries, taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by Newco of any material
portion of the business or assets of the Company and its Subsidiaries,
taken as a whole, or (iii) seeking to impose limitations on the ability of
Newco to acquire or hold, or exercise full rights of ownership of, any
shares of the Company Common Stock, including the right to vote the Company
Common Stock on all matters properly presented to the stockholders of the
Company, except in each case for clauses (i), (ii) or (iii) where any such
suit, action or proceeding would not have or would not reasonably be likely
to have, individually or in the aggregate, a Material Adverse Effect.
33
<PAGE> 144
(e) Newco shall have received the agreements referred to in Section
6.12.
(f) The number of Dissenting Shares (other than any Dissenting Shares
owned by Trinity I Fund, L.P., TF Investors, L.P., Trinity Capital
Management, Inc., Thomas M. Taylor, Portfolio H Investors, L.P., Portfolio
Associates, Inc. or any of their affiliates or any other person or group
holding 3% or more of the issued and outstanding shares of Company Common
Stock) shall not exceed 5% of the issued and outstanding shares of Company
Common Stock.
(g) The Company shall have received the financing proceeds under the
Debt Financings on the terms and conditions set forth in the Bank
Commitment Letters or upon terms and conditions which are substantially
equivalent thereto, and to the extent that any of the terms and conditions
are not as so set forth or substantially equivalent, on terms and
conditions reasonably satisfactory to Newco; provided that Newco shall have
complied with the provisions of Section 6.8.
(h) Newco shall be reasonably satisfied that the Merger shall be
recorded as a recapitalization for financial reporting purposes.
SECTION 7.3 Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger shall be further subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions:
(a) The representations and warranties of Newco in this Agreement that
are qualified as to materiality shall be true and correct and those not so
qualified shall be true and correct in all material respects as of the
Closing Date as though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties qualified as to materiality
shall be true and correct, and those not so qualified shall be true and
correct in all material respects, on and as of such earlier date); provided
that this paragraph (a) shall be deemed satisfied so long as the failure of
all such representations and warranties to be so true and correct would not
have or would not reasonably be likely to have a Newco Material Adverse
Effect; and the Company shall have received a certificate signed on behalf
of Newco by an executive officer of Newco to such effect.
(b) Newco shall have performed in all material respects the material
obligations required to be performed by it under this Agreement at or prior
to the Closing Date; and the Company shall have received a certificate
signed on behalf of Newco by an executive officer of Newco to such effect.
(c) The Company and its Board of Directors shall have received the
letter referred to in Section 6.11 or Newco shall have provided to the
Company and its Board of Directors from another appraisal firm a comparable
letter in form and substance reasonably satisfactory to the Company.
(d) The Listing of the Non-Cash Election Shares shall have been
approved, subject only to official notice of issuance.
34
<PAGE> 145
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent of Newco and the Company;
(b) by Newco or the Company if any Governmental Entity of competent
jurisdiction located or having jurisdiction within the United States or any
country or economic region in which the Company, directly or indirectly,
has material assets or operations, shall have issued a final order, decree
or ruling or taken any other final action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action is or shall have become final and nonappealable and, with respect to
any Governmental Entity of competent jurisdiction located outside the
United States, such order, decree, ruling or other action would have or
would reasonably be likely to have a Material Adverse Effect;
(c) by either Newco or the Company if the Effective Time shall not
have occurred on or before the date which is the later of (i) September 30,
1999 or (ii) two months after the date that the Form S-4 is declared
effective by the SEC; provided that such date which is two months after the
date that the Form S-4 is declared effective by the SEC is not later than
November 30, 1999 (the "Termination Date"); provided that the right to
terminate this Agreement pursuant to this Section 8.1(c) shall not be
available (x) to the party seeking to terminate if any action of such party
or the failure of such party to perform any of its obligations under this
Agreement required to be performed at or prior to the Effective Time or (y)
to the Company at any such time that there is an unremedied or continuing
breach of the Stockholder Agreement by the Principal Stockholder and Newco
at such time is seeking specific performance of the Stockholder Agreement
in a court proceeding (provided that this clause (y) shall cease to be of
effect after December 31, 1999) and, in each case for clauses (x) and (y),
any such action, failure to perform or breach has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date and, in each case for clause (x), any such action or
failure to perform constitutes a breach of this Agreement;
(d) by the Company if there shall have been a material breach of any
covenant or agreement on the part of Newco contained in this Agreement or
the Stockholder Agreement which materially adversely affects Newco's
ability to consummate (or materially delays consummation of) the Merger on
the terms contemplated hereby, and which shall not have been cured prior to
the earlier of (I) 10 business days following notice of such breach and
(II) the Termination Date; provided that the Company shall not have the
right to terminate this Agreement pursuant to this Section 8.1(d) if the
Company is then in material breach of any of its covenants or agreements
contained in this Agreement;
(e) by the Company if prior to the adoption of this Agreement by the
stockholders of the Company, upon two business days prior notice to Newco,
the Board of Directors of the Company shall approve or recommend to
stockholders a Superior Proposal; provided, however, that (i) the Board of
Directors of the Company shall have concluded in good faith, after giving
effect to all the concessions which may
35
<PAGE> 146
be offered by Newco pursuant to clause (ii) below, after consultation with
its financial advisors and outside counsel, that such proposal is a
Superior Proposal and (ii) prior to any such termination, the Company
shall, and shall cause its legal and financial advisors to, negotiate with
Newco to make such adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the transactions
contemplated hereby; provided, further, that such termination under this
Section 8.1(e) shall not be effective unless the Company and the Board of
Directors of the Company shall have complied with all their obligations
under Section 6.5 and until payment of the Termination Fee pursuant to
Section 8.3(b);
(f) by Newco (i) if there shall have been a material breach of any
covenant or agreement on the part of the Company contained in this
Agreement (including Section 6.5) or on the part of the Principal
Stockholder contained in the Stockholder Agreement, in each case which
shall not have been cured prior to the earlier of (A) 10 business days
following notice of such breach and (B) the Termination Date, provided that
(x) Newco shall not have the right to terminate this Agreement pursuant to
this Section 8.1(f)(i) if Newco is then in material breach of any of its
covenants or agreements contained in this Agreement or the Stockholder
Agreement and (y) the Company will have no right to cure a breach of
Section 6.5 (if such breach is not reasonably capable of being cured) and
the Principal Stockholder will have no right to cure a breach of Section
3(c) of the Stockholder Agreement (if such breach is not reasonably capable
of being cured); or (ii) if the Board of Directors of the Company shall
have withdrawn, modified or changed (it being understood and agreed that a
communication by the Board of Directors of the Company to the stockholders
of the Company pursuant to Rule 14d-9(e)(3) of the Exchange Act, or any
similar communication to the stockholders of the Company in connection with
the making or amendment of a tender offer or exchange offer, shall not be
deemed to constitute a withdrawal, modification or change of its
recommendation of this Agreement or the Merger) in a manner adverse to
Newco its approval or recommendation of this Agreement or the Merger or
shall have approved or recommended to the stockholders of the Company a
Takeover Proposal other than the Merger, or shall have resolved to effect
any of the foregoing (it being understood and agreed that the delivery of
notice pursuant to the immediately foregoing paragraph (e) and any
subsequent public announcement of such notice shall not entitle Newco to
terminate this Agreement pursuant to this paragraph (f)); or
(g) by either Newco or the Company if, at the Stockholders Meeting or
any adjournment thereof, the holders of a majority in voting power of the
outstanding shares of Company Common Stock shall not have adopted this
Agreement.
SECTION 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto, except as
set forth in this Section 8.2, Section 3.19, Section 4.5, Section 6.4(b),
Section 8.3 and Article IX; provided that nothing herein shall relieve any party
from liability for any breach hereof.
SECTION 8.3 Fees and Expenses. (a) Except as otherwise specifically
provided herein, each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
(b) The Company shall (y) pay to Newco a fee of $34 million (the
"Termination Fee") if: (i) the Company terminates this Agreement pursuant to
Section 8.1(e); (ii) Newco terminates this Agreement pursuant to Section
8.1(f)(i) as a result of a
36
<PAGE> 147
breach by the Company of Section 6.5 or pursuant to Section 8.1(f)(ii); or (iii)
Newco or the Company terminates this Agreement in accordance with Section 8.1(g)
and prior to any such termination a Takeover Proposal shall have been made and
remain pending; provided, however, that no Termination Fee shall be payable to
Newco pursuant to clause (iii) of this paragraph (b) unless within 18 months of
such termination the Company or any Subsidiary of the Company enters into a
definitive agreement to consummate the transactions contemplated by a Takeover
Proposal or a Takeover Proposal is otherwise consummated. The Termination Fee
shall be paid by wire transfer of same-day funds on the date of termination of
this Agreement (except that, in the case of termination pursuant to clause (iii)
above, such payment shall be made on the date of execution of such definitive
agreement or, if earlier, consummation of such transactions).
SECTION 8.4 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time whether before or after adoption of this
Agreement by the stockholders of the Company; provided that, after adoption of
this Agreement by the stockholders of the Company, no amendment may be made
which by law requires the further approval of the stockholders of the Company
without such further approval. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) subject to the requirements of applicable law, waive
compliance with any of the agreements or conditions contained herein. Any such
extension or waiver shall only be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations and warranties in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be. This Section 9.1 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
if to Newco:
Red Dog Acquisition, Corp.
c/o Lehman Brothers Merchant Banking Partners II L.P.
3 World Financial Center
New York, NY 10285
Attention: Alan Magdovitz
Daniel James
Facsimile: 212-526-3836
37
<PAGE> 148
with an additional copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Philip A. Gelston
Facsimile: 212-474-3700
if to the Company:
Blount International, Inc.
4520 Executive Park Drive
Montgomery, AL 36116-1602
Attention: John M. Panettiere
Facsimile: 334-271-8177
and
Attention: Richard H. Irving, III
Facsimile: 334-271-8130
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: John G. Finley, Esq.
Facsimile: 212-455-2502
and
Bradley, Arant, Rose & White
2001 Park Place
Suite 1400
Birmingham, AL 35203
Attention: Susan Doss
Legal Counsel for the Principal Stockholder
Facsimile: 205-521-8800
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates
has, directly or indirectly, (A) the right to acquire (whether such right
is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are
38
<PAGE> 149
beneficially owned, directly or indirectly, by any other persons with whom
such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of any Shares (and the term "beneficially owned" shall have a
corresponding meaning);
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in New York, New York;
(d) "control" (including the terms "controlled", "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management policies of a person, whether through the ownership of
stock, as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States, in each case, as applicable, as of the
time of the relevant financial statements referred to herein or, with
respect to filings of certain foreign subsidiaries of the Company which
include or are prepared on the basis of non-U.S. generally accepted
accounting principles, the foreign generally accepted accounting principles
applicable to such Subsidiaries;
(f) "including" means including, without limitation;
(g) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act);
(h) "Subsidiary" or "Subsidiaries" of the Company, the Surviving
Corporation, Newco or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder
of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity; and
(i) "to the knowledge of the Company" means to the knowledge of any
executive officer of the Company.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
39
<PAGE> 150
SECTION 9.5 Entire Agreement; Assignment. Except as may otherwise be
agreed by the parties, this Agreement, the Disclosure Schedule and the
Confidentiality Agreement constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. The Disclosure Schedule signed for
identification by the parties hereto is incorporated herein and made a part
hereof for all purposes as if fully set forth herein. Any fact or item disclosed
on any section of the Disclosure Schedule shall not by reason only of such
disclosure be deemed to be material and shall not be employed as a point of
reference in determining any standard of materiality under this Agreement.
Neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the other
parties.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement, other than with respect to the provisions of Sections 2.2 and 6.7
which shall inure to the benefit of the persons or entities benefitting
therefrom who are intended to be third-party beneficiaries thereof.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles or conflicts of
laws thereof.
SECTION 9.8 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.10 Specific Performance; Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of Delaware or in any Delaware state
court, this being in addition to any other remedy to which such party is
entitled at law or in equity. In addition, each of the parties hereto (i)
consents to submit itself to the personal jurisdiction of any Federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (ii) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
(iii) agrees that it will not bring any action relating to this Agreement or any
of the transactions contemplated by this Agreement in any court other than a
Federal or state court sitting in the State of Delaware and (iv) consents to
service being made through the notice procedures set forth in Section 9.2. Newco
hereby irrevocably designates and appoints The Corporation Trust Company at
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 as its
duly appointed agent for service of
40
<PAGE> 151
process in the State of Delaware, for any suit or proceeding in connection with
this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, Newco and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
RED DOG ACQUISITION, CORP.
By: /s/ ALAN MAGDOVITZ
-----------------------------------
Name: Alan Magdovitz
Title: Chairman
BLOUNT INTERNATIONAL, INC.
By: /s/ WINTON M. BLOUNT
-----------------------------------
Name: Winton M. Blount
Title: Chairman of the Board of
Directors
41
<PAGE> 152
EXHIBIT A
TO AGREEMENT AND PLAN OF
MERGER AND RECAPITALIZATION
RESTATED
CERTIFICATE OF INCORPORATION
OF
BLOUNT INTERNATIONAL, INC.
-------------------------
ARTICLE FIRST
The name of the corporation (the "Corporation") is Blount International
Inc.
ARTICLE SECOND
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
The name of the registered agent of the Corporation at such address is
Corporation Trust Company.
ARTICLE THIRD
The Purpose of the Corporation in to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "DGCL").
ARTICLE FOURTH
The aggregate number of shares which the Corporation shall have authority
to issue is 100,000,000 of Common Stock, par value $.01 per share.
ARTICLE FIFTH
In furtherance and not in limitation of the powers conferred upon it by
law, the Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal the By-laws of the Corporation.
ARTICLE SIXTH
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Article SIXTH
<PAGE> 153
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE SEVENTH
Unless and except to the extent that the By-laws of the Corporation shall
so require, the election of directors of the Corporation need not be by written
ballot.
2
<PAGE> 154
EXHIBIT B
TO AGREEMENT AND PLAN OF
MERGER AND RECAPITALIZATION
BY-LAWS OF BLOUNT INTERNATIONAL, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS; SHAREHOLDERS'
CONSENT IN LIEU OF MEETING
SECTION 1.01. Annual Meeting. The annual meeting of the shareholders for
the election of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, date and hour as
shall be fixed by the Board of Directors (hereinafter called the Board) and
designated in the notice or waiver of notice thereof; except that no annual
meeting need be held if all actions, including the election of directors,
required by the General Corporation Law of the State of Delaware to be taken at
a shareholders' annual meeting are taken by written consent in lieu of meeting
pursuant to Section 1.03 of this Article.
SECTION 1.02. Special Meetings. A special meeting of the shareholders for
any purpose or purposes may be called by the Board, the Chairman of the Board,
the President or the Secretary of the Corporation or a shareholder or
shareholders holding of record at least a majority of the shares of Common Stock
of the Corporation issued and outstanding, such meeting to be held at such
place, date and hour as shall be designated in the notice or waiver of notice
thereof.
SECTION 1.03. Shareholders' Consent in Lieu of Meeting. Any action
required by the laws of the State of Delaware to be taken at any annual or
special meeting of the shareholders of the Corporation, or any action which may
be taken at any annual or special meeting of such shareholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by all the
shareholders.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by law or by the Certificate of Incorporation directed or required to be
exercised or done by the shareholders.
SECTION 2.02. Number and Term of Office. The number of directors which
shall constitute the whole Board shall be fixed from time to time by a vote of a
majority of the whole Board. The term "whole Board" is used herein to refer to
the number of directors from time to time authorized to be on the Board
regardless of the number of directors then in office. Directors need not be
shareholders. Each director shall hold office until his successor is elected and
qualified, or until his earlier death or resignation or removal in the manner
hereinafter provided.
<PAGE> 155
SECTION 2.03. Resignation, Removal and Vacancies. Any director may resign
at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein or, if the time be
not specified, upon receipt thereof; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Any director or the entire Board may be removed, with or without cause, at
any time by the holders of a majority of the shares then entitled to vote at an
election of directors or by written consent of the shareholders pursuant to
Section 1.03 of Article I hereof.
Vacancies in the Board and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director.
SECTION 2.04. Meeting. (a) Annual Meeting. As soon as practicable after
each annual election of directors, the Board shall meet for the purpose of
organization and the transaction of other business, unless it shall have
transacted all such business by written consent pursuant to Section 2.05 of this
Article.
(b) Other Meetings. Other meetings of the Board shall be held at such
times and places as the Board, the Chairman of the Board or the President shall
from time to time determine.
(c) Notice of Meetings. The Secretary shall give notice to each director
of each meeting, including the time, place and purpose of such meeting. Notice
of each such meeting shall be given to each director not later than the day
before the day on which such meeting is to be held, but notice need not be given
to any director who shall attend such meeting. A written waiver of notice,
signed by the person entitled thereto, whether before or after the time of the
meeting stated therein, shall be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) Quorum and Manner of Acting. Two-thirds of the total number of
directors then in office (but not less than four) shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and the vote of a majority of those directors present
at any such meeting at which a quorum is present shall be necessary for the
passage of any resolution or act of the Board, except as otherwise expressly
required by law or these By-laws. In the absence of a quorum for any such
meeting, a majority of the directors present thereat may adjourn such meeting
from time to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following shall
act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman of the Board;
(ii) the President;
(iii) any director chosen by a majority of the directors present.
The Secretary or, in the case of his absence, any person whom the Chairman shall
appoint shall act as secretary of such meeting and keep the minutes thereof.
2
<PAGE> 156
SECTION 2.05. Directors' Consent in Lieu of Meeting. Action required or
permitted to be taken at any meeting of the Board, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes or the proceedings of the Board or committee.
SECTION 2.06. Action by Means of Conference Telephone or Similar
Communications Equipment. Any one or more members of the Board, or any
committee designated by the Board, may participate in a meeting of the Board or
any such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
ARTICLE III
OFFICERS
SECTION 3.01. Executive Officers. The executive officers of the
Corporation shall be a Chairman of the Board, one Vice Chairman of the Board, a
Chief Executive Officer, a President, a Secretary and one or more Vice
Presidents. Any two or more offices may be held by the same person.
SECTION 3.02. Authority and Duties. All officers, as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-laws or, to the
extent not so provided, by the Board.
SECTION 3.03. Term of Office, Resignation and Removal. All officers shall
be elected or appointed by the Board and shall hold office for such term as may
be prescribed by the Board. Each officer shall hold office until his successor
has been elected or appointed and qualified or his earlier death or resignation
or removal in the manner hereinafter provided.
Any officer may resign at any time by giving written notice to the
President or the Secretary of the Corporation, and such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective is not specified therein, at the time it is accepted by action of the
Board. Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
All officers and agents elected or appointed by the Board shall be subject
to removal at any time by the board or by the shareholders of the Corporation
with or without cause.
SECTION 3.04. Chairman of the Board. If there shall be a Chairman of the
Board, he shall preside at meetings of the Board and of the shareholders at
which he is present.
SECTION 3.05. The President. The President shall have general and active
management and control of the business and affairs of the Corporation, subject
to the control of the Board, and shall see that all orders and resolutions of
the Board are carried into effect.
SECTION 3.06. Vice Presidents. The Vice Presidents shall, in the absence
or disability of the President, perform the duties and exercise the powers of
the President, and shall generally assist the President and perform such other
duties as the Board or the President shall prescribe.
3
<PAGE> 157
SECTION 3.07. The Secretary. The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of the
shareholders and shall record all votes and the minutes of all proceedings in a
book to be kept for that purpose.
ARTICLE IV
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 4.01. Execution of Documents. The Board shall designate the
officers, employees and agents of the Corporation who shall have power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; and,
unless so designated or expressly authorized by these By-laws, no officer or
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
SECTION 4.02. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board or any officer of the Corporation to whom power in
this respect shall have been given by the Board shall select.
SECTION 4.03. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board shall designate the officers of the Corporation who
shall have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights which the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent in respect of such
stock or securities; such designated officers may instruct the person or persons
so appointed as to the manner of exercising such powers and rights; and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal, or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its said powers
and rights.
ARTICLE V
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
SECTION 5.01 Certificates for Shares. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number and
class of shares owned by him in the Corporation, which shall otherwise be in
such form as shall be prescribed by the Board. Certificates of each class shall
be issued in consecutive order and shall be numbered in the order of their
issue, and shall be signed by, or in the name of the Corporation by the Chairman
of the Board, the President or a Vice President and by the Secretary.
SECTION 5.02. Record. A record (herein called the stock record) in one or
more counterparts shall be kept of the name of the person, firm or corporation
owning the shares represented by each certificate for stock of the Corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of cancelation, the date of cancelation. Except as
otherwise expressly required by law, the person in whose
4
<PAGE> 158
name shares of stock stand on the stock record of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation.
SECTION 5.03. Registration of Stock. Registration of transfers of shares
of the Corporation shall be made only on the books of the Corporation upon
request of the registered holder thereof, or of his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and upon the surrender of the certificate or certificates for
such shares properly endorsed or accompanied by a stock power duly executed.
SECTION 5.04. Addresses of Shareholders. Each stockholder shall designate
to the Secretary of the Corporation an address at which notices of meetings and
all other corporate notices may be served or mailed to him, and, if any
stockholder shall fail to designate such address, corporate notices may be
served upon him by mail directed to him at his post office address, if any, as
the same appears on the share record books of the Corporation or at his last
known post office address.
SECTION 5.05. Lost, Destroyed and Mutilated Certificates. The Board may,
in its discretion, cause to be issued a new certificate or certificates for
stock of the Corporation in place of any certificate issued by it and reported
to have been lost, destroyed or mutilated, upon the surrender of the mutilated
certificates or, in the case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the Corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
SECTION 5.06. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws, concerning the
issue, transfer registration of certificates for stock of the Corporation.
ARTICLE VI
SEAL
The Board shall provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation and the words and figures
"Corporate Seal Delaware 1999".
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of December in
each year unless changed by resolution of the Board.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
SECTION 8.01. Right to Indemnification. The Corporation shall to the
fullest extent permitted by applicable law as then in effect indemnify any
person (a "Covered Person") who is or was involved in any manner (including as a
party or a witness) or is threatened to be made so involved in any threatened,
pending or completed investigation,
5
<PAGE> 159
claim, action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action, suit or proceeding by or in the right of
the Corporation to procure a judgment in its favor) (a "Proceeding") by reason
of the fact that he or she is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including any employee benefit plan),
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually incurred by the Covered Person in connection with
such Proceeding. Such indemnification shall be a contract right.
SECTION 8.02. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any Covered Person against
any expenses, judgments, fines and amounts paid in settlement as specified in
Section 8.01 of this Article VIII or incurred by any such director, officer,
employee or agent in connection with any Proceeding referred to in such Section,
to the fullest extent permitted by applicable law as then in effect. The
Corporation may enter into contracts with any Covered Person in furtherance of
the provisions of this Article VIII and may create a trust fund, grant a
security interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article VIII.
SECTION 8.03. Indemnification; Not Exclusive Right. The right of
indemnification and advancement of expenses provided in this Article VIII shall
not be exclusive of any other rights to which a Covered Person may otherwise be
entitled, and the provisions of this Article VIII shall inure to the benefit of
the heirs and legal representatives of any Covered Person under this Article
VIII and shall be applicable to Proceedings commenced or continuing after the
adoption of this Article VIII, whether arising from acts or omissions occurring
before or after such adoption.
SECTION 8.04. Advancement of Expenses. All expenses incurred (including
attorneys' fees) by or on behalf of any Covered Person in connection with any
Proceeding shall be advanced to such Covered Person by the Corporation within 20
days after the receipt by the Corporation of a statement or statements from such
Covered Person requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the expenses incurred by such Covered
Person and, if required by law at the time of such advance, shall include or be
accompanied by an undertaking by or on behalf of such Covered Person to repay
the amounts advanced if ultimately it should be determined that such Covered
Person is not entitled to be indemnified against such expenses pursuant to this
Article VIII. Notwithstanding the foregoing provisions of this Section 8.04 but
subject to Section 8.05(c)(iv), the Corporation shall not advance expenses to a
Covered Person with respect to any Proceeding commenced by such Covered Person
unless the commencement of such Proceeding by such Covered Person has been
approved by a majority vote of the Disinterested Directors.
SECTION 8.05. Indemnification Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation, of the
foregoing provisions of this Article VIII, the following procedures,
presumptions and remedies shall apply with respect to the right to
indemnification under this Article VIII:
(a) Procedures for Determination of Entitlement to Indemnification. (i) To
obtain indemnification under this Article VIII, a Covered Person shall submit to
the Secretary a written request, including such documentation and information as
is reasonably available to
6
<PAGE> 160
the Covered Person and reasonably necessary to determine whether and to what
extent the Covered Person is entitled to indemnification (the "Supporting
Documentation"). The determination of the Covered Person's entitlement to
indemnification shall be made not later than 60 days after the later of (A) the
receipt by the Corporation of the written request for indemnification together
with the Supporting Documentation and (B) the receipt by the Corporation of
written notice of final disposition of the Proceeding in respect of which
indemnification is sought. The Secretary shall, promptly upon receipt of such a
request for indemnification, advise the Board in writing that the Covered Person
has requested indemnification.
(ii) The Covered Person's entitlement to indemnification under this Article
VIII shall be determined in one of the following ways: (A) by a majority vote of
the Disinterested Directors, whether or not they constitute a quorum of the
Board; (B) by a committee of the Disinterested Directors designated by a
majority vote of the Disinterested Directors, whether or not they constitute a
quorum of the Board; (C) by a written opinion of Independent Counsel (as defined
in Section 8.05(d)) if (x) the Covered Person so requests or (y) there are no
Disinterested Directors or a majority of such Disinterested Directors so
directs; (D) by the stockholders of the Corporation; or (E) as provided in the
second sentence of Section 8.05(b) of this Article VIII.
(iii) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8.05(a)(ii), a majority of
the Disinterested Directors (or, if there are no Disinterested Directors, the
President of the Corporation or, if the President is or was a party to the
Proceeding in respect of which indemnification is sought, the highest ranking
officer of the Corporation who is not and was not a party to such Proceeding)
shall select the Independent Counsel, but only an Independent Counsel to which
the Covered Person does not reasonably object.
(b) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article VIII, the Covered Person shall be presumed to
be entitled to indemnification under this Article VIII upon submission of a
request for indemnification together with the Supporting Documentation in
accordance with Section 8.05(a)(i) of this Article VIII, and thereafter the
Corporation shall have the burden of proof to overcome that presumption in
reaching a contrary determination. In any event, if the person or persons
empowered under Section 8.05(a) of this Article VIII to determine entitlement to
indemnification shall not have been appointed or shall not have made a
determination within 60 days after the later of (x) the receipt by the
Corporation of the written request for indemnification together with the
Supporting Documentation and (y) final disposition of the Proceeding in respect
of which indemnification is sought, the Covered Person shall be deemed to be,
and shall be, entitled to indemnification. The termination of any Proceeding, or
of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, adversely affect the right of the Covered Person to indemnification or
create a presumption that the Covered Person did not act in good faith and in a
manner which the Covered Person reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that the Covered Person had reasonable cause to believe that his or
her conduct was unlawful.
(c) Remedies. (i) In the event that a determination is made pursuant to
Section 8.05(a) of this Article VIII that the Covered Person is not entitled to
indemnification under this Article VIII, (A) the Covered Person shall be
entitled to seek an adjudication of his or her entitlement to such
indemnification either, at the Covered
7
<PAGE> 161
Person's sole option, in (x) an appropriate court of the State of Delaware or
any other court of competent jurisdiction or (y) an arbitration to be conducted
by a single arbitrator pursuant to the rules of the American Arbitration
Association; (B) any such judicial proceeding or arbitration shall be de novo
and the Covered Person shall not be prejudiced by reason of such adverse
determination; and (C) in any such judicial proceeding or arbitration, the
Corporation shall have the burden of proving that the Covered Person is not
entitled to indemnification under this Article VIII.
(ii) If a determination shall have been made or deemed to have been made,
pursuant to Section 8.05(a) or (b) of this Article VIII, that the Covered Person
is entitled to indemnification, the Corporation shall be obligated to pay the
amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless such indemnification is
prohibited by applicable law. In the event that payment of indemnification is
not made within five days after a determination of entitlement to
indemnification has been made or deemed to have been made pursuant to Section
8.05(a) or (b) of this Article VIII, the Covered Person shall be entitled to
seek judicial enforcement of the Corporation's obligation to pay to the Covered
Person such indemnification. Notwithstanding the foregoing, the Corporation may
bring an action, in an appropriate court in the State of Delaware or any other
court of competent jurisdiction, contesting the right of the Covered Person to
receive indemnification hereunder due to the occurrence of an event described in
this subsection (each, a "Disqualifying Event"); provided, however, that in any
such action the Corporation shall have the burden of proving the occurrence of
such Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 8.05(c) that the
procedures and presumptions of this Article VIII are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Article VIII.
(iv) In the event that the Covered Person, pursuant to this Section
8.05(c), seeks a judicial adjudication of or an award in arbitration to enforce
his or her rights under, or to recover damages for breach of, this Article VIII,
such person shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any expenses actually and reasonably
incurred by such person in connection with such judicial adjudication or
arbitration if such person prevails in such judicial adjudication or
arbitration. If it shall be determined in such judicial adjudication or
arbitration that such person is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by such
person in connection with such judicial adjudication or arbitration shall be
prorated accordingly.
(d) Definitions. For purposes of this Article VIII:
(i) "Disinterested Director" means a director who is not and was not a
party to the Proceeding in respect of which indemnification is sought by
the Covered Person.
(ii) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five years has been, retained to
represent: (a) the Corporation or the Covered Person in any matter material
to either such party or (b) any other party to the Proceeding giving rise
to a claim for indemnification under this Article VIII. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under applicable standards of professional conduct
8
<PAGE> 162
then prevailing under the law of the State of Delaware, would have a
conflict of interest in representing either the Corporation or the Covered
Person in an action to determine the Covered Person's rights under this
Article VIII.
SECTION 8.06. Severability. If any provision or provisions of this
Article VIII shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (i) the validity, legality and enforceability of the
remaining provisions of this Article VIII (including, without limitation, all
portions of any Section of this Article VIII containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby;
and (ii) to the fullest extent possible, the provisions of this Article VIII
(including, without limitation, all portions of any Section of this Article VIII
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed, to the
fullest extent possible, so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice whatever is required to be given by these By-laws or
the Certificate of Incorporation of the Corporation or the laws of the State of
Delaware, the person entitled thereto may, in person or by attorney thereunto
authorized, in writing or by telegraph, cable or other form of recorded
communication, waive such notice, whether before or after the meeting or other
matter in respect of which such notice is given, and in such event such notice
need not be given to such person and such waiver shall be deemed equivalent to
such notice.
ARTICLE X
AMENDMENTS
Any By-law (including these By-laws) may be adopted, amended or repealed by
the Board in any manner not inconsistent with the laws of the State of Delaware
or the Certificate of Incorporation.
9
<PAGE> 163
EXHIBIT C
FORM OF COMPANY AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of Class A Common Stock, par value
$0.01 per share, of Blount International, Inc., a Delaware corporation (the
"Company"), and/or shares of Class B Common Stock, par value $0.01 per share, of
the Company, is entitled to receive in connection with the merger (the "Merger")
of the Company with Red Dog Acquisition, Corp., a Delaware corporation
("Newco"), securities (the "Securities") of the Company. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of the Company
within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act
of 1933, as amended (the "Act"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities received by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such Securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that
the undersigned will not sell, assign or transfer any of the Securities received
by the undersigned pursuant to the Merger, except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
counsel or as described in a "no-action" or interpretive letter from the Staff
of the Securities and Exchange Commission (the "SEC"), is not required to be
registered under the Act.
In the event of a sale or other disposition by the undersigned of
Securities pursuant to Rule 145, the undersigned will supply the Company with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto. The undersigned understands that the Company may instruct its
transfer agent to withhold the transfer of any Securities disposed of by the
undersigned, but that upon receipt of such evidence of compliance the transfer
agent shall effectuate the transfer of the Securities sold as indicated in the
letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities received by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel to the
effect that such legends are no longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by Newco of this letter is an inducement and a condition to
Newco's obligations to consummate the Merger.
Very truly yours,
Dated:
<PAGE> 164
ANNEX I
TO EXHIBIT C
[Name] [Date]
On , the undersigned sold the securities of Blount
International, Inc. (the "Company") described below in the space provided for
that purpose (the "Securities"). The Securities were received by the undersigned
in connection with the merger of Red Dog Acquisition, Corp. with and into the
Company.
Based upon the most recent report or statement filed by the Company with
the Securities and Exchange Commission, the Securities sold by the undersigned
were within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
To the extent required by Rule 144 under the Act, the undersigned hereby
represents that the Securities were sold in "brokers' transactions" within the
meaning of Section 4(4) of the Act or in transactions directly with a "market
maker" as that term is defined in Section 3(a)(38) of the Securities Exchange
Act of 1934, as amended. The undersigned further represents that the undersigned
has not solicited or arranged for the solicitation of orders to buy the
Securities, and that the undersigned has not made any payment in connection with
the offer or sale of the Securities to any person other than to the broker who
executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
<PAGE> 165
APPENDIX B
STOCKHOLDER AGREEMENT dated as of April 18, 1999, between Red Dog
Acquisition, Corp., a Delaware corporation ("Newco") and a wholly owned
subsidiary of Lehman Brothers Merchant Banking Partners II L.P., a Delaware
limited partnership ("Parent"), and The Blount Holding Company, L.P., a Delaware
limited partnership (the "Principal Stockholder").
WHEREAS Newco and Blount International, Inc., a Delaware corporation (the
"Company"), propose to enter into an Agreement and Plan of Merger and
Recapitalization dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing for
the merger of Newco with and into the Company;
WHEREAS the Principal Stockholder owns 2,892,144 shares of Company Class A
Common Stock and 8,409,696 shares of Company Class B Common Stock (such shares
of Company Common Stock, together with any other shares of capital stock of the
Company acquired by the Principal Stockholder after the date hereof and during
the term of this Agreement, being collectively referred to herein as the
"Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Newco has requested that the Principal Stockholder enter into this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of Principal Stockholder. The
Principal Stockholder hereby represents and warrants to Newco as of the date
hereof as follows:
(a) Authority; Execution and Delivery; Enforceability. The Principal
Stockholder has all requisite partnership power and authority to execute
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Principal Stockholder of this Agreement and
consummation of the transactions contemplated hereby have been duly
authorized by all necessary partnership action on the part of the Principal
Stockholder. The Principal Stockholder has duly executed and delivered this
Agreement and, assuming that this Agreement constitutes the legal, valid
and binding obligation of Newco, this Agreement constitutes the legal,
valid and binding obligation of the Principal Stockholder, enforceable
against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding
in equity or at law), including an implied covenant of good faith and fair
dealing. The execution and delivery by the Principal Stockholder of this
Agreement do not, and the consummation of the transactions contemplated
hereby and compliance with the terms hereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under any provision of any agreement to which the Principal
Stockholder is a party or, subject to the filings and other matters
referred to in the next sentence, any provision of any law applicable to
the Principal Stockholder or the properties or assets of the Principal
Stockholder, except for any conflict, violation or default which,
individually or in the aggregate, would not have a material adverse effect
on the ability of the Principal Stockholder to perform its obligations
under this Agreement or which has been disclosed to Newco by the Principal
Stockholder in writing prior to the date hereof. No consent of, or
registration,
<PAGE> 166
declaration or filing with, any U.S. Governmental Entity is required to be
obtained or made by or with respect to the Principal Stockholder in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, other than as
specified in Section 3.5(b) of the Merger Agreement or except for any
consent, registration, declaration or filing the failure of which to obtain
or make, individually or in the aggregate, would not have a material
adverse effect on the ability of the Principal Stockholder to perform its
obligations under this Agreement.
(b) The Subject Shares. The Principal Stockholder is the record and
beneficial owner of, and has good and marketable title to, the Subject
Shares, free and clear of any liens or other encumbrances, and the
Principal Stockholder has the sole right to vote the Subject Shares, and
none of the Subject Shares is subject to any voting trust or other
agreement, arrangement or restriction with respect to the voting of the
Subject Shares, except, in each case, as contemplated by this Agreement,
the organizational documents of the Principal Stockholder or the
Registration Rights and Stock Transfer Restriction Agreement made as of the
3rd day of November 1995 among the Company, the Principal Stockholder and
certain other parties thereto or as disclosed to Parent by the Principal
Stockholder in writing prior to the date hereof. The Principal Stockholder
does not own, of record or beneficially, any shares of capital stock of the
Company other than the Subject Shares.
SECTION 2. Representations and Warranties of Newco. Newco hereby
represents and warrants to the Principal Stockholder as follows: it has all
requisite corporate power and authority to execute this Agreement and the Merger
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by Newco of this Agreement and the Merger Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of Newco. Newco has
duly executed and delivered this Agreement and the Merger Agreement and,
assuming that this Agreement constitutes the legal, valid and binding obligation
of the Principal Stockholder and that the Merger Agreement constitutes the
legal, valid and binding obligation of the Company, each of this Agreement and
the Merger Agreement constitutes the legal, valid and binding obligation of
Newco, enforceable against it in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law), including an implied covenant of good faith and fair dealing.
The execution and delivery by Newco of this Agreement and the Merger Agreement
do not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the terms hereof and thereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under any provision of any agreement to which Newco is a party or,
subject to the filings and other matters referred to in the next sentence, any
provision of any law applicable to Newco or the properties or assets of Newco,
except for any conflict, violation or default which, individually or in the
aggregate, would not have a material adverse effect on the ability of Parent or
Newco to perform its obligations under this Agreement or the Merger Agreement.
No consent of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made by or with respect to Newco in
connection with the execution and delivery of this Agreement and the Merger
Agreement or the consummation of the transactions contemplated hereby and
thereby, other than as specified in Section 4.3(b) of the Merger Agreement or
except for any consent, registration, declaration or filing the failure of which
to obtain or make, individually or in the aggregate,
2
<PAGE> 167
would not have a material adverse effect on the ability of Newco to perform its
obligations under this Agreement or the Merger Agreement.
SECTION 3. Covenants of Principal Stockholder. The Principal Stockholder
covenants and agrees as follows:
(a) (1) At any meeting of the stockholders of the Company called to
seek the adoption of the Merger Agreement or at any other meeting of
stockholders called for a vote with respect to the Merger Agreement or the
Merger, the Principal Stockholder shall vote (or cause to be voted) the
Subject Shares in favor of granting such adoption or approval.
(2) The Principal Stockholder hereby irrevocably grants to, and
appoints, Newco, and any individual designated in writing by it, and each
of them individually, as its proxy and attorney-in-fact (with full power of
substitution), for and in its name, place and stead, to vote the Subject
Shares at any meeting of the stockholders of the Company called with
respect to any of the matters specified in, and in accordance and
consistent with, Section 3(a)(1) and 3(b). The Principal Stockholder
understands and acknowledges that Newco is entering into the Merger
Agreement in reliance upon the Principal Stockholder's execution and
delivery of this Agreement. The Principal Stockholder hereby affirms that
the irrevocable proxy set forth in this Section 3(a)(2) is given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy is given to secure the performance of the duties of the
Principal Stockholder under this Agreement. Except as otherwise provided
for herein, the Principal Stockholder hereby (i) affirms that the
irrevocable proxy is coupled with an interest and may under no
circumstances be revoked, (ii) ratifies and confirms all that the proxies
appointed hereunder may lawfully do or cause to be done by virtue hereof
and (iii) affirms that such irrevocable proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
DGCL. Notwithstanding any other provision of this Agreement, the
irrevocable proxy granted hereunder shall automatically terminate upon the
termination of this Agreement pursuant to Section 4. Any action taken for
or on behalf of the Principal Stockholder pursuant to the proxy granted
hereunder shall only be taken at a meeting of the stockholders of the
Company (and not by written consent).
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
stockholders' vote, consent or other approval is sought, the Principal
Stockholder shall vote (or cause to be voted) the Subject Shares against
(i) any Takeover Proposal (other than the Merger Agreement and the Merger),
(ii) any dissolution, liquidation or winding up of or by the Company, (iii)
any amendment of the Certificate of Incorporation or by-laws of the Company
or other proposal or transaction involving the Company or any Subsidiary of
the Company, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify any material provision of the
Merger Agreement, the Merger or any other transaction contemplated by the
Merger Agreement or change in any manner the voting rights of any class of
the Company's capital stock. The Principal Stockholder shall not commit or
agree to take any action inconsistent with the foregoing.
(c) Other than as contemplated by this Agreement, the Principal
Stockholder shall not (i) sell, transfer, pledge, assign or otherwise
dispose of (including by gift) or convert any shares of Company Class B
Common Stock into shares of Company Class A Common Stock (collectively,
"Transfer"), or enter into any agreement,
3
<PAGE> 168
option or other arrangement (including any profit sharing arrangement) with
respect to the Transfer of, any Subject Shares to any person other than
pursuant to the Merger or (ii) enter into any voting arrangement, whether
by proxy, voting agreement or otherwise, with respect to any Subject Shares
and shall not commit or agree to take any of the foregoing actions.
(d) The Principal Stockholder shall not, nor shall it authorize any of
its officers, directors or employees or any investment banker, attorney,
adviser or representative retained by and acting on its behalf to, (i)
directly or indirectly solicit, initiate or encourage the submission of any
Takeover Proposal, (ii) enter into any agreement with respect to any
Takeover Proposal or (iii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal; provided that the
obligations of the Principal Stockholder under this Section 3(d) shall be
inoperative during any period of time that the Company is undertaking any
of the activities permitted by the third sentence of Section 6.5(a) of the
Merger Agreement and, in such case, the Principal Stockholder shall also be
permitted to undertake similar activities. The Principal Stockholder as
promptly as reasonably practicable shall advise Newco orally and in writing
of the receipt by it of any Takeover Proposal or inquiry made to it which
is likely to lead to any Takeover Proposal, the identity of the person
making any such Takeover Proposal or inquiry and the material terms of any
such Takeover Proposal or inquiry.
(e) The Principal Stockholder hereby waives, and agrees not to
exercise or assert, any appraisal rights under Section 262 of the DGCL in
connection with the Merger.
SECTION 4. Termination. This Agreement shall terminate upon the earliest
of (i) the Effective Time, (ii) the termination of the Merger Agreement in
accordance with its terms, (iii) the election of the Principal Stockholder in
its sole discretion immediately following any amendment of any material term or
provision of the original unamended Merger Agreement dated as of the date hereof
between the Company and Newco (it being understood and agreed that any change in
the amount of the cash consideration or number of Non-Cash Election Shares
provided for in the Merger shall be deemed to be an amendment of a material term
or provision), (iv) the election of the Principal Stockholder in its sole
discretion following a material breach of any provision of this Agreement by
Newco, in each case which shall not have been cured prior to the earlier of (A)
10 business days following notice of such breach and (B) the Termination Date
and (v) the election of Newco in its sole discretion following a material breach
of any provision of this Agreement by the Principal Stockholder, which shall not
have been cured prior to the earlier of (A) 10 business days following notice of
such breach and (B) the Termination Date; provided, in each case for clauses (i)
through (v), that Sections 5(b), 5(c), and 6 of this Agreement shall survive any
such termination.
SECTION 5. Additional Matters. (a) At the request of any other party
hereto, each party hereto shall use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement. Each of the parties hereto shall, from time to time, execute and
deliver, or cause to be executed and delivered, such additional or further
4
<PAGE> 169
consents, documents and other instruments as any other party may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
(b) Newco acknowledges that no individual who has an ownership interest in
the Principal Stockholder or who is an officer, director or employee of the
Principal Stockholder or any of the partners of the Principal Stockholder is
making any agreement or understanding herein in his or her capacity as a
director, officer or stockholder of the Company and that the Principal
Stockholder signs solely in its capacity as the record holder and beneficial
owner of the Subject Shares and nothing herein shall limit or affect any actions
taken by any individual who has an ownership interest in the Principal
Stockholder or who is an officer, director or employee of the Principal
Stockholder or any of the partners of the Principal Stockholder in his or her
capacity as an officer, director or stockholder of the Company.
(c) Neither Newco nor the Principal Stockholder shall issue any press
release or make any other public statement with respect to the Merger Agreement,
the Merger, this Agreement or any other transaction contemplated by this
Agreement or the Merger Agreement without the prior written consent of the other
parties hereto, except as may be required by applicable law, including Section
13(d) of the Securities Exchange Act of 1934, as amended, court process or the
rules and regulations of any national securities exchange, in which case the
party required to make the release or statement shall use its reasonable best
efforts to allow each other party reasonable time to comment on such release or
statement in advance of such issuance, it being understood that the final form
and content of any such release or statement, to the extent so required, shall
be at the final discretion of the disclosing party.
SECTION 6. General Provisions.
(a) Amendments. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered in accordance with Section 9.2 of
the Merger Agreement to Newco at the address set forth in Section 9.2 of the
Merger Agreement and to the Principal Stockholder at the following address:
The Blount Holding Company, L.P.
4520 Executive Park Drive
Montgomery, AL 36116
Attention: Winton M. Blount
Facsimile: 334-271-8188
with a copy to:
Bradley, Arant, Rose & White
2001 Park Place
Suite 1400
Birmingham, AL 35203
Attention: Susan Doss
Facsimile: 205-521-8500
(or at such other address for a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way
5
<PAGE> 170
the meaning or interpretation of this Agreement. Wherever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
(d) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect; provided that the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Subject to the proviso contained in the preceding
sentence, upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement. This
Agreement shall become effective when one or more counterparts have been signed
by each of the parties hereto, and delivered to each of Newco and the Principal
Stockholder.
(f) Entire Agreement; Third-Party Beneficiaries. This Agreement (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any party without the prior written consent of
the other parties hereto, and any purported assignment without such consent
shall be void. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
(i) Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Delaware state court or any
Federal court located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (i) consents to submit itself to the personal jurisdiction
of any Delaware state court or any Federal court located in the State of
Delaware in the event any dispute arises out of this Agreement, (ii) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (iii) agrees that it will not bring
any action relating to this Agreement in any court other than a Delaware state
court or any Federal court sitting in the State of Delaware and (iv) consents to
service being made through the notice procedures set forth in Section 6(b).
(j) No Recourse. Notwithstanding any other provision of this Agreement or
any rights of Newco at law or in equity, in the event of any default under or
breach of this Agreement by the Principal Stockholder (which shall not have been
cured), the remedies
6
<PAGE> 171
of Newco shall be restricted to enforcement of their rights against the
partnership property and assets of the Principal Stockholder (including the
Subject Shares), and, in such event, shall be limited to the direct
out-of-pocket expenses of Newco, and no resort shall be had to any of the
partners of the Principal Stockholder personally or to any property and assets
of any of the partners of the Principal Stockholder (other than partnership
property and assets of the Principal Stockholder).
IN WITNESS WHEREOF, each party has duly executed this Agreement, all as of
the date first written above.
RED DOG ACQUISITION, CORP.
By /s/ ALAN MAGDOVITZ
------------------------------------
Name: Alan Magdovitz
Title: Chairman
THE BLOUNT HOLDING
COMPANY, L.P.,
by BHP, Inc.
its General Partner
By /s/ WINTON M. BLOUNT
------------------------------------
Name: Winton M. Blount
Title: Chairman
7
<PAGE> 172
APPENDIX C
[THE BEACON GROUP CAPITAL SERVICES, LLC LETTERHEAD]
CONFIDENTIAL
April 18, 1999
Board of Directors
Blount International, Inc.
4520 Executive Park Drive
Montgomery, AL 36116-1602
Lady and Gentlemen:
Blount International, Inc. (the "Company") has requested that The Beacon
Group Capital Services, LLC ("Beacon") deliver to the Company's Board of
Directors Beacon's opinion concerning the fairness from a financial point of
view to the holders of outstanding shares of the Company's Class A Common Stock,
par value $0.01 per share, and Class B Common Stock, par value $0.01 per share,
(collectively, the "Shares"), other than holders of Excepted Shares, as
hereinafter defined, of the consideration to be received by those holders in the
merger transaction (the "Merger") provided for by an Agreement and Plan of
Merger and Recapitalization, dated as of April 18, 1999, (the "Agreement")
between the Company and Red Dog Acquisition, Corp. ("Newco"), a corporation
formed by, and a wholly-owned subsidiary of, Lehman Brothers Merchant Banking
Partners II, L.P.
The Agreement provides, among other things, that (i) Newco will be merged
with and into the Company, (ii) the Company will be the surviving corporation
(the "Surviving Corporation"), and (iii) each outstanding Share, other than
Shares held by the Company as treasury stock or by Newco and other than
Dissenting Shares, as defined in the Agreement, (collectively, the "Excepted
Shares"), will be converted into the right to receive, at the election of the
holders thereof and subject to the proration provisions of the Agreement, (a)
$30 in cash, without interest, or (b) "Non-Cash Election Shares" as defined and
provided for in the Agreement. The Merger is expected to be considered by the
stockholders of the Company at a special stockholders meeting to be held as soon
as practicable and, if approved by the stockholders at that meeting, consummated
on or shortly after that meeting.
As part of its strategic advisory business, Beacon engages in the valuation
of businesses and their securities in connection with mergers and acquisitions,
financings, private placements, principal investments and other purposes. In
this regard, Beacon has been serving as a financial advisor to the Company and
participated in certain of the negotiations relating to the Agreement and the
Merger.
In connection with its opinion, Beacon reviewed, among other things, the
Agreement, Annual Reports to stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1998, certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company, certain other
communications from the Company to stockholders, certain internal financial
analyses and forecasts for the Company prepared by its management and the
potential pro forma impact of the Merger on the Surviving Corporation. Beacon
also held discussions with members of senior management of the Company regarding
the past and current business, operations and financial condition and the future
prospects of the Company, reviewed the reported price and trading activity
<PAGE> 173
of the Shares, compared certain financial and stock market information
concerning the Company with similar information concerning certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in industries and markets Beacon
deemed relevant and performed other studies and analyses that Beacon considered
appropriate.
For purposes of its opinion, Beacon assumed and relied without independent
verification on the accuracy and completeness of the financial and other
information reviewed by it. Beacon did not make an independent evaluation or
appraisal of the assets and liabilities of the Company or any of its
subsidiaries and was not furnished with any such evaluation or appraisal.
Beacon's opinion is provided for the information of the Board of Directors
of the Company in connection with its consideration of the Agreement and the
Merger, does not constitute a recommendation to any stockholder of the Company
as to how that stockholder should respond, vote or elect the form of Merger
consideration in connection with the Agreement and the Merger and does not
address what the trading price of Non-Cash Election Shares will or might be
after the Merger is consummated. Beacon's opinion is necessarily based on
economic, market, financial and other conditions as they exist on, and could be
evaluated as of, the date hereof.
Based on and subject to the foregoing and other matters Beacon considers
relevant, it is Beacon's opinion that, as of the date hereof, the consideration
to be received by holders of Shares, other than Excepted Shares, is fair from a
financial point of view to such holders.
Very truly yours,
LOGO
The Beacon Group Capital Services, LLC
<PAGE> 174
APPENDIX D
SECTION 262 APPRAISAL RIGHTS
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
<PAGE> 175
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of (1)such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
(1)such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of (1)such
stockholder's shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or
<PAGE> 176
consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw (1)such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. With 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholders within 10 days after
(1)such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register on
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such
<PAGE> 177
a duly verified list. The Register in Chancery, if so ordered by the Court,
shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all the relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors,including the rate
of interest which the surviving or resulting corporation would have had to pay
to borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
(1)such stockholder's certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until it is finally
determined that (2)such stockholder is not entitled to appraisal rights under
this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded (1)appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other
<PAGE> 178
distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of (1)such stockholder's demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholder would have been converted had they assented
to the merger or consolidation shall have the same status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
- ---------------
Ch. 339. L. '98. eff. 7-1-98, added matter in italic and deleted (1)"his"
and (2)"he".
<PAGE> 179
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation of the Registrant provides that
except to the extent prohibited by the General Corporation Law of the State of
Delaware (the "DGCL"), a director of the Registrant shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. The bylaws of the Registrant provide that the
Registrant shall indemnify to the fullest extent permitted by law any person who
is or was a director, officer, employee or agent of the Registrant and any
person who is or was serving at the request of Blount as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
Section 145 of the DGCL permits a corporation to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if the
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, i.e. one by or in the right
of the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they have acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim as to which a person shall
have been adjudged liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which the action or suit was
brought determines upon application that the defendant officers or directors are
fairly and reasonably entitled to indemnity for expenses despite the
adjudication of liability.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger and Recapitalization, dated as
of April 18, 1999, between Blount International, Inc. and
Red Dog Acquisition, Corp. (included as Appendix A to the
Proxy Statement-Prospectus which forms a part of this
Registration Statement)
3.1 Post-Merger Restated Certificate of Incorporation of Blount
International, Inc. (included as Exhibit A to the Agreement
and Plan of Merger and Recapitalization which is Exhibit
2.1)
3.2 Post-Merger Bylaws of Blount International, Inc. (included
as Exhibit B to the Agreement and Plan of Merger and
Recapitalization which is Exhibit 2.1)
4.1 Form of stock certificate of New Blount common stock
5.1 Opinion of Simpson Thacher & Bartlett regarding the validity
of the securities being registered
8.1 Opinion of Simpson Thacher & Bartlett regarding certain tax
matters
</TABLE>
II-1
<PAGE> 180
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.1 Stockholder Agreement, dated as of April 18, 1999, between
Red Dog Acquisition, Corp. and The Blount Holding Company,
L.P. (included as Appendix B to the Proxy Statement-Prospectus
which forms a part of this Registration Statement)
10.2 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and John M. Panettiere
10.3 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Donald B. Zorn
10.4 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Gerald W. Bersett
10.5 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and James S. Osterman
10.6 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Richard H. Irving
10.7 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Harold E. Layman
23.1 Consent of Simpson Thacher & Bartlett (contained in Exhibit
5.1 hereto)
23.2 Consent of Simpson Thacher & Bartlett (contained in Exhibit
8.1 hereto)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney of the officers and directors of
Registrant signing this Registration Statement (contained on
page II-4)
99.1 Form of Proxy
99.2 Form of Non-Cash Election
99.3 Form of Letter of Transmittal
99.4 Form of Blount 401(k) Retirement Savings Plan Non-Cash
Election Form
99.5 Consent of The Beacon Group Capital Services, LLC
99.6 Opinion of The Beacon Group Capital Services, LLC (included
as Appendix C to the Proxy Statement-Prospectus which forms
a part of this Registration Statement)
99.7 Consent of Alan Magdovitz to serve as a director of Blount
International, Inc. after the merger
99.8 Consent of E. Daniel James to serve as a director of Blount
International, Inc. after the merger
</TABLE>
(b) Financial Statement Schedules
All schedules have either been incorporated by reference or have been
omitted as not applicable or not required under the rules of Regulation S-X.
(c) Reports, Opinions and Appraisals of Outside Parties
The opinion of The Beacon Group Capital Services, LLC is included as
Appendix C to the proxy statement-prospectus.
II-2
<PAGE> 181
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(5) (a) that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form;
(b) that every prospectus: (A) that is filed pursuant to
paragraph (5)(a) immediately preceding, or (B) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities to Rule 415, will be filed as a part of an
amendment to the registration statement and
II-3
<PAGE> 182
will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(6) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue;
(7) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first-class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request; and
(8) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-4
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Montgomery,
State of Alabama, on the 15th day of July, 1999.
BLOUNT INTERNATIONAL, INC.
By /s/ BLOUNT INTERNATIONAL, INC.
-----------------------------------
Name:
Title:
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Richard H. Irving, III and L. Daniel Morris, Jr., and each of them,
with full power of substitution and resubstitution and full power to act without
the other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to the
same offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and ever act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their and his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 15th day of July, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WINTON M. BLOUNT Chairman of the Board July 15, 1999
- ------------------------------------------
Winton M. Blount
/s/ JOHN M. PANETTIERE Chief Executive Officer July 15, 1999
- ------------------------------------------ (Principal Executive
John M. Panettiere Officer); Director
/s/ HAROLD E. LAYMAN Chief Financial Officer July 15, 1999
- ------------------------------------------
Harold E. Layman
</TABLE>
II-5
<PAGE> 184
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RODNEY W. BLANKENSHIP Chief Accounting Officer July 15, 1999
- ------------------------------------------
Rodney W. Blankenship
/s/ HALEY BARBOUR Director July 15, 1999
- ------------------------------------------
Haley Barbour
/s/ SAMUEL R. BLOUNT Director July 15, 1999
- ------------------------------------------
Samuel R. Blount
/s/ W. HOUSTON BLOUNT Director July 15, 1999
- ------------------------------------------
W. Houston Blount
/s/ R. EUGENE CARTLEDGE Director July 15, 1999
- ------------------------------------------
R. Eugene Cartledge
/s/ TODD CONOVER Director July 15, 1999
- ------------------------------------------
Todd Conover
/s/ H. CORBIN DAY Director July 15, 1999
- ------------------------------------------
H. Corbin Day
/s/ MARY D. NELSON Director July 15, 1999
- ------------------------------------------
Mary D. Nelson
/s/ ARTHUR P. RONAN Director July 15, 1999
- ------------------------------------------
Arthur P. Ronan
/s/ ANDREW A. SORENSEN Director July 15, 1999
- ------------------------------------------
Andrew A. Sorensen
</TABLE>
II-6
<PAGE> 185
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger and Recapitalization, dated as
of April 18, 1999, between Blount International, Inc. and
Red Dog Acquisition, Corp. (included as Appendix A to the
Proxy Statement-Prospectus which forms a part of this
Registration Statement)
3.1 Post-Merger Restated Certificate of Incorporation of Blount
International, Inc. (included as Exhibit A to the Agreement
and Plan of Merger and Recapitalization which is Exhibit
2.1)
3.2 Post-Merger Bylaws of Blount International, Inc. (included
as Exhibit B to the Agreement and Plan of Merger and
Recapitalization which is Exhibit 2.1)
4.1 Form of stock certificate of New Blount common stock
5.1 Opinion of Simpson Thacher & Bartlett regarding the validity
of the securities being registered
8.1 Opinion of Simpson Thacher & Bartlett regarding certain tax
matters
10.1 Stockholder Agreement, dated as of April 18, 1999, between
Red Dog Acquisition, Corp. and The Blount Holding Company,
L.P. (included as Appendix B to the Proxy Statement-Prospectus
which forms a part of this Registration Statement)
10.2 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and John M. Panettiere
10.3 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Donald B. Zorn
10.4 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Gerald W. Bersett
10.5 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and James S. Osterman
10.6 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Richard H. Irving
10.7 Employment Agreement, dated as of April 18, 1999, between
Blount International, Inc. and Harold E. Layman
23.1 Consent of Simpson Thacher & Bartlett (contained in Exhibit
5.1 hereto)
23.2 Consent of Simpson Thacher & Bartlett (contained in Exhibit
8.1 hereto)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney of the officers and directors of
Registrant signing this Registration Statement (contained on
page II-4)
99.1 Form of Proxy
99.2 Form of Non-Cash Election
99.3 Form of Letter of Transmittal
99.4 Form of Blount 401(k) Retirement Savings Plan Non-Cash
Election Form
99.5 Consent of The Beacon Group Capital Services, LLC
</TABLE>
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
99.6 Opinion of The Beacon Group Capital Services, LLC (included
as Appendix C to the Proxy Statement-Prospectus which forms
a part of this Registration Statement)
99.7 Consent of Alan Magdovitz to serve as a director of Blount
International, Inc. after the merger
99.8 Consent of E. Daniel James to serve as a director of Blount
International, Inc. after the merger
</TABLE>
<PAGE> 1
Exhibit 4.1
BLOUNT INTERNATIONAL, INC.
COMMON STOCK COMMON STOCK
NUMBER SHARES
---------------- ----------------
---------------- ----------------
THIS CERTIFICATE
IS TRANSFERABLE IN
BOSTON, MA OR
NEW YORK, N.Y.
INCORPORATED SEE REVERSE FOR
IN THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 000000 00 0
- ---------------------------------------------------------------------------
This is to Certify that
is the Owner of
- ---------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01
PER SHARE, OF
BLOUNT INTERNATIONAL, INC., A DELAWARE CORPORATION
(hereinafter referred to as the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person, or by duly authorized attorney,
upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be
subject to all of the provisions of the Certificate of Incorporation and By-Laws
of the Corporation, as from time to time amended (copies of which are on file at
the office of the Corporation), to all of which the holder of this Certificate
by acceptance hereof assents. This Certificate is not valid unless countersigned
and registered by the Transfer Agent and Registrar.
WITNESS the seal of the Corporation and the signatures of its duly
authorized officers Dated:
Countersigned and Registered:
BankBoston, N.A.
(Boston, MA) Transfer Agent
and Registrar
BY
Authorized Signature Authorized Signature
- ----------------------------- -----------------------------
THE SIGNATURE OF THE SIGNATURE OF
[CORPORATE SEAL APPEARS HERE]
- ----------------------------- -----------------------------
TO APPEAR HERE TO APPEAR HERE
- ----------------------------- -----------------------------
CHAIRMAN, PRESIDENT SECRETARY
AND CHIEF EXECUTIVE OFFICER
<PAGE> 2
BLOUNT INTERNATIONAL, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF WHICH
THE CORPORATION IS AUTHORIZED TO ISSUE, AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE
DIRECTED TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _________
TEN ENT -- as tenants by the (Cust)
entireties
JT TEN -- as joint tenants with right Custodian ____________________
of survivorship and not as (Minor)
tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- --------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Company with full
power of substitution in the premises.
Dated ______________
------------------------------------------------------------
SIGNATURE X
------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED;
X__________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO SEC RULE 17Ad-15.
<PAGE> 1
Exhibit 5.1
[Simpson Thacher & Bartlett Letterhead]
July 15, 1999
Blount International, Inc.
4520 Executive Park Drive
Montgomery, AL 36116
Ladies and Gentlemen:
We have acted as counsel to Blount International, Inc., a Delaware
corporation (the "Company"), in connection with the merger (the "Merger") of Red
Dog Acquisition, Corp., a Delaware Corporation ("Red Dog Acquisition"), with and
into the Company pursuant to the Agreement and Plan of Merger and
Recapitalization dated April 18, 1999 between the Company and Red Dog
Acquisition (the "Merger Agreement"). This opinion letter is furnished to you in
connection with a Registration Statement on Form S-4 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended, for the
registration of 2,966,666 shares of common stock, par value $0.01 per share (the
"Shares"), of the Company to be issued in connection with the Merger in
accordance with the terms of the Merger Agreement.
We have examined, and have relied as to matters of fact upon, an
executed copy of the Merger Agreement, the Registration Statement, a form of
the Share certificate, which has been filed with the Commission as an exhibit
to the Registration Statement, and the form of the Amended and
<PAGE> 2
-2-
Blount International, Inc. July 15, 1999
Restated Certificate of Incorporation of the Company to be filed with the
Secretary of State of the State of Delaware as an exhibit to the Certificate of
Merger (the "Certificate of Merger") to be filed with the Secretary of State of
the State of Delaware in respect of the Merger. We have also examined the
originals, or duplicates or certified or conformed copies, of such records,
agreements, instruments and other documents and have made such other and
further investigations as we have deemed relevant and necessary in connection
with the opinion expressed herein. As to questions of fact material to this
opinion, we have also relied upon certificates of public officials and of
officers and representatives of the Company.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as duplicates or certified or conformed copies, and
the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that (1) when the stockholders
of the Company duly adopt the Merger Agreement, (2) when the Certificate of
Merger has been duly filed with the Secretary of State of the State of Delaware
and become effective under the Delaware General Corporation Law and (3) when
the Shares are issued in accordance with the terms of the Merger Agreement, the
Shares will have been duly authorized and will be validly issued, fully paid
and nonassessable.
<PAGE> 3
-3-
Blount International, Inc. July 15, 1999
We are members of the Bar of the State of New York and we do not express
any opinion herein concerning any law other than the Delaware General
Corporation Law.
We hereby consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the use of our name under the caption "Legal
Opinions" in the Proxy Statement-Prospectus included in the Registration
Statement.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
------------------------------
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 8.1
[SIMPSON THACHER & BARTLETT LETTERHEAD]
July 15, 1999
Re: Proposed Merger and Recapitalization
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116
Ladies and Gentlemen:
You have requested our opinion regarding the material United States federal
income tax consequences of the proposed merger and recapitalization (the
"Merger") by and among Blount International, Inc. ("Blount") and Red Dog
Acquisition, Corp. ("Red Dog Acquisition"), pursuant to which the stockholders
of Blount will receive cash and stock of the surviving corporation in the
merger in exchange for such stockholders' common stock of Blount.
In connection with this opinion, we have examined such documents and
factual information as we have considered appropriate, including the Agreement
and Plan of Merger and Recapitalization, dated as of April 18, 1999, between Red
Dog Acquisition and Blount (the "Agreement") and the Registration Statement on
Form S-4 filed by Blount with the Securities and Exchange Commission (the
"Registration Statement").
In connection with this opinion, with your consent, we have assumed or
obtained representations (and are relying thereon, without any independent
investigation or review thereof) that: (a) original documents (including
signatures) are authentic, documents submitted to us as copies conform to the
original documents, and there has been (or will be by the effective date of the
Merger) due execution and delivery of all documents where due
<PAGE> 2
SIMPSON THACHER & BARTLETT
-2-
execution and delivery are prerequisites to effectiveness thereof; (b) the
Merger will be effective under the laws of the State of Delaware; and (c) the
facts described in the Registration Statement are correct and complete as of the
date hereof and will be correct and complete as of the effective date of the
Merger. Capitalized terms not defined herein shall have the meaning ascribed to
such terms in the Registration Statement.
Opinion
Subject to the assumptions set forth above and the assumptions and
qualifications set forth in the discussion in the Registration Statement under
the heading "The Merger--Material Federal Income Tax Consequences", we hereby
confirm our opinion that the discussion under the heading "The Merger--Material
Federal Income Tax Consequences" addresses the material United States federal
income tax considerations of the Merger generally applicable to a stockholder of
Blount.
This opinion is limited to the tax matters specifically covered herein, and
we have not been asked to address, nor have we addressed, any other tax
consequences of the Merger. The opinion herein is based on current authorities
and upon facts and assumptions as of the date of this opinion. This opinion is
subject to change in the event of a change in the applicable law or change in
the interpretation of such law by the courts, the Treasury Department or by the
Internal Revenue Service, or a change in any of the facts and assumptions upon
which it is based, which changes could be retroactive with respect to
transactions prior to the date of such changes. Any such changes could
significantly modify the statements and opinions expressed herein. This opinion
represents counsel's best legal
<PAGE> 3
SIMPSON THACHER & BARTLETT
-3-
judgment, and has no binding effect or official status, so that no assurance can
be given that the positions set forth above will be sustained by a court, if
contested. In addition, if any of the facts or assumptions upon which this
opinion is based were to change, this opinion would no longer have any force or
effect.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the use of our name under the captions "The
Merger--Material Federal Income Tax Consequences," "Summary--Material Federal
Income Tax Consequences," and "Legal Opinions," in the Registration Statement.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
------------------------------
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of April,
1999, by and between BLOUNT INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and JOHN M. PANETTIERE ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
agreement ("Prior Agreement") providing for Executive's employment by the
Company and specifying the terms and conditions of such employment; and
WHEREAS, the Company entered into an Agreement and Plan of Merger and
Recapitalization (the "Recapitalization Agreement") dated the date hereof
with Red Dog Acquisition Corp. ("Newco"), a wholly owned subsidiary of Lehman
Brothers Merchant Banking Partners II L.P. ("LB MBP II"); and
WHEREAS, pursuant to the Recapitalization Agreement, the Company will be
recapitalized through a merger with and into Newco, following which
substantially all of the outstanding capital stock of the Company will be held
by LB MBP II; and
WHEREAS, the Company desires to recognize Executive's superior performance
and continuing value to the Company and its shareholders by modifying the Prior
Agreement and restating such agreement in a single document as hereinafter
provided; and
WHEREAS, Executive desires to continue his employment with the Company
on the terms and conditions provided herein;
-1-
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. Purpose and Effectiveness.
(a) The purpose of this Agreement is to amend the Prior Agreement,
to recognize Executive's significant contributions to the overall financial
performance and success of the Company, and to provide a single, integrated
document which shall provide the basis for Executive's continued employment by
the Company;
(b) This Agreement shall not be effective until the Effective Time
(as defined in the Recapitalization Agreement), and this Agreement shall
terminate immediately if the Recapitalization Agreement is terminated in
accordance with its terms prior to the Effective Time.
2. Employment and Term.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive, and Executive hereby accepts employment, as
Chairman of the Board, President and Chief Executive Officer of the Company and
shall have such responsibilities, duties and authority that are consistent with
such position as may from time to time be assigned to Executive by the Board.
Executive shall continue to serve as a Director of the Company and the Company
agrees to continue to nominate Executive for election as Chairman of the Board
and a Director during the Term of this Agreement. Executive hereby agrees that
during the Term of this Agreement he will devote substantially all his working
time, attention and energies to the diligent performance of his duties as
Chairman of the Board, President and Chief Executive Officer of the Company,
provided that the Executive may also serve on the
-2-
<PAGE> 3
boards of directors or trustees of other companies and organizations on which he
currently serves, as long as such service does not materially interfere with the
performance of his duties hereunder. With the consent of the Board of Directors,
the Executive may serve as a director on the boards of directors or trustees of
additional companies and organizations.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall commence at the Effective Time, and shall
end on July 31, 2002 (the "Term"), unless the Term is extended in accordance
with subsection (c) below (in which case such extended period shall constitute
the Term). Executive shall have the unilateral right to elect to terminate this
Agreement, effective July 31, 2001, by giving the Company written notice of such
election prior to January 1, 2001, in which event the Term of this Agreement
shall cease on July 31, 2001.
(c) Not less than ninety (90) days prior to the end of the initial
Term (and any 12-month extension of the initial Term), the Company may offer to
extend the Term for an additional 12-month period on such terms and conditions
as may be specified in the offer (which may be on the same terms and conditions
as provided herein). If Executive desires to accept such offer, he shall notify
the Company in writing within thirty (30) days of receipt of the offer and the
Agreement shall be extended on the terms and conditions agreed upon.
3. Compensation and Benefits. As compensation for his services during the
Term of this Agreement, Executive shall be paid and receive the amounts and
benefits set forth in subsections (a) through (h) below:
-3-
<PAGE> 4
(a) An annual base salary ("Base Salary") of Eight Hundred
Seventy-Five Thousand and No/100 Dollars ($875,000.00), prorated for any partial
year of employment. Executive's salary shall be payable in substantially equal
installments on a bi-monthly basis, or in accordance with the Company's regular
payroll practices in effect from time to time for executive officers of the
Company.
(b) Executive shall be eligible to participate in the Executive
Management Target Incentive Plan and such other annual incentive plans as may be
established by the Company from time to time for its executive officers. The
Board or a committee of the Board will establish performance goals each year
under the incentive plans, and Executive's annual Target Bonus shall be 65% of
Base Salary; the maximum award for exceeding the performance goals (which will
be determined in accordance with the current plan design) shall be 130% of Base
Salary. The annual incentive bonus payable under this subsection (b) shall be
payable as a lump sum at the same time bonuses are paid to other senior
executives after certification by the Compensation Committee of the Board, that
the applicable performance objectives have been met, unless Executive elects to
defer all or a portion of such amount pursuant to any deferral plan established
by the Company for such purpose.
(c) Promptly upon commencement of the Term, Executive shall make a
minimum investment in the equity ("Purchased Equity") of the Company of 60% of
the aggregate amount of the net proceeds remaining after all applicable taxes
have been paid, resulting from cancellation of his outstanding stock options in
accordance with Section 2.2 of the Recapitalization Agreement. The Company and
Executive shall endeavor to structure such investment in the most tax and
accounting efficient manner
-4-
<PAGE> 5
reasonably possible under the relevant circumstances. In respect of such
investment, the Company will grant Executive 365,000 options to purchase shares
of the Company's Common Stock that will vest over time ("Time Options") and the
Company will grant Executive performance-based options for 365,000 shares of the
Company's Common Stock ("Performance Options") (the Time Options and the
Performance Options are collectively referred to herein as "Options"). The terms
and conditions of the Time Options and the Performance Options shall be as set
forth on the Summary of Terms, attached hereto as Exhibit A (the "Term Sheet"),
and the Company will enter into separate Option Agreements with Executive
covering the grant of such Options. Executive will be eligible to participate in
such other stock option programs as may be established from time to time by the
Company for its executive officers. Executive will participate in any long-term
incentive plans established by the Company for executive officers at his level.
The other terms and conditions applicable to the Purchased Equity
and the Options shall be as provided in the Term Sheet and the parties agree to
enter into an Employee Shareholders Agreement which will include the items
covered in the Term Sheet and contain such other customary terms and conditions
as are appropriate for such an agreement and are mutually agreeable to Executive
and Company (and to LB MBP II, where applicable). The Purchased Equity and the
Options will be subject to put and call rights and restrictions as set forth in
Schedule A.
(d) Executive shall continue to be (i) covered by a Supplemental
Executive Retirement Plan ("Individual SERP"), providing for the benefits set
forth in the amended and restated SERP Agreement attached hereto as Exhibit B,
(ii) a participant
-5-
<PAGE> 6
in the Blount, Inc. and Subsidiaries Supplemental Retirement Benefit Plan
("SERP"), and (iii) a participant in the Executive Supplemental Retirement Plan
of Blount International, Inc. ("Executive SERP").
(e) Executive shall be entitled to participate in, or receive
benefits under, any "employee benefit plan" (as defined in Section 3(3) of
ERISA) or employee benefit arrangement made generally available by the Company
to its executive officers, including plans providing retirement, 401(k)
benefits, deferred compensation, health care (including executive medical), life
insurance, disability and similar benefits.
(f) The Company will provide membership dues and assessments at
recreational and social clubs commensurate with past practice for Executive and
his family. Executive will be provided an automobile commensurate with past
practice at Company expense, and the Company will pay all insurance,
maintenance, fuel, oil and related operational expenses for such automobile.
Executive will receive six weeks vacation during the Term. Executive will be
provided an annual physical examination and a financial/tax consultant for
personal financial and tax planning. Executive will be promptly reimbursed by
the Company for all reasonable business expenses he incurs in carrying out his
duties and responsibilities under this Agreement.
(g) Executive shall continue to participate in the Company's
Executive Life Insurance Program, which will provide a benefit equal to 2 l/2
times Executive's total compensation (as determined from time to time), subject
to a maximum benefit of $2.5 million. This insurance will be paid-up on the date
Executive attains 65 and will be delivered to Executive as a paid-up insurance
policy upon his retirement from the Company at or after age 65. The life
insurance provided to Executive under the
-6-
<PAGE> 7
Executive Life Insurance Program shall be in addition to any life insurance he
receives under the Company's group term policy under subsection (e) above.
(h) Executive will be paid a tax gross-up amount by the Company to
cover any additional federal or state income taxes he incurs as a result of
being required to include in taxable income the amount of the premiums or costs
for, or personal usage of, the items described in subsections (f) and (g) above
and for the use of the Company's airplane.
4. Confidentiality and Noncompetition.
(a) Executive acknowledges that, prior to and during the Term of
this Agreement, the Company has furnished and will furnish to Executive
Confidential Information which could be used by Executive on behalf of a
competitor of the Company to the Company's substantial detriment. Moreover, the
parties recognize that Executive during the course of his employment with the
Company may develop important relationships with customers and others having
valuable business relationships with the Company. In view of the foregoing,
Executive acknowledges and agrees that the restrictive covenants contained in
this Section are reasonably necessary to protect the Company's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the Company's
Confidential Information and shall not disclose to any Person, or otherwise use,
except in connection with his duties performed in accordance with this
Agreement, any Confidential Information at any time, including following the
termination of his employment with the Company for any reason; provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or
-7-
<PAGE> 8
administrative agency of competent jurisdiction, in which event Executive will
promptly notify the Company of such order or subpoena to provide the Company an
opportunity to protect its interests. Executive's obligations under this Section
4(b) shall survive any expiration or termination of this Agreement for any
reason, provided that Executive may after such expiration or termination
disclose Confidential Information with the prior written consent of the Board.
(c) Upon the termination or expiration of his employment hereunder,
Executive agrees to deliver promptly to the Company all Company files, customer
lists, management reports, memoranda, research, Company forms, financial data
and reports and other documents supplied to or created by him in connection with
his employment hereunder (including all copies of the foregoing) in his
possession or control, and all of the Company's equipment and other materials in
his possession or control. Executive's obligations under this Section 4(c) shall
survive any expiration or termination of this Agreement.
(d) Upon the termination or expiration of his employment under this
Agreement, Executive agrees that for a period of one (1) year from his date of
termination or until the end of the period for which he is entitled to receive
compensation under Section 5.1(a) below, whichever is longer, he shall not (i)
enter into or engage in the design, manufacture, marketing or sale of any
products similar to those produced or offered by the Company or its affiliates
in the area of North America, either as an individual, partner or joint
venturer, or as an employee, agent or salesman, or as an officer, director, or
shareholder of a corporation, (ii) divert or attempt to divert any person,
concern or entity which is furnished products or services by the Company
-8-
<PAGE> 9
from doing business with the Company or otherwise change its relationship with
the Company, or (iii) solicit, lure or attempt to hire away any of the employees
of the Company with whom the Executive interacted directly or indirectly while
employed with the Company.
(e) Executive acknowledges that if he breaches or threatens to
breach this Section 4, his actions may cause irreparable harm and damage to the
Company which could not be compensated in damages. Accordingly, if Executive
breaches or threatens to breach this Section 4, the Company shall be entitled to
seek injunctive relief, in addition to any other rights or remedies of the
Company. The existence of any claim or cause of action by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of Executive's agreement under this
Section 4(e).
5. Termination.
5.1 By Executive. Executive shall have the right to terminate his
employment hereunder at any time by Notice of Termination (as described in
Section 7). If Executive terminates his employment because (i) the Company has
materially breached this Agreement, and such breach has not been cured within
thirty (30) days after written notice of such breach is given by Executive to
the Company; or (ii) Executive has determined that his termination is for Good
Reason (as defined in Section 6.7), Executive shall be entitled to receive the
compensation and benefits set forth in subsections (a) through (i) below. If
Executive terminates his employment other than pursuant to clauses (i) or (ii)
of this Section 5.1, the Company's obligations under this Agreement shall cease
as of the date of such termination. The time periods in (a)
-9-
<PAGE> 10
through (i) below shall be the time period remaining from the date of
Executive's termination to the end of the Term of this Agreement ("Severance
Period"). The Company agrees that if Executive terminates employment and is
entitled to compensation and benefits under this Section 5.1, he shall not be
required to mitigate damages by seeking other employment, nor shall any amount
he earns reduce the amount payable by the Company hereunder.
(a) Base Salary - Executive will continue to receive his Base Salary
as then in effect (subject to withholding of all applicable taxes) for the
Severance Period in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later than 30 days
after his termination of employment; provided, further, that the amount of such
lump sum payment shall be determined by taking the salary payments to be made
and discounting them to their Present Value (as defined in Section 6.9) on the
date Executive's employment under this Agreement is terminated.
(b) Bonuses and Incentives - Executive shall receive bonus payments
from the Company for each month of the Severance Period in an amount for each
such month equal to one-twelfth of the average of the bonuses earned by him for
the two fiscal years in which bonuses were paid immediately preceding the year
in which such termination occurs. Any bonus amounts that Executive had
previously earned from the Company but which may not yet have been paid as of
the date of termination shall be payable on the date such amounts are payable to
other executives and Executive's termination shall not affect the payment of
such bonus. Executive shall also receive a
-10-
<PAGE> 11
prorated bonus for any uncompleted fiscal year at the date of termination
(assuming the Target Award level has been achieved), based upon the number of
days that he was employed during such fiscal year. The bonus amounts determined
herein shall be paid in a single lump sum payment, to be paid not later than 30
days after termination of employment; provided, that the amount of such lump sum
payment representing the monthly bonus payments shall be determined by taking
the monthly bonus payments to be made and discounting them to their Present
Value on the date Executive's employment under this Agreement is terminated.
(c) Health and Life Insurance Coverage - The health (including
executive medical) and group term life insurance benefits coverage provided to
Executive at his date of termination shall be continued for the Severance Period
at the same level and in the same manner as then provided to actively employed
executive participants as if his employment under this Agreement had not
terminated. Any additional coverages Executive had at termination, including
dependent coverage, will also be continued for such period on the same terms, to
the extent permitted by the applicable policies or contracts. Any costs
Executive was paying for such coverages at the time of termination shall be paid
by Executive by separate check payable to the Company each month in advance. If
the terms of any benefit plan referred to in this Section, or the laws
applicable to such plan, do not permit continued participation by Executive,
then the Company will arrange for other coverage at its expense providing
substantially similar benefits (including the same deductible and co-payment
levels provided under the Company's policy). The Company agrees that at the end
of the Severance Period, Executive (and his dependents) will be covered by the
Company's
-11-
<PAGE> 12
retiree medical plan on the same basis then provided to other retired executive
employees. Nothing herein shall be construed as limiting the Company's ability
to modify or terminate any retiree health benefit plans which it determines to
make available to executive employees, provided that any such modifications or a
termination apply to executive employees generally.
(d) Employee Retirement Plans - To the extent permitted by the
applicable plan, Executive will be entitled to continue to participate,
consistent with past practices, in all employee retirement and deferred
compensation plans maintained by the Company in effect as of his date of
termination, including, to the extent such plans are still maintained by the
Company, the Blount Retirement Plan, the Blount 401(k) Plan, the Blount Excess
401(k) Plan, the Individual SERP, the SERP and the Executive SERP. Executive's
participation in such retirement plans shall continue for the Severance Period
and the compensation payable to Executive under (a) and (b) above shall be
treated (unless otherwise excluded) as compensation under the plan as if it were
paid on a monthly basis. For purposes of the Blount 401(k) Plan and the Blount
Excess 401(k) Plan, he will receive an amount equal to the Company's
contributions to the plan, assuming Executive had participated in such plan at
the maximum permissible contributions level. If continued participation in any
plan is not permitted by the plan or by applicable law, the Company shall pay to
Executive or, if applicable, his beneficiary a supplemental benefit equal to the
present value on the date of termination of employment under this Agreement
(calculated as provided in the plan) of the excess of (i) the benefit Executive
would have been paid under such plan if he had continued to be covered for the
Severance Period (less any amounts Executive would have been
-12-
<PAGE> 13
required to contribute), over (ii) the benefit actually payable under such plan.
The Company shall pay the Present Value of such additional benefits (if any) in
a lump sum within 30 days of his termination of employment.
(e) Effect of Lump Sum Payment. The lump sum payment under (a) or
(b) above shall not alter the amounts Executive is entitled to receive under the
benefit plans described in this section. Benefits under such plans shall be
determined as if Executive had remained employed and received such payments over
the Severance Period.
(f) Individual SERP, SERP and Executive SERP. On his date of
termination, Executive shall be treated for purposes of determining his benefit
under the Individual SERP, SERP and Executive SERP as if he had earned
additional years of benefit service equal to the length of the Severance Period
and had attained age 65.
(g) Executive Life Insurance Program. On Executive's date of
termination, the Company will pay an amount into the policy as if Executive had
continued in employment for the Severance Period at the same total compensation
and had attained age 65. At Executive's option, the policy shall be delivered to
Executive or he shall be paid the cash value thereof (after the payment referred
to in the preceding sentence).
(h) Stock Options. As of his date of termination, all of the Time
Options and the Performance Options, and any other outstanding stock options
granted to Executive by the Company, shall become vested and exercisable as
provided in the Term Sheet.
-13-
<PAGE> 14
(i) Office Space; Secretarial. Executive will be provided
appropriate office space, his then current administrative assistant (such
assistant shall be paid or provided similar compensation and benefits to that
being provided at the time Executive terminates employment), and reasonable
expenses related thereto for the Severance Period.
5.2 By Company. The Company shall have the right to terminate
Executive's employment under this Agreement at any time during the Term by
Notice of Termination (as described in Section 7). If the Company terminates
Executive's employment under this Agreement (i) for Cause, as defined in Section
6.2, (ii) if Executive becomes Disabled, or (iii) upon Executive's death, the
Company's obligations under this Agreement shall cease as of the date of
termination; provided, however, that Executive will be entitled to whatever
benefits are payable pursuant to the terms of any health, life insurance,
disability, welfare, retirement or other plan or program maintained by the
Company. If the Company terminates Executive during the Term of this Agreement
other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive
shall be entitled to receive the compensation and benefits provided in
subsections (a) through (i) of Section 5.1 above for the Severance Period, and
subject to the provisions (including the nonmitigation provision) and
limitations therein.
5.3 Tax Equalization Payment.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined (as hereafter provided) that any payment or
distribution to or for the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or pursuant to or by
reason of any other agreement,
-14-
<PAGE> 15
policy, plan, program or arrangement, or similar right (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code (or any successor
provisions thereto), or any interest or penalties with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive or have paid on his behalf an additional payment or
payments (a "Gross-Up Payment") from the Company. The total amount of the
Gross-Up Payment shall be an amount such that, after payment by (or on behalf
of) the Executive of any Excise Tax and all federal, state and other taxes
(including any interest or penalties imposed with respect to such taxes) imposed
upon the Gross-Up Payment, the remaining amount of the Gross-Up Payment is equal
to the Excise Tax imposed upon the Payments. For purposes of clarity, the amount
of the Gross-Up Payment shall be that amount necessary to pay the Excise Tax in
full and all taxes assessed upon the Gross-Up Payment.
(b) An initial determination as to whether a Gross-Up Payment is
required pursuant to this subsection (b) and the amount of such Gross-Up Payment
shall be made by an accounting firm selected by the Company and reasonably
acceptable to Executive which is then designated as one of the five largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to the Company and the
Executive as promptly as practicable after such calculation is requested by the
Company or by the Executive, and if the Accounting Firm determines that no
Excise Tax is payable by the Executive with respect to a Payment or Payments, it
shall furnish the Executive with a substantial
-15-
<PAGE> 16
authority opinion reasonably acceptable to the Executive that no Excise Tax will
be imposed with respect to any such Payment or Payments. Within fifteen (15)
days of the delivery of the Determination to the Executive, the Executive shall
have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 5.3 shall be paid by the
Company to the Executive for his benefit within fifteen (15) days of the receipt
of the Accounting Firm's Determination. The existence of the Dispute shall not
in any way affect the right of the Executive to receive the Gross-Up Payment in
accordance with the Determination. If there is no Dispute, the Determination
shall be binding, final and conclusive upon the Company and the Executive
subject to the application of this subsection (b).
(c) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should have been
paid will not have been paid (an "Underpayment"). An Underpayment shall be
deemed to have occurred upon the earliest to occur of the following events: (1)
upon notice (formal or informal) to the Executive from any governmental taxing
authority that the tax liability of the Executive (whether in respect of the
then current taxable year of the Executive or in respect of any prior taxable
year of the Executive) may be increased by reason of the imposition of the
Excise Tax on a Payment or Payments with respect to which the Company has failed
to make a sufficient Gross-Up Payment, (2) upon a determination by a court, (3)
by reason of a determination by the Company (which shall include the position
taken by the Company, or its consolidated group, on its federal income tax
return), or (4) upon
-16-
<PAGE> 17
the resolution to the satisfaction of the Executive of the Dispute. If any
Underpayment occurs, the Executive shall promptly notify the Company and the
Company shall pay to the Executive within fifteen (15) days of the date the
Underpayment is deemed to have occurred under (1), (2), (3) or (4) above, but in
no event less than five days prior to the date on which the applicable
government taxing authority has requested payment, an additional Gross-Up
Payment equal to the amount of the Underpayment plus any interest and penalties
imposed on the Underpayment.
An Excess Payment shall be deemed to have occurred upon a "Final
Determination" (as hereinafter defined) that the Excise Tax shall not be imposed
upon a Payment or Payments (or portion of a Payment) with respect to which the
Executive had previously received a Gross-Up Payment. A Final Determination
shall be deemed to have occurred when the Executive has received from the
applicable government taxing authority a refund of taxes or other reduction in
his tax liability by reason of the Excess Payment and upon either (i) the date a
determination is made by, or an agreement is entered into with, the applicable
governmental taxable authority which finally and conclusively binds the
Executive and such taxing authority, or in the event that a claim is brought
before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired, or (ii) the
statute of limitations with respect to the Executive's applicable tax return has
expired. If an Excess Payment is determined to have been made, the amount of the
Excess Payment shall be treated as a loan by the Company to the Executive and
the Executive shall pay to the Company within 15 days following demand (but not
less than 30 days after the
-17-
<PAGE> 18
determination of such Excess Payment) the amount of the Excess Payment plus
interest at an annual rate equal to the rate provided for in Section
1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the
Excess Payment relates) was paid to the Executive until the date of repayment to
the Company.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of any
Excise Tax that the Company has actually withheld from the Payment or Payments;
provided that the Company's payment of withheld Excise Tax shall not change the
Company's obligation to pay the Gross-Up Payment required under this Section
5.3.
(e) The Executive and the Company shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the Determination contemplated by
subsection (b) hereof.
(f) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by subsection
(b) shall be paid by the Company.
6. Definitions. For purposes of this Agreement the following terms shall
have the meanings specified below:
6.1 "Board" or "Board of Directors". The Board of Directors of the
Company.
-18-
<PAGE> 19
6.2 "Cause". The involuntary termination of Executive by the Company for
the following reasons shall constitute a termination for Cause:
(a) If the termination shall have been the result of an act or acts by
Executive which have been found in an applicable court of law to constitute a
felony (other than traffic-related offenses);
(b) If the termination shall have been the result of an act or acts by
Executive which are in the good faith judgment of the Board to be in violation
of law or of policies of the Company and which result in demonstrably material
injury to the Company;
(c) If the termination shall have been the result of an act or acts of
proven dishonesty by Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or
(d) Upon the willful and continued failure by the Executive
substantially to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness not
constituting a Disability, as defined herein), after a demand in writing for
substantial performance is delivered by the Board, which demand specifically
identifies the manner in which the Board believes that Executive has not
substantially performed his duties.
With respect to clauses (b), (c) or (d) above of this Section, Executive
shall not be deemed to have been involuntarily terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of
-19-
<PAGE> 20
the Board (after reasonable notice to Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that, in the
good faith opinion of the Board, Executive was guilty of conduct set forth above
in clauses (b), (c) or (d) and specifying the particulars thereof in detail. For
purposes of this Agreement, no act or failure to act by Executive shall be
deemed to be "willful" unless done or omitted to be done by Executive not in
good faith and without reasonable belief that Executive's action or omission was
in the best interests of the Company.
6.3 "Change in Control". Either
(a) the acquisition, directly or indirectly, by any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than LB MBP II or any of its affiliates, of securities of the
Company representing an aggregate of more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities (excluding
the acquisition by persons who own such amount of securities on the date hereof,
or acquisitions by persons who acquire such amount through inheritance), or
(b) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period; or
(c) consummation of (i) a merger, consolidation or other business
combination of the Company with any other "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or
affiliate
-20-
<PAGE> 21
thereof, other than a merger, consolidation or business combination which would
result in the outstanding common stock of the Company immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into common stock of the surviving entity or a parent or affiliate thereof) more
than fifty percent (50%) of the outstanding common stock of the Company, or such
surviving entity or parent or affiliate thereof, outstanding immediately after
such merger, consolidation or business combination, or (ii) a plan of complete
liquidation of Company or an agreement for the sale or disposition by Company of
all or substantially all of Company's assets;
(d) a Public Offering as defined in the Term Sheet; or
(e) a sale of more than 50% of the assets of the Company; provided
that none of the events described in clauses (b) through (e) shall be deemed a
Change in Control if, immediately following such event, LB MBP II and its
affiliates own 50% or more of the combined voting power of the Company's then
outstanding securities.
6.4 "Code". The Internal Revenue Code of 1986, as it may be amended from
time to time.
6.5 "Confidential Information". All technical, business, and other
information relating to the business of the Company or its subsidiaries or
affiliates, including, without limitation, technical or nontechnical data,
formulae, compilations, programs, devices, methods, techniques, processes,
financial data, financial plans, product plans, and lists of actual or potential
customers or suppliers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that
-21-
<PAGE> 22
are reasonable under the circumstances to maintain its secrecy or
confidentiality. Such information and compilations of information shall be
contractually subject to protection under this Agreement whether or not such
information constitutes a trade secret and is separately protectable at law or
in equity as a trade secret. Confidential Information does not include
confidential business information which does not constitute a trade secret under
applicable law two years after any expiration or termination of this Agreement.
6.6 "Disability" or "Disabled". Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Company on a full-time basis for a period of six (6) months.
6.7 "Good Reason". A "Good Reason" for termination by Executive of
Executive's employment shall mean the occurrence during the Term (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, and such act or failure to act has
not been corrected within thirty (30) days after written notice of such act or
failure to act is given by Executive to the Company:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as the Chairman of the Board, Chief Executive Officer and
President of the Company, or a substantial adverse alteration in the nature or
status of the Executive's responsibilities from those on the date hereof;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to time;
-22-
<PAGE> 23
(iii) the relocation of the Company's principal executive offices to
a location more than fifty (50) miles from Montgomery, Alabama, or the Company's
requiring Executive to be based anywhere other than the Company's principal
executive offices, except for reasonably required travel on the Company's
business, provided, that the Company's principal executive offices may be
relocated to Birmingham, Alabama, or Atlanta, Georgia, under terms (such as
relocation allowance, housing allowance (including selling of existing home and
acquisition of new home), and travel allowances) reasonably acceptable to
Executive, in which case, such 50 mile limitation shall apply to such city;
(iv) the failure by the Company, without Executive's consent, to pay
to Executive any portion of Executive's current compensation (including Base
Salary and bonus), or to pay to the Executive any other compensation within
seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any compensation
plan in which Executive participates on the date hereof, which is material to
Executive's total compensation, including but not limited to the Company's
Executive Management Target Incentive Plan, any long-term incentive plan, the
Individual SERP, the SERP and the Executive SERP, or any substitute plans,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation in such plan (or in such
substitute or alternative plan) on a basis not materially less favorable in
terms of the amount of benefits provided;
-23-
<PAGE> 24
(vi) the failure by the Company to continue to provide Executive with
benefits substantially similar to those enjoyed by Executive on the date hereof
under any of the Company's pension, life insurance (including the Executive Life
Insurance Program), medical, health and accident or disability plans, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive Executive of any material fringe benefit
enjoyed by Executive on the date hereof, or the failure by the Company to
provide Executive with the number of paid vacation days to which the Executive
is entitled under this Agreement; or
(vii) any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 7.1 (for purposes of this Agreement, no such purported termination shall
be effective).
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
6.8 "Person". Any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6.9 "Present Value". The term "Present Value" on any particular date shall
have the same meaning as provided in Section 280G(d)(4) of the Code.
7. Termination Procedures.
7.1 Notice of Termination. During the Term of this Agreement, any
purported termination of Executive's employment (other than by reason of death)
shall
-24-
<PAGE> 25
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 11. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include the
information set forth in Section 6.2.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment during the Term of this
Agreement, shall mean (i) if Executive's employment is terminated by his death,
the date of his death, (ii) if Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the full-time performance of Executive's
duties during such thirty (30) day period), and (iii) if Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided, however, that the "Date of Termination" for
purposes of this Agreement shall not be the last day of the Company's fiscal
year and, in the event the last day of the fiscal year is designated as the
"Date of Termination", the "Date of Termination" for purposes hereof shall
automatically be the first day of the next following fiscal year.
-25-
<PAGE> 26
8. Contract Non-Assignable. The parties acknowledge that this Agreement
has been entered into due to, among other things, the special skills of
Executive, and agree that this Agreement may not be assigned or transferred by
Executive, in whole or in part, without the prior written consent of the
Company.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to, or transferor of, the Company, the Company will require any successor to, or
transferor of, all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, reorganization,
liquidation, consolidation or otherwise) to expressly assume and agree to
perform this Agreement, in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees and by the Company's
successors and assigns. If Executive shall die while any amount would still be
payable to Executive
-26-
<PAGE> 27
hereunder (other than amounts which, by their terms, terminate upon the death of
Executive) if Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of
Executive's estate.
10. Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to the Company.
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Company: Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
ATTN: _________________________
With a copy to: Richard H. Irving, III
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
To the Executive: John M. Panettiere
515 Trillium Drive
Eclectic, Alabama 36024
With a copy to: Kilpatrick Stockton LLP
ATTN: William J. Vesely, Jr.
Suite 2800
1100 Peachtree Street
Atlanta, GA 303099-4530
-27-
<PAGE> 28
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Waiver. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
14. Indemnification. During the term of this Agreement and after
Executive's termination for the period of time set forth in Section 6.7 of the
Recapitalization Agreement, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or other affiliates or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
Company's request, in each case to the maximum extent permitted by law and under
the Company's Articles of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection
-28-
<PAGE> 29
afforded to Executive hereunder be less than that afforded under the Governing
Documents as in effect on the date of this Agreement except from changes
mandated by law. During the Term and for the period of time set forth in Section
6.7 of the Recapitalization Agreement, Executive shall be covered by any policy
of directors and officers liability insurance maintained by the Company for the
benefit of its officers and directors.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
16. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
17. Arbitration of Disputes; Expenses. All claims by Executive for
compensation and benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to Executive for a review of a decision denying a claim and shall
further allow Executive to appeal to the Board a decision of the Board within
sixty (60) days after notification by the Board that Executive's claim has been
denied. To the extent permitted by applicable law, any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Atlanta, Georgia, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the
-29-
<PAGE> 30
arbitrator's award in any court having jurisdiction. In the event the Executive
incurs legal fees and other expenses in seeking to obtain or to enforce any
rights or benefits provided by this Agreement and is successful, in whole or in
part, in obtaining or enforcing any material rights or benefits through
settlement, arbitration or otherwise, the Company shall promptly pay Executive's
reasonable legal fees and expenses incurred in enforcing this Agreement and the
fees of the arbitrator. Except to the extent provided in the preceding sentence,
each party shall pay its own legal fees and other expenses associated with any
dispute.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
EXECUTIVE:
/s/ JOHN M. PANETTIERE
_________________________________
JOHN M. PANETTIERE
COMPANY:
By: /s/ BLOUNT INTERNATIONAL, INC.
______________________________
BLOUNT INTERNATIONAL, INC.
-30-
<PAGE> 31
SCHEDULE A to
Employment Agreement
PUT AND CALL RIGHTS OF THE
EXECUTIVE AND THE COMPANY
Capitalized terms which are used in this Schedule A and which are not
otherwise defined shall have the meanings ascribed to such terms in the
Agreement to which this Schedule is attached and of which it forms a part,
except where specifically noted that any such term has the meaning ascribed to
such term in the Employee Shareholders Agreement being entered into by and among
the Company, Lehman Brothers Merchant Banking Partners II L.P. ("LB MBP II"),
the Executive and other executives and key employees of the Company (a term
sheet for which is attached hereto).
A. Triggering Events
1. Termination by the Company for Cause; Voluntary Termination without
Good Reason. If, during the Term, the Executive's employment is either (x)
involuntarily terminated by the Company for Cause or (y) terminated by the
Executive without Good Reason:
(a) All shares of Company common stock ("Common Stock") purchased by the
Executive pursuant to the exercise of stock options ("Options") granted to the
Executive ("Option Shares") may be called by the Company at the lesser of (x)
the purchase price paid by the Executive therefor (the "Exercise Price") and (y)
Fair Market Value (as defined in Section D hereof).
(b) All Options then held by the Executive shall be forfeited, without any
consideration being paid therefor by the Company, as of the Executive's date of
termination of employment with the Company ("Termination Date").
(c) All shares of Common Stock owned by the Executive, other than Option
Shares ("Purchased Shares"), may be called by the Company at Fair Market Value.
(d) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of employment.
2. Termination by the Company Without Cause; Termination by the Executive
with Good Reason; Retirement. If, during the Term, the Executive's employment
with the Company is either (x) involuntarily terminated by the Company without
Cause, (y) terminated by the Executive for Good Reason or (z) terminated as a
result of the Executive's Retirement (as defined in the Employee Shareholders
Agreement) from employment with the Company at or after attainment of age 65 (or
such earlier retirement age as permitted under any agreement entered into after
Effective Time (as defined in the Employment Agreement) between the Company and
the Executive or if the Board shall consent thereto in writing):
(a) All Option Shares held for at least six months by the Executive may be
called by the Company at Fair Market Value.
<PAGE> 32
2
(b) All Purchased Shares held for at least six months by the Executive may
be called at Fair Market Value.
(c) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of employment.
(d) Except as provided under clauses (a) and (b) above, the Company shall
have no right to call Options, Option Shares or Purchased Shares upon a
termination of employment covered by this Section 2.
Notwithstanding the foregoing, if the Executive elects, he may override the
calls made pursuant to paragraphs (a) or (b) above and retain all or any portion
of his Option Shares and Purchased Shares by giving the Company written notice
of such override within 30 days of his receipt of the call notice.
3. Termination due to Death or Disability. If, during the Term, the
Executive's employment is terminated due to his death or Disability, the
Executive (or his legal representative or the legal representative of his
estate, if applicable) may put all Options, Option Shares and Purchased Shares
to the Company or the Company may call such Options, Option Shares and Purchased
Shares, in each case at Fair Market Value (in the case of Options, net of the
Exercise Price); provided, however, that if the Executive elects, he may
override such call and retain all or any portion of his Options, Option Shares
and Purchased Shares by providing the Company with a written notice of such
override within 30 days of his receipt of the Company's call notice.
[4. Sale of a Company Division. If the Company shall sell the business
division in which the Executive is principally employed (a "Sale"), the Company
may call the Executive's Options, Option Shares and Purchased Shares at Fair
Market Value; provided, however, that if the Executive elects, he may override
such call by the Company and retain all or any portion of his Options, Option
Shares and Purchased Shares by providing the Company with a written notice of
such override within 30 days of his receipt of the Company's call notice. The
Executive shall have no right to put his Options, Option Shares or Purchased
Shares to the Company as a result of such a Sale.](1)
B. Notice of Puts and Calls; Exercise Rights.
1. If the Company intends to call any or all of the Executive's Options,
Option Shares or Purchased Shares as provided herein, it will provide prior
written notice to the Executive (or the Executive's legal representative or the
legal representative of the Executive's estate, as applicable), such notice to
include the Fair Market Value of the Options, Option Shares or Purchased
Shares, as the case may be, and to be given no later than 75 days after the
- --------
(1) Include only for employees employed in any of the three business
divisions.
<PAGE> 33
3
Executive's Termination Date [or Sale (as applicable)](2). If the Executive (or
the Executive's legal representative or the legal representative of his estate,
as applicable) is entitled to put any or all of his Options, Option Shares or
Purchased Shares, notice of such intent must be given by the Executive no later
than 90 days after the Company gives notice that it will not exercise its call.
2. Neither the Executive nor the Company shall have any put or call rights
following a Public Offering (as such term is defined in the Employee
Shareholders Agreement).
3. Any exercise of put or call rights may be for all or a portion of the
Options, Option Shares and Purchased Shares subject thereto, as determined in
the sole discretion of the holder of such rights.
C. Limitation on Put and Call Rights. Notwithstanding anything in this Schedule
A to the contrary, the Company shall not be required to purchase any Options,
Option Shares or Purchased Shares (whether through the exercise of a put or a
call) if such purchase would be, or would result in, a violation of the terms of
its then existing debt agreements or any applicable law or regulation. In
addition, no such put or call will occur if, in the reasonable discretion of the
Board, such purchase would be reasonably likely to (i) impair the Company's
available cash, (ii) require unsuitable additional debt to be incurred by the
Company or (iii) result in any other adverse economic or financial condition, in
each case only to the extent that any such event described in clauses (i), (ii)
or (iii), individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on the financial condition of the
Company.
D. Fair Market Value. For purposes hereof, the term "Fair Market Value" shall
mean, in respect of each share of Common Stock:
(i) To the extent the call or put, as the case may be, occurs concurrently
with or within 30 days of a Public Offering, the offering price to the
public per share of common stock of such Public Offering;
(ii) To the extent the call or put, as the case may be, occurs concurrently
with or within 30 days of a Change of Control, the value of the Company's
total equity, as determined based upon the price per share paid in
connection with such Change of Control, divided by the total number of
shares of Common Stock then outstanding;
(iii) To the extent clauses (i) and (ii) do not apply and a regular trading
market for the Company's common stock exists following a Public Offering,
the average closing price of such common stock for 10 consecutive trading
days ending on the trading day immediately prior to such call or put; and
(iv) At all other times, the fair market value of the Company's total equity,
as determined by the Board in good faith divided by the total number of
- --------
(2) Include bracketed language only for division employees.
<PAGE> 34
shares of Common Stock then outstanding; provided, however, that if the
Executive disputes the Board's determination, within 10 days of the
Executive's receipt of notice of the Board's determination, the Executive
and the Board shall jointly select a qualified independent financial
advisor to make such determination, which determination shall be final and
binding upon the parties, provided, further, that the fees and costs of
such financial advisor in connection with its determination shall be borne
equally by the Company and the Executive unless such financial advisor's
fair market value determination is 10% or more greater than the Board's
determination, in which case such fees and costs shall be borne entirely
by the Company.
<PAGE> 35
EXHIBIT A to
Employment Agreement
SUMMARY OF TERMS
EMPLOYEE SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of agreements ancillary to
the Employment Agreement (the "Employment Agreement") to which this Summary of
Terms is attached and of which it forms a part, including the Employee
Shareholders Agreement and the related Option Agreements. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the
Employment Agreement.
EQUITY OWNERSHIP
FOLLOWING
RECAPITALIZATION
Purchased Shares After the closing contemplated by the Recapitalization
Agreement, no less than $15.0 million of the fully
diluted equity of the Company will be purchased by the
top 21 executives and key employees (the "Managers") and
approximately 20 other management employees at a
purchase price equal to the price per share of Company
common stock paid in connection with the
recapitalization, which is $30.00 per share (the
"Purchased Shares").
OPTION AGREEMENT
Stock Options As soon as practicable after the closing of the
recapitalization, the Company shall grant the Managers
nonqualified options (the "Options") exercisable for
common stock to purchase an aggregate of 8.0% of the
Company's initial fully-diluted common stock. One-half
of such Options shall be granted as "Time Options";
one-half of such Options shall be granted as
"Performance Options", which will be earned upon
achievement of the "Management Case" performance as
described below.
The Company shall reserve for possible future issuance
to Managers and other executives options to purchase an
aggregate of 100,000 shares of the Company's common
stock at times and on terms to be determined by the
Compensation Committee of the Board of Directors.
<PAGE> 36
2
Except as otherwise provided herein, the terms of the
option plans and agreements governing the Options shall
be substantially similar to the Company's 1998 Option
Plan.
- --Option Term The option term of the Options shall be 10 years from
the Effective Time (as defined in the Recapitalization
Agreement) and 10 years after the grant with respect to
options subsequently granted; provided, however, that
exercisable options shall expire earlier upon
termination of employment as follows:
Termination for Cause/Voluntary Termination by Executive
Without Good Reason: Immediately upon termination of
employment.
Termination Without Cause/ Termination by Executive with
Good Reason/Death/Disability/Sale of Division: One year
after termination of employment.
Retirement: At the end of the option term.
Unexercisable Options will terminate upon termination of
employment, unless acceleration in connection with such
termination is explicitly provided for.
Upon a Change-in-Control, the Compensation Committee may
terminate the Options, so long as the Executives are
cashed out of, or are permitted to exercise, their
exercisable Options prior to the Change-in-Control.
- --Option Exercise Options shall be granted at an exercise price equal to
Price the price per share of Company common stock paid in
connection with the recapitalization, which is $30.00
per Share.
- --Dilution of Options Option holders shall be subject to the same dilution as
the common stockholders.
- --Reallocation Shares subject to Options that are forfeited may be
reallocated to other employees as determined by the
Compensation Committee in its sole discretion.
Transfer Options may be transferred to Permitted Transferees (as
defined below) so long as
<PAGE> 37
3
such Permitted Transferee agrees to be bound by the
terms of all applicable agreements.
Vesting of Equity Rights
- --Normal Vesting of Except as provided in the next paragraph, Time Options
Time Options shall become exercisable with respect to 20% of the
shares subject to such Options on each of the first five
anniversaries of the Effective Time as and when the
Executive's employment continues through and including
the date of each such anniversary. Time Options shall
expire and no longer be exercisable as provided under
the "Option Term" section herein, but all Time Options
shall accelerate and become fully exercisable as
provided under the "Accelerated Vesting of Options"
section herein.
The Time Options for Executives who are age 61 or older
at the Effective Time shall vest with respect to 331/3%
of the shares subject to such Options on each of the
first three anniversaries of the Effective Time,
provided that the Executive's employment continues
through and including the date of each such anniversary;
and provided, further, that full vesting at Retirement
for such Executives shall only occur if Retirement
occurs three or more years after the Effective Time.
Nothing herein shall be construed as affecting any
liquidity rights or restrictions on transfer
specifically set forth herein.
- --Normal Vesting of Performance Options shall become exercisable at the end
Performance Options of six years, whether or not the EBITDA (as defined
below) targets are achieved, but become exercisable
earlier with respect to up to 20% of the shares subject
to the Performance Options, on each of the first five
anniversaries of the Effective Time, to the extent the
EBITDA for the fiscal year most recently completed (the
"Fiscal Year") equals or exceeds the EBITDA targets
(each, a "Target"), as set forth in Schedule A attached
hereto.
For executives who are age 61 or older at the Effective
Time, the applicable vesting percentage for Performance
Options shall be
<PAGE> 38
4
33 1/3% for each of the first three anniversaries of the
Effective Time, using the EBITDA Targets on Schedule A,
and 331/3% shall be substituted for 20% each place in
this section where 20% appears. Notwithstanding the
foregoing, Performance Options shall vest on the
following dates at the following minimum percentages (to
the extent not already vested) for such Executives if
Retirement occurs three or more years after the
Effective Time: (i) the date that is three years after
the Effective Time, 50% of the aggregate shares subject
to the Performance Options; (ii) the date that is four
years after the Effective Time, 66.70% of the aggregate
shares subject to the Performance Options; (iii) the
date that is five years after the Effective Time, 83.30%
of the aggregate shares subject to the Performance
Options and (iv) the date that is six years after the
Effective Time, 100% of the aggregate shares subject to
the Performance Options. Nothing herein shall be
construed as affecting any liquidity rights or
restrictions on transfer specifically set forth herein.
If the Company's EBITDA for a Fiscal Year is less than
100% of the Target for such Fiscal Year (a "Missed
Year"), such Performance Options shall become
exercisable with respect to a portion of the shares
subject to Performance Options in an amount equal to the
product of (a) 20% of the total number of shares subject
to Executive's Performance Options multiplied by (b) the
Applicable Percentage (as set forth in Schedule B
attached hereto).
If either all or a portion of the Executive's
Performance Options do not become exercisable in any
year pursuant to the above, the Executive may "catch-up"
if the Cumulative EBITDA Targets (as set forth in
Schedule A attached hereto) are satisfied. The amount
that would vest is equal to 40% if in year 2, 60% if in
year 3, 80% if in year 4 and 100% if in year 5, less the
number of Executive's Performance Options which had
previously vested.
Accelerated Vesting
of Options
<PAGE> 39
5
- --Time Options Unvested Time Options shall become fully exercisable
upon (i) death, (ii) disability, (iii) Change-in-Control
or (iv) Retirement (as defined below). In addition, upon
a Termination without Cause or a Termination by
Executive with Good Reason, Time Options shall become
fully exercisable in the event the Executive had been
employed by the Company for at least three years from
the date of the Effective Time.
- --Performance Options Performance Options shall become fully exercisable upon
a Change-in-Control if, and only if, (a) 100% or more of
the EBITDA Target has been achieved in each Fiscal Year
prior to such Change-in-Control or (b) 100% of the
Cumulative EBITDA Target has been achieved in the Fiscal
Year immediately preceding such Change-in-Control.
Except for the above and any other acceleration
occurring by reason of the attainment of the EBITDA
Targets, vesting of Performance Options shall not
accelerate for any reason. In addition, upon a
Termination without Cause or for a Termination by
Executive with Good Reason, Performance Options shall
become fully exercisable in the event the Executive had
been employed by the Company for at least three years
from the date of the Effective Time.
Adjustments In the event of any change in the outstanding Common
Stock by reason of a stock split, spin-off, stock
dividend, stock combination or reclassification,
recapitalization, consolidation or merger, or similar
event, the Compensation Committee shall adjust
appropriately the number of shares subject to Options
and make other revisions as it deems are equitably
required.
EMPLOYEE
SHAREHOLDERS
AGREEMENT
Transfer Restrictions Except as provided below, transfers of Purchased Shares
or shares purchased upon exercise of Options ("Option
Shares") will not be permitted prior to the fifth
anniversary of the Effective Time. Option Shares and
Purchased Shares may be transferred prior to the fifth
anniversary of the Effective Time (i) to a
<PAGE> 40
6
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements, (ii) pursuant to an exercise of
"Tag-Along" or "Drag-Along" Rights described below,
(iii) pursuant to an exercise of call or put rights set
forth in the Employment Agreement, (iv) pursuant to an
exercise of the registration rights described below or
(v) in connection with a Change-in-Control so long as
long as such transfers are on a pro rata basis with
transfers made by Lehman Brothers Merchant Banking
Partners II L.P. ("LB MBP II") in connection with such
Change-in-Control. Except as provided hereinabove or as
agreed to by the Compensation Committee, Options will be
nontransferable, but may be exercised after an
Optionholder's death by his or her designated
beneficiary or estate.
In addition to the transfer restrictions of the Employee
Stockholder Agreement, any sale of Purchased Shares or
Option Shares shall in all cases be completed in
compliance with applicable securities laws. The Company
will register all Option Shares on Form S-8 under the
Securities Act of 1933.
Right of First Refusal The Company shall have a right of first refusal on all
management equity rights (which rights the Company may
assign to LB MBP II) until the transfer restrictions
expire. Such right shall not apply to any transfer to a
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements.
Registration Rights Each Executive will have "piggy back" registration
rights if (i) the Company is registering shares of its
common stock under the Securities Act of 1933 for its
own account (subject to customary exceptions for
registrations related to exchange offers or benefit
plans), provided that such rights shall only be
available if LB MBP II is selling shares of common stock
for its own account in connection with such
registration, in each case on a pro rata basis with LB
MBP II or (ii) in any Public Offering in which shares
owned by LB MBP II are offered, on a pro rata basis.
<PAGE> 41
7
Beginning on the later of a Public Offering and the
fifth anniversary of the recapitalization, each
Executive will have "demand" registration rights,
subject to customary threshold provisions and black-out
provisions.
Tagalong/Dragalong In the event that LB MBP II or one of its affiliates is
transferring any shares of common stock of the Company
to a third party, it will give each Executive notice of
such proposed transfer, including the relevant terms
thereof. Within 30 days of receipt of such notice, each
Executive may elect to sell his Option Shares or
Purchased Shares to such third party on a pro rata basis
with LB MBP II. Notwithstanding the foregoing, the
"tag-along" rights shall not apply to any sale of LB MBP
II or its affiliates pursuant to a syndication of its
equity interest in the Company during the six month
period after the Effective Time, provided that the
aggregate amount of such sale does not exceed $100
million.
In the event the LB MBP II or one of its affiliates is
transferring shares of common stock of the Company to
any third party that has made an offer to purchase such
shares, LB MBP II will have the right to cause each
Executive to sell his Option Shares or Purchased Shares
to such third party on a pro rata basis.
DEFINITIONS
EBITDA "EBITDA" shall be defined in a manner consistent with
the Company's debt instruments entered into in
connection with the recapitalization contemplated by the
Recapitalization Agreement.
Permitted Transferees "Permitted Transferees" shall mean (i) each Executive's
heirs, executors, administrators, testamentary trustees,
legatees, beneficiaries or charitable remaindermen, (ii)
a trust the beneficiaries of which include only such
Executive, such Executive's spouse, lineal descendants
or any other member of the family of such Executive; or
(iii) any person if LB MBP II has given its prior
written consent to the applicable transfer.
<PAGE> 42
8
Public Offering "Public Offering" shall mean the sale of shares of any
class of the Company's stock to the public pursuant to
an effective registration statement (other than a
registration statement on Form S-4 or S-8 or any similar
or successor form) filed under the Securities Act of
1933 which results in an active trading market of 25% or
more of the outstanding shares of the Company's common
stock. There shall be deemed to be an "active trading
market" if the Company's common stock is listed or
quoted on a national exchange or the NASDAQ National
Market.
Retirement "Retirement" shall mean normal retirement under the
terms of any tax-qualified retirement plan of the
Company or retirement, which retirement occurs no
earlier than three years after the Effective Time,
except as permitted under any agreement between the
Company and the Executive to the extent such agreement
(i) by its terms currently provides that retirement is
to begin upon attainment of age 65 (even if earlier than
the third anniversary of the Effective Time) or provides
that retirement is to begin after age 64 (which occurs
three years after the Effective Time) or (ii) is entered
into after the Effective Time and permits the Executive
to retire prior to attainment of age 65 and the third
anniversary of the Effective Time. Except as provided in
the preceding sentence, any purported retirement prior
to the third anniversary of the Effective Time, shall be
treated the same as a voluntary termination.
Schedule A
EBITDA Targets
($ in millions)
<TABLE>
<CAPTION>
"Management Case" Cumulative
EBITDA Target* EBITDA Target*
-------------- --------------
<S> <C> <C>
1999 $166.2 $166.2
2000 $223.7 $389.9
2001 $246.3 $636.2
2002 $270.7 $906.9
2003 $295.9 $1,202.8
</TABLE>
<PAGE> 43
9
* Upon disposition or acquisition of any business or substantial portion of the
assets of the Company or another company, the EBITDA Targets for the year of
such disposition or such acquisition and each subsequent year shall be adjusted
to eliminate or include, as the case may be, the income and expense to the
business or assets that were subject to disposition or acquisition, but only to
the extent not already done so in connection with the calculation of EBITDA.
Such adjustments must be consented to by a majority of the non-management
directors of the Board of the Company. If such directors cannot so consent, the
adjustment proposal shall be submitted to the Company's independent auditors,
who can consult with the necessary consultants for binding resolution.
<PAGE> 44
Schedule B
Applicable Percentage
<TABLE>
<CAPTION>
Percentage of EBITDA
Target Achieved Applicable
(annual or cumulative) (Pct.) Percentage
- ----------------------------- ----------
<S> <C>
Less than 85 0.00
85 25.00
86 30.00
87 35.00
88 40.00
89 45.00
90 50.00
91 55.00
92 60.00
93 65.00
94 70.00
95 75.00
96 80.00
97 85.00
98 90.00
99 95.00
100 100.00
</TABLE>
<PAGE> 45
Exhibit B
BLOUNT INTERNATIONAL, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR JOHN M. PANETTIERE
1. Purpose - The purpose of this Supplemental Executive Retirement Plan (the
"SERP") is to provide John M. Panettiere (the "Executive") with a
retirement benefit payable as a supplement to his vested benefit under The
Blount Retirement Plan.
2. Definitions
a. Blount Plan is The Blount Retirement Plan, as in effect on January
1, 1992, including any future amendments or restatements adopted and
effective while Executive is an employee of the Company or its
affiliates.
b. Company shall mean Blount International, Inc. and its successors.
c. Disability shall mean periods of time during which
(i) Executive is totally and permanent disabled, and
(ii) Executive is receiving Social Security disability benefits.
d. Effective Date of this amendment and restatement of the SERP is
_________, 1999. The original effective date of this SERP was May 1,
1992.
e. Excess Benefit Plan is the Blount, Inc. and Subsidiaries
Supplemental Retirement Benefit Plan, as in effect on March 1, 1989,
including any future amendments or restatements adopted and
effective while Executive is an employee of the Company or its
affiliates.
f. Executive shall mean John M. Panettiere.
g. Internal Revenue Code shall mean the Internal Revenue Code of 1986,
as amended and in effect at Executive's Termination Date.
h. Normal Retirement Date is July 25, 2002.
i. SERP is this Supplemental Executive Retirement Plan sponsored by the
Company for Executive.
j. Termination Date is the date on which the employment relationship
between Executive and the Company (including any affiliated company
as defined in the Blount Plan) ceases.
<PAGE> 46
3. Years of Benefit Service shall mean the years of benefit service granted
to Executive under this SERP and the years of "Benefit Service" (as that
term is defined in the Blount Plan) granted to Executive under the Blount
Plan. Years of Benefit Service shall be determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years of Benefit Years of Benefit Total Years
Service under the Service under the of Benefit
Age Blount Plan SERP Service
--- ----------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
55 1 + 1 = 2
56 2 + 2 = 4
57 3 + 3 = 6
58 4 + 4 = 8
59 5 + 5 = 10
60 6 + 6 = 12
61 7 + 7 = 14
62 8 + 8 = 16
63 9 + 10 = 19
64 10 + 12 = 22
65 11 + 14 = 25
</TABLE>
Years of Benefit Service under the SERP shall continue to accrue during
any period of Disability provided that Years of Benefit Service continue
to accrue under the Blount Plan.
4. Vested Retirement Benefits payable under this SERP shall equal (a) less
(b) where:
(f) is the monthly retirement income that would be payable to Executive
under the provisions of the Blount Plan, assuming
(i) that in determining the fraction for purposes of Section
6.1(a)(i) of the Blount Plan, the numerator shall be his total
Years of Benefit Service determined in accordance with
Paragraph 3 above, at his age when his employment terminates
and the denominator of which is 25;
(ii) that for purposes of Section 6.1(a)(ii)(A) and (B) of the
Blount Plan, the Years of Benefit Service he would accrue if
he continued to accrue Benefit Service to his Normal
Retirement Date would be 25;
(iii) that the Blount Plan does not contain the limitation on
compensation imposed by Section 401(a)(17) of the Internal
Revenue Code or the limitation on benefits imposed by Section
415 of the Internal Revenue Code;
<PAGE> 47
and
(g) is the sum of (i), (ii), and (iii), where
(i) is the monthly retirement income actually payable to
Executive under the Blount Plan;
(ii) is the monthly retirement income actually payable to Executive
under the Excess Benefit Plan; and
(iii) is the monthly retirement income actually paid to Executive
under any pension plan maintained by a former employer of
Executive.
Vested retirement benefits are payable on or after Executive's Termination
Date provided he has obtained a fully vested interest under the Blount
Plan. No benefits shall be payable under this SERP until Executive has
obtained a fully vested interest under the Blount Plan. No benefits are
payable during continued employment. The above benefit is on a life
annuity basis. If an optional form of benefit is desired, the benefit
above will be adjusted by the actuarial factors used by the Blount Plan.
In determining benefits under this Paragraph, amounts described in
Paragraphs (b)(i), (b)(ii) and (b)(iii) above that are paid in a form
other than a straight life annuity shall be valued as a straight life
annuity using the actuarial factors used by the Blount Plan.
5. Executive shall receive the following benefits as defined in the Blount
Plan, which benefits shall be calculated on the basis of the benefit
formula set forth in Paragraph 4 above:
a. Benefits due to the pre-retirement death of Executive;
b. Normal and optional forms of payment under the Blount Plan provided
that, except as provided under Paragraph 5(d), the form of payment
under this SERP shall be the same as the form of payment elected by
Executive under the Blount Plan;
c. If Executive elects for payment of his vested retirement benefits
to commence prior to his Normal Retirement Date but after 10
Years of Benefit Service as determined under Paragraph 3, his
vested retirement benefits will be reduced by .3% for each full
month by which the date his benefits begin precedes his Normal
Retirement Date. If Executive has less than 10 Years of Benefit
Service, his vested retirement benefits shall be reduced on an
actuarially equivalent basis using the actuarial factors used by
the Blount Plan.
d. Notwithstanding the above, if Executive's employment is
terminated within 24 months following a change in control (as
such term is defined in Executive's employment agreement) under
circumstances that would
<PAGE> 48
entitle him to benefits under his employment agreement upon such
termination, Executive may elect on such form and in such manner as
determined by the Board of Directors of the Company or if appointed
by the Board to administer the Plan, the Compensation Committee of
the Board of Directors, to receive his benefit in the form of a
single lump sum payment (regardless of the form of payment elected
by Executive under the Blount Plan and regardless of whether a lump
sum option is available under the Blount Plan). The lump sum payment
shall be actuarially equivalent to the present value of Executive's
benefit under the Plan expressed as a life annuity, calculated using
the same actuarial factors used by the Blount Plan. The lump sum
payment shall be made to Executive within 30 days of the date he
would otherwise have commenced receiving payments under Paragraph 4
above.
6. Successors and Assigns; Non-Alienation of Benefits - This Plan shall inure
to the benefit of and be binding upon the parties hereto and their
successors and assigns; provided, however, to the maximum extent permitted
by law, no benefit under this SERP shall be assignable or subject in any
manner to alienation, sale, transfer, claims of creditors, pledge,
attachment or encumbrances of any kind. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to substantially all of the business or assets
of the Company to expressly agree to assume the Plan and to perform the
obligations under this Plan in the same manner that the Company would be
required to perform them.
7. Administration - The Board of Directors of the Company or, at its
discretion, the Compensation Committee of the Board of Directors, shall
administer, construe, and interpret this Plan. No member of the Board of
Directors or the Committee, as the case may be, shall be liable for any
act done or determination made in good faith. The construction and
interpretation by the Board of Directors or the Committee of any provision
of this Plan shall be final and conclusive. The Board of Directors or the
Committee may, in its discretion, delegate its duties to an officer or
employee or committee composed of officers or employees of the Company.
8. Amendment or Termination - The Board of Directors and Executive may amend
this SERP from time to time in any respect with the consent of the other
party. This Plan may not be terminated without the consent of the Company
through its Board of Directors or its designated Committee or officer and
Executive.
9. Construction of the Plan - This SERP is unfunded. This SERP shall be so
construed that it will be maintained primarily for the purpose of
providing certain retirement, death and disability benefits for Executive.
This SERP and the rights and obligations of the parties thereunder, shall
be construed in accordance with
<PAGE> 49
applicable federal law and, to the extent not preempted by federal law, in
accordance with the laws of the State of Alabama.
10. Denied Claims
a. If any application for payment of a benefit under the SERP shall be
denied, the Company shall:
(i) Notify Executive within a reasonable time of such denial
setting forth the specific reasons therefor; and
(ii) Afford Executive a reasonable opportunity for a full and fair
review of the decision denying the claim.
b. Notice of such denial shall set forth, in addition to the specific
reasons for the denial, the following:
(i) Reference to pertinent provisions of the SERP;
(ii) Such additional information as may be relevant to denial of
claim;
(iii) An explanation of the claims review procedure;
(iv) Advice that Executive may request the opportunity to review
pertinent plan documents and submit a statement of issues and
comments
c. Within 60 days following advice of denial of his claim, upon request
made by Executive for a review of such denial, the Company shall
take appropriate steps to review its decision in light of any
further information or comments submitted by Executive. The Company
shall be empowered to hold a hearing at which Executive shall be
entitled to present the basis of his claim for review and at which
he may be represented by counsel.
d. The Company shall render a decision within 60 days after Executive's
request for review (which may be extended to 120 days if
circumstances so require) and shall advise Executive in writing of
its decision on such review, specifying its reasons and identifying
appropriate provisions of the Plan.
<PAGE> 50
Signed and agreed to this ____ day of _________________, 199____.
BLOUNT INTERNATIONAL, INC.
By: ______________________________________
Its: _____________________________________
EXECUTIVE
__________________________________________
John M. Panettiere
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of April,
1999, by and between BLOUNT INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and DONALD B. ZORN ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
agreement ("Prior Agreement") providing for Executive's employment by the
Company and specifying the terms and conditions of such employment; and
WHEREAS, the Company entered into an Agreement and Plan of Merger and
Recapitalization (the "Recapitalization Agreement") dated the date hereof with
Red Dog Acquisition Corp. ("Newco"), a wholly owned subsidiary of Lehman
Brothers Merchant Banking Partners II L.P. ("LB MBP II"); and
WHEREAS, pursuant to the Recapitalization Agreement, the Company will be
recapitalized through a merger with and into Newco, following which
substantially all of the outstanding capital stock of the Company will be held
by LB MBP II; and
WHEREAS, the Company desires to recognize Executive's superior performance
and continuing value to the Company and its shareholders by modifying the Prior
Agreement and restating such agreement in a single document as hereinafter
provided; and
WHEREAS, Executive desires to continue his employment with the Company on
the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
<PAGE> 2
2
1. Purpose and Effectiveness.
(a) The purpose of this Agreement is to amend the Prior Agreement,
to recognize Executive's significant contributions to the overall financial
performance and success of the Company, and to provide a single, integrated
document which shall provide the basis for Executive's continued employment by
the Company;
(b) This Agreement shall not be effective until the Effective Time
(as defined in the Recapitalization Agreement), and this Agreement shall
terminate immediately if the Recapitalization Agreement is terminated in
accordance with its terms prior to the Effective Time.
2. Employment and Term.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive, and Executive hereby accepts employment, as
Group President of the Industrial and Power Equipment Group and shall have such
responsibilities, duties and authority that are consistent with such position as
may from time to time be assigned to Executive by the Board. Executive hereby
agrees that during the Term of this Agreement he will devote substantially all
his working time, attention and energies to the diligent performance of his
duties as Group President of the Industrial and Power Equipment Group. With the
consent of the Board of Directors, the Executive may serve as a director on the
boards of directors or trustees of additional companies and organizations.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall commence at the Effective Time, and shall
end on the date two (2) years from the date of the effective Time (the
<PAGE> 3
3
"Term"), unless the Term is extended in accordance with subsection (c) below (in
which case such extended period shall constitute the Term).
(c) Not less than ninety (90) days prior to the end of the initial
Term (and any 12-month extension of the initial Term), the Company may offer to
extend the Term for an additional 12-month period on such terms and conditions
as may be specified in the offer (which may be on the same terms and conditions
as provided herein). If Executive desires to accept such offer, he shall notify
the Company in writing within thirty (30) days of receipt of the offer and the
Agreement shall be extended on the terms and conditions agreed upon.
3. Compensation and Benefits. As compensation for his services during the
Term of this Agreement, Executive shall be paid and receive the amounts and
benefits set forth in subsections (a) through (h) below:
(a) An annual base salary ("Base Salary") of Three Hundred
Twenty-Three Thousand and No/100 Dollars ($323,000.00), prorated for any partial
year of employment. Executive's Base Salary shall be subject to annual review
for increases at such time as the Company conducts salary reviews for its
executive officers generally. Executive's salary shall be payable in
substantially equal installments on a bi-monthly basis, or in accordance with
the Company's regular payroll practices in effect from time to time for
executive officers of the Company.
(b) Executive shall be eligible to participate in the Executive
Management Target Incentive Plan and such other annual incentive plans as may be
established by the Company from time to time for its executive officers. The
Board or a committee of the Board will establish performance goals each year
under the incentive plans, and Executive's annual Target Bonus shall be 50% of
Base Salary; the maximum award for exceeding the performance goals
<PAGE> 4
4
(which will be determined in accordance with the current plan design) shall be
100% of Base Salary. The annual incentive bonus payable under this subsection
(b) shall be payable as a lump sum at the same time bonuses are paid to other
senior executives after certification by the Compensation Committee of the
Board, that the applicable performance objectives have been met, unless
Executive elects to defer all or a portion of such amount pursuant to any
deferral plan established by the Company for such purpose.
(c) Promptly upon commencement of the Term, Executive shall make a
minimum investment in the equity ("Purchased Equity") of the Company of 50% of
the aggregate amount of the net proceeds remaining after all applicable taxes
have been paid, resulting from the cancellation of his outstanding stock options
in accordance with Section 2.2 of the Recapitalization Agreement. The Company
and Executive shall endeavor to structure such investment in the most tax and
accounting efficient manner reasonably possible under the relevant
circumstances. In respect of such investment, the Company will grant Executive
60,000 options to purchase shares of the Company's Common Stock that will vest
over time ("Time Options") and the Company will grant Executive
performance-based options for 60,000 shares of the Company's Common Stock
("Performance Options") (the Time Options and the Performance Options are
collectively referred to herein as "Options"). The terms and conditions of the
Time Options and the Performance Options shall be as set forth on the Summary of
Terms, attached hereto as Exhibit A (the "Term Sheet"), and the Company will
enter into separate Option Agreements with Executive covering the grant of such
Options. Executive will be eligible to participate in such other stock option
programs as may be established from time to time by the Company
<PAGE> 5
5
for its executive officers. Executive will participate in any long-term
incentive plans established by the Company for executive officers at his level.
The other terms and conditions applicable to the Purchased Equity
and the Options shall be as provided in the Term Sheet and the parties agree to
enter into an Employee Shareholders Agreement which will include the items
covered in the Term Sheet and contain such other customary terms and conditions
as are appropriate for such an agreement and are mutually agreeable to Executive
and Company (and to LB MBP II, where applicable). The Purchased Equity and the
Options will be subject to put and call rights and restrictions as set forth in
Schedule A.
(d) Executive shall continue to be (i) covered by a Supplemental
Executive Retirement Plan ("Individual SERP"), providing for the benefits set
forth in the amended and restated SERP Agreement attached hereto as Exhibit B,
(ii) a participant in the Blount, Inc. and Subsidiaries Supplemental Retirement
Benefit Plan ("SERP"), and (iii) a participant in the Executive Supplemental
Retirement Plan of Blount International, Inc. ("Executive SERP").
(e) Executive shall be entitled to participate in, or receive
benefits under, any "employee benefit plan" (as defined in Section 3(3) of
ERISA) or employee benefit arrangement made generally available by the Company
to its executive officers, including plans providing retirement, 401(k)
benefits, deferred compensation, health care (including executive medical), life
insurance, disability and similar benefits.
(f) The Company will reimburse Executive for membership dues and
assessments at recreational and social clubs if submitted to and approved by the
Chief Executive Officer of the Company. Executive will be provided an automobile
in accordance with the Company's automobile policy for
<PAGE> 6
6
Executives, and the Company will pay all insurance, maintenance, fuel, oil and
related operational expenses for such automobile. Executive will receive four
weeks vacation during the Term. Executive will be provided an annual physical
examination and a financial/tax consultant for personal financial and tax
planning. Executive will be promptly reimbursed by the Company for all
reasonable business expenses he incurs in carrying out his duties and
responsibilities under this Agreement.
(g) Executive shall continue to participate in the Company's
Executive Life Insurance Program, which will provide a benefit equal to
$250,000. This insurance will be paid-up on the date Executive attains 65 and
will be delivered to Executive as a paid-up insurance policy upon his retirement
from the Company at or after age 65. The life insurance provided to Executive
under the Executive Life Insurance Program shall be in addition to any life
insurance he receives under the Company's group term policy under subsection (e)
above.
(h) Executive will be paid a tax gross-up amount by the Company to
cover any additional federal or state income taxes he incurs as a result of
being required to include in taxable income the amount of the premiums or costs
for the insurance described in subsection (g) above.
<PAGE> 7
7
4. Confidentiality and Noncompetition.
(a) Executive acknowledges that, prior to and during the Term of
this Agreement, the Company has furnished and will furnish to Executive
Confidential Information which could be used by Executive on behalf of a
competitor of the Company to the Company's substantial detriment. Moreover, the
parties recognize that Executive during the course of his employment with the
Company may develop important relationships with customers and others having
valuable business relationships with the Company. In view of the foregoing,
Executive acknowledges and agrees that the restrictive covenants contained in
this Section are reasonably necessary to protect the Company's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the Company's
Confidential Information and shall not disclose to any Person, or otherwise use,
except in connection with his duties performed in accordance with this
Agreement, any Confidential Information at any time, including following the
termination of his employment with the Company for any reason; provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or administrative agency of competent jurisdiction,
in which event Executive will promptly notify the Company of such order or
subpoena to provide the Company an opportunity to protect its interests.
Executive's obligations under this Section 4(b) shall survive any expiration or
termination of this Agreement for any reason, provided that Executive may after
such expiration or termination disclose Confidential Information with the prior
written consent of the Board.
(c) Upon the termination or expiration of his employment hereunder,
Executive agrees to deliver promptly to the Company all Company
<PAGE> 8
8
files, customer lists, management reports, memoranda, research, Company forms,
financial data and reports and other documents supplied to or created by him in
connection with his employment hereunder (including all copies of the foregoing)
in his possession or control, and all of the Company's equipment and other
materials in his possession or control. Executive's obligations under this
Section 4(c) shall survive any expiration or termination of this Agreement.
(d) Upon the termination or expiration of his employment under this
Agreement, Executive agrees that for a period of one (1) year from his date of
termination or until the end of the period for which he is entitled to receive
compensation under Section 5.1(a) below, whichever is longer, he shall not (i)
enter into or engage in the design, manufacture, marketing or sale of any
products similar to those produced or offered by the Company or its affiliates
in the area of North America, either as an individual, partner or joint
venturer, or as an employee, agent or salesman, or as an officer, director, or
shareholder of a corporation, (ii) divert or attempt to divert any person,
concern or entity which is furnished products or services by the Company from
doing business with the Company or otherwise change its relationship with the
Company, or (iii) solicit, lure or attempt to hire away any of the employees of
the Company with whom the Executive interacted directly or indirectly while
employed with the Company.
(e) Executive acknowledges that if he breaches or threatens to
breach this Section 4, his actions may cause irreparable harm and damage to the
Company which could not be compensated in damages. Accordingly, if Executive
breaches or threatens to breach this Section 4, the Company shall be entitled to
seek injunctive relief, in addition to any other rights or remedies of the
Company. The existence of any claim or cause of action by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not
<PAGE> 9
9
constitute a defense to the enforcement by the Company of Executive's agreement
under this Section 4(e).
5. Termination.
5.1 By Executive. Executive shall have the right to terminate his
employment hereunder at any time by Notice of Termination (as described in
Section 7). If Executive terminates his employment because (i) the Company has
materially breached this Agreement, and such breach has not been cured within
thirty (30) days after written notice of such breach is given by Executive to
the Company; or (ii) Executive has determined that his termination is for Good
Reason (as defined in Section 6.7), Executive shall be entitled to receive the
compensation and benefits set forth in subsections (a) through (i) below. If
Executive terminates his employment other than pursuant to clauses (i) or (ii)
of this Section 5.1, the Company's obligations under this Agreement shall cease
as of the date of such termination. Unless specified otherwise, the time periods
in (a) through (i) below shall be twenty-four (24) months commencing on the date
of Executive's termination ("Severance Period"). The Company agrees that if
Executive terminates employment and is entitled to compensation and benefits
under this Section 5.1, he shall not be required to mitigate damages by seeking
other employment, nor shall any amount he earns reduce the amount payable by the
Company hereunder.
(a) Base Salary - Executive will continue to receive his Base Salary
as then in effect (subject to withholding of all applicable taxes) for the
Severance Period in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later than 30 days
after his termination of employment; provided, further, that the amount of such
<PAGE> 10
10
lump sum payment shall be determined by taking the salary payments to be made
and discounting them to their Present Value (as defined in Section 6.9) on the
date Executive's employment under this Agreement is terminated.
(b) Bonuses and Incentives - Executive shall receive bonus payments
from the Company for each month of the Severance Period in an amount for each
such month equal to one-twelfth of the average of the bonuses earned by him for
the two fiscal years in which bonuses were paid immediately preceding the year
in which such termination occurs. Any bonus amounts that Executive had
previously earned from the Company but which may not yet have been paid as of
the date of termination shall be payable on the date such amounts are payable to
other executives and Executive's termination shall not affect the payment of
such bonus. Executive shall also receive a prorated bonus for any uncompleted
fiscal year at the date of termination (assuming the Target Award level has been
achieved), based upon the number of days that he was employed during such fiscal
year. The bonus amounts determined herein shall be paid in a single lump sum
payment, to be paid not later than 30 days after termination of employment;
provided, that the amount of such lump sum payment representing the monthly
bonus payments shall be determined by taking the monthly bonus payments to be
made and discounting them to their Present Value on the date Executive's
employment under this Agreement is terminated.
(c) Health and Life Insurance Coverage - The health (including
executive medical) and group term life insurance benefits coverage provided to
Executive at his date of termination shall be continued for the Severance Period
at the same level and in the same manner as then provided to actively employed
executive participants as if his employment under this Agreement had not
<PAGE> 11
11
terminated. Any additional coverages Executive had at termination, including
dependent coverage, will also be continued for such period on the same terms, to
the extent permitted by the applicable policies or contracts. Any costs
Executive was paying for such coverages at the time of termination shall be paid
by Executive by separate check payable to the Company each month in advance. If
the terms of any benefit plan referred to in this Section, or the laws
applicable to such plan, do not permit continued participation by Executive,
then the Company will arrange for other coverage at its expense providing
substantially similar benefits (including the same deductible and co-payment
levels provided under the Company's policy).
(d) Employee Retirement Plans - To the extent permitted by the
applicable plan, Executive will be entitled to continue to participate,
consistent with past practices, in all employee retirement and deferred
compensation plans maintained by the Company in effect as of his date of
termination, including, to the extent such plans are still maintained by the
Company, the Blount Retirement Plan, the Blount 401(k) Plan, the Blount Excess
401(k) Plan, the Individual SERP, the SERP and the Executive SERP. Executive's
participation in such retirement plans shall continue for the Severance Period
and the compensation payable to Executive under (a) and (b) above shall be
treated (unless otherwise excluded) as compensation under the plan as if it were
paid on a monthly basis. For purposes of the Blount 401(k) Plan and the Blount
Excess 401(k) Plan, he will receive an amount equal to the Company's
contributions to the plan, assuming Executive had participated in such plan at
the maximum permissible contributions level. If continued participation in any
plan is not permitted by the plan or by applicable law, the Company shall pay to
Executive or, if applicable, his beneficiary a supplemental benefit equal to the
present value on the date of
<PAGE> 12
12
termination of employment under this Agreement (calculated as provided in the
plan) of the excess of (i) the benefit Executive would have been paid under such
plan if he had continued to be covered for the Severance Period (less any
amounts Executive would have been required to contribute), over (ii) the benefit
actually payable under such plan. The Company shall pay the Present Value of
such additional benefits (if any) in a lump sum within 30 days of his
termination of employment.
(e) Effect of Lump Sum Payment. The lump sum payment under (a) or
(b) above shall not alter the amounts Executive is entitled to receive under the
benefit plans described in this section. Benefits under such plans shall be
determined as if Executive had remained employed and received such payments over
the Severance Period.
(f) Individual SERP, SERP and Executive SERP. On his date of
termination, Executive shall be treated for purposes of determining his benefit
under the Individual SERP, the SERP and Executive SERP as if he had earned
additional years of benefit service equal to the length of the Severance Period
and had attained the age he would be at the end of the Severance Period.
(g) Executive Life Insurance Program. During the Severance Period,
the Company will continue to pay the premiums on Executive's policy under the
Executive Life Insurance Program.
(h) Stock Options. As of his date of termination, all of the Time
Options and the Performance Options, and any other outstanding stock options
granted to Executive by the Company, shall become vested and exercisable as
provided in the Term Sheet.
(i) Office Space; Secretarial. Executive will be provided
appropriate office space, his then current administrative assistant (such
assistant
<PAGE> 13
13
shall be paid or provided similar compensation and benefits to that being
provided at the time Executive terminates employment), and reasonable expenses
related thereto for a period of twelve (12) months from Executive's date of
termination.
5.2 By Company. The Company shall have the right to terminate
Executive's employment under this Agreement at any time during the Term by
Notice of Termination (as described in Section 7). If the Company terminates
Executive's employment under this Agreement (i) for Cause, as defined in Section
6.2, (ii) if Executive becomes Disabled, or (iii) upon Executive's death, the
Company's obligations under this Agreement shall cease as of the date of
termination; provided, however, that Executive will be entitled to whatever
benefits are payable pursuant to the terms of any health, life insurance,
disability, welfare, retirement or other plan or program maintained by the
Company. If the Company terminates Executive during the Term of this Agreement
other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive
shall be entitled to receive the compensation and benefits provided in
subsections (a) through (i) of Section 5.1 above for the Severance Period, and
subject to the provisions (including the nonmitigation provision) and
limitations therein.
5.3 Limitation on Benefits Upon Termination.
(a) Notwithstanding anything in this Agreement to the contrary, any
benefits payable or to be provided to Executive by the Company or its
affiliates, whether pursuant to this Agreement or otherwise, which are treated
as Severance Payments shall be modified or reduced in the manner provided in (b)
below to the extent necessary so that the benefits payable or to be provided to
Executive under this Agreement that are treated as Severance Payments, as
<PAGE> 14
14
well as any payments or benefits provided outside of this Agreement that are so
treated, shall not cause the Company to have paid an Excess Severance Payment.
In computing such amount, the parties shall take into account all provisions of
Code Section 280G, and the regulations thereunder, including making appropriate
adjustments to such calculation for amounts established to be Reasonable
Compensation. If Executive becomes entitled to compensation and benefits under
Section 5.1 or section 5.2 and such payments are considered to be Severance
Payments contingent upon a Change in Control, Executive shall be required to
mitigate damages (but only with respect to amounts that would be treated as
Severance Payments) by reducing the amount of Severance Payments he is entitled
to receive by any compensation and benefits he earns from subsequent employment
(but shall not be required to seek such employment) during the 24-month period
after termination (or such lesser period as he is entitled to extended
benefits).
(b) In the event that the amount of any Severance Payments which
would be payable to or for the benefit of Executive under this Agreement must be
modified or reduced to comply with this Section 5.3, Executive shall direct
which Severance Payments are to be modified or reduced; provided, however, that
no increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Company.
(c) This Section 5.3 shall be interpreted so as to avoid the
imposition of excise taxes on Executive under Section 4999 of the Code or the
disallowance of a deduction to the Company pursuant to Section 280G(a) of the
Code with respect to amounts payable under this Agreement or otherwise.
Notwithstanding the foregoing, in no event will any of the provisions of this
Section 5.3 create, without the consent of Executive, an obligation on the part
of
<PAGE> 15
15
Executive to refund any amount to the Company following payment of such amount.
(d) In addition to the limits otherwise provided in this Section
5.3, to the extent permitted by law, Executive may in his sole discretion elect
to reduce any payments he may be eligible to receive under this Agreement to
prevent the imposition of excise taxes on Executive under Section 4999 of the
Code.
(e) For purposes of this Section 5.3, the following definitions
shall apply:
(i) "Excess Severance Payment" - The term "Excess Severance
Payment" shall have the same meaning as the term "excess parachute payment"
defined in Section 280G(b)(1) of the Code.
(ii) "Severance Payment" - The term "Severance Payment" shall
have the same meaning as the term "parachute payment" defined in Section
280G(b)(2) of the Code.
(iii) "Reasonable Compensation" - The term "Reasonable
Compensation" shall have the same meaning as provided in Section 280G(b)(4) of
the Code. The parties acknowledge and agree that, in the absence of a change in
existing legal authorities or the issuance of contrary authorities, amounts
received by Executive as damages under or as a result of a breach of this
Agreement shall be considered Reasonable Compensation.
(iv) "Present Value" - The term "Present Value" shall have the
same meaning as provided in Section 480G(d)(4) of the Code.
6. Definitions. For purposes of this Agreement the following terms shall
have the meanings specified below:
<PAGE> 16
16
6.1 "Board" or "Board of Directors". The Board of Directors of the
Company.
6.2 "Cause". The involuntary termination of Executive by the Company for
the following reasons shall constitute a termination for Cause:
(a) If the termination shall have been the result of an act or acts
by Executive which have been found in an applicable court of law to constitute a
felony (other than traffic-related offenses);
(b) If the termination shall have been the result of an act or acts
by Executive which are in the good faith judgment of the Board to be in
violation of law or of policies of the Company and which result in demonstrably
material injury to the Company;
(c) If the termination shall have been the result of an act or acts
of proven dishonesty by Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or
(d) Upon the willful and continued failure by the Executive
substantially to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness not
constituting a Disability, as defined herein), after a demand in writing for
substantial performance is delivered by the Board, which demand specifically
identifies the manner in which the Board believes that Executive has not
substantially performed his duties.
With respect to clauses (b), (c) or (d) above of this Section, Executive
shall not be deemed to have been involuntarily terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of
<PAGE> 17
17
the Board at a meeting of the Board (after reasonable notice to Executive and an
opportunity for him, together with his counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in clauses (b), (c) or (d) and specifying the
particulars thereof in detail. For purposes of this Agreement, no act or failure
to act by Executive shall be deemed to be "willful" unless done or omitted to be
done by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interests of the Company.
6.3 "Change in Control". Either
(a) the acquisition, directly or indirectly, by any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than LB MBP II or any of its affiliates, of securities
of the Company representing an aggregate of more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities (excluding
the acquisition by persons who own such amount of securities on the date hereof,
or acquisitions by persons who acquire such amount through inheritance), or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period; or
(c) consummation of (i) a merger, consolidation or other business
combination of the Company with any other "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or
affiliate thereof, other than a merger, consolidation or business
<PAGE> 18
18
combination which would result in the outstanding common stock of the Company
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into common stock of the surviving entity or a
parent or affiliate thereof) more than fifty percent (50%) of the outstanding
common stock of the Company, or such surviving entity or parent or affiliate
thereof, outstanding immediately after such merger, consolidation or business
combination, or (ii) a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company of all or substantially all of Company's
assets;
(d) a Public Offering as defined in the Term Sheet; or
(e) a sale of more than 50% of the assets of the Company;
provided that none of the events described in clauses (b) through (e) shall be
deemed a Change in Control if, immediately following such event, LB MBP II and
its affiliates own 50% or more of the combined voting power of the Company's
then outstanding securities.
6.4 "Code". The Internal Revenue Code of 1986, as it may be amended from
time to time.
6.5 "Confidential Information". All technical, business, and other
information relating to the business of the Company or its subsidiaries or
affiliates, including, without limitation, technical or nontechnical data,
formulae, compilations, programs, devices, methods, techniques, processes,
financial data, financial plans, product plans, and lists of actual or potential
customers or suppliers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality. Such
information and
<PAGE> 19
19
compilations of information shall be contractually subject to protection under
this Agreement whether or not such information constitutes a trade secret and is
separately protectable at law or in equity as a trade secret. Confidential
Information does not include confidential business information which does not
constitute a trade secret under applicable law two years after any expiration or
termination of this Agreement.
6.6 "Disability" or "Disabled". Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Company on a full-time basis for a period of six (6) months.
6.7 "Good Reason". A "Good Reason" for termination by Executive of
Executive's employment shall mean the occurrence during the Term (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, and such act or failure to act has
not been corrected within thirty (30) days after written notice of such act or
failure to act is given by Executive to the Company:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as the Group President of the Industrial and Power Equipment
Group, or a substantial adverse alteration in the nature or status of the
Executive's responsibilities from those on the date hereof;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of Executive without his consent to a location
more than fifty (50) miles from his principal office on the date hereof or
requiring Executive to be based anywhere other than the Executive's principal
office on the date hereof, except for reasonably required travel on the
Company's business;
<PAGE> 20
20
(iv) the failure by the Company, without Executive's consent, to pay
to Executive any portion of Executive's current compensation (including Base
Salary and bonus), or to pay to the Executive any other compensation within
seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates on the date hereof, which is
material to Executive's total compensation, including but not limited to the
Company's Executive Management Target Incentive Plan, any long-term incentive
plan, the Individual SERP, the SERP and the Executive SERP, or any substitute
plans, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation in such plan (or in such
substitute or alternative plan) on a basis not materially less favorable in
terms of the amount of benefits provided;
(vi) the failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by Executive on the date
hereof under any of the Company's pension, life insurance (including the
Executive Life Insurance Program), medical, health and accident or disability
plans, the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive on the date hereof, or the failure
by the Company to provide Executive with the number of paid vacation days to
which the Executive is entitled under this Agreement; or
(vii) any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
<PAGE> 21
21
Section 7.1 (for purposes of this Agreement, no such purported termination shall
be effective).
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
6.8 "Person". Any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6.9 "Present Value". The term "Present Value" on any particular date shall
have the same meaning as provided in Section 280G(d)(4) of the Code.
7. Termination Procedures.
7.1 Notice of Termination. During the Term of this Agreement, any
purported termination of Executive's employment (other than by reason of death)
shall be communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 11. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include the
information set forth in Section 6.2.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment during the Term of this
Agreement, shall mean (i) if Executive's employment is terminated by his death,
<PAGE> 22
22
the date of his death, (ii) if Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the full-time performance of Executive's
duties during such thirty (30) day period), and (iii) if Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided, however, that the "Date of Termination" for
purposes of this Agreement shall not be the last day of the Company's fiscal
year and, in the event the last day of the fiscal year is designated as the
"Date of Termination", the "Date of Termination" for purposes hereof shall
automatically be the first day of the next following fiscal year.
8. Contract Non-Assignable. The parties acknowledge that this Agreement
has been entered into due to, among other things, the special skills of
Executive, and agree that this Agreement may not be assigned or transferred by
Executive, in whole or in part, without the prior written consent of the
Company.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to, or transferor of, the Company, the Company will require any successor to, or
transferor of, all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, reorganization,
liquidation, consolidation or otherwise) to expressly assume and agree to
perform this Agreement, in the same manner and to the same extent that the
<PAGE> 23
23
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees and by the Company's
successors and assigns. If Executive shall die while any amount would still be
payable to Executive hereunder (other than amounts which, by their terms,
terminate upon the death of Executive) if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of Executive's estate.
10. Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to the Company.
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
<PAGE> 24
24
To the Company: Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
ATTN: _________________________
With a copy to: Richard H. Irving, III
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
To the Executive: Donald B. Zorn
22110 Wagon Wheel Trail
Lakeville, Minnesota 55044
With a copy to: Kilpatrick Stockton LLP
ATTN: William J. Vesely, Jr.
Suite 2800
1100 Peachtree Street
Atlanta, GA 303099-4530
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Waiver. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
<PAGE> 25
25
14. Indemnification. During the term of this Agreement and after
Executive's termination for the period of time set forth in Section 6.7 of the
Recapitalization Agreement, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or other affiliates or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
Company's request, in each case to the maximum extent permitted by law and under
the Company's Articles of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection afforded to Executive hereunder
be less than that afforded under the Governing Documents as in effect on the
date of this Agreement except from changes mandated by law. During the Term and
for the period of time set forth in Section 6.7 of the Recapitalization
Agreement, Executive shall be covered by any policy of directors and officers
liability insurance maintained by the Company for the benefit of its officers
and directors.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
16. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
17. Arbitration of Disputes; Expenses. All claims by Executive for
compensation and benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity
<PAGE> 26
26
to Executive for a review of a decision denying a claim and shall further allow
Executive to appeal to the Board a decision of the Board within sixty (60) days
after notification by the Board that Executive's claim has been denied. To the
extent permitted by applicable law, any further dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Atlanta, Georgia, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. In the event the Executive
incurs legal fees and other expenses in seeking to obtain or to enforce any
rights or benefits provided by this Agreement and is successful, in whole or in
part, in obtaining or enforcing any material rights or benefits through
settlement, arbitration or otherwise, the Company shall promptly pay Executive's
reasonable legal fees and expenses incurred in enforcing this Agreement and the
fees of the arbitrator. Except to the extent provided in the preceding sentence,
each party shall pay its own legal fees and other expenses associated with any
dispute.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
EXECUTIVE:
/s/ DONALD B. ZORN
_________________________________
DONALD B. ZORN
COMPANY:
By: /s/ BLOUNT INTERNATIONAL, INC.
______________________________
BLOUNT INTERNATIONAL, INC.
<PAGE> 27
SCHEDULE A to
Employment Agreement
PUT AND CALL RIGHTS OF THE
EXECUTIVE AND THE COMPANY
Capitalized terms which are used in this Schedule A and which are not
otherwise defined shall have the meanings ascribed to such terms in the
Agreement to which this Schedule is attached and of which it forms a part,
except where specifically noted that any such term has the meaning ascribed to
such term in the Employee Shareholders Agreement being entered into by and among
the Company, Lehman Brothers Merchant Banking Partners II L.P. ("LB MBP II"),
the Executive and other executives and key employees of the Company (a term
sheet for which is attached hereto).
A. Triggering Events
1. Termination by the Company for Cause; Voluntary Termination without
Good Reason. If, during the Term, the Executive's employment is either (x)
involuntarily terminated by the Company for Cause or (y) terminated by the
Executive without Good Reason:
(a) All shares of Company common stock ("Common Stock") purchased by the
Executive pursuant to the exercise of stock options ("Options") granted to the
Executive ("Option Shares") may be called by the Company at the lesser of (x)
the purchase price paid by the Executive therefor (the "Exercise Price") and (y)
Fair Market Value (as defined in Section D hereof).
(b) All Options then held by the Executive shall be forfeited, without any
consideration being paid therefor by the Company, as of the Executive's date of
termination of employment with the Company ("Termination Date").
(c) All shares of Common Stock owned by the Executive, other than Option
Shares ("Purchased Shares"), may be called by the Company at Fair Market Value.
(d) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of employment.
2. Termination by the Company Without Cause; Termination by the Executive
with Good Reason; Retirement. If, during the Term, the Executive's employment
with the Company is either (x) involuntarily terminated by the Company without
Cause, (y) terminated by the Executive for Good Reason or (z) terminated as a
result of the Executive's Retirement (as defined in the Employee Shareholders
Agreement) from employment with the Company at or after attainment of age 65 (or
such earlier retirement age as permitted under any agreement entered into after
Effective Time (as defined in the Employment Agreement) between the Company and
the Executive or if the Board shall consent thereto in writing):
(a) All Option Shares held for at least six months by the Executive may be
called by the Company at Fair Market Value.
<PAGE> 28
2
(b) All Purchased Shares held for at least six months by the Executive may
be called at Fair Market Value.
(c) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of employment.
(d) Except as provided under clauses (a) and (b) above, the Company shall
have no right to call Options, Option Shares or Purchased Shares upon a
termination of employment covered by this Section 2.
Notwithstanding the foregoing, if the Executive elects, he may override the
calls made pursuant to paragraphs (a) or (b) above and retain all or any portion
of his Option Shares and Purchased Shares by giving the Company written notice
of such override within 30 days of his receipt of the call notice.
3. Termination due to Death or Disability. If, during the Term, the
Executive's employment is terminated due to his death or Disability, the
Executive (or his legal representative or the legal representative of his
estate, if applicable) may put all Options, Option Shares and Purchased Shares
to the Company or the Company may call such Options, Option Shares and Purchased
Shares, in each case at Fair Market Value (in the case of Options, net of the
Exercise Price); provided, however, that if the Executive elects, he may
override such call and retain all or any portion of his Options, Option Shares
and Purchased Shares by providing the Company with a written notice of such
override within 30 days of his receipt of the Company's call notice.
[4. Sale of a Company Division. If the Company shall sell the business
division in which the Executive is principally employed (a "Sale"), the Company
may call the Executive's Options, Option Shares and Purchased Shares at Fair
Market Value; provided, however, that if the Executive elects, he may override
such call by the Company and retain all or any portion of his Options, Option
Shares and Purchased Shares by providing the Company with a written notice of
such override within 30 days of his receipt of the Company's call notice. The
Executive shall have no right to put his Options, Option Shares or Purchased
Shares to the Company as a result of such a Sale.](1)
B. Notice of Puts and Calls; Exercise Rights.
1. If the Company intends to call any or all of the Executive's Options,
Option Shares or Purchased Shares as provided herein, it will provide prior
written notice to the Executive (or the Executive's legal representative or the
legal representative of the Executive's estate, as applicable), such notice to
include the Fair Market Value of the Options, Option Shares or Purchased
Shares, as the case may be, and to be given no later than 75 days after the
- --------
(1) Include only for employees employed in any of the three business
divisions.
<PAGE> 29
3
Executive's Termination Date [or Sale (as applicable)](2). If the Executive (or
the Executive's legal representative or the legal representative of his estate,
as applicable) is entitled to put any or all of his Options, Option Shares or
Purchased Shares, notice of such intent must be given by the Executive no later
than 90 days after the Company gives notice that it will not exercise its call.
2. Neither the Executive nor the Company shall have any put or call rights
following a Public Offering (as such term is defined in the Employee
Shareholders Agreement).
3. Any exercise of put or call rights may be for all or a portion of the
Options, Option Shares and Purchased Shares subject thereto, as determined in
the sole discretion of the holder of such rights.
C. Limitation on Put and Call Rights. Notwithstanding anything in this Schedule
A to the contrary, the Company shall not be required to purchase any Options,
Option Shares or Purchased Shares (whether through the exercise of a put or a
call) if such purchase would be, or would result in, a violation of the terms of
its then existing debt agreements or any applicable law or regulation. In
addition, no such put or call will occur if, in the reasonable discretion of the
Board, such purchase would be reasonably likely to (i) impair the Company's
available cash, (ii) require unsuitable additional debt to be incurred by the
Company or (iii) result in any other adverse economic or financial condition, in
each case only to the extent that any such event described in clauses (i), (ii)
or (iii), individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on the financial condition of the
Company.
D. Fair Market Value. For purposes hereof, the term "Fair Market Value" shall
mean, in respect of each share of Common Stock:
(i) To the extent the call or put, as the case may be, occurs concurrently
with or within 30 days of a Public Offering, the offering price to the
public per share of common stock of such Public Offering;
(ii) To the extent the call or put, as the case may be, occurs concurrently
with or within 30 days of a Change of Control, the value of the Company's
total equity, as determined based upon the price per share paid in
connection with such Change of Control, divided by the total number of
shares of Common Stock then outstanding;
(iii) To the extent clauses (i) and (ii) do not apply and a regular trading
market for the Company's common stock exists following a Public Offering,
the average closing price of such common stock for 10 consecutive trading
days ending on the trading day immediately prior to such call or put; and
(iv) At all other times, the fair market value of the Company's total equity,
as determined by the Board in good faith divided by the total number of
- --------
(2) Include bracketed language only for division employees.
<PAGE> 30
shares of Common Stock then outstanding; provided, however, that if the
Executive disputes the Board's determination, within 10 days of the
Executive's receipt of notice of the Board's determination, the Executive
and the Board shall jointly select a qualified independent financial
advisor to make such determination, which determination shall be final and
binding upon the parties, provided, further, that the fees and costs of
such financial advisor in connection with its determination shall be borne
equally by the Company and the Executive unless such financial advisor's
fair market value determination is 10% or more greater than the Board's
determination, in which case such fees and costs shall be borne entirely
by the Company.
<PAGE> 31
EXHIBIT A to
Employment Agreement
SUMMARY OF TERMS
EMPLOYEE SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of agreements ancillary to
the Employment Agreement (the "Employment Agreement") to which this Summary of
Terms is attached and of which it forms a part, including the Employee
Shareholders Agreement and the related Option Agreements. Capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the
Employment Agreement.
EQUITY OWNERSHIP
FOLLOWING
RECAPITALIZATION
Purchased Shares After the closing contemplated by the Recapitalization
Agreement, no less than $15.0 million of the fully
diluted equity of the Company will be purchased by the
top 21 executives and key employees (the "Managers") and
approximately 20 other management employees at a
purchase price equal to the price per share of Company
common stock paid in connection with the
recapitalization, which is $30.00 per share (the
"Purchased Shares").
OPTION AGREEMENT
Stock Options As soon as practicable after the closing of the
recapitalization, the Company shall grant the Managers
nonqualified options (the "Options") exercisable for
common stock to purchase an aggregate of 8.0% of the
Company's initial fully-diluted common stock. One-half
of such Options shall be granted as "Time Options";
one-half of such Options shall be granted as
"Performance Options", which will be earned upon
achievement of the "Management Case" performance as
described below.
The Company shall reserve for possible future issuance
to Managers and other executives options to purchase an
aggregate of 100,000 shares of the Company's common
stock at times and on terms to be determined by the
Compensation Committee of the Board of Directors.
<PAGE> 32
2
Except as otherwise provided herein, the terms of the
option plans and agreements governing the Options shall
be substantially similar to the Company's 1998 Option
Plan.
- --Option Term The option term of the Options shall be 10 years from
the Effective Time (as defined in the Recapitalization
Agreement) and 10 years after the grant with respect to
options subsequently granted; provided, however, that
exercisable options shall expire earlier upon
termination of employment as follows:
Termination for Cause/Voluntary Termination by Executive
Without Good Reason: Immediately upon termination of
employment.
Termination Without Cause/ Termination by Executive with
Good Reason/Death/Disability/Sale of Division: One year
after termination of employment.
Retirement: At the end of the option term.
Unexercisable Options will terminate upon termination of
employment, unless acceleration in connection with such
termination is explicitly provided for.
Upon a Change-in-Control, the Compensation Committee may
terminate the Options, so long as the Executives are
cashed out of, or are permitted to exercise, their
exercisable Options prior to the Change-in-Control.
- --Option Exercise Options shall be granted at an exercise price equal to
Price the price per share of Company common stock paid in
connection with the recapitalization, which is $30.00
per Share.
- --Dilution of Options Option holders shall be subject to the same dilution as
the common stockholders.
- --Reallocation Shares subject to Options that are forfeited may be
reallocated to other employees as determined by the
Compensation Committee in its sole discretion.
Transfer Options may be transferred to Permitted Transferees (as
defined below) so long as
<PAGE> 33
3
such Permitted Transferee agrees to be bound by the
terms of all applicable agreements.
Vesting of Equity Rights
- --Normal Vesting of Except as provided in the next paragraph, Time Options
Time Options shall become exercisable with respect to 20% of the
shares subject to such Options on each of the first five
anniversaries of the Effective Time as and when the
Executive's employment continues through and including
the date of each such anniversary. Time Options shall
expire and no longer be exercisable as provided under
the "Option Term" section herein, but all Time Options
shall accelerate and become fully exercisable as
provided under the "Accelerated Vesting of Options"
section herein.
The Time Options for Executives who are age 61 or older
at the Effective Time shall vest with respect to 331/3%
of the shares subject to such Options on each of the
first three anniversaries of the Effective Time,
provided that the Executive's employment continues
through and including the date of each such anniversary;
and provided, further, that full vesting at Retirement
for such Executives shall only occur if Retirement
occurs three or more years after the Effective Time.
Nothing herein shall be construed as affecting any
liquidity rights or restrictions on transfer
specifically set forth herein.
- --Normal Vesting of Performance Options shall become exercisable at the end
Performance Options of six years, whether or not the EBITDA (as defined
below) targets are achieved, but become exercisable
earlier with respect to up to 20% of the shares subject
to the Performance Options, on each of the first five
anniversaries of the Effective Time, to the extent the
EBITDA for the fiscal year most recently completed (the
"Fiscal Year") equals or exceeds the EBITDA targets
(each, a "Target"), as set forth in Schedule A attached
hereto.
For executives who are age 61 or older at the Effective
Time, the applicable vesting percentage for Performance
Options shall be
<PAGE> 34
4
33 1/3% for each of the first three anniversaries of the
Effective Time, using the EBITDA Targets on Schedule A,
and 331/3% shall be substituted for 20% each place in
this section where 20% appears. Notwithstanding the
foregoing, Performance Options shall vest on the
following dates at the following minimum percentages (to
the extent not already vested) for such Executives if
Retirement occurs three or more years after the
Effective Time: (i) the date that is three years after
the Effective Time, 50% of the aggregate shares subject
to the Performance Options; (ii) the date that is four
years after the Effective Time, 66.70% of the aggregate
shares subject to the Performance Options; (iii) the
date that is five years after the Effective Time, 83.30%
of the aggregate shares subject to the Performance
Options and (iv) the date that is six years after the
Effective Time, 100% of the aggregate shares subject to
the Performance Options. Nothing herein shall be
construed as affecting any liquidity rights or
restrictions on transfer specifically set forth herein.
If the Company's EBITDA for a Fiscal Year is less than
100% of the Target for such Fiscal Year (a "Missed
Year"), such Performance Options shall become
exercisable with respect to a portion of the shares
subject to Performance Options in an amount equal to the
product of (a) 20% of the total number of shares subject
to Executive's Performance Options multiplied by (b) the
Applicable Percentage (as set forth in Schedule B
attached hereto).
If either all or a portion of the Executive's
Performance Options do not become exercisable in any
year pursuant to the above, the Executive may "catch-up"
if the Cumulative EBITDA Targets (as set forth in
Schedule A attached hereto) are satisfied. The amount
that would vest is equal to 40% if in year 2, 60% if in
year 3, 80% if in year 4 and 100% if in year 5, less the
number of Executive's Performance Options which had
previously vested.
Accelerated Vesting
of Options
<PAGE> 35
5
- --Time Options Unvested Time Options shall become fully exercisable
upon (i) death, (ii) disability, (iii) Change-in-Control
or (iv) Retirement (as defined below). In addition, upon
a Termination without Cause or a Termination by
Executive with Good Reason, Time Options shall become
fully exercisable in the event the Executive had been
employed by the Company for at least three years from
the date of the Effective Time.
- --Performance Options Performance Options shall become fully exercisable upon
a Change-in-Control if, and only if, (a) 100% or more of
the EBITDA Target has been achieved in each Fiscal Year
prior to such Change-in-Control or (b) 100% of the
Cumulative EBITDA Target has been achieved in the Fiscal
Year immediately preceding such Change-in-Control.
Except for the above and any other acceleration
occurring by reason of the attainment of the EBITDA
Targets, vesting of Performance Options shall not
accelerate for any reason. In addition, upon a
Termination without Cause or for a Termination by
Executive with Good Reason, Performance Options shall
become fully exercisable in the event the Executive had
been employed by the Company for at least three years
from the date of the Effective Time.
Adjustments In the event of any change in the outstanding Common
Stock by reason of a stock split, spin-off, stock
dividend, stock combination or reclassification,
recapitalization, consolidation or merger, or similar
event, the Compensation Committee shall adjust
appropriately the number of shares subject to Options
and make other revisions as it deems are equitably
required.
EMPLOYEE
SHAREHOLDERS
AGREEMENT
Transfer Restrictions Except as provided below, transfers of Purchased Shares
or shares purchased upon exercise of Options ("Option
Shares") will not be permitted prior to the fifth
anniversary of the Effective Time. Option Shares and
Purchased Shares may be transferred prior to the fifth
anniversary of the Effective Time (i) to a
<PAGE> 36
6
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements, (ii) pursuant to an exercise of
"Tag-Along" or "Drag-Along" Rights described below,
(iii) pursuant to an exercise of call or put rights set
forth in the Employment Agreement, (iv) pursuant to an
exercise of the registration rights described below or
(v) in connection with a Change-in-Control so long as
long as such transfers are on a pro rata basis with
transfers made by Lehman Brothers Merchant Banking
Partners II L.P. ("LB MBP II") in connection with such
Change-in-Control. Except as provided hereinabove or as
agreed to by the Compensation Committee, Options will be
nontransferable, but may be exercised after an
Optionholder's death by his or her designated
beneficiary or estate.
In addition to the transfer restrictions of the Employee
Stockholder Agreement, any sale of Purchased Shares or
Option Shares shall in all cases be completed in
compliance with applicable securities laws. The Company
will register all Option Shares on Form S-8 under the
Securities Act of 1933.
Right of First Refusal The Company shall have a right of first refusal on all
management equity rights (which rights the Company may
assign to LB MBP II) until the transfer restrictions
expire. Such right shall not apply to any transfer to a
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements.
Registration Rights Each Executive will have "piggy back" registration
rights if (i) the Company is registering shares of its
common stock under the Securities Act of 1933 for its
own account (subject to customary exceptions for
registrations related to exchange offers or benefit
plans), provided that such rights shall only be
available if LB MBP II is selling shares of common stock
for its own account in connection with such
registration, in each case on a pro rata basis with LB
MBP II or (ii) in any Public Offering in which shares
owned by LB MBP II are offered, on a pro rata basis.
<PAGE> 37
7
Beginning on the later of a Public Offering and the
fifth anniversary of the recapitalization, each
Executive will have "demand" registration rights,
subject to customary threshold provisions and black-out
provisions.
Tagalong/Dragalong In the event that LB MBP II or one of its affiliates is
transferring any shares of common stock of the Company
to a third party, it will give each Executive notice of
such proposed transfer, including the relevant terms
thereof. Within 30 days of receipt of such notice, each
Executive may elect to sell his Option Shares or
Purchased Shares to such third party on a pro rata basis
with LB MBP II. Notwithstanding the foregoing, the
"tag-along" rights shall not apply to any sale of LB MBP
II or its affiliates pursuant to a syndication of its
equity interest in the Company during the six month
period after the Effective Time, provided that the
aggregate amount of such sale does not exceed $100
million.
In the event the LB MBP II or one of its affiliates is
transferring shares of common stock of the Company to
any third party that has made an offer to purchase such
shares, LB MBP II will have the right to cause each
Executive to sell his Option Shares or Purchased Shares
to such third party on a pro rata basis.
DEFINITIONS
EBITDA "EBITDA" shall be defined in a manner consistent with
the Company's debt instruments entered into in
connection with the recapitalization contemplated by the
Recapitalization Agreement.
Permitted Transferees "Permitted Transferees" shall mean (i) each Executive's
heirs, executors, administrators, testamentary trustees,
legatees, beneficiaries or charitable remaindermen, (ii)
a trust the beneficiaries of which include only such
Executive, such Executive's spouse, lineal descendants
or any other member of the family of such Executive; or
(iii) any person if LB MBP II has given its prior
written consent to the applicable transfer.
<PAGE> 38
8
Public Offering "Public Offering" shall mean the sale of shares of any
class of the Company's stock to the public pursuant to
an effective registration statement (other than a
registration statement on Form S-4 or S-8 or any similar
or successor form) filed under the Securities Act of
1933 which results in an active trading market of 25% or
more of the outstanding shares of the Company's common
stock. There shall be deemed to be an "active trading
market" if the Company's common stock is listed or
quoted on a national exchange or the NASDAQ National
Market.
Retirement "Retirement" shall mean normal retirement under the
terms of any tax-qualified retirement plan of the
Company or retirement, which retirement occurs no
earlier than three years after the Effective Time,
except as permitted under any agreement between the
Company and the Executive to the extent such agreement
(i) by its terms currently provides that retirement is
to begin upon attainment of age 65 (even if earlier than
the third anniversary of the Effective Time) or provides
that retirement is to begin after age 64 (which occurs
three years after the Effective Time) or (ii) is entered
into after the Effective Time and permits the Executive
to retire prior to attainment of age 65 and the third
anniversary of the Effective Time. Except as provided in
the preceding sentence, any purported retirement prior
to the third anniversary of the Effective Time, shall be
treated the same as a voluntary termination.
Schedule A
EBITDA Targets
($ in millions)
<TABLE>
<CAPTION>
"Management Case" Cumulative
EBITDA Target* EBITDA Target*
-------------- --------------
<S> <C> <C>
1999 $166.2 $166.2
2000 $223.7 $389.9
2001 $246.3 $636.2
2002 $270.7 $906.9
2003 $295.9 $1,202.8
</TABLE>
<PAGE> 39
9
* Upon disposition or acquisition of any business or substantial portion of the
assets of the Company or another company, the EBITDA Targets for the year of
such disposition or such acquisition and each subsequent year shall be adjusted
to eliminate or include, as the case may be, the income and expense to the
business or assets that were subject to disposition or acquisition, but only to
the extent not already done so in connection with the calculation of EBITDA.
Such adjustments must be consented to by a majority of the non-management
directors of the Board of the Company. If such directors cannot so consent, the
adjustment proposal shall be submitted to the Company's independent auditors,
who can consult with the necessary consultants for binding resolution.
<PAGE> 40
Schedule B
Applicable Percentage
<TABLE>
<CAPTION>
Percentage of EBITDA
Target Achieved Applicable
(annual or cumulative) (Pct.) Percentage
- ----------------------------- ----------
<S> <C>
Less than 85 0.00
85 25.00
86 30.00
87 35.00
88 40.00
89 45.00
90 50.00
91 55.00
92 60.00
93 65.00
94 70.00
95 75.00
96 80.00
97 85.00
98 90.00
99 95.00
100 100.00
</TABLE>
<PAGE> 41
Exhibit B
BLOUNT INTERNATIONAL, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR DONALD B. ZORN
1. Purpose - The purpose of this Supplemental Executive Retirement Plan (the
"SERP") is to provide Donald B. Zorn (the "Executive") with a retirement
benefit payable as a supplement to his vested benefit under The Blount
Retirement Plan.
2. Definitions
a. Blount Plan is The Blount Retirement Plan, as in effect on January
19, 1994, including any future amendments or restatements adopted
and effective while Executive is an employee of the Company or its
affiliates.
b. Company shall mean Blount International, Inc. and its successors.
c. Disability shall mean periods of time during which
(i) Executive is totally and permanent disabled, and
(ii) Executive is receiving Social Security disability benefits.
d. Effective Date of this amendment and restatement of the SERP is
____________, 1999. The original effective date of this SERP was
January 19, 1994.
e. Excess Benefit Plan is the Blount, Inc. and Subsidiaries
Supplemental Retirement Benefit Plan, as in effect on January 19,
1994, including any future amendments or restatements adopted and
effective while Executive is an employee of the Company or its
affiliates.
f. Executive shall mean Donald B. Zorn.
g. Internal Revenue Code shall mean the Internal Revenue Code of 1986,
as amended and in effect at Executive's Termination Date.
h. Normal Retirement Date is May 24, 2001.
i. SERP is this Supplemental Executive Retirement Plan sponsored by the
Company for Executive.
j. Termination Date is the date on which the employment relationship
between Executive and the Company (including any "affiliated
company" as defined in the Blount Plan) ceases.
3. Years of Benefit Service shall mean the years of benefit service granted
to Executive under this SERP and the years of "Benefit Service" (as that
term is defined in the Blount Plan) granted to Executive under the Blount
Plan.
<PAGE> 42
Years of Benefit Service shall be determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years of Benefit Years of Benefit Total Years
Service under the Service under the of Benefit
Age Blount Plan SERP Service
- --- ----------- ---- -------
<S> <C> <C> <C> <C> <C>
58 1 + 1 = 2
59 2 + 2 = 4
60 3 + 3 = 6
61 4 + 4 = 8
62 5 + 5 = 10
63 6 + 6 = 12
64 7 + 7 = 14
65 8 + 8 = 16
</TABLE>
Years of Benefit Service under the SERP shall continue to accrue during any
period of Disability provided that Years of Benefit Service continue to accrue
under the Blount Plan.
4. Vested Retirement Benefits payable under this SERP shall equal (a) less
(b) where:
(f) is the monthly retirement income that would be payable to Executive
under the provisions of the Blount Plan, assuming
(i) that in determining the fraction for purposes of Section
6.1(a)(i) of the Blount Plan, the numerator shall be his total
Years of Benefit Service determined in accordance with
Paragraph 3 above, at his age when his employment terminates
and the denominator of which is 16;
(ii) that for purposes of Section 6.1(a)(ii)(A) and (B) of the
Blount Plan, the Years of Benefit Service he would accrue if
he continued to accrue Benefit Service to his Normal
Retirement Date would be 25;
(iii) that the Blount Plan does not contain the limitation on
compensation imposed by Section 401(a)(17) of the Internal
Revenue Code or the limitation on benefits imposed by Section
415 of the Internal Revenue Code;
and
(g) is the sum of (i), (ii), and (iii), where
(i) is the monthly retirement income actually payable to Executive
under the Blount Plan;
<PAGE> 43
(ii) is the monthly retirement income actually payable to Executive
under the Excess Benefit Plan; and
(iii) is the monthly retirement income actually paid to Executive
under any pension plan maintained by a former employer of
Executive.
Vested retirement benefits are payable on or after Executive's Termination Date
provided he has obtained a fully vested interest under the Blount Plan. No
benefits shall be payable under this SERP until Executive has obtained a fully
vested interest under the Blount Plan. No benefits are payable during continued
employment. The above benefit is on a life annuity basis. If an optional form of
benefit is desired, the benefit above will be adjusted by the actuarial factors
used by the Blount Plan. In determining benefits under this Paragraph, amounts
described in Paragraphs (b)(i), (b)(ii) and (b)(iii) above that are paid in a
form other than a straight life annuity shall be valued as a straight life
annuity using the actuarial factors used by the Blount Plan.
5. Executive shall receive the following benefits as defined in the Blount
Plan, which benefits shall be calculated on the basis of the benefit
formula set forth in Paragraph 4 above:
a. Benefits due to the pre-retirement death of Executive;
b. Normal and optional forms of payment under the Blount Plan provided
that, except as provided under Paragraph 5(d), the form of payment
under this SERP shall be the same as the form of payment elected by
Executive under the Blount Plan;
c. If Executive elects for payment of his vested retirement benefits to
commence prior to his Normal Retirement Date but after 10 Years of
Benefit Service as determined under Paragraph 3, his vested
retirement benefits will be reduced by .3% for each full month by
which the date his benefits begin precedes his Normal Retirement
Date.
d. Notwithstanding the above, if Executive's employment is terminated
within 24 months following a change in control (as such term is
defined in Executive's employment agreement) under circumstances
that would entitle him to benefits under his employment agreement
upon such termination, Executive may elect on such form and in such
manner as determined by the Board of Directors of the Company or if
appointed by the Board to administer the Plan, the Compensation
Committee of the Board of Directors, to receive his benefit in the
form of a single lump sum payment (regardless of the form of payment
elected by Executive under the Blount Plan and regardless of whether
a lump sum option is available under the Blount Plan). The lump sum
payment shall be actuarially equivalent to the present value of
Executive's benefit under the Plan expressed as a life annuity,
calculated using the same actuarial factors used by the Blount Plan.
The lump sum payment shall be made to Executive within 30 days of
the date he would otherwise have commenced receiving payments under
Paragraph 4 above.
<PAGE> 44
6. Successors and Assigns; Non-Alienation of Benefits - This Plan shall inure
to the benefit of and be binding upon the parties hereto and their
successors and assigns; provided, however, to the maximum extent permitted
by law, no benefit under this SERP shall be assignable or subject in any
manner to alienation, sale, transfer, claims of creditors, pledge,
attachment or encumbrances of any kind. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to substantially all of the business or assets
of the Company to expressly agree to assume the Plan and to perform the
obligations under this Plan in the same manner that the Company would be
required to perform them.
7. Administration - The Board of Directors of the Company or, at its
discretion, the Compensation Committee of the Board of Directors, shall
administer, construe, and interpret this Plan. No member of the Board of
Directors or the Committee, as the case may be, shall be liable for any
act done or determination made in good faith. The construction and
interpretation by the Board of Directors or the Committee of any provision
of this Plan shall be final and conclusive. The Board of Directors or the
Committee may, in its discretion, delegate its duties to an officer or
employee or committee composed of officers or employees of the Company.
8. Amendment or Termination - The Board of Directors and Executive may amend
this SERP from time to time in any respect with the consent of the other
party. This Plan may not be terminated without the consent of the Company
through its Board of Directors or its designated Committee or officer and
Executive.
9. Construction of the Plan - This SERP is unfunded. This SERP shall be so
construed that it will be maintained primarily for the purpose of
providing certain retirement, death and disability benefits for Executive.
This SERP and the rights and obligations of the parties thereunder, shall
be construed in accordance with applicable federal law and, to the extent
not preempted by federal law, in accordance with the laws of the State of
Alabama.
10. Denied Claims
a. If any application for payment of a benefit under the SERP shall be
denied, the Company shall:
(i) Notify Executive within a reasonable time of such denial setting
forth the specific reasons therefor; and
(ii) Afford Executive a reasonable opportunity for a full and fair review
of the decision denying the claim.
b. Notice of such denial shall set forth, in addition to the specific reasons
for the denial, the following:
(i) Reference to pertinent provisions of the SERP;
<PAGE> 45
(ii) Such additional information as may be relevant to denial of claim;
(iii) An explanation of the claims review procedure;
(iv) Advice that Executive may request the opportunity to review
pertinent plan documents and submit a statement of issues and
comments
c. Within 60 days following advice of denial of his claim, upon request made
by Executive for a review of such denial, the Company shall take
appropriate steps to review its decision in light of any further
information or comments submitted by Executive. The Company shall be
empowered to hold a hearing at which Executive shall be entitled to
present the basis of his claim for review and at which he may be
represented by counsel.
d. The Company shall render a decision within 60 days after Executive's
request for review (which may be extended to 120 days if circumstances so
require) and shall advise Executive in writing of its decision on such
review, specifying its reasons and identifying appropriate provisions of
the Plan.
Signed and agreed to this _______ day of _________________, 199____.
BLOUNT INTERNATIONAL, INC.
By:_____________________________________
Its:____________________________________
EXECUTIVE
________________________________________
Donald B. Zorn
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of
April, 1999, by and between BLOUNT INTERNATIONAL, INC., a Delaware corporation
(the "Company"), and GERALD W. BERSETT ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
agreement ("Prior Agreement") providing for Executive's employment by the
Company and specifying the terms and conditions of such employment; and
WHEREAS, the Company entered into an Agreement and Plan of Merger
and Recapitalization (the "Recapitalization Agreement") dated the date hereof
with Red Dog Acquisition Corp. ("Newco"), a wholly owned subsidiary of Lehman
Brothers Merchant Banking Partners II L.P. ("LB MBP II"); and
WHEREAS, pursuant to the Recapitalization Agreement, the Company
will be recapitalized through a merger with and into Newco, following which
substantially all of the outstanding capital stock of the Company will be held
by LB MBP II; and
WHEREAS, the Company desires to recognize Executive's superior
performance and continuing value to the Company and its shareholders by
modifying the Prior Agreement and restating such agreement in a single document
as hereinafter provided; and
WHEREAS, Executive desires to continue his employment with the
Company on the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereby agree as follows:
1. Purpose and Effectiveness.
(a) The purpose of this Agreement is to amend the Prior Agreement,
to recognize Executive's significant contributions to the overall financial
performance and success of the Company, and to provide a single, integrated
document which shall provide the basis for Executive's continued employment by
the Company;
<PAGE> 2
2
(b) This Agreement shall not be effective until the Effective Time
(as defined in the Recapitalization Agreement), and this Agreement shall
terminate immediately if the Recapitalization Agreement is terminated in
accordance with its terms prior to the Effective Time.
2. Employment and Term.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive, and Executive hereby accepts employment, as
Group President of the Sporting Equipment Group and shall have such
responsibilities, duties and authority that are consistent with such position as
may from time to time be assigned to Executive by the Board. Executive hereby
agrees that during the Term of this Agreement he will devote substantially all
his working time, attention and energies to the diligent performance of his
duties as Group President of the Sporting Equipment Group. With the consent of
the Board of Directors, the Executive may serve as a director on the boards of
directors or trustees of additional companies and organizations.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall be for a rolling, two year term (the
"Term") commencing on the Effective Time, and shall be deemed to automatically,
without further action by either the Company or Executive, extend each day for
an additional day, such that the remaining term of the Agreement shall continue
to be two years; provided, however, that (i) either party may, by written notice
to the other, cause this Agreement to cease to extend automatically and, upon
such notice, the "Term" of this Agreement shall be the two years following the
expiration of such Term, and (ii) the Term of this Agreement shall not extend
beyond the date Executive attains age 65, unless the parties otherwise agree in
writing. If no such notice to cease to extend has been given and this Agreement
is terminated pursuant to Section 5.1 or 5.2 hereof, for the purposes of
calculating and assessing the damages to Executive as a result of such
termination, the remaining Term of this Agreement shall be deemed to be two
years from the date of such termination (or, if earlier, the date Executive
attains age 65).
3. Compensation and Benefits. As compensation for his services during the
Term of this Agreement, Executive shall
<PAGE> 3
3
be paid and receive the amounts and benefits set forth in subsections (a)
through (f) below:
<PAGE> 4
4
(a) An annual base salary ("Base Salary") of Three Hundred Forty
Thousand and No/100 Dollars ($340,000.00), prorated for any partial year of
employment. Executive's Base Salary shall be subject to annual review for
increases at such time as the Company conducts salary reviews for its executive
officers generally. Executive's salary shall be payable in substantially equal
installments on a bi-monthly basis, or in accordance with the Company's regular
payroll practices in effect from time to time for executive officers of the
Company.
(b) Executive shall be eligible to participate in the Executive
Management Target Incentive Plan and such other annual incentive plans as may be
established by the Company from time to time for its executive officers. The
Board or a committee of the Board will establish performance goals each year
under the incentive plans, and Executive's annual Target Bonus shall be 50% of
Base Salary; the maximum award for exceeding the performance goals (which will
be determined in accordance with the current plan design) shall be 100% of Base
Salary. The annual incentive bonus payable under this subsection (b) shall be
payable as a lump sum at the same time bonuses are paid to other senior
executives after certification by the Compensation Committee of the Board, that
the applicable performance objectives have been met, unless Executive elects to
defer all or a portion of such amount pursuant to any deferral plan established
by the Company for such purpose.
(c) Promptly upon commencement of the Term, Executive shall make a
minimum investment in the equity ("Purchased Equity") of the Company of 100% of
the aggregate amount of the net proceeds remaining after all applicable taxes
have been paid, resulting from the cancellation of his outstanding stock options
in accordance with Section 2.2 of the Recapitalization Agreement. The Company
and Executive shall endeavor to structure such investment in the most tax and
accounting efficient manner reasonably possible under the relevant
circumstances. In respect of such investment, the Company will grant Executive
60,000 options to purchase shares of the Company's Common Stock that will vest
over time ("Time Options") and the Company will grant Executive
performance-based options for 60,000 shares of the Company's Common Stock
("Performance Options") (the Time Options and the Performance Options are
collectively referred to herein as "Options"). The terms and conditions of the
Time Options and the Performance Options shall be as set forth on the Summary of
Terms, attached hereto as Exhibit A (the "Term Sheet'), and the Company will
enter into separate Option Agreements with Executive covering the grant of such
Options. Executive will be eligible to participate in such
<PAGE> 5
5
other stock option programs as may be established from time to time by the
Company for its executive officers. Executive will participate in any long-term
incentive plans established by the Company for executive officers at his level.
The other terms and conditions applicable to the Purchased Equity
and the Options shall be as provided in the Term Sheet and the parties agree to
enter into an Employee Shareholders Agreement which will include the items
covered in the Term Sheet and contain such other customary terms and conditions
as are appropriate for such an agreement and are mutually agreeable to Executive
and Company (and to LB MBP II, where applicable). The Purchased Equity and the
Options will be subject to put and call rights and restrictions as set forth in
Schedule A.
(d) Executive shall continue to be (i) covered by a Supplemental
Executive Retirement Plan ("Individual SERP"), providing for the benefits set
forth in the amended and restated SERP Agreement attached hereto as Exhibit B,
and (ii) a participant in the Blount, Inc. and Subsidiaries Supplemental
Retirement Benefit Plan ("SERP").
(e) Executive shall be entitled to participate in, or receive
benefits under, any "employee benefit plan" (as defined in Section 3(3) of
ERISA) or employee benefit arrangement made generally available by the Company
to its executive officers, including plans providing retirement, 401(k)
benefits, deferred compensation, health care (including executive medical), life
insurance, disability and similar benefits.
(f) The Company will reimburse Executive for membership dues and
assessments at recreational and social clubs if submitted to and approved by the
Chief Executive Officer of the Company. Executive will be provided an automobile
in accordance with the Company's automobile policy for Executives, and the
Company will pay all insurance, maintenance, fuel, oil and related operational
expenses for such automobile. Executive will receive four weeks vacation during
the Term. Executive will be provided an annual physical examination and a
financial/tax consultant for personal financial and tax planning. Executive will
be promptly reimbursed by the Company for all reasonable business expenses he
incurs in carrying out his duties and responsibilities under this Agreement.
<PAGE> 6
6
4. Confidentiality and Noncompetition.
<PAGE> 7
7
(a) Executive acknowledges that, prior to and during the Term of
this Agreement, the Company has furnished and will furnish to Executive
Confidential Information which could be used by Executive on behalf of a
competitor of the Company to the Company's substantial detriment. Moreover, the
parties recognize that Executive during the course of his employment with the
Company may develop important relationships with customers and others having
valuable business relationships with the Company. In view of the foregoing,
Executive acknowledges and agrees that the restrictive covenants contained in
this Section are reasonably necessary to protect the Company's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the Company's
Confidential Information and shall not disclose to any Person, or otherwise use,
except in connection with his duties performed in accordance with this
Agreement, any Confidential Information at any time, including following the
termination of his employment with the Company for any reason; provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or administrative agency of competent jurisdiction,
in which event Executive will promptly notify the Company of such order or
subpoena to provide the Company an opportunity to protect its interests.
Executive's obligations under this Section 4(b) shall survive any expiration or
termination of this Agreement for any reason, provided that Executive may after
such expiration or termination disclose Confidential Information with the prior
written consent of the Board.
(c) Upon the termination or expiration of his employment hereunder,
Executive agrees to deliver promptly to the Company all Company files, customer
lists, management reports, memoranda, research, Company forms, financial data
and reports and other documents supplied to or created by him in connection with
his employment hereunder (including all copies of the foregoing) in his
possession or control, and all of the Company's equipment and other materials in
his possession or control. Executive's obligations under this Section 4(c) shall
survive any expiration or termination of this Agreement.
(d) Upon the termination or expiration of his employment under this
Agreement, Executive agrees that for a period of one (1) year from his date of
termination or until the end of the period for which he is entitled to receive
compensation under Section 5.1(a) below, whichever is longer, he shall not (i)
enter into or engage in the design, manufacture, marketing or sale of any
products
<PAGE> 8
8
similar to those produced or offered by the Company or its affiliates in the
area of North America, either as an individual, partner or joint venturer, or as
an employee, agent or salesman, or as an officer, director, or shareholder of a
corporation, (ii) divert or attempt to divert any person, concern or entity
which is furnished products or services by the Company from doing business with
the Company or otherwise change its relationship with the Company, or (iii)
solicit, lure or attempt to hire away any of the employees of the Company with
whom the Executive interacted directly or indirectly while employed with the
Company.
(e) Executive acknowledges that if he breaches or threatens to
breach this Section 4, his actions may cause irreparable harm and damage to the
Company which could not be compensated in damages. Accordingly, if Executive
breaches or threatens to breach this Section 4, the Company shall be entitled to
seek injunctive relief, in addition to any other rights or remedies of the
Company. The existence of any claim or cause of action by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of Executive's agreement under this
Section 4(e).
5. Termination.
5.1. By Executive. Executive shall have the right to terminate his
employment hereunder at any time by Notice of Termination (as described in
Section 7). If Executive terminates his employment because (i) the Company has
materially breached this Agreement, and such breach has not been cured within
thirty (30) days after written notice of such breach is given by Executive to
the Company; or (ii) Executive has determined that his termination is for Good
Reason (as defined in Section 6.7), Executive shall be entitled to receive the
compensation and benefits set forth in subsections (a) through (g) below. If
Executive terminates his employment other than pursuant to clauses (i) or (ii)
of this Section 5.1, the Company's obligations under this Agreement shall cease
as of the date of such termination. Unless specified otherwise, the time periods
in (a) through (g) below shall be twenty-four (24) months commencing on the date
of Executive's termination ("Severance Period"). The Company agrees that if
Executive terminates employment and is entitled to compensation and benefits
under this Section 5.1, he shall not be required to mitigate damages by seeking
other employment, nor shall any amount he earns reduce the amount payable by the
Company hereunder.
<PAGE> 9
9
(a) Base Salary - Executive will continue to receive his Base Salary
as then in effect (subject to withholding of all applicable taxes) for the
Severance Period in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later than 30 days
after his termination of employment; provided, further, that the amount of such
lump sum payment shall be determined by taking the salary payments to be made
and discounting them to their Present Value (as defined in Section 6.9) on the
date Executive's employment under this Agreement is terminated.
(b) Bonuses and Incentives - Executive shall receive bonus payments
from the Company for each month of the Severance Period in an amount for each
such month equal to one-twelfth of the average of the bonuses earned by him for
the two fiscal years in which bonuses were paid immediately preceding the year
in which such termination occurs. Any bonus amounts that Executive had
previously earned from the Company but which may not yet have been paid as of
the date of termination shall be payable on the date such amounts are payable to
other executives and Executive's termination shall not affect the payment of
such bonus. Executive shall also receive a prorated bonus for any uncompleted
fiscal year at the date of termination (assuming the Target Award level has been
achieved), based upon the number of days that he was employed during such fiscal
year. The bonus amounts determined herein shall be paid in a single lump sum
payment, to be paid not later than 30 days after termination of employment;
provided, that the amount of such lump sum payment representing the monthly
bonus payments shall be determined by taking the monthly bonus payments to be
made and discounting them to their Present Value on the date Executive's
employment under this Agreement is terminated.
(c) Health and Life Insurance Coverage - The health (including
executive medical) and group term life insurance benefits coverage provided to
Executive at his date of termination shall be continued for the Severance Period
at the same level and in the same manner as then provided to actively employed
executive participants as if his employment under this Agreement had not
terminated. Any additional coverages Executive had at termination, including
dependent coverage, will also be continued for such period on the same terms, to
the extent permitted by the applicable policies or contracts. Any costs
Executive was paying for such coverages at the time of termination shall be paid
by Executive by separate check payable to the Company each
<PAGE> 10
10
month in advance. If the terms of any benefit plan referred to in this Section,
or the laws applicable to such plan, do not permit continued participation by
Executive, then the Company will arrange for other coverage at its expense
providing substantially similar benefits (including the same deductible and
co-payment levels provided under the Company's policy).
(d) Employee Retirement Plans - To the extent permitted by the
applicable plan, Executive will be entitled to continue to participate,
consistent with past practices, in all employee retirement and deferred
compensation plans maintained by the Company in effect as of his date of
termination, including, to the extent such plans are still maintained by the
Company, the Blount Retirement Plan, the Blount 401(k) Plan, the Blount Excess
401(k) Plan, the Individual SERP and the SERP. Executive's participation in such
retirement plans shall continue for the Severance Period and the compensation
payable to Executive under (a) and (b) above shall be treated (unless otherwise
excluded) as compensation under the plan as if it were paid on a monthly basis.
For purposes of the Blount 401(k) Plan and the Blount Excess 401(k) Plan, he
will receive an amount equal to the Company's contributions to the plan,
assuming Executive had participated in such plan at the maximum permissible
contributions level. If continued participation in any plan is not permitted by
the plan or by applicable law, the Company shall pay to Executive or, if
applicable, his beneficiary a supplemental benefit equal to the present value on
the date of termination of employment under this Agreement (calculated as
provided in the plan) of the excess of (i) the benefit Executive would have been
paid under such plan if he had continued to be covered for the Severance Period
(less any amounts Executive would have been required to contribute), over (ii)
the benefit actually payable under such plan. The Company shall pay the Present
Value of such additional benefits (if any) in a lump sum within 30 days of his
termination of employment.
(e) Effect of Lump Sum Payment. The lump sum payment under (a) or
(b) above shall not alter the amounts Executive is entitled to receive under the
benefit plans described in this section. Benefits under such plans shall be
determined as if Executive had remained employed and received such payments over
the Severance Period.
(f) Individual SERP and SERP. On his date of termination, Executive
shall be treated for purposes of determining his benefit under the Individual
SERP and the SERP as if he had earned additional years of benefit service equal
to the length of the Severance Period and had
<PAGE> 11
11
attained the age he would be at the end of the Severance Period.
(g) Stock Options. As of his date of termination, all the Time
Options and the Performance Options, and any other outstanding stock options
granted to Executive by the Company, shall become vested and exercisable as
provided in the Term Sheet.
(h) Office Space; Secretarial. Executive will be provided
appropriate office space, his then current administrative assistant (such
assistant shall be paid or provided similar compensation and benefits to that
being provided at the time Executive terminates employment), and reasonable
expenses related thereto for a period of twelve (12) months from Executive's
date of termination.
5.2 By Company. The Company shall have the right to terminate
Executive's employment under this Agreement at any time during the Term by
Notice of Termination (as described in Section 7). If the Company terminates
Executive's employment under this Agreement (i) for Cause, as defined in Section
6.2, (ii) if Executive becomes Disabled, or (iii) upon Executive's death, the
Company's obligations under this Agreement shall cease as of the date of
termination; provided, however, that Executive will be entitled to whatever
benefits are payable pursuant to the terms of any health, life insurance,
disability, welfare, retirement or other plan or program maintained by the
Company. If the Company terminates Executive during the Term of this Agreement
other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive
shall be entitled to receive the compensation and benefits provided in
subsections (a) through (h) of Section 5.1 above for the Severance Period, and
subject to the provisions (including the nonmitigation provision) and
limitations therein.
5.3. Limitation on Benefits Upon Termination.
(a) Notwithstanding anything in this Agreement to the contrary, any
benefits payable or to be provided to Executive by the Company or its
affiliates, whether pursuant to this Agreement or otherwise, which are treated
as Severance Payments shall be modified or reduced in the manner provided in (b)
below to the extent necessary so that the benefits payable or to be provided to
Executive under this Agreement that are treated as Severance Payments, as well
as any payments or benefits provided outside of this Agreement that are so
treated, shall not cause the Company to have paid an Excess Severance Payment.
In computing such amount, the parties shall take into account all provisions
<PAGE> 12
12
of Code Section 280G, and the regulations thereunder, including making
appropriate adjustments to such calculation for amounts established to be
Reasonable Compensation. If Executive becomes entitled to compensation and
benefits under Section 5.1 or section 5.2 and such payments are considered to be
Severance Payments contingent upon a Change in Control, Executive shall be
required to mitigate damages (but only with respect to amounts that would be
treated as Severance Payments) by reducing the amount of Severance Payments he
is entitled to receive by any compensation and benefits he earns from subsequent
employment (but shall not be required to seek such employment) during the
24-month period after termination (or such lesser period as he is entitled to
extended benefits).
(b) In the event that the amount of any Severance Payments which
would be payable to or for the benefit of Executive under this Agreement must be
modified or reduced to comply with this Section 5.3, Executive shall direct
which Severance Payments are to be modified or reduced; provided, however, that
no increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Company.
(c) This Section 5.3 shall be interpreted so as to avoid the
imposition of excise taxes on Executive under Section 4999 of the Code or the
disallowance of a deduction to the Company pursuant to Section 280G(a) of the
Code with respect to amounts payable under this Agreement or otherwise.
Notwithstanding the foregoing, in no event will any of the provisions of this
Section 5.3 create, without the consent of Executive, an obligation on the part
of Executive to refund any amount to the Company following payment of such
amount.
(d) In addition to the limits otherwise provided in this Section
5.3, to the extent permitted by law, Executive may in his sole discretion elect
to reduce any payments he may be eligible to receive under this Agreement to
prevent the imposition of excise taxes on Executive under Section 4999 of the
Code.
(e) For purposes of this Section 5.3, the following definitions
shall apply:
(i) "Excess Severance Payment" - The term "Excess Severance Payment"
shall have the same meaning as the term "excess parachute payment" defined
in Section 280G(b)(1) of the Code.
<PAGE> 13
13
(ii) "Severance Payment" - The term "Severance Payment" shall have
the same meaning as the term "parachute payment" defined in Section
280G(b)(2) of the Code.
(iii) "Reasonable Compensation" - The term "Reasonable Compensation"
shall have the same meaning as provided in Section 280G(b)(4) of the Code.
The parties acknowledge and agree that, in the absence of a change in
existing legal authorities or the issuance of contrary authorities,
amounts received by Executive as damages under or as a result of a breach
of this Agreement shall be considered Reasonable Compensation.
(iv) "Present Value" - The term "Present Value" shall have the same
meaning as provided in Section 480G(d)(4) of the Code.
6. Definitions. For purposes of this Agreement the following terms
shall have the meanings specified below:
6.1 "Board" or "Board of Directors". The Board of Directors of the
Company.
6.2 "Cause". The involuntary termination of Executive by the Company
for the following reasons shall constitute a termination for Cause:
(a) If the termination shall have been the result of an act or acts
by Executive which have been found in an applicable court of law to constitute a
felony (other than traffic-related offenses);
(b) If the termination shall have been the result of an act or acts
by Executive which are in the good faith judgment of the Board to be in
violation of law or of policies of the Company and which result in demonstrably
material injury to the Company;
(c) If the termination shall have been the result of an act or acts
of proven dishonesty by Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or
(d) Upon the willful and continued failure by the Executive
substantially to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness not
constituting a Disability, as defined herein), after a demand in writing for
substantial performance is delivered
<PAGE> 14
14
by the Board, which demand specifically identifies the manner in which the Board
believes that Executive has not substantially performed his duties.
With respect to clauses (b), (c) or (d) above of this Section,
Executive shall not be deemed to have been involuntarily terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board (after reasonable
notice to Executive and an opportunity for him, together with his counsel, to be
heard before the Board), finding that, in the good faith opinion of the Board,
Executive was guilty of conduct set forth above in clauses (b), (c) or (d) and
specifying the particulars thereof in detail. For purposes of this Agreement, no
act or failure to act by Executive shall be deemed to be "willful" unless done
or omitted to be done by Executive not in good faith and without reasonable
belief that Executive's action or omission was in the best interests of the
Company.
6.3 "Change in Control". Either
(a) the acquisition, directly or indirectly, by any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than LB MBP II or any of its affiliates, of securities
of the Company representing an aggregate of more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities (excluding
the acquisition by persons who own such amount of securities on the date hereof,
or acquisitions by persons who acquire such amount through inheritance), or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period; or
(c) consummation of (i) a merger, consolidation or other business
combination of the Company with any other "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or
affiliate thereof, other than a merger, consolidation or business combination
which would result in the outstanding common stock of the Company immediately
prior thereto continuing to represent (either by remaining outstanding or
<PAGE> 15
15
by being converted into common stock of the surviving entity or a parent or
affiliate thereof) more than fifty percent (50%) of the outstanding common stock
of the Company, or such surviving entity or parent or affiliate thereof,
outstanding immediately after such merger, consolidation or business
combination, or (ii) a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company of all or substantially all of Company's
assets;
(d) a Public Offering as defined in the TermSheet; or
(e) a sale of more than 50% of the assets of the Company;
provided that none of the events described in clauses (b) through (e) shall be
deemed a Change in Control if, immediately following such event, LB MBP II and
its affiliates own 50% or more of the combined voting power of the Company's
then outstanding securities.
6.4 "Code". The Internal Revenue Code of 1986, as it may be amended
from time to time.
6.5 "Confidential Information". All technical, business, and other
information relating to the business of the Company or its subsidiaries or
affiliates, including, without limitation, technical or nontechnical data,
formulae, compilations, programs, devices, methods, techniques, processes,
financial data, financial plans, product plans, and lists of actual or potential
customers or suppliers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality. Such
information and compilations of information shall be contractually subject to
protection under this Agreement whether or not such information constitutes a
trade secret and is separately protectable at law or in equity as a trade
secret. Confidential Information does not include confidential business
information which does not constitute a trade secret under applicable law two
years after any expiration or termination of this Agreement.
6.6 "Disability" or "Disabled". Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Company on a full-time basis for a period of six (6) months.
<PAGE> 16
16
6.7 "Good Reason". A "Good Reason" for termination by Executive of
Executive's employment shall mean the occurrence during the Term (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, and such act or failure to act has
not been corrected within thirty (30) days after written notice of such act or
failure to act is given by Executive to the Company:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as the Group President of the Sporting Equipment Group,
or a substantial adverse alteration in the nature or status of the
Executive's responsibilities from those on the date hereof;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to
time;
(iii) the relocation of Executive without his consent to a location
more than fifty (50) miles from his principal office on the date hereof or
requiring Executive to be based anywhere other than the Executive's
principal office on the date hereof, except for reasonably required travel
on the Company's business;
(iv) the failure by the Company, without Executive's consent, to pay
to Executive any portion of Executive's current compensation (including
Base Salary and bonus), or to pay to the Executive any other compensation
within seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates on the date hereof,
which is material to Executive's total compensation, including but not
limited to the Company's Executive Management Target Incentive Plan, any
long-term incentive plan, the Individual SERP and the SERP, or any
substitute plans, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan,
or the failure by the Company to continue the Executive's participation in
such plan (or in such substitute or alternative plan) on a basis not
materially less favorable in terms of the amount of benefits provided;
<PAGE> 17
17
(vi) the failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by Executive on the
date hereof under any of the Company's pension, life insurance, medical,
health and accident or disability plans, the taking of any action by the
Company which would directly or indirectly materially reduce any of such
benefits or deprive Executive of any material fringe benefit enjoyed by
Executive on the date hereof, or the failure by the Company to provide
Executive with the number of paid vacation days to which the Executive is
entitled under this Agreement; or
(vii) any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 7.1 (for purposes of this Agreement, no such
purported termination shall be effective).
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
6.8 "Person". Any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6.9 "Present Value". The term "Present Value" on any particular date
shall have the same meaning as provided in Section 280G(d)(4) of the Code.
7. Termination Procedures.
7.1 Notice of Termination. During the Term of this Agreement, any
purported termination of Executive's employment (other than by reason of death)
shall be communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 11. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include the
information set forth in Section 6.2.
<PAGE> 18
18
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment during the Term of this
Agreement, shall mean (i) if Executive's employment is terminated by his death,
the date of his death, (ii) if Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the full-time performance of Executive's
duties during such thirty (30) day period), and (iii) if Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided, however, that the "Date of Termination" for
purposes of this Agreement shall not be the last day of the Company's fiscal
year and, in the event the last day of the fiscal year is designated as the
"Date of Termination", the "Date of Termination" for purposes hereof shall
automatically be the first day of the next following fiscal year.
8. Contract Non-Assignable. The parties acknowledge that this
Agreement has been entered into due to, among other things, the special skills
of Executive, and agree that this Agreement may not be assigned or transferred
by Executive, in whole or in part, without the prior written consent of the
Company.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to, or transferor of, the Company, the Company will require any successor to, or
transferor of, all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, reorganization,
liquidation, consolidation or otherwise) to expressly assume and agree to
perform this Agreement, in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason, except
that, for purposes of implementing the foregoing, the date on which
<PAGE> 19
19
any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees and by the Company's
successors and assigns. If Executive shall die while any amount would still be
payable to Executive hereunder (other than amounts which, by their terms,
terminate upon the death of Executive) if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of Executive's estate.
10. Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to the Company.
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Company: Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
ATTN: _________________________
With a copy to: Richard H. Irving, III
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
To the Executive: Gerald W. Bersett
114 Imperial Point Drive
Lake Ozark, Missouri 65049
With a copy to: Kilpatrick Stockton LLP
ATTN: William J. Vesely, Jr.
Suite 2800
1100 Peachtree Street
Atlanta, GA 303099-4530
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
<PAGE> 20
20
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or the future performance of any such term
or condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
14. Indemnification. During the term of this Agreement and after
Executive's termination for the period of time set forth in Section 6.7 of the
Recapitalization Agreement, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or other affiliates or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
Company's request, in each case to the maximum extent permitted by law and under
the Company's Articles of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection afforded to Executive hereunder
be less than that afforded under the Governing Documents as in effect on the
date of this Agreement except from changes mandated by law. During the Term and
for the period of time set forth in Section 6.7 of the Recapitalization
Agreement, Executive shall be covered by any policy of directors and officers
liability insurance maintained by the Company for the benefit of its officers
and directors.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
16. Governing Law. The validity and effect of this Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Delaware.
17. Arbitration of Disputes; Expenses. All claims by Executive for
compensation and benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
claim for benefits under
<PAGE> 21
21
this Agreement shall be delivered to Executive in writing and shall set forth
the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Board shall afford a reasonable opportunity to
Executive for a review of a decision denying a claim and shall further allow
Executive to appeal to the Board a decision of the Board within sixty (60) days
after notification by the Board that Executive's claim has been denied. To the
extent permitted by applicable law, any further dispute or controversy arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Atlanta, Georgia, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. In the event the Executive
incurs legal fees and other expenses in seeking to obtain or to enforce any
rights or benefits provided by this Agreement and is successful, in whole or in
part, in obtaining or enforcing any material rights or benefits through
settlement, arbitration or otherwise, the Company shall promptly pay Executive's
reasonable legal fees and expenses incurred in enforcing this Agreement and the
fees of the arbitrator. Except to the extent provided in the preceding sentence,
each party shall pay its own legal fees and other expenses associated with any
dispute.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
EXECUTIVE:
/s/ GERALD W. BERSETT
_________________________________
GERALD W. BERSETT
COMPANY:
By: /s/ BLOUNT INTERNATIONAL, INC.
______________________________
BLOUNT INTERNATIONAL, INC.
<PAGE> 22
SCHEDULE A to
Employment Agreement
PUT AND CALL RIGHTS OF THE
EXECUTIVE AND THE COMPANY
Capitalized terms which are used in this Schedule A and which are
not otherwise defined shall have the meanings ascribed to such terms in the
Agreement to which this Schedule is attached and of which it forms a part,
except where specifically noted that any such term has the meaning ascribed to
such term in the Employee Shareholders Agreement being entered into by and among
the Company, Lehman Brothers Merchant Banking Partners II L.P. ("LB MBP II"),
the Executive and other executives and key employees of the Company (a term
sheet for which is attached hereto).
A. Triggering Events
1. Termination by the Company for Cause; Voluntary Termination
without Good Reason. If, during the Term, the Executive's employment is either
(x) involuntarily terminated by the Company for Cause or (y) terminated by the
Executive without Good Reason:
(a) All shares of Company common stock ("Common Stock") purchased by
the Executive pursuant to the exercise of stock options ("Options")
granted to the Executive ("Option Shares") may be called by the Company at
the lesser of (x) the purchase price paid by the Executive therefor (the
"Exercise Price") and (y) Fair Market Value (as defined in Section D
hereof).
(b) All Options then held by the Executive shall be forfeited,
without any consideration being paid therefor by the Company, as of the
Executive's date of termination of employment with the Company
("Termination Date").
(c) All shares of Common Stock owned by the Executive, other than
Option Shares ("Purchased Shares"), may be called by the Company at Fair
Market Value.
(d) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of
employment.
2. Termination by the Company Without Cause; Termination by the
Executive with Good Reason; Retirement. If, during the Term, the Executive's
employment with the Company is either (x) involuntarily terminated by the
Company without Cause, (y) terminated by the Executive for Good Reason or (z)
terminated as a result of the Executive's Retirement (as defined in the Employee
Shareholders Agreement) from employment
<PAGE> 23
2
with the Company at or after attainment of age 65 (or such earlier retirement
age as permitted under any agreement entered into after Effective Time (as
defined in the Employment Agreement) between the Company and the Executive or if
the Board shall consent thereto in writing):
(a) All Option Shares held for at least six months by the Executive
may be called by the Company at Fair Market Value.
(b) All Purchased Shares held for at least six months by the
Executive may be called at Fair Market Value.
(c) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of
employment.
(d) Except as provided under clauses (a) and (b) above, the Company
shall have no right to call Options, Option Shares or Purchased Shares
upon a termination of employment covered by this Section 2.
Notwithstanding the foregoing, if the Executive elects, he may override the
calls made pursuant to paragraphs (a) or (b) above and retain all or any portion
of his Option Shares and Purchased Shares by giving the Company written notice
of such override within 30 days of his receipt of the call notice.
3. Termination due to Death or Disability. If, during the Term, the
Executive's employment is terminated due to his death or Disability, the
Executive (or his legal representative or the legal representative of his
estate, if applicable) may put all Options, Option Shares and Purchased Shares
to the Company or the Company may call such Options, Option Shares and Purchased
Shares, in each case at Fair Market Value (in the case of Options, net of the
Exercise Price); provided, however, that if the Executive elects, he may
override such call and retain all or any portion of his Options, Option Shares
and Purchased Shares by providing the Company with a written notice of such
override within 30 days of his receipt of the Company's call notice.
[4. Sale of a Company Division. If the Company shall sell the
business division in which the Executive is principally employed (a "Sale"), the
Company may call the Executive's Options, Option Shares and Purchased Shares at
Fair Market Value; provided, however, that if the Executive elects, he may
override such call by the Company and retain all or any portion of his Options,
Option Shares and Purchased Shares by providing the Company with a written
notice of such override within 30 days of his receipt of the Company's call
notice. The
<PAGE> 24
3
Executive shall have no right to put his Options, Option Shares or Purchased
Shares to the Company as a result of such a Sale.](1)
B. Notice of Puts and Calls; Exercise Rights.
1. If the Company intends to call any or all of the Executive's
Options, Option Shares or Purchased Shares as provided herein, it will provide
prior written notice to the Executive (or the Executive's legal representative
or the legal representative of the Executive's estate, as applicable), such
notice to include the Fair Market Value of the Options, Option Shares or
Purchased Shares, as the case may be, and to be given no later than 75 days
after the Executive's Termination Date [or Sale (as applicable)](2). If the
Executive (or the Executive's legal representative or the legal representative
of his estate, as applicable) is entitled to put any or all of his Options,
Option Shares or Purchased Shares, notice of such intent must be given by the
Executive no later than 90 days after the Company gives notice that it will not
exercise its call.
2. Neither the Executive nor the Company shall have any put or call
rights following a Public Offering (as such term is defined in the Employee
Shareholders Agreement).
3. Any exercise of put or call rights may be for all or a portion of
the Options, Option Shares and Purchased Shares subject thereto, as determined
in the sole discretion of the holder of such rights.
C. Limitation on Put and Call Rights. Notwithstanding anything in this
Schedule A to the contrary, the Company shall not be required to purchase any
Options, Option Shares or Purchased Shares (whether through the exercise of a
put or a call) if such purchase would be, or would result in, a violation of the
terms of its then existing debt agreements or any applicable law or regulation.
In addition, no such put or call will occur if, in the reasonable discretion of
the Board, such purchase would be reasonably likely to (i) impair the Company's
available cash, (ii) require unsuitable additional debt to be incurred by the
Company or (iii) result in any other adverse economic or financial condition, in
each case only to the extent that any such event described in clauses (i), (ii)
or (iii), individually or in the aggregate, would have or would reasonably
- ----------
(1) Include only for employees employed in any of the three business
divisions.
(2) Include bracketed language only for division employees.
<PAGE> 25
4
be expected to have a material adverse effect on the financial condition of the
Company.
D. Fair Market Value. For purposes hereof, the term "Fair Market Value"
shall mean, in respect of each share of Common Stock:
(i) To the extent the call or put, as the case may be, occurs
concurrently with or within 30 days of a Public Offering, the
offering price to the public per share of common stock of such
Public Offering;
(ii) To the extent the call or put, as the case may be, occurs
concurrently with or within 30 days of a Change of Control, the
value of the Company's total equity, as determined based upon the
price per share paid in connection with such Change of Control,
divided by the total number of shares of Common Stock then
outstanding;
(iii) To the extent clauses (i) and (ii) do not apply and a regular
trading market for the Company's common stock exists following a
Public Offering, the average closing price of such common stock for
10 consecutive trading days ending on the trading day immediately
prior to such call or put; and
(iv) At all other times, the fair market value of the Company's total
equity, as determined by the Board in good faith divided by the
total number of shares of Common Stock then outstanding; provided,
however, that if the Executive disputes the Board's determination,
within 10 days of the Executive's receipt of notice of the Board's
determination, the Executive and the Board shall jointly select a
qualified independent financial advisor to make such determination,
which determination shall be final and binding upon the parties,
provided, further, that the fees and costs of such financial advisor
in connection with its determination shall be borne equally by the
Company and the Executive unless such financial advisor's fair
market value determination is 10% or more greater than the Board's
determination, in which case such fees and costs shall be borne
entirely by the Company.
<PAGE> 26
EXHIBIT A to
Employment Agreement
SUMMARY OF TERMS
EMPLOYEE SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of agreements
ancillary to the Employment Agreement (the "Employment Agreement") to which this
Summary of Terms is attached and of which it forms a part, including the
Employee Shareholders Agreement and the related Option Agreements. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
the Employment Agreement.
EQUITY OWNERSHIP
FOLLOWING
RECAPITALIZATION
Purchased Shares After the closing contemplated by the
Recapitalization Agreement, no less than $15.0
million of the fully diluted equity of the Company
will be purchased by the top 21 executives and key
employees (the "Managers") and approximately 20
other management employees at a purchase price equal
to the price per share of Company common stock paid
in connection with the recapitalization, which is
$30.00 per share (the "Purchased Shares").
OPTION AGREEMENT
Stock Options As soon as practicable after the closing of the
recapitalization, the Company shall grant the
Managers nonqualified options (the "Options")
exercisable for common stock to purchase an
aggregate of 8.0% of the Company's initial
fully-diluted common stock. One- half of such
Options shall be granted as "Time Options"; one-half
of such Options shall be granted as "Performance
Options", which will be earned upon achievement of
the "Management
<PAGE> 27
2
Case" performance as described below.
The Company shall reserve for possible future
issuance to Managers and other executives options to
purchase an aggregate of 100,000 shares of the
Company's common stock at times and on terms to be
determined by the Compensation Committee of the
Board of Directors.
Except as otherwise provided herein, the terms of
the option plans and agreements governing the
Options shall be substantially similar to the
Company's 1998 Option Plan.
- --Option Term The option term of the Options shall be 10 years
from the Effective Time (as defined in the
Recapitalization Agreement) and 10 years after the
grant with respect to options subsequently granted;
provided, however, that exercisable options shall
expire earlier upon termination of employment as
follows:
Termination for Cause/Voluntary Termination by
Executive Without Good Reason: Immediately upon
termination of employment.
Termination Without Cause/ Termination by Executive
with Good Reason/Death/Disability/Sale of Division:
One year after termination of employment.
Retirement: At the end of the option term.
Unexercisable Options will terminate upon
termination of employment, unless acceleration in
connection with such termination is explicitly
provided for.
<PAGE> 28
3
Upon a Change-in-Control, the Compensation Committee
may terminate the Options, so long as the Executives
are cashed out of, or are permitted to exercise,
their exercisable Options prior to the
Change-in-Control.
- --Option Exercise Price Options shall be granted at an exercise price equal
to the price per share of Company common stock paid
in connection with the recapitalization, which is
$30.00 per Share.
- --Dilution of Options Option holders shall be subject to the same dilution
as the common stockholders.
- --Reallocation Shares subject to Options that are forfeited may be
reallocated to other employees as determined by the
Compensation Committee in its sole discretion.
Transfer Options may be transferred to Permitted Transferees
(as defined below) so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements.
Vesting of Equity Rights
- --Normal Vesting of Except as provided in the next paragraph, Time
Time Options Options shall become exercisable with respect to 20%
of the shares subject to such Options on each of the
first five anniversaries of the Effective Time as
and when the Executive's employment continues
through and including the date of each such
anniversary. Time Options shall expire and no longer
be exercisable as provided under the "Option Term"
section herein, but all Time Options shall
accelerate and become fully exercisable as provided
under the "Accelerated
<PAGE> 29
4
Vesting of Options" section herein.
The Time Options for Executives who are age 61 or
older at the Effective Time shall vest with respect
to 33 1/3% of the shares subject to such Options on
each of the first three anniversaries of the
Effective Time, provided that the Executive's
employment continues through and including the date
of each such anniversary; and provided, further,
that full vesting at Retirement for such Executives
shall only occur if Retirement occurs three or more
years after the Effective Time. Nothing herein shall
be construed as affecting any liquidity rights or
restrictions on transfer specifically set forth
herein.
- --Normal Vesting of Performance Options shall become exercisable at the
Performance Options end of six years, whether or not the EBITDA (as
defined below) targets are achieved, but become
exercisable earlier with respect to up to 20% of the
shares subject to the Performance Options, on each
of the first five anniversaries of the Effective
Time, to the extent the EBITDA for the fiscal year
most recently completed (the "Fiscal Year") equals
or exceeds the EBITDA targets (each, a "Target"), as
set forth in Schedule A attached hereto.
For executives who are age 61 or older at the
Effective Time, the applicable vesting percentage
for Performance Options shall be 33 1/3% for each of
the first three anniversaries of the Effective Time,
using the EBITDA Targets on Schedule A, and 33 1/3%
shall be substituted for 20% each place in this
section where 20% appears. Notwithstanding the
foregoing,
<PAGE> 30
5
Performance Options shall vest on the following
dates at the following minimum percentages (to the
extent not already vested) for such Executives if
Retirement occurs three or more years after the
Effective Time: (i) the date that is three years
after the Effective Time, 50% of the aggregate
shares subject to the Performance Options; (ii) the
date that is four years after the Effective Time,
66.70% of the aggregate shares subject to the
Performance Options; (iii) the date that is five
years after the Effective Time, 83.30% of the
aggregate shares subject to the Performance Options
and (iv) the date that is six years after the
Effective Time, 100% of the aggregate shares subject
to the Performance Options. Nothing herein shall be
construed as affecting any liquidity rights or
restrictions on transfer specifically set forth
herein.
If the Company's EBITDA for a Fiscal Year is less
than 100% of the Target for such Fiscal Year (a
"Missed Year"), such Performance Options shall
become exercisable with respect to a portion of the
shares subject to Performance Options in an amount
equal to the product of (a) 20% of the total number
of shares subject to Executive's Performance Options
multiplied by (b) the Applicable Percentage (as set
forth in Schedule B attached hereto).
If either all or a portion of the Executive's
Performance Options do not become exercisable in any
year pursuant to the above, the Executive may
"catch-up" if the Cumulative EBITDA Targets (as set
forth in Schedule A attached hereto) are satisfied.
The amount
<PAGE> 31
6
that would vest is equal to 40% if in year 2, 60% if
in year 3, 80% if in year 4 and 100% if in year 5,
less the number of Executive's Performance Options
which had previously vested.
Accelerated Vesting
of Options
- --Time Options Unvested Time Options shall become fully exercisable
upon (i) death, (ii) disability, (iii) Change-in-
Control or (iv) Retirement (as defined below). In
addition, upon a Termination without Cause or a
Termination by Executive with Good Reason, Time
Options shall become fully exercisable in the event
the Executive had been employed by the Company for
at least three years from the date of the Effective
Time.
- --Performance Options Performance Options shall become fully exercisable
upon a Change-in-Control if, and only if, (a) 100%
or more of the EBITDA Target has been achieved in
each Fiscal Year prior to such Change- in-Control or
(b) 100% of the Cumulative EBITDA Target has been
achieved in the Fiscal Year immediately preceding
such Change- in-Control. Except for the above and
any other acceleration occurring by reason of the
attainment of the EBITDA Targets, vesting of
Performance Options shall not accelerate for any
reason. In addition, upon a Termination without
Cause or for a Termination by Executive with Good
Reason, Performance Options shall become fully
exercisable in the event the Executive had been
employed by the Company for at least three years
from the date of the Effective Time.
Adjustments In the event of any change in the
<PAGE> 32
7
outstanding Common Stock by reason of a stock split,
spin-off, stock dividend, stock combination or
reclassification, recapitalization, consolidation or
merger, or similar event, the Compensation Committee
shall adjust appropriately the number of shares
subject to Options and make other revisions as it
deems are equitably required.
EMPLOYEE SHAREHOLDERS
AGREEMENT
Transfer Restrictions Except as provided below, transfers of Purchased
Shares or shares purchased upon exercise of Options
("Option Shares") will not be permitted prior to the
fifth anniversary of the Effective Time. Option
Shares and Purchased Shares may be transferred prior
to the fifth anniversary of the Effective Time (i)
to a Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements, (ii) pursuant to an exercise
of "Tag-Along" or "Drag- Along" Rights described
below, (iii) pursuant to an exercise of call or put
rights set forth in the Employment Agreement, (iv)
pursuant to an exercise of the registration rights
described below or (v) in connection with a
Change-in-Control so long as long as such transfers
are on a pro rata basis with transfers made by
Lehman Brothers Merchant Banking Partners II L.P.
("LB MBP II") in connection with such Change-in-
Control. Except as provided hereinabove or as agreed
to by the Compensation Committee, Options will be
nontransferable, but may be exercised after an
Optionholder's death by his or her designated
beneficiary or estate.
<PAGE> 33
8
In addition to the transfer restrictions of the
Employee Stockholder Agreement, any sale of
Purchased Shares or Option Shares shall in all cases
be completed in compliance with applicable
securities laws. The Company will register all
Option Shares on Form S-8 under the Securities Act
of 1933.
Right of First Refusal The Company shall have a right of first refusal on
all management equity rights (which rights the
Company may assign to LB MBP II) until the transfer
restrictions expire. Such right shall not apply to
any transfer to a Permitted Transferee so long as
such Permitted Transferee agrees to be bound by the
terms of all applicable agreements.
Registration Rights Each Executive will have "piggy back" registration
rights if (i) the Company is registering shares of
its common stock under the Securities Act of 1933
for its own account (subject to customary exceptions
for registrations related to exchange offers or
benefit plans), provided that such rights shall only
be available if LB MBP II is selling shares of
common stock for its own account in connection with
such registration, in each case on a pro rata basis
with LB MBP II or (ii) in any Public Offering in
which shares owned by LB MBP II are offered, on a
pro rata basis.
Beginning on the later of a Public Offering and the
fifth anniversary of the recapitalization, each
Executive will have "demand" registration rights,
subject to customary threshold provisions and
black-out provisions.
Tagalong/Dragalong In the event that LB MBP II or one
<PAGE> 34
9
of its affiliates is transferring any shares of
common stock of the Company to a third party, it
will give each Executive notice of such proposed
transfer, including the relevant terms thereof.
Within 30 days of receipt of such notice, each
Executive may elect to sell his Option Shares or
Purchased Shares to such third party on a pro rata
basis with LB MBP II. Notwithstanding the foregoing,
the "tag-along" rights shall not apply to any sale
of LB MBP II or its affiliates pursuant to a
syndication of its equity interest in the Company
during the six month period after the Effective
Time, provided that the aggregate amount of such
sale does not exceed $100 million.
In the event the LB MBP II or one of its affiliates
is transferring shares of common stock of the
Company to any third party that has made an offer to
purchase such shares, LB MBP II will have the right
to cause each Executive to sell his Option Shares or
Purchased Shares to such third party on a pro rata
basis.
DEFINITIONS
EBITDA "EBITDA" shall be defined in a manner consistent
with the Company's debt instruments entered into in
connection with the recapitalization contemplated by
the Recapitalization Agreement.
Permitted Transferees "Permitted Transferees" shall mean (i) each
Executive's heirs, executors, administrators,
testamentary trustees, legatees, beneficiaries or
charitable remaindermen, (ii) a trust the
beneficiaries of which include only such Executive,
such Executive's spouse, lineal
<PAGE> 35
10
descendants or any other member of the family of
such Executive; or (iii) any person if LB MBP II has
given its prior written consent to the applicable
transfer.
Public Offering "Public Offering" shall mean the sale of shares of
any class of the Company's stock to the public
pursuant to an effective registration statement
(other than a registration statement on Form S-4 or
S-8 or any similar or successor form) filed under
the Securities Act of 1933 which results in an
active trading market of 25% or more of the
outstanding shares of the Company's common stock.
There shall be deemed to be an "active trading
market" if the Company's common stock is listed or
quoted on a national exchange or the NASDAQ National
Market.
Retirement "Retirement" shall mean normal retirement under the
terms of any tax-qualified retirement plan of the
Company or retirement, which retirement occurs no
earlier than three years after the Effective Time,
except as permitted under any agreement between the
Company and the Executive to the extent such
agreement (i) by its terms currently provides that
retirement is to begin upon attainment of age 65
(even if earlier than the third anniversary of the
Effective Time) or provides that retirement is to
begin after age 64 (which occurs three years after
the Effective Time) or (ii) is entered into after
the Effective Time and permits the Executive to
retire prior to attainment of age 65 and the third
anniversary of the Effective Time. Except as
provided in the preceding
<PAGE> 36
sentence, any purported retirement prior to the
third anniversary of the Effective Time, shall be
treated the same as a voluntary termination.
Schedule A
EBITDA Targets
($ in millions)
<TABLE>
<CAPTION>
"Management
Case" Cumulative
EBITDA Target* EBITDA Target*
-------------- --------------
<S> <C> <C>
1999 $166.2 $166.2
2000 $223.7 $389.9
2001 $246.3 $636.2
2002 $270.7 $906.9
2003 $295.9 $1,202.8
</TABLE>
* Upon disposition or acquisition of any business or substantial portion of the
assets of the Company or another company, the EBITDA Targets for the year of
such disposition or such acquisition and each subsequent year shall be adjusted
to eliminate or include, as the case may be, the income and expense to the
business or assets that were subject to disposition or acquisition, but only to
the extent not already done so in connection with the calculation of EBITDA.
Such adjustments must be consented to by a majority of the non-management
directors of the Board of the Company. If such directors cannot so consent, the
adjustment proposal shall be submitted to the Company's independent auditors,
who can consult with the necessary consultants for binding resolution.
<PAGE> 37
Schedule B
Applicable Percentage
<TABLE>
<CAPTION>
Percentage of EBITDA
Target Achieved Applicable
(annual or cumulative) (Pct.) Percentage
- ----------------------------- ----------
<S> <C>
Less than 85 0.00
85 25.00
86 30.00
87 35.00
88 40.00
89 45.00
90 50.00
91 55.00
92 60.00
93 65.00
94 70.00
95 75.00
96 80.00
97 85.00
98 90.00
99 95.00
100 100.00
</TABLE>
<PAGE> 38
Exhibit B
BLOUNT INTERNATIONAL, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR GERALD W. BERSETT
1. Purpose - The purpose of this Supplemental Executive Retirement Plan (the
"SERP") is to provide Gerald W. Bersett (the "Executive") with a
retirement benefit payable as a supplement to his vested benefit under The
Blount Retirement Plan.
2. Definitions
a. Blount Plan is The Blount Retirement Plan, as amended and restated
effective January 1, 1995, including any future amendments or
restatements adopted and effective while Executive is an employee of
the Company or its affiliates.
b. Company shall mean Blount International, Inc. and its successors.
c. Disability shall mean periods of time during which
(i) Executive is totally and permanent disabled, and
(ii) Executive is receiving Social Security disability benefits.
d. Effective Date of this amendment and restatement of the SERP is
____________, 1999. The original effective date of this SERP was May
11, 1998.
e. Excess Benefit Plan is the Blount, Inc. and Subsidiaries
Supplemental Retirement Benefit Plan, as in effect on November 3,
1995, including any future amendments or restatements adopted and
effective while Executive is an employee of the Company or its
affiliates.
f. Executive shall mean Gerald W. Bersett.
g. Internal Revenue Code shall mean the Internal Revenue Code of 1986,
as amended and in effect at Executive's Termination Date.
h. Normal Retirement Date is October 16, 2005.
i. SERP is this Supplemental Executive Retirement Plan sponsored by the
Company for Executive.
<PAGE> 39
j. Termination Date is the date on which the employment relationship
between Executive and the Company (including any "affiliated
company" as defined in the Blount Plan) ceases.
3. Years of Benefit Service shall mean the years of benefit service granted
to Executive under this SERP and the years of "Benefit Service" (as that
term is defined in the Blount Plan) granted to Executive under the Blount
Plan. Years of Benefit Service shall be determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years of Total Years
Years of Benefit Benefit of Vested
Service under the Service under Benefit
Age Blount Plan the SERP Service
- --- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
58 1 + 0 = 0
59 2 + 0 = 0
60 3 + 0 = 0
61 4 + 0 = 0
62 5 + 7 = 12
63 6 + 8 = 14
64 7 + 9 = 16
65 8 + 10 = 18
</TABLE>
Years of Benefit Service under the SERP shall continue to accrue during
any period of Disability provided that Years of Benefit Service continue
to accrue under the Blount Plan.
4. Vested Retirement Benefits payable under this SERP shall equal (a) less
(b) where:
(f) is the monthly retirement income that would be payable to Executive
under the provisions of the Blount Plan, assuming
(i) that in determining the fraction for purposes of Section
6.1(a)(i) of the Blount Plan, the numerator shall be his total
Years of Benefit Service determined in accordance with
Paragraph 3 above, at his age when his employment terminates
and the denominator of which is 18; and
(ii) that the Blount Plan does not contain the limitation on
compensation imposed by Section 401(a)(17) of the Internal
Revenue Code or the
<PAGE> 40
limitation on benefits imposed by Section 415 of
the Internal Revenue Code;
and
(g) is the sum of (i) and (ii), where
(i) is the monthly retirement income actually payable to Executive
under the Blount Plan; and
(ii) is the monthly retirement income actually payable to Executive
under the Excess Benefit Plan.
Vested retirement benefits are payable on or after Executive's Termination
Date provided he has obtained a fully vested interest under the Blount
Plan. No benefits shall be payable under this SERP until Executive has
obtained a fully vested interest under the Blount Plan. No benefits are
payable during continued employment. The above benefit is on a life
annuity basis. If an optional form of benefit is desired, the benefit
above will be adjusted by the actuarial factors used by the Blount Plan.
In determining benefits under this Paragraph, amounts described in
Paragraphs (b)(i) and (b)(ii) above that are paid in a form other than a
straight life annuity shall be valued as a straight life annuity using the
actuarial factors used by the Blount Plan.
5. Executive shall receive the following benefits as defined in the Blount
Plan, which benefits shall be calculated on the basis of the benefit
formula set forth in Paragraph 4 above:
a. Benefits due to the pre-retirement death of Executive;
b. Normal and optional forms of payment under the Blount Plan provided
that, except as provided under Paragraph 5(d), the form of payment
under this SERP shall be the same as the form of payment elected by
Executive under the Blount Plan;
c. If Executive elects for payment of his vested retirement benefits to
commence prior to his Normal Retirement Date but after 10 Years of
Vested Benefit Service as determined under Paragraph 3, his vested
retirement benefits will be reduced by .3% for each full month by
which the date his benefits begin precedes his Normal Retirement
Date. If Executive has less than 10 Years of Vested Benefit Service,
his vested retirement benefits shall be reduced on an
<PAGE> 41
actuarially equivalent basis using the actuarial factors used by the
Blount Plan.
d. Notwithstanding the above, if Executive's employment is terminated
within 24 months following a change in control (as such term is
defined in Executive's employment agreement) under circumstances
that would entitle him to benefits under his employment agreement
upon such termination, Executive may elect on such form and in such
manner as determined by the Board of Directors of the Company or if
appointed by the Board to administer the Plan, the Compensation
Committee of the Board of Directors, to receive his benefit in the
form of a single lump sum payment (regardless of the form of payment
elected by Executive under the Blount Plan and regardless of whether
a lump sum option is available under the Blount Plan). The lump sum
payment shall be actuarially equivalent to the present value of
Executive's benefit under the Plan expressed as a life annuity,
calculated using the same actuarial factors used by the Blount Plan.
The lump sum payment shall be made to Executive within 30 days of
the date he would otherwise have commenced receiving payments under
Paragraph 4 above.
6. Successors and Assigns; Non-Alienation of Benefits - This Plan shall inure
to the benefit of and be binding upon the parties hereto and their
successors and assigns; provided, however, to the maximum extent permitted
by law, no benefit under this SERP shall be assignable or subject in any
manner to alienation, sale, transfer, claims of creditors, pledge,
attachment or encumbrances of any kind. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require
any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to substantially all of the business or assets
of the Company to expressly agree to assume the Plan and to perform the
obligations under this Plan in the same manner that the Company would be
required to perform them.
7. Administration - The Board of Directors of the Company or, at its
discretion, the Compensation Committee of the Board of Directors, shall
administer, construe, and interpret this Plan. No member of the Board of
Directors or the Committee, as the case may be, shall be liable for any
act done or determination made in good faith. The construction and
interpretation by the Board of Directors or the Committee of any provision
of this Plan shall be final and conclusive. The Board of Directors or the
Committee may, in its discretion, delegate its duties to an officer or
<PAGE> 42
employee or committee composed of officers or employees of the Company.
8. Amendment or Termination - The Board of Directors and Executive may amend
this SERP from time to time in any respect with the consent of the other
party. This Plan may not be terminated without the consent of the Company
through its Board of Directors or its designated Committee or officer and
Executive.
9. Construction of the Plan - This SERP is unfunded. This SERP shall be so
construed that it will be maintained primarily for the purpose of
providing certain retirement, death and disability benefits for Executive.
This SERP and the rights and obligations of the parties thereunder, shall
be construed in accordance with applicable federal law and, to the extent
not preempted by federal law, in accordance with the laws of the State of
Alabama.
10. Denied Claims
a. If any application for payment of a benefit under the SERP shall be
denied, the Company shall:
(i) Notify Executive within a reasonable time of such denial
setting forth the specific reasons therefor; and
(ii) Afford Executive a reasonable opportunity for a full and fair
review of the decision denying the claim.
(b) Notice of such denial shall set forth, in addition to the specific
reasons for the denial, the following:
(i) Reference to pertinent provisions of the SERP;
(ii) Such additional information as may be relevant to denial of
claim;
(iii) An explanation of the claims review procedure;
(iv) Advice that Executive may request the opportunity to review
pertinent plan documents and submit a statement of issues and
comments
c. Within 60 days following advice of denial of his claim, upon request
made by Executive for a review of such denial, the Company shall
take appropriate steps to review its decision in light of any
further information or comments submitted by Executive. The
<PAGE> 43
Company shall be empowered to hold a hearing at which Executive
shall be entitled to present the basis of his claim for review and
at which he may be represented by counsel.
d. The Company shall render a decision within 60 days after Executive's
request for review (which may be extended to 120 days if
circumstances so require) and shall advise Executive in writing of
its decision on such review, specifying its reasons and identifying
appropriate provisions of the Plan.
Signed and agreed to this _______ day of _________________, 199___.
BLOUNT INTERNATIONAL, INC.
By:
---------------------------
Its:
--------------------------
EXECUTIVE
-------------------------------
Gerald W. Bersett
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of April,
1999, by and between BLOUNT INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and JAMES S. OSTERMAN ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
agreement ("Prior Agreement") providing for Executive's employment by the
Company and specifying the terms and conditions of such employment; and
WHEREAS, the Company entered into an Agreement and Plan of Merger and
Recapitalization (the "Recapitalization Agreement") dated the date hereof with
Red Dog Acquisition Corp. ("Newco"), a wholly owned subsidiary of Lehman
Brothers Merchant Banking Partners II L.P. ("LB MBP II"); and
WHEREAS, pursuant to the Recapitalization Agreement, the Company will be
recapitalized through a merger with and into Newco, following which
substantially all of the outstanding capital stock of the Company will be held
by LB MBP II; and
WHEREAS, the Company desires to recognize Executive's superior performance
and continuing value to the Company and its shareholders by modifying the Prior
Agreement and restating such agreement in a single document as hereinafter
provided; and
WHEREAS, Executive desires to continue his employment with the
Company on the terms and conditions provided herein;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. Purpose and Effectiveness.
(a) The purpose of this Agreement is to amend the Prior Agreement,
to recognize Executive's significant contributions to the overall financial
performance and success of the Company, and to provide a single, integrated
document which shall provide the basis for Executive's continued employment by
the Company;
(b) This Agreement shall not be effective until the Effective Time
(as defined in the Recapitalization Agreement), and this Agreement shall
terminate immediately if the Recapitalization Agreement is terminated in
accordance with its terms prior to the Effective Time.
2. Employment and Term.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive, and Executive hereby accepts employment, as
Group President of the Outdoor Products Group and shall have such
responsibilities, duties and authority that are consistent with such position as
may from time to time be assigned to Executive by the Board. Executive hereby
agrees that during the Term of this Agreement he will devote substantially all
his working time, attention and energies to the diligent performance of his
duties as Group President of the Outdoor Products Group. With the consent of the
Board of Directors, the Executive may serve as a director on the boards of
directors or trustees of additional companies and organizations.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall commence at the Effective Time, and
-2-
<PAGE> 3
shall end on the date three (3) years from the date of the Effective Time (the
"Term"), unless the Term is extended in accordance with subsection (c) below (in
which case such extended period shall constitute the Term). Executive shall have
the unilateral right to elect to terminate this Agreement, effective two (2)
years from the date of the Effective Time by giving the Company written notice
of such election at least 180 days prior to such date, in which event the Term
of this Agreement shall cease on the date two years from the date of the
Effective Time.
(c) Not less than ninety (90) days prior to the end of the initial
Term (and any 12-month extension of the initial Term), the Company may offer to
extend the Term for an additional 12-month period on such terms and conditions
as may be specified in the offer (which may be on the same terms and conditions
as provided herein). If Executive desires to accept such offer, he shall notify
the Company in writing within thirty (30) days of receipt of the offer and the
Agreement shall be extended on the terms and conditions agreed upon.
3. Compensation and Benefits. As compensation for his services during the
Term of this Agreement, Executive shall be paid and receive the amounts and
benefits set forth in subsections (a) through (f) below:
(a) An annual base salary ("Base Salary") of Three Hundred
Fifty-Five Thousand and No/100 Dollars ($355,000.00), prorated for any partial
year of employment. Executive's Base Salary shall be subject to annual review
for increases at such time as the Company conducts salary reviews for its
executive officers generally. Executive's salary shall be payable in
substantially equal installments on a bi-monthly basis, or in accordance with
the Company's regular payroll practices in effect from time to time for
executive officers of the Company.
-3-
<PAGE> 4
(b) Executive shall be eligible to participate in the Executive
Management Target Incentive Plan and such other annual incentive plans as may be
established by the Company from time to time for its executive officers. The
Board or a committee of the Board will establish performance goals each year
under the incentive plans, and Executive's annual Target Bonus shall be 50% of
Base Salary; the maximum award for exceeding the performance goals (which will
be determined in accordance with the current plan design) shall be 100% of Base
Salary. The annual incentive bonus payable under this subsection (b) shall be
payable as a lump sum at the same time bonuses are paid to other senior
executives after certification by the Compensation Committee of the Board, that
the applicable performance objectives have been met, unless Executive elects to
defer all or a portion of such amount pursuant to any deferral plan established
by the Company for such purpose.
(c) Promptly upon commencement of the Term, Executive shall make a
minimum investment in the equity ("Purchased Equity") of the Company of 50% of
the aggregate amount of the net proceeds remaining after all applicable taxes
have been paid, resulting from the cancellation of his outstanding stock options
in accordance with Section 2.2 of the Recapitalization Agreement. The Company
and Executive shall endeavor to structure such investment in the most tax and
accounting efficient manner reasonably possible under the relevant
circumstances. In respect of such investment, the Company will grant Executive
60,000 options to purchase shares of the Company's Common Stock that will vest
over time ("Time Options") and the Company will grant Executive
performance-based options for 60,000 shares of the Company's Common Stock
("Performance Options") (the Time Options and the Performance Options are
collectively referred to herein as "Options"). The terms and
-4-
<PAGE> 5
conditions of the Time Options and the Performance Options shall be as set forth
on the Summary of Terms, attached hereto as Exhibit A (the "Term Sheet'), and
the Company will enter into separate Option Agreements with Executive covering
the grant of such Options. Executive will be eligible to participate in such
other stock option programs as may be established from time to time by the
Company for its executive officers. Executive will participate in any long-term
incentive plans established by the Company for executive officers at his level.
The other terms and conditions applicable to the Purchased Equity
and the Options shall be as provided in the Term Sheet and the parties agree to
enter into an Employee Shareholders Agreement which will include the items
covered in the Term Sheet and contain such other customary terms and conditions
as are appropriate for such an agreement and are mutually agreeable to Executive
and Company (and to LB MBP II, where applicable). The Purchased Equity and the
Options will be subject to put and call rights and restrictions as set forth in
Schedule A.
(d) Executive shall continue to be (i) a participant in the Blount,
Inc. and Subsidiaries Supplemental Retirement Benefit Plan ("SERP"), and (ii) a
participant in the Executive Supplemental Retirement Plan of Blount
International, Inc. ("Executive SERP").
(e) Executive shall be entitled to participate in, or receive
benefits under, any "employee benefit plan" (as defined in Section 3(3) of
ERISA) or employee benefit arrangement made generally available by the Company
to its executive officers, including plans providing retirement, 401(k)
benefits, deferred compensation, health care (including executive medical), life
insurance, disability and similar benefits.
-5-
<PAGE> 6
(f) The Company will reimburse Executive for membership dues and
assessments at recreational and social clubs if submitted to and approved by the
Chief Executive Officer of the Company. Executive will be provided an automobile
in accordance with the Company's automobile policy for Executives, and the
Company will pay all insurance, maintenance, fuel, oil and related operational
expenses for such automobile. Executive will receive five weeks vacation during
the Term. Executive will be provided an annual physical examination and a
financial/tax consultant for personal financial and tax planning. Executive will
be promptly reimbursed by the Company for all reasonable business expenses he
incurs in carrying out his duties and responsibilities under this Agreement.
4. Confidentiality and Noncompetition.
(a) Executive acknowledges that, prior to and during the Term of
this Agreement, the Company has furnished and will furnish to Executive
Confidential Information which could be used by Executive on behalf of a
competitor of the Company to the Company's substantial detriment. Moreover, the
parties recognize that Executive during the course of his employment with the
Company may develop important relationships with customers and others having
valuable business relationships with the Company. In view of the foregoing,
Executive acknowledges and agrees that the restrictive covenants contained in
this Section are reasonably necessary to protect the Company's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the Company's
Confidential Information and shall not disclose to any Person, or otherwise use,
except in connection with his duties performed in accordance with this
Agreement, any Confidential Information at any time, including following the
-6-
<PAGE> 7
termination of his employment with the Company for any reason; provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or administrative agency of competent jurisdiction,
in which event Executive will promptly notify the Company of such order or
subpoena to provide the Company an opportunity to protect its interests.
Executive's obligations under this Section 4(b) shall survive any expiration or
termination of this Agreement for any reason, provided that Executive may after
such expiration or termination disclose Confidential Information with the prior
written consent of the Board.
(c) Upon the termination or expiration of his employment hereunder,
Executive agrees to deliver promptly to the Company all Company files, customer
lists, management reports, memoranda, research, Company forms, financial data
and reports and other documents supplied to or created by him in connection with
his employment hereunder (including all copies of the foregoing) in his
possession or control, and all of the Company's equipment and other materials in
his possession or control. Executive's obligations under this Section 4(c) shall
survive any expiration or termination of this Agreement.
(d) Upon the termination or expiration of his employment under this
Agreement, Executive agrees that for a period of one (1) year from his date of
termination or until the end of the period for which he is entitled to receive
compensation under Section 5.1(a) below, whichever is longer, he shall not (i)
enter into or engage in the design, manufacture, marketing or sale of any
products similar to those produced or offered by the Company or its affiliates
in the area of North America, either as an individual, partner or joint
venturer, or as an employee, agent or salesman, or as an officer, director, or
shareholder of a corporation, (ii) divert or attempt to divert any person,
concern or entity which is
-7-
<PAGE> 8
furnished products or services by the Company from doing business with the
Company or otherwise change its relationship with the Company, or (iii) solicit,
lure or attempt to hire away any of the employees of the Company with whom the
Executive interacted directly or indirectly while employed with the Company.
(e) Executive acknowledges that if he breaches or threatens to
breach this Section 4, his actions may cause irreparable harm and damage to the
Company which could not be compensated in damages. Accordingly, if Executive
breaches or threatens to breach this Section 4, the Company shall be entitled to
seek injunctive relief, in addition to any other rights or remedies of the
Company. The existence of any claim or cause of action by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of Executive's agreement under this
Section 4(e).
-8-
<PAGE> 9
5. Termination.
5.1 By Executive. Executive shall have the right to terminate his
employment hereunder at any time by Notice of Termination (as described in
Section 7). If Executive terminates his employment because (i) the Company has
materially breached this Agreement, and such breach has not been cured within
thirty (30) days after written notice of such breach is given by Executive to
the Company; or (ii) Executive has determined that his termination is for Good
Reason (as defined in Section 6.7), Executive shall be entitled to receive the
compensation and benefits set forth in subsections (a) through (h) below. If
Executive terminates his employment other than pursuant to clauses (i) or (ii)
of this Section 5.1, the Company's obligations under this Agreement shall cease
as of the date of such termination. Unless specified otherwise, the time periods
in (a) through (h) below shall be twenty-four (24) months commencing on the date
of Executive's termination ("Severance Period"). The Company agrees that if
Executive terminates employment and is entitled to compensation and benefits
under this Section 5.1, he shall not be required to mitigate damages by seeking
other employment, nor shall any amount he earns reduce the amount payable by the
Company hereunder.
(a) Base Salary - Executive will continue to receive his Base Salary
as then in effect (subject to withholding of all applicable taxes) for the
Severance Period in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later than 30 days
after his termination of employment; provided, further, that the amount of such
lump sum payment shall be determined by taking the salary payments to be
-9-
<PAGE> 10
made and discounting them to their Present Value (as defined in Section 6.9) on
the date Executive's employment under this Agreement is terminated.
(b) Bonuses and Incentives - Executive shall receive bonus payments
from the Company for each month of the Severance Period in an amount for each
such month equal to one-twelfth of the average of the bonuses earned by him for
the two fiscal years in which bonuses were paid immediately preceding the year
in which such termination occurs. Any bonus amounts that Executive had
previously earned from the Company but which may not yet have been paid as of
the date of termination shall be payable on the date such amounts are payable to
other executives and Executive's termination shall not affect the payment of
such bonus. Executive shall also receive a prorated bonus for any uncompleted
fiscal year at the date of termination (assuming the Target Award level has been
achieved), based upon the number of days that he was employed during such fiscal
year. The bonus amounts determined herein shall be paid in a single lump sum
payment, to be paid not later than 30 days after termination of employment;
provided, that the amount of such lump sum payment representing the monthly
bonus payments shall be determined by taking the monthly bonus payments to be
made and discounting them to their Present Value on the date Executive's
employment under this Agreement is terminated.
(c) Health and Life Insurance Coverage - The health (including
executive medical) and group term life insurance benefits coverage provided to
Executive at his date of termination shall be continued for the Severance Period
at the same level and in the same manner as then provided to actively employed
executive participants as if his employment under this Agreement had not
terminated. Any additional coverages Executive had at termination, including
-10-
<PAGE> 11
dependent coverage, will also be continued for such period on the same terms, to
the extent permitted by the applicable policies or contracts. Any costs
Executive was paying for such coverages at the time of termination shall be paid
by Executive by separate check payable to the Company each month in advance. If
the terms of any benefit plan referred to in this Section, or the laws
applicable to such plan, do not permit continued participation by Executive,
then the Company will arrange for other coverage at its expense providing
substantially similar benefits (including the same deductible and co-payment
levels provided under the Company's policy).
(d) Employee Retirement Plans - To the extent permitted by the
applicable plan, Executive will be entitled to continue to participate,
consistent with past practices, in all employee retirement and deferred
compensation plans maintained by the Company in effect as of his date of
termination, including, to the extent such plans are still maintained by the
Company, the Blount Retirement Plan, the Blount 401(k) Plan, the Blount Excess
401(k) Plan, the SERP and the Executive SERP. Executive's participation in such
retirement plans shall continue for the Severance Period and the compensation
payable to Executive under (a) and (b) above shall be treated (unless otherwise
excluded) as compensation under the plan as if it were paid on a monthly basis.
For purposes of the Blount 401(k) Plan and the Blount Excess 401(k) Plan, he
will receive an amount equal to the Company's contributions to the plan,
assuming Executive had participated in such plan at the maximum permissible
contributions level. If continued participation in any plan is not permitted by
the plan or by applicable law, the Company shall pay to Executive or, if
applicable, his beneficiary a supplemental benefit equal to the present value on
the date of termination of employment under this Agreement (calculated as
provided in the plan) of the
-11-
<PAGE> 12
excess of (i) the benefit Executive would have been paid under such plan if he
had continued to be covered for the Severance Period (less any amounts Executive
would have been required to contribute), over (ii) the benefit actually payable
under such plan. The Company shall pay the Present Value of such additional
benefits (if any) in a lump sum within 30 days of his termination of employment.
(e) Effect of Lump Sum Payment. The lump sum payment under (a) or
(b) above shall not alter the amounts Executive is entitled to receive under the
benefit plans described in this section. Benefits under such plans shall be
determined as if Executive had remained employed and received such payments over
the Severance Period.
(f) SERP and Executive SERP. On his date of termination, Executive
shall be treated for purposes of determining his benefit under the SERP and
Executive SERP as if he had earned additional years of benefit service equal to
the length of the Severance Period and had attained the age he would be at the
end of the Severance Period.
(g) Stock Options. As of his date of termination, all of the Time
Options and the Performance Options, and any other outstanding stock options
granted to Executive by the Company, shall become vested and exercisable as
provided in the Term Sheet.
(h) Office Space; Secretarial. Executive will be provided
appropriate office space, his then current administrative assistant (such
assistant shall be paid or provided similar compensation and benefits to that
being provided at the time Executive terminates employment), and reasonable
expenses related thereto for a period of twelve (12) months from Executive's
date of termination.
-12-
<PAGE> 13
5.2 By Company. The Company shall have the right to terminate Executive's
employment under this Agreement at any time during the Term by Notice of
Termination (as described in Section 7). If the Company terminates Executive's
employment under this Agreement (i) for Cause, as defined in Section 6.2, (ii)
if Executive becomes Disabled, or (iii) upon Executive's death, the Company's
obligations under this Agreement shall cease as of the date of termination;
provided, however, that Executive will be entitled to whatever benefits are
payable pursuant to the terms of any health, life insurance, disability,
welfare, retirement or other plan or program maintained by the Company. If the
Company terminates Executive during the Term of this Agreement other than
pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be
entitled to receive the compensation and benefits provided in subsections (a)
through (h) of Section 5.1 above for the Severance Period, and subject to the
provisions (including the nonmitigation provision) and limitations therein.
5.3 Limitation on Benefits Upon Termination.
(a) Notwithstanding anything in this Agreement to the contrary, any
benefits payable or to be provided to Executive by the Company or its
affiliates, whether pursuant to this Agreement or otherwise, which are treated
as Severance Payments shall be modified or reduced in the manner provided in (b)
below to the extent necessary so that the benefits payable or to be provided to
Executive under this Agreement that are treated as Severance Payments, as well
as any payments or benefits provided outside of this Agreement that are so
treated, shall not cause the Company to have paid an Excess Severance Payment.
In computing such amount, the parties shall take into account all provisions of
Code Section 280G, and the regulations thereunder, including
-13-
<PAGE> 14
making appropriate adjustments to such calculation for amounts established to be
Reasonable Compensation. If Executive becomes entitled to compensation and
benefits under Section 5.1 or section 5.2 and such payments are considered to be
Severance Payments contingent upon a Change in Control, Executive shall be
required to mitigate damages (but only with respect to amounts that would be
treated as Severance Payments) by reducing the amount of Severance Payments he
is entitled to receive by any compensation and benefits he earns from subsequent
employment (but shall not be required to seek such employment) during the
24-month period after termination (or such lesser period as he is entitled to
extended benefits).
(b) In the event that the amount of any Severance Payments which
would be payable to or for the benefit of Executive under this Agreement must be
modified or reduced to comply with this Section 5.3, Executive shall direct
which Severance Payments are to be modified or reduced; provided, however, that
no increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Company.
(c) This Section 5.3 shall be interpreted so as to avoid the
imposition of excise taxes on Executive under Section 4999 of the Code or the
disallowance of a deduction to the Company pursuant to Section 280G(a) of the
Code with respect to amounts payable under this Agreement or otherwise.
Notwithstanding the foregoing, in no event will any of the provisions of this
Section 5.3 create, without the consent of Executive, an obligation on the part
of Executive to refund any amount to the Company following payment of such
amount.
(d) In addition to the limits otherwise provided in this Section
5.3, to the extent permitted by law, Executive may in his sole discretion elect
to
-14-
<PAGE> 15
reduce any payments he may be eligible to receive under this Agreement to
prevent the imposition of excise taxes on Executive under Section 4999 of the
Code.
(e) For purposes of this Section 5.3, the following definitions
shall apply:
(i) "Excess Severance Payment" - The term "Excess Severance
Payment" shall have the same meaning as the term "excess parachute
payment" defined in Section 280G(b)(1) of the Code.
(ii) "Severance Payment" - The term "Severance Payment" shall
have the same meaning as the term "parachute payment" defined in
Section 280G(b)(2) of the Code.
(iii) "Reasonable Compensation" - The term "Reasonable
Compensation" shall have the same meaning as provided in Section
280G(b)(4) of the Code. The parties acknowledge and agree that, in
the absence of a change in existing legal authorities or the
issuance of contrary authorities, amounts received by Executive as
damages under or as a result of a breach of this Agreement shall be
considered Reasonable Compensation.
(iv) "Present Value" - The term "Present Value" shall have the
same meaning as provided in Section 480G(d)(4) of the Code.
6. Definitions. For purposes of this Agreement the following terms shall
have the meanings specified below:
6.1 "Board" or "Board of Directors". The Board of Directors of the
Company.
-15-
<PAGE> 16
6.2 "Cause" . The involuntary termination of Executive by the Company for
the following reasons shall constitute a termination for Cause:
(a) If the termination shall have been the result of an act or acts
by Executive which have been found in an applicable court of law to constitute a
felony (other than traffic-related offenses);
(b) If the termination shall have been the result of an act or acts
by Executive which are in the good faith judgment of the Board to be in
violation of law or of policies of the Company and which result in demonstrably
material injury to the Company;
(c) If the termination shall have been the result of an act or acts
of proven dishonesty by Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or
(d) Upon the willful and continued failure by the Executive
substantially to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness not
constituting a Disability, as defined herein), after a demand in writing for
substantial performance is delivered by the Board, which demand specifically
identifies the manner in which the Board believes that Executive has not
substantially performed his duties.
With respect to clauses (b), (c) or (d) above of this Section, Executive
shall not be deemed to have been involuntarily terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board (after reasonable notice to Executive and
an opportunity for him, together with his counsel, to be heard before the
Board),
-16-
<PAGE> 17
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in clauses (b), (c) or (d) and specifying the
particulars thereof in detail. For purposes of this Agreement, no act or failure
to act by Executive shall be deemed to be "willful" unless done or omitted to be
done by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interests of the Company.
6.3 "Change in Control". Either
(a) the acquisition, directly or indirectly, by any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than LB MBP II or any of its affiliates, of securities
of the Company representing an aggregate of more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities (excluding
the acquisition by persons who own such amount of securities on the date hereof,
or acquisitions by persons who acquire such amount through inheritance), or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period; or
(c) consummation of (i) a merger, consolidation or other business
combination of the Company with any other "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or
affiliate thereof, other than a merger, consolidation or business combination
which would result in the outstanding common stock of the Company immediately
prior thereto continuing to represent (either by remaining
-17-
<PAGE> 18
outstanding or by being converted into common stock of the surviving entity or a
parent or affiliate thereof) more than fifty percent (50%) of the outstanding
common stock of the Company, or such surviving entity or parent or affiliate
thereof, outstanding immediately after such merger, consolidation or business
combination, or (ii) a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company of all or substantially all of Company's
assets;
(d) a Public Offering as defined in the Term Sheet; or
(e) a sale of more than 50% of the assets of the Company;
provided that none of the events described in clauses (b) through (e) shall be
deemed a Change in Control if, immediately following such event, LB MBP II and
its affiliates own 50% or more of the combined voting power of the Company's
then outstanding securities.
6.4 "Code". The Internal Revenue Code of 1986, as it may be amended from
time to time.
6.5 "Confidential Information". All technical, business, and other
information relating to the business of the Company or its subsidiaries or
affiliates, including, without limitation, technical or nontechnical data,
formulae, compilations, programs, devices, methods, techniques, processes,
financial data, financial plans, product plans, and lists of actual or potential
customers or suppliers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality. Such
information and compilations of information shall be contractually subject to
protection under this Agreement whether or not such information constitutes a
trade secret and is
-18-
<PAGE> 19
separately protectable at law or in equity as a trade secret. Confidential
Information does not include confidential business information which does not
constitute a trade secret under applicable law two years after any expiration or
termination of this Agreement.
6.6 "Disability" or "Disabled". Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Company on a full-time basis for a period of six (6) months.
6.7 "Good Reason". A "Good Reason" for termination by Executive of
Executive's employment shall mean the occurrence during the Term (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, and such act or failure to act has
not been corrected within thirty (30) days after written notice of such act or
failure to act is given by Executive to the Company:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as the Group President of the Outdoor Products Group, or a
substantial adverse alteration in the nature or status of the Executive's
responsibilities from those on the date hereof;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of Executive without his consent to a location
more than fifty (50) miles from his principal office on the date hereof or
requiring Executive to be based anywhere other than the Executive's principal
office on the date hereof, except for reasonably required travel on the
Company's business;
(iv) the failure by the Company, without Executive's consent, to pay
to Executive any portion of Executive's current compensation (including
-19-
<PAGE> 20
Base Salary and bonus), or to pay to the Executive any other compensation within
seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates on the date hereof, which is
material to Executive's total compensation, including but not limited to the
Company's Executive Management Target Incentive Plan, any long-term incentive
plan the SERP and the Executive SERP, or any substitute plans, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue the Executive's participation in such plan (or in such substitute or
alternative plan) on a basis not materially less favorable in terms of the
amount of benefits provided;
(vi) the failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by Executive on the date
hereof under any of the Company's pension, life insurance, medical, health and
accident or disability plans, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits or deprive
Executive of any material fringe benefit enjoyed by Executive on the date
hereof, or the failure by the Company to provide Executive with the number of
paid vacation days to which the Executive is entitled under this Agreement; or
(vii) the issuance to the Executive by the Board of Directors or
Chief Executive Officer of any order or instruction regarding the operation of
the Outdoor Products Group which (A) the Executive, in his good faith opinion,
considers to be reasonably likely to have a material adverse effect on the
business and long-term prospects of such Group and (B) is not modified to the
Executive's reasonable satisfaction within 30 days after written notice to the
-20-
<PAGE> 21
Chief Executive Officer from the Executive setting forth his objection to such
order or instruction; or
(viii) any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 7.1 (for purposes of this Agreement, no such purported termination shall
be effective).
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
6.8 "Person" . Any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6.9 "Present Value". The term "Present Value" on any particular date shall
have the same meaning as provided in Section 280G(d)(4) of the Code.
7. Termination Procedures.
7.1 Notice of Termination. During the Term of this Agreement, any
purported termination of Executive's employment (other than by reason of death)
shall be communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 11. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
-21-
<PAGE> 22
Further, a Notice of Termination for Cause is required to include the
information set forth in Section 6.2.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment during the Term of this
Agreement, shall mean (i) if Executive's employment is terminated by his death,
the date of his death, (ii) if Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the full-time performance of Executive's
duties during such thirty (30) day period), and (iii) if Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided, however, that the "Date of Termination" for
purposes of this Agreement shall not be the last day of the Company's fiscal
year and, in the event the last day of the fiscal year is designated as the
"Date of Termination", the "Date of Termination" for purposes hereof shall
automatically be the first day of the next following fiscal year.
8. Contract Non-Assignable. The parties acknowledge that this Agreement
has been entered into due to, among other things, the special skills of
Executive, and agree that this Agreement may not be assigned or transferred by
Executive, in whole or in part, without the prior written consent of the
Company.
9. Successors; Binding Agreement.
-22-
<PAGE> 23
9.1 In addition to any obligations imposed by law upon any successor
to, or transferor of, the Company, the Company will require any successor to, or
transferor of, all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, reorganization,
liquidation, consolidation or otherwise) to expressly assume and agree to
perform this Agreement, in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees and by the Company's
successors and assigns. If Executive shall die while any amount would still be
payable to Executive hereunder (other than amounts which, by their terms,
terminate upon the death of Executive) if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of Executive's estate.
10. Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to the Company.
-23-
<PAGE> 24
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Company: Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
ATTN:_________________________
With a copy to: Richard H. Irving, III
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
To the Executive: James S. Osterman
22329 Clear Creek Road
Estacada, Oregon 97023
With a copy to: Kilpatrick Stockton LLP
ATTN: William J. Vesely, Jr.
Suite 2800
1100 Peachtree Street
Atlanta, GA 303099-4530
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Waiver. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
-24-
<PAGE> 25
granted in this Agreement or the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
14. Indemnification. During the term of this Agreement and after
Executive's termination for the period of time set forth in Section 6.7 of the
Recapitalization Agreement, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or other affiliates or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
Company's request, in each case to the maximum extent permitted by law and under
the Company's Articles of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection afforded to Executive hereunder
be less than that afforded under the Governing Documents as in effect on the
date of this Agreement except from changes mandated by law. During the Term and
for the period of time set forth in Section 6.7 of the Recapitalization
Agreement, Executive shall be covered by any policy of directors and officers
liability insurance maintained by the Company for the benefit of its officers
and directors.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
16. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
17. Arbitration of Disputes; Expenses. All claims by Executive for
compensation and benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
-25-
<PAGE> 26
claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to Executive for a review of a decision denying a claim and shall
further allow Executive to appeal to the Board a decision of the Board within
sixty (60) days after notification by the Board that Executive's claim has been
denied. To the extent permitted by applicable law, any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Atlanta, Georgia, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction. In the event the
Executive incurs legal fees and other expenses in seeking to obtain or to
enforce any rights or benefits provided by this Agreement and is successful, in
whole or in part, in obtaining or enforcing any material rights or benefits
through settlement, arbitration or otherwise, the Company shall promptly pay
Executive's reasonable legal fees and expenses incurred in enforcing this
Agreement and the fees of the arbitrator. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and other expenses
associated with any dispute.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
EXECUTIVE:
/s/ JAMES S. OSTERMAN
______________________________________
JAMES S. OSTERMAN
COMPANY:
By: /s/ BLOUNT INTERNATIONAL INC.
______________________________________
BLOUNT INTERNATIONAL INC.
-26-
<PAGE> 27
SCHEDULE A to
Employment Agreement
PUT AND CALL RIGHTS OF THE
EXECUTIVE AND THE COMPANY
Capitalized terms which are used in this Schedule A and which are not otherwise
defined shall have the meanings ascribed to such terms in the Agreement to which
this Schedule is attached and of which it forms a part, except where
specifically noted that any such term has the meaning ascribed to such term in
the Employee Shareholders Agreement being entered into by and among the Company,
Lehman Brothers Merchant Banking Partners II L.P. ("LB MBP II"), the Executive
and other executives and key employees of the Company (a term sheet for which is
attached hereto).
A.
Triggering Events
1. Termination by the Company for Cause; Voluntary Termination without Good
Reason. If, during the Term, the Executive's employment is either (x)
involuntarily terminated by the Company for Cause or (y) terminated by the
Executive without Good Reason:
(a) All shares of Company common stock ("Common Stock") purchased by the
Executive pursuant to the exercise of stock options ("Options") granted to the
Executive ("Option Shares") may be called by the Company at the lesser of (x)
the purchase price paid by the Executive therefor (the "Exercise Price") and (y)
Fair Market Value (as defined in Section D hereof).
(b) All Options then held by the Executive shall be forfeited, without any
consideration being paid therefor by the Company, as of the Executive's date of
termination of employment with the Company ("Termination Date").
(c) All shares of Common Stock owned by the Executive, other than Option Shares
("Purchased Shares"), may be called by the Company at Fair Market Value.
(d) The Executive shall have no right to put his Option Shares or Purchased
Shares to the Company as a result of such termination of employment.
2. Termination by the Company Without Cause; Termination by the Executive with
Good Reason; Retirement. If, during the Term, the Executive's employment with
the Company is either (x) involuntarily terminated by the Company without Cause,
(y) terminated by the Executive for Good Reason or (z) terminated as a result of
the Executive's Retirement (as defined in the Employee Shareholders Agreement)
from employment with the Company at or after attainment of age 65 (or such
earlier retirement age as permitted under any agreement entered into after
Effective Time (as defined in the Employment Agreement) between the Company and
the Executive or if the Board shall consent thereto in writing):
(a) All Option Shares held for at least six months by the Executive may be
called by the Company at Fair Market Value.
-1-
<PAGE> 28
(b) All Purchased Shares held for at least six months by the Executive may be
called at Fair Market Value.
(c) The Executive shall have no right to put his Option Shares or Purchased
Shares to the Company as a result of such termination of employment.
(d) Except as provided under clauses (a) and (b) above, the Company shall have
no right to call Options, Option Shares or Purchased Shares upon a termination
of employment covered by this Section 2.
Notwithstanding the foregoing, if the Executive elects, he may override the
calls made pursuant to paragraphs (a) or (b) above and retain all or any portion
of his Option Shares and Purchased Shares by giving the Company written notice
of such override within 30 days of his receipt of the call notice.
3. Termination due to Death or Disability. If, during the Term, the Executive's
employment is terminated due to his death or Disability, the Executive (or his
legal representative or the legal representative of his estate, if applicable)
may put all Options, Option Shares and Purchased Shares to the Company or the
Company may call such Options, Option Shares and Purchased Shares, in each case
at Fair Market Value (in the case of Options, net of the Exercise Price);
provided, however, that if the Executive elects, he may override such call and
retain all or any portion of his Options, Option Shares and Purchased Shares by
providing the Company with a written notice of such override within 30 days of
his receipt of the Company's call notice.
[4. Sale of a Company Division. If the Company shall sell the business division
in which the Executive is principally employed (a "Sale"), the Company may call
the Executive's Options, Option Shares and Purchased Shares at Fair Market
Value; provided, however, that if the Executive elects, he may override such
call by the Company and retain all or any portion of his Options, Option Shares
and Purchased Shares by providing the Company with a written notice of such
override within 30 days of his receipt of the Company's call notice. The
Executive shall have no right to put his Options, Option Shares or Purchased
Shares to the Company as a result of such a Sale.](1)
B.
Notice of Puts and Calls; Exercise Rights.
1. If the Company intends to call any or all of the Executive's Options, Option
Shares or Purchased Shares as provided herein, it will provide prior written
notice to the Executive (or the Executive's legal representative or the legal
representative of the Executive's estate, as applicable), such notice to include
the Fair Market Value of the Options, Option Shares or Purchased Shares, as the
case may be, and to be given no later than 75 days after the Executive's
- ----------
(1) Include only for employees employed in any of the three business
divisions.
-2-
<PAGE> 29
Termination Date [or Sale (as applicable)](2). If the Executive (or the
Executive's legal representative or the legal representative of his estate, as
applicable) is entitled to put any or all of his Options, Option Shares or
Purchased Shares, notice of such intent must be given by the Executive no later
than 90 days after the Company gives notice that it will not exercise its call.
2. Neither the Executive nor the Company shall have any put or call rights
following a Public Offering (as such term is defined in the Employee
Shareholders Agreement).
3. Any exercise of put or call rights may be for all or a portion of the
Options, Option Shares and Purchased Shares subject thereto, as determined in
the sole discretion of the holder of such rights.
C. Limitation on Put and Call Rights. Notwithstanding anything in this Schedule
A to the contrary, the Company shall not be required to purchase any Options,
Option Shares or Purchased Shares (whether through the exercise of a put or a
call) if such purchase would be, or would result in, a violation of the terms of
its then existing debt agreements or any applicable law or regulation. In
addition, no such put or call will occur if, in the reasonable discretion of the
Board, such purchase would be reasonably likely to (i) impair the Company's
available cash, (ii) require unsuitable additional debt to be incurred by the
Company or (iii) result in any other adverse economic or financial condition, in
each case only to the extent that any such event described in clauses (i), (ii)
or (iii), individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on the financial condition of the
Company.
D. Fair Market Value. For purposes hereof, the term "Fair Market Value" shall
mean, in respect of each share of Common Stock:
(i)
To the extent the call or put, as the case may be, occurs concurrently with or
within 30 days of a Public Offering, the offering price to the public per share
of common stock of such Public Offering;
(ii)
To the extent the call or put, as the case may be, occurs concurrently with or
within 30 days of a Change of Control, the value of the Company's total equity,
as determined based upon the price per share paid in connection with such Change
of Control, divided by the total number of shares of Common Stock then
outstanding;
(iii)
To the extent clauses (i) and (ii) do not apply and a regular trading market for
the Company's common stock exists following a Public Offering, the average
closing price of such common stock for 10 consecutive trading days ending on the
trading day immediately prior to such call or put; and
- ----------
(2) Include bracketed language only for division employees.
-3-
<PAGE> 30
(iv)
At all other times, the fair market value of the Company's total equity, as
determined by the Board in good faith divided by the total number of shares of
Common Stock then outstanding; provided, however, that if the Executive disputes
the Board's determination, within 10 days of the Executive's receipt of notice
of the Board's determination, the Executive and the Board shall jointly select a
qualified independent financial advisor to make such determination, which
determination shall be final and binding upon the parties, provided, further,
that the fees and costs of such financial advisor in connection with its
determination shall be borne equally by the Company and the Executive unless
such financial advisor's fair market value determination is 10% or more greater
than the Board's determination, in which case such fees and costs shall be borne
entirely by the Company.
-4-
<PAGE> 31
EXHIBIT A to
Employment Agreement
SUMMARY OF TERMS
EMPLOYEE SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of agreements ancillary to the
Employment Agreement (the "Employment Agreement") to which this Summary of Terms
is attached and of which it forms a part, including the Employee Shareholders
Agreement and the related Option Agreements. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Employment
Agreement.
EQUITY OWNERSHIP
FOLLOWING
RECAPITALIZATION
Purchased Shares After the closing contemplated by the
Recapitalization Agreement, no less than $15.0
million of the fully diluted equity of the Company
will be purchased by the top 21 executives and key
employees (the "Managers") and approximately 20
other management employees at a purchase price equal
to the price per share of Company common stock paid
in connection with the recapitalization, which is
$30.00 per share (the "Purchased Shares").
OPTION AGREEMENT
Stock Options As soon as practicable after the closing of the
recapitalization, the Company shall grant the
Managers nonqualified options (the "Options")
exercisable for common stock to purchase an
aggregate of 8.0% of the Company's initial
fully-diluted common stock. One-half of such Options
shall be granted as "Time Options"; one-half of such
Options shall be granted as "Performance Options",
which will be earned upon achievement of the
"Management Case" performance as described below.
The Company shall reserve for possible future
issuance to Managers and other executives options to
purchase an aggregate of 100,000 shares of the
Company's common stock at times and on terms to be
determined by the Compensation Committee of the
Board of Directors.
-1-
<PAGE> 32
Except as otherwise provided herein, the terms of
the option plans and agreements governing the
Options shall be substantially similar to the
Company's 1998 Option Plan.
- --Option Term The option term of the Options shall be 10 years
from the Effective Time (as defined in the
Recapitalization Agreement) and 10 years after the
grant with respect to options subsequently granted;
provided, however, that exercisable options shall
expire earlier upon termination of employment as
follows:
Termination for Cause/Voluntary Termination by
Executive Without Good Reason: Immediately upon
termination of employment.
Termination Without Cause/ Termination by Executive
with Good Reason/Death/Disability/Sale of Division:
One year after termination of employment.
Retirement: At the end of the option term.
Unexercisable Options will terminate upon
termination of employment, unless acceleration in
connection with such termination is explicitly
provided for.
Upon a Change-in-Control, the Compensation Committee
may terminate the Options, so long as the Executives
are cashed out of, or are permitted to exercise,
their exercisable Options prior to the
Change-in-Control.
- --Option Exercise Price Options shall be granted at an exercise price equal
to the price per share of Company common stock paid
in connection with the recapitalization, which is
$30.00 per Share.
- --Dilution of Options Option holders shall be subject to the same dilution
as the common stockholders.
- --Reallocation Shares subject to Options that are forfeited may be
reallocated to other employees as determined by the
Compensation Committee in its sole discretion.
Transfer Options may be transferred to Permitted Transferees
(as defined below) so long as
-2-
<PAGE> 33
such Permitted Transferee agrees to be bound by the
terms of all applicable agreements.
Vesting of Equity Rights
- --Normal Vesting of Time Except as provided in the next paragraph, Time
Options Options shall become exercisable with respect to 20%
of the shares subject to such Options on each of the
first five anniversaries of the Effective Time as
and when the Executive's employment continues
through and including the date of each such
anniversary. Time Options shall expire and no longer
be exercisable as provided under the "Option Term"
section herein, but all Time Options shall
accelerate and become fully exercisable as provided
under the "Accelerated Vesting of Options" section
herein.
The Time Options for Executives who are age 61 or
older at the Effective Time shall vest with respect
to 33 1/3% of the shares subject to such Options on
each of the first three anniversaries of the
Effective Time, provided that the Executive's
employment continues through and including the date
of each such anniversary; and provided, further,
that full vesting at Retirement for such Executives
shall only occur if Retirement occurs three or more
years after the Effective Time. Nothing herein shall
be construed as affecting any liquidity rights or
restrictions on transfer specifically set forth
herein.
- --Normal Vesting of Performance Options shall become exercisable at the
Performance Options end of six years, whether or not the EBITDA (as
defined below) targets are achieved, but become
exercisable earlier with respect to up to 20% of the
shares subject to the Performance Options, on each
of the first five anniversaries of the Effective
Time, to the extent the EBITDA for the fiscal year
most recently completed (the "Fiscal Year") equals
or exceeds the EBITDA targets (each, a "Target"), as
set forth in Schedule A attached hereto.
For executives who are age 61 or older at the
Effective Time, the applicable vesting percentage
for Performance Options shall be
-3-
<PAGE> 34
33 1/3% for each of the first three anniversaries of
the Effective Time, using the EBITDA Targets on
Schedule A, and 33 1/3% shall be substituted for 20%
each place in this section where 20% appears.
Notwithstanding the foregoing, Performance Options
shall vest on the following dates at the following
minimum percentages (to the extent not already
vested) for such Executives if Retirement occurs
three or more years after the Effective Time: (i)
the date that is three years after the Effective
Time, 50% of the aggregate shares subject to the
Performance Options; (ii) the date that is four
years after the Effective Time, 66.70% of the
aggregate shares subject to the Performance Options;
(iii) the date that is five years after the
Effective Time, 83.30% of the aggregate shares
subject to the Performance Options and (iv) the date
that is six years after the Effective Time, 100% of
the aggregate shares subject to the Performance
Options. Nothing herein shall be construed as
affecting any liquidity rights or restrictions on
transfer specifically set forth herein.
If the Company's EBITDA for a Fiscal Year is less
than 100% of the Target for such Fiscal Year (a
"Missed Year"), such Performance Options shall
become exercisable with respect to a portion of the
shares subject to Performance Options in an amount
equal to the product of (a) 20% of the total number
of shares subject to Executive's Performance Options
multiplied by (b) the Applicable Percentage (as set
forth in Schedule B attached hereto).
If either all or a portion of the Executive's
Performance Options do not become exercisable in any
year pursuant to the above, the Executive may
"catch-up" if the Cumulative EBITDA Targets (as set
forth in Schedule A attached hereto) are satisfied.
The amount that would vest is equal to 40% if in
year 2, 60% if in year 3, 80% if in year 4 and 100%
if in year 5, less the number of Executive's
Performance Options which had previously vested.
Accelerated Vesting
of Options
-4-
<PAGE> 35
- --Time Options Unvested Time Options shall become fully exercisable
upon (i) death, (ii) disability, (iii)
Change-in-Control or (iv) Retirement (as defined
below). In addition, upon a Termination without
Cause or a Termination by Executive with Good
Reason, Time Options shall become fully exercisable
in the event the Executive had been employed by the
Company for at least three years from the date of
the Effective Time.
- --Performance Options Performance Options shall become fully exercisable
upon a Change-in-Control if, and only if, (a) 100%
or more of the EBITDA Target has been achieved in
each Fiscal Year prior to such Change-in-Control or
(b) 100% of the Cumulative EBITDA Target has been
achieved in the Fiscal Year immediately preceding
such Change-in-Control. Except for the above and any
other acceleration occurring by reason of the
attainment of the EBITDA Targets, vesting of
Performance Options shall not accelerate for any
reason. In addition, upon a Termination without
Cause or for a Termination by Executive with Good
Reason, Performance Options shall become fully
exercisable in the event the Executive had been
employed by the Company for at least three years
from the date of the Effective Time.
Adjustments In the event of any change in the outstanding Common
Stock by reason of a stock split, spin-off, stock
dividend, stock combination or reclassification,
recapitalization, consolidation or merger, or
similar event, the Compensation Committee shall
adjust appropriately the number of shares subject to
Options and make other revisions as it deems are
equitably required.
EMPLOYEE
SHAREHOLDERS
AGREEMENT
Transfer Restrictions Except as provided below, transfers of Purchased
Shares or shares purchased upon exercise of Options
("Option Shares") will not be permitted prior to the
fifth anniversary of the Effective Time. Option
Shares and Purchased Shares may be transferred prior
to the fifth anniversary of the Effective Time (i)
to a
-5-
<PAGE> 36
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements, (ii) pursuant to an exercise
of "Tag-Along" or "Drag-Along" Rights described
below, (iii) pursuant to an exercise of call or put
rights set forth in the Employment Agreement, (iv)
pursuant to an exercise of the registration rights
described below or (v) in connection with a
Change-in-Control so long as long as such transfers
are on a pro rata basis with transfers made by
Lehman Brothers Merchant Banking Partners II L.P.
("LB MBP II") in connection with such
Change-in-Control. Except as provided hereinabove or
as agreed to by the Compensation Committee, Options
will be nontransferable, but may be exercised after
an Optionholder's death by his or her designated
beneficiary or estate.
In addition to the transfer restrictions of the
Employee Stockholder Agreement, any sale of
Purchased Shares or Option Shares shall in all cases
be completed in compliance with applicable
securities laws. The Company will register all
Option Shares on Form S-8 under the Securities Act
of 1933.
Right of First Refusal The Company shall have a right of first refusal on
all management equity rights (which rights the
Company may assign to LB MBP II) until the transfer
restrictions expire. Such right shall not apply to
any transfer to a Permitted Transferee so long as
such Permitted Transferee agrees to be bound by the
terms of all applicable agreements.
Registration Rights Each Executive will have "piggy back" registration
rights if (i) the Company is registering shares of
its common stock under the Securities Act of 1933
for its own account (subject to customary exceptions
for registrations related to exchange offers or
benefit plans), provided that such rights shall only
be available if LB MBP II is selling shares of
common stock for its own account in connection with
such registration, in each case on a pro rata basis
with LB MBP II or (ii) in any Public Offering in
which shares owned by LB MBP II are offered, on a
pro rata basis.
-6-
<PAGE> 37
Beginning on the later of a Public Offering and the
fifth anniversary of the recapitalization, each
Executive will have "demand" registration rights,
subject to customary threshold provisions and
black-out provisions.
Tagalong/Dragalong In the event that LB MBP II or one of its affiliates
is transferring any shares of common stock of the
Company to a third party, it will give each
Executive notice of such proposed transfer,
including the relevant terms thereof. Within 30 days
of receipt of such notice, each Executive may elect
to sell his Option Shares or Purchased Shares to
such third party on a pro rata basis with LB MBP II.
Notwithstanding the foregoing, the "tag-along"
rights shall not apply to any sale of LB MBP II or
its affiliates pursuant to a syndication of its
equity interest in the Company during the six month
period after the Effective Time, provided that the
aggregate amount of such sale does not exceed $100
million.
In the event the LB MBP II or one of its affiliates
is transferring shares of common stock of the
Company to any third party that has made an offer to
purchase such shares, LB MBP II will have the right
to cause each Executive to sell his Option Shares or
Purchased Shares to such third party on a pro rata
basis.
DEFINITIONS
EBITDA "EBITDA" shall be defined in a manner consistent
with the Company's debt instruments entered into in
connection with the recapitalization contemplated by
the Recapitalization Agreement.
Permitted Transferees "Permitted Transferees" shall mean (i) each
Executive's heirs, executors, administrators,
testamentary trustees, legatees, beneficiaries or
charitable remaindermen, (ii) a trust the
beneficiaries of which include only such Executive,
such Executive's spouse, lineal descendants or any
other member of the family of such Executive; or
(iii) any person if LB MBP II has given its prior
written consent to the applicable transfer.
-7-
<PAGE> 38
Public Offering "Public Offering" shall mean the sale of shares of
any class of the Company's stock to the public
pursuant to an effective registration statement
(other than a registration statement on Form S-4 or
S-8 or any similar or successor form) filed under
the Securities Act of 1933 which results in an
active trading market of 25% or more of the
outstanding shares of the Company's common stock.
There shall be deemed to be an "active trading
market" if the Company's common stock is listed or
quoted on a national exchange or the NASDAQ National
Market.
Retirement "Retirement" shall mean normal retirement under the
terms of any tax-qualified retirement plan of the
Company or retirement, which retirement occurs no
earlier than three years after the Effective Time,
except as permitted under any agreement between the
Company and the Executive to the extent such
agreement (i) by its terms currently provides that
retirement is to begin upon attainment of age 65
(even if earlier than the third anniversary of the
Effective Time) or provides that retirement is to
begin after age 64 (which occurs three years after
the Effective Time) or (ii) is entered into after
the Effective Time and permits the Executive to
retire prior to attainment of age 65 and the third
anniversary of the Effective Time. Except as
provided in the preceding sentence, any purported
retirement prior to the third anniversary of the
Effective Time, shall be treated the same as a
voluntary termination.
Schedule A
EBITDA Targets
($ in millions)
<TABLE>
<CAPTION>
"Management
Case" Cumulative
EBITDA Target* EBITDA Target*
-------------- --------------
<S> <C> <C>
1999 $166.2 $166.2
2000 $223.7 $389.9
2001 $246.3 $636.2
2002 $270.7 $906.9
2003 $295.9 $1,202.8
</TABLE>
-8-
<PAGE> 39
* Upon disposition or acquisition of any business or substantial portion of the
assets of the Company or another company, the EBITDA Targets for the year of
such disposition or such acquisition and each subsequent year shall be adjusted
to eliminate or include, as the case may be, the income and expense to the
business or assets that were subject to disposition or acquisition, but only to
the extent not already done so in connection with the calculation of EBITDA.
Such adjustments must be consented to by a majority of the non-management
directors of the Board of the Company. If such directors cannot so consent, the
adjustment proposal shall be submitted to the Company's independent auditors,
who can consult with the necessary consultants for binding resolution.
-9-
<PAGE> 40
Schedule B
Applicable Percentage
<TABLE>
<CAPTION>
Percentage of EBITDA
Target Achieved Applicable
(annual or cumulative) (Pct.) Percentage
- ----------------------------- ----------
<S> <C>
Less than 85 0.00
85 25.00
86 30.00
87 35.00
88 40.00
89 45.00
90 50.00
91 55.00
92 60.00
93 65.00
94 70.00
95 75.00
96 80.00
97 85.00
98 90.00
99 95.00
100 100.00
</TABLE>
-10-
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of April,
1999, by and between BLOUNT INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and RICHARD H. IRVING ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
agreement ("Prior Agreement") providing for Executive's employment by the
Company and specifying the terms and conditions of such employment; and
WHEREAS, the Company entered into an Agreement and Plan of Merger and
Recapitalization (the "Recapitalization Agreement") dated the date hereof with
Red Dog Acquisition Corp. ("Newco"), a wholly owned subsidiary of Lehman
Brothers Merchant Banking Partners II L.P. ("LB MBP II"); and
WHEREAS, pursuant to the Recapitalization Agreement, the Company will be
recapitalized through a merger with and into Newco, following which
substantially all of the outstanding capital stock of the Company will be held
by LB MBP II; and
WHEREAS, the Company desires to recognize Executive's superior performance
and continuing value to the Company and its shareholders by modifying the Prior
Agreement and restating such agreement in a single document as hereinafter
provided; and
WHEREAS, Executive desires to continue his employment with the Company on
the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. Purpose and Effectiveness.
<PAGE> 2
2
(a) The purpose of this Agreement is to amend the Prior Agreement,
to recognize Executive's significant contributions to the overall financial
performance and success of the Company, and to provide a single, integrated
document which shall provide the basis for Executive's continued employment by
the Company;
(b) This Agreement shall not be effective until the Effective Time
(as defined in the Recapitalization Agreement), and this Agreement shall
terminate immediately if the Recapitalization Agreement is terminated in
accordance with its terms prior to the Effective Time.
2. Employment and Term.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive, and Executive hereby accepts employment, as
Senior Vice President and General Counsel of the Company and shall have such
responsibilities, duties and authority that are consistent with such position as
may from time to time be assigned to Executive by the Board. Executive hereby
agrees that during the Term of this Agreement he will devote substantially all
his working time, attention and energies to the diligent performance of his
duties as Senior Vice President and General Counsel of the Company. With the
consent of the Board of Directors, the Executive may serve as a director on the
boards of directors or trustees of additional companies and organizations.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall be for a rolling, two year term (the
"Term") commencing on the Effective Time, and shall be deemed to automatically,
without further action by either the Company or Executive, extend each day for
an additional day, such that the remaining term of the Agreement
<PAGE> 3
3
shall continue to be two years; provided, however, that (i) either party may, by
written notice to the other, cause this Agreement to cease to extend
automatically and, upon such notice, the "Term" of this Agreement shall be the
two years following the expiration of such Term, and (ii) the Term of this
Agreement shall not extend beyond the date Executive attains age 65, unless the
parties otherwise agree in writing. If no such notice to cease to extend has
been given and this Agreement is terminated pursuant to Section 5.1 or 5.2
hereof, for the purposes of calculating and assessing the damages to Executive
as a result of such termination, the remaining Term of this Agreement shall be
deemed to be two years from the date of such termination (or, if earlier, the
date Executive attains age 65).
3. Compensation and Benefits. As compensation for his services during the
Term of this Agreement, Executive shall be paid and receive the amounts and
benefits set forth in subsections (a) through (h) below:
(a) An annual base salary ("Base Salary") of Two-Hundred Ninety-Two
Thousand and No/100 Dollars ($292,000.00), prorated for any partial year of
employment. Executive's Base Salary shall be subject to annual review for
increases at such time as the Company conducts salary reviews for its executive
officers generally. Executive's salary shall be payable in substantially equal
installments on a bi-monthly basis, or in accordance with the Company's regular
payroll practices in effect from time to time for executive officers of the
Company.
(b) Executive shall be eligible to participate in the Executive
Management Target Incentive Plan and such other annual incentive plans as may be
established by the Company from time to time for its executive officers. The
Board or a committee of the Board will establish performance goals each
<PAGE> 4
4
year under the incentive plans, and Executive's annual Target Bonus shall be 45%
of Base Salary; the maximum award for exceeding the performance goals (which
will be determined in accordance with the current plan design) shall be 90% of
Base Salary. The annual incentive bonus payable under this subsection (b) shall
be payable as a lump sum at the same time bonuses are paid to other senior
executives after certification by the Compensation Committee of the Board, that
the applicable performance objectives have been met, unless Executive elects to
defer all or a portion of such amount pursuant to any deferral plan established
by the Company for such purpose.
(c) Promptly upon commencement of the Term, Executive shall make a
minimum investment in the equity ("Purchased Equity") of the Company of 60% of
the aggregate amount of the net proceeds remaining after all applicable taxes
have been paid, resulting from cancellation of his outstanding stock options in
accordance with Section 2.2 of the Recapitalization Agreement. The Company and
Executive shall endeavor to structure such investment in the most tax and
accounting efficient manner reasonably possible under the relevant
circumstances. In respect of such investment, the Company will grant Executive
50,000 options to purchase shares of the Company's Common Stock that will vest
over time ("Time Options") and the Company will grant Executive
performance-based options for 50,000 shares of the Company's Common Stock
("Performance Options") (the Time Options and the Performance Options are
collectively referred to herein as "Options"). The terms and conditions of the
Time Options and the Performance Options shall be as set forth on the Summary of
Terms, attached hereto as Exhibit A (the "Term Sheet'), and the Company will
enter into separate Option Agreements with Executive covering the grant of such
Options. Executive will be eligible to participate in such other stock option
<PAGE> 5
5
programs as may be established from time to time by the Company for its
executive officers. Executive will participate in any long-term incentive plans
established by the Company for executive officers at his level.
The other terms and conditions applicable to the Purchased Equity
and the Options shall be as provided in the Term Sheet and the parties agree to
enter into an Employee Shareholders Agreement which will include the items
covered in the Term Sheet and contain such other customary terms and conditions
as are appropriate for such an agreement and are mutually agreeable to Executive
and Company (and to LB MBP II, where applicable). The Purchased Equity and the
Options will be subject to put and call rights and restrictions as set forth in
Schedule A.
(d) Executive shall continue to be a participant in the Blount, Inc.
and Subsidiaries Supplemental Retirement Benefit Plan ("SERP").
(e) Executive shall be entitled to participate in, or receive
benefits under, any "employee benefit plan" (as defined in Section 3(3) of
ERISA) or employee benefit arrangement made generally available by the Company
to its executive officers, including plans providing retirement, 401(k)
benefits, deferred compensation, health care (including executive medical), life
insurance, disability and similar benefits.
(f) The Company will reimburse Executive for membership dues and
assessments at recreational and social clubs if submitted to and approved by the
Chief Executive Officer of the Company. Executive will be provided an automobile
in accordance with the Company's automobile policy for Executives, and the
Company will pay all insurance, maintenance, fuel, oil and related operational
expenses for such automobile. Executive will receive three weeks vacation during
the Term. Executive will be provided an annual physical
<PAGE> 6
6
examination and a financial/tax consultant for personal financial and tax
planning. Executive will be promptly reimbursed by the Company for all
reasonable business expenses he incurs in carrying out his duties and
responsibilities under this Agreement.
(g) Executive shall continue to participate in the Company's
Executive Life Insurance Program, which will provide a benefit equal to
$250,000. This insurance will be paid-up on the date Executive attains 65 and
will be delivered to Executive as a paid-up insurance policy upon his retirement
from the Company at or after age 65. The life insurance provided to Executive
under the Executive Life Insurance Program shall be in addition to any life
insurance he receives under the Company's group term policy under subsection (e)
above.
(h) Executive will be paid a tax gross-up amount by the Company to
cover any additional federal or state income taxes he incurs as a result of
being required to include in taxable income the amount of the premiums or costs
for the insurance described in subsection (g) above.
<PAGE> 7
7
4. Confidentiality and Noncompetition.
(a) Executive acknowledges that, prior to and during the Term of
this Agreement, the Company has furnished and will furnish to Executive
Confidential Information which could be used by Executive on behalf of a
competitor of the Company to the Company's substantial detriment. Moreover, the
parties recognize that Executive during the course of his employment with the
Company may develop important relationships with customers and others having
valuable business relationships with the Company. In view of the foregoing,
Executive acknowledges and agrees that the restrictive covenants contained in
this Section are reasonably necessary to protect the Company's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the Company's
Confidential Information and shall not disclose to any Person, or otherwise use,
except in connection with his duties performed in accordance with this
Agreement, any Confidential Information at any time, including following the
termination of his employment with the Company for any reason; provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or administrative agency of competent jurisdiction,
in which event Executive will promptly notify the Company of such order or
subpoena to provide the Company an opportunity to protect its interests.
Executive's obligations under this Section 4(b) shall survive any expiration or
termination of this Agreement for any reason, provided that Executive may after
such expiration or termination disclose Confidential Information with the prior
written consent of the Board.
(c) Upon the termination or expiration of his employment hereunder,
Executive agrees to deliver promptly to the Company all Company
<PAGE> 8
8
files, customer lists, management reports, memoranda, research, Company forms,
financial data and reports and other documents supplied to or created by him in
connection with his employment hereunder (including all copies of the foregoing)
in his possession or control, and all of the Company's equipment and other
materials in his possession or control. Executive's obligations under this
Section 4(c) shall survive any expiration or termination of this Agreement.
(d) Upon the termination or expiration of his employment under this
Agreement, Executive agrees that for a period of one (1) year from his date of
termination or until the end of the period for which he is entitled to receive
compensation under Section 5.1(a) below, whichever is longer, he shall not (i)
enter into or engage in the design, manufacture, marketing or sale of any
products similar to those produced or offered by the Company or its affiliates
in the area of North America, either as an individual, partner or joint
venturer, or as an employee, agent or salesman, or as an officer, director, or
shareholder of a corporation, (ii) divert or attempt to divert any person,
concern or entity which is furnished products or services by the Company from
doing business with the Company or otherwise change its relationship with the
Company, or (iii) solicit, lure or attempt to hire away any of the employees of
the Company with whom the Executive interacted directly or indirectly while
employed with the Company.
(e) Executive acknowledges that if he breaches or threatens to
breach this Section 4, his actions may cause irreparable harm and damage to the
Company which could not be compensated in damages. Accordingly, if Executive
breaches or threatens to breach this Section 4, the Company shall be entitled to
seek injunctive relief, in addition to any other rights or remedies of the
Company. The existence of any claim or cause of action by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not
<PAGE> 9
9
constitute a defense to the enforcement by the Company of Executive's agreement
under this Section 4(e).
5. Termination.
5.1 By Executive. Executive shall have the right to terminate his
employment hereunder at any time by Notice of Termination (as described in
Section 7). If Executive terminates his employment because (i) the Company has
materially breached this Agreement, and such breach has not been cured within
thirty (30) days after written notice of such breach is given by Executive to
the Company; or (ii) Executive has determined that his termination is for Good
Reason (as defined in Section 6.7), Executive shall be entitled to receive the
compensation and benefits set forth in subsections (a) through (i) below. If
Executive terminates his employment other than pursuant to clauses (i) or (ii)
of this Section 5.1, the Company's obligations under this Agreement shall cease
as of the date of such termination. Unless specified otherwise, the time periods
in (a) through (i) below shall be twenty-four (24) months commencing on the date
of Executive's termination ("Severance Period"). The Company agrees that if
Executive terminates employment and is entitled to compensation and benefits
under this Section 5.1, he shall not be required to mitigate damages by seeking
other employment, nor shall any amount he earns reduce the amount payable by the
Company hereunder.
(a) Base Salary - Executive will continue to receive his Base Salary
as then in effect (subject to withholding of all applicable taxes) for the
Severance Period in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later than 30 days
after his termination of employment; provided, further, that the amount of such
<PAGE> 10
10
lump sum payment shall be determined by taking the salary payments to be made
and discounting them to their Present Value (as defined in Section 6.9) on the
date Executive's employment under this Agreement is terminated.
(b) Bonuses and Incentives - Executive shall receive bonus payments
from the Company for each month of the Severance Period in an amount for each
such month equal to one-twelfth of the average of the bonuses earned by him for
the two fiscal years in which bonuses were paid immediately preceding the year
in which such termination occurs. Any bonus amounts that Executive had
previously earned from the Company but which may not yet have been paid as of
the date of termination shall be payable on the date such amounts are payable to
other executives and Executive's termination shall not affect the payment of
such bonus. Executive shall also receive a prorated bonus for any uncompleted
fiscal year at the date of termination (assuming the Target Award level has been
achieved), based upon the number of days that he was employed during such fiscal
year. The bonus amounts determined herein shall be paid in a single lump sum
payment, to be paid not later than 30 days after termination of employment;
provided, that the amount of such lump sum payment representing the monthly
bonus payments shall be determined by taking the monthly bonus payments to be
made and discounting them to their Present Value on the date Executive's
employment under this Agreement is terminated.
(c) Health and Life Insurance Coverage - The health (including
executive medical) and group term life insurance benefits coverage provided to
Executive at his date of termination shall be continued for the Severance Period
at the same level and in the same manner as then provided to actively employed
executive participants as if his employment under this Agreement had not
<PAGE> 11
11
terminated. Any additional coverages Executive had at termination, including
dependent coverage, will also be continued for such period on the same terms, to
the extent permitted by the applicable policies or contracts. Any costs
Executive was paying for such coverages at the time of termination shall be paid
by Executive by separate check payable to the Company each month in advance. If
the terms of any benefit plan referred to in this Section, or the laws
applicable to such plan, do not permit continued participation by Executive,
then the Company will arrange for other coverage at its expense providing
substantially similar benefits (including the same deductible and co-payment
levels provided under the Company's policy).
(d) Employee Retirement Plans - To the extent permitted by the
applicable plan, Executive will be entitled to continue to participate,
consistent with past practices, in all employee retirement and deferred
compensation plans maintained by the Company in effect as of his date of
termination, including, to the extent such plans are still maintained by the
Company, the Blount Retirement Plan, the Blount 401(k) Plan, the Blount Excess
401(k) Plan, and the SERP. Executive's participation in such retirement plans
shall continue for the Severance Period and the compensation payable to
Executive under (a) and (b) above shall be treated (unless otherwise excluded)
as compensation under the plan as if it were paid on a monthly basis. For
purposes of the Blount 401(k) Plan and the Blount Excess 401(k) Plan, he will
receive an amount equal to the Company's contributions to the plan, assuming
Executive had participated in such plan at the maximum permissible contributions
level. If continued participation in any plan is not permitted by the plan or by
applicable law, the Company shall pay to Executive or, if applicable, his
beneficiary a supplemental benefit equal to the present value on the date of
termination of employment
<PAGE> 12
12
under this Agreement (calculated as provided in the plan) of the excess of (i)
the benefit Executive would have been paid under such plan if he had continued
to be covered for the Severance Period (less any amounts Executive would have
been required to contribute), over (ii) the benefit actually payable under such
plan. The Company shall pay the Present Value of such additional benefits (if
any) in a lump sum within 30 days of his termination of employment.
(e) Effect of Lump Sum Payment. The lump sum payment under (a) or
(b) above shall not alter the amounts Executive is entitled to receive under the
benefit plans described in this section. Benefits under such plans shall be
determined as if Executive had remained employed and received such payments over
the Severance Period.
(f) SERP. On his date of termination, Executive shall be treated for
puroses of determining his benefit under the SERP as if he had earned additional
years of benefit service equal to the length of the Severance Period and had
attained the age he would be at the end of the Severance Period.
(g) Executive Life Insurance Program. During the Severance Period,
the Company will continue to pay the premiums on Executive's policy under the
Executive Life Insurance Program.
(h) Stock Options. As of his date of termination, all of the Time
Options and the Performance Options, and any other outstanding stock options
granted to Executive by the Company, shall become vested and exercisable as
provided in the Term Sheet.
(i) Office Space; Secretarial. Executive will be provided
appropriate office space, his then current administrative assistant (such
assistant shall be paid or provided similar compensation and benefits to that
being
<PAGE> 13
13
provided at the time Executive terminates employment), and reasonable expenses
related thereto for a period of twelve (12) months from Executive's date of
termination.
5.2 By Company. The Company shall have the right to terminate
Executive's employment under this Agreement at any time during the Term by
Notice of Termination (as described in Section 7). If the Company terminates
Executive's employment under this Agreement (i) for Cause, as defined in Section
6.2, (ii) if Executive becomes Disabled, or (iii) upon Executive's death, the
Company's obligations under this Agreement shall cease as of the date of
termination; provided, however, that Executive will be entitled to whatever
benefits are payable pursuant to the terms of any health, life insurance,
disability, welfare, retirement or other plan or program maintained by the
Company. If the Company terminates Executive during the Term of this Agreement
other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive
shall be entitled to receive the compensation and benefits provided in
subsections (a) through (i) of Section 5.1 above for the Severance Period, and
subject to the provisions (including the nonmitigation provision) and
limitations therein.
5.3 Limitation on Benefits Upon Termination.
(a) Notwithstanding anything in this Agreement to the contrary, any
benefits payable or to be provided to Executive by the Company or its
affiliates, whether pursuant to this Agreement or otherwise, which are treated
as Severance Payments shall be modified or reduced in the manner provided in (b)
below to the extent necessary so that the benefits payable or to be provided to
Executive under this Agreement that are treated as Severance Payments, as well
as any payments or benefits provided outside of this Agreement that are so
<PAGE> 14
14
treated, shall not cause the Company to have paid an Excess Severance Payment.
In computing such amount, the parties shall take into account all provisions of
Code Section 280G, and the regulations thereunder, including making appropriate
adjustments to such calculation for amounts established to be Reasonable
Compensation. If Executive becomes entitled to compensation and benefits under
Section 5.1 or section 5.2 and such payments are considered to be Severance
Payments contingent upon a Change in Control, Executive shall be required to
mitigate damages (but only with respect to amounts that would be treated as
Severance Payments) by reducing the amount of Severance Payments he is entitled
to receive by any compensation and benefits he earns from subsequent employment
(but shall not be required to seek such employment) during the 24-month period
after termination (or such lesser period as he is entitled to extended
benefits).
(b) In the event that the amount of any Severance Payments which
would be payable to or for the benefit of Executive under this Agreement must be
modified or reduced to comply with this Section 5.3, Executive shall direct
which Severance Payments are to be modified or reduced; provided, however, that
no increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Company.
(c) This Section 5.3 shall be interpreted so as to avoid the
imposition of excise taxes on Executive under Section 4999 of the Code or the
disallowance of a deduction to the Company pursuant to Section 280G(a) of the
Code with respect to amounts payable under this Agreement or otherwise.
Notwithstanding the foregoing, in no event will any of the provisions of this
Section 5.3 create, without the consent of Executive, an obligation on the part
of
<PAGE> 15
15
Executive to refund any amount to the Company following payment of such amount.
(d) In addition to the limits otherwise provided in this Section
5.3, to the extent permitted by law, Executive may in his sole discretion elect
to reduce any payments he may be eligible to receive under this Agreement to
prevent the imposition of excise taxes on Executive under Section 4999 of the
Code.
(e) For purposes of this Section 5.3, the following definitions
shall apply:
(i) "Excess Severance Payment" - The term "Excess Severance Payment"
shall have the same meaning as the term "excess parachute payment" defined
in Section 280G(b)(1) of the Code.
(ii) "Severance Payment" - The term "Severance Payment" shall have
the same meaning as the term "parachute payment" defined in Section
280G(b)(2) of the Code.
(iii) "Reasonable Compensation" - The term "Reasonable Compensation"
shall have the same meaning as provided in Section 280G(b)(4) of the Code.
The parties acknowledge and agree that, in the absence of a change in
existing legal authorities or the issuance of contrary authorities,
amounts received by Executive as damages under or as a result of a breach
of this Agreement shall be considered Reasonable Compensation.
(iv) "Present Value" - The term "Present Value" shall have the same
meaning as provided in Section 480G(d)(4) of the Code.
6. Definitions. For purposes of this Agreement the following terms shall
have the meanings specified below:
<PAGE> 16
16
6.1 "Board" or "Board of Directors". The Board of Directors of the
Company.
6.2 "Cause". The involuntary termination of Executive by the
Company for the following reasons shall constitute a termination for Cause:
(a) If the termination shall have been the result of an act or acts
by Executive which have been found in an applicable court of law to constitute a
felony (other than traffic-related offenses);
(b) If the termination shall have been the result of an act or acts
by Executive which are in the good faith judgment of the Board to be in
violation of law or of policies of the Company and which result in demonstrably
material injury to the Company;
(c) If the termination shall have been the result of an act or acts
of proven dishonesty by Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or
(d) Upon the willful and continued failure by the Executive
substantially to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness not
constituting a Disability, as defined herein), after a demand in writing for
substantial performance is delivered by the Board, which demand specifically
identifies the manner in which the Board believes that Executive has not
substantially performed his duties.
With respect to clauses (b), (c) or (d) above of this Section, Executive
shall not be deemed to have been involuntarily terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of
<PAGE> 17
17
the Board at a meeting of the Board (after reasonable notice to Executive and an
opportunity for him, together with his counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in clauses (b), (c) or (d) and specifying the
particulars thereof in detail. For purposes of this Agreement, no act or failure
to act by Executive shall be deemed to be "willful" unless done or omitted to be
done by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interests of the Company.
6.3 "Change in Control". Either
(a) the acquisition, directly or indirectly, by any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than LB MBP II or any of its affiliates, of securities
of the Company representing an aggregate of more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities (excluding
the acquisition by persons who own such amount of securities on the date hereof,
or acquisitions by persons who acquire such amount through inheritance), or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period; or
(c) consummation of (i) a merger, consolidation or other business
combination of the Company with any other "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or
affiliate thereof, other than a merger, consolidation or business
<PAGE> 18
18
combination which would result in the outstanding common stock of the Company
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into common stock of the surviving entity or a
parent or affiliate thereof) more than fifty percent (50%) of the outstanding
common stock of the Company, or such surviving entity or parent or affiliate
thereof, outstanding immediately after such merger, consolidation or business
combination, or (ii) a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company of all or substantially all of Company's
assets;
(d) a Public Offering as defined in the Term Sheet; or
(e) a sale of more than 50% of the assets of the Company; provided
that none of the events described in clauses (b) through (e) shall be deemed a
Change in Control if, immediately following such event, LB MBP II and its
affiliates own 50% or more of the combined voting power of the Company's then
outstanding securities.
6.4 "Code". The Internal Revenue Code of 1986, as it may be amended
from time to time.
6.5 "Confidential Information". All technical, business, and other
information relating to the business of the Company or its subsidiaries or
affiliates, including, without limitation, technical or nontechnical data,
formulae, compilations, programs, devices, methods, techniques, processes,
financial data, financial plans, product plans, and lists of actual or potential
customers or suppliers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality. Such
information and
<PAGE> 19
19
compilations of information shall be contractually subject to protection under
this Agreement whether or not such information constitutes a trade secret and is
separately protectable at law or in equity as a trade secret. Confidential
Information does not include confidential business information which does not
constitute a trade secret under applicable law two years after any expiration or
termination of this Agreement.
6.6 "Disability" or "Disabled". Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Company on a full-time basis for a period of six (6) months.
6.7 "Good Reason". A "Good Reason" for termination by Executive of
Executive's employment shall mean the occurrence during the Term (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, and such act or failure to act has
not been corrected within thirty (30) days after written notice of such act or
failure to act is given by Executive to the Company:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as the Senior Vice President and General Counsel of the
Company, or a substantial adverse alteration in the nature or status of the
Executive's responsibilities from those on the date hereof;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of the Company's principal executive offices to
a location more than fifty (50) miles from Montgomery, Alabama, or the Company's
requiring Executive to be based anywhere other than the Company's principal
executive offices, except for reasonably required travel on the Company's
business; provided that the Company's principal executive offices
<PAGE> 20
20
may be relocated to Birmingham, Alabama or Atlanta, Georgia under terms (such as
relocation allowance, housing allowance (including selling of existing home and
acquisition of new home) and travel allowances) reasonably acceptable to
Executive, in which case the 50 mile limitation shall apply to such city;
(iv) the failure by the Company, without Executive's consent, to pay
to Executive any portion of Executive's current compensation (including Base
Salary and bonus), or to pay to the Executive any other compensation within
seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates on the date hereof, which is
material to Executive's total compensation, including but not limited to the
Company's Executive Management Target Incentive Plan, any long-term incentive
plan, and the SERP, or any substitute plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation in such plan (or in such substitute or alternative plan) on a
basis not materially less favorable in terms of the amount of benefits provided;
(vi) the failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by Executive on the date
hereof under any of the Company's pension, life insurance (including the
Executive Life Insurance Program), medical, health and accident or disability
plans, the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive on the date hereof, or the failure
by the Company to provide Executive with the number of paid vacation days to
which the
<PAGE> 21
21
Executive is entitled under this Agreement; or
(vii) any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 7.1 (for purposes of this Agreement, no such purported termination shall
be effective).
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
6.8 "Person". Any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6.9 "Present Value". The term "Present Value" on any particular date
shall have the same meaning as provided in Section 280G(d)(4) of the Code.
7. Termination Procedures.
7.1 Notice of Termination. During the Term of this Agreement, any
purported termination of Executive's employment (other than by reason of death)
shall be communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 11. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include the
information
<PAGE> 22
22
set forth in Section 6.2.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment during the Term of this
Agreement, shall mean (i) if Executive's employment is terminated by his death,
the date of his death, (ii) if Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the full-time performance of Executive's
duties during such thirty (30) day period), and (iii) if Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided, however, that the "Date of Termination" for
purposes of this Agreement shall not be the last day of the Company's fiscal
year and, in the event the last day of the fiscal year is designated as the
"Date of Termination", the "Date of Termination" for purposes hereof shall
automatically be the first day of the next following fiscal year.
8. Contract Non-Assignable. The parties acknowledge that this Agreement
has been entered into due to, among other things, the special skills of
Executive, and agree that this Agreement may not be assigned or transferred by
Executive, in whole or in part, without the prior written consent of the
Company.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor
to, or transferor of, the Company, the Company will require any
<PAGE> 23
23
successor to, or transferor of, all or substantially all of the business and/or
assets of the Company (whether direct or indirect, by purchase, merger,
reorganization, liquidation, consolidation or otherwise) to expressly assume and
agree to perform this Agreement, in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees and by the Company's
successors and assigns. If Executive shall die while any amount would still be
payable to Executive hereunder (other than amounts which, by their terms,
terminate upon the death of Executive) if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of Executive's estate.
10. Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to the Company.
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
<PAGE> 24
24
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Company: Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
ATTN: _______________________
With a copy to: _______________
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
To the Executive: Richard H. Irving III
8596 Old Marsh Way
Montgomery, Alabama 36117
With a copy to: Kilpatrick Stockton LLP
ATTN: William J. Vesely, Jr.
Suite 2800
1100 Peachtree Street
Atlanta, GA 303099-4530
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Waiver. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or the future performance of any such term or
<PAGE> 25
25
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
14. Indemnification. During the term of this Agreement and after
Executive's termination for the period of time set forth in Section 6.7 of the
Recapitalization Agreement, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or other affiliates or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
Company's request, in each case to the maximum extent permitted by law and under
the Company's Articles of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection afforded to Executive hereunder
be less than that afforded under the Governing Documents as in effect on the
date of this Agreement except from changes mandated by law. During the Term and
for the period of time set forth in Section 6.7 of the Recapitalization
Agreement, Executive shall be covered by any policy of directors and officers
liability insurance maintained by the Company for the benefit of its officers
and directors.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
16. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
17. Arbitration of Disputes; Expenses. All claims by Executive for
compensation and benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
claim for benefits under this Agreement shall be delivered to Executive in
writing
<PAGE> 26
26
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to Executive for a review of a decision denying a claim and shall
further allow Executive to appeal to the Board a decision of the Board within
sixty (60) days after notification by the Board that Executive's claim has been
denied. To the extent permitted by applicable law, any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Atlanta, Georgia, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction. In the event the
Executive incurs legal fees and other expenses in seeking to obtain or to
enforce any rights or benefits provided by this Agreement and is successful, in
whole or in part, in obtaining or enforcing any material rights or benefits
through settlement, arbitration or otherwise, the Company shall promptly pay
Executive's reasonable legal fees and expenses incurred in enforcing this
Agreement and the fees of the arbitrator. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and other expenses
associated with any dispute.
<PAGE> 27
27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
EXECUTIVE:
/s/ RICHARD H. IRVING, III
_________________________________
RICHARD H. IRVING, III
COMPANY:
By: /s/ BLOUNT INTERNATIONAL, INC.
______________________________
BLOUNT INTERNATIONAL, INC.
<PAGE> 28
SCHEDULE A to
Employment Agreement
PUT AND CALL RIGHTS OF THE
EXECUTIVE AND THE COMPANY
Capitalized terms which are used in this Schedule A and which are
not otherwise defined shall have the meanings ascribed to such terms in the
Agreement to which this Schedule is attached and of which it forms a part,
except where specifically noted that any such term has the meaning ascribed to
such term in the Employee Shareholders Agreement being entered into by and among
the Company, Lehman Brothers Merchant Banking Partners II L.P. ("LB MBP II"),
the Executive and other executives and key employees of the Company (a term
sheet for which is attached hereto).
A. Triggering Events
1. Termination by the Company for Cause; Voluntary Termination
without Good Reason. If, during the Term, the Executive's employment is either
(x) involuntarily terminated by the Company for Cause or (y) terminated by the
Executive without Good Reason:
(a) All shares of Company common stock ("Common Stock") purchased by
the Executive pursuant to the exercise of stock options ("Options")
granted to the Executive ("Option Shares") may be called by the Company at
the lesser of (x) the purchase price paid by the Executive therefor (the
"Exercise Price") and (y) Fair Market Value (as defined in Section D
hereof).
(b) All Options then held by the Executive shall be forfeited,
without any consideration being paid therefor by the Company, as of the
Executive's date of termination of employment with the Company
("Termination Date").
(c) All shares of Common Stock owned by the Executive, other than
Option Shares ("Purchased Shares"), may be called by the Company at Fair
Market Value.
(d) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of
employment.
2. Termination by the Company Without Cause; Termination by the
Executive with Good Reason; Retirement. If, during the Term, the Executive's
employment with the Company is either (x) involuntarily terminated by the
Company without Cause, (y) terminated by the Executive for Good Reason or (z)
terminated as a result of the Executive's Retirement (as defined in the Employee
Shareholders Agreement) from employment with the Company at or after attainment
of age 65 (or such earlier retirement age as permitted under any agreement
entered into after Effective Time (as defined in the Employment Agreement)
between the Company and the Executive or if the Board shall consent thereto in
writing):
<PAGE> 29
2
(a) All Option Shares held for at least six months by the Executive
may be called by the Company at Fair Market Value.
(b) All Purchased Shares held for at least six months by the
Executive may be called at Fair Market Value.
(c) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of
employment.
(d) Except as provided under clauses (a) and (b) above, the Company
shall have no right to call Options, Option Shares or Purchased Shares
upon a termination of employment covered by this Section 2.
Notwithstanding the foregoing, if the Executive elects, he may override the
calls made pursuant to paragraphs (a) or (b) above and retain all or any portion
of his Option Shares and Purchased Shares by giving the Company written notice
of such override within 30 days of his receipt of the call notice.
3. Termination due to Death or Disability. If, during the Term, the
Executive's employment is terminated due to his death or Disability, the
Executive (or his legal representative or the legal representative of his
estate, if applicable) may put all Options, Option Shares and Purchased Shares
to the Company or the Company may call such Options, Option Shares and Purchased
Shares, in each case at Fair Market Value (in the case of Options, net of the
Exercise Price); provided, however, that if the Executive elects, he may
override such call and retain all or any portion of his Options, Option Shares
and Purchased Shares by providing the Company with a written notice of such
override within 30 days of his receipt of the Company's call notice.
[4. Sale of a Company Division. If the Company shall sell the
business division in which the Executive is principally employed (a "Sale"), the
Company may call the Executive's Options, Option Shares and Purchased Shares at
Fair Market Value; provided, however, that if the Executive elects, he may
override such call by the Company and retain all or any portion of his Options,
Option Shares and Purchased Shares by providing the Company with a written
notice of such override within 30 days of his receipt of the Company's call
notice. The Executive shall have no right to put his Options, Option Shares or
Purchased Shares to the Company as a result of such a Sale.](1)
B. Notice of Puts and Calls; Exercise Rights.
1. If the Company intends to call any or all of the Executive's
Options, Option Shares or Purchased Shares as provided herein, it will provide
prior written notice to the Executive (or the Executive's legal representative
or the legal representative of the Executive's estate, as applicable), such
notice to include the Fair Market Value of the Options, Option Shares or
Purchased
- --------
(1) Include only for employees employed in any of the three business
divisions.
<PAGE> 30
3
Shares, as the case may be, and to be given no later than 75 days after the
Executive's Termination Date [or Sale (as applicable)](2). If the Executive (or
the Executive's legal representative or the legal representative of his estate,
as applicable) is entitled to put any or all of his Options, Option Shares or
Purchased Shares, notice of such intent must be given by the Executive no later
than 90 days after the Company gives notice that it will not exercise its call.
2. Neither the Executive nor the Company shall have any put or call
rights following a Public Offering (as such term is defined in the Employee
Shareholders Agreement).
3. Any exercise of put or call rights may be for all or a portion of
the Options, Option Shares and Purchased Shares subject thereto, as determined
in the sole discretion of the holder of such rights.
C. Limitation on Put and Call Rights. Notwithstanding anything in this
Schedule A to the contrary, the Company shall not be required to purchase any
Options, Option Shares or Purchased Shares (whether through the exercise of a
put or a call) if such purchase would be, or would result in, a violation of the
terms of its then existing debt agreements or any applicable law or regulation.
In addition, no such put or call will occur if, in the reasonable discretion of
the Board, such purchase would be reasonably likely to (i) impair the Company's
available cash, (ii) require unsuitable additional debt to be incurred by the
Company or (iii) result in any other adverse economic or financial condition, in
each case only to the extent that any such event described in clauses (i), (ii)
or (iii), individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on the financial condition of the
Company.
D. Fair Market Value. For purposes hereof, the term "Fair Market Value"
shall mean, in respect of each share of Common Stock:
(i) To the extent the call or put, as the case may be, occurs
concurrently with or within 30 days of a Public Offering, the
offering price to the public per share of common stock of such
Public Offering;
(ii) To the extent the call or put, as the case may be, occurs
concurrently with or within 30 days of a Change of Control, the
value of the Company's total equity, as determined based upon the
price per share paid in connection with such Change of Control,
divided by the total number of shares of Common Stock then
outstanding;
(iii) To the extent clauses (i) and (ii) do not apply and a regular
trading market for the Company's common stock exists following a
Public Offering, the average closing price of such common stock for
10 consecutive trading days ending on the trading day immediately
- --------
(2) Include bracketed language only for division employees.
<PAGE> 31
4
prior to such call or put; and
(iv) At all other times, the fair market value of the Company's total
equity, as determined by the Board in good faith divided by the
total number of shares of Common Stock then outstanding; provided,
however, that if the Executive disputes the Board's determination,
within 10 days of the Executive's receipt of notice of the Board's
determination, the Executive and the Board shall jointly select a
qualified independent financial advisor to make such determination,
which determination shall be final and binding upon the parties,
provided, further, that the fees and costs of such financial advisor
in connection with its determination shall be borne equally by the
Company and the Executive unless such financial advisor's fair
market value determination is 10% or more greater than the Board's
determination, in which case such fees and costs shall be borne
entirely by the Company.
<PAGE> 32
EXHIBIT A to
Employment Agreement
SUMMARY OF TERMS
EMPLOYEE SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of agreements
ancillary to the Employment Agreement (the "Employment Agreement") to which this
Summary of Terms is attached and of which it forms a part, including the
Employee Shareholders Agreement and the related Option Agreements. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
the Employment Agreement.
EQUITY OWNERSHIP
FOLLOWING
RECAPITALIZATION
Purchased Shares After the closing contemplated by the Recapitalization
Agreement, no less than $15.0 million of the fully
diluted equity of the Company will be purchased by the
top 21 executives and key employees (the "Managers") and
approximately 20 other management employees at a
purchase price equal to the price per share of Company
common stock paid in connection with the
recapitalization, which is $30.00 per share (the
"Purchased Shares").
OPTION AGREEMENT
Stock Options As soon as practicable after the closing of the
recapitalization, the Company shall grant the Managers
nonqualified options (the "Options") exercisable for
common stock to purchase an aggregate of 8.0% of the
Company's initial fully-diluted common stock. One-half
of such Options shall be granted as "Time Options";
one-half of such Options shall be granted as
"Performance Options", which will be earned upon
achievement of the "Management Case" performance as
described below.
The Company shall reserve for possible future issuance
to Managers and other executives options to purchase an
aggregate of 100,000 shares of the Company's common
stock at times and on terms to be determined by the
Compensation Committee of the Board of Directors.
<PAGE> 33
2
Except as otherwise provided herein, the terms of the
option plans and agreements governing the Options shall
be substantially similar to the Company's 1998 Option
Plan.
- --Option Term The option term of the Options shall be 10 years from
the Effective Time (as defined in the Recapitalization
Agreement) and 10 years after the grant with respect to
options subsequently granted; provided, however, that
exercisable options shall expire earlier upon
termination of employment as follows:
Termination for Cause/Voluntary Termination by Executive
Without Good Reason: Immediately upon termination of
employment.
Termination Without Cause/ Termination by Executive with
Good of Division: One year after termination of
employment.
Retirement: At the end of the option term.
Unexercisable Options will terminate upon termination of
employment, unless acceleration in connection with such
termination is explicitly provided for.
Upon a Change-in-Control, the Compensation Committee may
terminate the Options, so long as the Executives are
cashed out of, or are permitted to exercise, their
exercisable Options prior to the Change-in-Control.
- --Option Exercise Price Options shall be granted at an exercise price equal to
the price per share of Company common stock paid in
connection with the recapitalization, which is $30.00
per Share.
- --Dilution of Options Option holders shall be subject to the same dilution as
the common stockholders.
- --Reallocation Shares subject to Options that are forfeited may be
reallocated to other employees as determined by the
Compensation Committee in its sole discretion.
Transfer Options may be transferred to Permitted Transferees (as
defined below) so long as such Permitted Transferee
agrees to be bound
<PAGE> 34
3
by the terms of all applicable agreements.
Vesting of Equity Rights
- --Normal Vesting of Except as provided in the next paragraph, Time Options
Time Options shall become exercisable with respect to 20% of the
shares subject to such Options on each of the first five
anniversaries of the Effective Time as and when the
Executive's employment continues through and including
the date of each such anniversary. Time Options shall
expire and no longer be exercisable as provided under
the "Option Term" section herein, but all Time Options
shall accelerate and become fully exercisable as
provided under the "Accelerated Vesting of Options"
section herein.
The Time Options for Executives who are age 61 or older
at the Effective Time shall vest with respect to 33 1/3%
of the shares subject to such Options on each of the
first three anniversaries of the Effective Time,
provided that the Executive's employment continues
through and including the date of each such anniversary;
and provided, further, that full vesting at Retirement
for such Executives shall only occur if Retirement
occurs three or more years after the Effective Time.
Nothing herein shall be construed as affecting any
liquidity rights or restrictions on transfer
specifically set forth herein.
- --Normal Vesting of Performance Options shall become exercisable at the end
Performance Options of six years, whether or not the EBITDA (as defined
below) targets are achieved, but become exercisable
earlier with respect to up to 20% of the shares subject
to the Performance Options, on each of the first five
anniversaries of the Effective Time, to the extent the
EBITDA for the fiscal year most recently completed (the
"Fiscal Year") equals or exceeds the EBITDA targets
(each, a "Target"), as set forth in Schedule A attached
hereto.
For executives who are age 61 or older at the Effective
Time, the applicable vesting percentage for Performance
Options shall be 33 1/3% for each of the first three
anniversaries
<PAGE> 35
4
of the Effective Time, using the EBITDA Targets on
Schedule A, and 33 1/3% shall be substituted for 20%
each place in this section where 20% appears.
Notwithstanding the foregoing, Performance Options shall
vest on the following dates at the following minimum
percentages (to the extent not already vested) for such
Executives if Retirement occurs three or more years
after the Effective Time: (i) the date that is three
years after the Effective Time, 50% of the aggregate
shares subject to the Performance Options; (ii) the date
that is four years after the Effective Time, 66.70% of
the aggregate shares subject to the Performance Options;
(iii) the date that is five years after the Effective
Time, 83.30% of the aggregate shares subject to the
Performance Options and (iv) the date that is six years
after the Effective Time, 100% of the aggregate shares
subject to the Performance Options. Nothing herein shall
be construed as affecting any liquidity rights or
restrictions on transfer specifically set forth herein.
If the Company's EBITDA for a Fiscal Year is less than
100% of the Target for such Fiscal Year (a "Missed
Year"), such Performance Options shall become
exercisable with respect to a portion of the shares
subject to Performance Options in an amount equal to the
product of (a) 20% of the total number of shares subject
to Executive's Performance Options multiplied by (b) the
Applicable Percentage (as set forth in Schedule B
attached hereto).
If either all or a portion of the Executive's
Performance Options do not become exercisable in any
year pursuant to the above, the Executive may "catch-up"
if the Cumulative EBITDA Targets (as set forth in
Schedule A attached hereto) are satisfied. The amount
that would vest is equal to 40% if in year 2, 60% if in
year 3, 80% if in year 4 and 100% if in year 5, less the
number of Executive's Performance Options which had
previously vested.
Accelerated Vesting
of Options
<PAGE> 36
5
- --Time Options Unvested Time Options shall become fully exercisable
upon (i) death, (ii) disability, (iii) Change-in-Control
or (iv) Retirement (as defined below). In addition, upon
a Termination without Cause or a Termination by
Executive with Good Reason, Time Options shall become
fully exercisable in the event the Executive had been
employed by the Company for at least three years from
the date of the Effective Time.
- --Performance Options Performance Options shall become fully exercisable upon
a Change-in-Control if, and only if, (a) 100% or more of
the EBITDA Target has been achieved in each Fiscal Year
prior to such Change-in-Control or (b) 100% of the
Cumulative EBITDA Target has been achieved in the Fiscal
Year immediately preceding such Change-in-Control.
Except for the above and any other acceleration
occurring by reason of the attainment of the EBITDA
Targets, vesting of Performance Options shall not
accelerate for any reason. In addition, upon a
Termination without Cause or for a Termination by
Executive with Good Reason, Performance Options shall
become fully exercisable in the event the Executive had
been employed by the Company for at least three years
from the date of the Effective Time.
Adjustments In the event of any change in the outstanding Common
Stock by reason of a stock split, spin-off, stock
dividend, stock combination or reclassification,
recapitalization, consolidation or merger, or similar
event, the Compensation Committee shall adjust
appropriately the number of shares subject to Options
and make other revisions as it deems are equitably
required.
EMPLOYEE
SHAREHOLDERS
AGREEMENT
Transfer Restrictions Except as provided below, transfers of Purchased Shares
or shares purchased upon exercise of Options ("Option
Shares") will not be permitted prior to the fifth
anniversary of the Effective Time. Option Shares and
Purchased Shares may be transferred prior to the fifth
anniversary of the Effective Time (i) to a
<PAGE> 37
6
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements, (ii) pursuant to an exercise of
"Tag-Along" or "Drag-Along" Rights described below,
(iii) pursuant to an exercise of call or put rights set
forth in the Employment Agreement, (iv) pursuant to an
exercise of the registration rights described below or
(v) in connection with a Change-in-Control so long as
long as such transfers are on a pro rata basis with
transfers made by Lehman Brothers Merchant Banking
Partners II L.P. ("LB MBP II") in connection with such
Change-in-Control. Except as provided hereinabove or as
agreed to by the Compensation Committee, Options will be
nontransferable, but may be exercised after an
Optionholder's death by his or her designated
beneficiary or estate.
In addition to the transfer restrictions of the Employee
Stockholder Agreement, any sale of Purchased Shares or
Option Shares shall in all cases be completed in
compliance with applicable securities laws. The Company
will register all Option Shares on Form S-8 under the
Securities Act of 1933.
Right of First Refusal The Company shall have a right of first refusal on all
management equity rights (which rights the Company may
assign to LB MBP II) until the transfer restrictions
expire. Such right shall not apply to any transfer to a
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements.
Registration Rights Each Executive will have "piggy back" registration
rights if (i) the Company is registering shares of its
common stock under the Securities Act of 1933 for its
own account (subject to customary exceptions for
registrations related to exchange offers or benefit
plans), provided that such rights shall only be
available if LB MBP II is selling shares of common stock
for its own account in connection with such
registration, in each case on a pro rata basis with LB
MBP II or (ii) in any Public Offering in which shares
owned by LB MBP II are offered, on a pro rata basis.
<PAGE> 38
7
Beginning on the later of a Public Offering and the
fifth anniversary of the recapitalization, each
Executive will have "demand" registration rights,
subject to customary threshold provisions and black-out
provisions.
Tagalong/Dragalong In the event that LB MBP II or one of its affiliates is
transferring any shares of common stock of the Company
to a third party, it will give each Executive notice of
such proposed transfer, including the relevant terms
thereof. Within 30 days of receipt of such notice, each
Executive may elect to sell his Option Shares or
Purchased Shares to such third party on a pro rata basis
with LB MBP II. Notwithstanding the foregoing, the
"tag-along" rights shall not apply to any sale of LB MBP
II or its affiliates pursuant to a syndication of its
equity interest in the Company during the six month
period after the Effective Time, provided that the
aggregate amount of such sale does not exceed $100
million.
In the event the LB MBP II or one of its affiliates is
transferring shares of common stock of the Company to
any third party that has made an offer to purchase such
shares, LB MBP II will have the right to cause each
Executive to sell his Option Shares or Purchased Shares
to such third party on a pro rata basis.
DEFINITIONS
EBITDA "EBITDA" shall be defined in a manner consistent with
the Company's debt instruments entered into in
connection with the recapitalization contemplated by the
Recapitalization Agreement.
Permitted Transferees "Permitted Transferees" shall mean (i) each Executive's
heirs, executors, administrators, testamentary trustees,
legatees, beneficiaries or charitable remaindermen, (ii)
a trust the beneficiaries of which include only such
Executive, such Executive's spouse, lineal descendants
or any other member of the family of such Executive; or
(iii) any person if LB MBP II has given its prior
written consent to the applicable transfer.
<PAGE> 39
8
Public Offering "Public Offering" shall mean the sale of shares of any
class of the Company's stock to the public pursuant to
an effective registration statement (other than a
registration statement on Form S-4 or S-8 or any similar
or successor form) filed under the Securities Act of
1933 which results in an active trading market of 25% or
more of the outstanding shares of the Company's common
stock. There shall be deemed to be an "active trading
market" if the Company's common stock is listed or
quoted on a national exchange or the NASDAQ National
Market.
Retirement "Retirement" shall mean normal retirement under the
terms of any tax-qualified retirement plan of the
Company or retirement, which retirement occurs no
earlier than three years after the Effective Time,
except as permitted under any agreement between the
Company and the Executive to the extent such agreement
(i) by its terms currently provides that retirement is
to begin upon attainment of age 65 (even if earlier than
the third anniversary of the Effective Time) or provides
that retirement is to begin after age 64 (which occurs
three years after the Effective Time) or (ii) is entered
into after the Effective Time and permits the Executive
to retire prior to attainment of age 65 and the third
anniversary of the Effective Time. Except as provided in
the preceding sentence, any purported retirement prior
to the third anniversary of the Effective Time, shall be
treated the same as a voluntary termination.
Schedule A
EBITDA Targets
($ in millions)
<TABLE>
<CAPTION>
"Management
Case" Cumulative
EBITDA Target* EBITDA Target*
-------------- --------------
<S> <C> <C>
1999 $166.2 $166.2
2000 $223.7 $389.9
2001 $246.3 $636.2
2002 $270.7 $906.9
2003 $295.9 $1,202.8
</TABLE>
<PAGE> 40
9
* Upon disposition or acquisition of any business or substantial portion of the
assets of the Company or another company, the EBITDA Targets for the year of
such disposition or such acquisition and each subsequent year shall be adjusted
to eliminate or include, as the case may be, the income and expense to the
business or assets that were subject to disposition or acquisition, but only to
the extent not already done so in connection with the calculation of EBITDA.
Such adjustments must be consented to by a majority of the non-management
directors of the Board of the Company. If such directors cannot so consent, the
adjustment proposal shall be submitted to the Company's independent auditors,
who can consult with the necessary consultants for binding resolution.
<PAGE> 41
Schedule B
Applicable Percentage
<TABLE>
<CAPTION>
Percentage of EBITDA
Target Achieved Applicable
(annual or cumulative) (Pct.) Percentage
- ----------------------------- ----------
<S> <C>
Less than 85 0.00
85 25.00
86 30.00
87 35.00
88 40.00
89 45.00
90 50.00
91 55.00
92 60.00
93 65.00
94 70.00
95 75.00
96 80.00
97 85.00
98 90.00
99 95.00
100 100.00
</TABLE>
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 18th day of April,
1999, by and between BLOUNT INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and HAROLD E. LAYMAN ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive have previously entered into an
agreement ("Prior Agreement") providing for Executive's employment by the
Company and specifying the terms and conditions of such employment; and
WHEREAS, the Company entered into an Agreement and Plan of Merger and
Recapitalization (the "Recapitalization Agreement") dated the date hereof with
Red Dog Acquisition Corp. ("Newco"), a wholly owned subsidiary of Lehman
Brothers Merchant Banking Partners II L.P. ("LB MBP II"); and
WHEREAS, pursuant to the Recapitalization Agreement, the Company will be
recapitalized through a merger with and into Newco, following which
substantially all of the outstanding capital stock of the Company will be held
by LB MBP II; and
WHEREAS, the Company desires to recognize Executive's superior performance
and continuing value to the Company and its shareholders by modifying the Prior
Agreement and restating such agreement in a single document as hereinafter
provided; and
WHEREAS, Executive desires to continue his employment with the Company on
the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. Purpose and Effectiveness.
<PAGE> 2
2
(a) The purpose of this Agreement is to amend the Prior Agreement,
to recognize Executive's significant contributions to the overall financial
performance and success of the Company, and to provide a single, integrated
document which shall provide the basis for Executive's continued employment by
the Company;
(b) This Agreement shall not be effective until the Effective Time
(as defined in the Recapitalization Agreement), and this Agreement shall
terminate immediately if the Recapitalization Agreement is terminated in
accordance with its terms prior to the Effective Time.
2. Employment and Term.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive, and Executive hereby accepts employment, as
Executive Vice President , Finance Operations and Chief Financial Officer of the
Company and shall have such responsibilities, duties and authority that are
consistent with such position as may from time to time be assigned to Executive
by the Board. Executive hereby agrees that during the Term of this Agreement he
will devote substantially all his working time, attention and energies to the
diligent performance of his duties as Executive Vice President, Finance
Operations and Chief Financial Officer of the Company. With the consent of the
Board of Directors, the Executive may serve as a director on the boards of
directors or trustees of additional companies and organizations.
(b) Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall be for a rolling, two year term (the
"Term") commencing on the Effective Time, and shall be deemed to automatically,
without further action by either the Company or Executive, extend each day for
an additional day, such that the remaining term of the Agreement
<PAGE> 3
3
shall continue to be two years; provided, however, that (i) either party may, by
written notice to the other, cause this Agreement to cease to extend
automatically and, upon such notice, the "Term" of this Agreement shall be the
two years following the expiration of such Term, and (ii) the Term of this
Agreement shall not extend beyond the date Executive attains age 65, unless the
parties otherwise agree in writing. If no such notice to cease to extend has
been given and this Agreement is terminated pursuant to Section 5.1 or 5.2
hereof, for the purposes of calculating and assessing the damages to Executive
as a result of such termination, the remaining Term of this Agreement shall be
deemed to be two years from the date of such termination (or, if earlier, the
date Executive attains age 65).
3. Compensation and Benefits. As compensation for his services during the
Term of this Agreement, Executive shall be paid and receive the amounts and
benefits set forth in subsections (a) through (h) below:
(a) An annual base salary ("Base Salary") of Three Hundred
Thirty-Four Thousand and No/100 Dollars ($334,000.00), prorated for any partial
year of employment. Executive's Base Salary shall be subject to annual review
for increases at such time as the Company conducts salary reviews for its
executive officers generally. Executive's salary shall be payable in
substantially equal installments on a bi-monthly basis, or in accordance with
the Company's regular payroll practices in effect from time to time for
executive officers of the Company.
(b) Executive shall be eligible to participate in the Executive
Management Target Incentive Plan and such other annual incentive plans as may be
established by the Company from time to time for its executive officers. The
Board or a committee of the Board will establish performance goals each
<PAGE> 4
4
year under the incentive plans, and Executive's annual Target Bonus shall be 50%
of Base Salary; the maximum award for exceeding the performance goals (which
will be determined in accordance with the current plan design) shall be 100% of
Base Salary. The annual incentive bonus payable under this subsection (b) shall
be payable as a lump sum at the same time bonuses are paid to other senior
executives after certification by the Compensation Committee of the Board, that
the applicable performance objectives have been met, unless Executive elects to
defer all or a portion of such pursuant to any deferral plan established by the
Company for such purpose.
(c) Promptly upon commencement of the Term, Executive shall make a
minimum investment in the equity ("Purchased Equity") of the Company of 60% of
the aggregate amount of the net proceeds remaining after all applicable taxes
have been paid, resulting from the cancellation of his outstanding stock options
in accordance with Section 2.2 of the Recapitalization Agreement. The Company
and Executive shall endeavor to structure such investment in the most tax and
accounting efficient manner reasonably possible under the relevant
circumstances. In respect of such investment, the Company will grant Executive
160,000 options to purchase shares of the Company's Common Stock that will vest
over time ("Time Options") and the Company will grant Executive
performance-based options for 160,000 shares of the Company's Common Stock
("Performance Options") (the Time Options and the Performance Options are
collectively referred to herein as "Options"). The terms and conditions of the
Time Options and the Performance Options shall be as set forth on the Summary of
Terms, attached hereto as Exhibit A (the "Term Sheet'), and the Company will
enter into separate Option Agreements with Executive covering the grant of such
Options. Executive will be eligible to
<PAGE> 5
5
participate in such other stock option programs as may be established from time
to time by the Company for its executive officers. Executive will participate in
any long-term incentive plans established by the Company for executive officers
at his level.
The other terms and conditions applicable to the Purchased Equity
and the Options shall be as provided in the Term Sheet and the parties agree to
enter into an Employee Shareholders Agreement which will include the items
covered in the Term Sheet and contain such other customary terms and conditions
as are appropriate for such an agreement and are mutually agreeable to Executive
and Company (and to LB MBP II, where applicable). The Purchased Equity and the
Options will be subject to put and call rights and restrictions as set forth in
Schedule A.
(d) Executive shall continue to be (i) a participant in the Blount,
Inc. and Subsidiaries Supplemental Retirement Benefit Plan ("SERP"), and (ii) a
participant in the Executive Supplemental Retirement Plan of Blount
International, Inc. ("Executive SERP").
(e) Executive shall be entitled to participate in, or receive
benefits under, any "employee benefit plan" (as defined in Section 3(3) of
ERISA) or employee benefit arrangement made generally available by the Company
to its executive officers, including plans providing retirement, 401(k)
benefits, deferred compensation, health care (including executive medical), life
insurance, disability and similar benefits.
(f) The Company will reimburse Executive for membership dues and
assessments at recreational and social clubs if submitted to and approved by the
Chief Executive Officer of the Company. Executive will be provided an automobile
in accordance with the Company's automobile policy for
<PAGE> 6
6
Executives, and the Company will pay all insurance, maintenance, fuel, oil and
related operational expenses for such automobile. Executive will receive four
weeks vacation during the Term. Executive will be provided an annual physical
examination and a financial/tax consultant for personal financial and tax
planning. Executive will be promptly reimbursed by the Company for all
reasonable business expenses he incurs in carrying out his duties and
responsibilities under this Agreement.
(g) Executive shall continue to participate in the Company's
Executive Life Insurance Program, which will provide a benefit equal to
$250,000. This insurance will be paid-up on the date Executive attains 65 and
will be delivered to Executive as a paid-up insurance policy upon his retirement
from the Company at or after age 65. The life insurance provided to Executive
under the Executive Life Insurance Program shall be in addition to any life
insurance he receives under the Company's group term policy under subsection (e)
above.
(h) Executive will be paid a tax gross-up amount by the Company to
cover any additional federal or state income taxes he incurs as a result of
being required to include in taxable income the amount of the premiums or costs
for the insurance described in subsection (g) above.
<PAGE> 7
7
4. Confidentiality and Noncompetition.
(a) Executive acknowledges that, prior to and during the Term of
this Agreement, the Company has furnished and will furnish to Executive
Confidential Information which could be used by Executive on behalf of a
competitor of the Company to the Company's substantial detriment. Moreover, the
parties recognize that Executive during the course of his employment with the
Company may develop important relationships with customers and others having
valuable business relationships with the Company. In view of the foregoing,
Executive acknowledges and agrees that the restrictive covenants contained in
this Section are reasonably necessary to protect the Company's legitimate
business interests and good will.
(b) Executive agrees that he shall protect the Company's
Confidential Information and shall not disclose to any Person, or otherwise use,
except in connection with his duties performed in accordance with this
Agreement, any Confidential Information at any time, including following the
termination of his employment with the Company for any reason; provided,
however, that Executive may make disclosures required by a valid order or
subpoena issued by a court or administrative agency of competent jurisdiction,
in which event Executive will promptly notify the Company of such order or
subpoena to provide the Company an opportunity to protect its interests.
Executive's obligations under this Section 4(b) shall survive any expiration or
termination of this Agreement for any reason, provided that Executive may after
such expiration or termination disclose Confidential Information with the prior
written consent of the Board.
(c) Upon the termination or expiration of his employment hereunder,
Executive agrees to deliver promptly to the Company all Company
<PAGE> 8
8
files, customer lists, management reports, memoranda, research, Company forms,
financial data and reports and other documents supplied to or created by him in
connection with his employment hereunder (including all copies of the foregoing)
in his possession or control, and all of the Company's equipment and other
materials in his possession or control. Executive's obligations under this
Section 4(c) shall survive any expiration or termination of this Agreement.
(d) Upon the termination or expiration of his employment under this
Agreement, Executive agrees that for a period of one (1) year from his date of
termination or until the end of the period for which he is entitled to receive
compensation under Section 5.1(a) below, whichever is longer, he shall not (i)
enter into or engage in the design, manufacture, marketing or sale of any
products similar to those produced or offered by the Company or its affiliates
in the area of North America, either as an individual, partner or joint
venturer, or as an employee, agent or salesman, or as an officer, director, or
shareholder of a corporation, (ii) divert or attempt to divert any person,
concern or entity which is furnished products or services by the Company from
doing business with the Company or otherwise change its relationship with the
Company, or (iii) solicit, lure or attempt to hire away any of the employees of
the Company with whom the Executive interacted directly or indirectly while
employed with the Company.
(e) Executive acknowledges that if he breaches or threatens to
breach this Section 4, his actions may cause irreparable harm and damage to the
Company which could not be compensated in damages. Accordingly, if Executive
breaches or threatens to breach this Section 4, the Company shall be entitled to
seek injunctive relief, in addition to any other rights or remedies of the
Company. The existence of any claim or cause of action by Executive against the
Company, whether predicated on this Agreement or otherwise, shall not
<PAGE> 9
9
constitute a defense to the enforcement by the Company of Executive's agreement
under this Section 4(e).
5. Termination.
5.1 By Executive. Executive shall have the right to terminate his
employment hereunder at any time by Notice of Termination (as described in
Section 7). If Executive terminates his employment because (i) the Company has
materially breached this Agreement, and such breach has not been cured within
thirty (30) days after written notice of such breach is given by Executive to
the Company; or (ii) Executive has determined that his termination is for Good
Reason (as defined in Section 6.7), Executive shall be entitled to receive the
compensation and benefits set forth in subsections (a) through (i) below. If
Executive terminates his employment other than pursuant to clauses (i) or (ii)
of this Section 5.1, the Company's obligations under this Agreement shall cease
as of the date of such termination. Unless specified otherwise, the time periods
in (a) through (i) below shall be twenty-four (24) months commencing on the date
of Executive's termination ("Severance Period"). The Company agrees that if
Executive terminates employment and is entitled to compensation and benefits
under this Section 5.1, he shall not be required to mitigate damages by seeking
other employment, nor shall any amount he earns reduce the amount payable by the
Company hereunder.
(a) Base Salary - Executive will continue to receive his Base Salary
as then in effect (subject to withholding of all applicable taxes) for the
Severance Period in the same manner as it was being paid as of the date of
termination; provided, however, that the salary payments provided for hereunder
shall be paid in a single lump sum payment, to be paid not later than 30 days
after his termination of employment; provided, further, that the amount of such
<PAGE> 10
10
lump sum payment shall be determined by taking the salary payments to be made
and discounting them to their Present Value (as defined in Section 6.9) on the
date Executive's employment under this Agreement is terminated.
(b) Bonuses and Incentives - Executive shall receive bonus payments
from the Company for each month of the Severance Period in an amount for each
such month equal to one-twelfth of the average of the bonuses earned by him for
the two fiscal years in which bonuses were paid immediately preceding the year
in which such termination occurs. Any bonus amounts that Executive had
previously earned from the Company but which may not yet have been paid as of
the date of termination shall be payable on the date such amounts are payable to
other executives and Executive's termination shall not affect the payment of
such bonus. Executive shall also receive a prorated bonus for any uncompleted
fiscal year at the date of termination (assuming the Target Award level has been
achieved), based upon the number of days that he was employed during such fiscal
year. The bonus amounts determined herein shall be paid in a single lump sum
payment, to be paid not later than 30 days after termination of employment;
provided, that the amount of such lump sum payment representing the monthly
bonus payments shall be determined by taking the monthly bonus payments to be
made and discounting them to their Present Value on the date Executive's
employment under this Agreement is terminated.
(c) Health and Life Insurance Coverage - The health (including
executive medical) and group term life insurance benefits coverage provided to
Executive at his date of termination shall be continued for the Severance Period
at the same level and in the same manner as then provided to actively employed
executive participants as if his employment under this Agreement had not
<PAGE> 11
11
terminated. Any additional coverages Executive had at termination, including
dependent coverage, will also be continued for such period on the same terms, to
the extent permitted by the applicable policies or contracts. Any costs
Executive was paying for such coverages at the time of termination shall be paid
by Executive by separate check payable to the Company each month in advance. If
the terms of any benefit plan referred to in this Section, or the laws
applicable to such plan, do not permit continued participation by Executive,
then the Company will arrange for other coverage at its expense providing
substantially similar benefits (including the same deductible and co-payment
levels provided under the Company's policy).
(d) Employee Retirement Plans - To the extent permitted by the
applicable plan, Executive will be entitled to continue to participate,
consistent with past practices, in all employee retirement and deferred
compensation plans maintained by the Company in effect as of his date of
termination, including, to the extent such plans are still maintained by the
Company, the Blount Retirement Plan, the Blount 401(k) Plan, the Blount Excess
401(k) Plan, the SERP and the Executive SERP. Executive's participation in such
retirement plans shall continue for the Severance Period and the compensation
payable to Executive under (a) and (b) above shall be treated (unless otherwise
excluded) as compensation under the plan as if it were paid on a monthly basis.
For purposes of the Blount 401(k) Plan and the Blount Excess 401(k) Plan, he
will receive an amount equal to the Company's contributions to the plan,
assuming Executive had participated in such plan at the maximum permissible
contributions level. If continued participation in any plan is not permitted by
the plan or by applicable law, the Company shall pay to Executive or, if
applicable, his beneficiary a supplemental benefit equal to the present value on
the date of termination of
<PAGE> 12
12
employment under this Agreement (calculated as provided in the plan) of the
excess of (i) the benefit Executive would have been paid under such plan if he
had continued to be covered for the Severance Period (less any amounts Executive
would have been required to contribute), over (ii) the benefit actually payable
under such plan. The Company shall pay the Present Value of such additional
benefits (if any) in a lump sum within 30 days of his termination of employment.
(e) Effect of Lump Sum Payment. The lump sum payment under (a) or
(b) above shall not alter the amounts Executive is entitled to receive under the
benefit plans described in this section. Benefits under such plans shall be
determined as if Executive had remained employed and received such payments over
the Severance Period.
(f) SERP and Executive SERP. On his date of termination, Executive
shall be treated for purposes of determining his benefit under the SERP and
Executive SERP as if he had earned additional years of benefit service equal to
the length of the Severance Period and had attained the age he would be at the
end of the Severance Period.
(g) Executive Life Insurance Program. During the Severance Period,
the Company will continue to pay the premiums on Executive's policy under the
Executive Life Insurance Program.
(h) Stock Options. As of his date of termination, all of the Time
Options and the Performance Options, and any other outstanding stock options
granted to Executive by the Company, shall become vested and exercisable as
provided in the Term Sheet.
(i) Office Space; Secretarial. Executive will be provided
appropriate office space, his then current administrative assistant (such
assistant
<PAGE> 13
13
shall be paid or provided similar compensation and benefits to that being
provided at the time Executive terminates employment), and reasonable expenses
related thereto for a period of twelve (12) months from Executive's date of
termination.
5.2 By Company. The Company shall have the right to terminate Executive's
employment under this Agreement at any time during the Term by Notice of
Termination (as described in Section 7). If the Company terminates Executive's
employment under this Agreement (i) for Cause, as defined in Section 6.2, (ii)
if Executive becomes Disabled, or (iii) upon Executive's death, the Company's
obligations under this Agreement shall cease as of the date of termination;
provided, however, that Executive will be entitled to whatever benefits are
payable pursuant to the terms of any health, life insurance, disability,
welfare, retirement or other plan or program maintained by the Company. If the
Company terminates Executive during the Term of this Agreement other than
pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be
entitled to receive the compensation and benefits provided in subsections (a)
through (i) of Section 5.1 above for the Severance Period, and subject to the
provisions (including the nonmitigation provision) and limitations therein.
5.3 Limitation on Benefits Upon Termination.
(a) Notwithstanding anything in this Agreement to the contrary, any
benefits payable or to be provided to Executive by the Company or its
affiliates, whether pursuant to this Agreement or otherwise, which are treated
as Severance Payments shall be modified or reduced in the manner provided in (b)
below to the extent necessary so that the benefits payable or to be provided to
Executive under this Agreement that are treated as Severance Payments, as
<PAGE> 14
14
well as any payments or benefits provided outside of this Agreement that are so
treated, shall not cause the Company to have paid an Excess Severance Payment.
In computing such amount, the parties shall take into account all provisions of
Code Section 280G, and the regulations thereunder, including making appropriate
adjustments to such calculation for amounts established to be Reasonable
Compensation. If Executive becomes entitled to compensation and benefits under
Section 5.1 or section 5.2 and such payments are considered to be Severance
Payments contingent upon a Change in Control, Executive shall be required to
mitigate damages (but only with respect to amounts that would be treated as
Severance Payments) by reducing the amount of Severance Payments he is entitled
to receive by any compensation and benefits he earns from subsequent employment
(but shall not be required to seek such employment) during the 24-month period
after termination (or such lesser period as he is entitled to extended
benefits).
(b) In the event that the amount of any Severance Payments which
would be payable to or for the benefit of Executive under this Agreement must be
modified or reduced to comply with this Section 5.3, Executive shall direct
which Severance Payments are to be modified or reduced; provided, however, that
no increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Company.
(c) This Section 5.3 shall be interpreted so as to avoid the
imposition of excise taxes on Executive under Section 4999 of the Code or the
disallowance of a deduction to the Company pursuant to Section 280G(a) of the
Code with respect to amounts payable under this Agreement or otherwise.
Notwithstanding the foregoing, in no event will any of the provisions of this
Section 5.3 create, without the consent of Executive, an obligation on the part
of
<PAGE> 15
15
Executive to refund any amount to the Company following payment of such amount.
(d) In addition to the limits otherwise provided in this Section
5.3, to the extent permitted by law, Executive may in his sole discretion elect
to reduce any payments he may be eligible to receive under this Agreement to
prevent the imposition of excise taxes on Executive under Section 4999 of the
Code.
(e) For purposes of this Section 5.3, the following definitions
shall apply:
(i) "Excess Severance Payment" - The term "Excess Severance
Payment" shall have the same meaning as the term "excess parachute
payment" defined in Section 280G(b)(1) of the Code.
(ii) "Severance Payment" - The term "Severance Payment" shall
have the same meaning as the term "parachute payment" defined in Section
280G(b)(2) of the Code.
(iii) "Reasonable Compensation" - The term "Reasonable
Compensation" shall have the same meaning as provided in Section
280G(b)(4) of the Code. The parties acknowledge and agree that, in the
absence of a change in existing legal authorities or the issuance of
contrary authorities, amounts received by Executive as damages under or as
a result of a breach of this Agreement shall be considered Reasonable
Compensation.
(iv) "Present Value" - The term "Present Value" shall have the
same meaning as provided in Section 480G(d)(4) of the Code.
6. Definitions. For purposes of this Agreement the following terms shall
have the meanings specified below:
<PAGE> 16
16
6.1 "Board" or "Board of Directors". The Board of Directors of the
Company.
6.2 "Cause". The involuntary termination of Executive by the Company for
the following reasons shall constitute a termination for Cause:
(a) If the termination shall have been the result of an act or acts
by Executive which have been found in an applicable court of law to constitute a
felony (other than traffic-related offenses);
(b) If the termination shall have been the result of an act or acts
by Executive which are in the good faith judgment of the Board to be in
violation of law or of policies of the Company and which result in demonstrably
material injury to the Company;
(c) If the termination shall have been the result of an act or acts
of proven dishonesty by Executive resulting or intended to result directly or
indirectly in significant gain or personal enrichment to the Executive at the
expense of the Company; or
(d) Upon the willful and continued failure by the Executive
substantially to perform his duties with the Company (other than any such
failure resulting from incapacity due to mental or physical illness not
constituting a Disability, as defined herein), after a demand in writing for
substantial performance is delivered by the Board, which demand specifically
identifies the manner in which the Board believes that Executive has not
substantially performed his duties.
With respect to clauses (b), (c) or (d) above of this Section, Executive
shall not be deemed to have been involuntarily terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of
<PAGE> 17
17
the Board at a meeting of the Board (after reasonable notice to Executive and an
opportunity for him, together with his counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in clauses (b), (c) or (d) and specifying the
particulars thereof in detail. For purposes of this Agreement, no act or failure
to act by Executive shall be deemed to be "willful" unless done or omitted to be
done by Executive not in good faith and without reasonable belief that
Executive's action or omission was in the best interests of the Company.
6.3 "Change in Control". Either
(a) the acquisition, directly or indirectly, by any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than LB MBP II or any of its affiliates, of securities
of the Company representing an aggregate of more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities (excluding
the acquisition by persons who own such amount of securities on the date hereof,
or acquisitions by persons who acquire such amount through inheritance), or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each new director
was approved in advance by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period; or
(c) consummation of (i) a merger, consolidation or other business
combination of the Company with any other "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or
affiliate thereof, other than a merger, consolidation or business
<PAGE> 18
18
combination which would result in the outstanding common stock of the Company
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into common stock of the surviving entity or a
parent or affiliate thereof) more than fifty percent (50%) of the outstanding
common stock of the Company, or such surviving entity or parent or affiliate
thereof, outstanding immediately after such merger, consolidation or business
combination, or (ii) a plan of complete liquidation of Company or an agreement
for the sale or disposition by Company of all or substantially all of Company's
assets;
(d) a Public Offering as defined in the Term Sheet; or
(e) a sale of more than 50% of the assets of the Company;
provided that none of the events described in clauses (b) through (e) shall be
deemed a Change in Control if, immediately following such event, LB MBP II and
its affiliates own 50% or more of the combined voting power of the Company's
then outstanding securities.
6.4 "Code". The Internal Revenue Code of 1986, as it may be amended from
time to time.
6.5 "Confidential Information". All technical, business, and other
information relating to the business of the Company or its subsidiaries or
affiliates, including, without limitation, technical or nontechnical data,
formulae, compilations, programs, devices, methods, techniques, processes,
financial data, financial plans, product plans, and lists of actual or potential
customers or suppliers, which (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other Persons, and (ii) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy or confidentiality. Such
information and
<PAGE> 19
19
compilations of information shall be contractually subject to protection under
this Agreement whether or not such information constitutes a trade secret and is
separately protectable at law or in equity as a trade secret. Confidential
Information does not include confidential business information which does not
constitute a trade secret under applicable law two years after any expiration or
termination of this Agreement.
6.6 "Disability" or "Disabled". Executive's inability as a result of
physical or mental incapacity to substantially perform his duties for the
Company on a full-time basis for a period of six (6) months.
6.7 "Good Reason". A "Good Reason" for termination by Executive of
Executive's employment shall mean the occurrence during the Term (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, and such act or failure to act has
not been corrected within thirty (30) days after written notice of such act or
failure to act is given by Executive to the Company:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as the Senior Vice President and Chief Financial Officer of
the Company, or a substantial adverse alteration in the nature or status of the
Executive's responsibilities from those on the date hereof;
(ii) a reduction by the Company in Executive's Base Salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of the Company's principal executive offices to
a location more than one-hundred fifty (150) miles from Montgomery, Alabama, or
the Company's requiring Executive to be based anywhere other than the Company's
principal executive offices, except for reasonably required travel on the
Company's business; provided that the Company's principal executive offices
<PAGE> 20
20
may be relocated to Birmingham, Alabama or Atlanta, Georgia under terms (such as
relocation allowance, housing allowance (including selling of existing home and
acquisition of new home) and travel allowances) reasonably acceptable to
Executive, in which case the 50 mile limitation shall apply to such city;
(iv) the failure by the Company, without Executive's consent, to pay
to Executive any portion of Executive's current compensation (including Base
Salary and bonus), or to pay to the Executive any other compensation within
seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates on the date hereof, which is
material to Executive's total compensation, including but not limited to the
Company's Executive Management Target Incentive Plan, any long-term incentive
plan, the SERP and the Executive SERP, or any substitute plans, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue the Executive's participation in such plan (or in such substitute or
alternative plan) on a basis not materially less favorable in terms of the
amount of benefits provided;
(vi) the failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by Executive on the date
hereof under any of the Company's pension, life insurance (including the
Executive Life Insurance Program), medical, health and accident or disability
plans, the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed by Executive on the date hereof, or the failure
by the Company
<PAGE> 21
21
to provide Executive with the number of paid vacation days to which the
Executive is entitled under this Agreement; or
(vii) any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 7.1 (for purposes of this Agreement, no such purported termination shall
be effective).
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to physical
or mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
6.8 "Person". Any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
6.9 "Present Value". The term "Present Value" on any particular date shall
have the same meaning as provided in Section 280G(d)(4) of the Code.
7. Termination Procedures.
7.1 Notice of Termination. During the Term of this Agreement, any
purported termination of Executive's employment (other than by reason of death)
shall be communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 11. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
<PAGE> 22
22
Further, a Notice of Termination for Cause is required to include the
information set forth in Section 6.2.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of Executive's employment during the Term of this
Agreement, shall mean (i) if Executive's employment is terminated by his death,
the date of his death, (ii) if Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the full-time performance of Executive's
duties during such thirty (30) day period), and (iii) if Executive's employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Company, shall not be
less than thirty (30) days (except in the case of a termination for Cause) and,
in the case of a termination by the Executive, shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date such Notice
of Termination is given); provided, however, that the "Date of Termination" for
purposes of this Agreement shall not be the last day of the Company's fiscal
year and, in the event the last day of the fiscal year is designated as the
"Date of Termination", the "Date of Termination" for purposes hereof shall
automatically be the first day of the next following fiscal year.
8. Contract Non-Assignable. The parties acknowledge that this Agreement
has been entered into due to, among other things, the special skills of
Executive, and agree that this Agreement may not be assigned or transferred by
Executive, in whole or in part, without the prior written consent of the
Company.
9. Successors; Binding Agreement.
<PAGE> 23
23
9.1 In addition to any obligations imposed by law upon any successor
to, or transferor of, the Company, the Company will require any successor to, or
transferor of, all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, reorganization,
liquidation, consolidation or otherwise) to expressly assume and agree to
perform this Agreement, in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason, except
that, for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees and by the Company's
successors and assigns. If Executive shall die while any amount would still be
payable to Executive hereunder (other than amounts which, by their terms,
terminate upon the death of Executive) if Executive had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of Executive's estate.
10. Other Agents. Nothing in this Agreement is to be interpreted as
limiting the Company from employing other personnel on such terms and conditions
as may be satisfactory to the Company.
<PAGE> 24
24
11. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first class,
certified mail, postage prepaid:
To the Company: Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
ATTN: _________________________
With a copy to: Richard H. Irving, III
Blount International, Inc.
4520 Executive Park Drive
Montgomery, Alabama 36116-1602
To the Executive: Harold E. Layman
6465 Wynwood Place
Montgomery, Alabama 36117
With a copy to: Kilpatrick Stockton LLP
ATTN: William J. Vesely, Jr.
Suite 2800
1100 Peachtree Street
Atlanta, GA 303099-4530
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
12. Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
13. Waiver. Failure of either party to insist, in one or more instances,
on performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any right
<PAGE> 25
25
granted in this Agreement or the future performance of any such term or
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
14. Indemnification. During the term of this Agreement and after
Executive's termination for the period of time set forth in Section 6.7 of the
Recapitalization Agreement, the Company shall indemnify Executive and hold
Executive harmless from and against any claim, loss or cause of action arising
from or out of Executive's performance as an officer, director or employee of
the Company or any of its subsidiaries or other affiliates or in any other
capacity, including any fiduciary capacity, in which Executive serves at the
Company's request, in each case to the maximum extent permitted by law and under
the Company's Articles of Incorporation and By-Laws (the "Governing Documents"),
provided that in no event shall the protection afforded to Executive hereunder
be less than that afforded under the Governing Documents as in effect on the
date of this Agreement except from changes mandated by law. During the Term and
for the period of time set forth in Section 6.7 of the Recapitalization
Agreement, Executive shall be covered by any policy of directors and officers
liability insurance maintained by the Company for the benefit of its officers
and directors.
15. Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by both parties hereto.
16. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
17. Arbitration of Disputes; Expenses. All claims by Executive for
compensation and benefits under this Agreement shall be directed to and
determined by the Board and shall be in writing. Any denial by the Board of a
<PAGE> 26
26
claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to Executive for a review of a decision denying a claim and shall
further allow Executive to appeal to the Board a decision of the Board within
sixty (60) days after notification by the Board that Executive's claim has been
denied. To the extent permitted by applicable law, any further dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Atlanta, Georgia, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction. In the event the
Executive incurs legal fees and other expenses in seeking to obtain or to
enforce any rights or benefits provided by this Agreement and is successful, in
whole or in part, in obtaining or enforcing any material rights or benefits
through settlement, arbitration or otherwise, the Company shall promptly pay
Executive's reasonable legal fees and expenses incurred in enforcing this
Agreement and the fees of the arbitrator. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and other expenses
associated with any dispute.
<PAGE> 27
27
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
EXECUTIVE:
/s/ HAROLD E. LAYMAN
__________________________________
HAROLD E. LAYMAN
COMPANY:
By: /s/ BLOUNT INTERNATIONAL, INC.
_______________________________
BLOUNT INTERNATIONAL, INC.
<PAGE> 28
SCHEDULE A to
Employment Agreement
PUT AND CALL RIGHTS OF THE
EXECUTIVE AND THE COMPANY
Capitalized terms which are used in this Schedule A and which are
not otherwise defined shall have the meanings ascribed to such terms in the
Agreement to which this Schedule is attached and of which it forms a part,
except where specifically noted that any such term has the meaning ascribed to
such term in the Employee Shareholders Agreement being entered into by and among
the Company, Lehman Brothers Merchant Banking Partners II L.P. ("LB MBP II"),
the Executive and other executives and key employees of the Company (a term
sheet for which is attached hereto).
A. Triggering Events
1. Termination by the Company for Cause; Voluntary Termination
without Good Reason. If, during the Term, the Executive's employment is either
(x) involuntarily terminated by the Company for Cause or (y) terminated by the
Executive without Good Reason:
(a) All shares of Company common stock ("Common Stock") purchased by
the Executive pursuant to the exercise of stock options ("Options")
granted to the Executive ("Option Shares") may be called by the Company at
the lesser of (x) the purchase price paid by the Executive therefor (the
"Exercise Price") and (y) Fair Market Value (as defined in Section D
hereof).
(b) All Options then held by the Executive shall be forfeited,
without any consideration being paid therefor by the Company, as of the
Executive's date of termination of employment with the Company
("Termination Date").
(c) All shares of Common Stock owned by the Executive, other than
Option Shares ("Purchased Shares"), may be called by the Company at Fair
Market Value.
(d) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of
employment.
2. Termination by the Company Without Cause; Termination by the
Executive with Good Reason; Retirement. If, during the Term, the Executive's
employment with the Company is either (x) involuntarily terminated by the
Company without Cause, (y) terminated by the Executive for Good Reason or (z)
terminated as a result of the Executive's Retirement (as defined in the Employee
Shareholders Agreement) from employment with the Company at or after attainment
of age 65 (or such earlier retirement age as permitted under any agreement
entered into after Effective Time (as defined in the Employment Agreement)
between the Company and the Executive or if the Board shall consent thereto in
writing):
<PAGE> 29
2
(a) All Option Shares held for at least six months by the Executive
may be called by the Company at Fair Market Value.
(b) All Purchased Shares held for at least six months by the
Executive may be called at Fair Market Value.
(c) The Executive shall have no right to put his Option Shares or
Purchased Shares to the Company as a result of such termination of
employment.
(d) Except as provided under clauses (a) and (b) above, the Company
shall have no right to call Options, Option Shares or Purchased Shares
upon a termination of employment covered by this Section 2.
Notwithstanding the foregoing, if the Executive elects, he may override the
calls made pursuant to paragraphs (a) or (b) above and retain all or any portion
of his Option Shares and Purchased Shares by giving the Company written notice
of such override within 30 days of his receipt of the call notice.
3. Termination due to Death or Disability. If, during the Term, the
Executive's employment is terminated due to his death or Disability, the
Executive (or his legal representative or the legal representative of his
estate, if applicable) may put all Options, Option Shares and Purchased Shares
to the Company or the Company may call such Options, Option Shares and Purchased
Shares, in each case at Fair Market Value (in the case of Options, net of the
Exercise Price); provided, however, that if the Executive elects, he may
override such call and retain all or any portion of his Options, Option Shares
and Purchased Shares by providing the Company with a written notice of such
override within 30 days of his receipt of the Company's call notice.
[4. Sale of a Company Division. If the Company shall sell the
business division in which the Executive is principally employed (a "Sale"), the
Company may call the Executive's Options, Option Shares and Purchased Shares at
Fair Market Value; provided, however, that if the Executive elects, he may
override such call by the Company and retain all or any portion of his Options,
Option Shares and Purchased Shares by providing the Company with a written
notice of such override within 30 days of his receipt of the Company's call
notice. The Executive shall have no right to put his Options, Option Shares or
Purchased Shares to the Company as a result of such a Sale.](1)
B. Notice of Puts and Calls; Exercise Rights.
1. If the Company intends to call any or all of the Executive's
Options, Option Shares or Purchased Shares as provided herein, it will provide
prior written notice to the Executive (or the Executive's legal representative
or the legal representative of the Executive's estate, as applicable), such
notice to include the Fair Market Value of the Options, Option Shares or
Purchased
- ----------
(1) Include only for employees employed in any of the three business
divisions.
<PAGE> 30
3
Shares, as the case may be, and to be given no later than 75 days after the
Executive's Termination Date [or Sale (as applicable)](2). If the Executive (or
the Executive's legal representative or the legal representative of his estate,
as applicable) is entitled to put any or all of his Options, Option Shares or
Purchased Shares, notice of such intent must be given by the Executive no later
than 90 days after the Company gives notice that it will not exercise its call.
2. Neither the Executive nor the Company shall have any put or call
rights following a Public Offering (as such term is defined in the Employee
Shareholders Agreement).
3. Any exercise of put or call rights may be for all or a portion of
the Options, Option Shares and Purchased Shares subject thereto, as determined
in the sole discretion of the holder of such rights.
C. Limitation on Put and Call Rights. Notwithstanding anything in this
Schedule A to the contrary, the Company shall not be required to purchase any
Options, Option Shares or Purchased Shares (whether through the exercise of a
put or a call) if such purchase would be, or would result in, a violation of the
terms of its then existing debt agreements or any applicable law or regulation.
In addition, no such put or call will occur if, in the reasonable discretion of
the Board, such purchase would be reasonably likely to (i) impair the Company's
available cash, (ii) require unsuitable additional debt to be incurred by the
Company or (iii) result in any other adverse economic or financial condition, in
each case only to the extent that any such event described in clauses (i), (ii)
or (iii), individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on the financial condition of the
Company.
D. Fair Market Value. For purposes hereof, the term "Fair Market Value"
shall mean, in respect of each share of Common Stock:
(i) To the extent the call or put, as the case may be, occurs
concurrently with or within 30 days of a Public Offering, the
offering price to the public per share of common stock of such
Public Offering;
(ii) To the extent the call or put, as the case may be, occurs
concurrently with or within 30 days of a Change of Control, the
value of the Company's total equity, as determined based upon the
price per share paid in connection with such Change of Control,
divided by the total number of shares of Common Stock then
outstanding;
(iii) To the extent clauses (i) and (ii) do not apply and a regular
trading market for the Company's common stock exists following a
Public Offering, the average closing price of such common stock for
10
- ----------
(2) Include bracketed language only for division employees.
<PAGE> 31
4
consecutive trading days ending on the trading day immediately prior
to such call or put; and
(iv) At all other times, the fair market value of the Company's total
equity, as determined by the Board in good faith divided by the
total number of shares of Common Stock then outstanding; provided,
however, that if the Executive disputes the Board's determination,
within 10 days of the Executive's receipt of notice of the Board's
determination, the Executive and the Board shall jointly select a
qualified independent financial advisor to make such determination,
which determination shall be final and binding upon the parties,
provided, further, that the fees and costs of such financial advisor
in connection with its determination shall be borne equally by the
Company and the Executive unless such financial advisor's fair
market value determination is 10% or more greater than the Board's
determination, in which case such fees and costs shall be borne
entirely by the Company.
<PAGE> 32
EXHIBIT A to
Employment Agreement
SUMMARY OF TERMS
EMPLOYEE SHAREHOLDERS AGREEMENT
Set forth below is a summary of certain terms of agreements
ancillary to the Employment Agreement (the "Employment Agreement") to which this
Summary of Terms is attached and of which it forms a part, including the
Employee Shareholders Agreement and the related Option Agreements. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
the Employment Agreement.
EQUITY OWNERSHIP
FOLLOWING
RECAPITALIZATION
Purchased Shares After the closing contemplated by the
Recapitalization Agreement, no less than $15.0
million of the fully diluted equity of the Company
will be purchased by the top 21 executives and key
employees (the "Managers") and approximately 20
other management employees at a purchase price
equal to the price per share of Company common
stock paid in connection with the
recapitalization, which is $30.00 per share (the
"Purchased Shares").
OPTION AGREEMENT
Stock Options As soon as practicable after the closing of the
recapitalization, the Company shall grant the
Managers nonqualified options (the "Options")
exercisable for common stock to purchase an
aggregate of 8.0% of the Company's initial
fully-diluted common stock. One-half of such
Options shall be granted as "Time Options";
one-half of such Options shall be granted as
"Performance Options", which will be earned upon
achievement of the "Management Case" performance
as described below.
The Company shall reserve for possible future
issuance to Managers and other executives options
to purchase an aggregate of 100,000 shares of the
Company's common stock at times and on terms to be
determined by the Compensation Committee of the
Board of Directors.
<PAGE> 33
2
Except as otherwise provided herein, the terms of
the option plans and agreements governing the
Options shall be substantially similar to the
Company's 1998 Option Plan.
- --Option Term The option term of the Options shall be 10 years
from the Effective Time (as defined in the
Recapitalization Agreement) and 10 years after the
grant with respect to options subsequently
granted; provided, however, that exercisable
options shall expire earlier upon termination of
employment as follows:
Termination for Cause/Voluntary Termination by
Executive Without Good Reason: Immediately upon
termination of employment.
Termination Without Cause/ Termination by
Executive with Good Reason/Death/Disability/Sale
of Division: One year after termination of
employment.
Retirement: At the end of the option term.
Unexercisable Options will terminate upon
termination of employment, unless acceleration in
connection with such termination is explicitly
provided for.
Upon a Change-in-Control, the Compensation
Committee may terminate the Options, so long as
the Executives are cashed out of, or are permitted
to exercise, their exercisable Options prior to
the Change-in-Control.
- --Option Exercise Price Options shall be granted at an exercise price
equal to the price per share of Company common
stock paid in connection with the
recapitalization, which is $30.00 per Share.
- --Dilution of Options Option holders shall be subject to the same
dilution as the common stockholders.
- --Reallocation Shares subject to Options that are forfeited may
be reallocated to other employees as determined by
the Compensation Committee in its sole discretion.
Transfer Options may be transferred to Permitted
Transferees (as defined below) so long as
<PAGE> 34
3
such Permitted Transferee agrees to be bound by
the terms of all applicable agreements.
Vesting of Equity Rights
- --Normal Vesting of Time Except as provided in the next paragraph, Time
Options Options shall become exercisable with respect to
20% of the shares subject to such Options on each
of the first five anniversaries of the Effective
Time as and when the Executive's employment
continues through and including the date of each
such anniversary. Time Options shall expire and no
longer be exercisable as provided under the
"Option Term" section herein, but all Time Options
shall accelerate and become fully exercisable as
provided under the "Accelerated Vesting of
Options" section herein.
The Time Options for Executives who are age 61 or
older at the Effective Time shall vest with
respect to 33 1/3% of the shares subject to such
Options on each of the first three anniversaries
of the Effective Time, provided that the
Executive's employment continues through and
including the date of each such anniversary; and
provided, further, that full vesting at Retirement
for such Executives shall only occur if Retirement
occurs three or more years after the Effective
Time. Nothing herein shall be construed as
affecting any liquidity rights or restrictions on
transfer specifically set forth herein.
- --Normal Vesting of Performance Options shall become exercisable at
Performance Options the end of six years, whether or not the EBITDA
(as defined below) targets are achieved, but
become exercisable earlier with respect to up to
20% of the shares subject to the Performance
Options, on each of the first five anniversaries
of the Effective Time, to the extent the EBITDA
for the fiscal year most recently completed (the
"Fiscal Year") equals or exceeds the EBITDA
targets (each, a "Target"), as set forth in
Schedule A attached hereto.
For executives who are age 61 or older at the
Effective Time, the applicable vesting percentage
for Performance Options shall be
<PAGE> 35
4
33 1/3% for each of the first three anniversaries
of the Effective Time, using the EBITDA Targets on
Schedule A, and 33 1/3% shall be substituted for
20% each place in this section where 20% appears.
Notwithstanding the foregoing, Performance Options
shall vest on the following dates at the following
minimum percentages (to the extent not already
vested) for such Executives if Retirement occurs
three or more years after the Effective Time: (i)
the date that is three years after the Effective
Time, 50% of the aggregate shares subject to the
Performance Options; (ii) the date that is four
years after the Effective Time, 66.70% of the
aggregate shares subject to the Performance
Options; (iii) the date that is five years after
the Effective Time, 83.30% of the aggregate shares
subject to the Performance Options and (iv) the
date that is six years after the Effective Time,
100% of the aggregate shares subject to the
Performance Options. Nothing herein shall be
construed as affecting any liquidity rights or
restrictions on transfer specifically set forth
herein.
If the Company's EBITDA for a Fiscal Year is less
than 100% of the Target for such Fiscal Year (a
"Missed Year"), such Performance Options shall
become exercisable with respect to a portion of
the shares subject to Performance Options in an
amount equal to the product of (a) 20% of the
total number of shares subject to Executive's
Performance Options multiplied by (b) the
Applicable Percentage (as set forth in Schedule B
attached hereto).
If either all or a portion of the Executive's
Performance Options do not become exercisable in
any year pursuant to the above, the Executive may
"catch-up" if the Cumulative EBITDA Targets (as
set forth in Schedule A attached hereto) are
satisfied. The amount that would vest is equal to
40% if in year 2, 60% if in year 3, 80% if in year
4 and 100% if in year 5, less the number of
Executive's Performance Options which had
previously vested.
Accelerated Vesting
of Options
<PAGE> 36
5
- --Time Options Unvested Time Options shall become fully
exercisable upon (i) death, (ii) disability, (iii)
Change-in-Control or (iv) Retirement (as defined
below). In addition, upon a Termination without
Cause or a Termination by Executive with Good
Reason, Time Options shall become fully
exercisable in the event the Executive had been
employed by the Company for at least three years
from the date of the Effective Time.
- --Performance Options Performance Options shall become fully exercisable
upon a Change-in-Control if, and only if, (a) 100%
or more of the EBITDA Target has been achieved in
each Fiscal Year prior to such Change-in-Control
or (b) 100% of the Cumulative EBITDA Target has
been achieved in the Fiscal Year immediately
preceding such Change-in-Control. Except for the
above and any other acceleration occurring by
reason of the attainment of the EBITDA Targets,
vesting of Performance Options shall not
accelerate for any reason. In addition, upon a
Termination without Cause or for a Termination by
Executive with Good Reason, Performance Options
shall become fully exercisable in the event the
Executive had been employed by the Company for at
least three years from the date of the Effective
Time.
Adjustments In the event of any change in the outstanding
Common Stock by reason of a stock split, spin-off,
stock dividend, stock combination or
reclassification, recapitalization, consolidation
or merger, or similar event, the Compensation
Committee shall adjust appropriately the number of
shares subject to Options and make other revisions
as it deems are equitably required.
EMPLOYEE
SHAREHOLDERS
AGREEMENT
Transfer Restrictions Except as provided below, transfers of Purchased
Shares or shares purchased upon exercise of
Options ("Option Shares") will not be permitted
prior to the fifth anniversary of the Effective
Time. Option Shares and Purchased Shares may be
transferred prior to the fifth anniversary of the
Effective Time (i) to a
<PAGE> 37
6
Permitted Transferee so long as such Permitted
Transferee agrees to be bound by the terms of all
applicable agreements, (ii) pursuant to an
exercise of "Tag-Along" or "Drag-Along" Rights
described below, (iii) pursuant to an exercise of
call or put rights set forth in the Employment
Agreement, (iv) pursuant to an exercise of the
registration rights described below or (v) in
connection with a Change-in-Control so long as
long as such transfers are on a pro rata basis
with transfers made by Lehman Brothers Merchant
Banking Partners II L.P. ("LB MBP II") in
connection with such Change-in-Control. Except as
provided hereinabove or as agreed to by the
Compensation Committee, Options will be
nontransferable, but may be exercised after an
Optionholder's death by his or her designated
beneficiary or estate.
In addition to the transfer restrictions of the
Employee Stockholder Agreement, any sale of
Purchased Shares or Option Shares shall in all
cases be completed in compliance with applicable
securities laws. The Company will register all
Option Shares on Form S-8 under the Securities Act
of 1933.
Right of First Refusal The Company shall have a right of first refusal on
all management equity rights (which rights the
Company may assign to LB MBP II) until the
transfer restrictions expire. Such right shall not
apply to any transfer to a Permitted Transferee so
long as such Permitted Transferee agrees to be
bound by the terms of all applicable agreements.
Registration Rights Each Executive will have "piggy back" registration
rights if (i) the Company is registering shares of
its common stock under the Securities Act of 1933
for its own account (subject to customary
exceptions for registrations related to exchange
offers or benefit plans), provided that such
rights shall only be available if LB MBP II is
selling shares of common stock for its own account
in connection with such registration, in each case
on a pro rata basis with LB MBP II or (ii) in any
Public Offering in which shares owned by LB MBP II
are offered, on a pro rata basis.
<PAGE> 38
7
Beginning on the later of a Public Offering and
the fifth anniversary of the recapitalization,
each Executive will have "demand" registration
rights, subject to customary threshold provisions
and black-out provisions.
Tagalong/Dragalong In the event that LB MBP II or one of its
affiliates is transferring any shares of common
stock of the Company to a third party, it will
give each Executive notice of such proposed
transfer, including the relevant terms thereof.
Within 30 days of receipt of such notice, each
Executive may elect to sell his Option Shares or
Purchased Shares to such third party on a pro rata
basis with LB MBP II. Notwithstanding the
foregoing, the "tag-along" rights shall not apply
to any sale of LB MBP II or its affiliates
pursuant to a syndication of its equity interest
in the Company during the six month period after
the Effective Time, provided that the aggregate
amount of such sale does not exceed $100 million.
In the event the LB MBP II or one of its
affiliates is transferring shares of common stock
of the Company to any third party that has made an
offer to purchase such shares, LB MBP II will have
the right to cause each Executive to sell his
Option Shares or Purchased Shares to such third
party on a pro rata basis.
DEFINITIONS
EBITDA "EBITDA" shall be defined in a manner consistent
with the Company's debt instruments entered into
in connection with the recapitalization
contemplated by the Recapitalization Agreement.
Permitted Transferees "Permitted Transferees" shall mean (i) each
Executive's heirs, executors, administrators,
testamentary trustees, legatees, beneficiaries or
charitable remaindermen, (ii) a trust the
beneficiaries of which include only such
Executive, such Executive's spouse, lineal
descendants or any other member of the family of
such Executive; or (iii) any person if LB MBP II
has given its prior written consent to the
applicable transfer.
<PAGE> 39
8
Public Offering "Public Offering" shall mean the sale of shares of
any class of the Company's stock to the public
pursuant to an effective registration statement
(other than a registration statement on Form S-4
or S-8 or any similar or successor form) filed
under the Securities Act of 1933 which results in
an active trading market of 25% or more of the
outstanding shares of the Company's common stock.
There shall be deemed to be an "active trading
market" if the Company's common stock is listed or
quoted on a national exchange or the NASDAQ
National Market.
Retirement "Retirement" shall mean normal retirement under
the terms of any tax-qualified retirement plan of
the Company or retirement, which retirement occurs
no earlier than three years after the Effective
Time, except as permitted under any agreement
between the Company and the Executive to the
extent such agreement (i) by its terms currently
provides that retirement is to begin upon
attainment of age 65 (even if earlier than the
third anniversary of the Effective Time) or
provides that retirement is to begin after age 64
(which occurs three years after the Effective
Time) or (ii) is entered into after the Effective
Time and permits the Executive to retire prior to
attainment of age 65 and the third anniversary of
the Effective Time. Except as provided in the
preceding sentence, any purported retirement prior
to the third anniversary of the Effective Time,
shall be treated the same as a voluntary
termination.
Schedule A
EBITDA Targets
($ in millions)
<TABLE>
<CAPTION>
"Management
Case" Cumulative
EBITDA Target* EBITDA Target*
-------------- --------------
<S> <C> <C>
1999 $166.2 $166.2
2000 $223.7 $389.9
2001 $246.3 $636.2
2002 $270.7 $906.9
2003 $295.9 $1,202.8
</TABLE>
<PAGE> 40
9
* Upon disposition or acquisition of any business or substantial portion of the
assets of the Company or another company, the EBITDA Targets for the year of
such disposition or such acquisition and each subsequent year shall be adjusted
to eliminate or include, as the case may be, the income and expense to the
business or assets that were subject to disposition or acquisition, but only to
the extent not already done so in connection with the calculation of EBITDA.
Such adjustments must be consented to by a majority of the non-management
directors of the Board of the Company. If such directors cannot so consent, the
adjustment proposal shall be submitted to the Company's independent auditors,
who can consult with the necessary consultants for binding resolution.
<PAGE> 41
Schedule B
Applicable Percentage
<TABLE>
<CAPTION>
Percentage of EBITDA
Target Achieved Applicable
(annual or cumulative) (Pct.) Percentage
- ----------------------------- ----------
<S> <C>
Less than 85 0.00
85 25.00
86 30.00
87 35.00
88 40.00
89 45.00
90 50.00
91 55.00
92 60.00
93 65.00
94 70.00
95 75.00
96 80.00
97 85.00
98 90.00
99 95.00
100 100.00
</TABLE>
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Blount International, Inc. of our report dated January
28, 1999, relating to the financial statements and financial statement schedules
appearing in Blount International, Inc.'s Annual Report on Form 10-K for each of
the two years in the period ended December 31, 1998 and the ten-month period
ended December 31, 1996. We also consent to the references to us under the
headings "Independent Accountants" and "Selected Historical Condensed
Consolidated Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
Atlanta, Georgia
July 15, 1999
<PAGE> 1
EXHIBIT 99.1
PROXY BLOUNT INTERNATIONAL, INC.
MONTGOMERY, ALABAMA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS ON THE 18 DAY OF AUGUST, 1999.
The undersigned hereby appoints Richard H. Irving, III and L. Daniel Morris,
Jr., and each of them, with full power to appoint his substitutes, attorneys,
successors and assigns, as proxies to represent the undersigned and vote all
shares of stock which the undersigned is entitled to vote at the Special Meeting
of Stockholders of Blount International, Inc. to be held on August 18, 1999,
10:00 a.m., local time, at the offices of Blount International, Inc. located at
4520 Executive Part Drive, Montgomery, Alabama, and at any adjournments or
postponements thereof, upon the matters set forth herein and, in their
discretion, upon all matters which may come before the Special Meeting.
THE BOARD OF DIRECTORS HAS RECOMMENDED THAT YOU VOTE "FOR" THE MERGER PROPOSAL.
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
THE MERGER PROPOSAL NOTED BELOW AND WILL BE VOTED BY THE PROXYHOLDERS IN
ACCORDANCE WITH THEIR BEST JUDGMENT AS TO ANY OTHER MATTERS PROPERLY TRANSACTED
AT THE SPECIAL MEETING AND AT ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF. TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS JUST SIGN ON THE
REVERSE SIDE, NO BOXES NEED TO BE CHECKED.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 2
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THE MERGER PROPOSAL
APPROVAL OF THE ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND
RECAPITALIZATION, DATED AS OF APRIL 18, 1999, BETWEEN BLOUNT INTERNATIONAL, INC.
AND RED DOG ACQUISITION, CORP. IN THE MERGER, THE STOCKHOLDERS WILL RECEIVE, AT
THEIR ELECTION AND SUBJECT TO PRORATION, $30 IN CASH OR TWO SHARES OF COMMON
STOCK OF THE SURVIVING CORPORATION FOR EACH SHARE OF COMMON STOCK.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] MARK HERE IF YOU PLAN TO ATTEND THE SPECIAL
MEETING
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT
LEFT
</TABLE>
PLEASE VOTE, SIGN, DATE AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS, IF
ACTING AS ATTORNEY, EXECUTOR, TRUSTEE, OR IN
REPRESENTATIVE CAPACITY SIGN NAME AND
INDICATE TITLE. IF SHARES ARE IN THE NAMES
OF MORE THAN ONE PERSON EACH PERSON SHOULD
SIGN.
Signature: Date: Signature: Date:
<PAGE> 1
EXHIBIT 99.2
FORM OF NON-CASH ELECTION
This Non-Cash Election Form is to accompany certificates for shares of
Class A Common Stock, par value $.01 per share ("Blount Class A Common Stock"),
and/or Class B Common Stock, par value $.01 per share ("Blount Class B Common
Stock") of Blount International, Inc. ("Blount"), if such certificates are
submitted pursuant to an election (a "Non-Cash Election") to receive shares of
common stock, par value $.01 per share ("Non-Cash Election Shares"), of the
surviving Blount International, Inc. ("New Blount") in connection with the
proposed merger (the "Merger") of Red Dog Acquisition, Corp. ("Red Dog
Acquisition") with and into Blount.
HOLDERS OF BLOUNT CLASS A COMMON STOCK AND/OR BLOUNT CLASS B COMMON STOCK
WHO DO NOT WISH TO MAKE A NON-CASH ELECTION (ANY SUCH HOLDER, A "NON-ELECTING
HOLDER") SHOULD NOT SUBMIT THIS FORM OF NON-CASH ELECTION. EACH SHARE OF BLOUNT
CLASS A COMMON STOCK AND/OR BLOUNT CLASS B COMMON STOCK OWNED BY ANY SUCH
NON-ELECTING HOLDER WILL AUTOMATICALLY BE CONVERTED INTO THE RIGHT TO RECEIVE AN
AMOUNT EQUAL TO $30.00 IN CASH FROM NEW BLOUNT FOLLOWING THE MERGER, SUBJECT TO
PRORATION AS DESCRIBED IN THE PROXY STATEMENT-PROSPECTUS (AS DEFINED BELOW).
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX I
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES SUBMITTED
NAME AND ADDRESS OF REGISTERED HOLDER* (ATTACH ADDITIONAL LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER CERTIFICATE(S) SUBMITTED**
<S> <C> <C> <C>
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total Common
Shares
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Only certificates registered in a single form may be deposited with this
Non-Cash Election Form. If certificates are registered in different forms
(e.g., John R. Doe and J.R. Doe), it will be necessary to fill in, sign
and submit as many separate Non-Cash Election Forms as there are different
registrations of certificates.
** Unless otherwise indicated, it will be assumed that all shares submitted
are to be treated as having made a Non-Cash Election. If fewer than all the
shares represented by any certificate are to be submitted for exchange for
Non-Cash Election Shares, fill in the number of shares which are to be
submitted in this box.
- --------------------------------------------------------------------------------
[ ] Check here if you cannot locate certificates. Please complete the remainder
of this Form of Non-Cash Election and indicate here the number of lost
certificates: . Please call 1-800-730-4001 for affidavits to
-----------
replace your lost certificates.
To: BankBoston, N.A., Exchange Agent
<TABLE>
<S> <C> <C> <C>
By mail: By hand: By facsimile: By overnight courier:
Securities Transfer & 781-575-4826 40 Campanelli Drive
P.O. Box 9573 Reporting Services, Inc. Confirmation Number: Braintree, MA 02184
Boston, MA 02205-9573 c/o Equiserve 781-575-4816 ATTN: Corporate Actions
ATTN: Corporate Actions 100 Williams St. Galleria
New York, NY 10038
</TABLE>
Delivery of this Form to an address other than as set forth above does not
constitute a valid delivery.
<PAGE> 2
Ladies and Gentlemen:
In connection with the Merger, the undersigned hereby submits the
certificate(s) for shares of Blount Class A Common Stock and/or Blount Class B
Common Stock listed below and elects, subject as set forth below, to have all or
a portion of the shares of Blount Class A Common Stock and/or Blount Class B
Common Stock represented by such certificates as set forth below converted into
the right to receive Non-Cash Election Shares following the Merger.
This Form of Non-Cash Election and the following election are subject to
(i) the terms, conditions and limitations set forth in the Proxy Statement-
Prospectus dated July 15, 1999, relating to the Merger (including all annexes
thereto, and as it may be amended or supplemented from time to time, the "Proxy
Statement"), receipt of which is acknowledged by the undersigned, (ii) the terms
of the Agreement and Plan of Merger and Recapitalization, dated as of April 18,
1999 (as the same may be amended or supplemented from time to time, the "Merger
Agreement"), a conformed copy of which appears as Appendix A to the Proxy
Statement, and (iii) the accompanying Instructions. Capitalized terms not
otherwise defined in this Form of Non-Cash Election shall have the meaning given
to such terms in the Merger Agreement.
By delivering certificates for shares of Blount Class A Common Stock and/or
Blount Class B Common Stock, the registered holder of such certificates releases
Blount, New Blount, Red Dog Acquisition and their respective affiliates,
directors, officers, employees, partners, agents, advisors and representatives,
and their respective successors and assigns, from any and all claims arising
from or in connection with the purchase or ownership of such Blount Class A
Common Stock and/or Blount Class B Common Stock or the exchange of such Blount
Class A Common Stock and/or Blount Class B Common Stock pursuant to the Merger
Agreement.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of Blount Class A Common Stock and/or Blount Class B Common
Stock to Blount and to receive on behalf of the undersigned, in exchange for the
shares of Blount Class A Common Stock and/or Blount Class B Common Stock
represented thereby, any certificates for Non-Cash Election Shares or check for
cash issuable in the Merger pursuant to the Merger Agreement. If certificates of
Blount Class A Common Stock and/or Blount Class B Common Stock are not delivered
herewith, there is furnished below a guarantee of delivery of such certificates
representing shares of Blount Class A Common Stock and/or Blount Class B Common
Stock from a member of a national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office in the United States.
Unless otherwise indicated under the Special Payment Instructions below,
please issue any certificate for Non-Cash Election Shares and/or any check
issuable in exchange for the shares of Blount Class A Common Stock and/or Blount
Class B Common Stock represented by the certificates submitted hereby in the
name of the registered holder(s) of such Blount Class A Common Stock and/or
Blount Class B Common Stock. Similarly, unless otherwise indicated under Special
Delivery Instructions, please mail any certificate for shares of Blount Class A
Common Stock and/or Blount Class B Common Stock and/or any check for cash
issuable in exchange for the shares of Blount Class A Common Stock and/or Blount
Class B Common Stock represented by the certificates submitted hereby to the
registered holder(s) of the Blount Class A Common Stock and/or Blount Class B
Common Stock at the address or addresses shown above.
2
<PAGE> 3
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX II
- -----------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS D(7), (8) AND (9))
To be completed ONLY if the certificates for Non-Cash Election Shares
are to be registered in the name of, or the checks are to be made payable
to, someone other than the registered holder(s) of shares of Blount Class
A Common Stock and/or Blount Class B Common Stock.
Name:
-------------------------------------------------------------------
(PLEASE PRINT)
-------------------------------------------------------------------
(PLEASE PRINT)
Address:
-------------------------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
------------------------------------------------------------
BOX III
- -----------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION D(10))
To be completed ONLY if the certificates for Non-Cash Election Shares
are to be registered in the name of, or the checks are to be made payable
to, the registered holder(s) of shares of Blount Class A Common Stock
and/or Blount Class B Common Stock, but are to be sent to someone other
than the registered holder(s) or to an address other than the address of
the registered holder(s) set forth above.
Name:
-------------------------------------------------------------------
(PLEASE PRINT)
-------------------------------------------------------------------
(PLEASE PRINT)
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
(INCLUDING ZIP CODE)
-------------------------------------------------------------------
BOX IV
- --------------------------------------------------------------------------
SIGN HERE AND HAVE SIGNATURES GUARANTEED
(SEE INSTRUCTIONS D(1), (3), (4) AND (9) CONCERNING SIGNATURE GUARANTEE)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or any person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer of a
corporation, attorney-in-fact or any other person acting in a fiduciary
capacity, set forth full title in such capacity and see Instruction D(3).
Signature(s)
Guaranteed:
-------------------------------------------------------------------
(SEE INSTRUCTION D(3))
Name(s):
-------------------------------------------------------------------
(PLEASE PRINT)
Name(s):
-------------------------------------------------------------------
(PLEASE PRINT)
Name(s):
-------------------------------------------------------------------
(PLEASE PRINT)
-------------------------------------------------------------------
-------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER(S))
-------------------------------------------------------------------
-------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
Dated:
------------------------------------------ , 1999.
3
<PAGE> 4
BOX V
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)*
The undersigned is:
- a member of a national securities exchange,
- a member of the National Association of Securities Dealers, Inc., or
- a commercial bank or trust company in the United States;
and guarantees to deliver to the Exchange Agent the certificates for
shares of Blount Class A Common Stock and/or Blount Class B Common Stock
to which this Form relates, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of Blount, no later than 5:00 P.M.
Eastern time on the seventh New York Stock Exchange trading day after the
date of execution of this guarantee of delivery.
------------------------------------------------------------
(FIRM -- PLEASE PRINT)
------------------------------------------------------------
(AUTHORIZED SIGNATURE)
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(ADDRESS)
------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
------------------------------------------------------------
(CONTACT NAME)
(DO NOT WRITE IN THE SPACES BELOW)
4
<PAGE> 5
INSTRUCTIONS FOR FORM OF NON-CASH ELECTION
A. SPECIAL CONDITIONS
1. TIME IN WHICH TO ELECT. To be effective, an election pursuant to the
terms and conditions set forth herein (an "Election") on this Form of Non-Cash
Election or a facsimile hereof, accompanied by the above-described certificates
representing shares of Blount Class A Common Stock and/or Blount Class B Common
Stock or a proper guarantee of delivery thereof, must be received by the
Exchange Agent at the address set forth above, no later than 5:00 P.M., Eastern
time, on August 11, 1999 (the "Election Date"). Holders of Blount Class A Common
Stock and/or Blount Class B Common Stock whose stock certificates are not
immediately available may also make an effective Election by completing this
Form of Non-Cash Election or a facsimile hereof and having the Guarantee of
Delivery box (BOX V) properly completed and duly executed (subject to the
condition that the certificates for which delivery is thereby guaranteed are in
fact delivered to the Exchange Agent, duly endorsed in blank or otherwise in
form acceptable for transfer on the books of Blount, no later than 5:00 P.M.,
Eastern time, on the seventh New York Stock Exchange trading day after the date
of execution of such guarantee of delivery). Each share of Blount Class A Common
Stock and/or Blount Class B Common Stock with respect to which the Exchange
Agent shall have not received an effective Election prior to the Election Date,
or with respect to which the proration procedures set forth in the Proxy
Statement-Prospectus do not pertain, outstanding at the Effective Time of the
Merger, will be converted into the right to receive an amount equal to $30.00 in
cash from New Blount following the Merger. See Instruction C.
2. REVOCATION OF ELECTION. Any Election may be revoked by the person who
submitted this Form of Non-Cash Election to the Exchange Agent and the
certificate(s) for shares withdrawn by written notice duly executed and received
by the Exchange Agent prior to the Election Date. Such notice must specify the
person in whose name the shares of Blount Class A Common Stock and/or Blount
Class B Common Stock to be withdrawn had been deposited, the number of shares to
be withdrawn, the name of the registered holder thereof, and the serial numbers
shown on the certificate(s) representing the shares to be withdrawn. If an
Election is revoked, and the certificate(s) for shares withdrawn, the Blount
Class A Common Stock and/or Blount Class B Common Stock certificate(s) submitted
therewith will be promptly returned by the Exchange Agent to the person who
submitted such certificate(s).
3. TERMINATION OF RIGHT TO ELECT. If for any reason the Merger is not
consummated or is abandoned, all Forms of Non-Cash Election will be void and of
no effect. Certificate(s) for Blount Class A Common Stock and/or Blount Class B
Common Stock previously received by the Exchange Agent will be returned promptly
by the Exchange Agent to the person who submitted such stock certificate(s).
B. ELECTION AND PRORATION PROCEDURES
A description of the election and proration procedures is set forth in the
Proxy Statement-Prospectus under "The Merger -- Conversion/Retention of Shares;
Procedures for Exchange of Certificates." A full statement of the election and
proration procedures is contained in the Merger Agreement and all Elections are
subject to the compliance with such procedures. IN CONNECTION WITH MAKING ANY
NON-CASH ELECTION, A HOLDER OF BLOUNT CLASS A COMMON STOCK AND/OR BLOUNT CLASS B
COMMON STOCK SHOULD READ CAREFULLY, AMONG OTHER MATTERS, THE AFORESAID
DESCRIPTION AND STATEMENT AND THE INFORMATION CONTAINED IN THE PROXY
STATEMENT-PROSPECTUS UNDER "THE MERGER -- MATERIAL FEDERAL INCOME TAX
CONSEQUENCES." SEE ALSO "RISK FACTORS -- AS A RESULT OF PRORATION, YOU MAY NOT
RECEIVE THE TYPE OF CONSIDERATION YOU WANT AND CASH PAYMENTS COULD BE TREATED AS
DIVIDENDS INSTEAD OF CAPITAL GAINS."
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF BLOUNT CLASS A COMMON
STOCK AND/OR BLOUNT CLASS B COMMON STOCK MAY RECEIVE NON-CASH ELECTION SHARES
AND/OR CASH IN AMOUNTS WHICH VARY FROM THE AMOUNTS SUCH HOLDERS ELECT TO
RECEIVE. SUCH HOLDERS WILL NOT BE ABLE TO CHANGE THE
5
<PAGE> 6
NUMBER OF NON-CASH ELECTION SHARES OR THE AMOUNT OF CASH ALLOCATED TO THEM
PURSUANT TO SUCH PROCEDURES.
C. RECEIPT OF NON-CASH ELECTION SHARES OR CHECKS
As soon as practicable after the Effective Time of the Merger and after the
Election Date, the Exchange Agent will mail certificate(s) for Non-Cash Election
Shares and/or cash payments by check to the holders of Blount Class A Common
Stock and/or Blount Class B Common Stock with respect to each share of Blount
Class A Common Stock and/or Blount Class B Common Stock which is included in any
effective Election. Holders of Blount Class A Common Stock and/or Blount Class B
Common Stock who declined to make an Election, or failed to make an effective
Election, with respect to any or all of their shares will receive, for each such
share, the right to receive an amount equal to $30.00 in cash, subject to
proration, as soon as practicable after the certificate(s) representing such
share or shares have been submitted.
No fractional Non-Cash Election Shares will be issued in connection with
the Merger. In lieu thereof, the holders of Blount Class A Common Stock and/or
Blount Class B Common Stock who become entitled to a fraction of a Non-Cash
Election Share, shall be entitled to receive a cash payment (without interest)
determined by multiplying the fractional share interest to which a holder would
otherwise be entitled by $30.00.
D. GENERAL
1. EXECUTION AND DELIVERY. This Form of Non-Cash Election or a facsimile
hereof must be properly filled in, dated and signed in BOX IV, and must be
delivered (together with stock certificate(s) representing the shares of Blount
Class A Common Stock and/or Blount Class B Common Stock as to which the Election
is made or with a duly signed guarantee of delivery of such certificate(s)) to
the Exchange Agent at the address set forth above for the Exchange Agent.
THE METHOD OF DELIVERY OF CERTIFICATE(S) AND ALL OTHER REQUIRED DOCUMENTS
IS AT THE OPTION AND RISK OF THE STOCKHOLDER, BUT IF SENT BY MAIL, IT IS
RECOMMENDED THAT THEY BE SENT BY REGISTERED MAIL WITH RETURN RECEIPT REQUEST.
2. INADEQUATE SPACE. If there is insufficient space on this Form of
Non-Cash Election to list all your stock certificates being submitted to the
Exchange Agent, please attach a separate list.
3. GUARANTEE OF SIGNATURES. Signatures on all Forms of Non-Cash Election
must be guaranteed by a financial institution that is a member of a Securities
Transfer Association approved medallion program such as STAMP, SEMP, or MSP (an
"Eligible Institution"), except in cases where securities are surrendered (i) by
a registered holder of the securities who has not completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Form of Non-Cash Election or (ii) for the account of an
Eligible Institution. See Instruction D.4.
4. SIGNATURES. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Form of Non-Cash Election should
correspond exactly with the name(s) as written on the face of the certificate(s)
submitted, unless shares of Blount Class A Common Stock and/or Blount Class B
Common Stock described on this Form of Non-Cash Election have been assigned by
the registered holder(s), in which event this Form of Non-Cash Election must be
signed in exactly the same form as the name(s) of the last transferees(s)
indicated on the transfers attached to or endorsed on the certificates.
If this Form of Non-Cash Election signed by a person or persons other than
the registered owner(s) of the certificates listed, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered owner(s) appear on the certificates.
If this Form of Non-Cash Election or any stock certificates(s) or stock
power(s) are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or any other person acting in a
fiduciary or representative capacity, the person signing must give such person's
full title in such capacity and
6
<PAGE> 7
appropriate evidence of authority to act in such capacity must be forwarded with
this Form of Non-Cash Election.
5. PARTIAL EXCHANGES. If fewer than all the shares represented by any
certificate delivered to the Exchange Agent are to be submitted for exchange,
fill in the number of shares which are to be submitted in the box entitled
"Shares Submitted." In such case, a new certificate for the remainder of the
shares represented by the old certificate will be sent to the registered
owner(s) as soon as practicable following the Election Date. All shares
represented by certificates submitted hereunder will be deemed to have been
submitted unless otherwise indicated.
6. LOST OR DESTROYED CERTIFICATES. If your stock certificate(s) has been
either lost or destroyed, please check the box on the front of the Form of
Non-Cash Election below your name and address and fill in the blank to show the
number of shares of Blount Class A Common Stock and/or Blount Class B Common
Stock represented by such lost, stolen or destroyed certificate(s). You will
then be instructed as to the steps you must take in order to receive a stock
certificate(s) representing Non-Cash Election Shares and/or any checks in
accordance with the Merger Agreement.
7. STOCK TRANSFER TAXES. If payment for securities is to be made to any
person other than the registered holder, or if surrendered certificates are
registered in the name of any person other than the person(s) signing the
Non-Cash Election Form, the amount of any stock transfer taxes (whether imposed
on the registered holder or such person) payable as a result of the transfer to
such person will be deducted from the payment for such securities if
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
not submitted.
8. NEW CERTIFICATES AND/OR CHECKS IN SAME NAME. If any stock
certificate(s) representing Non-Cash Election Shares or any check(s) in respect
of Non-Cash Election Shares are to be registered in, or payable to the order of,
exactly the same name(s) that appears on the certificate(s) representing shares
of Blount Class A Common Stock and/or Blount Class B Common Stock submitted with
the Form of Non-Cash Election, no endorsement of certificate(s) or separate
stock power(s) are required.
9. NEW CERTIFICATES AND CHECKS IN DIFFERENT NAME. If any stock
certificate(s) representing Non-Cash Election Shares or any check(s) in respect
of Non-Cash Election Shares are to be registered in, or payable to the order of,
other than exactly the same name(s) that appear on the certificate(s)
representing shares of Blount Class A Common Stock and/or Blount Class B Common
Stock submitted for exchange with the Form of Non-Cash Election, such exchange
shall not be made by the Exchange Agent unless the certificates submitted are
endorsed, BOX II is completed, and the signature is guaranteed in BOX IV by a
member of a national securities exchange, a member of the National Association
of Securities Dealers, Inc. or a commercial bank (not a savings bank or a
savings & loan association) or trust company in the United States which is a
member in good standing of the Exchange Agent's Medallion Program.
10. SPECIAL DELIVERY INSTRUCTIONS. If the checks are to be payable to the
order of, or the certificates for Non-Cash Election Shares are to be registered
in, the name of the registered holder(s) of shares of Blount Class A Common
Stock and/or Blount Class B Common Stock, but are to be sent to someone other
than the registered holder(s) or to an address other than the address of the
registered holder(s), it will be necessary to indicate such person or address in
BOX III.
11. MISCELLANEOUS. A single check and/or stock certificate representing
Non-Cash Election Shares will be issued in exchange for shares of Blount Class A
Common Stock and/or Blount Class B Common Stock submitted herewith.
12. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under
U.S. federal income tax law, a stockholder who surrenders certificates of Blount
Class A Common Stock and/or Blount Class B Common Stock in the Merger is
required to provide the Exchange Agent with his or her correct taxpayer
identification number ("TIN") on Substitute Form W-9 and to certify that the TIN
provided on Substitute Form W-9 is correct (or that such stockholder is awaiting
a TIN). If such stockholder is an individual, the TIN is his or her social
security number. If the Exchange Agent is not provided with the correct TIN, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service and payments that are
7
<PAGE> 8
made to such stockholder with respect to Blount Class A Common Stock and/or
Blount Class B Common Stock surrendered may be subject to backup withholding
(see below).
A Blount Class A Common Stock and/or Blount Class B Common Stock
stockholder who does not have a TIN may check the box in Part 3 of the
Substitute Form W-9 if the stockholder has applied for a number or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding. If the box is
checked, payments made within 60 days of the date of the form will be subject to
backup withholding unless the stockholder has furnished the Exchange Agent with
his or her TIN. A stockholder who checks the box in Part 3 in lieu of furnishing
his or her TIN should furnish the Exchange Agent with his or her TIN as soon as
it is received.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding requirements.
In order for a foreign individual to qualify as an exempt recipient, that
stockholder must submit a statement, signed under penalty of perjury, attesting
to that individual's exempt status (Form W-8). Forms for such statements can be
obtained from the Exchange Agent. Stockholders are urged to consult their own
tax advisors to determine whether they are exempt from these backup withholding
and reporting requirements.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments to be made to the stockholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained by filing a tax
return with the Internal Revenue Service. The Exchange Agent cannot refund
amounts withheld by reason of backup withholding.
13. ADDITIONAL COPIES. Additional copies of the Form of Non-Cash Election
may be obtained from BankBoston, N.A. at the address listed above.
All questions with respect to this Form of Non-Cash Election, the Elections
(including, without limitation, questions relating to the timeliness or
effectiveness of revocation of any Election and computations as to proration),
and the validity, form and eligibility of any surrender of certificates will be
determined by Blount and Red Dog Acquisition and such determination shall be
final and binding. Blount and Red Dog Acquisition reserve the right to waive any
irregularities or defects in the surrender of any certificates. A surrender will
not be deemed to have been made until all irregularities have been cured or
waived.
8
<PAGE> 9
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAYER'S NAME: BankBoston, N.A.
- -------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT -------------------------------
FORM W-9 AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
DEPARTMENT OF THE TREASURY OR
INTERNAL REVENUE SERVICE -------------------------------
Employer Identification Number
--------------------------------------------------------------------------------------
PAYER'S REQUEST FOR PART 2 PART 3 --
TAXPAYER
IDENTIFICATION Certification -- Under the penalties of perjury, I [ ] Awaiting TIN
NUMBER (TIN) certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, or (b)
I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to
backup withholding.
--------------------------------------------------------------------------------------
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because of
under-reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to backup withholding, do
not cross out such item (2).
--------------------------------------------------------------------------------------
Sign Here , SIGNATURE --------------------------------------------------------------------------
DATE
-----------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
<TABLE>
<S> <C>
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I
intend to mail or deliver an application in the near future. I understand that if I do not provide a
taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be
withheld.
Signature
- -------------------------------------------------------------------------------------------------------- Date
- --------------------------------------------------------------------------------------------------------------- ,
1999
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 10
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU)
TO GIVE THE PAYER. -- Social security numbers have nine digits separated by two
hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e. 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, the first individual
on the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(2)
trust account (grantor is also
trustee) The actual owner(1)
b. So-called trust account that
is not a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF --
- ---------------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
account
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
------------------------------------------------------------------
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1(800)TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- - An organization exempt from tax under Section 501(a), an individual retirement
account (IRA), or a custodial account under Section 403(b)(7), if the account
satisfies the requirements of Section 401(f)(2).
- - The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- - An international organization or any agency or instrumentality thereof.
- - A foreign government and any political subdivision, agency or instrumentality
thereof.
Payees that may be exempt from backup withholding include:
- - A corporation.
- - A financial institution
- - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A middleman known in the investment community as a nominee or who is listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
- - A futures commission merchant registered with the Commodity Futures Trading
Commission.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- - Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO
AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers, who must report the payments to the
IRS. The IRS uses the number for identification purposes and may also provide
this information to various government agencies for tax enforcement or
litigation purposes. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividends, and certain other payments to a payee who does not furnish
a taxpayer identification number to payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 11
RE: BLOUNT INTERNATIONAL, INC.
FORM OF NON-CASH ELECTION
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We are enclosing herewith the materials listed below relating to the Form
of Non-Cash Election as described in and subject to conditions set forth in the
Proxy Statement-Prospectus dated July 15, 1999 (including all documents attached
as annexes thereto, and as it may be amended or supplemented from time to time,
the "Proxy Statement"), which described the Agreement and Plan of Merger and
Recapitalization dated as of April 18, 1999 between Blount International, Inc.
("Blount") and Red Dog Acquisition, Corp. ("Red Dog Acquisition") providing for
the merger of Red Dog Acquisition with and into Blount (the "Merger").
Capitalized terms used herein and not defined herein have the meaning specified
in the Proxy Statement.
Subject to the potential for proration described in the Proxy Statement,
pursuant to the Form of Non-Cash Election, record holders of shares of Blount
Class A Common Stock, par value $.01 per share ("Blount Class A Common Stock")
and/or Blount Class B Common Stock, par value $.01 per share ("Blount Class B
Common Stock"), are entitled to make an unconditional election (a "Non-Cash
Election") on or prior to 5:00 p.m., Eastern time, on August 11, 1999 to receive
shares of common stock of the surviving corporation ("New Blount") by properly
executing and submitting the enclosed Form of Non-Cash Election.
Enclosed are copies of the following documents:
1. Proxy Statement -- Prospectus.
2. Form of Non-Cash Election for your use and for the information of your
clients.
3. A printed form of letter which may be sent to your clients for whose
accounts you or your nominee hold Blount Class A Common Stock and/or
Blount Class B Common Stock as the registered holder with space
provided for obtaining such clients' instructions with regard to any
Non-Cash Election.
YOUR PROMPT ACTION IS REQUIRED. WE URGE YOU TO CONTACT YOUR CLIENTS AS SOON AS
POSSIBLE. THE PERIOD IN WHICH A NON-CASH ELECTION CAN BE MADE WILL EXPIRE AT
5:00 P.M., EASTERN TIME, ON AUGUST 11, 1999.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE NON-CASH
ELECTION OR THE PROXY STATEMENT SHOULD BE DIRECTED TO EQUISERVE, AT THE
FOLLOWING TOLL-FREE TELEPHONE NUMBER: (800) 730-4001.
Very truly yours,
Blount International, Inc.
<PAGE> 12
RE: BLOUNT INTERNATIONAL, INC.
FORM OF NON-CASH ELECTION
To Our Clients:
In connection with the Proxy Statement-Prospectus dated July 15, 1999,
(including all documents attached as annexes thereto, and as it may be amended
or supplemented from time to time, the "Proxy Statement") describing the
Agreement and Plan of Merger and Recapitalization dated as of April 18, 1999
between Blount International, Inc. ("Blount") and Red Dog Acquisition, Corp.
("Red Dog Acquisition"), providing for the merger of Red Dog Acquisition with
and into Blount (the "Merger"). The Proxy Statement-Prospectus has been sent
under separate cover. Capitalized terms used herein and not defined herein have
the meaning specified in the Proxy Statement.
Enclosed for your consideration and information is a Form of Non-Cash
Election. As described in and subject to conditions set forth in the Proxy
Statement, and subject to the proration described therein, record holders of
shares of Blount Class A common stock, par value $.01 per share ("Blount Class A
Common Stock"), and/or Blount Class B common stock, par value $.01 per share
("Blount Class B Common Stock"), are entitled to make an unconditional election
(a "Non-Cash Election") on or prior to the Election Date to receive shares of
common stock of the surviving corporation ("New Blount") by executing and
submitting the enclosed Form of Non-Cash Election.
We are registered holders of Blount Class A Common Stock and/or Blount
Class B Common Stock held for your account. ANY NON-CASH ELECTION CAN BE MADE
ONLY BY US AS THE REGISTERED HOLDER OF SUCH SHARES AND ONLY PURSUANT TO YOUR
INSTRUCTIONS AS THE BENEFICIAL OWNERS OF SUCH SHARES. Accordingly, we request
instructions if you wish us to exercise the Non-Cash Election for any shares of
Blount Class A Common Stock and/or Blount Class B Common Stock, which you are
entitled to do pursuant to the terms and subject to the conditions set forth in
the Proxy Statement and the Form of Non-Cash Election. We urge you, however, to
read these documents carefully before instructing us to exercise the Form of
Non-Cash Election.
A description of the election and proration procedures is set forth in the
Proxy Statement under "The Special Meeting -- Forms of Non-Cash Election," "The
Merger -- Merger Consideration." A full statement of the election and proration
procedures is contained in the Merger Agreement and all Non-Cash Elections are
subject to compliance with such procedures. In connection with making any
Non-Cash Election, a holder of Blount Class A Common Stock and/or Blount Class B
Common Stock should read carefully, among other matters, the aforesaid
description and statement and the information contained in the Proxy Statement
under "The Merger -- Material Federal Income Tax Consequences." See also "Risk
Factors -- As a Result of Proration, You May Not Receive the Type of
Consideration You Want and Cash Payments Could be Treated as Dividends Instead
of Capital Gains" in the Proxy Statement for a discussion of the possibility
that the receipt of cash as a result of proration by a holder who has made a
Non-Cash Election may be treated as a dividend as opposed to a capital gain.
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF BLOUNT CLASS A COMMON
STOCK AND/OR BLOUNT CLASS B COMMON STOCK MAY RECEIVE NON-CASH ELECTION SHARES OR
CASH IN AMOUNTS WHICH VARY FROM THE AMOUNTS SUCH HOLDERS ELECT TO RECEIVE. SUCH
HOLDERS WILL NOT BE ABLE TO CHANGE THE NUMBER OF NON-CASH ELECTION SHARES OR THE
AMOUNT OF CASH ALLOCATED TO THEM PURSUANT TO SUCH PROCEDURES.
HOLDERS OF BLOUNT CLASS A COMMON STOCK AND/OR BLOUNT CLASS B COMMON STOCK
WHO DO NOT WISH TO MAKE A NON-CASH ELECTION (ANY SUCH HOLDER BEING REFERRED TO
AS A "NON-ELECTING HOLDER") NEED NOT SUBMIT FORM OF NON-CASH ELECTION. Each
share of Blount Class A Common Stock and/or Blount Class B Common Stock owned by
such Non-Electing Holder will automatically, subject to proration as described
in the Proxy Statement, be converted into the right to receive an amount equal
to $30.00 in cash from Blount following the Merger.
<PAGE> 13
If you wish to have us, on your behalf, exercise the Form of Non-Cash
Election, please so instruct us by completing, executing and returning to us the
attached letter of Forms instructions (the "Letter of Instructions") attached to
this letter. THE ENCLOSED FORM OF NON-CASH ELECTION IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO EXCHANGE BLOUNT CLASS A COMMON
STOCK AND/OR BLOUNT CLASS B COMMON STOCK HELD BY US FOR OUR ACCOUNT. The Letter
of Instructions should be forwarded as promptly as possible to permit us to
exercise the Non-Cash Election in accordance with the procedures outlined in the
Proxy Statement. If we do not receive a complete Letter of Instructions in
accordance with such procedures, we will not exercise a Non-Cash Election on
your behalf.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE NON-CASH ELECTION
OR THE PROXY STATEMENT, OR COMPLETION OF THE LETTER OF INSTRUCTIONS, SHOULD BE
DIRECTED TO EQUISERVE, AT THE FOLLOWING TOLL-FREE TELEPHONE NUMBER: (800)
730-4001.
Very truly yours,
BLOUNT INTERNATIONAL, INC.
<PAGE> 14
LETTER OF INSTRUCTIONS
To My Bank or Broker:
This letter instructs you to exercise the Non-Cash Election (capitalized
terms used herein and not defined herein having the meaning specified in the
Merger Agreement referred to below) to receive shares of New Blount in exchange
for Blount Class A Common Stock and/or Blount Class B Common Stock specified
below which you hold for the account of the undersigned.
It is understood that the Non-Cash Election is subject to (i) the terms,
conditions and limitations set forth in the Proxy Statement-Prospectus, dated
July 15, 1999, relating to the Merger (including all documents incorporated
therein, and as may be amended or supplemented from time to time, the "Proxy
Statement"), receipt of which is acknowledged by the undersigned, (ii) the terms
of the Agreement and Plan of Merger and Recapitalization, dated as of April 18,
1999, as the same may be amended from time to time, a conformed copy of which
appears as Appendix A to the Proxy Statement (the "Merger Agreement"), and (iii)
the accompanying Form of Non-Cash Election.
If you are electing to exchange all or a portion of your shares, you must
properly fill in the information requested in this box, even if you are electing
to retain only a portion of your shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES OF BLOUNT
CLASS A COMMON STOCK AND/OR
NAME AND ADDRESS OF BENEFICIAL BLOUNT CLASS B COMMON STOCK
OWNER(S) OF BLOUNT CLASS A COMMON HELD
STOCK AND/OR BLOUNT CLASS B COMMON (ATTACH ADDITIONAL NUMBER OF SHARES TO BE
STOCK LIST IF NECESSARY) EXCHANGED FOR NEW SHARES*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL SHARES
- --------------------------------------------------------------------------------------------------------------------------------
* UNLESS OTHERWISE INDICATED IN THIS BOX, IT WILL BE ASSUMED THAT ALL SHARES SUBMITTED ARE TO BE TREATED AS HAVING MADE AN
ELECTION TO RECEIVE NEW SHARES. Remaining shares represented by such certificates will be converted into cash, subject to
proration.
** In the event of proration, a holder may be required to receive some cash. If a holder knows the number or numbers of such
holders certificate(s), a holder may choose to indicate in the space following this sentence the number(s) of the
certificate(s) deemed to represent any shares of Blount Class A Common Stock and/or Blount Class B Common Stock converted
into cash. Certificate No(s):
---------------------------------------------------------------------------------------------------------------------------
HOLDERS ARE NOT REQUIRED TO SO IDENTIFY CERTIFICATE NUMBERS IN THIS SPACE. IN THE EVENT OF PRORATION, SHARES WILL BE
CONVERTED TO CASH FROM STOCK CERTIFICATES IN THE ORDER IN WHICH THEY HAVE BEEN LISTED. THERE CAN BE NO ASSURANCE THAT ANY
IDENTIFICATION OF SHARE CERTIFICATE(S) WILL BE RECOGNIZED BY ANY GOVERNMENTAL AGENCY OR THIRD PARTY. IN ADDITION, NO SUCH
CERTIFICATE IDENTIFICATION WILL OPERATE TO ALTER THE APPLICATION OF THE PRORATION PROCEDURES IN THE MERGER.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
DATED:, 1999
------------------------------------------
- -----------------------------------------------------------
------------------------------------------
ACCOUNT NUMBER BLOUNT CLASS A COMMON STOCK AND/OR SIGNATURE(S)
BLOUNT CLASS B COMMON STOCK
Phone Number: ( ) -
</TABLE>
<PAGE> 1
EXHIBIT 99.3
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATE(S) FOR SHARES OF BLOUNT CLASS A COMMON STOCK
AND/OR BLOUNT CLASS B COMMON STOCK OF
BLOUNT INTERNATIONAL, INC.
SURRENDERED IN CONNECTION WITH THE MERGER OF
RED DOG ACQUISITION, CORP.
WITH AND INTO
BLOUNT INTERNATIONAL, INC.
This Letter of Transmittal is to accompany certificates for shares of Class
A common stock, par value $.01 per share ("Blount Class A Common Stock"), and/or
Class B common stock, par value $.01 per share ("Blount Class B Common Stock"),
of Blount International, Inc. ("Blount") if such certificates have not been
submitted pursuant to an effective election (a "Non-Cash Election") to receive
shares of the surviving corporation's common stock ("Non-Cash Election Shares")
in connection with the proposed merger (the "Merger") of Red Dog Acquisition,
Corp. ("Red Dog Acquisition") with and into Blount. Holders of Blount Class A
Common Stock and/or Blount Class B Common Stock who have previously made an
effective Non-Cash Election (any such holder, an "Electing Holder") need not
submit this Form with respect to the shares covered by such Non-Cash Election.
Each share of Blount Class A Common Stock and/or Blount Class B Common Stock
subject to such Non-Cash Election will automatically, subject to proration as
described in the Proxy Statement (as defined below), be converted into the right
to retain Non-Cash Election Shares.
To: BankBoston, N.A., Exchange Agent
1-800-730-4001
<TABLE>
<S> <C> <C>
By mail: By hand: By overnight courier:
P.O. Box 8029 Securities Transfer & Reporting 150 Royall Street
Boston, MA 02266-8029 Services, Inc. Canton, MA 02021
ATTN: Corporate Actions c/o Equiserve ATTN: Corporate Actions
100 Williams St. Galleria
New York, NY 10038
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set forth
above does not constitute a valid delivery.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX I
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SHARES SUBMITTED
NAME AND ADDRESS OF REGISTERED HOLDER* (ATTACH ADDITIONAL LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
CERTIFICATE REPRESENTED BY
NUMBER CERTIFICATE(S)
<S> <C> <C>
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------
* ONLY CERTIFICATES REGISTERED IN A SINGLE FORM MAY BE DEPOSITED WITH THIS LETTER OF TRANSMITTAL. IF
CERTIFICATES ARE REGISTERED IN DIFFERENT FORMS (E.G., JOHN R. DOE AND J.R. DOE), IT WILL BE NECESSARY
TO FILL IN, SIGN AND SUBMIT AS MANY SEPARATE LETTERS OF TRANSMITTAL AS THERE ARE DIFFERENT
REGISTRATIONS OF CERTIFICATES.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[ ] Check here if you cannot locate your certificates. Please complete the
remainder of this Letter of Transmittal and indicate here the number of the
lost certificates __________. Please call 1-800-730-4001 for affidavits to
replace your lost certificates.
<PAGE> 2
Ladies and Gentlemen:
In connection with the Merger, the undersigned hereby submits the
certificate(s) for shares of Class A common stock, par value $.01 per share
("Blount Class A Common Stock"), and/or Class B common stock, par value $.01 per
share ("Blount Class B Common Stock"), of Blount International, Inc. ("Blount")
listed in Box I. Delivery of the enclosed certificates shall be effected, and
risk of loss of and title to such certificates shall pass, only upon delivery
thereof to you.
This Letter of Transmittal is subject to (i) the terms, conditions and
limitations set forth in the Proxy Statement, dated July 15, 1999, relating to
the Merger (including all annexes thereto, and as it may be amended or
supplemented from time to time, the "Proxy Statement"), receipt of which is
acknowledged by the undersigned, (ii) the terms of the Agreement and Plan of
Merger and Recapitalization, dated as of April 18, 1999, as the same may be
amended or supplemented from time to time (the "Merger Agreement"), a conformed
copy of which appears as Appendix A to the Proxy Statement, and (iii) the
accompanying Instructions.
By delivering certificates for shares of Blount Class A Common Stock and/or
Blount Class B Common Stock the registered holder of such certificates releases
Blount, Red Dog Acquisition and their respective affiliates, directors,
officers, employees, partners, agents, advisors and representatives, and their
respective successors and assigns, from any and all claims arising from or in
connection with the purchase or ownership of such Blount Class A Common Stock
and/or Blount Class B Common Stock or the exchange of such Blount Class A Common
Stock and/or Blount Class B Common Stock pursuant to the Merger Agreement.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of Blount Class A Common Stock and/or Blount Class B Common
Stock to Blount and to receive on behalf of the undersigned, in exchange for the
shares of Blount Class A Common Stock and/or Blount Class B Common Stock
represented thereby, any check for cash or, in the event of proration,
certificate for Non-Cash Election Shares issuable in the Merger.
Unless otherwise indicated under Special Payment Instructions below, please
issue any check issuable in exchange for the shares of Blount Class A Common
Stock and/or Blount Class B Common Stock represented by the certificates
submitted hereby in the name of the registered holder(s) of such Blount Class A
Common Stock and/or Blount Class B Common Stock. Similarly, unless otherwise
indicated under Special Delivery Instructions, please mail any check issuable in
exchange for the shares of Blount Class A Common Stock and/or Blount Class B
Common Stock represented by the certificates submitted hereby to the registered
holder(s) of Blount Class A Common Stock and/or Blount Class B Common Stock at
the address or addresses shown above.
<PAGE> 3
BOX II
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS C(6) AND C(7))
To be completed ONLY if the checks are to be made payable to, or the
certificates for Non-Cash Election Shares are to be registered in the name
of, someone other than the registered holder(s) of shares of Blount Class
A Common Stock and/or Blount Class B Common Stock.
Name:
----------------------------------------------------
(PLEASE PRINT)
------------------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
------------------------------------------------------------
BOX III
------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION C(8))
To be completed ONLY if the checks are to be made payable to, or the
certificates for Non-Cash Election Shares are to be registered in the name
of, the registered holder(s) of shares of Blount Class A Common Stock
and/or Blount Class B Common Stock, but are to be sent to someone other
than the registered holder(s) or to an address other than the address of
the registered holder(s) set forth above.
Name:
----------------------------------------------------
(PLEASE PRINT)
------------------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
------------------------------------------------------------
<PAGE> 4
BOX IV
SIGN HERE AND HAVE SIGNATURES GUARANTEED
(SEE INSTRUCTIONS C(1), C(4) AND C(6) CONCERNING SIGNATURE GUARANTEE)
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer of a
corporation, attorney-in-fact or any other person acting in a fiduciary
capacity, set forth full title in such capacity and see Instruction C(3).
Signature(s)
Guaranteed:
---------------------------------------------
(SEE INSTRUCTION C(3))
Name(s):
------------------------------------------------
(PLEASE PRINT)
Name(s):
------------------------------------------------
(PLEASE PRINT)
Name(s):
------------------------------------------------
(PLEASE PRINT)
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER(S))
------------------------------------------------------------
------------------------------------------------------------
(TAX INDEMNIFICATION OR SOCIAL SECURITY NUMBER(S))
Dated:
------------------------------------------ 1999.
INSTRUCTIONS
A. SPECIAL CONDITIONS; PRORATION PROCEDURES.
Subject to the provisions, including the proration procedures, described in
the Proxy Statement, holders of Blount Class A Common Stock and/or Blount Class
B Common Stock who (i) declined to make a Non-Cash Election, (ii) failed to make
an effective Non-Cash Election or (iii) made an effective Non-Cash Election but
who will not receive Non-Cash Election Shares due to proration, in each case
with respect to any or all of their shares, will receive in exchange for each
share of Blount Class A Common Stock and/or Blount Class B Common Stock, the
right to receive $30.00 in cash. See Instruction B.
A description of the proration procedures is set forth in the Proxy
Statement under "The Merger -- Conversion/Retention of Shares; Procedures for
Exchange of Certificates." A full statement of the proration procedures is
contained in the Merger Agreement and any receipt of cash is subject to
compliance with such procedures.
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF BLOUNT CLASS A COMMON
STOCK AND/OR BLOUNT CLASS B COMMON STOCK MAY RECEIVE NON-CASH ELECTION SHARES OR
CASH IN AMOUNTS WHICH VARY FROM THE AMOUNTS SUCH HOLDERS ELECT TO RECEIVE. SUCH
HOLDERS WILL NOT BE ABLE TO CHANGE THE NUMBER OF NON-CASH ELECTION SHARES OR THE
AMOUNT OF CASH ALLOCATED TO THEM PURSUANT TO SUCH PROCEDURES.
B. RECEIPT OF CHECKS AND/OR CERTIFICATES IN EXCHANGE FOR BLOUNT CLASS A COMMON
STOCK AND/OR BLOUNT CLASS B COMMON STOCK.
As soon as practicable after the completion of the Merger, the Exchange
Agent will mail to the registered holder listed in Box I (or his or her designee
listed in Box II or III), a check from Blount for an amount equal to $30.00 in
cash with respect to each share of Blount Class A Common Stock and/or Blount
Class B Common Stock which is submitted with any Letter of Transmittal, subject
to the proration procedures described in the Proxy Statement.
<PAGE> 5
As a result of proration, a holder of Blount Class A Common Stock and/or
Blount Class B Common Stock may receive Non-Cash Election Shares instead of
cash. No fractional Non-Cash Election Shares will be issued in connection with
the Merger. In lieu thereof, the holders of Blount Class A Common Stock and/or
Blount Class B Common Stock who become entitled to a fraction of a Non-Cash
Election Share, shall be entitled to a cash payment (without interest)
determined by multiplying the fractional share interest to which a holder would
otherwise be entitled by $30.00.
C. GENERAL.
1. EXECUTION AND DELIVERY. This Letter of Transmittal must be properly
filled in, dated and signed in Box IV, and must be delivered (together with
stock certificates representing the shares of Blount Class A Common Stock and/or
Blount Class B Common Stock being submitted) to the Exchange Agent at either of
the addresses set forth above.
THE METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER, BUT IF SENT BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS SUGGESTED.
2. INADEQUATE SPACE. If there is insufficient space on this Form to list
all your stock certificates being submitted to Exchange Agent, please attach a
separate list.
3. GUARANTEE OF SIGNATURES. Signatures on all Letters of Transmittal must
be guaranteed by a financial institution that is a member of a Securities
Transfer Association approved medallion program such as STAMP, SEMP, or MSP (an
"Eligible Institution"), except in cases where securities are surrendered (i) by
a registered holder of the securities who has not completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction C.4.
4. SIGNATURES. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Letter of Transmittal should
correspond exactly with the name(s) as written on the face of the certificate(s)
submitted, unless shares of Blount Class A Common Stock and/or Blount Class B
Common Stock described on this Letter of Transmittal have been assigned by the
registered holder(s), in which event this Letter of Transmittal should be signed
in exactly the same form as the name of the last transferee indicated on the
transfers attached to or endorsed on the certificates.
If this Letter of Transmittal is signed by a person or persons other than
the registered owners of the certificates listed, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered owner(s) appear on the certificates.
If this Letter of Transmittal or any stock certificate(s) or stock power(s)
are signed by a trustee, executor, administrator, guardian, officer of a
corporation, attorney-in-fact or any other person acting in a representative or
fiduciary capacity, the person signing must give such person's full title in
such capacity and appropriate evidence of authority to act in such capacity must
be forwarded with this Letter of Transmittal.
5. LOST OR DESTROYED CERTIFICATES. If your stock certificate(s) has been
either lost or destroyed, please check the box on the front of this Letter of
Transmittal below your name and address and fill in the blank to show the number
of shares of Blount Class A Common Stock and/or Blount Class B Common Stock
represented by such lost, stolen or destroyed certificate(s). You will then be
instructed as to the steps you must take in order to receive any checks and/or a
stock certificate(s) representing Non-Cash Election Shares in accordance with
the Merger Agreement.
6. CHECKS AND/OR NEW STOCK CERTIFICATES IN SAME NAME. If any checks or
stock certificate(s) representing Non-Cash Election Shares are to be registered
in, or made payable to the order of, exactly the same name(s) that appears on
the certificate(s) representing shares of Blount Class A Common Stock and/or
Blount Class B Common Stock submitted with the Letter of Transmittal, no
endorsement of certificate(s) or separate stock power(s) is required.
7. CHECKS AND/OR NEW CERTIFICATES IN DIFFERENT NAME. If any checks or
stock certificate(s) representing Non-Cash Election Shares are to be registered
in, or made payable to the order of, other than exactly the name that appears on
the certificate(s) representing shares of Blount Class A Common Stock and/or
Blount Class B Common Stock submitted for exchange herewith, such exchange shall
not be made by the Exchange Agent unless the certificates submitted are
endorsed, Box II is completed, and the signature is guaranteed in Box IV by a
member of a national securities exchange, a member of the National Association
of Securities Dealers, Inc. or a commercial bank (not a savings bank or a
savings & loan association) or trust company in the United States which is a
member in good standing of the Exchange Agent's Medallion Program.
<PAGE> 6
8. SPECIAL DELIVERY INSTRUCTIONS. If the checks are to be made payable to
the order of, or the certificates for Non-Cash Election Shares are to be
registered in, the name of the registered holder(s) of shares of Blount Class A
Common Stock and/or Blount Class B Common Stock, but are to be sent to someone
other than the registered holder(s) or to an address other than the address of
the registered holder, it will be necessary to indicate such person or address
in Box III.
9. MISCELLANEOUS. A single check and/or a single stock certificate
representing Non-Cash Election Shares will be issued in exchange for shares of
Blount Class A Common Stock and/or Blount Class B Common Stock submitted
herewith.
All questions with respect to this Letter of Transmittal will be determined
by Blount and Red Dog Acquisition, which determination shall be conclusive and
binding.
10. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under
U.S. federal income tax law, a stockholder who surrenders certificates of Blount
Class A Common Stock and/or Blount Class B Common Stock in the Merger is
required to provide the Exchange Agent with his or her correct taxpayer
identification number ("TIN") on Substitute Form W-9 and to certify that the TIN
provided on Substitute Form W-9 is correct (or that such stockholder is awaiting
a TIN). If such stockholder is an individual, the TIN is his or her social
security number. If the Exchange Agent is not provided with the correct TIN, the
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service and payments that are made to such stockholder with respect to Blount
Class A Common Stock and/or Blount Class B Common Stock surrendered may be
subject to backup withholding (see below).
A Blount Class A Common Stock and/or Blount Class B Common Stock
stockholder who does not have a TIN may check the box in Part 3 of the
Substitute Form W-9 if the stockholder has applied for a number or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding. If the box is
checked, payments made within 60 days of the date of the form will be subject to
backup withholding unless the stockholder has furnished the Exchange Agent with
his or her TIN. A stockholder who checks the box in Part 3 in lieu of furnishing
his or her TIN should furnish the Exchange Agent with his or her TIN as soon as
it is received.
Certain stockholders (including, among others, all corporations and certain
foreign individuals), are not subject to these backup withholding requirements.
In order for a foreign individual to qualify as an exempt recipient, that
stockholder must submit a statement, signed under penalty of perjury, attesting
to that individual's exempt status (Form W-8). Forms for such statements can be
obtained from the Exchange Agent. Stockholders are urged to consult their own
tax advisors to determine whether they are exempt from these backup withholding
and reporting requirements.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments to be made to the stockholder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained by filing a tax
return with the Internal Revenue service. The Exchange Agent cannot refund
amounts withheld by reason of backup withholding.
Additional copies of this Letter may be obtained from BankBoston, N.A.
(whose telephone number is 1-800-730-4001).
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAYER'S NAME: BANKBOSTON, N.A.
- ----------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT ---------------------------
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
DEPARTMENT OF THE TREASURY OR
INTERNAL REVENUE SERVICE
---------------------------
Employer Identification Number
-----------------------------------------------------------------------------------
PAYER'S REQUEST FOR PART 2 PART 3 --
TAXPAYER
IDENTIFICATION Certification -- Under the penalties of perjury, I [ ] Awaiting TIN
NUMBER (TIN) certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the
IRS has notified me that I am no longer
subject to backup withholding.
-----------------------------------------------------------------------------------
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of under-reporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out such item (2).
-----------------------------------------------------------------------------------
SIGN HERE SIGNATURE
----------------------------------------------------------------------------
DATE
----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld.
Signature
- ---------------------------------------------------------- Date
- ---------------------------------, 1999
<PAGE> 8
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU)
TO GIVE THE PAYER. -- Social security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, the first individual
on the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under state law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF --
- ---------------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or The legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or
other tax-exempt organization
account
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
------------------------------------------------------------------
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5. Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from withholding include:
- - An organization exempt from tax under Section 501(a), an individual retirement
account (IRA), or a custodial account under Section 403(b)(7), if the account
satisfies the requirements of Section 401(f)(2).
- - The United States or a state thereof, the District of Columbia, a possession
of the United States, or a political subdivision or wholly-owned agency or
instrumentality of any one or more of the foregoing.
- - An international organization or any agency or instrumentality thereof.
- - A foreign government and any political subdivision, agency or instrumentality
thereof.
Payees that may be exempt from backup withholding include:
- - A corporation.
- - financial institution.
- - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940
- - A middleman known in the investment community as a nominee or who is listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
- - A futures commission merchant registered with the Commodity Futures Trading
Commission.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends generally exempt from backup
withholding include:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
Payments of interest generally exempt from backup withholding include:
- - Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO
AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
PRIVACY ACT NOTICE. -- Section 6109 requires you to provide your correct
taxpayer identification number to payers, who must report the payments to the
IRS. The IRS uses the number for identification purposes and may also provide
this information to various government agencies for tax enforcement or
litigation purposes. Payers must be given the numbers whether or not recipients
are required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
<PAGE> 1
EXHIBIT 99.4
BLOUNT 401(K) RETIREMENT SAVINGS PLAN PARTICIPANTS
If you would like 100% of the shares of Blount Class A Common Stock attributed
to your plan account converted into the right to receive $30 in cash for each
share, you do NOT need to complete or return this form.
If you are electing to convert 100% or a LESSER PERCENTAGE (other than 0%) of
the shares of Blount Class A Common Stock attributed to your plan account into
the right to receive non-cash election shares, you must:
- - Be sure that your correct Social Security Number is in the box below
- - Fill in the percentage of shares in your account to be Converted into the
Right to Receive Non-Cash Election Shares
- - Sign and date this form, where indicated below
- - Provide your daytime Phone Number, where indicated below (optional)
- - Fax this form to (212) 645-8046 OR return it in the green postage-paid
envelope provided to:
The Northern Trust Company
P.O. Box 1997
New York, NY 10117-0024
Note: Failure to follow the election instructions accurately and in a timely
manner may result in 100% of the Blount Class A Common Stock attributed to
your plan account being converted into the right to receive $30 in cash
for each share.
401(K) PLAN FORM OF NON-CASH ELECTION
To: The Northern Trust Company,
Trustee for Blount 401(k) Retirement Savings Plan
This letter instructs you to exercise the Non-Cash Election to receive
Non-Cash Election Shares in exchange for such percentage of the shares of Blount
Class A Common Stock specified below which are attributed to the account of the
undersigned (capitalized terms used herein and not defined herein have the
meaning specified in the Merger Agreement referred to below).
I understand that this 401(k) Plan Form of Non-Cash Election and the
following election are subject to (i) the terms, conditions and limitations set
forth in the Proxy Statement-Prospectus, dated July 15, 1999 relating to the
Merger (including all documents incorporated therein, and as may be amended or
supplemented from time to time, the "Proxy Statement"), receipt of a copy of
which is acknowledged by the undersigned, (ii) the terms of the Agreement and
Plan of Merger and Recapitalization, dated as of April 18, 1999, as the same may
be amended from time to time, a conformed copy of which appears as Appendix A to
the Proxy Statement (the "Merger Agreement"), and (iii) the accompanying
instructions for the 401(k) Plan Form of Non-Cash Election.
Note: You must properly fill in all of the information requested below,
whether you are electing to convert 100% or only a LESSER PERCENTAGE (other than
0%) of the shares of Blount Class A Common Stock attributed to your account.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PERCENTAGE OF SHARES IN PLAN ACCOUNT TO BE
CONVERTED INTO THE RIGHT TO RECEIVE NON-CASH
BENEFICIAL OWNER OF BLOUNT CLASS A COMMON STOCK ELECTION SHARES*
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Social Security Number: [ ] 100%
Name (Last, First): [ ] ( )Percent (other than 0%)
Number of Shares in Plan
as of July 9, 1999 Record Date:
- ----------------------------------------------------------------------------------------------------------
* The number of shares in the Plan attributed to your account on the actual date shares are converted in
the merger may differ from the number of shares held for your account as of the July 9, 1999 record
date, whether increased due to additional contributions or decreased on account of a loan or other
distribution made following such record date. Your election percentage will be applied against the
number of shares actually attributed to your account in the Plan as of the date the conversion is made.
To the extent you elect to have less than 100% of your shares converted into the right to receive
Non-Cash Election Shares, those remaining shares will be converted into the right to have your Plan
account receive $30 in cash for each share.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
DATED:
- -----------------------------------, 1999
------------------------------------------------------
Participant's Signature
Daytime Phone Number:
------------------------------------------------------------------------
<PAGE> 2
INSTRUCTIONS FOR 401(K) PLAN FORM OF NON-CASH ELECTION
Enclosed for your consideration and information is a 401(k) Plan Form of
Non-Cash Election. As described in and subject to the conditions set forth in
the Proxy Statement, and subject to proration as described in the Proxy
Statement, Blount 401(k) Retirement Savings Plan participants with balances in
the Blount Stock Fund are entitled to make an unconditional election (a
"Non-Cash Election") on or prior to the "401(k) Election Date" (as defined
below) to have some or all of those shares converted into the right to receive
shares of common stock of the surviving corporation ("New Blount") by executing
and submitting the enclosed 401(k) Plan Form of Non-Cash Election. A participant
wishing to receive cash for his or her shares does not need to make any
election; a cash payment automatically will be made unless a Non-Cash Election
to receive shares of New Blount is properly made.
The Northern Trust Company, the Trustee ("Trustee") of the Blount 401(k)
Retirement Savings Plan (the "Plan"), is the registered holder of shares of
Blount Class A Common Stock held for participants' accounts in the Plan. Any
Non-Cash Election can be made only by the Trustee as the registered holder of
such shares and only pursuant to the instructions of the participant who is the
beneficial owner of such shares for allocation to his or her account in the
Plan. Accordingly, the Trustee requests instructions from any participant
wishing to exercise the Non-Cash Election for any percentage of the shares of
Blount Class A Common Stock held for his or her account, as participants are
entitled to do pursuant to the terms and subject to the conditions set forth in
the Proxy Statement and the Form of Non-Cash Election. We urge all participants,
however, to read these documents carefully before instructing the Trustee to
exercise the 401(k) Plan Form of Non-Cash Election.
As a result of the proration procedures discussed in the Proxy Statement,
holders of Blount Class A Common Stock may receive shares of New Blount
("Non-Cash Election Shares") or cash in amounts that may vary from the amounts
such holders may have elected to receive. If, as a result of proration, the Plan
receives fewer Non-Cash Election Shares than 401(k) participants have elected to
convert, Non-Cash Election Shares will be allocated to the Plan accounts of
participants who submitted a 401(k) Plan Form of Non-Cash Election pro rata,
according to each request in relation to the total of all such requests by Plan
participants, with remaining amounts allocated in cash. If, however, the Plan
receives more Non-Cash Election Shares than the 401(k) participants have elected
to convert, then Non-Cash Election Shares will be allocated first to the Plan
accounts of participants who requested a 401(k) Plan Non-Cash Election, with the
remaining shares allocated pro rata, according to each participant's balance in
relation to all balances in the Blount Stock Fund, including participants who
wished only to receive cash. A participant will not be able to change the number
or percentage of Non-Cash Election Shares or the amount of cash allocated to his
or her account pursuant to such proration procedures. A description of the
proration procedures is set forth in the Proxy Statement under "The
Merger -- Conversion/Retention of Shares; Procedures for Exchange of
Certificates." A full statement of the proration procedures is contained in the
Merger Agreement. IN CONNECTION WITH MAKING ANY NON-CASH ELECTION, YOU SHOULD
READ CAREFULLY, AMONG OTHER MATTERS, THE AFORESAID DESCRIPTION AND STATEMENT AND
THE INFORMATION CONTAINED IN THE PROXY STATEMENT UNDER "RISK FACTORS -- AS A
RESULT OF PRORATION, YOU MAY NOT RECEIVE THE TYPE OF CONSIDERATION YOU WANT AND
CASH PAYMENTS COULD BE TREATED AS DIVIDENDS INSTEAD OF CAPITAL GAINS."
<PAGE> 3
Persons with Blount Class A Common Stock attributed to their account in the
Blount Stock Fund who do NOT wish to make a Non-Cash Election (any such holder
being referred to as a "Non-Electing Holder") need NOT submit a Form of Non-Cash
Election. Each share of Blount Class A Common Stock held by the Trustee for the
accounts of each such Non-Electing Holder automatically will be converted,
subject to proration and the other terms and conditions as described in the
Proxy Statement, into the right to receive $30.00 in cash in their Plan account.
TIME IN WHICH TO ELECT
To be effective, a Non-Cash Election pursuant to the terms and conditions
set forth on this 401(k) Plan Form of Non-Cash Election must be received by The
Northern Trust Company at PO Box 1997, New York, NY 10117-0024 or facsimile
number (212) 645-8046, by no later than 5:00 p.m., Eastern time, on August 9,
1999 (the "401(k) Election Date"). The Trustee will tabulate the results and, on
behalf of all Plan participants, will deliver one Form of Non-Cash Election for
the entire Blount 401(k) Retirement Savings Plan by the Election Date. If a
participant's Non-Cash Election Form is not completed accurately or received by
the Trustee in a timely manner, it may result in 100% of the shares of Blount
Class A Common Stock attributed to such participant's account in the Plan being
converted into the right to receive cash, subject to proration.
REVOCATION OF NON-CASH ELECTION
A participant may revoke his or her earlier Non-Cash Election by written
notice to the Trustee at The Northern Trust Company at PO Box 1997, New York, NY
10117-0024 or facsimile number (212) 645-8046, no later than 5:00 p.m., Eastern
time, on the 401(k) Election Date. Such notice must specify the participant's
Social Security Number, request revocation of the prior Non-Cash Election, and
be signed and dated by the participant.
TERMINATION OF RIGHT TO ELECT
If for any reason the Merger is not consummated or is abandoned, all 401(k)
Plan Forms of Non-Election will be void and of no effect.
Any questions or requests for assistance concerning the Non-Cash Election
or your Plan account should be directed to the Blount Benefits Department at
(800) 247-5260 if by telephone; (334) 271-8136 if by facsimile; and 4520
Executive Park Drive, Montgomery, AL 36116 if by mail.
Any questions or requests for assistance concerning the Proxy Statement
should be directed to EquiServe at 1-800-730-4001.
<PAGE> 1
Exhibit 99.5
Consent of The Beacon Group Capital Services, LLC
July 15, 1999
The Board of Directors
Blount International, Inc.
4520 Executive Park Drive
Montgomery, AL 36116
Dear Members of the Board:
We hereby consent to the inclusion of our opinion letter, dated April 18,
1999, to the Board of Directors of Blount International, Inc. ("Blount"), as
Appendix C to the Proxy Statement-Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger of Blount
and Red Dog Acquisition, Corp., a wholly owned subsidiary of Lehman Brothers
Merchant Banking Partners II, L.P., and to the inclusion of the summary of such
opinion and the references to such opinion and us under the captions
"Summary--Opinion of Financial Advisor," "Information About Blount--Financial
Projections", "The Merger--Background of the Merger," "The Merger--Reasons for
the Merger; Recommendation to Stockholders" and "The Merger--Fairness Opinion of
Financial Advisor."
In giving such consent, we do not admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ THE BEACON GROUP CAPITAL SERVICES, LLC
__________________________________________
The Beacon Group Capital Services, LLC
<PAGE> 1
EXHIBIT 99.7
Consent of Person Named
as About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I, Alan
Magdovitz, hereby consent to be named as a person about to become a director of
Blount International, Inc. in the Registration Statement on Form S-4 of Blount
International, Inc. dated July 15, 1999.
/s/ ALAN MAGDOVITZ
___________________________
Alan Magdovitz
Dated:
<PAGE> 1
EXHIBIT 99.8
CONSENT OF PERSON NAMED
AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I, E.
Daniel James, hereby consent to be named as a person about to become a director
of Blount International, Inc. in the Registration Statement on Form S-4 of
Blount International, Inc. dated July 15, 1999.
/s/ E. DANIEL JAMES
__________________________
E. Daniel James
Dated:
