<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
November 27, 1994 No. 1-8044
HUNT MANUFACTURING CO.
(Registrant)
Pennsylvania 21-0481254
- --------------------------- ----------------------------------
(State of incorporation) (IRS Employer Identification No.)
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7085
- ------------------------------- ------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (215) 656-0300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:
-------------------- ----------------------
Common Shares, par value $.10 per share New York Stock Exchange
Rights to Purchase Series A Junior New York Stock Exchange
Participating Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: None
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
------
The aggregate market value of the registrant's Common Shares (its
only voting stock) held by non-affiliates of the registrant as of February 1,
1995 was approximately $177,000,000. (Reference is made to the final
paragraph of Part I herein for a statement of the assumptions upon which this
calculation is based.)
The number of shares of the registrant's Common Shares outstanding
as of February 1, 1995 was 16,146,553.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's 1995 definitive proxy
statement relating to its scheduled April 1995 Annual Meeting of Shareholders
(which proxy statement is expected to be filed with the Commission not later
than 120 days after the end of the registrant's last fiscal year) are
incorporated by reference into Part III of this report.
<PAGE> 2
PART I
Item 1. Business
General
Hunt Manufacturing Co. and its subsidiaries (herein called the
"Company", unless the context indicates otherwise) are primarily engaged in
the manufacture and distribution of office products and art/craft products
which the Company markets worldwide.
Business Segments
The following table sets forth the Company's net sales and
operating profit by business segment for the last three fiscal years:
1994 1993 1992
---- ---- ----
(In thousands)
Net Sales:
Office products....... $160,307 $142,462 $126,101
Art/Craft products.... 127,896 113,688 108,828
-------- -------- --------
Total........... $288,203 $256,150 $234,929
======== ======== ========
Operating Profit:
Office products....... $ 12,172 $ 11,411 $ 8,541
Art/Craft products.... 21,211 18,832 18,516
-------- -------- --------
Total........... $ 33,383 $ 30,243 $ 27,057
======== ======== ========
See Items 6 and 7 herein and Note 15 to Consolidated Financial
Statements herein for further information concerning the Company's business
segments (including information concerning identifiable assets).
Office Products
The Company has three major classes of office products: mechanical
and electromechanical products; office furniture; and desktop accessories and
supplies. The amounts and percentages of net sales of these product classes
for the last three fiscal years were as follows:
1994 1993 1992
------------- ------------ ------------
(Dollars in thousands)
Product Class:
Mechanical and
electromechanical.... $ 76,897 48% $ 70,047 49% $ 62,323 49%
Office furniture....... 51,715 32% 44,233 31 37,271 30
Desktop accessories
and supplies.... 31,695 20% 28,182 20 26,507 21
-------- --- -------- --- -------- ---
Total.............. $160,307 100% $142,462 100% $126,101 100%
======== === ======== === ======== ===
<PAGE> 3
The Company's mechanical and electromechanical office products
consist of a variety of items sold under the Company's BOSTON brand,
including manual and electric pencil sharpeners; paper punches, trimmers and
shredders; electric letter openers; spring clips used to hold sheets of
paper; manual and electronic staplers; electric air cleaners, fans and
heaters, laminators, and other related products. The Company's office
furniture products are sold primarily under the BEVIS brand name. These
products include conference, computer, utility and folding tables; office
chairs; bookcases and screen panels; metal and wood workstations for computer
terminals, personal computers, word processors, printers and other similar
electronic office equipment; and home/office furniture. The Company's
desktop accessories and supplies consist of an array of items marketed under
its LIT-NING brand, including metal horizontal and vertical files, letter
trays, desk organizers and paper sorting racks. Also included in desktop
accessories and supplies are a broad range of products that support the use
of computers, such as computer diskette storage devices, printer stands,
mouse pads, and surge suppressors which are marketed under the MEDIAMATE
brand name. In 1994, the Company obtained exclusive distribution rights in
the United States and Canada for Schwan-STABILO1 highlighter markers and
writing instruments which are included under desktop accessories and
supplies.
The Company consistently has sought to expand its office products
business through internal product development, the acquisition of
distribution rights to products which complement or extend the Company's
established lines, the acquisition of complementary businesses and through
broadened distribution. Examples of new office product introductions by the
Company in recent years are BOSTON brand electronic staplers, various models
of air cleaners, fans and heaters, personal paper shredders, electric and
battery powered pencil sharpeners, paper punches, and desk-top laminators;
BEVIS UNIWORX, BEVIS ULTRAWORX and BEVIS MEGAWORX lines of modular offices
furniture systems; BEVIS STACKAWAYS stackable chairs; MEDIAMATE LASERRAK
printer stands; MEDIAMATE FASTRAC mouse pads; MEDIAMATE multi-media storage
files, MEDIAMATE ROLL'N RAK portable printer stands, MEDIAMATE POWER TAMER
surge suppressors and MEDIAMATE POWER MAKER automobile power adapters.
There are three major and generally distinct domestic markets for
the Company's office products: commercial offices, home offices and the gen-
eral consumer. The commercial line of the Company's office products is
distributed primarily through a network of office supply wholesalers and
dealers and office product superstores. Sales to the home office and the
general consumer include mechanical and electromechanical products which are
sold through large retail outlets, such as office products superstores, drug
and food chain stores, variety stores, discount chains, catalog showrooms and
membership chains. The consumer market has increased significantly over the
last several years primarily due to the dramatic growth of office products
superstores. A more limited line of products is sold to schools through
specialized school supply distributors.
- -----------
1. Trademark of Schwan-STABILO Schwanhausser GmbH & Co.
<PAGE> 4
Art/Craft Products
The Company manufactures and distributes three major classes of
art/craft products: presentation graphics products; art supplies; and
hobby/craft products. (The Company renamed its mounting and laminating
products class "presentation graphics" in fiscal 1994 to better describe an
expanded product offering.) The amounts and percentages of net sales of
these three product classes for the last three fiscal years were as follows:
1994 1993 1992
----------- ----------- -----------
(Dollars in thousands)
Product Class:
Presentation graphics...... $ 83,354 65% $ 68,734 61% $ 63,475 58%
Art supplies............... 26,772 21 27,569 24 29,134 27
Hobby/craft................ 17,770 14 17,385 15 16,219 15
-------- -- -------- -- -------- --
Total..................... $127,896 100% $113,688 100% $108,828 100%
======== === ======== === ======== ===
The Company's presentation graphics products are used largely by
picture framers, graphic artists, display designers and photo laboratories,
and include a range of BIENFANG foam boards (which constitute a significant
portion, although less than 40%, of presentation graphics products);
TECHMOUNT dry mount adhesive products; pressure sensitive and dry mount
adhesive products sold under the SEAL and ADEMCO-SEAL brands, as well as
under the COLORMOUNT, SEALEZE and PRINT GUARD brand names; an array of
mounting and laminating equipment sold under the CLEAR TECH, SEALEZE, and
IMAGE SERIES brand names; and specialty tapes and films supplied under
various private brands. The Company's art supply products are used primarily
by commercial and amateur artists, and include commercial and fine art papers
which the Company converts, finishes and sells under its BIENFANG brand;
various types of X-ACTO brand knives and blades; SPEEDBALL paint markers and
acrylic and water-color paints; and CONTE2 pastels, crayons and related
drawing products, for which the Company is the exclusive United States and
Canadian distributor. The Company's hobby/craft products generally are used
by hobbyists and craft enthusiasts and include SPEEDBALL print-making
products; ACCENT MATS beveled-edge picture framing mats; SPEEDBALL ELEGANT
WRITERS and PANACHE calligraphy products; a range of punch quilting products;
and X-ACTO brand tools and kits.
The Company consistently has sought to expand its art/craft
business primarily through acquisitions of complementary businesses and of
distribution rights to complementary products manufactured by others, through
internal product development, and through broadened distribution. Major
art/craft products introduced during the last several fiscal years include
BIENFANG colored and black on black foam board, as well as SINGLE STEP
adhesive coated BIENFANG foam board; BIENFANG project display boards; PANACHE
calligraphy products; punch quilting products; CLEAR TECH pouch laminators;
IMAGE SERIES large format laminators; CLEAR GUARD protective adhesive film;
THERMASHIELD laminating film, and X-ACTO self healing mats and craft tools.
The acquisition of the Graphic Arts Group from Bunzl plc during fiscal 1990
has significantly expanded the number of the Company's presentation graphics
products and enhanced the Company's position in the framing and photomounting
markets. In 1993, the Company acquired IMAGE TECHNOLOGIES, Inc., a start-up
company engaged in the development and production of large format laminators,
which has allowed the Company to broaden its distribution into the digital
imaging market. BIENFANG foam board has been particularly important, as it
has allowed the Company to penetrate the picture framing, sign, display and
exhibit markets, yet it also holds wide appeal to the traditional customer
groups in art supply and hobby/craft markets. The success of foam board has
been attributable, in significant part, to the Company's ability to offer the
end-user a variety of value-added foam board products, such as colored or
adhesive coated foam board.
- -----------
2. Trademark of Conte S.A.
<PAGE> 5
Traditionally, the Company's art/craft products have been
distributed primarily through wholesalers (framing, photomounting, art and
hobby), dealers (specialized art supply and hobby/craft stores), general
consumer-oriented retail outlets (primarily office product superstores and
chain stores), industrial concerns (photo labs, screen printers) and through
specialized school supply distributors. Over the last several years,
consumer-oriented retail outlets have become an increasingly important
distribution channel for the Company's art/craft products.
Sales and Marketing
General
The Company has over 12,000 active customers, the ten largest of
which accounted for approximately 38% of its sales in fiscal 1994. Three of
these ten largest customers were office products superstore chains. The
largest single customer accounted for 8.4% of sales for that year. There is
a continuing trend toward consolidation of wholesalers, dealers and
superstores, resulting in an increasing percentage of the Company's sales
being attributable to a smaller number of customers. See Item 7 of this
report.
Because most of the Company's sales are made from inventory, the
Company generally operates without a material backlog. The Company's sales
generally are not subject to material seasonal fluctuations. See Note 14 to
Consolidated Financial Statements herein.
Domestic Operations
Domestic marketing of the Company's office products and art/craft
products is effected principally through six separate sales forces, one each
for office products, furniture, computer accessory products, art/craft
products, photomounting and mass market. The combined sales forces are
comprised of over 30 Company salespeople and over 300 independent
manufacturers' representatives.
The Company maintains domestic distribution centers in Florence,
Kentucky; Florence, Alabama; and Laredo, Texas, for office products; in
Naugatuck, Connecticut; and Cottage Grove, Wisconsin, for art/craft products;
and in Statesville, North Carolina, for both office and art/craft products.
Foreign Operations
The Company distributes its products in more than 60 foreign
markets through its own sales force of seven area sales managers and 18
salespersons, and through over 30 independent sales agents and over 300
distributors.
<PAGE> 6
Sales of office products and art/craft products represented
approximately 48% and 52%, respectively, of the Company's export sales in
fiscal 1994, with electrical and mechanical pencil sharpeners, paper punches,
staplers, X-ACTO brand knives and blades, BIENFANG paper and foam board
products and pressure sensitive and dry mount adhesive products accounting
for the major portion of these sales. Sales from foreign operations were
primarily attributable to the Graphic Arts Group acquired in 1990 and
included principally presentation graphics products. See Note 15 to
Consolidated Financial Statements herein for further information concerning
the Company's foreign operations.
The Company maintains distribution centers in Ontario, Canada;
Basildon, England; and in Kornwestheim, Germany.
Foreign operations are subject to the usual risks of doing business
abroad, particularly currency fluctuations and foreign exchange controls.
See also Note 1 and 16 to Consolidated Financial Statements herein for
information concerning hedging.
Manufacturing and Production
The Company's operations include manufacturing and converting of
products, as well as purchasing and assembly of various component parts.
Excluding products for which it acts as a distributor, the vast majority of
the Company's sales are of products which are either manufactured, converted
or assembled by it. See Item 2 herein for information concerning the
Company's manufacturing facilities.
The Company customarily has more than one source of supply for its
critical raw materials and component parts. While the Company has
experienced rationing and allocations by its suppliers of certain raw
materials, such as wood, its businesses have not been materially hindered by
shortages. Also, higher costs were experienced, particularly near the end of
fiscal 1994, for commodities, such as wood, corrugated packaging material and
styrene plastic, and further increases are expected to continue in fiscal
1995. See Item 7 herein.
Competition
The Company does not have any single competitor which offers
substantially the same overall lines of either office products or art/craft
products as the Company. However, competition in a number of areas of the
Company's businesses, such as electric pencil sharpeners, paper punches,
staplers, office furniture, computer diskette storage and related accessory
products, paints and foam board, is substantial, and some of the Company's
competitors are larger and have considerably greater financial resources than
the Company.
Because of the fragmented nature of the office products and
art/craft products businesses, the multiple markets served by the Company,
and the absence of published market data, the Company generally is not able
to determine with certainty its relative domestic or foreign market share for
its various products. Nevertheless, the Company believes that it is among
the leaders in domestic markets in a number of its products, including manual
and electric pencil sharpeners; electronic staplers; metal paper organizing
products; BIENFANG foam board products; presentation graphics materials and
equipment; X-ACTO brand knives and blades; and calligraphy products. The
Company also believes that it is among the leaders in the United Kingdom
picture framing and photomounting market for dry mounting products.
<PAGE> 7
The Company considers product performance and brand recognition to
be important competitive factors in its businesses, but competitive pricing
and promotional discounts also have become important factors.
Trademarks, Patents and Licenses
The Company's business is not dependent, to a material extent, upon
any patents. However, the Company regards its many trademarks as being of
substantial value in the marketing of its various products. The following
trademarks mentioned in this report are owned by the Company: ACCENT MATS(R),
ADEMCO-SEAL(TM), BEVIS(R), BEVIS(R) MEGAWORX(TM), BEVIS(R) STACKAWAYS(TM),
BEVIS(R) ULTRAWORX(R), BEVIS(R) UNIWORX(R), BIENFANG(R), BOSTON(R),
CLEAR GUARD(TM), CLEAR TECH(R), COLORMOUNT(R), IMAGE SERIES(TM), LIT-NING(R),
MEDIAMATE(R), MEDIAMATE(R) FASTRAC(R), MEDIAMATE(R) LASERRAK(R),
MEDIAMATE POWER MAKER(TM), MEDIAMATE(R) POWER TAMER(TM),
MEDIAMATE ROLL'N RAK(TM), PANACHE(R), PRINT GUARD(R), SEAL(R), SEALEZE(R),
SINGLE STEP(R), SPEEDBALL(R), SPEEDBALL(R) ELEGANT WRITERS(R), SPEEDBALL(R)
FABRIC PAINTERS(TM), SPEEDBALL(R) PAINTERS(R), TECHMOUNT(R), THERMASHIELD(TM)
and X-ACTO(R).
The Company also has been granted exclusive distribution rights in
designated territories with respect to various products, including CONTE
drawing products; Schwan-STABILO highlighter markers and writing instruments
(the distribution rights to which in the U.S. and Canada were obtained in
fiscal 1994), air cleaners, fans and heaters which are manufactured by other
companies and sold by the Company under the BOSTON brand name; and PERFECT
DATA3 computer cleaning products. Such rights customarily are granted for
limited periods, after which they expire or may be terminated at the option
of the grantor. The Company's distribution rights generally are of limited
duration (the longest being seven years) and may be terminated or expire, in
certain cases, with as little as approximately six months notice from the
grantor of such rights. While the Company's business is not dependent upon
any of these distribution rights (no line of such distributed products having
accounted for as much as 3% of the Company's net sales in fiscal 1994), the
loss of the right to market certain products could have an adverse effect on
the Company's profitability.
Research and Development
During fiscal 1994, the Company spent approximately $1.6 million on
Company-sponsored research and development, as compared with approximately
$1.7 million in fiscal 1993 and $1.5 million in fiscal 1992.
Personnel
As of February 2, 1995, the Company had approximately 2,200 full-
time employees.
Environmental Matters
Prior to the Company's acquisition of Seal Products, Inc. ("Seal")
from Bunzl plc in May 1990, it was discovered that some hazardous waste
materials had been stored at Seal's premises located in Naugatuck,
Connecticut. In compliance with applicable state law, this environmental
condition was reported to the Connecticut Department of Environmental
Protection by Bunzl. Seal, which now is a subsidiary of the Company, may be
partially responsible under law for the environmental conditions on the
premises and any liabilities resulting therefrom. However, in connection
with the Company's acquisition of Seal, Bunzl agreed to take responsibility
for correcting such environmental conditions and, for a period of seven
years, to indemnify Seal and the Company for such resulting liabilities,
subject to certain limitations. Bunzl is continuing the process of
remediating the environmental conditions. A substantial portion of the
remediation has been completed, although testing is continuing.
- -----------
3. Trademark of Perfect Data Corporation
<PAGE> 8
The Company is also involved on a continuing basis in monitoring
its compliance with environmental laws and in making capital and operating
improvements necessary to comply with existing and anticipated environmental
requirements. Despite its efforts, the Company has been cited for occasional
violations or alleged violations of environmental laws or permits and on
several occasions has been named as a potentially responsible party for
remediation of sites. Expenses incurred by the Company to date relating to
violations of and compliance with environmental laws and permits and site
remediation have not been material. While it is impossible to predict with
certainty, management currently does not foresee such expenses in the future
as having a material effect on the Company's business, results of operations
or financial condition. See Note 10 to Consolidated Financial Statements
herein.
Item 2. Properties
In January, 1995 the Company relocated its principal executive
offices to One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 in
approximately 56,000 square feet of leased space under a sublease expiring in
2002.
The following table sets forth information with respect to certain
of the other facilities of the Company:
Industry Primary Approximate Owned or
segment function Location size leased
- -------- -------- -------- ----------- --------
Office Manufacturing, Florence, 108,000 sq. (1)
Products Warehouse KY ft. bldg.
& Offices on 27 acres
Manufacturing, Florence, 266,000 sq. Owned (2)
Warehouse AL ft. bldg.
& Offices on 24 acres
Manufacturing Nuevo Laredo, 47,000 sq. Leased
& Offices Mexico ft. in 2 (exp. 1998)
bldgs.
Warehouse Laredo, 45,000 sq. Leased
& Offices TX ft. bldg. (exp. 1997)
-----------------
Art/Craft Manufacturing States- 219,000 sq. (3)
Products & Offices ville, NC ft. bldg.
on 13 acres
Manufacturing, Naugatuck, 86,000 sq. Leased
Warehouse & CT ft. bldg. (exp. 2000)
Offices on 15 acres
Manufacturing, Basildon, 64,000 sq. Owned
Warehouse & England ft. in two
Offices bldgs. on
3 acres
-----------------
<PAGE> 9
Industry Primary Approximate Owned or
segment function Location size leased
- -------- -------- -------- ----------- --------
Office Manufacturing States- 196,000 sq. Owned
Products & Offices ville, ft. bldg.
and Art/ NC on 16 acres
Craft
Products
Warehouse States- 190,000 sq. Leased
& Offices ville, ft. bldg. (exp. 2005)
NC
Warehouse Ontario, 52,000 sq. Leased
& Offices Canada ft. bldg. (exp. 1996)
(1) The construction and expansion of this facility was financed by the
issuance of industrial revenue bonds by the City of Florence, Kentucky, which
bonds have matured and been paid off. The City retains title to the property
and leases it to the Company for a nominal consideration, and the Company has
the option, subject to certain conditions, to purchase the property for a
nominal consideration.
(2) A portion of this facility was financed by the issuance of industrial
revenue bonds, due 1995, by the City of Florence, Alabama, which are
collateralized by a plant facility and certain equipment.
(3) A portion of this facility was financed by the issuance of industrial
revenue bonds, due 2004, by the Iredell County Industrial Facilities and
Pollution Control Financing Authority. The Authority retains title to the
property and leases it to the Company for rental payments equal to principal
and interest payments on the bonds. The Company has the option, subject to
certain conditions, to purchase the property for a nominal consideration upon
payment of the bonds.
At present, the above facilities generally are believed to be
adequately utilized and suitable for the Company's present needs.
Item 3. Pending Legal Proceedings
There currently are no material pending legal proceedings (within the
meaning of the Form 10-K Instructions), other than routine litigation incidental
to the business of the Company, to which the Company is a party or to which any
of its property is subject. See Note 10 to Consolidated Financial Statements
herein and Item 1-- "Environmental Matters" herein.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.
<PAGE> 10
Additional Information
The following information is furnished in this Part I pursuant to
Instruction 3 to Item 401(b) of Regulation S-K:
Executive Officers of the Company
Name Age Position
---- --- --------
Ronald J. Naples 49 Chairman of the Board and
Chief Executive Officer
Robert B. Fritsch 63 President and Chief Operating Officer
John W. Carney 51 Vice President, Human Resources
William E. Chandler 51 Senior Vice President, Finance (Chief
Financial Officer), and Secretary
Roy M. Delizia 51 Vice President, Corporate Planning and
Development
Spencer W. O'Meara 48 Vice President and General Manager
W. Ernest Precious 53 Vice President and General Manager
Eugene A. Stiefel 47 Vice President, Information Services
The executive officers of the Company customarily are elected
annually by the Board of Directors to serve, at the pleasure of the Board,
for a period of one year or until their successors are elected. All of the
executive officers of the Company, except for Messrs. Chandler, Delizia and
Stiefel have served in varying executive capacities with the Company for over
five years.
Mr. Chandler was elected an executive officer of the Company in
February 1993. He joined the Company in September 1992 after three years at
Bally Manufacturing Corporation during which he held positions as Acting
Chief Financial Officer and Vice President, Financial Operations and
Controller. Prior to that, he served for three years at Household
Manufacturing, Inc. as Senior Vice President of Finance, Treasurer and Chief
Financial Officer.
Messrs. Delizia and Stiefel were elected executive officers of the
Company in April 1993. Mr. Delizia joined the Company in October 1983 and
has served as Vice President, Corporate Development and Planning since 1987.
Mr. Stiefel joined the Company in February 1985 and has served as Vice
President, Information Services since 1987.
-----------------------
For the purposes of calculating the aggregate market value of the
shares of common stock of the Company held by nonaffiliates, as shown on the
cover page of this report, it has been assumed that all the outstanding
shares were held by nonaffiliates except for the shares held by directors and
officers of the Company. However, this should not be deemed to constitute an
admission that all directors and officers of the Company are, in fact,
affiliates of the Company, or that there are not other persons who may be
deemed to be affiliates of the Company. Further information concerning
shareholdings of officers, directors and principal shareholders is included
in the Company's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission.
-----------------------
<PAGE> 11
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
(a) The Company's common stock is traded on the New York Stock
Exchange (trading symbol "HUN"). The following
table sets forth the high and low quarterly sales prices of the Company's
common stock during the two most recent fiscal years (all as reported by The
Wall Street Journal):
Fiscal Quarter
1994
------------------------------------------
First Second Third Fourth
----- ------ ----- ------
High $18.25 $18.25 $17 $16.63
Low 15.13 15.25 15.13 14.25
Fiscal Quarter
1993
------------------------------------------
First Second Third Fourth
----- ------ ----- ------
High $15.25 $16.25 $16.25 $16.38
Low 12.75 13.63 13.25 15.25
See Note 9 to Consolidated Financial Statements herein for
information concerning certain Rights which were distributed by the Company
to shareholders in 1990 and which currently are deemed to be attached to the
Company's common stock.
(b) As of February 1, 1995, there were over 1,000 record holders
of the Company's common stock, which number does not include shareholders
whose shares were held in nominee name.
(c) During the past two fiscal years, the Company has paid regular
quarterly cash dividends on its common stock at the following rates per
share: 1994 - $.09 per quarter and 1993 - $.0875 per quarter.
Certain of the Company's credit agreements contain restrictions on
the Company's present and future ability to pay dividends. See Note 5 to
Consolidated Financial Statements herein.
<PAGE> 12
Item 6. Selected Financial Data
The following table contains selected financial data for each of the
Company's last five fiscal years. This data should be read in conjunction with
the Company's Consolidated Financial Statements (and related notes) appearing
elsewhere in this report and with Item 7 of this report.
Year Ended
----------------------------------------------------
Nov. 27, Nov. 28, Nov. 29, Dec. 1, Dec. 2,
1994 1993 1992 1991(1) 1990(2)
-------- -------- -------- ------- -------
(In thousands, except per share data)
Net Sales $288,203 $256,150 $234,929 $228,622 $220,099
Income from
Continuing
Operations 17,197 14,928 13,302 9,586 12,011
Income from
Continuing
Operations Per
Common Share 1.07 .93 .83 .60 .75
Total Assets 173,385 156,317 144,170 151,824 154,361
Long-Term Debt 3,559 3,003 6,160 17,271 26,498
Cash Dividends
Per Share .36 .35 .34 .32 .31
(1) In fiscal 1991 the Company recorded a charge to net income of
approximately $2.7 million, or $.17 per share, for anticipated costs relating
to the relocation and consolidation of certain manufacturing and distribution
operations.
(2) The Company acquired the Graphic Arts Group from Bunzl plc in May, 1990.
In addition, in fiscal 1990 the Company recorded a charge to net income of
approximately $1 million, or $.06 per share, relating to the discontinuance
of certain products.
<PAGE> 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The Company further improved its strong financial condition in
fiscal 1994 with working capital increasing to $64.6 million at the end of
fiscal 1994 from $47.1 million and $45.5 million at the end of fiscal 1993
and 1992, respectively. The current ratio improved to 3.1 at November 27,
1994 from 2.4 at November 28, 1993 and 2.7 at November 29, 1992, and the
percentage of debt to equity was further reduced to 3.5% at the end of fiscal
1994 from 5.3% and 6.9% at the end of fiscal 1993 and 1992, respectively.
The return on average equity, before special charges and an
accounting change, improved to 13.8% in fiscal 1994 from 13.1% and 12.5% in
fiscal 1993 and 1992, respectively, due primarily to growth in earnings.
This improvement was achieved despite the relatively low debt level in the
Company's capital structure.
Net cash flows of $20.8 million provided by operating activities in
fiscal 1994 were more than sufficient to fund additions to property, plant
and equipment of $9.3 million, to pay cash dividends of $5.8 million and to
reduce debt by $1.6 million. Management anticipates expenditures for
additions to property, plant and equipment in fiscal 1995 to approximate the
amount expended in fiscal 1994. Net cash flows provided by operating
activities were $23.2 million in 1993 and $20.4 million in 1992. Changes in
the accounts payable balances due to timing of payments largely accounted for
the decrease in net cash provided by operating activities in fiscal 1994 as
compared with fiscal 1993.
The Company's current assets increased to $95.3 million at the end
of fiscal 1994 from $80.8 million at the end of fiscal 1993 attributable
primarily to a $5.6 million increase in inventories, a $5.1 million increase
in deferred tax assets and a $3 million increase in cash and cash
equivalents. The increase in inventories was due to several factors,
including increases in finished goods for key product categories in
anticipation of higher sales and to improve customer deliveries, the purchase
of inventories related to an exclusive distribution agreement for
Schwan-STABILO highlighter markers and additional inventories of new
products. Changes in deferred income taxes were due to several factors,
including the adoption of Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes."
Current liabilities decreased to $30.7 million at the end of fiscal
1994 from $33.7 million at the end of fiscal 1993 largely due to a $2.2
million reduction of the current portion of long-term debt and a $1.3 million
reduction in accounts payable.
Other non-current liabilities increased to $5.5 million at the end
of fiscal 1994 from $2.1 million at the end of fiscal 1993 due to several
factors, including increases in pension and long-term incentive compensation
liabilities.
The Company currently has line-of-credit agreements with three
banks providing for borrowing capacity totaling $45 million. There were no
borrowings under these line-of- credit agreements at the end of fiscal 1994.
Management believes that funds generated from operations combined with
existing credit agreements are sufficient to meet currently anticipated
working capital and other capital and financing requirements. If additional
resources are needed, management believes that the Company could obtain funds
at competitive costs.
<PAGE> 14
Results of Operations
Comparison of Fiscal 1994 vs. 1993
- ----------------------------------
Net Sales and Earnings. Net sales increased 12.5% to $288.2
million in fiscal 1994 from $256.2 million in fiscal 1993. This increase was
largely the result of higher unit volume, particularly from new products, as
selling prices were essentially unchanged in fiscal 1994 from those in fiscal
1993. Sales for both of the Company's business segments, office products and
art/craft products, grew by 12.5% in fiscal 1994.
The office products sales increase to $160.3 million in fiscal 1994
from $142.5 million in fiscal 1993 was led by a 16.9% increase in sales of
office furniture, while desktop accessories and supplies and mechanical and
electromechanical products contributed increases of 12.5% and 9.8%,
respectively. The office furniture sales increase was primarily due to
higher sales of Bevis brand furniture. The desktop accessories and supplies
sales increase was principally attributable to Schwan-STABILO highlighter
markers, the exclusive distribution rights to which in the United States and
Canada were obtained by the Company in fiscal 1994, and the mechanical and
electromechanical products sales increase was due to higher sales of Boston
brand office products. Export sales of office products increased 8.6% in
fiscal 1994 as compared with sales in fiscal 1993.
Art/craft products sales grew to $127.9 million in fiscal 1994 from
$113.7 million in fiscal 1993 led by a 21.3% increase in sales of
presentation graphics products. (The Company renamed its mounting and
laminating product class "presentation graphics" in fiscal 1994 to better
describe an expanded product offering.) Sales of art supplies and
hobby/craft products were essentially unchanged in fiscal 1994 from the
levels in fiscal 1993. The presentation graphics products sales increase was
largely the result of new products, growth in the digital imaging market and
improved economic conditions in the United Kingdom. Management expects the
growth in the digital imaging markets, while still a relatively small
component of the presentation graphics products sales, to continue into
1995. Foreign sales of art/craft products grew 34.6% and export sales were
up 4.4% in fiscal 1994 from sales in fiscal 1993.
Net income of $18 million, or $1.12 per share, in fiscal 1994
represents an increase of 20.5% over net income for fiscal 1993. The Company
adopted SFAS No. 109, "Accounting for Income Taxes," in fiscal 1994, the
cumulative effect of which increased net income by $.8 million, or $.05 per
share. Income before the cumulative effect of this accounting change was up
15.2% from the comparable net income for fiscal 1993.
Gross Profit. Gross profit, as a percentage of net sales,
decreased to 39.3% in fiscal 1994 from 40.1% in fiscal 1993 due to several
factors, including changes in sales mix and higher raw material costs.
Higher sales for certain furniture products and higher foreign sales, which
yield lower gross profit percentages than the Company's other businesses,
caused most of the gross profit percentage decrease attributable to changes
in sales mix. The gross profit percentage for foreign sales was 28.7% in
fiscal 1994 and 26.7% in fiscal 1993. Higher costs, particularly near the
end of fiscal 1994, for commodities such as wood, corrugated packaging
materials and styrene plastic were not offset by selling price increases due
in large part to continued competitive pressures and the increasing power of
superstores and other large customers in the office products area.
Management expects the trend of higher raw material costs to continue into
fiscal 1995, but believes that the resulting pressure on all manufacturers to
pass along their increased raw material costs may enable the Company to
institute some selling price increases in fiscal 1995.
<PAGE> 15
Selling, Shipping, Administrative and General Expenses. Selling
and shipping expenses, as a percentage of net sales, were reduced to 20.3% in
fiscal 1994 from 20.6% in fiscal 1993 largely as a result of lower sales
commission expense attributable to changes in customer sales mix. Lower
freight expenses in the fourth quarter of fiscal 1994 also accounted for a
portion of the decrease. Management expects that the lower rate of selling
and shipping expenses will continue into fiscal 1995.
Administrative and general expenses increased 7.6% to $27.3 million
in fiscal 1994 from $25.4 million in fiscal 1993. This increase was the
result of several factors, including higher management incentive compensation
and new product development expenses, as well as a stronger British pound
sterling, which increased foreign administrative and general expenses in U.S.
dollar terms.
Interest Income and Expense. Interest income increased $152,000
in fiscal 1994 from fiscal 1993 due primarily to higher average cash
balances. Interest expense was reduced by $157,000 in fiscal 1994 from
fiscal 1993 largely as a result of debt reduction and higher capitalized
interest related to additions to property, plant and equipment.
Provision for Income Taxes. The Company's effective tax rate
decreased to 36.5% in fiscal 1994 from 37.9% in fiscal 1993. This decrease
was the result of several factors, including lower state and local income
taxes.
New Accounting Standards. SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," requires the accrual of postemployment benefits if
the obligation is attributable to employees' services already rendered,
employees' rights to those benefits accumulate or vest, payment of the
benefits is probable and the amount of the benefits can be reasonably
estimated. The Company currently does not believe SFAS No. 112, when
adopted in fiscal 1995, will have a material effect on its results of
operations or financial condition.
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," requires changes in accounting and reporting for certain
investments in debt and equity securities. SFAS No. 115 is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company
will adopt SFAS No.115 when required. Management does not believe SFAS No.
115 will have a material effect on its results of operations or financial
condition or that additional disclosures will be necessary.
Environmental Matters. The Company is involved on a continuing
basis in monitoring its compliance with environmental laws and in making
capital and operating improvements necessary to comply with existing and
anticipated environmental requirements. Despite its efforts, the Company has
been cited for occasional violations or alleged violations of environmental
laws or permits and on several occasions has been named as a potentially
responsible party for the remediation of sites. Expenses incurred by the
Company to date relating to violations of and compliance with environmental
laws and permits and site remediation have not been material. While it is
impossible to predict with certainty, management currently does not foresee
such expenses in the future as having a material effect on the Company's
business, results of operations or financial condition (see Note 10 of the
Notes to Consolidated Financial Statements).
<PAGE> 16
Comparison of Fiscal 1993 vs. 1992
Net Sales and Earnings. Net sales of $256.2 million for fiscal
1993 increased 9% from $234.9 million in fiscal 1992 due primarily to higher
unit volume largely attributable to new products. Average selling prices
decreased approximately 3% in fiscal 1993 from fiscal 1992 prices due to
continuing competitive pressures and to foreign currency exchange rate
changes of approximately 1%.
Office products sales increased 13% in fiscal 1993 to $142.5
million from $126.1 million in fiscal 1992. This increase was led by higher
sales of office furniture products, which were up 18.7%, primarily due to
broadened distribution for these products gained in fiscal 1993. Mechanical
and electromechanical products sales grew by 12.4% in fiscal 1993 due, in
large part, to higher sales of Boston brand products, and desktop accessories
and supplies were up 6.3% attributable principally to new products,
particularly MediaMate brand computer-related accessories. Export sales of
office products increased 5.2% in fiscal 1993.
Art/craft products sales of $113.7 million for fiscal 1993
increased 4.5% from fiscal 1992 sales of $108.8 million. This increase was
the net result of higher sales of presentation graphics products (up 8.3%)
and hobby/craft products (up 7.2%), partially offset by lower sales of art
supplies (down 5.4%). The presentation graphics products sales increase was
principally attributable to higher sales of Seal brand laminating equipment.
The hobby/craft products sales increase was largely due to higher sales of
X-Acto brand knife and tool kits. The decrease in sales of art supplies was
attributable primarily to lower sales of Bienfang brand paper products.
Export sales of art/craft products were essentially unchanged in fiscal 1993,
and foreign sales decreased 11.3% primarily due to a decrease in the value of
the British pound sterling. Excluding the effect of exchange rate changes,
foreign sales increased 3.2% in fiscal 1993.
Net income of $14.9 million for fiscal 1993 grew 12.2% from fiscal
1992 net income of $13.3 million, and earnings per share increased to $.93
in fiscal 1993 from $.83 reported for fiscal 1992. Higher sales volume and
lower interest expense were significant factors leading to the earnings
increase.
Gross Profit. The Company's gross profit margin decreased to 40.1%
of net sales in fiscal 1993 from 40.7% in fiscal 1992. The domestic gross
profit margin decreased to 40.3% from 41% and the foreign gross profit margin
decreased to 26.7% from 28.6% in 1993 and 1992, respectively. The overall
decrease was attributable to lower selling prices which were largely offset
by lower raw material costs, the favorable effect of higher sales volume
leveraging relatively fixed manufacturing overhead costs and lower employee
fringe benefit expenses.
Selling, Shipping, Administrative and General Expenses. Selling
and shipping expenses, as a percentage of net sales, were reduced to 20.6% in
fiscal 1993 from 21.1% in fiscal 1992 primarily as a result of lower sales
commission expenses due, in part, to changes in customer sales mix.
Administrative and general expenses increased to $25.4 million in fiscal
1993 from $23.1 million in fiscal 1992 primarily as a result of higher
management incentive compensation expenses and higher management consulting
fees.
<PAGE> 17
Interest Expense. Interest expense was reduced to $.2 million in
fiscal 1993 from $1.1 million in fiscal 1992 due principally to debt
reduction at the end of fiscal 1992 and in fiscal 1993, as well as to an
increase in capitalized interest in fiscal 1993.
Provision for Income Taxes. The Company's effective tax rate
decreased to 37.9% in fiscal 1993 from 38.4% in fiscal 1992 as a net result
of losses incurred by the European operations in fiscal 1992 which did not
generate offsetting tax benefits, partially offset by an increase in the U.S.
statutory corporate tax rate in fiscal 1993 from 34% to 35% retroactive to
January 1, 1993.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary financial information
specified by this Item, together with the report of Coopers & Lybrand L.L.P.
thereon, are presented following Item 14 of this report.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Incorporated by Reference
The information called for by Item 10 "Directors and Executive
Officers of the Registrant" (other than the information concerning executive
officers set forth after Item 4 herein), Item 11 "Executive Compensation",
Item 12 "Security Ownership of Certain Beneficial Owners and Management" and
Item 13 "Certain Relationships and Related Transactions" is incorporated
herein by reference to the Company's definitive proxy statement for its
Annual Meeting of Shareholders scheduled to be held April 19, 1995, which
definitive proxy statement is expected to be filed with the Commission not
later than 120 days after the end of the fiscal year to which this report
relates.
<PAGE> 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) Documents Filed as a part of the Report
1. Financial Statements:
Pages
-----
Report of Independent Accountants F-1
Consolidated Statements of
Income for the fiscal years
1994, 1993 and 1992 F-2
Consolidated Balance Sheets,
November 27, 1994 and
November 28, 1993 F-3
Consolidated Statements of
Stockholders' Equity
for the fiscal years 1994, 1993
and 1992 F-4
Consolidated Statements of
Cash Flows for the fiscal years
1994, 1993 and 1992 F-5
Notes to Consolidated Financial F-6-27
Statements
2. Financial Statement Schedule:
II. Valuation and Qualifying
Accounts for the fiscal years
1994, 1993 and 1992 F-28
All other schedules not listed above have been omitted,
since they are not applicable or are not required, or
because the required information is included in the
consolidated financial statements or notes thereto.
Individual financial statements of the Company have been
omitted, since the Company is primarily an operating
company and any subsidiary companies included in the
consolidated financial statements are directly or
indirectly wholly-owned and are not indebted to any
person, other than the parent or the consolidated
subsidiaries, in an amount which is material in relation
to total consolidated assets at the date of the latest
balance sheet filed, except indebtedness incurred in the
ordinary course of business which is not overdue and
which matures in one year.
<PAGE> 19
3. Exhibits:
(3) Articles of incorporation and bylaws:
(a) Restated Articles of Incorporation, as amended
(composite) (incorp. by ref. to Ex. 4(a) to
Reg. Stmt. No. 33-57105 on Form S-8) (reference
also is made to Exhibit 4(d) below for the
Designation of Powers, Preferences, Rights and
Qualifications of Preferred Stock).
(b) By-laws, as amended (incorp. by ref. to
Ex. 4(b) to fiscal 1990 Form 10-K).
(4) Instruments, defining rights of security holders,
including indentures:*
(a) Credit Agreement dated as of October 2, 1990,
between the Company and The Chase Manhattan
Bank, N.A. (incorporated by reference to Ex.
4.1 to third quarter fiscal 1990 Form 10-Q).
(b) Credit Agreement dated as of October 2,
1990, between the Company and Mellon Bank
(East) PSFS, N.A. (incorp. by ref. to Ex.
4.2 to third quarter fiscal 1990 Form 10-
Q).
(c) Credit Agreement dated as of October 2,
1990, between the Company and Philadelphia
National Bank, incorporated as CoreStates
Bank, N.A. (incorp. by ref. to Ex. 4.3 to
third quarter fiscal 1990 Form 10-Q).
(d) Rights Agreement dated as of August 8,
1990 (including as Exhibit A thereto the
Designation of Powers, Preferences, Rights
and Qualifications of Preferred Stock),
between the Company and Mellon Bank
(East), N.A., as original Rights Agent
(incorp. by ref. to Ex. 4.1 to August,
1990 Form 8-K) and Assignment and
Assumption Agreement dated December 2,
1991, with American Stock Transfer and
Trust Company, as successor Rights Agent
(incorp. by ref. to Ex. 4(d) to fiscal
1991 Form 10-K).
Miscellaneous long-term debt instruments and
credit facility agreements of the Company,
under which the underlying authorized debt is
equal to less than 10% of the total assets of
the Company and its subsidiaries on a
consolidated basis, may not be filed as
exhibits to this report. The Company agrees to
furnish to the Commission, upon request, copies
of any such unfiled instruments.
<PAGE> 20
(10) Material contracts:
(a) Lease Agreement dated June 1, 1979 and First
Supplemental Lease Agreement dated as of July
31, 1994 between the Iredell County Industrial
Facilities and Pollution Control Financing
Authority and the Company (filed herewith).
(b) 1978 Stock Option Plan, as amended, of the
Company (incorp. by ref. to Ex. 28(a) to Reg.
Stat. No. 33-25947 on Form S-8).**
(c) 1983 Stock Option and Stock Grant Plan, as
amended, of the Company (incorp. by. ref. to
Ex. 10(c) to fiscal 1992 Form 10-K).**
(d) 1993 Stock Option and Stock Grant Plan of the
Company (incorp. by ref. to Ex. 10(d) to fiscal
1992 Form 10-K).**
(e) 1988 Long-Term Incentive Compensation Plan of
the Company (filed herewith).**
(f) 1994 Non-Employee Directors' Stock Option Plan
(incorp. by ref. to Ex. 10(f) to fiscal 1993
Form 10-K).**
(g) Loan and Security Agreement dated January 31,
1984, as amended, between the Company and
Ronald J. Naples (filed herewith).**
(h) Loan and Security Agreement dated April 20,
1988 between the Company and Robert B. Fritsch
(filed herewith).**
(i) (1) Form of Change in Control Agreement between
the Company and various officers of the Company
(filed herewith) and (2) list of executive
officers who are parties (filed herewith)**
(j) Employment-Severance Agreement between the
Company and William E. Chandler (incorp. by
ref. to Ex. 10(j) to fiscal 1993 Form 10-K).**
(k) (1) Supplemental Executive Benefits Plan of the
Company, effective April 16, 1992, and (2)
related Amended and Restated Trust Agreement,
effective February 17, 1993 (incorp. by ref. to
Ex. 10(j) to fiscal 1992 Form 10-K).**
(l) Master Agreement dated May 3, 1990 between the
Company and Bunzl plc (incorp. by ref. to Ex.
2(a) to May 1990 Form 8-K).
(m) Stock Acquisition Agreement dated May 3, 1990
between Seal Purchase Corp. and Bunzl Graphic
Arts, Inc. relating to Seal (incorp. by ref. to
Ex 2(b) to May 1990 Form 8-K).
<PAGE> 21
(11) Statement re: computation of per share
earnings (filed herewith).
(21) Subsidiaries (incorp. by ref. to Ex. 21 to
fiscal 1993 Form 10-K).
(23) Consent of Coopers & Lybrand L.L.P. to
incorporation by reference, in
Registration Statement No.s 33-70660, 33-
25947, 33-6359, 2-83144, 33-57105 and 33-
57103 on Form S-8, of their report on the
consolidated financial statements and
schedules included in this report (filed
herewith).
(27) Financial Data Schedule (filed herewith).
- ------------------
* Reference also is made to (i) Articles 5th, 6th, 7th and 8th of the
Company's composite Articles of Incorporation (Ex. 3(a) to this report),
and (ii) to Sections 1, 7 and 8 of the Company's By-laws (Ex. 3 (b) to
this report).
** Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year covered by this report.
--------------------
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders
and the Board of Directors of
Hunt Manufacturing Co.:
We have audited the accompanying consolidated financial statements and the
financial statement schedule of Hunt Manufacturing Co. and Subsidiaries as
listed in the index on page 22 of this Form 10-K. These consolidated
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hunt
Manufacturing Co. and Subsidiaries as of November 27, 1994 and November 28,
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended
November 27, 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information required to be included therein.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal year
1994.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 16, 1995
<PAGE> 23
HUNT MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the fiscal years 1994, 1993 and 1992
(In thousands except per share amounts)
1994 1993 1992
----- ----- -----
Net sales $288,203 $256,150 $234,929
Cost of sales 174,927 153,353 139,366
-------- -------- --------
Gross profit 113,276 102,797 95,563
Selling and shipping expenses 58,572 52,831 49,605
Administrative and general
expenses 27,338 25,405 23,064
-------- -------- --------
Income from operations 27,366 24,561 22,894
Interest expense (less $354, $283
and $50 capitalized in 1994,
1993 and 1992, respectively) (85) (242) (1,073)
Interest income 342 190 422
Other expense, net (542) (471) (634)
-------- -------- --------
Income before income
taxes and cumulative
effect of accounting
change 27,081 24,038 21,609
Provision for income taxes 9,884 9,110 8,307
-------- -------- --------
Income before cumulative
effect of accounting
change 17,197 14,928 13,302
Cumulative effect of change in
accounting for income tax 795 -- --
-------- -------- --------
Net Income $ 17,992 $ 14,928 $ 13,302
======== ======== ========
Average shares of common stock
outstanding 16,102 16,107 16,104
======== ======== ========
Earnings per common share:
Income before cumulative
effect of accounting
change $ 1.07 $ .93 $ .83
Cumulative effect of change in
accounting for income taxes .05 -- --
-------- -------- --------
Net Income per share $ 1.12 $ .93 $ .83
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 24
HUNT MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 27, 1994 and November 28, 1993
(In thousands except share and per share amounts)
ASSETS 1994 1993
-------- --------
Current assets:
Cash and cash equivalents $ 13,807 $ 10,778
Accounts receivable, less allowance for
doubtful accounts: 1994, $2,510;
1993, $2,643 41,390 39,472
Inventories 33,550 27,960
Deferred income taxes 5,051 --
Prepaid expenses and other current assets 1,520 2,632
-------- --------
Total current assets 95,318 80,842
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 49,729 46,617
Excess of acquisition cost over net assets
acquired, less accumulated amortization 17,218 17,054
Intangible assets, at cost, less accumulated
amortization 8,764 9,965
Other assets 2,356 1,839
--------- --------
TOTAL ASSETS $ 173,385 $156,317
========= ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,003 $ 3,158
Accounts payable 9,782 11,060
Accrued expenses:
Salaries, wages and commissions 5,742 5,402
Income taxes 4,464 4,992
Insurance 2,430 2,526
Compensated absences 1,741 1,526
Other 5,553 5,050
-------- --------
Total current liabilities 30,715 33,714
Long-term debt, less current portion 3,559 3,003
Deferred income taxes 4,331 1,230
Other non-current liabilities 5,546 2,103
STOCKHOLDERS' EQUITY
Capital Stock:
Preferred, $.10 par value, authorized 1,000,000
shares (including 50,000 shares of Series A Junior
Participating Preferred); none issued - -
Common, $.10 par value, authorized 40,000,000
shares; issued: 1994 - 16,130,068 shares;
1993 - 16,125,321 shares 1,613 1,613
Capital in excess of par value 6,217 6,158
Cumulative translation adjustment (639) (1,495)
Retained earnings 122,518 110,290
Less cost of treasury stock:
1994 - 29,945 shares; 1993 - 18,634 shares (475) (299)
-------- --------
Total stockholders' equity 129,234 116,267
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $173,385 $156,317
======== ========
See accompanying notes to consolidated financial statements.
<PAGE> 25
HUNT MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the fiscal years 1994, 1993 and 1992
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
Common Stock Capital Cumulative
--------------- Excess of Translation Retained
Issued Treasury Par Value Adjustments Earnings
------ -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 1, 1991 (issued 16,114,848
shares; treasury 20,016 shares) $ 1,611 $ (233) $ 6,045 $ 1,375 $ 93,586
Net income 13,302
Cash dividends on common stock ($.34 per share) (5,456)
Translation adjustments (2,511)
Purchase of treasury stock (29,000 shares (365)
Exercise of stock options (treasury 9,066 shares,
net of shares received as payment
upon exercise) 84 (83)
Issuance of stock grants (treasury 7,024 shares) 84 17
------- ------- ------- -------- --------
Balances, November 29, 1992 (issued 16,114,848
shares; treasury 32,926 shares) 1,611 (430) 6,045 (1,136) 101,386
Net income 14,928
Cash dividends on common stock ($.35 per share) (5,639)
Translation adjustments (359)
Purchase of treasury stock (22,200 shares) (308)
Exercise of stock options (issued 10,473 shares;
treasury 32,875 shares, net of shares received
as payment upon exercise) 2 393 113 (367)
Issuance of stock grants (treasury 3,617 shares) 46 2
------- ------- ------- -------- --------
Balances, November 28, 1993 (issued 16,125,321
shares; treasury 18,634 shares) 1,613 (299) 6,158 (1,495) 110,290
Net income 17,992
Cash dividends on common stock ($.36 per share) (5,794)
Translation adjustments 856
Purchase of treasury stock (45,600 share (728)
Exercise of stock options (issued 1,988 shares;
treasury 25,925 shares, net of shares received
as payment upon exercise) 416 16 25
Issuance of stock grants (issued 2,759 shares;
treasury 8,364 shares) 136 43 5
------- ------- ------- -------- --------
Balances, November 27, 1994 (issued 16,130,068
shares; treasury 29,945 shares) $ 1,613 $ (475) $ 6,217 $ (639) $ 122,518
======= ====== ======= ======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 26
HUNT MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years 1994, 1993 and 1992
(In thousands)
1994 1993 1992
------ ------ -------
Cash flows from operating activities:
Net income $17,992 $14,928 $13,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,039 7,664 7,558
Provision for inventory obsolescence 2,083 1,598 766
Cumulative effect of change in
accounting for income taxes (795) - -
Deferred income taxes (1,155) (456) 626
Loss on disposals of property,
plant and equipment 634 571 119
Payments relating to relocation and
consolidation of operations (132) (400) (2,151)
Issuance of stock under management incentive
bonus and stock grant plans 312 48 101
Changes in operating assets and liabilities,
net of acquisition of business:
Accounts receivable (1,688) (1) (710)
Inventories (7,485) (4,639) 2,210
Prepaid expenses and other current
assets 1,124 (922) (872)
Accounts payable (1,352) 2,847 (1,729)
Accrued expenses 400 2,009 1,188
Other non-current assets and 2,820 (50) 34
liabilities ------- ------ ------
Net cash provided by operating
activities 20,797 23,197 20,442
------- ------ ------
Cash flows from investing activities:
Additions to property, plant and equipment (9,305) (10,339) (6,002)
Acquisition of business - (1,051) -
Other, net (620) 2 (183)
------- ------ ------
Net cash used for investing activities (9,925) (11,388) (6,185)
------- ------ ------
Cash flows from financing activities:
Payments of long-term debt, including
current maturities (1,600) (1,209) (11,128)
Purchases of treasury stock (728) (308) (365)
Proceeds from exercise of stock options 331 211 1
Dividends paid (5,794) (5,639) (5,456)
Other, net (45) (49) 65
------- ------ ------
Net cash used for financing activities (7,836) (6,994) (16,883)
------- ------ ------
Effect of exchange rate changes on cash
and cash equivalents (7) (50) (99)
------- ------ ------
Net increase (decrease) in cash and cash
equivalents 3,029 4,765 (2,725)
Cash and cash equivalents, beginning of year 10,778 6,013 8,738
------- ------ ------
Cash and cash equivalents, end of year $13,807 $10,778 $ 6,013
======= ====== =======
See accompanying notes to consolidated financial statements.
<PAGE> 27
HUNT MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
------
1. Summary of Significant Accounting Policies:
Basis of Presentation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. The Company's fiscal year
ends on the Sunday nearest the end of November. Fiscal year 1994 ended
November 27, 1994; fiscal year 1993 ended November 28, 1993; and fiscal year
1992 ended November 29, 1992. All three fiscal years are comprised of 52
weeks. Certain amounts in the 1993 financial statements have been
reclassified to conform to the 1994 presentation.
Cash Equivalents:
The Company considers all highly liquid temporary cash investments purchased
with a maturity of three months or less to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately half of the
inventories and by the first-in, first-out (FIFO) method for the remainder.
The Company uses the FIFO method of inventory valuation for certain acquired
businesses because the related products and operations are separate and
distinct from the Company's other businesses.
Property, Plant and Equipment:
Expenditures for additions and improvements to property, plant and equipment
are capitalized, and normal repairs and maintenance are charged to expense as
incurred. The related cost and accumulated depreciation of depreciable
assets disposed of are eliminated from the accounts, and any profit or loss
is reflected in other expense, net.
Excess of Acquisition Cost Over Net Assets Acquired and Intangible Assets:
Excess of acquisition cost over net assets acquired relates principally to the
Company's acquisitions of X-Acto (1981), Bevis Custom Tables, Inc. (1985), and
the Graphic Arts Group of Bunzl plc (1990). The Company's policy is to record an
impairment loss against the net unamortized excess of acquisition cost over net
assets acquired and net intangible assets in the period when it is determined
that the carrying amount of the net assets may not be recoverable. The Company
performs this evaluation on a quarterly basis. This determination includes
evaluation of factors such as current market value, future asset utilization,
business climate and future net cash flows (undiscounted and without interest)
expected to result from the use of the net assets.
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
1. Summary of Significant Accounting Policies (continued):
Depreciation and Amortization:
Depreciation for financial reporting purposes is computed using the straight-
line method over the estimated useful life of the asset as follows:
buildings, 12 to 40 years; machinery and equipment, four to 12 years; and
leasehold improvements over the lease term. Depreciation for tax purposes is
computed principally using accelerated methods. The excess of acquisition
cost over net assets acquired is amortized on a straight-line basis over
periods ranging from 20 to 40 years. The costs of intangible assets are
amortized on a straight-line basis over their respective estimated useful
lives, ranging from five to 30 years. Amortization of assets under capital
leases which contain purchase options is provided over the assets' useful
lives. Other capital leases are amortized over the terms of the related
leases or asset lives, if shorter.
Currency Translation:
The assets and liabilities of subsidiaries having a functional currency other
than the U.S. dollar are translated at the fiscal year-end exchange rate,
while elements of the income statement are translated at the weighted average
exchange rate for the fiscal year. The cumulative translation adjustment is
recorded as a separate component of stockholders' equity. Gains and losses
on foreign currency transactions are included in the determination of net
income and are reflected in other expense, net. Such gains and losses are
not material for any of the years presented.
Income Taxes:
Effective November 29, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption
of SFAS No. 109 changed the Company's method of accounting for income taxes from
the deferral method under Accounting Principles Board Opinion No. 11 to an
asset/liability approach. The adoption of SFAS No. 109 has been recognized as
the effect of a change in accounting principle and increased net income in
fiscal 1994 by $795, or $.05 per share. The increase in net income results
primarily from adjusting deferred tax balances to current tax rates. Financial
statements of years prior to 1994 have not been restated.
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
1. Summary of Significant Accounting Policies (continued):
Hedging:
The Company periodically enters into forward exchange contracts to hedge
foreign currency transactions for periods generally consistent with its
committed exposure. Cash flows from hedges are classified in the statement
of cash flows in the same category as the item being hedged.
Earnings Per Share:
Earnings per share are calculated based on the weighted average number of
common shares outstanding. The effect of outstanding stock options and stock
grants is not material and has not been included in the calculation.
Employee Benefit Plans:
The Company and its subsidiaries have non-contributory, defined benefit
pension plans covering the majority of their employees. It is the Company's
policy to fund pension contributions in accordance with the requirements of
the Employee Retirement Income Security Act of 1974. The benefit formula
used to determine pension costs is the final-average-pay method.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," requires
the accrual of postemployment benefits if the obligation is attributable to
employees' services already rendered, employees' rights to those benefits
accumulate or vest, payment of the benefits is probable and the amount of
the benefits can be reasonably estimated. The Company currently does not
believe SFAS No. 112, when adopted in fiscal year 1995, will have a material
effect on its results of operations or financial condition.
Environmental Matters:
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are also expensed. The Company records liabilities for
environmental costs when environmental assessments and/or remedial efforts are
probable and the costs can be reasonably estimated. The liability for future
environmental remediation costs is evaluated on a quarterly basis by management.
Generally, the timing of these accruals coincides with the earlier of the
completion of a feasibility study or the Company's commitment to a plan of
action based on the then-known facts. Recoveries of expenditures are recognized
as a receivable only when they are estimable and probable.
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
2. Inventories:
The classification of inventories at the end of fiscal years 1994 and 1993 is
as follows:
1994 1993
-------- --------
Finished goods $ 17,242 $ 13,094
Work in process 5,807 5,289
Raw materials 10,501 9,577
-------- --------
$ 33,550 $ 27,960
======== ========
Inventories determined under the LIFO method were $17,276 and $13,299 at
November 27, 1994 and November 28, 1993, respectively. The current
replacement cost for these inventories exceeded the LIFO cost by $5,881 and
$5,569 at November 27, 1994 and November 28, 1993, respectively.
Inventory reductions in fiscal years 1994, 1993 and 1992 resulted in a
liquidation of certain LIFO inventories carried at lower costs prevailing in
prior years. The effect of these reductions was to increase net income by
$315, or $.02 per share, $101, or $.01 per share and $262, or $.02 per share,
in fiscal years 1994, 1993 and 1992, respectively.
3. Property, Plant and Equipment:
Property, plant and equipment at the end of fiscal years 1994 and 1993 is as
follows:
1994 1993
------- -------
Land and land improvements $ 3,859 $ 3,698
Buildings 17,683 17,434
Machinery and equipment 66,708 61,718
Leasehold improvements 661 661
Construction in progress 6,981 5,439
------- -------
95,892 88,950
Less accumulated depreciation
and amortization 46,163 42,333
------- -------
$49,729 $46,617
======= =======
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
4. Excess of Acquisition Cost Over Net Assets Acquired and Intangible
Assets:
Excess of acquisition cost over net assets acquired at the end of fiscal
years 1994 and 1993 is as follows:
1994 1993
------- --------
Excess of acquisition cost
over net assets acquired $20,298 $19,573
Less accumulated amortization 3,080 2,519
-------- --------
$17,218 $17,054
======== ========
Intangible assets at the end of fiscal years 1994 and 1993 are as
follows:
1994 1993
------- -------
Covenants not to compete $11,648 $11,643
Customer lists 1,510 1,510
Patents 1,533 1,533
Trademarks 1,418 1,400
Licensing agreements 1,154 1,154
Other 1,829 1,751
------- -------
19,092 18,991
Less accumulated amortization 10,328 9,026
------- -------
$ 8,764 $ 9,965
======= =======
5. Debt:
Credit Agreements and Lines of Credit:
At November 27, 1994, the Company had revolving credit agreements with three
banks that provide for unsecured borrowings up to $45 million. There were no
borrowings under these agreements at November 27, 1994 or November 28, 1993.
Amounts borrowed under these agreements, which expire October 2, 1996, would
be converted to term loans upon expiration of the revolving credit
termination dates. Principal payments would be made in quarterly
installments beginning January 2, 1997 through October 2, 1999. Interest on
borrowings under these agreements are at varying rates based, at the
Company's option, on the banks' prime rate, certificate of deposit rate, or
money market rate, the London Interbank Offering Rate (LIBOR), or the as-
offered rate. None of these agreements has compensating balance
requirements. Commitment fees of 1/8 of 1% are payable under these
agreements.
Long-Term Debt:
Long-term debt at the end of fiscal years 1994 and 1993 is as follows:
1994 1993
------ ------
Term loan (a) $ 938 $1,875
Capitalized lease obligation (See Note 10) 2,000 2,000
Industrial development revenue bond (b) 1,559 1,559
Industrial development revenue bond (c) 65 700
Other - 27
------ -----
4,562 6,161
Less current portion 1,003 3,158
------ ------
$3,559 $3,003
====== ======
(a) The principal of this term loan is payable in equal quarterly
installments of $234.4 through September 29, 1995. Interest on the borrowing
is payable quarterly at a rate of 10.93% per annum on the outstanding
principal amount of the loan.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
------
5. Debt (continued):
(b) In June 1994, the Company refinanced this industrial development
revenue bond with a new maturity date of June 15, 1999. The interest rate
(5.525% at November 27, 1994) remained the same at 65% of the lending bank's
average daily prime rate.
(c) This bond bears interest (6.426% at November 27, 1994) at 75.6% of
the lending bank's average daily prime rate. The principal balance of $65 is
payable in installments of $60 on May 1, 1995 and $5 on November 1, 1995. It
is collateralized by a plant facility and certain equipment.
The terms of certain financing agreements contain, among other provisions,
requirements for maintaining certain working capital and other financial
ratios, and restrictions on incurring additional indebtedness and obligate
the Company to equally and ratably collateralize the indebtedness under such
agreements if the Company grants or assumes certain liens on its assets.
Under the most restrictive covenants, dividends and purchases of capital
stock of the Company may not exceed, on a cumulative basis, 75% of the
cumulative net income of the Company at any time during the period beginning
November 28, 1983. As of November 27, 1994, $53 million was available to the
Company under this provision for future cash dividends and future purchases
of its own capital stock. In addition, as of November 27, 1994, the Company
exceeded its minimum tangible net worth requirement of $62 million by $41.3
million.
The capitalized lease obligation is collateralized by the property, plant and
equipment described in Note 10.
There are no maturities of long-term debt, including the capitalized lease,
for three fiscal years subsequent to December 3, 1995. In fiscal 1999 there
will be an aggregate maturity of $1,559.
6. Income Taxes:
Income before provision for income taxes consists of the following:
1994 1993 1992
------- ------- -------
Domestic $24,935 $21,758 $20,341
Foreign 2,146 2,280 1,268
------- ------- -------
$27,081 $24,038 $21,609
======= ======= =======
The provision for income taxes consists of the following:
1994 1993 1992
------- ------ -------
Currently payable:
Federal $ 9,863 $8,406 $6,694
State 1,009 877 815
Foreign 167 283 159
------- ------ ------
11,039 9,566 7,668
Deferred (1,155) (456) 639
------- ------ ------
$ 9,884 $9,110 $8,307
======= ====== ======
The following is a reconciliation of the statutory federal income
tax rate with the Company's effective income tax rate:
1994 1993 1992
----- ----- -----
Statutory federal rate 35.0% 34.9% 34.0%
State income taxes, net of
federal tax benefit 2.1 2.2 2.6
Losses of foreign subsidiaries
with no current offsetting
tax benefit - - 1.0
Other, net (.6) .8 .8
---- ---- ----
Effective tax rate 36.5% 37.9% 38.4%
==== ==== ====
Effective November 29, 1993, the Company adopted SFAS No. 109
(see Note 1).
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
6. Income Taxes (continued):
The significant components of deferred tax assets and liabilities at November
27, 1994 consist of:
Assets Liabilities
--------- -----------
Inventories $ 2,609 -
Accrued expenses 2,705 $ 443
Allowance for doubtful accounts 901 -
Net operating loss carryforwards-foreign 821 -
Pensions 766 271
Net operating loss carryforwards-states 313 -
Depreciation and amortization 497 6,044
------- --------
8,612 6,758
Valuation allowance (1,134) -
------- --------
$ 7,478 $ 6,758
======= ========
As of November 27, 1994, the Company had foreign net operating loss carry-
forwards of approximately $2.1 million which may be carried forward
indefinitely, approximately $.9 million of which were acquired in connection
with business acquisitions. To the extent that net operating loss
carryforwards acquired in connection with business acquisitions are utilized
in the future and the associated valuation allowance reduced, the tax benefit
thereof will be allocated to reduce excess of acquisition cost over net
assets acquired related to the acquisition.
The valuation allowance of $1.1 million relates to net operating
losses which are uncertain as to realizability as of November 27, 1994. The
net change in the total valuation allowance for the year ended November 27,
1994 was an increase of $52.
Deferred income taxes relate to the following timing differences
between amounts reported for financial accounting and income tax purposes:
1993 1992
------ -----
Depreciation $ 53 $119
Provision for relocation
and consolidation of
operations 61 622
Other, net (570) (102)
----- ----
$(456) $639
===== ====
7. Employee Benefit Plans:
Pension Plans:
Net pension costs for fiscal years 1994, 1993 and 1992 consist of the
following:
1994 1993 1992
------ ------ ------
Service cost-benefits earned
during the period $2,049 $1,580 $1,595
Interest cost on projected
benefit obligation 2,155 1,852 1,672
Actual return on plan assets (1,031) (1,863) (1,692)
Net amortization and deferral (759) 107 184
------ ------ ------
Net pension costs $2,414 $1,676 $1,759
====== ====== ======
Net amortization and deferral consists of the deferral of the excess of
actual return on assets over estimated return and amortization of the net
unrecognized transition asset on a straight-line basis, principally over 15
years.
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
7. Employee Benefit Plans (continued):
The funded status of the Company's pension plans at September 30, 1994 and
1993 (dates of actuarial valuations) is as follows:
1994 1993
----------------------- ------------------------
Overfunded Underfunded Overfunded Underfunded
---------- ----------- ---------- -----------
Plan assets at fair value $26,227 $ 643 $24,327 $ 660
------- ------ ------- ------
Actuarial present value
of benefit obligations:
Vested 18,434 1,715 19,139 1,718
Non-vested 67 185 390 249
------- ------ ------ ------
Accumulated benefit
obligation 18,501 1,900 19,529 1,967
Effect of increase in
compensation 7,999 818 7,288 875
------- ------ ------ ------
Projected benefit
obligation 26,500 2,718 26,817 2,842
------- ------ ------ ------
Projected benefit
obligation in excess of
plan assets (273) (2,075) (2,490) (2,182)
Unrecognized net (gain)
loss (7) 89 2,612 486
Unrecognized transition
asset (1,668) (19) (1,890) (22)
Unrecognized prior
service cost 754 1,102 857 1,218
Minimum liability
adjustment - (355) - -
------ ------- ------ ------
Pension liability $(1,194) $(1,258) $ (911) $ (500)
====== ======= ====== ======
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
7. Employee Benefit Plans: (continued):
Pension costs are determined using the assumptions as of the beginning of the
year. The funded status is determined using the assumptions as of the end of the
year andis deemed overfunded or underfunded based on a comparison of the plan
assets atfair value with the accumulated benefit obligation. Plan assets consist
principally ofcommon stock and U.S. Government and corporate obligations.
Significant assumptions at year-end include:
1994 1993 1992
---- ---- ----
Discount rate 8.00% 7.00% 7.75%
Rate of increase in
compensation levels 6.00% 6.00% 6.00%
Expected long-term rate of
return on plan assets 7.50% 7.50% 7.50%
Supplemental Executive Benefits Plan:
The Company has instituted a nonqualified, Supplemental Executive Benefits
(retirement) Plan covering all officers. Expenses of $394, $331 and $325 in
fiscal years 1994, 1993 and 1992, respectively, relating to this plan were
actuarially determined and are included in the pension costs described above.
In 1994 the Company added an elective salary deferral feature to this plan.
Contributions to this portion of the plan will begin in fiscal 1995.
Employee Savings Plan:
The Company has a defined contribution 401(k) plan available to a majority of
its employees in the United States. For participating employees, the Company
matches 25 cents for each dollar contributed up to a maximum of 6% of pre-tax
compensation, subject to limitations of the plan and the Internal Revenue
Code. Contributions to the 401(k) plan by the Company were $407, $379 and
$300 for fiscal years 1994, 1993 and 1992, respectively.
8. Stock Option, Stock Grant and Long-Term Incentive Compensation Plans:
In 1993 the Company adopted the 1993 Stock Option and Stock Grant Plan which
replaced the expired 1983 Stock Option and Stock Grant Plan. The 1993 plan
authorizes the issuance of up to 1,750,000 common shares, of which up to
525,000 may be issued in the form of stock grants. The terms of the 1993
plan are essentially similar to the terms of the 1983 plan described below.
The Company's 1983 Stock Option and Stock Grant Plan and the 1978 Stock
Option Plan expired by their terms in February 1993 and November 1988,
respectively, and, while incentive stock options granted under them remain
outstanding, no further options may be granted under these plans.
Under the 1983 plan, common shares were authorized for the granting of
incentive stock options, nonqualified stock options and stock grants to key
employees, provided that stock grants may be made for no more than 373,125
common shares. The option price of options granted under the plan may not be
less than the market value of the shares at the date granted. Options may be
granted for terms of between two and ten years and generally become
exercisable not less than one year following the date of grant.
Stock grants under the 1983 plan are subject to a vesting period or periods
of between one and five years from the date of grant. Common shares are not
actually issued to a grantee until such shares have vested under the plan.
The plan also provides for the payment of an annual cash bonus to recipients
of stock grants in an amount equal to the cash dividends which would have
been received had the shares not yet vested under the grant been actually
held by the recipients.
Under the 1978 plan, options for 632,813 common shares were authorized for
the granting of options to key employees at option prices not less than the
market value of the common shares at the date of grant. Options granted
under this plan have terms of not more than ten years and generally become
exercisable not less than one year following the date of grant.
Payment upon exercise of stock options under the 1993, 1983 and 1978 plans
may be by cash and/or by the Company's common stock in an amount equivalent
to the market value of the stock at the date exercised.
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
8. Stock Option, Stock Grant and Long-Term Incentive Compensation Plans
(continued):
A summary of options under the Company's stock option plans is as follows:
1993 Plan 1983 Plan 1978 Plan
--------- --------- ---------
1994 1994 1993 1994 1993
------- -------- ------- ----- ------
Outstanding, beginning of
year - 779,004 756,486 2,638 3,493
Options granted 388,100 - 148,200 - -
Options exercised (at an
average price per share
of $12.49, $10.47 and $7.77,
respectively) - (31,501) (102,282) - (855)
Options expired - - - - -
Options terminated (24,700) (17,500) (23,400) - -
------- ------- ------- ----- -----
Outstanding, end of year 363,400 730,003 779,004 2,638 2,638
======= ======= ======= ===== =====
Average option price per share $15.79 $13.44 $13.43 $10.58 $10.58
Outstanding exercisable
options, end of year - 596,803 506,754 2,638 2,638
Shares reserved for future
stock options and grants 1,386,600 - - - -
In 1992 there were 17,022 options exercised at an average price of $7.77
under the 1983 plan.
The Company's 1988 Long-Term Incentive Compensation Plan provides for the
granting to management-level employees of long-term incentive awards, which
are payable in cash and/or by the Company's common stock at the end of a
designated performance period of from two to five years, based upon the
degree of attainment of pre-established performance standards during the
performance period. A maximum of 180,000 shares are authorized for issuance
under this plan.
As of the end of fiscal 1994, an aggregate of 66,008 shares had been earned
under this plan (17,042, 13,394 and 4,300 shares in fiscal years 1994, 1993
and 1992, respectively, and 31,272 shares in all previous years), and an
aggregate of 51,185 shares were subject to outstanding unvested grants.
There is no stated limitation on the aggregate amount of cash payable under
this plan, but the maximum amount (in cash and/or shares) which may be paid
to a participant under all long-term incentive awards under the plan with
respect to the same performance period may not exceed 125% of the
participant's base salary in effect at the time the award initially was made.
The charges to administrative and general expenses relating to this plan were
$532, $563 and $88 in fiscal years 1994, 1993 and 1992, respectively.
9. Shareholders' Rights Plan:
In 1990 the Company adopted a Shareholders' Rights Agreement and declared a
dividend of one right (a "Right") for each outstanding share of the Company's
common shares held of record as of the close of business on August 22, 1990.
The Rights initially are deemed to be attached to the common shares and
detach and become exercisable only if (with certain exceptions and
limitations) a person or group attempts to obtain beneficial ownership of 15%
or more of the Company's common shares or is determined to be an "adverse
person" by the Board of Directors of the Company. Each Right, if and when it
becomes exercisable, initially will entitle holders of the Rights to purchase
one one-thousandth of a share of Junior Participating Preferred Shares
(Series A, of which 50,000 shares currently are authorized for issuance) for
$60, subject to adjustment. The Rights will convert into the right to
purchase common shares or other securities or property of the Company or an
acquiring company in certain other potential or actual takeover situations.
The Rights are redeemable by the Company at $.01 per Right in certain
circumstances and expire, unless earlier exercised or redeemed, on December
31, 2000.
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
10. Commitments and Contingencies:
Leases:
The capitalized lease obligation (see Note 5) represents the amount payable
under a lease which is, in substance, an installment purchase. Property,
plant and equipment includes the following assets under a capital lease:
1994 1993
------- -------
Land $ 314 $ 314
Buildings 2,632 2,632
Machinery and equipment 1,009 1,009
Accumulated depreciation (2,746) (2,639)
------- -------
$1,209 $1,316
====== =======
The Company has the option to purchase the above assets at any time
during the term of thelease for amounts sufficient to redeem and retire the
underlying lessor debt obligation.The capitalized lease obligation has one
principal payment at maturity on June 15, 2004.
The minimum rental commitments under all noncancellable leases as of November
27, 1994 are as follows:
Fiscal Operating
Period Leases
------ ----------
1995 $ 3,976
1996 2,867
1997 2,264
1998 2,120
1999 2,123
Thereafter 7,128
-------
Minimum lease
payments $20,478
=======
Rent expense, including related real estate taxes charged to operations,
amounted to $3,912, $4,217 and $4,076 for fiscal years 1994, 1993 and 1992,
respectively.
Contingencies:
The Company has employment/severance (change in control) agreements with its
officers under which severance payments and benefits would become payable in
the event of specified terminations of employment following a change in
control (as defined) of the Company. The Company also has a termination
policy applicable to other employees which provides severance payments and
benefits in the event of certain terminations of employment. In the event of
a change in control of the Company and subsequent termination of all
employees, the maximum contingent severance liability would have been
approximately $16.1 million at November 27, 1994.
Prior to the acquisition of the Graphic Arts Group by the Company from Bunzl plc
in May 1990, it was discovered that some hazardous waste materials had been
stored on the premises of one of the Graphic Arts Group companies, Seal, located
in Naugatuck, Connecticut. In compliance with applicable state law, this
environmental condition was reported to the Connecticut Department of
Environmental Protection by Bunzl. Seal, which is now a subsidiary of the
Company, may be partially responsible under law for the environmental conditions
on the premises and any liabilities resulting therefrom. However, in connection
with the Company's acquisition of Seal, Bunzl agreed to take responsibility for
correcting such environmental conditions and, for a period of seven years, to
indemnify Seal and the Company for such resulting liabilities, subject to
certain limitations. Management believes that this contingency will not have a
material effect on the Company's results of operations or financial condition.
The Company is also involved on a continuing basis in monitoring its
compliance with environmental laws and in making capital and operating
improvements necessary to comply with existing and anticipated environmental
requirements. Despite its efforts, the Company has been cited for occasional
violations or alleged violations of environmental laws or permits and on
several occasions has been named as a potentially responsible party for the
remediation of sites. Expenses incurred by the Company to date relating to
violations of and compliance with environmental laws and permits and site
remediation have not been material. While it is impossible to predict with
certainty, management currently does not foresee such expense in the future
as having a material effect on the Company's business, results of operations
or financial condition. There are other contingent liabilities with respect
to product warranties, legal proceedings and other matters occurring in the
normal course of business. In the opinion of management, all such matters are
adequately covered by insurance or by accruals, and if not so covered, are
without merit or are of such kind, or involve such amounts, as would not have
significant effect on the financial condition or results of operations of the
Company, if disposed of unfavorably.
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
11. Common Stock:
In April 1994 the shareholders approved an increase in the number of
authorized shares of common stock from 20,000,000 to 40,000,000.
12. Research and Development:
Research and development expenses were approximately $1,606, $1,657 and
$1,519 in fiscal years 1994, 1993 and 1992, respectively.
13. Cash Flow Information:
Cash payments for interest and income taxes (net of refunds) were as follows:
1994 1993 1992
---- ---- ----
Interest paid $ 408 $ 580 $ 863
Income taxes 9,481 8,761 5,987
14. Quarterly Financial Data (unaudited):
Results of operations for each of the quarters during fiscal years 1994 and
1993 are as follows:
1994
----
First Second Third Fourth Total
------ ------- ------- ------ --------
Net sales $64,550 $69,023 $75,765 $78,865 $288,203
Gross profit 25,155 27,866 29,350 30,905 113,276
Net income 3,798* 4,088 4,391 5,715 17,992*
Net income per share .24* .25 .27 .36 1.12*
*Includes the cumulative effect of a change in accounting for income taxes
(adoption of SFAS No. 109) which increased net income by $795, or $.05 per
share.
1993
----
First Second Third Fourth Total
------ ------- ------- ------ --------
Net sales $57,117 $60,825 $65,021 $73,187 $256,150
Gross profit 22,465 24,701 25,702 29,929 102,797
Net income 2,533 3,544 3,856 4,995 14,928
Net income per share .16 .22 .24 .31 .93
15. Industry Segment Information:
The Company operates in two industry segments, Office Products and Art/Craft
Products. Total export sales aggregated $21,235 in fiscal 1994, $21,580 in
fiscal 1993 and $20,919 in fiscal 1992, of which $11,844, $11,619 and $10,981
in fiscal years 1994, 1993 and 1992, respectively, were made in Canada.
Operating profits include all revenues and expenses of the reportable segment
except for general corporate expenses, interest expense, interest income,
other expenses, other income and income taxes.
Identifiable assets are those assets used in the operations of each business
segment. Corporate assets include cash and miscellaneous other assets not
identifiable with any particular segment. Capital additions include amounts
related to acquisitions.
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
15. Industry Segment Information (continued):
Office Art/Craft Corp.
Fiscal Year 1994 Products Products Assets Consolidated
- ---------------- -------- -------- ------- ------------
Net sales $160,307 $127,896 $288,203
======== ======= ========
Operating profit $ 12,172 $ 21,211 $ 33,383
======== =======
General corporate (6,017)
Interest expense (85)
Interest income 342
Other expense, net (542)
--------
Income before income
taxes $ 27,081
========
Identifiable assets $ 80,218 $ 70,362 $ 22,805 $173,385
======== ======= ======== ========
Capital additions $ 5,923 $ 3,109 $ 273 $ 9,305
======== ======= ======== ========
Depreciation and
amortization $ 4,123 $ 3,286 $ 630 $ 8,039
======== ======= ======== ========
Office Art/Craft Corp.
Fiscal Year 1993 Products Products Assets Consolidated
- ---------------- --------- --------- -------- ------------
Net sales $142,462 $113,688 $256,150
======== ======= ========
Operating profit $ 11,411 $ 18,832 $ 30,243
======== =======
General corporate (5,682)
Interest expense (242)
Interest income 190
Other expense, net (471)
--------
Income before income
taxes $ 24,038
========
Identifiable assets $ 74,098 $ 67,619 $ 14,600 $156,317
======== ======= ======== ========
Capital additions $ 5,559 $ 4,082 $ 698 $ 10,339
======== ======= ======== ========
Depreciation and
amortization $ 3,898 $ 3,234 $ 532 $ 7,664
======== ======= ======== ========
Office Art/Craft Corp.
Fiscal Year 1992 Products Products Assets Consolidated
- ---------------- --------- --------- -------- ------------
Net sales $126,101 $108,828 $234,929
======== ======= ========
Operating profit $ 8,541 $ 18,516 $ 27,057
======== =======
General corporate (4,163)
Interest expense (1,073)
Interest income 422
Other expense, net (634)
--------
Income before income
taxes $ 21,609
========
Identifiable assets $ 69,894 $64,715 $ 9,561 $144,170
======== ======= ======== ========
Capital additions $ 3,666 $ 1,813 $ 523 $ 6,002
======== ======= ======== ========
Depreciation and
amortization $ 3,552 $ 3,521 $ 485 $ 7,558
======== ======= ======== ========
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
15. Industry Segment Information (continued):
The Company's operations by geographical areas for fiscal years 1994, 1993
and 1992 are presented below. Intercompany sales to affiliates represent
products which are transferred between geographic areas on a basis intended
to reflect as nearly as possible the market value of the products.
Adjustments
and
Fiscal Year 1994 North America Europe Corporate Eliminations Consolidated
- --------------- ------------- ------ --------- ------------ ------------
Net sales:
Customers $268,710 $19,493 - $288,203
Intercompany 5,060 2,154 $(7,214) -
-------- ------- ------- --------
Total $273,770 $21,647 $(7,214) $288,203
======== ======= ======= ========
Operating profit $ 32,648 $ 735 - $ 33,383
======== ======= ======= ========
Identifiable
assets $131,310 $19,270 $22,805 - $173,385
======== ======= ======= ======= ========
Adjustments
and
Fiscal Year 1993 North America Europe Corporate Eliminations Consolidated
- --------------- ------------- ------ --------- ------------ ------------
Net sales:
Customers $241,059 $15,091 - $256,150
Intercompany 2,941 1,640 $(4,581) -
-------- ------- ------- --------
Total $244,000 $16,731 $(4,581) $256,150
======== ======= ======= ========
Operating profit $ 30,203 $ 40 - $ 30,243
======== ======= ======= ========
Identifiable
assets $124,841 $16,876 $14,600 - $156,317
======== ======= ======= ======= ========
Adjustments
and
Fiscal Year 1992 North America Europe Corporate Eliminations Consolidated
- --------------- ------------- ------ --------- ------------ ------------
Net sales:
Customers $218,111 $16,818 - $234,929
Intercompany 2,241 1,230 $(3,471) -
-------- ------- ------- --------
Total $220,352 $18,048 $(3,471) $234,929
======== ======= ======= ========
Operating profit
(loss) $ 27,614 $ (557) - $ 27,057
======== ======= ======= ========
Identifiable
assets $117,066 $17,543 $ 9,561 - $144,170
======== ======= ======== ======= ========
16. Financial Instruments:
Off-Balance Sheet Risk:
The Company had no forward exchange contracts outstanding as of November 27,
1994. As of November 28, 1993, the Company had $992 in forward exchange
contracts outstanding to hedge accounts receivable denominated in Canadian
dollars. The forward exchange contracts generally have maturities which do
not exceed six months and require the Company to exchange Canadian dollars
for U.S. dollars at maturity at rates agreed to at the inception of the
contracts.
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
16. Financial Instruments (continued):
Letters of credit are issued by the Company during the ordinary course
of businessthrough major domestic banks as required by certain vendor
contracts. As ofNovember 27, 1994 and November 28, 1993, the Company had
outstanding lettersof credit for $216 and $511, respectively.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments ($11.7
million and $7.3 million at November 27, 1994 and November 28, 1993,
respectively) with quality financial institutions and, by policy, limits the
amount of credit exposure to any one financial institution. The Company
provides credit, in the normal course of business, to a large number of
distributors and retailers and generally does not require collateral or other
security to support customer receivables. Management believes that
concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base,
and their dispersion across many different industries and geographies with no
single customer accounting for over 10% of net sales; however, the Company's
ten largest customers account for approximately 32% and 26% of accounts
receivable at November 27, 1994 and November 28, 1993, respectively. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses.
Fair Value:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents -
The carrying amount approximates fair value because of the short maturity
of these instruments.
Debt (excluding capital lease obligation) -
The fair value of the Company's debt is estimated based on the current
rates offered to the Company for debt of the same remaining maturities.
Forward exchange contracts -
The fair value of forward exchange contracts (used for hedging purposes)
approximates fair value because of the short maturity of these instruments.
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands except share and per share amounts)
-------
16. Financial Instruments (continued):
The estimated fair values of the Company's financial instruments at November
27, 1994 and November 28, 1993 are as follows:
1994 1993
------------------ -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Cash and cash
equivalents $13,807 $13,807 $10,778 $10,778
Debt (excluding
capital lease
obligation) 2,561 2,523 4,161 4,324
Forward
exchange contracts - - 992 992
Debt and Equity Securities:
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires changes in accounting and reporting for certain
investments in debt and equity securities. SFAS No. 115 is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company
will adopt SFAS No. 115 when required. Management does not believe SFAS No.
115 will have a material effect on its results of operations or financial
condition or that additional disclosures will be necessary.
<PAGE> 43
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the fiscal years 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Classification Of Period Expenses Accounts Deductions Period
-------------- ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1994:
----
Allowance for doubtful accounts $2,643 $ 921 $ - $1,054(A) $2,510
====== ====== ==== ====== ======
Reserve for customer returns and
deductions (B) $ 702 $1,539 $ - $ 974(C) $1,267
====== ====== ==== ====== ======
Reserve for inventory obsolescence $2,236 $2,083 $ - $ 789(D) $3,530
====== ====== ==== ====== ======
1993:
Allowance for doubtful accounts $2,587 $1,022 $ 3 $ 969(A) $2,643
====== ====== ==== ====== ======
Reserve for inventory obsolescence $1,655 $1,598 $ - $1,017(D) $2,236
====== ====== ==== ====== ======
1992:
Allowance for doubtful accounts $2,314 $1,182 $ - $ 909(A) $2,587
====== ====== ==== ====== ======
Reserve for inventory obsolescence $1,788 $ 766 $ - $ 899(D) $1,655
====== ====== ==== ====== ======
(A) Doubtful accounts written off, net of collection expenses.
(B) These reserves were not significant in years prior to 1994.
(C) Credits issued to customers.
(D) Primarily a result of disposals of obsolete inventory in the normal
course of business.
</TABLE>
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HUNT MANUFACTURING CO.
Dated: February 16, 1995 By:/s/ Ronald J. Naples
--------------------
Ronald J. Naples
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on behalf of the registrant and in
the capacities and on the dates indicated:
/s/ Ronald J. Naples February 16, 1995
- --------------------
Ronald J. Naples
Chairman of the Board and
Chief Executive Officer
/s/ William E. Chandler February 16, 1995
- -----------------------
William E. Chandler
Senior Vice President,
Finance (Principal Financial and
Accounting Officer)
/s/ Vincent G. Bell, Jr. February 16, 1995
- ------------------------
Vincent G. Bell, Jr.
Director
/s/ Jack Farber February 16, 1995
- ---------------
Jack Farber
Director
/s/ Robert B. Fritsch February 16, 1995
- ---------------------
Robert B. Fritsch
Director
<PAGE> 45
/s/ William F. Hamilton, Ph.D. February 16, 1995
- ------------------------------
William F. Hamilton, Ph.D.
Director
February , 1995
- ------------------------
Mary R. (Nina) Henderson
Director
/s/ Gordon A. MacInnes, Jr. February 16, 1995
- ---------------------------
Gordon A. MacInnes, Jr.
Director
/s/ Wilson D. McElhinny February 16, 1995
- -----------------------
Wilson D. McElhinny
Director
/s/ Robert H. Rock February 16, 1995
- ------------------
Robert H. Rock
Director
February , 1995
- ---------------
Roderic H. Ross
Director
/s/ Victoria B. Vallely February 16, 1995
- -----------------------
Victoria B. Vallely
Director
<PAGE> 46
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
(10) Material contracts:
(a) Lease Agreement dated June 1, 1979 and First
Supplemental Lease Agreement dated as of July 31,
1994 between the Iredell County Industrial
Facilities and Pollution Control Financing Authority
and the Company
(e) 1988 Long-Term Incentive Compensation Plan of the
Company
(g) Loan and Security Agreement dated January 31, 1984,
as amended, between the Company and Ronald J. Naples
(h) Loan and Security Agreement dated April 20, 1988
between the Company and Robert B. Fritsch
(i) (1) Form of Change in Control Agreement between the
Company and various officers of the Company (filed
herewith) and (2) list of executive officers who are
parties
(11) Statement re: computation of per share earnings
(23) Consent of Coopers & Lybrand to L.L.P. incorporation by
reference, in Registration Statement No.s 33-70660,
33-25947, 33-6359, 2-83144, 33-57105 and 33-57103 on
Form S-8, of their report on the consolidated financial
statements and schedules included in this report
(27) Financial Data Schedule
<PAGE> 47
EXHIBIT 10(a)
================================================================================
The Iredell County Industrial Facilities
and
Pollution Control Financing Authority,
Lessor
and
Hunt Manufacturing Co.,
Lessee
------------------------
LEASE AGREEMENT
------------------------
Dated as of June 1, 1979
Securing
Industrial Revenue Bonds
(Hunt Manufacturing Co. Project)
of
The Iredell County Industrial Facilities and
Pollution Control Financing Authority
-------------------------------
CERTAIN RIGHTS OF THE LESSOR UNDER THIS LEASE HAVE BEEN
ASSIGNED TO, AND ARE SUBJECT TO A LIEN AND SECURITY INTER-
EST IN FAVOR OF, FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS TRUSTEE, UNDER AN INDENTURE AND DEED OF TRUST, DATED AS OF
JUNE 1, 1979, AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME.
INFORMATION CONCERNING SUCH LIEN MAY BE OBTAINED FROM THE
TRUSTEE AT ONE JEFFERSON FIRST UNION PLAZA, CHARLOTTE, NORTH
CAROLINA.
================================================================================
<PAGE> 48
TABLE OF CONTENTS
Page
Title............................................... 1
Parties............................................. 1
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1. Definitions........................ I-1
(1) "Acquisition"...................... I-1
(2) "Acquisition Fund"................. I-1
(3) "Additional Bonds"................. I-1
(4) "Additional Rent".................. I-1
(5) "Affiliate"........................ I-1
(6) "Authority"........................ I-1
(7) "Authority Representative"......... I-2
(8) "Basic Rent"....................... I-2
(9) "Bond Fund"........................ I-2
(10) "Bondholder" or "Holder"........... I-2
(11) "Bonds"............................ I-2
(12) "Code"............................. I-2
(13) "Company".......................... I-2
(14) "Company Representative"........... I-2
(15) "Completion Date".................. I-2
(16) "Cost"............................. I-3
(17) "Counsel".......................... I-4
(18) "default" or "event of default".... I-4
(19) "Determination of Taxability"...... I-4
(20) "Eminent Domain"................... I-5
(21) "Enabling Act"..................... I-5
(22) "Government Obligations"........... I-5
(23) "Guarantor"........................ I-5
(24) "Guaranty"......................... I-5
(25) "Improvements"..................... I-5
(26) "Indenture"........................ I-6
<PAGE> 49
TABLE OF CONTEINTS
(Continued)
Page
Section 1.1.
(Cont'd) (27) "Lease"............................. I-6
(28) "Lease Term"........................ I-6
(29) "Leased Property"................... I-6
(30) "Net Proceeds"...................... I-6
(31) "Payment of the Bonds".............. I-6
(32) "Permitted Encumbrances"............ I-6
(33) "Plans and Specifications".......... I-7
(34) "Project"........................... I-7
(35) "Refunding Bonds"................... I-7
(36) "Rent".............................. I-7
(37) "Series 1979 Bonds"................. I-7
(38) "Sinking Fund"...................... I-7
(39) "Tax Regulations"................... I-7
(40) "Trustee"........................... I-7
Section 1.2. Rules of Construction".............. I-8
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations by the Authority... II-1
Section 2.2. Representations by the Company..... II-1
ii
<PAGE> 50
TABLE OF CONTENTS
(Continued)
Page
ARTICLE III
ACQUISITION AND INSTALLATION
OF THE PROJECT
Section 3.1. Conveyance bv Company of Project
to Authority.................... III-1
Section 3.2. Agreement to Complete
Acquisition of the Project..... III-1
Section 3.3. Company Not to Permit Nuisance
to Exist........................ III-2
Section 3.4. Plans and Specifications; Changes
in the Project.................. III-2
Section 3.5. No Warranty by Authority.......... III-2
Section 3.6. Compliance with Indenture......... III-3
ARTICLE IV
ISSUANCE OF THE BONDS; COMPLETION DATE
Section 4.1. Agreement to Issue the Bonds...... IV-1
Section 4.2. Disbursements from the Acquisi-
tion Fund....................... IV-1
Section 4.3. Establishment of Completion Date.. IV-1
Section 4.4. Disposition of Balance in Acqui-
sition Fund..................... IV-1
Section 4.5. Company Required to Pay in Event
Acquisition Fund Insufficient... IV-2
iii
<PAGE> 51
TABLE OF CONTENTS
(Continued)
Page
ARTICLE V
DEMISE OF THE LEASED PROPERTY;
EFFECTIVE DATE OF THIS LEASE;
DURATION; POSSESSION; RENT PROVISIONS;
TAXES AND UTILITY CHARGES
Section 5.1. Demise of the Leased Property;
Effective Date of this Lease;
Duration of Lease Term.......... V-1
Section 5.2. Quiet Enjoyment................... V-1
Section 5.3. Rent and Other Amounts Payable.... V-1
Section 5.4. Taxes and Utility Charges......... V-2
Section 5.5. Obligations of Company Here-
under Unconditional............. V-4
Section 5.6. Prepayment of Rent................ V-5
Section 5.7. Net Lease......................... V-5
ARTICLE VI
MAINTENANCE, MODIFICATIONS, REMOVALS,
ADDITIONS
Section 6.1. Maintenance and Modifications of
Leased Property by Company....... VI-1
Section 6.2. Installation of Company's Own
Property........................ VI-1
Section 6.3. Removal of Leased Equipment....... VI-2
Section 6.4. Grant and Release of Easements.... VI-3
Section 6.5. Option to Purchase Unimproved Land VI-4
iv
<PAGE> 52
TABLE OF CONTENTS
(Continued)
Page
ARTICLE VII
INSURANCE AND EMINENT DOMAIN
Section 7.1. Title Insurance................... VII-1
Section 7.2. Casualty and Liability Insurance
Required........................ VII-1
Section 7.3. General Requirements Applicable to
Insurance....................... VII-2
Section 7.4. Advances by Authority or
Trustee........................ VII-3
Section 7.5. Company to make up Deficiency
in Insurance Coverage.......... VII-3
Section 7.6. Eminent Domain.................... VII-4
Section 7.7. Application of Net Proceeds
of Insurance and Eminent Domain
Proceedings..................... VII-4
Section 7.8. Parties to Give Notice............ VII-5
ARTICLE VIII
SPECIAL COVENANTS
Section 8.1. Access to the Leased Property
and Inspection.................. VIII-1
Section 8.2. Company to Maintain its
Corporate Existence; Conditions
Under Which Exceptions
Permitted....................... VIII-1
Section 8.3. Annual Report..................... VIII-2
Section 8.4. Further Assurances and Corrective
Instruments..................... VIII-2
Section 8.5. Recording and Filing.............. VIII-3
Section 8.6. Opinions as to Recording and
Filings; Other Instruments...... VIII-3
Section 8.7. Non-Arbitrage Covenant............ VIII-3
Section 8.8. Use of Bond Proceeds.............. VIII-4
Section 8.9. Tax Exempt Status of Bonds ....... VIII-4
Section 8.10. Indemnity Against Claims.......... VIII-5
Section 8.11. Release and Indemnification....... VIII-5
Section 8.12. Mechanics' Liens.................. VIII-6
v
<PAGE> 53
TABLE OF CONTENTS
(Continued)
Page
ARTICLE IX
ASSIGNMENT, LEASING AND SELLING
Section 9.1. Assignment of Rights by the
Authority to the Trustee........ IX-1
Section 9.2. Restrictions on Transfer of
Authority's Rights.............. IX-1
Section 9.3. Assignment and Sublease by the
Company......................... IX-2
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default Defined......... X-1
Section 10.2. Remedies on Default............... X-2
Section 10.3. Force Majeure..................... X-3
Section 1O.4. Application of Amounts Realized
in Enforcement of Remedies...... X-4
Section 10.5 No Remedy Exclusive............... X-4
Section 10.6. Agreement to Pay Attorneys'
Fees and Expenses............... X-4
Section 10.7. Authority and Company to Give
Notice of Default............... X-4
ARTICLE XI
PREPAYMENT OF BASIC RENT
Section 11.1. Options to Prepay Basic Rent...... XI-1
Section 11.2. Obligation to Prepay Basic Rent
and Pay Taxability Payments..... XI-2
Section 11.3. Relative Priorities and Prece-
dence of this Article
and the Indenture............... XI-3
iv
<PAGE> 54
TABLE OF CONTENTS
(Continued)
Page
ARTICLE XII
MANDATORY PURCHASE OF
LEASED PROPERTY
Section 12.1. Mandatory Purchase of Leased
Property After Payment
of Bonds......................... XII-1
Section 12.2. Conveyance on Purchase............. XII-1
ARTICLE XIII
MISCELLANEOUS
Section 13.1. References to Bonds Ineffective
After Bonds Paid................. XIII-1
Section 13.2. No Additional Waiver Implied
by One Waiver.................... XIII-1
Section 13.3. Authority Representative........... XIII-1
Section 13.4. Company Representative............. XIII-1
Section 13.5. Notices............................ XIII-1
Section 13.6. If Payment or Performance Date
a Leqal Holiday.................. XIII-2
Section 13.7. Binding Effect..................... XIII-2
Section 13.8. Severability....................... XIII-2
Section 13.9. Amendments, Changes and Modifi-
cations.......................... XIII-3
Section 13.10. Execution in Counterparts.......... XIII-3
Section 13.11. Applicabie Law..................... XIII-3
Section 13.12. No Charqe Against Authority
Credit XIII-3
Section 13.13. Authority Not Liable............... XIII-3
Section 13.14. Amounts Remaining in the Bond
Fund and the Acquisition Fund.... XIII-3
Acknowledgments.......................................... XIII-4
vii
<PAGE> 55
This LEASE AGREEMENT dated as of June 1, 1979 (the
"Lease" between THE IREDELL COUNTY INDUSTRIAL FACILITIES
AND POLLUTION CONTROL FINANCING AUTHORITY, a political
subdivision and body corporate and politic of the State of
North Carolina, as lessor (the "Authority"), and HUNT
MANUFACTURING CO., a corporation organized under the laws
of the State of Pennsylvania and qualified to do business
as a foreign corporation in the State of North Carolina, as
lessee (the "Company"),
W I T N E S S E T H
In consideration of the respective representations
and agreements hereinafter contained, the parties hereto,
recognizing that under the Enabling Act (hereinafter
defined) this Lease shall not in any way obligate the
State of North Carolina or any political subdivision or
agency thereof, including Iredell County, North Carolina
and the Authority, to raise any money by taxation or use
other public moneys for any purpose in relation to the
Project or the Leased Property (as each is hereinafter
defined) and that neither the State of North Carolina nor
any political subdivision or aqency thereof, including
Iredell County, North Carolina and the Authority, shall pay
or promise to pay any debt or meet any financial obliga-
tion to any person at any time in relation to the Project
or the Leased Property, except from revenues received or
to be received under the provisions of this Lease or the
Indenture or derived from the exercise of the rights of
the Authority or the Trustee under this Lease or the
Indenture, agree as follows:
<PAGE> 56
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.1. Definitions. In addition to words
and terms elsewhere defined in this Lease, the follow-
ing words and terms shall have the following meanings:
(1)) "Acquisition", when used in connection
with the Project, shall mean, without limitation,
the acquisition, improvement, equipping and provision
of the Project.
(2) "Acquisition Fund" shall mean the fund
created by Section 401 of the Indenture.
(3) "Additional Bonds" shall mean the Bonds
authorized to be issued under Section 209 of the
indenture for the purpose of financing all or a
portion of the Cost of the Project, to the extent
that the proceeds of Series 1979 Bonds and all
other available funds in the Acquisition Fund
are insufficient therefor, or the Cost of any Im-
provements.
(4) "Additional Rent" shall mean the amounts
payable pursuant to Section 5.3(b) hereof by the
Company for the account of or to the Authority to
provide for payment of the fees and charges of the
Trustee and the paying agents for the Bonds and
of certain costs and expenses incurred by the
Authority, respectively.
(5) "Affiliate" shall mean any person directly
or indirectly controlling or controlled by or under
direct or indirect common control with another
person. For the purposes of this definition, "con-
trol" when used with respect to a person means the
power to direct the management and policies of such
person, directly or indirectly, whether through the
ownership of voting securities, by contract or other-
wise, and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
I-1
<PAGE> 57
(6) "Authority" shall mean The Iredell County
Industrial Facilities and Pollution Control Financing
Authority, a political subdivision and body corporate
and politic of the State of North Carolina, and its
successors and assigns and any body resulting from or
surviving any consolidation or merger to which it or
its successors may be a party.
(7) "Authority Representative" shall mean
any one of the persons at the time designated to
act on behalf of the Authority by written certi-
ficate furnished to the Company and the Trustee
containing the specimen signatures of such persons
and signed on behalf of the Authority by its Chair-
man or Vice Chairman.
(8) "Basic Rent" shall mean the amounts pay-
able pursuant to Section 5.3(a) hereof by the
Company for the account of the Authority to provide
for the payment of the principal of and redemption
premium, if any, and interest on the Bonds.
(9) "Bond Fund" shall mean the fund created
bv Section 501 of the Indenture.
(10) "Bondholder" or "Holder" shall mean the
Registered Owner (as defined in the Indenture) of
any registered Bond and the bearer of any coupon
Bond not registered as to principal alone.
(11) "Bonds" shall mean Series 1979 Bonds, the
Additional Bonds and the Refunding Bonds.
(12) "Code" shall mean the Internal Revenue
Code of 1954, as amended.
(13) "Company" shall mean Hunt Manufacturing
Co., a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania and its
successors and assiqns and any surviving, resulting or
transferee corporation or other entity.
(14) "Company Representative" shall mean any
one of the persons at the time designated to act on
behalf of the Company by written certificate furnished
to the Authority and the Trustee containing the speci-
men signatures of such persons and signed on behalf
of the Company by the President, a Vice President, the
Treasurer or an Assistant Treasurer thereof. The
Company Representative may be an employee of the Company.
(15) "Completion Date" shall mean the date of
completion of the Project as that date shall be
certified as provided in Section 4.3 hereof.
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(16) "Cost" as applied to the Project and any
Improvements shall mean all costs which the Authority
or the Company may properly pay or accrue for the Acqui-
sition of the Project or such Improvements under the
Enablinq Act and which, under generally accepted
accounting principles and under applicable regulations
of the United States Department of the Treasury, are
chargeable to the capital account of the Project or
such Improvements, as the case may be, including,
without limitation, in the case of the Project, the
following:
(a) obligations of the Company incurred
in connection with the purchase of the Project,
including the purchase price of the manufacturing
and industrial facility for the production of
paper and other art/craft products, all legal,
recording and other fees, and taxes and expenses
related thereto;
(b) obligations of the Company incurred
for labor and materials in connection with
the Acquisition of the Project;
(c) preparation of the plans and specifica-
tions for the Project (including any preliminary
study or planning of the Project or any aspect
thereof);
(d) payment of the fees for engineering,
supervisory and consulting services relating to
the Project;
(e) payment, to the extent they shall
not be paid by a contractor, of the premiums
of all insurance and surety and performance
bonds required to be maintained in connection
with the improvement of the Project;
(f) payment of any initial or acceptance
fee of the Trustee and any fees and expenses
incurred in connection with the preparation,
recording or filing of such documents, instru-
ments or financing statements as either the
Company or the Authority may deem desirable
to perfect or protect the rights of the
Authority and the Trustee under this Lease,
the Indenture and the Guaranty;
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(g) payment of legal, accounting and
financial advisory fees and expenses, filing
fees, and printing and engraving costs incurred
in connection with the authorization, issuance,
sale and purchase of the Series 1979 Bonds
and any Additional Bonds issued to finance all or
a portion of the Cost of the Project, and the
preparation of this Lease, the Indenture, and the
Guaranty;
(h) interest to accrue on the Series 1979
Bonds and any Additional Bonds issued to finance
all or a portion of the Cost of the Project
to the Completion Date;
(i) any administrative or other fees
charged by the Authority, the Department of
Commerce or the Local Government Commission of
the State of North Carolina, or reimbursement
thereto of expenses, in connection with the
Project to the Completion Date; and
(j) payment of any other costs and ex-
penses relating to the Project which would
constitute costs or expenses for which the
Authority may expend Bond proceeds under the
Enabling Act.
(17) "Counsel" means a lawyer or a firm of lawyers
duly admitted to practice law in one of the United
States and may, but need not be, counsel to the Authority
or the Company.
(18) "default" or "event of default" shall
mean any one or more of the events or circumstances
set forth in Section 10.1 hereof.
(19) "Determination of Taxability" shall mean
any determination, decision or decree made in regard
to Section 103(b)(6)(d) of the Code by the Commission
or any District Director of the Internal Revenue
Service or by any court of competent jurisdiction that
interest on the Series 1979 Bonds is includable in the
gross income of the recipient under Section 103 of the
Code and regulations thereunder for any reason other
than that the Holder is a substantial user of the
Leased Property or a related person within the meaning
of Section 103(b)(8) of the Code.
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(20) " Eminent Domain" shall mean the taking
of title to, or the temporary use of, the Leased
Property or any part thereof pursuant to eminent
domain or condemnation proceedings, or by any settle-
ment or compromise of such proceedings, or any
voluntary conveyance of the Leased Property or any
part thereof during the pendency of, or as a result
of a threat of, such proceedings.
(21) "Enabling Act" shall mean Chapter 800
of the 1975 Session Laws of North Carolina, as
amended, which as codified appears as Chapter
159C of the General Statutes of North Carolina.
(22) "Government Obligations" shall mean (a)
direct obligations of the United States of America
or obliqations for the payment of which the full faith
and credit of the United States of America is pledged,
or (b) obligations of the Government National Mortgage
Association, Federal Intermediate Credit Banks,
Federal Banks for Cooperatives, Federal Land Banks,
and Federal Home Loan Banks; provided, however, that
for purposes of Section 1301 of the Indenture, such
term shall mean the obligations described in clause (a)
of this definition only.
(23) "Guarantor" shall mean Hunt Manufacturina Co.,
a Pennsylvania corporation, as guarantor under the
Guaranty, and its successors and assigns thereunder.
(24) "Guaranty" shall mean the Guaranty Agree-
ment dated as of the date hereof, betweeb the Guaran-
tor and the Trustee, toqether with any amendments and
supplements thereto permitted by the Indenture, pur-
suant to which the Guarantor guarantees to the Trustee
timely payment of the principal of and redemption
premium, if any, and interest on the Bonds when the
same shall become due and payable.
(25) "Improvements" shall mean any real or
tangible personal property acquired, constructed or
installed in, or used in, Iredell County, North Caro-
lina, by the Company and financed, in whole or in part,
by Additional Bonds.
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(26) "Indenture" shall mean the Indenture and
Deed of Trust, dated as of the date hereof, between
the Authority and First Union National Bank of North
Carolina, Trustee, together with any amendments and
supplements to the Indenture permitted thereby.
(27) "Lease" shall mean this Lease Agreement,
together with any amendments and supplements hereto
permitted by the indenture.
(28) "Lease Term" shall mean the duration
of the leasehold estate created by this Lease as
specified in Section 5.1 hereof.
(29) "Leased Property" shall mean the Project,
any Improvements and all additions, modifications and
improvements thereto and all substitutions therefor
to the extent provided herein, less all removals
therefrom as herein permitted, as the same shall exist
at any time, leased to the Company by the Authority
pursuant to this Lease, as described in Exhibit A
hereto.
(30) "Net Proceeds" when used with respect to
any insurance proceeds or award resulting from, or
other amount received in connection with, Eminent
Domain shall mean the gross proceeds from the insur-
ance or such award or other amount, less all expenses
(including attorneys' fees and any extraordinary fee
of the Trustee) incurred in the realization thereof.
(31) "Payment of the Bonds" shall mean pay-
ment of the principal of and redemption premium, if
any, and interest on all the Bonds in accordance with
their terms, whether through payment at maturity or
purchase or redemption or provision for such payment
in such a manner that the Bonds shall be deemed to
have been paid under the second paragraph of Section
1301 of the Indenture.
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(32) "Permitted Encumbrances" shall mean, as
of any particular time, (i) liens for ad valorem
taxes and special assessments, if any, not then
delinquent, to the extent permitted in Section 5.4
of this Lease, (ii) this Lease and any assignment
or sublease permitted hereby, (iii) the Indenture,
(iv) mechanics', materialmen's, warehousemen's,
carriers' and other similar liens to the extent
permitted in Section 8.12 of this Lease and (v)
such minor defects, irreguiarities, encumbrances,
easements, rights of way and clouds on title as
normally exist with respect to properties similar in
character to the Project and as do not materially
impair the property affected thereby for the purpose
for wnich it is used by the Company.
(33) "Plans and Specifications" means the plans
and specifications prepared for the Project as imple-
mented, detailed or revised from time to time prior to
the completion of the Project in accordance with this
Lease Agreement.
(34) "Project" shall mean, collectively, the
real and tangible personal property described in
Exhibit A hereto at any time from the date of the
issuance of the Series 1979 Bonds until the Comple-
tion Date.
(35) "Refunding Bonds" shall mean the Bonds au-
thorized to be issued under Section 210 of the Inden-
ture for the purpose of refunding any or all of the
Bonds of any series then outstanding.
(36) "Rent" shall mean, collectively, the Basic
Rent and the Additional Rent payable by the Company
pursuant to Section 5.3 hereof.
(37) "Series 1979 Bonds" shall mean the Bonds
authorized to be issued by the Authority under Section
208 of the Indenture for the purpose of financing a
portion of the Cost of the Project.
(38) "Sinking Eund" means the Sinking Fund
created by Section 302 of the indenture.
(39) "Tax Regulations" shall mean the applicable
regulations under Section 103 of the Code whether at
the time proposed, temporary, final or otherwise.
(40) "Trustee" shall mean the banking institution
at the time serving as trustee under the Indenture.
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Section 1.2. Rules of Construction.
(a) Words of the masculine gender shall be
deeded and construed to include correlative words
of the feminine and neuter genders.
(b) Unless the context shall otherwise indi-
cate, the terms "Bond", "Resistered Owner", "Holder",
and "person" shall include the plural as well as the
sinqular number, and "person" shall mean any indi-
vidual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincor-
porated organization or government or any agency or
political subdivision thereof.
(c) Words importing the redemption or calling
for redemption of the Bonds shall not be deemed
to refer to or connote the payment of Bonds at their
stated maturity.
(d) The Table of Contents, captions and headings
in this Lease are for convenience only and in no way
define, limit or describe the scope or intent of any
provisions or sections of this Lease.
(e) All references herein to particular
articles or sections are references to articles or
sections of this Lease unless some other reference
is established.
(f) Any inconsistency between the provisions
of this Lease and the provisions of the Indenture
shall be resolved in favor of the provisions of the
Indenture.
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ARTICLE II
REPRESENTATIONS
Section 2.1. Representations by the Authority. The
Authority represents and warrants that:
(a) The Authority is a duly constituted po-
litical subdivision and body corporate and politic
of the State of North Carolina, established under
the Enabling Act.
(b) Under the provisions of the Enabling Act,
the Authority is duly authorized to enter into,
execute and deliver this Lease, to undertake the
transactions contemplated by this Lease and to carry
out its obligations hereunder.
(c) By duly adopted resolution, the Authority
has duly authorized the execution and delivery of
this Lease and the Indenture and the issuance and
sale of the Series 1979 Bonds all for the purpose
of fostering and encouraging the development of
industrial and manufacturing facilities within the
State of North Carolina in order to alleviate unem-
ployment and raise below-average manufacturing wages
in North Carolina.
(d) The Authority has obtained all approvals
required bv the Enabling Act for the issuance of the
Bonds, including, from the Secretary of the Devartment
of Commerce and from the Local Government Commission of
the State of North Carolina, approval of the Project
and of the issuance of the Series 1979 Bonds in satis-
faction of the requirements of G.S. 159C-7 and 159C-8,
respectively, of the Enabling Act.
Section 2.2. Representations by the Company. The
Company represents and warrants as follows:
(a) The Company is incorporated under the laws
of the Commonwealth of Pennsylvania and is qualified to
do business as a foreign corporation in the State of
North Carolina, has legal authority to enter into and
to perform the agreements and covenants on its part
contained in this Lease and has duly authorized the
execution and delivery of this Lease.
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(b) The execution and delivery of this Lease,
the consummation of the transactions contemplated
hereby, and the fulfillment of or compliance with
the terms and conditions of this Lease will not
conflict with or constitute a breach of or default
under the articles of incorporation or by-laws of the
Company or any agreement or instrument to which the
Company is a party or by which it is bound.
(c) At the Completion Date, the Company expects
to pay to employees at the Project an average weekly
manufacturing wage which is above the average weekly
manufacturing wage paid in Iredell County. The jobs
to be created, directly and indirectly, by the
operation of the Project will be large enough in
number to have a measurable impact on the area immedi-
ately surrounding the Project and will be commensurate
with the size and nature of the Project. The Company
has the capability to operate the Project. The
financing of a portion of the cost of the Project by
the Authority will not result in the abandonment of an
existing industrial or manufacturing facility of the
Company or an Affiliate of the Company elsewhere within
North Carolina.
(d) Ninety percent or more of the proceeds of
the Series 1979 Bonds (after deducting amounts used
to pay expenses of issuing the Series 1979 Bonds)
will be used to pay those items of the Cost of the
Project, or portions thereof, which constitute costs
of acquisition, construction, reconstruction or
improvement of land or property of a character subject
to the allowance for depreciation within the meaning of
Section 103(b)(6)(A) of the Code and the Tax Regulations.
(e) None of the proceeds of the Series 1979 Bonds
will be used as working capital or to finance inventory
within the meaning of Treas. Reg. 1.103-10(b)(1)(ii) as
promulgated under Section 103(b)(6)(A) of the Code.
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(f) As of the date of issuance of the Series 1979
Bonds, the sum of (i) the face amount of all bonds
issued under Section 103(b)(6) of the Code, other than
the Series 1979 Bonds, theretofore issued and outstanding
with respect to facilities located in Iredell County,
North Carolina, or with respect to facilities integrated
with or contiguous to such facilities, the principal user
of which is or will be the Company or one or more related
persons (as defined in Section 103(b)(6)(C) of the Code),
and then outstanding, (ii) the aggregate amount of
"capital expenditures" (within the meaning of Section
103(b)(6)(D) of the Code) with regard to such facili-
ties paid or incurred during the period beginning three
years before the date of the issuance of the Series
1979 Bonds (and financed otherwise than out of the
proceeds of the bonds described in clauses (i) and
(iii) of this paragraph (f)), and (iii) the aggregate
authorized face amount of the Series 1979 Bonds, is
less than $10,000,000.
(g) The Company presently expects to operate
the Project for the production of paper and other
art/craft products from the Completion Date to the
expiration of this Lease.
(h) Neither the Project, nor any of the several
components thereof, had been financed by the Company or
any Affiliate thereof prior to, and the commencement of
the Acquisition of the Project, and each of the several
components thereof, by the Comoany or any Affiliate
thereof occurred subsequent to, January 5, 1979.
(i) At the Completion Date, the Project will
be a "project", and more specifically a "manufac-
turing project for industry", within the meaning of
the Enabling Act.
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ARTICLE III
ACQUISITION AND INSTALLATION OF THE PROJECT
Section 3.1. Conveyance by Company of Project to
Authority. The Company has heretofore assigned and
transferred to the Authority by appropriate instruments
(receipt of which is hereby acknowledged by the Authority)
the Project as initially described in Exhibit A hereto.
The Company hereby agrees to cause to be executed and
delivered to the Authority all such further deeds, assign-
ments, bills of sale and documents, if any, as shall be
necessary, in the Opinion of Counsel selected by the
Authority, to subject the Leased Property to this Lease
and to the lien of the Indenture.
Section 3.2. Agreement to Complete Acquisition of the
Project. The Authority and the Company agree that the
Company shall complete the Acquisition of the Project with
all reasonable dispatch, delays incident to strikes, riots,
acts of God or the public enemy or any delay beyond its
reasonable control only excepted; but, if such Acquisition
is delayed for any reason, there shall be no diminution in
or postponement of the Rent payable by the Company pursuant
to this Lease.
The Company shall obtain all necessary permits and
approvals for the Acquisition of the Project and operation
and maintenance of the Leased Property and shall comply
with all lawful requirements of any governmental body
regarding the use or condition of the Leased Property,
whether existing or later enacted or foreseen or unfore-
seen or whether involving any change in governmental policy
or requiring structural or other changes to be part or all
of the Leased Property and irrespective of the cost of
making the same.
Nothing in this Section shall require the Company
to comply with any law, ordinance, rule or regulation or
to obtain any certificate or permit if, in the judgment of
the Company, the failure to so comply or take such action
would have no material adverse effect on the Acquisition
or use of the Project and, in the event that enforcement of
such law, ordinance, rule or regulation is sought by any
person, the Lessee contests such enforcement in good faith.
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Section 3.3. Company Not to Permit Nuisance to Exist.
The Company shall operate the Leased Property in such a
manner as not to commit a nuisance.
Section 3.4. Plans and Specifications; Changes in the
Project. The Company shall maintain a set of Plans and
Specifications at the Leased Property which shall be avail-
able to the Authority for inspection and examination during
the Company's regular business hours, or, if the Authority
shall so direct, the Company shall file with the Authority
a copy of the Plans and Specifications, and the Authority
and the Company agree that the Company may supplement,
amend and add to the Plans and Specifications, and that the
Company shall be authorized to omit or make substitutions
for components of the Project, without the approval of the
Authority, provided that no such change shall be made which
shall be contrary to the representation made by the Company
in Section 2.2(d), (e), (f) or (i) hereof. Except as
required by the Indenture in connection with requisitions
from the Acquisition Fund, no approvals of the Authority
shall be required for the Acquisition of the Project or for
the solicitation, negotiation, award or execution of
contracts relating thereto.
In the case of any substitution mentioned in the
preceding paragraph that would render materially inaccurate
the description of the Project contained in Exhibit A to
this Lease, there shall be delivered to the Trustee and the
Authority (i) a revised Exhibit A containing a description
of the Project which shall have been certified by a Company
Representative, and (ii) an opinion of Counsel, selected by
the Authority, stating that the Project described in the
revised Exhibit A will constitute a "project" within the
meaning of the Enabling Act and that the expenditure of
moneys in the Acquisition Fund to pay for the Cost of the
Project described therein will not cause the interest on any
Bonds then outstanding to be includable in the gross income
of the Holders (except any Holder who is a "substantial
user" or "related person" within the meaning of Section
103(b)(8) of the Code) of such Bonds for Federal income tax
purposes.
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Section 3.5. No Warranty by Authority. The Company
recognizes that since the components of the Project have been
and are to be designated and selected by it, THE AUTHORITY
HAS NOT MADE AN INSPECTION OF THE PROJECT OR OF ANY FIXTURE
OR OTHER ITEM CONSTITUTING A PORTION THEREOF, AND THE
AUTHORITY MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED OR OTHERWISE, WITH RESPECT TO THE SAME OR THE
LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS
FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY
THEREOF, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREIN, OR AS TO THE AUTHORITY'S TITLE THERETO OR OWNERSHIP
THEREOF OR OTHERWISE, IT BEING AGREED THAT ALL RISKS INCIDENT
THERETO ARE TO BE BORNE BY THE COMPANY. IN THE EVENT
OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE PROJECT
OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF,
WHETHER PATENT OR LATENT, THE AUTHORITY SHALL HAVE NO
RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE
PROVISIONS OF THIS SECTION 3.5 HAVE BEEN NEGOTIATED AND
ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION
OF ANY WARRATITIES OR REPRESENTATIONS BY THE AUTHORITY,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROJECT OR ANY
FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF,
WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE
OR ANOTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE.
Section 3.6. Compliance with Indenture. Unless an
"event of default" under Section 10.1 of this Lease shall
have occurred and be continuing, the Authority, at the
request of the Company, shall (a) cause requisitions for
payments from the Trustee to be filed in accordance with the
Indenture and (b) take any other action authorized under the
Indenture, subject to the provisions of this Lease and the
Indenture.
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ARTICLE IV
ISSUANCE OF THE BONDS; COMPLETION DATE
Section 4.1. Agreement to Issue the Bonds. (a) In
order to provide funds for payment of a portion of the Cost
of the Project (as presently estimated by the Company), the
Authority agrees that it will sell, issue and deliver the
Series 1979 Bonds in the aagregate principal amount of
$2,000,000 to the purchaser or purchasers thereof and
deposit the proceeds of the Series 1979 Bonds with the
Trustee for application as provided in Sections 208 and
211 of the Indenture.
(b) Upon the request of the Company, the
Authority agrees to authorize the issuance of Additional
Bonds and Refunding Bonds for the purposes and upon the
terms and conditions provided in the Indenture.
Section 4.2. Disbursements from the Acquisition Fund.
In the Indenture, the Authority has authorized and directed
the Trustee to make payments from the Acquisition Fund to
pay any Cost of the Project, or to reimburse the Company for
any Cost of the Project, paid or incurred bv the Company
before or after the execution and delivery of this Lease and
the issuance and delivery of the Series 1979 Bonds, pursuant
to requisitions complying with the provisions of Section 402
of the Indenture.
Section 4.3. Establishment of Completion Date.
The Completion Date of the Project shall be the date
on which the Company Representative delivers to the
Trustee a certificate stating that, except for amounts
retained by the Trustee at the Company's direction for
any Cost of the Project not then due and payable, the
Acquisition of the Project has been completed substan-
tially in accordance with the Plans and Specifications
and all costs and expenses incurred in connection
therewith have been paid. Notwithstanding the fore-
going, such certificate shall state that it is given
without prejudice to any rights against third parties
which exist at the date of such certificate or which
may subsequently come into being.
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Section 4.4. Disposition of Balance in Acquisition
Fund. As soon as practicable after, and in any event
within 60 days from, the receipt of the certificate
mentioned in Section 4.3, all amounts then in the
Acquisition Fund, including any unliquidated invest-
ments made with moneys theretofore deposited in the
Acquisition Fund, except for amounts retained by the
Trustee for any Cost of the Project as provided in
Section 4.3, at the direction of the Company Repre-
sentative, shall be (i) used for the purchase of Bonds
in the open market for the purposes of cancellation, or
(ii) used for such other purposes as, in the opinion of
Counsel nationally recognized on the subject of muni-
cipal bonds, will not cause the interest on the Bonds
or any thereof to become subject to Federal income
taxes then in effect.
Section 4.5. Company Required to Pay in Event
Acquisition Fund Insufficient. In the event the moneys
in the Acquisition Fund should not be sufficient to
pay the total actual costs of the Project in full, the
Company agrees to complete the Project and to pay that
portion of the Cost of the Project in excess of the
moneys available therefor in the Acquisition Fund.
The Authority makes no warranty, either express or
implied, that the moneys paid into the Acquisition
Fund and available for payment of the Cost of the Pro-
ject will be sufficient to pay the total actual costs
of the Project in full. The Company agrees that if,
after exhaustion of the moneys in the Acquisition
Fund, the Company should pay any portion of the Cost
of the Project pursuant to the provisions of this
Section, it shall not be entitled to any reimbursement
therefor from the Authority or from the Trustee or from
the Holders of any of the Bonds and it shall not be
entitled to any diminution of the Rent payable under
Section 5.3 hereof.
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ARTICLE V
DEMISE OF THE LEASED PROPERTY;
EFFECTIVE DATE OF THIS LEASE;
DURATION; POSSESSION; RENT PROVISIONS;
TAXES AND UTILITY CHARGES
Section 5.1. Demise of the Leased Property;
Effective Date of this Lease; Duration of Lease Term.
The Authority hereby demises and leases to the Company,
and the Company hereby leases from the Authority, the
Leased Property at the Rent set forth in Section 5.3
hereof and otherwise in accordance with the provisions
hereof. This Lease shall become effective upon its
delivery, and, subject to the provisions of this Lease,
including without limitation Articles X and XI and Sec-
tion 13.9 hereof, shall expire on the day following
the final maturity date of the Bonds, or if Payment of
the Bonds shall not then have been made, on the day after
the date on which Payment of the Bonds shall have been
made.
Section 5.2. Quiet Enjoyment. The Authority
hereby covenants and agrees that it will not take any
action, other than pursuant to Section 8.1 or Article X
of this Lease, to prevent the Company from having quiet
and peaceable possession and enjoyment of the Leased
Property during the Lease Term and will, at the
request of the Company and at the Company's expense,
to the extent that the Authority may lawfully do so,
join in any legal action in which the Company asserts
its right to such possession and enjoyment.
Section 5.3. Rent and Other Amounts Payable. Until
Payment of the Bonds shall have been made, the Company
agrees to pay Rent for the Project in the following
amounts and in accordance with the following terms and
provisions:
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<PAGE> 73
(a) the Company shall pay Basic Rent for the
Leased Property in an aggregate amount equal to
the principal of and redemption premium, if any,
and interest on the Bonds whether at maturity,
upon redemption or otherwise under the Indenture.
The Company agrees to pay to the Trustee, for
the account of the Authority, the Basic Rent in
installments in the amounts and in the manner and one
day in advance of the times required to enable the
Authority to cause timely payment to be made to the
Holders of the Bonds of the principal of, redemption
premium, if any, interest on the Bonds, whether at
maturity, upon redemption or otherwise and, the amount,
if any, required to be deposited in the Sinking Fund,
created under the Indenture, provided that any amount
credited under the Indenture against any payment
required to be made by the Authority shall be credited
against the corresponding payment required to be made
by the Company hereunder.
If the Company shall fail to make any payment
of Basic Rent when due, the payment so in default
shall continue as an obligation of the Company until
the amount in default shall have been fully paid,
and the Company agrees to pay the same with interest
thereon from the due date thereof at the rate of
8% per annum or, if the rate of 8% per annum shall be
unlawful, then at the maximum rate permitted by law,
until paid.
(b) As Additional Rent, the Company agrees
to pay
(i) the reasonable fees and charges of
the Trustee for all services of the Trustee
(including, without limitation, preparation
of the report required by Section 404 of the
Indenture) and all its reasonable expenses
(including reasonable counsel fees) incurred
under the Indenture, as and when the same be-
come due;
(ii) the reasonable fees and charges of
the Trustee, as bond registrar and paying
agent, and any other paying agents of the
Bonds for acting as paying agents as provided
in the Indenture, as and when the same become
due; and
(iii) all reasonable costs and expenses
incurred by the Authority in connection with the
issuance of the Bonds and the administration of
this Lease and the indenture.
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<PAGE> 74
Section 5.4. Taxes and Utility Charges. (a)
Recognizing that Article V, Section 9 of the Constitution of
North Carolina provides as to projects to be financed
under the Enabling Act, such as the Project. in effect
that the Leased Procerty and all transactions related
thereto shall be subject to taxation to the extent the
Leased Property and such transactions would be subject
to taxation if the Authority were not the owner and
lessor of the Leased Property, the Company will pay,
as the same respectively become due, all taxes, assess-
ments, governmental and other charges of any kind what-
soever that may at any time be lawfully assessed or
levied against or with respect to the Leased Property
or any buildings, structures, improvements, machinery,
equipment, or other property constructed, installed or
brought by the Company in or about the Leased Property
pursuant to Section 6.2 hereof, including, without limiting
the generality of the foreqoing, any tax upon or with
respect to the income or profits of the Authority from
the Leased Property and which, if not paid, will be-
come a lien on the Leased Property or a charge on the
Rent to be derived under this Lease prior to or on a
parity with the charge thereon and the pledge or assign-
ment thereon to be created and made in the Indenture
and ad valorem, sales and excise taxes, assessments and
charges upon the Company's interest in the Leased Property,
all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Leased Prop-
erty and all assessments and charges lawfully made by any
governmental body for public improvements that may be
secured by lien on the Leased Property.
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(b) The Company may, at its expense, and in its
own name and behalf or, upon the written approval of
the Authority (which approval shall not be unreasonably
withheld) in the name and behalf of the Authority, contest
in good faith any such levy, tax, assessment, or other
charge and, in the event of any such contest, may permit
such levy, tax, assessment, or other charge so contested to
remain unpaid during the period of such contest and any
appeal therefrom unless the Authority or the Trustee shall
notify the Company that, in the opinion of Counsel, by
nonpayment of any such items the lien of the Indenture as to
any part of the Rent and other revenues to be derived from
this Lease will be materially endangered or the Leased
Property or any material part thereof will be subject to
imminent loss or forfeiture, in which event the Company
shall promptly pay or bond and cause to be satisfied or
discharged such levy, tax, assessment or other charge.
The Authority at the expense of the Company will cooperate
fully with the Company in any such contest. In the event
that the Company shall fail to pay or bond any of the
foregoing items required by this Section to be paid or
bonded by the Company, the Authority or the Trustee may
(but shall be under no obligation to) pay or bond the
same, and the Company agrees to reimburse the Authority
and the Trustee to the extent of the amounts so advanced
by them, or either of them, with interest thereon at the
rate of 8% per annum from the date of advancement to the
date of reimbursement.
(c) Promptly on request, the Company shall
furnish the Authority and the Trustee with proof of
payment of any taxes, governmental charges, utility
charges, insurance premiums or other charges required
to be paid by the Company under this Lease.
Section 5.5. Obliqations of Company Hereunder
Unconditional. The obligations of the Company to pay
the Rent and to perform and observe the other agreements
on its part contained herein shall be absolute and un-
conditional and shall not be subject to diminution by
set-off, counterclaim, abatement or otherwise. Until
such time as Payment of the Bonds shall have been made,
the Company (i) shall not suspend or discontinue any
payment of Rent, (ii) shall perform and observe all of
its other agreements contained in this Lease, and (iii)
except as provided herein, will not terminate this Lease for
any cause whatsoever; provided, however, that nothing
contained in this Section shall be construed to release the
Authority from the performance of any of the agreements on
its part herein contained; and in the event the Authority
should fail to perform any such agreement on its part, the
Company may institute such action against the Authority as
the Company may deem necessary to compel performance so long
as such action shall not violate the agreements on the part
of the Company contained in the first sentence of this
Section or the provisions of Section 13.13 of this Lease or
decrease the Basic Rent required to be paid by the Company.
The Company may, however, at its own cost and expense and in
its own name or in the name of the Authority, prosecute or
defend any action or proceeding or take any other action
involving third persons which the Company deems reasonably
necessary in order to secure or protect its right of posses-
sion, occupancy and use hereunder, and in such event, in the
absence of any default hereunder by the Company, the Author-
ity hereby agrees to cooperate fully with the Company and
to take all action necessary to effect the substitution of
the Company for the Authority in any action or proceeding if
the Company shall so request.
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Section 5.6. Prepayment of Rent. There is expressly
reserved to the Company the right, and the Company is
authorized and permitted, at any time it may choose, to
prepay all or any part of the Basic Rent as provided in
Section 11.1 hereof, and the Company shall be obligated
to prepay the entire unpaid balance of the Basic Rent as
provided in Section 11.2.
Section 5.7. Net Lease. This Lease shall be deemed
and construed to be a "net lease", and the Company during
the Lease shall pay, absolutely net, Rent and all other
payments required hereunder, free of any deductions,
without abatement, diminution or setoff, other than as
herein expressly provided.
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ARTICLE VI
MAINTENANCE, MODIFICATIONS, REMOVALS,
ADDITIONS
Section 6.1. Maintenance and Modifications of Leased
Property by Company. The Authority will be under no obli-
gation to operate, maintain or repair the Leased Property.
The Company agrees that during the Lease Term it will at its
own expense keep the Leased Property in as reasonably safe
repair and operating condition as, in the sole opinion of
the Company, is needed for its operations. The Company may,
also at its own expense, make from time to time any addi-
tions, modifications or improvements to the Leased Property
that it may deem desirable for its business purposes and
that do not materially impair the effective use, or in the
sole opinion of the Company materially decrease the value,
of the Leased Property. All such additions, modifications
and improvements so made by the Company shall become a part
of the Leased Property; provided that any machinery, equip-
ment or other property constructed and installed by the
Company, from other than Bond proceeds or other moneys in
the Acquisition Fund, in accordance with the provisions of
Section 6.2 hereof shall not become part of the Leased
Property and may be removed by the Company at any time and
from time to time while it is not in default under this
Lease.
Section 6.2. Installation of Company's Own Prop-
erty. Subject to the provisions ot Sections 6.1 and 6.3
hereof, nothing contained in this Lease shall prevent the
Company, from time to time, at its own expense, from con-
structing, placing, or installing in or upon the land
comprising a part of the Leased Property, improvements,
machinery, equipment or other property. Subject to the
provisions of Sections 6.1 and 6.3 hereof, all such addi-
tional improvements, machinery, equipment or other property
shall remain the sole property of the Company in which
neither the Authority nor the Trustee shall have any in-
terest, shall not become part of the Leased Property, and
may be modified or removed subject to Section 6.1 hereof at
any time while the Company is not in default hereunder;
provided, however, that any damage to the Leased Property
occasioned by such removal shall be repaired by the Company
at its own expense. Subject to the right of the Company to
contest the same in good faith, the Company agrees to pay
when due the purchase price of, and all costs and expenses
with respect to, the acquisition, construction and instal-
lation of any such additional buildings, structures, improve-
ments, machinery, equipment or other property.
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Section 6.3. Removal of Leased Equipment. Subject
to the provisions of Section 10.1(f) hereof, the Authority
shall not be under any obligation to renew, repair or
replace any inadequate, obsolete, worn-out, unsuitable,
undesirable or unnecessary Leased Property, including any
machinery, equipment or fixtures comprising a portion of the
Leased Property (hereinafter in this Section called "Leased
Equipment"). In any instance where the Company in its sole
discretion determines that any items of Leased Equipment
have become inadequate, obsolete, worn-out, unsuitable,
undesirable or unnecessary, the Company may remove such
items of Leased Equipment from the Leased Property and (on
behalf of, and after notice to, the Authority) sell, trade
in, exchange or otherwise dispose of such items (as a whole
or piecemeal), provided that the Company shall either:
(a) substitute and install anywhere on the
Leased Property other machinery, equipment or
related property having equal or greater utility
(but not necessarily having the same function or
value), in the operation of the Leased Property
(provided such removal and substitution shall not
impair operating unity), all of which substituted
machinery, equipment or related property shall be
free of all liens and encumbrances (other than Per-
mitted Encumbrances) and shall become a part of the
Leased Property; or
(b) if it shall not make any such substi-
tution and installation, pay to the Trustee as a
prepayment of Basic Rent pursuant to Section ll.l(b) of
this Lease for deposit to the credit of the Bond Fund
and application, as directed by the Lessee to the
purchase or redemption, at the first practicable call
date of the Bonds, in accordance with the provisions of
Section 301 of the Indenture, (i) in the case of the
sale of any such items of Leased Equipment to any-
one other than itself or an Affiliate of the Com-
pany or in the case of the scrapping thereof, the
proceeds from such sale or scrapping, (ii) in the
case of the trade-in of any such items of Leased
Equipment, an amount equal to the amount of the credit
received by it in such trade-in, and (iii) in the
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<PAGE> 79
case of the sale to itself or an Affiliate of the
Company of any such items of Leased Equipment or in
the case of a disposition thereof not specifically
mentioned in clauses (i), (ii), or (iii) hereof, an
amount equal to the original cost thereof less de-
preciation at rates calculated in accordance with
generally accepted accounting principles or an amount
equal to the fair value thereof (as determined by the
Company), whichever is greater. In the event that
the Company prior to such removal of items of Leased
Equipment from the Leased Property has contributed
its own funds to the acquisition, improvement or
installation of machinery, equipment or related
property which has become part of the Leased Equip-
ment, the Company may take credit to the extent of
the amounts so spent by it against the requirements of
subsections (a) and (b) of this Section; provided,
however, that the provisions of this sentence shall not
relieve the Company of its obligations under the third
sentence of Section 6.1 hereof and provided, further,
that any machinery, equipment or related property
so acquired, improved or installed shall meet the
requirements of subsection (a) of this Section with
respect to utility and encumbrances. The removal from
the Leased Property of any items of Leased Equipment
pursuant to the provisions of this Section shall not
entitle the Company to any abatement or diminution of
the Rent payable under Section 5.3 hereof.
The Company will not remove, or permit the removal
of, any of the Leased Equipment except in accordance with
the provisions of this Section.
Section 6.4. Grant and Release of Easements. If no
event of default shall have occurred and be continuing,
the Company may at any time or times grant easements,
licenses, rights of way and other rights or privileges in
the nature of easements with respect to any part of the
Leased Property and the Company may release existing inter-
ests, easements, licenses, rights of way and other rights or
privileges with or without consideration, and the Authority
agrees that it shall execute and deliver and will cause,
request or direct the Trustee to execute and deliver any
instrument necessary or appropriate to grant or release any
such interest, easement, license, right of way or other
right or privilege but only upon receipt of (i) a copy of
the instrument of grant or release, and (ii) a certificate
executed by a Company Representative stating (a) that such
grant or release is not materially detrimental to the
proper conduct of the operations of the Company on the
Leased Property, and (b) that such grant or release will
not impair in any material respect the effective use or
interfere with the operations of the Company on the Leased
Property and will not impair the security for the Bonds
under the Indenture in contravention of the provisions
thereof.
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<PAGE> 80
Section 6.5. Option to Purchase Unimproved Land.
Unless an event of default shall have occurred and be con-
tinuing, the Company shall have the option to purchase any
unimproved land comprising a portion of the Leased Property
(but upon which roadways or parking lots or transportation
or utility facilities may be located) at any time and from
time to time at and for a purchase price of $15,000 per
acre (but in no event less than $15,000) provided that
it furnishes the Authority with the following:
(a) a notice in writing containing (i) a state-
ment that the Company intends to exercise its option
to purchase a portion of such land on a date stated,
which shall not be less than 45 nor more than 90 days
from the date of such notice, (ii) an adequate legal
description of land with respect to which such option
is to be exercised, and (iii) a statement that the use
to which the Company intends to devote such land will
promote the industrial development of Iredell County,
North Carolina;
(b) a survey showing the Leased Property and
the land to be released therefrom;
(c) a certificate of the Company Representative,
dated not more than 90 days prior to the date of such
requested release, stating that, in the opinion of
the signer, (i) the portion of the land to be released
from the Lease will not be needed for the operation of
the Leased Property for the purposes hereinabove
authorized and (ii) such release will not impair the
usefulness of the Leased Property as a manufacturing
plant or the means of ingress thereto and egress
therefrom; and
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<PAGE> 81
(d) evidence of its payment to the Trustee for
deposit in the Bond Fund of an amount of money equal
to the purchase price of such portion.
The Authority agrees that upon receipt of the notice and
certificate required in this Section to be furnished to it
by the Company, the Authority will promptly request the
Trustee to release from this Lease and from the lien of the
Indenture the portion of the land with respect to which the
Company shall have exercised the option granted to it in
this Section. In the event the Company shall exercise the
option granted to it under this Section, the Company shall
not be entitled to any abatement or diminution of the Rent
except as otherwise provided herein, and if such release
relates to land on which roadways or parking lots or
transportation or utility facilities are located, the
Authority shall retain an easement to use such roadways or
parking lots or transportation or utility facilities to the
extent necessary for the efficient operation of the Leased
Property.
If the Company exercises its option to purchase any
unimproved part of the Leased Property pursuant to the
provisions of this Section 6.5, the Company and the Au-
thority agree that all walls presently standing or here-
after erected on or contiguous to the boundary line of the
land so purchased by the Company shall be party walls and
each party grants the other a 10-foot easement adjacent
to any such party wall for the purpose of inspection,
maintenance, repair and replacement thereof and the tying-
in of new construction. If the Company utilizes any party
wall for the purpose of tying in new construction that will
be utilized under common control with the Leased Property,
the Company may also tie in to the utility facilities on
the Leased Property for the purpose of serving the new
construction and may remove any non-load-bearing wall
panels in the party wall; provided, however, that if the
property so purchased ceases to be operated under common
control with the Leased Property, the Company covenants
that it will install non-load-bearing wall panels similar
in quality to those that have been removed and will provide
separate utility services for the new construction.
The closing for any purchase of any portion of the Leased
Property pursuant to this Section 6.5 shall be made in accord-
ance with Section 12.2 hereof.
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<PAGE> 82
ARTICLE VII
INSURANCE AND EMINENT DOMAIN
Section 7.1. Title Insurance. The Company will
promptly obtain or cause to be obtained title insurance on
the real estate included in the Leased Property in the form
of a mortgagee title policy (including, if available,
mechanics' lien coverage) in a face amount of not less
than the amount of proceeds of Bonds used to finance that
portion of the Leased Property consisting of real property,
improvements and fixtures, insuring the Trustee's interest
under the Indenture as a holder of a first lien of record on
such real property, subject only to Permitted Encumbrances.
Any Net Proceeds payable to the Trustee thereunder shall be
applied as provided in Section 7.7 hereof.
Section 7.2. Casualty and Liability Insurance Required.
Until Payment of the Bonds shall be made, the Company shall
keep the Leased Property continuously insured against such
risks and in such amounts, with such deductible provisions,
as are customary in connection with the operation of facili-
ties of the type and size comparable to the Leased Property.
Subject to the provisions of Section 7.3 hereof, the Company
shall carry and maintain, or cause to be carried and main-
tained, and pay or cause to be paid timely the premiums for,
at least the following insurance with respect to the Leased
Property and the Company (unless the requirement therefor
shall be waived by the Trustee in writing):
(1) Direct damage "all risks" casualty insurance
covering without limitation loss, including, but not limited
to, the following:
(a) Fire,
(b) Extended Coverage Perils,
(c) Vandalism and Malicious Mischief, and
(d) Boiler Explosion (but only if steam
boilers are present),
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<PAGE> 83
on a replacement cost basis in an amount equal to at least 80%
of the full insurable value thereof but not less than an amount
necessary to pay, retire and redeem all outstanding Bonds in ac-
cordance with the Indenture. "Full insurable value" shall include
the actual replacement cost of the Leased Property, including
engineering, legal and administrative fees without deduc-
tion for depreciation. Coverage on any portion of the
Project during construction thereof shall be maintained on
a completed value basis during the course of construction.
(2) General liability insurance against liability for
(i) claims for injuries to or death of any person or damage
to or loss of property arising out of or in any way relating
to the condition of the Leased Property or any part thereof,
in amounts not less than $1,500,000 for death of or bodily
injury to any one person and for all personal injuries and
deaths resulting from any one accident, and $1,000,000 for
property damage in any one accident, with an endorsement
for contractual liability insurance covering the Company's
indemnity obligations set forth in Section 8.11 hereof and
(ii) liability with respect to the Leased Property under the
workmen's compensation laws of North Carolina; provided,
however, that the insurance so required may be provided by
blanket policies now or hereafter maintained by the Company.
(3) The Net Proceeds of the insurance carried under
this Section shall be applied as provided in Section 7.7
hereof.
Section 7.3. General Requirements Applicable to
Insurance. (a) Each insurance policy obtained in satistac-
tion of the requirements of Section 7.1 and 7.2 hereof
(i) shall be by such insurer (or insurers) as
shall be financially responsible, or by an insurance
fund established by the State of North Carolina or any
agency or instrumentality thereof,
(ii) shall be in such form and with such pro-
visions (including, without limitation and where
applicable, the loss payable clause, the waiver of
subrogation clause, the deductible amount, if any,
the standard mortgagee endorsement clause and provi-
sions relieving the insurer of liability to the extent
of minor claims and the designation of the named
assureds), as are generally considered standard
provisions for the type of insurance involved, and
(iii) shall prohibit cancellation or substan-
tial modification by the insurer without at least
30 days' prior written notice to the Authority and
the Trustee.
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<PAGE> 84
Without limiting the generality of the foregoing, all
insurance policies required under Section 7.1 and clause (1)
of Section 7.2 to be carried on the Leased Property shall
name the Company, the Authority and the Trustee as parties
insured thereunder as the respective interest of each of
such parties may appear and the general liability policies
of insurance required under clause (2)(i) of Section 7.2
shall be endorsed to show the Authority and the Trustee as
additional insureds. The Net Proceeds from any loss under
any such insurance policy shall be applied as provided in
Section 7.7 hereof. Each such policy shall provide that
losses thereunder shall be adjusted with the insurer by the
Company at its expense on behalf of the insured parties and
the decision of the Company as to any adjustment shall be
final and conclusive.
(b) All such policies, or a certificate or certi-
ficates of the insurers that such insurance is in force
and effect, shall be deposited with the Trustee, and prior
to expiration of any such policy, the Company shall furnish
the Trustee with evidence satisfactory to the Trustee, that
the policy or certificate has been renewed or replaced or
is no longer required by this Lease, provided, however,
that the insurance so required may be provided by blanket
policies now or hereafter maintained by the Company.
Section 7.4. Advances bv Authority or Trustee. In
the event the Company shall fail to maintain, or cause to
be maintained, the full insurance coverage required by this
Lease or shall fail to keep the Leased Property in as
reasonably safe condition as its operating conditions will
permit, or shall fail to keep the Leased Property in good
repair and good operating condition, the Authority or the
Trustee may (but shall be under no obligation to), after 30
days' notice to the Company, contract for the required
policies of insurance and pay the premiums on the same or make
any required repairs, renewals and replacements; and the
Company agrees to reimburse the Authority and the Trustee to
the extent of the amounts so advanced by them or either of
them, with interest thereon at the rate of 8% per annum
from the date of advancement to the date of reimbursement.
Section 7.5. Company to Make Up Deficiency in Insur-
ance Coverage. The Company agrees that to the extent
that it shall not carry insurance required by Section 7.1
or 7.2 hereof, it shall pay promptly to the Trustee for
application in accordance with the provisions of Section
7.7(b) hereof such amount as would have been received as
Net Proceeds by the Trustee under the provisions of Section
7.7(b) hereof had such insurance been carried to the extent
required.
VII-3
<PAGE> 85
Section 7.6. Eminent Domain. (a) Unless the Company
shall exercise its option to prepay the entire unpaid
balance of the Basic Rent pursuant to the provisions of
Section ll.l(a)(ii) or (b) hereof, in the event that title
to, or the temporary use of, the Leased Property or any part
thereof shall be taken by Eminent Domain, the Company shall
be obligated to continue to make the payments of Rent
specified in Section 5.3 hereof and the Authority will cause
the Net Proceeds received by it and the Trustee as a result
of such Eminent Domain to be applied as provided in Section
7.7(b) hereof.
(b) The Authority agrees that it will cooperate fully
with the Company in the handling and conduct of any prospec-
tive or pending Eminent Domain proceedings with respect to
the Leased Property or any part thereof, will not engage
attorneys or expert witnesses without the prior written
consent of the Company, and will, to the extent it may
lawfully do so, permit the Company to litigate any such
proceeding in the name and behalf of the Authority. In no
event will the Authority voluntarily settle, or consent to
the settlement of, any prospective or pending Eminent Domain
proceeding with respect to the Leased Property or any part
thereof without the written consent of the Company.
Section 7.7. Application of Net Proceeds of In-
surance and Eminent Domain Proceedings. (a) The Net
Proceeds of the insurance carried pursuant to the pro-
visions of Section 7.2(2) hereof shall be applied toward
extinguishment or satisfaction of the liability with
respect to which such insurance proceeds may be paid.
(b) (i) If the amount of Net Proceeds of the insurance
carried with respect to the Leased Property pursuant to the
provisions of Section 7.1 can be used to cure any defect
(other than Permitted Encumbrances) in the Authority's title
to the real property included in the Leased Property covered
by such insurance or the status of the Indenture as a first
mortgage lien thereon subject to Permitted Encumbrances,
such Net Proceeds shall be paid to the Company and used to
cure such defect and, if such defect cannot be so cured or
if and to the extent such proceeds are not needed or used
for such purposes, such proceeds shall be used to prepay
Basic Rent in accordance with the provisions of Section
ll.l(b) of this Lease and for the redemption of Bonds in
accordance with the provisions of Section 301(d) of the
Indenture.
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<PAGE> 86
(c) The Net Proceeds resulting from Eminent Domain
shall be paid to, and shall be held in escrow by the Trustee
and unless the Company shall exercise its option to prepay
the entire unpaid balance of the Basic Rent pursuant to the
provisions of Section ll.l(a)(ii) hereof and applied to
the prepayment of Basic Rent in accordance with the pro-
visions of Section ll.l(b) of this Lease and to the redemp-
tion Bonds in accordance with the provisions of Section
301(d) of the Indenture.
(d) The Net Proceeds of the insurance carried with
respect to the Leased Property pursuant to the provisions
of Section 7.2(1) (excluding the Net Proceeds of any busi-
ness interruption insurance, which shall be paid to the
Company), shall be paid to and held in escrow by the Trustee
and, unless the Company shall exercise its option pursuant
to the provisions of Section ll.l(a)(i) hereof to prepay the
entire unpaid balance of the Basic Rent, shall be applied to
the repair, replacement, renewal or improvement of the
Leased Property to a condition substantially equivalent, in
the reasonable opinion of the Company, to its condition
prior to the occurrence of the event to which the Net
Proceeds were attributable.
The Company shall be entitled to the Net Proceeds of
any insurance, or resulting from Eminent Domain, relating
to property of the Company not included in the Leased
Property.
Section 7.8. Parties to Give Notice. In case of
any material damage to or destruction of all or any part
of the Leased Property, the Company shall give prompt
notice thereof to the Authority and the Trustee. In case
of a taking of all or any part of the Leased Property or
any right therein by reason of Eminent Domain, the party
upon which notice of such taking is served shall give
prompt notice to the other and the Trustee. Any such
notice shall describe generally the nature and extent of
such damage or destruction or such taking.
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ARTICLE VIII
SPECIAL COVENANTS
Section 8.1. Access to the Leased Property and
Inspection. The Company agrees that the Authority and
the Trustee and their respective duly authorized agents
shall have (i) the right of access to the Leased Prop-
erty at all reasonable times to examine and inspect the
Leased Property subject to the prior written consent of the
Company, which consent shall not be unreasonably withheld
and (ii) the right of entry into the Leased Property in the
event of default for any purpose contemplated by the Lease
or the Indenture, and the Company hereby covenants to execute,
acknowledge and deliver all such further documents, including
any deed of easement, and do all such other acts and things
as may be necessary in order to grant to the Authority such
rights of access and entry; and such rights of access and
entry shall not be terminated, curtailed or otherwise
limited by any sale, assignment or other transfer of the
Leased Property by the Company to any other person.
Section 8.2. Company to Maintain its Corporate
Existence; Conditions Under Which Exceptions Permitted.
The Company covenants and agrees that it (a) will maintain
and preserve its corporate existence and organization, and
its authority to do business in the State of North Carolina
and will not voluntarily dissolve without first discharging
its obligations under this Lease and (b) will not dissolve
or otherwise dispose of ail or substantially all of its
assets (either in a single transaction or in a series of
related transactions), and will not merge or consolidate
with any other corporation and will not permit one or more
corporations to merge into or consolidate with ii, unless
the surviving, resulting or transferee corporation, as the
case may be:
(i) is a corporation organized and existing
under the laws of one of the states of the United States
of America and is duly qualified to do business in the
State of North Carolina;
VIII-1
<PAGE> 88
ii) shall, in a certificate delivered to the
Trustee, which certificate shall be in a form reason-
ably satisfactory to the Trustee, expressly assume, and
agree to pay and to perform, all of the obligations
of the Company under this Lease;
(iii) shall deliver to the Trustee a certificate
executed by its chief financial officer stating that
none of the obligations, covenants and performances
under the Guaranty will be violated or abrogated as a
result of any such sale, transfer, merger or consoiida-
tion; and
(iv) shall provide to the Trustee an opinion of
Counsel, which shall be Counsel nationally recognized
on the subject of municipal bonds, to the effect that
the transaction will not cause the interest on any
series of the Bonds then outstanding to become subject
to Federal income tax.
Section 8.3. Annual Report. The Company shall
furnish the Authority and the Trustee annually, within
120 days after the end of the preceding fiscal year,
the Annual Report of the Company to its shareholders
which includes the consolidated balance sheet of the
Company and its subsidiaries and the related statements
of consolidated earnings, consolidated shareholders' in-
terest and consolidated changes in financial position for
the year ended that date, certified by recognized public
accountants.
Section 8.4. Further Assurances and Corrective
Instruments. Subject to the provisions of Section 13.9
hereof and Article XII of the Indenture, the Authority
and the Company agree that they will, from time to
time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements
and amendments hereto and such further instruments as
may reasonably be required for correcting any inadequate
or incorrect description of the Leased Property and
for carrying out the intention or facilitating the
performance of this Lease.
VIII-2
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Section 8.5. Recording and Filing. The Company
will take all actions that at the time and from time to
time may be reasonably necessary (or may be necessary in
the opinion of Counsel to the Authority or the Trustee) to
perfect, preserve, protect and secure the interests of
the Authority and the Trustee, or either of them, in and
to the Basic Rent and other revenues and funds receivable
under this Lease and in the Leased Property, including,
without limitation, the filing of all security agreements
and financing and continuation statements that may be
required under the North Carolina Uniform Commercial
Code and the recordation of this Lease and any assign-
ment thereof and the Indenture.
Section 8.6. Opinions as to Recording and Filing
Other Instruments. (a) The Company covenants that prior to
each fifth anniversary date after the issuance of each
series of the Bonds it will cause Counsel acceptable to the
Trustee to render an opinion to the Authority and the
Trustee not more than 60 or later than 30 days prior to each
such fifth anniversary date to the effect that all financing
statements, continuation statements, notices and other
instruments required by applicable law have been recorded or
filed or re-recorded or refiled in such manner and in such
places required by law in order fully to preserve and
protect the rights of the holders of the Bonds and the
Trustee in the assignment to the Trustee of the Basic Rent
and other revenues and funds receivable under this Lease and
in the Leased Property as against creditors of, or purchasers
for value from, the Authority or the Company.
(b) The Company and the Authority shall execute and
deliver all instruments and shall furnish all information
and evidence deemed necessary or advisable by such Counsel
in order to enable him to render the opinion referred to in
subsection (a) of this Section 8.6. The Company shall file
and re-file and record and re-record or cause to be filed
and re-filed and recorded and re-recorded all instruments
required to be filed and re-filed and recorded or re-
recorded pursuant to the opinion of such Counsel and shall
continue or cause to be continued the liens of such instru-
ments for so long as the Bonds shall be outstanding, except
as otherwise in this Lease required.
VIII-3
<PAGE> 90
Section 8.7. Non-Arbitrage Covenant. The Company
and the Authority each covenants that it shall take
no action, and the Company covenants that it will
not approve the Trustee taking any action or making
any investment or use of the proceeds of any of the
Bonds, which would cause any of the Bonds to be "arbi-
trage bonds" within the meaning of Section 103(c) of
the Code and the Tax Regulations thereunder as the same
may be applicable to the Bonds at the time of such action,
investment or use.
Section 8.8. Use of Bond Proceeds. (a) The Com-
pany covenants that 90% or more of the proceeds of each
series of the Bonds (after deducting amounts used to pay
expenses of issuing the Bonds) will be used to pay those
items of Cost of the Project, or portions thereof, or
Improvements, which constitute costs of acquisition,
construction, reconstruction or improvement of land or
property of a character subject to the allowance for depre-
ciation within the meaning of Section 103(b)(6)(A) of the
Code and the Tax Regulations.
(b) The Company further covenants that none of the
proceeds of the Bonds shall be used as working capital or
to finance inventory within the meaning of Treas. Reg.
1.103-10(b)(1)(ii) as promulgated under Section 103(b)(6)A
of the Code.
Section 8.9. Tax Exempt Status of Bonds. It is the
intention of the parties hereto that the interest paid on
the Bonds will not be included in the gross income of the
recipients of said interest by reason of Section 103(a) of
the Code. In order to confirm and carry out such intention:
(a) The Company shall (i) provide such certificates
of a Company Representative, opinions of Counsel, and other
evidence as may be necessary or requested by the Authority
or the Trustee to establish the exemption of the Bonds
under Section 103(a) and the absence of arbitrage expecta-
tion under Section 103(c) of the Code, and (ii) file such
information and statements, acting alone or with the Authority,
with the Internal Revenue Service as may be required from
the Company or the Authority to establish or preserve such
exemption or as may be required by Section 103 of the Code,
the Tax Regulations thereunder and related provisions of
law or regulation.
VIII-4
<PAGE> 91
(b) The Company agrees to furnish to the Authority
and to the Trustee within 30 days after the first, second
and third anniversary dates of the issuance and delivery of
the Series 1979 Bonds (i) a certificate showing the amounts
of capital expenditures of the Company and each other prin-
cipal user and related person with respect to the Leased
Property and with respect to other projects or facilities,
if any, within five miles of the Leased Property or within
Iredell County, for the period beginning three years prior
to the issuance and delivery of the Series 1979 Bonds and
ending on such anniversary date, and (ii) if requested by
the Trustee, an opinion an of Counsel, who shall be Counsel
nationally recognized on the subject of municipal bonds,
selected by the Company and acceptable to the Trustee,
stating whether, by reason of such capital expenditures,
interest on the Series 1979 Bonds shall have become includible
in the gross income of the recipients (other than substantial
users and related persons) within the meaning of Section
103(a) of the Internal Revenue Code and Tax Regulations
thereunder.
Section 8.10. Indemnity Against Claims. The Com-
pany shall pay and discharge and shall indemnify and hold
harmless the Authority from (a) any lien or charge upon
payments by the Company to, or for the account of, the
Authority hereunder and (b) any taxes, assessments, im-
positions and other charges in respect of the Leased
Property. If any such claim is asserted, or any such lien
or charge upon payments, or any such taxes, assessments,
impositions or other charges, are sought to be imposed, the
Authority or the Trustee, as the case may be, will give
prompt notice to the Company, and the Company shall have
the sole right and duty to assume, and shall assume, the
defense thereof, with full power to litigate, compromise or
settle the same in its sole discretion.
Section 8.11. Release and Indemnification. The
Company shall at all times protect and hold the Author-
ity, its members, officers and employees harmless
against any claims or liability resulting from any loss
or damage to property or any injury to or death of any
person that may be occasioned by any cause whatsoever
pertaining to the Leased Property or the use thereof,
including without limitation any sublease thereof,
such indemnification to include reasonable expenses
and attorneys' fees incurred by the Authority, its mem-
bers, officers and employees in connection therewith,
provided that such indemnity shall be effective only
to the extent of any loss that may be sustained by the
Authority, its members, officers and employees in ex-
cess of the Net Proceeds received by it or them from
any insurance carried with respect to such loss, and pro-
vided, further, that the benefits of this Section shall
not inure to the benefit of any person other than the
Authority, its members, officers and employees. The
Company hereby agrees to insure against, in the public
liability policies required in Section 7.2(2) hereof, not
only its own liability in respect of the matters there
mentioned, but also the liability herein assumed.
VIII-5
<PAGE> 92
Section 8.12. Mechanics' Liens. The Company will
not permit any mechanics' or other liens incurred by
it to be established or remain against the Leased Property
for labor or materials furnished. The Company may, how-
ever, at its own expense and in good faith, contest any
such liens, in which event it may permit such liens to
remain unsatisfied and undischarged during the period
of such contest and any appeal therefrom unless the
Authority or the Trustee shall notify the Company that,
in the opinion of Counsel, by nonpayment of any such items
the lien of the Indenture as to any part of the Rent or
other revenues or funds receivable under this Lease will
be materially endangered or the Leased Property or any
material part thereof will be subject to loss or forfei-
ture, in which event the Company at its own expense
shall promptly pay and cause to be satisfied or discharged
or, if contested, bond all such unpaid items to the satis-
faction of the Trustee. The Authority will cooperate fully
with the Company in any such contest.
VIII-6
<PAGE> 93
ARTICLE IX
ASSIGNMENT, LEASING AND SELLING
Section 9.1. Assignment of Rights by the Author-
ity to the Trustee. Concurrently with issuance of the
Series 1979 Bonds, the Authority will assign to the Trus-
tee certain of its rights, title and interests in and to
this Lease and to all revenues and other funds due and
to become due hereunder, including, without limitation,
the Basic Rent, as security for payment of the principal
of and redemption premium, if any, and interest on the
Bonds, and thereafter the Trustee and the Bondholders,
to the extent provided in the Indenture, exclusively, shall
be vested with, and authorized to exercise, such rights of
the Authority hereunder. The Company hereby assents to
such assignment and agrees that, as to the Trustee, its
obligation to make such payments shall be absolute and
shall not be subject to any defense or any right of set-off,
counterclaim or recoupment arising out of any breach by the
Authority or the Trustee of any obligation to the Company,
whether hereunder or otherwise set forth, or out of any
indebtedness or liability at any time owing to the Company
by the Authority or the Trustee.
Section 9.2. Restrictions on Transfer of Author-
ity's Rights. The Authority agrees that, except for the
assignment of certain of its rights, title and interests
under this Lease to the Trustee as contemplated in Section
9.1 hereof, it will not during the Lease Term sell, assign,
transfer or convey its rights, title or interests in the
Leased Property, except pursuant to the Indenture and as
permitted by this Section 9.2. If the laws of the State of
North Carolina at the time shall permit such action to be
taken, nothing contained in this Section 9.2 shall prevent
the consolidation of the Authority with, or merger of the
Authority into, or transfer of the complete interest of the
Authority in the Leased Property or in this Lease as an
entirety to, any public body the property and income of
which are not subject to taxation to any greater extent
than is or may be the property and income of the Authority
and which has corporate authority to exercise the Author-
ity's rights granted hereunder; provided that upon any
IX-1
<PAGE> 94
such consolidation, merger or transfer, the Authority's
obligations with respect to the due and punctual payment
of the principal of and redemption premium, if any, and
interest on the Bonds according to their tenor, and the due
and punctual performance and observance of all the agree-
ments and conditions of this Lease to be kept and performed
by the Authority, shall be expressly assumed in writing by
the public body resulting from such consolidation or surviv-
ing such merger or to which the Leased Property shall be
transferred as an entirety.
Section 9.3. Assignment and Sublease by the Com-
pany. The rights of the Company under this Lease may
be assigned, and the Leased Property may be subleased
as a whole or in part by the Company, without the con-
sent of the Authority and the Trustee; provided, how-
ever, that, except as provided in clause (b) of Section
8.2, (a) no such assignment or subleasing shall relieve
the Company from primary liability for any of its obliga-
tions hereunder, and in the event of any such assignment
or subleasing, the Company shall continue to remain
primarily liable for payment of Rent and for the perform-
ance and observance of the other agreements on its part
herein provided to be performed and observed by it to the
same extent as though no assignment or sublease had been
made, and (b) any assignee or sublessee of the Company's
interest in this Lease shall assume the obligations of
the Company hereunder to the extent of the interest
assigned or subleased, and the Company shall, not more
than 60 or less than 30 days prior to the effective date
of any such assignment or sublease, furnish or cause to
be furnished to the Authority and to the Trustee a true
and complete copy of each such assignment or sublease and
assumption of obligations. The Company shall not mort-
gage this Lease nor mortgage, assign or pledge its
interest in any sublease or the rent payable thereunder
unless such mortgage, assignment or pledge is made
expressly subject to the terns of this Lease and the
Indenture.
IX-2
<PAGE> 95
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default Defined. The terms
"event of default" and "default" shall mean any one or
more of the following events:
(a) The failure by the Company to make any
payment of Basic Rent when due.
(b) The representations or warranties of the
Company contained in Section 2.2 hereof shall prove
to be incorrect at the time made in such a material
respect that the security for the Bonds shall be
materially adversely affected.
(c) An "Event of Default" as defined in any
mortgage, indenture or instrument, under which there
may be issued, or by which there may be secured or
evidenced, any indebtedness of $500,000 or more of
the Company, whether such indebtedness now exists or
shall hereafter be created, shall happen and shall
result in such indebtedness becoming or being declared
due and payable prior to the date on which it would
otherwise become due and payable, and such acceleration
shall not be rescinded or annulled within 10 days after
written notice of such acceleration to the Company.
(d) The dissolution or liquidation of the
Company or the filing by the Company of a voluntary
petition in bankruptcy, or the failure by the Com-
pany promptly to lift or suspend any execution,
garnishment or attachment of such consequence as
will impair the ability of the Company to complete
the Project or carry on its normal business operations,
or the commission by the Company of any act of
bankruptcy, or the adjudication of the Company as a
bankrupt, or the assignment by the Company for the
benefit of its creditors, or the entry by the Company
into an agreement of composition with its creditors, or
if a petition or answer proposing the adjudication of
the Company as a bankrupt or its reorganization,
arrangement or debt readjustment under any present or
future federal bankruptcy act or any similar federal or
state law shall be filed in any court and such petition
or answer shall not be discharged or denied within
90 days after the filing thereof.
X-1
<PAGE> 96
(e) Failure by the Company to observe and perform
any covenant, condition or agreement on the part of the
Company under this Lease, other than as referred to in
the preceding paragraphs of this Section, for a period
of 30 days after written notice, specifying such failure
and requesting that it be remedied, is given to the
Company by the Authority, unless such failure cannot be
remedied within 30 days and the Company has instituted
corrective action within 30 days after such notice and
diligently pursues such action until such failure is
remedied.
(f) Cessation of operation by the Company of
the Leased Property prior to Payment of the Bonds;
provided, that actions taken by the Company in accordance
with the provisions of Sections 8.2, 9.3, 11.1 and 11.2
of this Lease shall not be a default under this para-
graph (f).
(g) An "event of default" as defined in clause
(a), (b), (c) or (d) of Section 801 of the Indenture
or as defined in Section 4.1 of the Guaranty shall
have occurred and be continuing.
Section 10.2. Remedies on Default. In the event
any of the Bonds shall at the time be outstanding and
unpaid in any principal amount and provision for the
payment thereof shall not have been made in accordance
with the provisions of the Indenture, whenever any
event of default referred to in Section 10.1 hereof
shall have happened and be continuing, the Authority
may take any one or more of the following remedial
steps:
(a) By written notice to the Company declare
all installments of Basic Rent payable for the re-
mainder of the Lease Term to be immediately due and
payable, whereupon the same shall become immediately
due and payable.
(b) Take whatever action at law or in equity
may appear necessary or desirable to collect the Rent
then due and thereafter to become due or to enforce
the performance and observance of any obligation,
agreement or covenant of the Company under this
Lease.
X-2
<PAGE> 97
Without limiting the foregoing, the Authority shall,
if then permitted by law, have as to any portion of the
Leased Property constituting fixtures all the remedies of a
secured party under the Uniform Commercial Code of the
State of North Carolina and such further remedies as from
time to time may hereafter be provided in such jurisdiction
for a secured party.
In the enforcement of the remedies provided in
this Section 10.2, the Authority may treat all expenses
of enforcement, including, without limitation, legal,
accounting, advertising and trustee's fees and expenses,
as Additional Rent then due and owing.
Section 10.3 Force Majeure. The definitions of
"event of default" and "default" in Section 10.1 are
subject to the qualification that if by reason of force
majeure the Company is unable in whole or in part to
carry out its obligations under this Lease, other than
those contained in Articles V, VII and VIII (except
Section 8.1) hereof, the Company shall not be deemed
in default during the continuance of such inability.
The term "force majeure" as used herein shall mean,
without limitation, the following: acts of God; strikes,
lockouts or other industrial disturbances; acts of
public enemies; orders of any kind of the government of
the United States or of North Carolina or any of their
departments, agencies, or officials, or any civil or
military authority; insurrections; riots; epidemics;
landslides; lightning; earthquake; fire; hurricanes;
storms; floods; washouts; droughts; arrests; restraint
of government and people; civil disturbances; explo-
sions; breakage of or accident to machinery, trans-
mission pipes, or canals; partial or entire failure of
utilities; or any other cause or event not reasonably
within the control of, or reasonably foreseeable and
preventable by, the Company. The Company agrees,
however, to remedy with all reasonable dispatch the
cause or causes preventing the Company from carrying out
its agreements; provided that the settlement of strikes,
lockouts and other industrial disturbances shall be
entirely within the discretion of the Company and the
Company shall not be required to make any settlement
of strikes, lockouts and other industrial disturbances
by acceding to the demands of the opposing party or
parties when such course is in the judgment of the
Company unfavorable to the Company.
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<PAGE> 98
Section 10.4. Application of Amounts Realized in
Enforcement of Remedies. Any amounts collected pursuant
to action taken under Section 10.2 hereof shall be paid
into the Bond Fund and applied in accordance with the
provisions of Section 806 of the Indenture or, if Pay-
ment of the Bonds shall have been made, shall be applied
according to the provisions of Section 13.14 hereof.
Section 10.5. No Remedy Exclusive. No remedy here-
in conferred upon or reserved to the Authority is in-
tended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other rem-
edy given under this Lease or now or hereafter existing
at law or in equity or by statute. No delay or omis-
sion to exercise any right or power accruing upon de-
fault shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as
often as may be deemed expedient.
Section 10.6. Agreement to Pay Attorneys' Fees
and Expenses. In any event of default, if the Author-
ity or the Trustee employs attorneys or incurs other
expenses for the collection of amounts payable here-
under or the enforcement of the performance or observ-
ance of any covenants or agreements on the part of the
Company herein contained, the Company agrees that it
will on demand therefor pay to the Authority or the
Trustee, as the case may be, the reasonable fees of such
attorneys and such other expenses so incurred by the
Authority or the Trustee.
Section 10.7. Authority and Company to Give Notice
of Default. The Authority and the Company severally
covenant that they will, at the expense of the Company,
promptly give to the Trustee written notice of any
event of default under this Lease of which they shall
have actual knowledge or written notice, but the Author-
ity shall not be liable, except as provided in Section
13.13 hereof, for negligence in failing to give such
notice.
X-4
<PAGE> 99
ARTICLE XI
PREPAYMENT OF BASIC RENT
Section 11.1. Options to Prepay Basic Rent. (a)
The Company is hereby granted the option to prepay, at any
time, in full the Basic Rent payable under Section 5.3(a)
hereof if:
(i) the Leased Property shall have been damaged
or destroyed to the extent that it would not be
practicable or desirable to rebuild, repair or restore
the Leased Property within a period of one year after
the occurrence of such damage or destruction; or
(ii) there occurs the condemnation of all or any
part of the Leased Property or the taking by Eminent
Domain of such use or control of the Leased Property to
such an extent that the Lessee is prevented or would
likely be prevented from using the Leased Property for
its normal purposes and operations for a period of one
year or more after such occurrence; or
(iii) there shall have occurred a change in the
Constitution of the State of North Carolina or the
United States of America or any legislative, admini-
strative or judicial action which shall render this
Lease void or unenforceable or impossible of per-
formance.
Such option may be exercised in accordance with
subsection (c) of this Section by delivery to the Trustee
of a resolution of the Board of Directors of the Company
stating that an event referred to in clause (i), (ii),
or (iii) above and described in the resolution has
occurred and that, as a result of such, the Company has
discontinued, or at the earliest practicable date will
discontinue, its operation of the Leased Property. In the
event that the Company shall exercise its option to prepay
the Basic Rent under clause (i), (ii) or (iii) of this
Section, all the Bonds then outstanding under the Indenture
shall be called for redemption in accordance with the
provisions of Section 301(b) of the Indenture.
XI-1
<PAGE> 100
(b) Except during the continuance of an event of
default the Company is hereby granted the option to prepay,
at any time, all or any portion of the unpaid balance of the
Basic Rent payable under Section 5.3(a) hereof by taking, or
causing the Authority to take, the actions required (i) to
pay or redeem, or to provide for the payment or redemption,
of all of the Bonds then outstanding or (ii) to effect a
partial payment or redemption of the Bonds or (iii) to ob-
tain credit against any sinking fund redemption requirements
if permitted and as provided in the Indenture. If the
Company shall exercise its option under this subsection (b)
to prepay all or a portion of the unpaid balance of the Rent
and shall have notified the Authority in accordance with
subsection (c) of this Section that all or a portion of the
Basic Rent so prepaid is to be applied to the redemption of
the Bonds, such redemption shall be made pursuant to the
provisions of Section 301(d) of the Indenture.
(c) To exercise an option granted in subsection
(a) or (b) of this Section, the Company shall give
written notice to the Authority and the Trustee which
shall specify therein (i) the date of such prepayment,
which shall not be less than 45 days from the date the
notice is mailed, (ii) the amount of the Basic Rent to be
prepaid, (iii) the application of the moneys or obligations
to be used to effect such prepayment and (iv) if Bonds are
to be redeemed pursuant to the Indenture, (A) the date of
redemption, (B) the series and maturity of the Bonds to be
redeemed, (C) the principal amount of the Bonds to be
redeemed, and (D) the applicable redemption provision of
the Indenture.
Section 11.2. Obligation to Prepay Basic Rent and
Pay Taxability Payments. In the event of a Determination
of Taxability, the Company shall be required to prepay
the Basic Rent with respect to the Series 1979 Bonds.
Within 30 days after the date of the occurrence of
the Determination of Taxability the Company shall give a
written notice to the Authority and the Trustee which shall
specify the date selected by the Company for such pre-
payment, such date to be not more than 90 days after the
date of the occurrence of the Determination of Taxability.
XI-2
<PAGE> 101
Section 11.3. Relative Priorities and Precedence
of this Article and the Indenture. The rights and
options and the obligations of the Company in this
Article XI shall be and remain prior and superior to the
Indenture and may be exercised or shall be fulfilled, as
the case may be, whether or not the Company is in default
hereunder, provided that such default will not result
in nonfulfillment of any condition to the exercise of
any such right or option.
The obligations of the Company in Section 11.2
of this Article shall supersede the rights and options
of the Company in Section 11.1 of this Article.
XI-3
<PAGE> 102
ARTICLE XII
MANDATORY PURCHASE OF LEASED PROPERTY
Section 12.1. Mandatory Purchase of Leased Property
after Payment of Bonds. The Company hereby agrees to
purchase, and the Authority hereby agees to sell, the
Leased Property for the sum of $10 at the expiration
or sooner termination of the Lease following Payment of
the Bonds.
Section 12.2. Conveyance on Purchase. Following
Payment of the Bonds, at the closing of the purchase of
the Leased Property, the Authority will, upon receipt of
the purchase price, deliver to the Company documents con-
veying and quitclaiming all of its rights, title and in-
terest in and to the Leased Property, as it then exists,
and releasing any security interest it may have therein,
to the Company subject only to the following: (i) those
liens and encumbrances to which the title to the Leased
Property or such portion thereof was subject at the date
of execution of the Lease; (ii) any liens and encumbrances
thereafter created by the Company or to the creation or
suffering of which the Company consented; (iii) any liens
and encumbrances resulting from the failure of the Company
to discharge or observe any of its obligations under this
Lease; (iv) Permitted Encumbrances other than the Indenture
and this Lease; and (v) the rights and title of any taker by
Eminent Domain.
XII-1
<PAGE> 103
ARTICLE XIII
MISCELLANEOUS
Section 13.1. References to Bonds Ineffective
After Bonds Paid. Upon Payment of the Bonds, and
payment of Additional Rent which may become due, in-
cluding all fees and charges of the Trustee, all re-
ferences in this Lease to the Bonds and the Trustee
shall be ineffective and the Trustee, the Authority
and the holders of any of the Bonds shall not thereafter
have any rights hereunder, excepting those that shall
have theretofore vested.
Section 13.2. No Additional Waiver Implied by
One Waiver. In the event any agreement contained in
this Lease should be breached by either party and
thereafter waived by the other party, such waiver
shall be limited to the particular breach so waived
and shall not be deemed to waive any other breach
hereunder.
Section 13.3. Authority Representative. When-
ever under the provisions of this Lease the approval
of the Authority is required or the Authority is re-
quired to take some action at the request of the Com-
pany, such approval shall be made or such action shall
be taken by the Authority Representative; and the Com-
pany and the Trustee shall be authorized to act on any
such approval or action.
Section 13.4. Company Representative. Whenever
under the provisions of this Lease the approval of the
Company is required or the Company is required to take
some action at the request of the Authority, such ap-
proval shall be made or such action shall be taken by
the Company Representative; and the Authority and the
Trustee shall be authorized to act on any such
approval or action.
XIII-1
<PAGE> 104
Section 13.5. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be
deemed given when delivered by hand delivery or on the second day
following the day on which the same has been mailed by registered
or certified mail, postage prepaid, addressed as follows: if to
the Authority, The Iredell County Industrial Facilities and
Pollution Control Financing Authority, P.O. Box 788, Statesville,
North Carolina 28677; if to the Company or Guarantor, Hunt
Manufacturing Co., 1405 Locust St., Philadelphia, Pennsylvania
19102, Attention: Secretary; and if to the Trustee, First Union
National Bank of North Carolina, One First Union Plaza, Charlotte,
North Carolina 28288, Attention: Corporate Trust Department. A
duplicate copy of each notice, certificate or other communication
given hereunder by either the Authority or the Company to the
other shall also be given to the Trustee. The Authority, the
Company and the Trustee may, by notice given hereunder, designate
any further or different addresses to which subsequent notices,
certificates or other communications shall be sent. Not-
withstanding the assignment of its rights under this Lease to the
Trustee as referred to in Section 9.1, the Authority shall
continue to receive, and the Company agrees to continue to
furnish to the Authority, all notices which under this Lease are
to be given to the Authority.
Section 13.6. If Payment or Performance Date a Legal Holiday.
If the date for making payment of Rent, or the last date for
performance of any act or the exercising of any right, as
provided in this Lease, shall be a legal holiday or a day on which
banking institutions in the States of North Carolina or
Pennsylvania, are authorized by law to remain closed, such payment
may be made or act performed or right exercised on the next
succeeding day not a legal holiday or a day on which such banking
institutions are authorized by law to remain closed.
Section 13.7. Binding Effect. This Lease shall inure to the
benefit of and shall be binding upon the Authority, the Company
and their respective successors and assigns, subject, however, to
the provisions contained in Sections 8.2 and 9.2.
Section 13.8. Severability. In the event any provision of this
Lease shall be held invalid or unenforceable by any court of
competent jurisdiction, such holding shall not invalidate or
render unenforceable any other provision hereof.
XIII-2
<PAGE> 105
Section 13.9. Amendments, Changes and Modifications.
Subsequent to the issuance of the Bonds and prior to
Payment of the Bonds, this Lease may not be effectively
amended, changed, modified, altered or terminated except
in accordance with the Indenture.
Section 13.10. Execution in Counterparts. This
Lease may be executed in several counterparts, each of
which shall be an original and all of which shall con-
stitute but one and the same instrument.
Section 13.11. Applicable Law. This Lease shall be
governed by and construed in accordance with the laws of
the State of North Carolina.
Section 13.12. No Charge Against Authority Credit.
No provision hereof shall be construed to impose a charge
against the general credit of the Authority or any
personal or pecuniary liability upon any Commissioner,
official or employee of the Authority.
Section 13.13. Authority Not Liable. Notwithstand-
ing any other provision of this Lease, (a) the Authority
shall not be liable to the Company, the Trustee, any
holder of any of the Bonds, or any other person for any
failure of the Authority to take action under this Lease
unless the Authority (i) is requested in writing by an
appropriate person to take such action, (ii) is assured to
its satisfaction of payment of or reimbursement for any
expenses in such action, and (iii) is afforded, under the
existing circumstances, a reasonable period to take such
action, and (b) except with respect to any action for
specific performance or any action in the nature of a
prohibitory or mandatory injunction, neither the Authority
nor any Commissioner of the Authority or any other official
or employee of the Authority shall be liable to the Company,
the Trustee, any holder of any of the Bonds, or any other
person for any action taken by it or by its officers,
servants, agents or employees, or for any failure to take
action under this Lease or the Indenture. In acting under
this Lease, or in refraining from acting under this Lease,
the Authority may conclusively rely on the advice of its
Counsel.
XIII-3
<PAGE> 106
Section 13.14. Amounts Remaining in the Bond Fund and the
Acquisition Fund. It is agreed by the parties hereto that any
amounts remaining in the Bond Fund and the Acquisition Fund or
otherwise in trust with the Trustee upon the expiration or sooner
termination of the Lease as provided in this Lease, after Payment
of the Bonds, and any Additional Rent which may become due,
including the fees, charges and expenses of the Trustee, the
paying agents and the Authority in accordance with the Lease and
the Indenture, shall be disposed of in accordance with the
provisions of Section 504 of the Indenture.
IN WITNESS WHEREOF, the Authority and the Company have
caused this Lease to be executed in their respective legal names
and their respective corporate seals to be hereunto affixed, and
the signatures of duly authorized persons to be attested, all as
of the date first above written.
THE IREDELL COUNTY INDUSTRIAL
FACILITIES AND POLLUTION CONTROL
FINANCING AUTHORITY
[SEAL]
By:
-------------------------------------------
Attest: Chairman
--------------------
Secretary
HUNT MANUFACTURING CO.
By:
------------------------------------------
Vice President
[SEAL]
Attest:
-------------------
Assistant Secretary
XIII-4
<PAGE> 107
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
I, the undersigned Notary Public, certify that Alice
Fortner personally came before me this day and acknowl-
edged that she is Secretary of The Iredell County Indus-
trial Facilities and Pollution Control Financing Authority,
a body corporate and politic, and that by authority duly
given and as the act of said Authority, the foregoing
instrument was signed in its name by its chairman, sealed
with its official seal, and attested by herself as its
Secretary. My Commission expires .
Witness my hand and official seal, this the day of
, 1979.
-----------------------------------
[SEAL]
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
I, the undersigned Notary Public, certify that John H.
Martin personally came before me this day and acknow-
ledged that he is an Assistant Secretary of Hunt Manufactur-
ing Co., a Pennsylvania corporation, and that by authority
duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its Vice President,
sealed with its corporate seal, and attested by himself as
its Assistant Secretary. My Commission expires
.
Witness my hand and official seal, this the day of
1979.
-----------------------------------
[SEAL]
<PAGE> 108
EXHIBIT A
The Project consists principally of the following listed real
and tangible personal property.
1. Certain real property located in Iredell County, North
Carolina together with all buildings and improvements therein,
such real property being more particularly described as follows:
BEGINNING at a point in the center of North Carolina Highway
No. 90 (West Front Street) leading from Statesville, North
Carolina, to Taylorsville, North Carolina, said beginning point
being the Southwest corner of the tract of land conveyed to the
Carnation Company by the State of North Carolina by Deed recorded
in Deed Book 134, Page 125, Iredell County Registry, and running
thence with the center of said North Carolina Highway No. 90,
North 62 degrees 22 minutes West 1043 feet to a point in the
center of said North Carolina Highway No. 90, at which point the
center of said North Carolina Highway No. 90 and the center of
Mecham Road, a road leading in a Northerly direction from said
North Carolina Highway No. 90 to what was formerly a part of the
Piedmont Experiment Station Farm intersect; thence with the center
line of said Mecham Road North 08 degrees 06 minutes East 805 feet
to a point in the center line of the railroad track of Alexander
Railroad Company; thence with the center line of the said railroad
track of the Alexander Railroad Company four calls as follows: (1)
South 40 degrees 05 minutes East 839.45 feet to a point; (2)
thence South 43 degrees 01 minutes East 159 feet to a point; (3)
thence South 48 degrees 10 minutes East 168.6 feet to a point; (4)
thence South 52 degrees 30 minutes East 161.7 feet to a point in
the center of said railroad track, and said point being the
Northwest corner of the said tract of land conveyed to the
Carnation Company by the State of North Carolina by the Deed
referred to hereinabove; thence with the Western line of said
Carnation Company South 15 degrees 49 minutes 40 seconds West
324.45 feet to the point of BEGINNING, containing 12.76 acres,
more or less, and the above description being according to a map
and survey made by Kestler & McKay, Registered Surveyors, dated
April 13, 1964, revised on February 22, 1979, with said revision
being in regard to the location of buildings, paving, and similar
matters, and not in any way being a revisions of property lines,
including courses, degrees and distances and being the identical
property conveyed to National Canvas Products Corp. by Deed of
Olin Corporation, dated September 26, 1975, recorded in Deed Book
578, Page 573, Iredell County Registry.
2. Certain machinery, equipment and tangible personal property
located on the aforesaid real property consisting principally of
the following items:
<PAGE> 109
EXHIBIT A
A. CAFETERIA EQUIPMENT
B. OFFICE FURNITURE AND FIXTURES PURCHASED FROM NATIONAL
CANVAS PRODUCTS CORP.
C. NARROW AISLE STACKING SYSTEM
Racks & Docking
3 Stock Pickers
1 Control Unit
2 Straddle Trucks (shelf loaders)
D. MACHINERY & EQUIPMENT
Air Compressor-Worthington
(with after cooler)
Air Compressor-Lincoln
Air Compressor-Wayne
Rewind Machine
Programmable Cutter
5 Cutter Grinders
Injection Molding Machine
Shrink Wrap Machine
Hardinge Precision Lathe
Electronic Digital Scale
Pebble Mill
Brazing Machine
<PAGE> 110
EXHIBIT 10(a)
FIRST SUPPLEMENTAL LEASE AGREEMENT
THIS FIRST SUPPLEMENTAL LEASE AGREEMENT dated as of July
31, 1994 (the "First Supplemental Lease") , between THE IREDELL
COUNTY INDUSTRIAL FACILITIES AND POLLUTION CONTROL FINANCING
AUTHORITY (the "Authority"), a political subdivision and body
corporate and politic ot the State of North Carolina, as Lessor,
and HUNT MANUFACTURING COMPANY (the "Company"), a corporation
existing under the laws of the Commnonwealth of Pennsylvania and
qualified to do business in the State of North Carolina, as Lessee.
W I T N E S S E T H:
WHEREAS, pursuant to and in accordance with the provisions
of the Enabling Act, the Board of Commissioners of Iredell County,
North Carolina, has created by resolution the Authority; and
WHEREAS, the Enabling Act authorizes the Authority to
acquire by purchase, lease, gift or otherwise any property, real or
personal, improved or unimproved, and interests in land less than
the fee thereof, for the construction, operation or maintenance of,
and to construct, acquire, own, repair, maintain, extend, improve,
rehabilitate, renovate, furnish and equip, industrial and
manufacturing projects, to make and execute lease agreements and
security documents containing an assigment, pledge, mortgage or
other encumbrance on all or part of the Authority's interest in, or
right to receive revenues with respect to, a project and any other
property provided under a lease agreement; and
WHEREAS, the Authority is authorized by the Enabling Act
to issue bonds for the purpose of paying all or any part of the
cost of any project, the principal of and redemption premium, if
any, and interest on which bonds shall be payable solely from the
funds provided by the operator or other obligor upon the lease
agreement or any guaranty agreement or other contract or agreement
to make payments to, or for the benefit of, the Authority; and
WHEREAS, the Authority and the Trustee have heretofore
entered into an Indenture and Deed of Trust dated as of June 1,
1979 (the "Original Indenture" and, together with the First
Supplemental Indenture, the "Indenture"), pursuant to which the
Authority has heretofore issued revenue bonds of the Authority in
the aggregate principal amount of $2,000,000, designated
"Industrial Revenue Bonds (Hunt Manufacturing Co. Project), Series
1979" (the "Series 1979 Bonds" and, together with any additional
and refunding bonds issued under the Indenture, the "Bonds"); and
WHEREAS, the proceeds of the Series 1979 Bonds were
applied by the Authority to pay the costs of the Project (which
capitalized terms and others used but not defined in these Recitals
are defined in the Original Lease or the Indenture) on behalf of
Hunt Manufacturing Co., a Pennsylvania corporation (the "Company")
and
<PAGE> 111
WHEREAS, the Authority has heretofore entered into a Lease
Agreement dated as of June 1, 1979 (the "Original Lease"), with the
Company, under which the Authority has demised and leased the Leased
Property to the Company and the Company has leased the Leased
Property, including the real property more particularly described in
Exhibit "A" attached hereto and made a part hereof, from the
Authority and has agreed to pay rent therefor in amounts suff-
icient to pay the principal of, redemption premium (if any) and
interest on the Series 1979 Bonds and any additional and refunding
bonds issued under the Indenture; and
WHEREAS, the Authority entered into the Original Indenture
for the purpose of authorizing the Bonds and securing the payment
thereof by assigning certain of its interests in the Lease,
including its rights to a portion of the rental payments thereunder;
and
WHEREAS, the Company has entered into a Guaranty Agreement
dated as of June 1, 1979, as amended and supplemented by the First
Amended Guaranty dated as of July 31, 1994 (the "Guaranty"), with
the Trustee, whereby the Company has unconditionally guaranteed for
the benefit of the holders of the Bonds and the interest coupons
appertaining thereto, if any, the full and prompt payment of the
principal of and redemption premium, if any, and interest on the
Bonds; and
WHEREAS, the Company has requested that the Authority
undertake a program (the "1994 Refunding Project") to refund the
Series 1979 Bonds for the purpose of providing debt service savings
to the Company and, in connection therewith, the Authority has
determined to issue as a series of Refunding Bonds under the
Indenture its Industrial Revenue Refunding Bond (Hunt Manufacturing
Co. Project), Series 1994 (the "Series 1994 Bond"); and
WHEREAS, for the further security of the Series 1994 Bond,
the Company and the Authority have determined to enter into this
First Supplemental Lease (this First Supplemental Lease and the
Original Lease being herein referred to collectively as the
"Lease"), pursuant to which the Company and the Authority will
confirm the demise and lease of the Leased Property by the Authority
to the Company and the Company will confirm its commitment to make
rental payments under the Lease sufficient to pay the principal,
redemption premium, if any, and interest on the Series 1994 Bond and
any other Bonds; and
WHEREAS, upon the issuance of the Series 1994 Bond under
the First Supplemental Indenture and the application of the proceeds
thereof, together with certain additional funds provided by the
Company, as provided herein to the redemption of the Series
1979 Bonds, the Series 1979 Bonds shall no longer be
Outstanding under the Indenture; and
-2-
<PAGE> 112
WHEREAS, the Company and the Authority have received a
proposal for the purchase of the Series 1994 Bond from Brown
Brothers Harriman & Co. (the "Purchaser"), a private bank, upon the
terms and conditions set forth herein; and
WHEREAS, the execution and delivery of this First
Supplemental Lease and the First Supplemental Indenture have been
duly authorized by resolution of the Authority; and
WHEREAS, the Authority and the Company desire to confirm
the terms of the Original Lease and to supplement said Original
Lease in the manner herein provided;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL AGREEMENT OF LEASE
WITNESSETH:
That the Authority and the Company each intending to be
legally bound and in consideration of the rentals and mutual
covenants herein stipulated to be paid and performed, DO HEREBY
AGREE as follows:
SECTION 1. CONFIRMATION OF ORIGINAL LEASE. Except as
hereinafter expressly provided, the Original Lease as hereby
supplemented and amended shall continue to be enforceable and in
effect with respect to the Series 1994 Bond and any other
Outstanding Bonds. All obligations of the Company and the Authority
under the Original Lease in respect of, or for the benefit of the
holders of, the Series 1979 Bonds shall remain in full force and
effect in respect of and for the benefit of the holders and
registered owners of the Series 1994 Bond and any other outstanding
Bonds.
SECTION 2. DEFINITIONS. All terms used as defined terms in
the Original Lease or the Indenture are used with the same meaning
in this First Supplemental Lease (including the use thereof in the
recitals above) unless expressly given a different meaning herein or
unless the context clearly otherwise requires. All terms used herein
which are defined in the recitals hereto shall have the meanings
there given to the same unless the context clearly otherwise
requires, except that the following definitions contained in Article
I of the Original Lease are hereby amended to read as follows:
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
-3-
<PAGE> 113
"Determination of Taxability" means (a) the enactment of
legislation to or with the effect that interest payable on any Bond
is includable in the gross income of the registered owner of any
Bond under the federal income tax laws (except with respect to any
owner who is a "substantial user" or a "related person" (as such
terms are used in the Code)), any such determination being deemed to
have occurred on the effective date of such legislation; or (b)
receipt by the Company, the Authority or the registered owner of any
Bond of notice that the Commissioner of Internal Revenue or any
district director of the Internal Revenue Service that based upon
filings of the Company, any review or audit of the Company, or any
ground whatsoever, shall have determined that a Taxable Event (as
hereinafter defined) has occurred; or (c) issuance of a published or
private ruling or a technical advice memorandum by the Internal
Revenue Service, or a determination by any court of competent
jurisdiction, that the interest payable on any Bond is includable
for federal income tax purposes in the gross income of any owner of
any Bond (except as aforesaid); or (d) with respect to the Series
1994 Bond, an opinion of nationally recognized bond counsel
addressed to the registered owner of the Series 1994 Bond that such
counsel cannot conclude that the interest thereon is excluded from
the gross income of the registered owner thereof under the federal
income tax laws (other than with respect to any owner who is a
"substantial user" or a "related person" (as such terms are used in
the Code)). For purposes of this definition, "Taxable Event" means
the application of the proceeds of any Bond in such manner, or the
occurrence or non-occurrence of any other event (except the
enactment of legislation described in clause (a) of the definition
of Determination of Taxability above) , whether within or without
the control of the Company, with the result that, under the Code,
the interest on any Bond is or becomes includable in the gross
income for federal income tax purposes of the registered owner of
any Bond (except as aforesaid).
SECTION 3. TERM OF LEASE. In accordance with Section 5.1
of the Original Lease, the term of the Lease shall extend until June
16, 2004 or until the day after all Bonds issued under the Indenture
have been repaid or are no longer deemed to be outstanding under the
Indenture.
SECTION 4. PAYMENT OF BASIC RENT. The Company hereby
confirms its obligation set forth in Section 5.3 (a) of the
Original Lease to pay Basic Rent in such amounts and at such times
as to enable the Authority to cause timely payment to be made to the
Holder of the Series 1994 Bond and to the holders of any other
Outstanding Bonds of the principal, interest, and any redemption
premium on such Bonds. Notwithstanding the provisions of Section
5.3(a) of the Original Lease to the contrary, so long as the
Purchaser is the registered owner of the Series 1994 Bond, the
Company shall pay that portion of the Basic Rent relating to the
principal and redemption price of, and interest on, the Series 1994
Bond directly to the Purchaser as provided in Section 205 of the
First Supplemental Indenture. In the event that the Company shall
fail to pay any installment of Basic Rent so payable to the
Purchaser in accordance with this Section, interest on such overdue
payment shall accrue from the due date thereof at a rate equal to
the Base Rate (as deefined in the First Supplemental Indenture)
plus 2%.
-4-
<PAGE> 114
SECTION 5. PREPAYMENT OF RENT UPON CESSATION OF OPERATION.
Article XI of the Original Lease is hereby amended to include the
following additional section:
"Section 11.4. Obligation to Prepay Basic Rent Upon
Cessation of Operation. In the event of a Cessation of
Operation, the Company shall be required to prepay the
Basic Rent with respect to the Series 1994 Bond.
Within 30 days after the date of the occurrence of
the Cessation of Operation, the Company shall give a written
notice to the Authority and the Trustee which shall specify the
date selected by the Company for such prepayment, such date to
be not more than 90 days after the date of the occurrence of the
Cessation of Operation."
SECTION 6. ADDITIONAL REQUIREMENT APPLICABLE TO INSURANCE.
Section 7.3 of the Original Lease is hereby amended to include the
following additional subsection:
(c) So long as the Purchaser is the Holder of the Series
1994 Bond, the Company shall supply the Purchaser at least once
annually with a certificate or certificates of the insurers that
insurance policies satisfying the requirements of Sections 7.1 and
7.2 of the Lease are in force and effect.
SECTION 7. ADDITIONAL COVENANT OF TANGIBLE NET WORTH. In
addition to covenants set forth in Article VIII of the Original
Lease, as amended hereby, so long as the 1994 Bond shall be
Outstanding, the Company additionally covenants as follows:
For the fiscal year commencing November 28, 1993, the
Company shall maintain at all times a Consolidated Tangible Net
Worth (as herein defined) of not less than $62,000,000; provided,
that for each subsequent fiscal year of the Company, the Company
shall maintain at all times a Consolidated Tangible Net Worth equal
to the amount required under this provision for the preceding year
plus $3,000,000. For purposes of this provision "Consolidated
Tangible Net Worth" means the excess of the aggregate net worth of
the Company and its consolidated subsidiaries, less intangibles,
over the aggregate total liabilities of the Company and its
consolidated subsidiaries, determined in each case in accordance
with generally accepted accounting principles.
SECTION 8. AMENDED COVENANT TO MAINTAIN CORPORATE
EXISTENCE. Section 8.2 of the Original Lease is hereby amended to
read in full:
-5-
<PAGE> 115
"Section 8.2. Company to Maintain its Corporate Existence.
The Company covenants and agrees that it (a) will maintain and
preserve its corporate existence and organization, and its
authority to do business in the State of North Carolina and will
not voluntarily dissolve without first discharging its
obligations under this Lease, and (b) will not dissolve or
otherwise dispose of all or substantially all of its assets
(either in a single transaction or in a series of related
transactions), and will not merge or consolidate with any other
corporation and will not permit one or more corporations to
merge into or consolidate with it."
SECTION 9. INDEMNIFICATION OF LOCAL GOVERNMENT COMMISSION.
The provisions of Sections 8.10 and 8.11 of the Original Lease,
indemnifying the Authority and its members, officers and employees,
shall be apply with equal force and effect to the Local Government
Commission and its members, officers and employees.
SECTION 10. ADDITIONAL PROVISION CONCERNING NOTICES.
(a) Promptly after each June 30, the Company shall notify
the North Carolina Local Government Commission and the Authority,
by first class mail, of the aggregate principal amount of the Bonds
outstanding at the close of business on such June 30.
(b) Section 13.5 of the Original Lease is hereby amended by
adding thereto an additional paragraph to read in its entirety as
follows:
"So long as the Series 1994 Bond shall be owned by the
Purchaser, the Trustee shall provide to the Purchaser a copy of
each notice, certificate or other communication delivered to or
by the Trustee under the Lease to the Purchaser at the
following address:
Brown Brothers Harriman & Co.
1541 Walnut Street
Philadelphia, PA 19102
Attention: Carl S. Cutler"
In addition that section is amended to provide that notices to the
Company are to be addressed to:
Hunt Manufacturing Co.
230 South Broad Street
Philadelphia, PA 19102
Attention: Secretary
And notices to the Local Gover=ent Commission are to be addressed
to:
-6-
<PAGE> 116
Local Government Commission
325 North Salisbury Street
Raleigh, N.C. 27603-1385
IN WITNESS WHEREOF, the Company has caused this First
Supplemental Lease to be executed in its name and on its behalf by
the Manager of the Company and its corporate seal to be affixed
hereunder and attested by its Secretary, and the Authority has caused
this First Supplemental Lease to be executed in its name and on its
behalf by its Chairman or Vice Chairman and its corporate seal to be
affixed hereto and attested by its Secretary or any Assistant
Secretary as of the date and year first above written.
HUNT MANUFACTURING COMPANY
[SEAL]
Attest:----------------------- By: ----------------------------
Asst. Secretary Senior Vice President
IREDELL COUNTY INDUSTRIAL
FACILITIES AND POLLUTION
CONTROL FINANCING AUTHORITY
[SEAL]
Attest: ----------------------- By: --------------------------
(Assistant) Secretary Chairman
-7-
<PAGE> 117
COMMONWEALTH OF PENNSYLVANIA :
: ss
COUNTY OF PHILADELPHIA
On this, the 19th day of July 1994, before me the
undersigned, a notary public, personally appeared, W.C. Chandler
who acknowledged that he is (Vice) President of the HUNT
MANUFACTURING COMPANY and that he, as such officer, being authorized
to do so, executed the foregoing Supplemental Lease, for purposes
therein contained, by signing the name of such corporation by
himself as such officer.
IN WITNESS WHEREOF, I set my hand and official seal.
/s/ Lillian M. Barratt
-------------------------
Notary Public
|------------------------------------|
[SEAL] | Notarial Seal |
| Lillian M. Barratt, Notary Public |
| Philadelphia, Philadelphia County |
| My Commission Expires May 10, 1997 |
|------------------------------------|
Member, Pennsylvania Association of Notaries
COMMONWEALTH OF PENNSYLVANIA :
: ss
STATE OF NORTH CAROLINA :
On this, the 25th day of July, 1994 before me the
undersigned, a notary public, personally appeared J. D. Chamberlain
who acknowledged that he is (Vice) Chairman of the IREDELL COUNTY
INDUSTRIAL FACILITIES AND POLLUTION CONTROL FINANCING AUTHORITY
and that he, as such officer, being authorized to do so, executed
the foregoing Second Supplemental Lease, for purposes therein
contained, by signing the name of such Authority by himself as
such officer.
IN WITNESS WHEREOF, I set my hand and official seal.
/s/ XXXX
-------------------------
Notary Public
[SEAL]
My Commission Expires May 27, 1998
<PAGE> 118
EXHIBIT "A"
Descriiption of Real Property
BEGINNING at the point in the center of North Carolina Highway
No. 90 (West Front Street) leading from Statesville, North Carolina,
to Taylorsville, North Carolina, said beginning point being the
Southwest corner of the tract of land conveyed to the Carnation
Company by the State of North Carolina by Deed recorded in Deed Book
134, Page 125, Iredell County Registry, and running thence with the
center of said North Carolina Highway No. 90, North 62 degrees 22
minutes West 1043 feet to a point in the center of said North
Carolina Highway No. 90, at which point the center of said North
Carolina Highway No. 90 and the center of Mecham Road, a road
leading in a Northerly direction from said North Carolina Highway
No. 90 to what was formerly a part of the Piedmont Experiment
Station Farm intersect; thence with the center line of said Mecham
Road North 08 degrees 06 minutes East 805 feet to a point in the
center line of the railroad track of Alexander Railroad Company;
thence with the center line of the said railroad track of the
Alexander Railroad Company four calls as follows: (1) South 40
degrees 05 minutes East 839.45 feet to a point; (2) thence South 43
degrees 01 minutes East 159 feet to a point; (3) thence South 48
degrees 10 minutes East 168.6 feet to a point; (4) thence South 52
degrees 30 minutes East 161.7 feet to a point in the center of said
railroad track, and said point being the Northwest corner of the
said tract of land conveyed to the Carnation Company by the State of
North Carolina by the Deed referred to hereinabove; thence with the
Western line of said Carnation Company South 15 degrees 49 minutes
40 seconds West 324.45 feet to the point of BEGINNING, containing
12.76 acres, more or less, and the above description being according
to a map and survey made by Kestler & MacKay, Registered Surveyors,
dated April 13, 1964, revised on February 22, 1979, with said
revision being in regard to the location of buildings, paving, and
similar matters, and not in any way being a revision of property
lines, including courses, degrees and distances; and being the
identical property conveyed to National Canvas Products Corp. by
Deed of Olin Corporation, dated September 26, 1975, recorded in Deed
Book 578, Page 573, Iredell County Registry.
A-1
<PAGE> 119
EXHIBIT 10(e)
HUNT MANUFACTURING CO.
1988 LONG-TERM INCENTIVE COMPENSATION PLAN
SECTION I -- Purpose. The 1988 Long-Term Incentive Compensation Plan is
designed to enable Hunt Manufacturing Co. and its Subsidiaries to attract and
retain capable officers and other key management-level employees and to motivate
such personnel to promote the long-term best interests of the Company and
Subsidiaries by affording them the opportunity to earn incentive compensation
under the Plan based upon the attainment of specified long-term objectives
established by the Company.
SECTION 2 -- Defintions. Whenever the following terms are used in this
Plan, they shall have the meanings specified below, unless the context clearly
indicates to the contrary.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation Committee of the Board or
such other committee as may be designated by the Board to administer the
Plan.
(d) "Company" shall mean Hunt Manufacturing Co.
(e) "Employee" shall mean any officer or other key management-level
employee of the Company and any Subsidiary, including directors who are
also officers or key employees of the Company or any Subsidiary.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" shall mean: (i) if the principal market for
the Stock is a registered securities exchange, the mean between the highest
and lowest quoted selling prices of the shares on the applicable date, or,
if there are no such reported sales on that date, then on the last previous
date (within a reasonable period prior to the applicable date) on which
there were such reported sales; or (ii) such other method of determining
fair market value as shall be authorized by the Code, or the rules or
regulations thereunder, and adopted bv the Committee.
(h) "Long-Term Incentive Award" shall mean a Performance Share Award,
Performance Unit Award and/or Stock Grant granted under the Plan.
(i) "Participant" shall mean an Emplovee to whom a Performance Unit
Award, Performance Share Award or Stock Grant is granted under the Plan.
A-1
<PAGE> 120
(j) "Performance Share Award" shall mean an incentive award subject
to the requirements of Section 7 hereof and granted in accordance with the
terms of the Plan.
(k) "Performance Unit Award" shall mean an incentive award subject to
the requirements of Section 7 hereof and granted in accordance with the
terms of the Plan.
(1) "Plan" shall mean the Hunt Manufacturing Co. 1988 Long-Term
Incentive Compensation Plan.
(m) "Stock Grant" shall mean a grant of Stock subject to the
requirements of Section 8 hereof and granted in accordance with the terms
of the Plan.
(n) "Stock" shall mean the Common Stock, $.10 par value, of the
Company.
(o) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations, other
than the last corporation in the unbroken chain, then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
As used in the Plan, the masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
SECTION 3 -- Administration. The Plan shall be administered by the
Committee. The Committee shall consist of not less than three persons who shall
be appointed by, and shall serve at the pleasure of, the Board. Except to the
extent otherwise permitted under Section 16(b) of the Exchange Act and the rules
and regulations thereunder, no member of the Committee shall be eligible to
receive a Long-Term Incentive Award under the Plan while serving on the
Committee, nor shall any such member have been eligible for selection as a
person to whom Stock may be allocated or to whom a stock option or stock
appreciation right may be granted under the Plan or any other plan of the
Company or any of its affiliates at any time within one year prior to such
member's appointment to the Committee.
The Committee shall have full authority to construe and interpret the Plan,
and, subject to the provisions of the Plan: to establish, amend and rescind
appropriate rules and regulations relating to the Plan, to select the persons to
whom Long-Term Incentive Awards will be granted under the Plan, to grant such
awards and set the date of grant and other terms and conditions thereof, to
waive any supplemental terms and conditions imposed upon Long-Term Incentive
Awards by the Committee, to make recommendations to the Board concerning the
Plan, and to take all such steps and make all such determinations in connection
with the Plan and the awards granted hereunder as it may deem necessary or
advisable. All such rules, regulations, determinations and interpretations of
the Committee shall be final, conclusive and binding on all persons.
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SECTION 4 -- Stock Subject to the Plan. The number of shares of Stock
authorized for issuance under the Plan shall be 120,000 shares, subject to
adjustment as provided herein. Such shares may be authorized and unissued shares
or treasury shares, as the Board shall determine. Any shares subject to a
Long-Term Incentive Award which shall have terminated or not been earned shall
again be available for issuance under the Plan.
SECTION 5 -- Eligibility to Receive Awards. Persons eligible to receive
Long-Term Incentive Awards under the Plan shall be limited to Employees who the
Committee determines are in positions in which their decisions, actions and
counsel may significantly impact upon the profitability and success of the
Company.
SECTION 6 -- Form of Awards. Long-Term lncentive Awards may be made under
the Plan from time to time by the Committee in the form of Performance Unit
Awards, Performance Share Awards, Stock Grants, or a combination of the
foregoing.
SECTION 7 -- Performance Unit Awards and Performance Share Awards.
Performance Unit Awards shall entitle Participants to future cash compensation,
and Performance Share Awards shall entitle Participants to receive a specified
number of shares of Stock in the future, based, in each case, upon the
achievement of pre-established long-term performance targets. Each recipient of
any such award shall enter into, and be bound by the terms of, Performance Unit
Award and Performance Share Award agreements which shall include, or incorporate
by reference, the terms of the award and the Plan and such other terms and
conditions, not inconsistent with the Plan, as the Committee shall determine
from time to time. Performance Unit Awards and Performance Share Awards shall be
subject to the following terms and conditions:
(a) Performance Period. The Committee shall establish with respect to
each Performance Unit Award and Performance Share Award a performance
period or periods of not fewer than two years nor more than five years.
(b) Unit Value of Performance Unit Awards. The Committee shall
establish with respect to each Performance Unit Award a value for each unit
which value may be fixed or it may be variable pursuant to criteria
specified by the Committee.
(c) Performance Targets. The Committee shall establish with respect to
each Performance Unit Award and Performance Share Award a performance
target or range of performance targets for the applicable performance
period, the achievement of which shall determine the amount of cash and/or
number of shares of Stock earned by the Participant pursuant to the award
or awards.
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(d) Peformance Criteria. Performance targets established by the
Committee shall relate to: (i) corporate, subsidiary, division, or other
business unit performance and may be established in terms of growth in
gross revenue, pretax or after-tax earnings per share, ratios of earnings
to equity or assets, and/or (ii) such other measures or standards of
performance (including measures of the individual Participant's
performance) as may be established by the Committee in its sole discretion.
Multiple performance criteria may be used in establishing performance
targets and may have the same or different weighting, and may relate to
absolute performance or relative performance measured against other
companies, businesses or individuals.
(e) Payment of Performance Unit Awards and Performance Share Awards.
As promptly as practicable following the conclusion of each performance
period with respect to Performance Unit Awards and Performance Share
Awards, the Committee shall determine the extent to which the specified
performance targets have been attained and any supplemental terms and
conditions of the award or awards have been satisfied for such period. The
Committee further shall determine what, if any, compensation has been
earned pursuant to the award or awards. Payment of any amounts of cash and
distribution of any shares of Stock so earned shall be made as promptly as
practicable following the end of the performance period.
(f) Termination of Employment. In the event that a Participant ceases
to be employed by the Company and its Subsidiaries prior to the end of the
performance period or periods for any of his Performance Unit Awards or
Performance Share Awards by reason of death, disability, or retirement with
the consent of the Company or Subsidiary, such outstanding awards (assuming
satisfaction, or waiver by the Committee, of any supplementary terms and
conditions imposed on the award by the Committee), shall be payable as
promptly as practicable after the date of termination of employment, in an
amount calculated as provided in the second paragraph of Section 17(c)
hereof. Subject to Section 17 hereof, upon any other termination of
employment of a Participant prior to the end of the performance period or
periods for any of his Performance Unit Awards or Performance Share Awards,
such award or awards immediately shall terminate and be of no further force
or effect; provided, however, that the Committee, in its discretion, may
determine such award or awards to be payable as soon as practicable
following the date of termination of employment in an amount up to, but not
to exceed, the amount which would have been payable under this subsection
(f) if the Participant's termination of employment had been due to death,
disability or retirement.
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SECTION 8 -- Stock Grants. Stock Grants shall entitle Participants to re-
ceive a specified number of shares of Stock in the future if they remain in the
employ of the Company or a Subsidiary for a specified period. Each recipient of
any such grant shall enter into, and be bound by the terms of, Stock Grant
agreements which shall include, or incorporate by reference, the terms of the
grant and the Plan and such other terms and conditions, not inconsistent with
the Plan, as the Committee shall determine from time to time. Stock Grants shall
be subject to the following terms and conditions:
(a) Vesting Period. The Committee shall establish with respect to each
Stock Grant a vesting period of not fewer than two or more than five years,
at the end of which period the shares subject to the grant shall vest in
the Participant if he is then still in the employ of the Company or a
Subsidiary and if he has satisfied (or the Committee has waived) any
supplemental terms and conditions imposed upon the grant by the Committee.
(b) Distribution of Stock. As promptly as practicable following the
conclusion of each vesting period with respect to a Stock Grant, the
Committee shall determine whether the Participant has satisfied the
continued employment requirement and any supplemental terms and conditions
of the Stock Grant and the number of shares of Stock, if any, to be issued
with respect to the Stock Grant. Any Stock so issuable shall be issued as
promptly as practicable following the end of the vesting period.
(c) Termination of Employment. In the event that a Participant ceases
to be employed by the Company and its Subsidiaries prior to the end of the
vesting period or periods for any of his Stock Grants by reason of death,
disability or retirement with the consent of the Company or Subsidiary, and
provided that any supplemental terms and conditions imposed by the
Committee on his outstanding grants have been satisfied or waived by the
Committee, the grant shall vest immediately, but only in proportion to the
portion of the vesting period or periods during which the Participant was
employed by the Company or Subsidiary. Subject to Section 17 hereof, upon
any other termination of employment of a Participant prior to the end of
the vesting period or periods for any of his Stock Grants, such grant or
grants immediately shall terminate and be of no further force or effect;
provided, however, that the Committee, in its discretion, may determine
such award or awards to vest immediately in an amount up to, but not to
exceed, the extent to which it or they would have vested if the
Participant's termination of employment had been due to death, disability
or retirement.
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SECTION 9 -- Maximum Limit on Awards. Notwithstanding any other provision
of the Plan, the maximum amount of compensation (whether in the form of cash,
Stock or a combination thereof) which shall be payable to a Participant under
all Long-Term Incentive Awards granted to the Participant under the Plan with
respect to the same performance period shall not exceed one hundred and
twenty-five percent (125%) of the Participant's base salary as in effect on the
date the grant of the award is made, or, if more than one grant of a Long-Term
Incentive Award is made to the Participant with respect to the same performance
period, as in effect on the date of the first such grant. For purposes of
determining the maximum amount of an award under this Section 9, the value of
any Stock received or receivable pursuant to the award shall be the Fair Market
Value of such Stock at the date of grant of the award, without regard to any
increase or decrease in the value thereof thereafter.
SECTION 10 -- General Restrictions. Each Long-Term Incentive Award shall be
subject to the requirement that if at any time the Committee shall determine
that the listing, registration or qualification of the Plan or the Stock subject
or related thereto upon any securities exchange or under the applicable laws of
any jurisdiction; the consent or approval of any court or government regulatory
body; or an agreement with a Participant with respect to the disposition of
shares of Stock is necessary or desirable as a condition of, or in connection
with, the granting of such Long-Term Incentive Award or the issuance of Stock
thereunder, such Long-Term Incentive Award shall not be consummated, in whole or
in part, unless such listing, registration, qualification, consent, approval or
agreement, as the case may be, shall have been effective or obtained on
conditions acceptable to the Committee. Each Participant or his legal
representative or beneficiary also may be required to give satisfactory
assurance that shares of stock received under a Long-Term Incentive Award are
being acquired for investment and not with a view to distribution, and
certificates representing such shares may be legended accordingly.
SECTION 11 -- Single or Multiple Agreements. Multiple Long-Term lncentive
Awards or combinations thereof may be evidenced by a single agreement or
multiple agreements, as determined to be appropriate by the Committee.
SECTION 12 -- Rights of a Shareholder. The grant of any Long-Term Incentive
Award shall not entitle the holder thereof to any rights as a shareholder of the
Company with respect to any shares of Stock which may be issuable pursuant
thereto until certificates representing such Stock actually are issued pursuant
thereto.
SECTION 13 -- Rights to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any Participant
the right to continue in the emplov of the Company or any Subsidiary or affect
any right which the Company or any Subsidiary may have to terminate the
employment of such Participant, whether or not such termination might result in
a partial or total termination of the Participant's outstanding Long-Term
Incentive Awards.
SECTION 14 -- Withholding and Use of Stock to Satisfy Tax Obligations. The
obligations of the Company to make payment and/or deliver shares of Stock
pursuant to Long-Term Incentive Awards shall be subject to applicable tax
withholding and similar requirements.
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If such payment or delivery is subject to the withholding requirements of
applicable federal, state or local income tax, employment tax or similar tax
laws, the Committee, in its discretion (and subject to such withholding rules
("Withholding Rules") as may be adopted by the Committee), may permit
Participants to satisfy such withholding taxes, in whole or in part, by electing
to have the Company withhold shares of Stock issuable pursuant to the Long-Term
Incentive Award or by returning to the Company other shares of Stock. Such
shares shall be valued, for this purpose, at their Fair Market Value on the date
the amount of tax required to be withheld is determined (the "Determination
Date"). In the event shares of Stock acquired under the exercise of incentive
stock options are used to satisfy such withholding requirement, such shares of
Stock must have been held by the Participant for a period of not less than the
holding period described in Section 422A(a)(1) of the Code on the Determination
Date.
SECTION 15 -- Non-Assignability. No Long-Term Incentive Award under the
Plan shall be assignable or transferable by the Participant except by will or by
the laws of descent and distribution.
SECTION 16 -- Non-Uniform Determinations. The Committee's determinations
under the Plan (including, without limitation, determinations of the Employees
to receive Long-Term Incentive Awards; the form, amount, timing and possible
acceleration of such awards; the establishment or waiver of the terms and
provisions of such awards and the agreements evidencing such awards; and the
establishment of values and performance targets) need not be uniform and may be
made selectively among Employees who receive, or are eligible to receive,
Long-Term Incentive Awards under the Plan, whether or not such Employees are
similarly situated.
SECTION 17 -- Adjustments Upon Changes in Capitalization, Mergers and
Other Events. Notwithstanding any other provision of the plan, the number of
shares of Stock authorized for issuance under the Plan or issuable pursuant to
outstanding Long-Term Incentive Awards, and the terms and conditions of such
awards themselves, shall be subject to adjustment as set forth in this Section
17.
(a) Changes in Capitalization. In the event there is a stock dividend,
stock split, share combination, or similar change in the capitalization of
the Company: (i) the number of shares of Stock which may be issued under
the Plan, as provided in Section 4 hereof, and the number of shares
issuable pursuant to outstanding Long-Term Incentive Awards, shall be
appropriately adjusted, as determined by the Committee (which determination
shall be subject to ratification by the Board), to reflect such change; and
(ii) the Committee, in its discretion, may make adjustments to previously
established performance targets or other terms and conditions of
outstanding awards, including, without limitation, adjustment of underlying
measures of financial performance by the Company, its Subsidiaries,
divisions or other business units ("Award Adjustments"), appropriately to
reflect such change.
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(b) Material Extraordinary, Unusual or Non-Recurring Events. In the
event of any material extraordinary, unusual or non-recurring event,
including, without limitation, material changes in applicable laws or reg-
ulations, accounting practices, accounting credits or charges, or mergers,
acquisitions or divestitures not adjusted pursuant to other subsections of
this Section 1-7, the Committee, in its discretion, may make appropriate
Award Adjustments.
(c) Liquidations and Corporate Transactions. In the event the Company
is liquidated or a corporate transaction (as that term is described in
Section 425(a) of the Code and the regulations issued thereunder,
including, for example, a merger, consolidation, acquisition of property or
stock, separation or reorganization) occurs, each outstanding Long-Term
Incentive Award shall become payable, to the extent hereinafter provided,
on such date (the "Accelerated Date"), not later than the effective date of
the liquidation or corporate transaction, as the Committee shall determine.
In the case of outstanding Performance Unit Awards and Performance Share
Awards, the amount of cash payable and/or number of shares of Stock issuable
pursuant thereto shall be determined based upon the results of completed fiscal
years during the performance period or periods of such awards. Results for any
partial fiscal year shall be disregarded for this purpose. The extent to which
the specified performance targets have been met in each completed fiscal year
during the performance period of a given award shall be calculated, as nearly as
possible, on a percentage basis and averaged, and the resulting percentage (or,
in case only one fiscal year has been completed, the percentage for that one
year) shall be deemed to be the percentage of attainment for each remaining
fiscal year during the performance period for such award for the purposes of
determining the extent to which the award would have been earned over the full
performance period. The resulting amount and/or number of shares then shall be
prorated according to the portion of the performance period for such award which
has elapsed up to the Accelerated Date.
In the case of outstanding Stock Grants, they shall be deemed to vest on
the Accelerated Date, pro rated according to the portion of the performance
period elapsed up to the Accelerated Date.
Notwithstanding any other provision of the Plan, in the event of any actual
or proposed liquidation or corporate transaction, or in the event the Committee
determines that a change of control of the Company has occurred or is likely to
occur, the Committee, in its discretion, may: (i) determine any or all
outstanding Long-Term Incentive Awards to have been earned in full or in part
(but not less than the extent above provided in this subsection (c) or more than
the lesser of any maximum target established under the award or the maximum
limit specified in Section 9 hereof) even if the performance targets or other
criteria for such awards have not been met; and (ii) accelerate the date of
payment of any such awards.
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SECTION 18 -- Amendment and Termination. The Board may terminate or amend
the Plan at any time, except that, without shareholder approval, no such
amendment may: (a) increase the maximum number of shares of Stock which may be
issued under the Plan (other than as permitted under Section 17 hereof); (b)
increase the maximum limits on awards specified in Section 9 or the last
paragraph of Section 17(c) hereof; (e) materially modify the requirements for
eligibility for participation in the Plan; or (d) extend the term of the Plan as
specified in Section 21 hereof. Further, the termination or any modification or
amendment of the Plan shall not, without the consent of a Participant,
materially impair such Participant's rights under any outstanding Long-Term
Incentive Award.
SECTION 19 -- Effect on Other Plans. Nothing herein shall preclude a
Participant from participating in any other benefit or incentive plans or
programs of the Company or Subsidiaries for which such Participant may be
eligible.
SECTION 20 -- Governing Law. The Plan shall be governed by, and interpreted
in accordance with, the laws of the Commonwealth of Pennsylvania.
SECTION 21 -- Duration of the Plan. The Plan shall become effective January
27, 1988, but shall be subject to shareholder approval. If the Plan is not
approved by shareholders within twelve (12) months of that date, the Plan and
any Long-Term Incentive Awards granted hereunder shall be null and void. Unless
earlier terminated or extended as provided in the Plan, the Plan shall terminate
at 12:00 midnight January 27, 1998, and no Long-Term Incentive Awards shall be
granted under the Plan thereafter. However, termination of the Plan shall not
affect any Long-Term Incentive Awards theretofore granted, which awards shall
remain in effect in accordance with their terms and the terms of the Plan.
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EXHIBIT 10(g)
LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT dated April 20, 1988 between HUNT
MANUFACTURING CO., a Pennsylvania corporation (the " Company" and Ronald J.
Naples ("Grantee").
BACKGROUND
On February 7, 1983 the Compensation Committee of the Board of Directors of
the Company made a grant (the "Grant") of 112,500 shares of the Company's Common
Stock ("Shares") (adjusted to reflect all stock splits prior to the date of
this Agreement) to Grantee pursuant to the Company's 1983 Stock Option and Stock
Grant Plan (the "1983 Plan"). By its terms, the Grant is or was to vest, subject
to certain conditions, in five annual installments of 22,500 Shares each on
February 7 of each year from 1984 through 1988. In approving the 1983 Plan,
the Board of Directors of the Company recognized that the vesting of grants
under the 1983 Plan would result in substantial increased tax burdens on
recipients, and the Board of Directors agreed to consider authorizing the
Company to make loans to recipients in order to enable them to meet such
increased tax burdens. Grantee has requested, and the Board of Directors has
approved, such loans in connection with the vesting of installments of the
Grant, all on the terms and subject to the conditions hereinafter set forth.
This Agreement supersedes any prior loan and security agreement between the
Company and Grantee relating to loans to meet such increased tax burden.
NOW THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained and intending to be legally bound hereby, agree
as follows:
<PAGE> 129
1. Amount of Loan. The Company agrees to lend to Grantee, at his request,
an amount equal to the taxes, including, without limitation, all federal, state
and local income taxes, wage taxes and personal property taxes (collectively,
the "Incremental Tax") owed by Grantee with respect to each of the 1984 through
1988 tax years as a result of the vesting in him of installments of the Grant
(an "Installment"). The Incremental Tax for a tax year shall be finally
determined prior to the date on which Grantee's tax returns for such year are
filed, and the computation thereof shall be subject to review and approval by
the Company. Pending such final determination for a tax year, the Company, if so
requested by Grantee, shall make interim loans to Grantee, from time to time, in
amounts necessary to meet withholding or estimated tax obligations with respect
to the vesting in such year of an Installment; provided, however, that if such
interim loan or loans exceed the Incremental Tax for such year, any such excess
promptly shall be repaid by Grantee to the Company, with interest, or, if the
parties mutually agree, shall be credited against the Company's loan obligation
hereunder, if any, for the next succeeding tax year. Each loan to Grantee
pursuant to this Section 1 (the "Loan" or "Loans") shall be evidenced by
Grantee's note or notes in substantially the form attached hereto as Exhibit A
(the "Note" or "Notes"). Anything in this Section 1 to the contrary
notwithstanding, the Company shall not be obligated to make any new Loan to
Grantee if his employment by the Company has been terminated for any reason, or
if there shall have occurred and be continuing either an Event of Default (as
defined in Section 5 hereof), or any of the conditions set forth in Section 3(d)
hereof which would entitle the Company to declare any Note due and payable.
2. Interest Rate on Notes. Each Loan shall bear simple interest at the
annual interest rate established under section 7872 of the Internal Revenue
Code as the minimum rate necessary to avoid the imputation of interest with
respect to transactions which are subject to that section. Such interest shall
be due and payable each year on or before December 31, with a final payment of
all accrued and unpaid interest to be made at the time the principal amount of
each Note becomes due.
3. Term; Mandatory Prepayment; etc. The principal balance of
each Loan made with respect to the Incremental Taxes for a given year, and the
Note or Notes evidenced thereby, shall become due and payable on a date not
more than ten years after the Loan, as Grantee shall specify, subject to
earlier repayment in accordance with the following provisions:
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<PAGE> 130
(a) On or before April 15, 1989 and each annual anniversary thereof while
any Notes remain oustanding, Grantee shall make a mandatory prepayment on the
outstanding principal balance of the Notes in an amount equal to the amount (the
"Incremental Benefit"), if any, by which the net after-tax benefit to Grantee of
any dividends, and any bonuses in lieu of dividends under section 6(b) of the
1983 Plan, received by Grantee during the preceding calendar year with respect
to the Shares covered by the Grant exceeds the net after-tax cost to Grantee of
the interest paid by him on the Notes, or with respect to any other loans made
for the same purpose as the Loan made hereunder, during such preceding calendar
year. If more than one Note is then outstanding, any any such prepayments shall
be applied to the outstanding principal balance of such Note or Notes as Grantee
shall specify. In the absence of any such specification, any such prepayments
shall be applied to the Notes in order of their maturity (i.e. the oldest shall
be paid first). For the purposes of this subsection (a), federal, state and
local income, wage and similar taxes shall be taken into account in determining
Grantee's Incremental Benefit.
(b) If Grantee sells or otherwise disposes of any of the Shares received
upon the vesting of the Grant while any Note remains outstanding, he shall so
notify the Company immediately, and, not later than thirty days following such
sale or other disposition, Grantee shall make a mandatory prepayment (which
shall be applied as provided in subsection (a) above) on the outstanding
principal amount of the Notes in an amount equal to 40% of the net after-tax
proceeds to Grantee, in the case of a sale, or 40% of the fair market value (as
hereinafter defined) of such Shares on the date of their disposition, in the
case of any other disposition of such Shares; provided, however, that for the
purposes of this subsection (b), the following events shall not be deemed to
constitute a "sale or other disposition" of such Shares (or of other securities
received upon the conversion or exchange of such Shares):
(i) the transfer of any such Shares to or in
trust for Grantee's wife and/or children;
(ii) the transfer of any such Shares to
Grantee's estate upon Grantee's death;
(iii) the pledging of any such Shares by
Grantee, either as collateral for the
Loans or for other obligations;
(iv) the sale of any such Shares pursuant to
the provisions of Section 6 or 7 of this
agreement;
(v) the conversion or exchange of any such
Shares into or for other securities in
connection with any recapitalization or
stock-split;
(vi) the sale or other disposition of Shares
in connection with or following any
Change of Control of the Company (as
hereinafter defined); and
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<PAGE> 131
(vii) the transfer of any such Shares to the
Company in payment of the exercise price for
option shares, or in payment of withholding
taxes or any other obligations, under the
1983 Plan or any other stock plan of the
Company.
Any subsequent "sale or other disposition" of any Shares transferred pursuant to
the exempt events set forth in (i), (ii), (iii) and (iv) above shall constitute
a "sale or other disposition" subject to this subsection (b). As used in this
Agreement, the term "fair market value", as applied to the Shares (or other
securities received upon the conversion or exchange of Shares) shall have the
meaning set forth in section 5(a) of the 1983 Plan. For the purposes of this
Section 3, a "Change of Control" of the Company shall be deemed to mean (x) the
acquisition of direct or indirect beneficial ownership of 30% or more of the
then outstanding voting securities of the Company by any "person" (as such term
is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934),
other than the Company and any "person" who, on the date hereof, is a director
or officer of the Company, the husband, wife or issue of such a director
officer, or is listed in the Company's 1988 proxy statement as being the
beneficial owner of 5% or more of the Shares or (y) the Company's becoming a
subsidiary of another corporation, its merger or consolidation into another
corporation (other than a direct or indirect wholly-owned subsidiary of the
Company) or the sale of all or substantially all of the Company's assets.
(c) The Company, by notice to Grantee, may declare the Notes due and
payable: (i) 270 days following termination of Grantee's employment with the
Company by reason of his death, retirement (within the meaning of the first
sentence of section 5(g) of the 1983 Plan) or disability; and (ii) 60 days
following termination of Grantee's employment with the Company for any other
reason; provided, however, that the Company shall not be so entitled to
accelerate the Notes as a result of any termination of Grantee's employment
which occurs, for any reason other than his death, in connection with or
following any Change of Control of the Company.
(d) The Company, by not less than five days' notice to Grantee, may declare
the Notes due and payable at any time if it reasonably determines that the
Loans: (i) are in violation of any applicable law or of the rules or regulations
of any exchange on which securities of the Company are registered or sought to
be registered; or (ii) would prevent registration or qualification for sale of
any securities of the Company under the securities laws of any jurisdiction in
which such registration is sought by the Company.
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The Notes also may be prepaid voluntarily by Grantee at any time, without
premium or penalty. Any voluntary or mandatory prepayment on the Notes shall be
accompanied by accrued and unpaid interest on the amount of principal being so
prepaid.
4. Collateral.
(a) As security for the payment of the Notes, Grantee, upon the making
of each Loan, shall deposit with the Company certificates, endorsed in
blank, representing that number of Shares received upon the vesting of the
Grant, the fair market value of which shall be equal to not less than 115%
of the principal amount of such Loan. If at the time a Loan is made other
Loans are then outstanding, then, such additional number of Shares shall be
deposited by Grantee with the Company as shall be necessary to make the
fair market value of all collateral under this agreement equal to not less
than 115% of the outstanding principal balance of the Loans. Grantee hereby
grants to the Company a security interest in all Shares so deposited
("Pledged Shares"), and, except as otherwise hereinafter provided, in any
proceeds thereof (as defined in the Uniform Commercial Code of
Pennsylvania), as collateral security for the payment obligations of
Grantee under the Notes.
(b) Provided that no Event of Default (as defined in Section 5 hereof)
has occurred and is continuing, Grantee shall be entitled to receive any
cash dividends or other cash distributions (subject, however, to any
prepayment obligations pursuant to Section 3(b) hereof which may arise as a
result of such distribution) paid with respect to the Pledged Shares and to
vote such Pledged Shares and give consents, waivers and ratifications with
respect thereto.
(c) Stock dividends and other non-cash distributions paid or made with
respect to Pledged Shares shall be paid over to the Company by Grantee,
endorsed in blank (if appropriate) and shall be retained as additional
collateral. Further, if the Pledged Shares shall be changed or reclassified
as a result of a recapitalization, stocksplit, merger, consolidation,
reorganization or otherwise, the changed or reclassified shares (endorsed
in blank, if appropriate) shall be substituted for, and shall thereafter be
deemed to be, Pledged Shares and shall be held by the Company as collateral
in accordance with the applicable terms of this Agreement.
(d) Anything contained in this Agreement to the contrary
notwithstanding, the Company shall have the right to require Grantee
promptly to deposit additional Shares or other property acceptable to the
Company (endorsed in blank, if appropriate) to be held as collateral
hereunder if the Company determines that such additional collateral is
necessary or desirable in order to comply with any applicable legal
requirements, or to reasonably secure Grantee's obligations under the
Notes; provided, however, that unless required by applicable law, the
Company shall not have the right to require collateral hereunder, the
aggregate fair market value of which exceeds 115% of the unpaid principal
balance of the Notes (the "Maintenance Amount").
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<PAGE> 133
(e) Grantee shall have the right to substitute collateral for the
Pledged Shares, provided that such substitution does not violate any
applicable legal requirements and that the nature and assigned value of the
substituted collateral are reasonably acceptable to the Company. If any
collateral other than Shares is substituted under this Agreement,
appropriate modifications shall be made in this Agreement to reflect the
differences between such collateral and the Shares.
(f) Upon payment in full of the Notes, all collateral then held by the
Company hereunder shall be released to Grantee. Further, anything contained
in this Agreement to the contrary notwithstanding, if at any time the
aggregate fair market value of the Pledged Shares and other collateral held
hereunder exceeds the maintenance Amount (as defined in subsection (d)
above), the Company, at the request of Grantee, promptly shall release to
Grantee such amount of Pledged Shares and/or other collateral as will
reduce the fair market value of the remaining collateral held pursuant to
this Agreement to the Maintenance Amount, provided that such release of
collateral does not violate any applicable legal requirements.
5. Default. The following shall constitute events of default ("Events
of Default") under this Agreement and the Notes:
(i) if Grantee fails to pay any principal or
interest due under any Note (whether by
reason of acceleration, mandatory
pre-payment requirement or otherwise) within
fifteen days after notice thereof by the
Company;
(ii) if an application for the appointment of a
receiver or any assignment for the benefit
of creditors is made by Grantee, or a
petition under any of the provisions of the
Bankruptcy Code is filed by or against
Grantee or there occurs any other act of
insolvency (however expressed or indicated)
by Grantee; or
(iii) if Grantee breaches any other Provision of
this Agreement and such breach is not cured
within fifteen days after notice thereof
by the Company.
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<PAGE> 134
6. Remedies and Events of Default.
(a) if an Event of Default has occurred and is continuing, the
Company, by notice to Grantee, may declare the entire unpaid principal
amount of any of any of the Notes, and all interest accrued and
unpaid thereon, to be immediately due and payable. Upon any such
declaration, the Note or Notes, and all accrued and unpaid interest
thereon, shall be immediately due and payable without presentment, demand,
protest or further measures of any kind, all of which are hereby expressly
waived by Grantee. In the event that any Note is accelerated as herein
provided, then interest from and after any such Event of Default shall
accrue on the unpaid indebtedness evidenced by that Note at the prime rate
charged by Mellon Bank (East) N.A., Philadelphia, Pennsylvania (or its
successor), at the time of such Event of Default, or if such prime rate is
higher than the maximum interest rate permitted to be charged to
individuals under applicable law, then at such maximum legal interest rate.
(b) While any Event of Default is continuing, the Company, in its sole
discretion, may do any, or any combination of, the following:
(i) exercise any right or remedy of a
secured party under the Uniform Commercial
Code of Pennsylvania (the "Code"),
in which event any notice given to
Grantee in the manner provided in section
8(e) hereof at least five days
before any intended sale or disposition
of the collateral, will constitute
reasonablc notice;
(ii) cause the Pledged Shares to be registered
in the Company's name and receive all
dividends and all other distributions of
any kind on all or any of the Pledged
Shares;
(iii) vote all or any of the Pledged
Shares and give all consents,
waivers and ratifications with
respect thereto (if and to the
extent permitted by applicable
law); and generally act in any
other way as though it were the
outright owner thereof.
c Subject to the requirements of the Code, the Company shall not have
any duty to exercise any rights, privileges, options or powers with respect
to the collateral or any duty to sell or to otherwise realize upon any of
the collateral, as herein authorized, and the Company shall not be
responsible for any failure to do so or delay in so doing.
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<PAGE> 135
(d) Grantee hereby appoints the Company as his attorney-in-fact, for
him and on his behalf and in his name or otherwise, to complete any
instrument or transfer of the Pledged Shares or other collateral into the
name of the Company or its nominee or any purchaser, and to sign, seal,
execute and deliver all such other documents, and to take such other
actions, as Grantee is obliged (or may be required) to do hereunder or
under the Code, or which the Company considers necessary or desirable, to
protect, improve, perfect or enforce the security interest hereby created,
or otherwise to accomplish the purposes of this Agreement, which
appointment is irrevocable and coupled with an interest while any of
Grantee's payment obligations under any Note shall be outstanding.
(e) Following any declaration by the Company of an Event of Default,
the Company may apply the proceeds from the Pledged Shares and all
dividends and distributions collected thereon, after deducting any costs
and expenses of collection, sale and delivery (including, without
limitation, reasonable counsel fees and expenses) incurred by the Company
in connection therewith, to the payment of all obligations of Grantee to
the Company under the Notes, the application between principal and interest
due the Company to be such as the Company in its sole discretion may
determine; and, upon payment in full of such obligations, the Company shall
pay over or cause to be paid over any balance of such proceeds to Grantee.
(f) To the extent permitted by law, Grantee agrees not, at any time,
to claim or take the benefit of any appraisal, valuation, stay, extension,
moratorium or redemption law, now or hereafter in force in order to
prevent or delay the enforcement of this Agreement or the absolute sale of
all or any portion of the Pledged Shares, and Grantee hereby waives: (i)
the benefit of all such laws, and (ii) the right to have all or any portion
of the Pledged Shares marshalled upon any foreclosure thereof, and agrees
that any court having jurisdiction may order the transfer or sale of all or
any portion of the Pledged Shares as an entirety. To the extent permitted
by law, any transfer or sale of, or the granting of options to purchase, or
any other realization upon, all or any portion of the Pledged Shares, shall
operate to divest all right, title, interest, claim and demand, either at
law or in equity, of Grantee in and to the Pledged Shares so transferred,
sold, optioned or realized upon, and shall be a perpetual bar both in law
and in equity against Grantee and all persons claiming or attempting to
claim the Pledged Shares so transferred, sold, optioned or realized upon,
or any part thereof, from, through or under Grantee.
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<PAGE> 136
(g) Subject to the provisions of the Code, at any sale made pursuant
to subsection (a) above, whether public or private, the Company may bid for
or purchase any portion of all of the Pledged Shares offered for sale, and
the Company, upon compliance with the terms of sale, may hold, retain and
dispose of the Pledged Shares without further accountability therefor.
7. Option to Purchase Pledged Shares. Grantee hereby grants to the Company
an option to purchase any or all Pledged Shares for a purchase price per share
equal to the fair market value of such Shares on the date such option is
exercised. Such option shall be exercisable only during the continuation of an
Event of Default under this Agreement and shall be exercised by giving notice of
such exercise to Grantee, specifying the number of Pledged Shares to be
purchased and the fair market value thereof. If the Company exercises such
option, the purchase price for the purchased Shares shall be applied to the
payment of the Note or Notes, the application between Notes and the principal
and interest due thereon to be such as the Company, in its sole discretion, may
determine. Any balance of the purchase price remaining after full satisfaction
of the Notes shall be paid over to Grantee.
8. Miscellaneous.
(a) No failure or delay on the part of the Company in exercising any
right, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof, or the exercise
of any other right, power or privilege. The rights and remedies herein
expressly specified in this Agreement are cumulative and not exclusive of
any other rights or remedies which the Company would otherwise have.
(b) The parties expressly reserve the right to amend or modify this
Agreement and the Notes and to waive any of their respective rights or
remedies, including, without limitation, in the case of the Company, the
right to waive, or extend the period for the performance of, any and all
obligations of Grantee. However, any such amendment, modification or waiver
must be in writing and duly signed on behalf of the party to be bound
thereby. Further, any material amendment, modification or waiver by the
Company shall be subject to the approval of the Board of Directors of the
Compensation Committee of the Company.
(c) The invalidity of any provision of this Agreement or any Note
shall not affect the remaining provisions hereof or thereof, which shall
remain in full force and effect.
(d) This Agreement shall not be assignable by Grantee without the
consent of the Company. Subject to the foregoing, this Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and
their respective heirs, executors, legal representatives, successor and
assigns.
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<PAGE> 137
(e) All notices required or permitted to be given under this Agreement
or the Notes shall be deemed to be properly given if and when delivered in
person or three days after being mailed by certified or registered mail,
postage Prepaid, as follows: if to the Company, at 230 South Broad Street,
Philadelphia, Pennsylvania 19102, Attention: Corporate Secretary; and if to
Grantee, at the address set forth after his signature below or to such
other address as either party, from time to time may direct by notice so
given.
9. Headings. The headings in this Agreement are intended for convenience
only and shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
HUNT MANUFACTURING CO.
By:
----------------------------------------
Rudolph M. Peins, Jr.
Senior Vice President, Finance & Administration
------------------------------------------------
Grantee
Ronald J. Naples
366 Penn Road, Wynnewood, PA 19096
------------------------------------------------
Address
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<PAGE> 138
EXHIBIT A
$
----------
Form of
Promissory Note
Philadelphia, PA
, 19
FOR VALUE RECEIVED, and intending to be legally bound, the undersigned,
("Grantee"), hereby promises to pay to the order of HUNT
MANUFACTURING CO. (the "Company"), at its office located at 230 South Broad
Street, Philadelphia, Pennsylvania 19102, or at such other address at the
Company may specify from time to time, on , or on such earlier date or
dates as may be required pursuant to the terms of the Loan and Security
agreement dated between the Company and Grantee (the
"Agreement"), the aggregate principal amount outstanding under the Agreement,
in lawful currency of the United States.
Grantee further promises to pay to the Company interest on the
outstanding principal amount hereof at the rates and at the times set forth in
the Agreement.
Grantee hereby authorizes the Company to endorse the principal amount,
applicable interest rate, date and payments of each Loan (as defined in the
agreement) made hereunder and evidenced hereby on the schedule attached hereto
and made a part hereof.
This promissory note is one of the Notes referred to in the Agreement, and
is entitled to the benefits thereof and may be prepaid in whole or in part as
set forth therein.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, all amounts hereunder then remaining unpaid may become, or be
declared to be, immediately due and payable as provided in the Agreement.
This promissory note shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Pennsylvania.
-------------------------------------------
<PAGE> 139
EXHIBIT 10(h)
(rev. 3/25/88)
LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT dated April 20, 1988 between HUNT MANUFACTURING
CO., a Pennsylvania corporation (the "Company" and Robert B. Fritsch
("Grantee").
BACKGROUND
On May 1, 1987 the Compensation Committee of the Board of Directors of the
Company made a grant (the "Grant") of l5,000 shares of the Company's Common
Stock ("Shares") (adjusted to reflect all stock splits prior to the date of this
Agreement) to Grantee pursuant to the Company's 1983 Stock Option and Stock
Grant Plan (the "1983 Plan"). By its terms, the Grant is or was to vest, subject
to certain conditions, in four annual installments of 3.750 Shares each on April
22 of each year from 1988 through 1991. In approving the 1983 Plan, the Board of
Directors of the Company recognized that the vesting of grants under the 1983
Plan would result in substantial increased tax burdens on recipients, and the
Board of Directors agreed to consider authorizing the Company to make loans to
recipients in order to enable them to meet such increased tax burdens. Grantee
has requested, and the Board of Directors has approved, such loans in connection
with the vesting of installments of the Grant, all on the terms and subject to
the conditions hereinafter set forth. This Agreement supersedes any prior loan
and security agreement between the Company and Grantee relating to loans to meet
such increased tax burden.
NOW THEREFORE, the parties hereto, in consideration of the mutual covenants
herein contained and intending to be legally bound hereby, agree as follows:
1. Amount of Loan. The Company agrees to lend to Grantee, at his request,
an amount equal to the taxes, including without limitation, all federal, state
and local income taxes, wage taxes and personal property taxes (collectively,
the "Incremental Tax") owed by Grantee with respect to each of the 1988 through
1991 tax years as a result of the vesting in him of installments of the Grant
<PAGE> 140
(an "Installment"). The Incremental Tax for a tax year shall be finally
determined prior to the date on which Grantee's tax returns for such year are
filed, and the computation thereof shall be subject to review and approval by
the Company. Pending such final determination for a tax year, the Company, if so
requested by Grantee, shall make interim loans to Grantee, from time to time,
in amounts necessary to meet withholding or estimated tax obligations with
respect to the vesting in such year of an Installment; provided, however, that
if such interim loan or loans exceed the Incremental Tax for such year, any such
excess promptly shall be repaid by Grantee to the Company, with interest, or, if
the parties mutually agree, shall be credited against the Company's loan
obligation hereunder, if any, for the next succeeding tax year. Each loan to
Grantee pursuant to this Section 1 (the "Loan" or "Loans") shall be evidenced by
Grantee's note or notes in substantially the form attached hereto as Exhibit A
(the "Note" or "Notes"). Anything in this Section 1 to the contrary
notwithstanding, the Company shall not be obligated to make any new Loan to
Grantee if his employment by the Company has been terminated for any reason, or
if there shall have occurred and be continuing either an Event of Default (as
defined in Section 5 hereof), or any of the conditions set forth in Section 3(d)
hereof which would entitle the Company to declare any Note due and payable.
2. Interest Rate on Notes. Each Loan shall bear simple interest at the
annual interest rate established under section 7872 of the Internal Revenue Code
as the minimum rate necessary to avoid the imputation of interest with respect
to transactions which are subject to that section. Such interest shall be due
and payable each year on or before December 31, with a final payment of all
accrued and unpaid interest to be made at the time the principal amount of each
Note becomes due.
3. Term; mandatory Prepayment; etc. The principal balance of each Loan made
with respect to the Incremental Taxes for a given year, and the Note or Notes
evidenced thereby, shall become due and payable on a date not more than ten
years after the Loan, as Grantee shall specify, subject to earlier repayment in
accordance with the following provisions:
(a) on or before April 15, 1989 and each annual anniversary thereof
while any Notes remain outstanding, Grantee shall make a mandatory
prepayment on the outstanding principal balance of the Notes in an amount
equal to the amount (the "Incremental Benefit"), if any, by which the net
after-tax benefit to Grantee of any dividends, and any bonuses in lieu of
dividends under section 6(b) of the 1983 Plan, received by Grantee during
the preceding calendar year with respect to the Shares covered by the Grant
exceeds the net after-tax cost to Grantee of the interest paid by him on
the Notes, or with respect to any other loans made for the same
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<PAGE> 141
purpose as the Loans made hereunder, during such preceding calendar year.
If more than one Note is then outstanding, any such prepayments shall be
applied to the outstanding principal balance of such Note or Notes as
Grantee shall specify. In the absence of any such specification, any such
prepayments shall be applied to the Notes in order of their maturity (i.e.
the oldest shall be paid first). For the purposes of this subsection (a),
federal, state and local income, wage and similar taxes shall be taken into
account in determining Grantee's Incremental Benefit.
(b) If Grantee sells or otherwise disposes of any of the Shares received
upon the vesting of the Grant while any Note remains outstanding, he shall so
notify the Company immediately, and, not later than thirty days following such
sale or other disposition, Grantee shall make a mandatory prepayment (which
shall be applied as provided in subsection (a) above) on the outstanding
principal amount of the Notes in an amount equal to 40% of the net after-tax
proceeds to Grantee, in the case of a sale, or 40% of the fair market value (as
hereinafter defined) of such Shares on the date of their disposition, in the
case of any other disposition of such Shares; provided, however, that for the
purposes of this subsection (b), the following events shall not be deemed to
constitute a "sale or other disposition" of such Shares (or of other securities
received upon the conversion or exchange of such Shares):
(i) the transfer of any such Shares to or in
trust for Grantee's wife and/or children;
(ii) the transfer of any such Shares to
Grantee's estate upon Grantee's death;
(iii) the pledging of any such Shares by
Grantee, either as collateral for the
Loans or for other obligations;
(iv) the sale of any such Shares pursuant to the
provisions of Section 6 or 7 of this agreement;
(v) the conversion or exchange of any such
Shares into or for other securities in
connection with any recapitalization or
stock-split;
(vi) the sale or other disposition of Shares
in connection with or following any
Change of Control of the Company (as
hereinafter defined); and
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<PAGE> 142
(vii) the transfer of any such Shares to the
Company in payment of the exercise price
for option shares, or in payment of
withholding taxes or any other obligations,
under the 1983 Plan or any other stock plan
of the Company.
Any subsequent "sale or other disposition" of any Shares transferred
pursuant to the exempt events set forth in (i), (ii), (iii) and (iv) above
shall constitute a "sale or other disposition" subject to this subsection
(b). As used in this Agreement, the term "fair market value", as applied to
the Shares (or other securities received upon the conversion or exchange of
Shares) shall have the meaning set forth in section 5(a) of the 1983 Plan.
For the purposes of this Section 3, a "Change of Control" of the Company
shall be deemed to mean (x) the acquisition of direct or indirect
beneficial ownership of 30% or more of the then outstanding voting
securities of the Company by any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934), other than the
Company and any "person" who, on the date hereof, is a director or officer
of the Company, the husband, wife or issue of such a director officer, or
is listed in the Company's 1988 proxy statement as being the beneficial
owner of 5% or more of the Shares or (y) the Company's becoming a
subsidiary of another corporation, its merger or consolidation into another
corporation (other than a direct or indirect wholly-owned subsidiary of the
Company) or the sale of all or substantially all of the Company's assets.
(c) The Company, by notice to Grantee, may declare the Notes due and
payable: (i) 270 days following termination of Grantee's employment with
the Company by reason of his death, retirement (within the meaning of the
first sentence of section 5(g) of the 1983 Plan) or disability; and (ii)
60 days following termination of Grantee's employment with the Company for
any other reason; provided, however, that the Company shall not be so
entitled to accelerate the Notes as a result of any termination of
Grantee's employment which occurs, for any reason other than his death, in
connection with or following any Change of Control of the Company.
(d) The Company, by not less than five days' notice to Grantee, may
declare the Notes due and payable at any time if it reasonably determines
that the Loans: (i) are in violation of any applicable law or of the rules
or regulations of any exchange on which securities of the Company are
registered or sought to be registered; or (ii) would prevent registration
or qualification for sale of any securities of the Company under the
securities laws of any jurisdiction in which such registration is sought by
the Company.
The Notes also may be prepaid voluntarily by Grantee at any time, without
premium or penalty. Any voluntary or mandatory prepayment on the Notes shall be
accompanied by accrued and unpaid interest on the amount of principal being so
prepaid.
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<PAGE> 143
4. Collateral.
(a) As security for the payment of the Notes, Grantee, upon the making of
each Loan, shall deposit with the Company certificates, endorsed in blank,
representing that number of Shares received upon the vesting of the Grant, the
fair market value of which shall be equal to not less than 115% of the principal
amount of such Loan. If at the time a Loan is made other Loans are then
outstanding, then, such additional number of Shares shall be deposited by
Grantee with the Company as shall be necessary to make the fair market value of
all collateral under this Agreement equal to not less than 115% of the
outstanding principal balance of the Loans. Grantee hereby grants to the Company
a security interest in all Shares so deposited ("Pledged Shares"), and, except
as otherwise hereinafter provided, in any proceeds thereof (as defined in the
Uniform Commercial Code of Pennsylvania), as collateral security for the payment
obligations of Grantee under the Notes.
(b) Provided that no Event of Default (as defined in Section 5 hereof) has
occurred and is continuing, Grantee shall be entitled to receive any cash
dividends or other cash distributions (subject, however, to any prepayment
obligations pursuant to Section 3(b) hereof which may arise as a result of such
distribution) paid with respect to the Pledged Shares and to vote such Pledged
Shares and give consents, waivers and ratifications with respect thereto.
(c) Stock dividends and other non-cash distributions paid or made with
respect to Pledged Shares shall be paid over to the Company by Grantee, endorsed
in blank (if appropriate) and shall be retained as additional collateral.
Further, if the Pledged Shares shall be changed or reclassified as a result of a
recapitalization, stocksplit, merger, consolidation, reorganization or
otherwise, the changed or reclassified shares (endorsed in blank, if
appropriate) shall be substituted for, and shall thereafter be deemed to be,
Pledged Shares and shall be held by the Company as collateral in accordance with
the applicable terms of this Agreement.
(d) Anything contained in this Agreement to the contrary notwithstanding,
the Company shall have the right to require Grantee promptly to deposit
additional Shares or other property acceptable to the Company (endorsed in
blank, if appropriate) to be held as collateral hereunder if the Company
determines that such additional collateral is necessary or desirable in order to
comply with any applicable legal requirements, or to reasonably secure Grantee's
obligations under the Notes; provided, however, that unless required by
applicable law, the Company shall not have the right to require collateral
hereunder, the aggregate fair market value of which exceeds 115% of the unpaid
principal balance of the Notes (the "Maintenance Amount").
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<PAGE> 144
(e) Grantee shall have the right to substitute collateral for the Pledged
Shares, provided that such substitution does not violate any applicable legal
requirements and that the nature and assigned value of the substituted
collateral are reasonably acceptable to the Company. If any collateral other
than Shares is substituted under this Agreement, appropriate modifications shall
be made in this Agreement to reflect the differences between such collateral and
the Shares.
(f) Upon payment in full of the Notes, all collateral then held by the
Company hereunder shall be released to Grantee. Further, anything contained in
this Agreement to the contrary notwithstanding, if at any time the aggregate
fair market value of the Pledged Shares and other collateral held hereunder
exceeds the Maintenance Amount (as defined in subsection (d) above), the
Company, at the request of Grantee, promptly shall release to Grantee such
amount of Pledged Shares and/or other collateral as will reduce the fair market
value of the remaining collateral held pursuant to this Agreement to the
Maintenance Amount, provided that such release of collateral does not violate
any applicable legal requirements.
5. Default. The following shall constitute events of default ("Events of
Default") under this Agreement and the Notes:
(i) if Grantee fails to pay any principal or
interest due under any Note (whether by
reason of acceleration, mandatory
pre-payment requirement or otherwise) within
fifteen days after notice thereof by the
Company;
(ii) if an application for the appointment of
a receiver or any assignment for the
benefit of creditors is made by Grantee,
or a petition under any of the provisions
of the Bankruptcy Code is filed by
or against Grantee or there occurs any
other act of insolvency (however ex-
pressed or indicated) by Grantee; or
(iii) if Grantee breaches any other provision of
this Agreement and such breach is not cured
within fifteen days after notice thereof by
the Company.
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<PAGE> 145
6. Remedies Upon Events of Default.
(a) If an Event of Default has occurred and is continuing, the Company, by
notice to Grantee, may declare the entire unpaid principal amount of any or all
of the Notes, and all interest accrued and unpaid thereon, to be immediately due
and payable. Upon any such declaration, the Note or Notes, and all accrued and
unpaid interest thereon, shall be immediately due and payable without
presentment, demand, protest or further measures of any kind, all of which are
hereby expressly waived by Grantee. In the event that any Note is accelerated as
herein provided, then interest from and after any such Event of Default shall
accrue on the unpaid indebtedness evidenced by that Note at the prime rate
charged by Mellon Bank (East) N.A., Philadelphia, Pennsylvania (or its
successor), at the time of such Event of Default, or if such prime rate is
higher than the maximum interest rate permitted to be charged to individuals
under applicable law, then at such maximum legal interest rate.
(b) While any Event of Default is continuing, the Company, in its sole
discretion, may do any, or any combination of, the following:
(i) exercise any right or remedy of a
secured party under the Uniform Commercial
Code of Pennsylvania (the "Code"),
in which event any notice given to
Grantee in the manner provided in section
8(e) hereof at least five days
before any intended sale or disposition
of the collateral, will constitute
reasonable notice;
(ii) cause the Pledged Shares to be registered
in the Company's name and receive all
dividends and all other distributions of
any kind on all or any of the Pledged
Shares;
(iii) vote all or any of the Pledged Shares and
give all consents, waivers and
ratifications with respect thereto (if and
to the extent permitted by applicable law);
and generally act in any other way as
though it were the outright owner thereof.
(c) Subject to the requirements of the Code, the Company shall not have any
duty to exercise any rights, privileges, options or powers with respect to the
collateral or any duty to sell or to otherwise realize upon any of the
collateral, as herein authorized, and the Company shall not be responsible for
any failure to do so or delay in so doing.
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<PAGE> 146
(d) Grantee hereby appoints the Company as his attorney-in-fact, for him
and on his behalf, and in his name or otherwise, to complete any instrument of
transfer of the Pledged Shares or other collateral into the name of the Company
or its nominee or any purchaser, and to sign, seal, execute and deliver all such
other documents, and to take such other actions, as Grantee is obliged (or may
be required) to do hereunder or under the Code, or which the Company considers
necessary or desirable, to protect, improve, perfect or enforce the security
interest hereby created, or otherwise to accomplish the purposes of this
Agreement, which appointment is irrevocable and coupled with an interest while
any of Grantee's payment obligations under any Note shall be outstanding.
(e) Following any declaration by the Company of an Event of Default, the
Company may apply the proceeds from the Pledged Shares and all dividends and
distributions collected thereon, after deducting any costs and expenses of
collection, sale and delivery (including, without limitation, reasonable counsel
fees and expenses) incurred by the Company in connection therewith, to the
payment of all obligations of Grantee to the Company under the Notes, the
application between principal and interest due the Company to be such as the
Company in its sole discretion may determine; and, upon payment in full of such
obligations, the Company shall pay over or cause to be paid over any balance of
such proceeds to Grantee.
(f) To the extent permitted by law, Grantee agrees not, at any time, to
claim or take the benefit of any appraisal, valuation, stay, extension,
moratorium or redemption law, now or hereafter in force, in order to prevent or
delay the enforcement of this Agreement or the absolute sale of all or any
portion of the Pledged Shares, and Grantee hereby waives: (i) the benefit of all
such laws, and (ii) the right to have all or any portion of the Pledged Shares
marshalled upon any foreclosure thereof, and agrees that any court having
jurisdiction may order the transfer or sale of all or any portion of the Pledged
Shares as an entirety. To the extent permitted by law, any transfer or sale of,
or the granting of options to purchase, or any other realization upon, all or
any portion of the Pledged Shares, shall operate to divest all right, title,
interest, claim and demand, either at law or in equity, of Grantee in and to the
Pledged Shares so transferred, sold, optioned or realized upon, and shall be a
perpetual bar both in law and in equity against Grantee and all persons claiming
or attempting to claim the Pledged Shares so transferred, sold, optioned or
realized upon, or any part thereof, from, through or under Grantee.
(g) Subject to the provisions of the Code, at any sale made pursuant to
subsection (a) above, whether public or private, the Company may bid for or
purchase any portion of or all of the Pledged Shares offered for sale, and the
Company, upon compliance with the terms of sale, may hold, retain and dispose of
the Pledged Shares without further accountability therefor.
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<PAGE> 147
7. Option to Purchase Pledged Shares. Grantee hereby grants to the Company
an option to purchase any or all Pledged Shares for a purchase price per share
equal to the fair market value of such Shares on the date such option is
exercised. Such option shall be exercisable only during the continuation of an
Event of Default under this Agreement and shall be exercised by giving notice of
such exercise to Grantee, specifying the number of Pledged Shares to be
purchased and the fair market value thereof. If the Company exercises such
option, the purchase price for the purchased Shares shall be applied to the
payment of the Note or Notes, the application between Notes and the principal
and interest due thereon to be such as the Company, in its sole discretion, may
determine. Any balance of the purchase price remaining after full satisfaction
of the Notes shall be paid over to Grantee.
8. Miscellaneous.
(a) No failure or delay on the part of the Company in exercising any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege. The rights and remedies herein expressly specified in this
Agreement are cumulative and not exclusive of any other rights or remedies which
the Company would otherwise have.
(b) The parties expressly reserve the right to amend or modify this
Agreement and the Notes and to waive any of their respective rights or remedies,
including, without limitation, in the case of the Company, the right to waive,
or extend the period for the performance of, any and all obligations of Grantee.
However, any such amendment, modification or waiver must be in writing and duly
signed on behalf of the party to be bound thereby. Further, any material
amendment, modification or waiver by the Company shall be subject to the
approval of the Board of Directors or the Compensation Committee of the Company.
(c) The invalidity of any provision of this Agreement or any Note shall not
affect the remaining provisions hereof or thereof, which shall remain in full
force and effect.
(d) This Agreement shall not be assignable by Grantee without the consent
of the Company. Subject to the foregoing, this Agreement shall be binding upon,
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successor and assigns.
-9-
<PAGE> 148
(e) All notices required or permitted to be given under this Agreement or
the Notes shall be deemed to be properly given if and when delivered in person
or three days after being mailed by certified or registered mail, postage
Prepaid, as follows: if to the Company, at 230 South Broad Street, Philadelphia,
Pennsylvania 19102, Attention: Corporate Secretary; and if to Grantee, at the
address set forth after his signature below or to such other address as either
party, from time to time, may direct by notice so given.
9. Headings. The headings in this Agreement are intended for convenience
only and shall not affect the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
HUNT MANUFACTURING CO.
By
--------------------------------------------------
Rudolph M. Peins, Jr.
Senior Vice President, Finance & Administration
--------------------------------------------------
Grantee
Robert B. Fritsch
2 Hunter Dr.
Cherry Hill, NJ 08003
--------------------------------------------------
Address
-10-
<PAGE> 149
EXHIBIT A
$
-----------------
Form of
Promissory Note
Philadelphia, PA
, 19
FOR VALUE RECEIVED, and intending to be legally bound, the undersigned,
("Grantee"), hereby promises to pay to the order of HUNT
MANUFACTURING CO. (the"Company"), at its office located at 230 South Broad
Street, Philadelphia, Pennsylvania 19102, or at such other address at the
Company may specify from time to time, on , or on such
earlier date or dates as may be required pursuant to the terms of the Loan and
Security Agreement dated between the Company and Grantee (the "Agreement"), the
aggregate principal amount outstanding under the Agreement, in lawful currency
of the United States.
Grantee further promises to pay to the Company interest on the outstanding
principal amount hereof at the rates and at the times set forth in the
Agreement.
Grantee hereby authorizes the Company to endorse the principal amount,
applicable interest rate, date and payments of each Loan (as defined in the
agreement) made hereunder and evidenced hereby on the schedule attached hereto
and made a part hereof.
This promissory note is one of the Notes referred to in the Agreement, and
is entitled to the benefits thereof and may be prepaid in whole or in part as
set forth therein.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, all amounts hereunder then remaining unpaid may become, or be
declared to be, immediately due and payable as provided in the Agreement.
This promissory note shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Pennsylvania.
--------------------------------------------------
<PAGE> 150
EHXIBIT 10(i)(1)
FORM OF
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of , 199 , between HUNT MANUFACTURING
CO., a Pennsylvania corporation (the "Company"), and
(the "Executive").
W I T N E S S E T H T H A T
WHEREAS, the Board of Directors of the Company has determined that
it is in the best interests of the Company and its shareholders that the
Company and its subsidiaries be able to attract, retain and motivate highly-
qualified executive personnel and, in particular, that they be assured of
continuity of management in the event of any actual or threatened change in
control of the Company; and
WHEREAS, the Board of Directors of the Company believes that the
execution by the Company of change in control agreements with certain
executive personnel, including the Executive, is an important factor in
achieving this desired end.
THEREFORE, in consideration of the mutual obligations and
agreements contained herein, and intending to be legally bound hereby, the
Executive and the Company agree as follows:
1. Term of Agreement.
This Agreement shall become effective at such time (the "Effective
Date"), if any, as a Change in Control (as defined in Section 2 hereof) of
the Company occurs; provided, however, that this Agreement shall terminate
and be of no further force and effect if: (a) a Change in Control shall not
have occurred by December 31, 1999, or such later date as shall have been
approved by the Board of Directors of the Company and agreed to by the
Executive; or (b) prior to the Effective Date, the Executive ceases, for any
reason, to be an officer of the Company, except that if the Executive's
status as an officer of the Company is terminated by the Company prior to a
Change in Control and it is reasonably demonstrated that such termination (i)
was at the request of a person or entity who or which has taken steps
reasonably calculated to effect an imminent Change in Control or (ii)
otherwise arose in connection with or in anticipation of an imminent Change
in Control, then this Agreement shall become effective, and the "Effective
Date" shall be, the date of such termination.
2. Change in Control.
As used in this Agreement, a "Change in Control" of the Company
shall be deemed to have occurred if:
(a) any person (a "Person"), as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than (i) the Company and/or its wholly-owned
subsidiaries, (ii) any ESOP or other employee benefit plan of the Company,
and any trustee or other fiduciary in such capacity holding securities under
such plan, (iii) any corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company or (iv) the Executive or any group of
Persons of which he voluntarily is a part), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
<PAGE> 151
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities, or such
lesser percentage of voting power, but not less than 15%, as the Board of
Directors of the Company shall determine; provided, however that a Change in
Control shall not be deemed to have occurred under the provisions of this
subsection (a) by reason of the beneficial ownership of voting securities by
members of the Bartol Family (as defined below) unless and until the
beneficial ownership of all members of the Bartol Family (including any other
individuals or entities who or which, together with any member or members of
the Bartol Family, are deemed under Sections 13(d) or 14(d) of the Exchange
Act to constitute a single Person) exceeds 50% of the combined voting power
of the Company's then outstanding securities;
(b) during any two-year period beginning after October 1,
1994, Directors of the Company in office at the beginning of such period plus
any new Director (other than a Director designated by a Person who has
entered into an agreement with the Company to effect a transaction within the
purview of subsections (a) or (c) hereof) whose election by the Board of
Directors of the Company, or whose nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the Directors
then still in office who either were Directors at the beginning of the period
or whose election or nomination for election was previously so approved,
shall cease for any reason to constitute at least a majority of the Board; or
(c) the Company's shareholders or the Company's Board of
Directors shall approve (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant
to which the Company's voting common shares (the "Common Shares") would be
converted into cash, securities and/or other property, other than a merger of
the Company in which holders of Common Shares immediately prior to the merger
have the same proportionate ownership of common shares of the surviving
corporation immediately after the merger as they had in the Common Shares
immediately before, (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
the assets or earning power of the Company, or (iii) the liquidation or
dissolution of the Company.
As used in this Agreement, "members of the Bartol Family" shall
mean the wife, children and descendants of such children of the late George
E. Bartol III, their respective spouses and estates, any trusts primarily for
the benefit of any of the foregoing and the administrators, executors and
trustees of any such estates or trusts.
3. Employment.
(a) The Company hereby agrees to continue the Executive in
its employ (directly and/or indirectly through a subsidiary), and the
Executive hereby agrees to remain in the employ of the Company (and/or any
such subsidiary), for not less than the period commencing on the Effective
Date and ending on the earlier to occur of the second anniversary of the
Effective Date or the first day of the month following the Executive's 65th
birthday (the "Employment Period"), subject to earlier termination as
hereinafter provided in Section 5(a), to exercise such authority, to perform
such duties, and to possess such status, offices, support staff, titles and
reporting requirements as are at least commensurate with those generally
exercised, performed and possessed by the Executive during the 90-day period
immediately prior to the Effective Date or such lesser period as the
Executive shall have been employed by the Company or its subsidiaries (the
"Base Period"). Such services shall be performed at the location where the
Executive was primarily employed during the Base Period or at such other
location as the Company may reasonably require; provided that the Executive's
travel requirements shall not be materially different in nature or scope than
during the Base Period and the Executive shall not be required to accept a
<PAGE> 152
primary employment location which is more than 25 miles from the location at
which he primarily was employed during the Base Period. During the
Employment Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to perform faithfully,
diligently and efficiently his responsibilities hereunder; provided, however,
that the Executive may (i) serve on corporate, civic or charitable boards or
committees, (ii) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (iii) manage personal investments, so long as
such activities do not materially interfere with the performance of the
Executive's responsibilities hereunder. To the extent that any such
activities have been conducted by the Executive prior to the Effective Date,
the continued conduct of such activities (or activities similar in nature and
scope thereto) thereafter shall be deemed not to interfere with the
performance of the Executive's responsibilities hereunder.
(b) The Executive acknowledges that nothing in this Agreement
shall be deemed to give him continued rights to employment by the Company or
its subsidiaries in an executive or any other capacity with respect to any
period prior to the Effective Date, if any, of this Agreement, or, subject to
Section 1(b) hereof, to entitle the Executive to compensation or benefits in
the event of termination of the Executive's employment prior to the Effective
Date.
4. Compensation, Benefits, etc. During the Employment Period,
the Executive shall be compensated as follows:
(a) The Executive shall receive an annual cash salary,
payable not less frequently than semi-monthly, which is not less than (i) the
average of the Executive's aggregate compensation from the Company and its
subsidiaries during the two calendar years preceding the Effective Date (or
such lesser period as the Executive shall have been employed by the Company
or its subsidiaries), as reported on the Executive's Internal Revenue Service
Forms W-2 (other than compensation relating to relocation expense; the grant,
exercise or settlement of stock options; the sale or other disposition of
shares received upon exercise or settlement of such options; the grant,
vesting or settlement of stock grants made under the Company's 1983 and 1993
Stock Option and Grant Plans; or the sale or other disposition of shares
received upon vesting or settlement of such grants), or (ii) at the
Executive's sole option, exercised in writing within 90 days after the
Effective Date, the Executive's average annual base salary from the Company
and its subsidiaries during such two-year period (or such lesser period as
the Executive shall have been employed by the Company or its subsidiaries).
(b) The Executive shall be entitled to receive fringe
benefits, employee benefits and perquisites (including, but not limited to,
vacation, automobile, medical, disability, dental and life insurance
benefits) which are at least as favorable to the Executive as the fringe
benefits, employee benefits and perquisites provided directly or indirectly
by the Company to executives with comparable duties.
(c) If the Executive limits his compensation pursuant to
subsection (a)(ii) to his or her average base salary (but not otherwise), he
or she shall be eligible to participate in all stock option, restricted stock
and other short-term and long-term incentive compensation plans and programs
which provide opportunities to receive compensation which are at least as
favorable to the Executive as the opportunities provided by the Company to
executives with comparable duties.
(d) Notwithstanding any other provision of this Agreement
(whether in this Section 4, in Section 6 or elsewhere), (i) the Board of
Directors may authorize an increase in the amount, duration and nature of and
or the acceleration of any compensation or benefits payable under this
Agreement, as well as waive or reduce the requirements for entitlement
thereto, and (ii) the Company may deduct from amounts otherwise payable to
the Executive such amounts as it reasonably believes it is required to
withhold for the payment of federal, state and local taxes.
<PAGE> 153
5. Early Termination of Employment.
(a) The Executive's Employment Period shall terminate prior
to its stated expiration set forth in Section 3 hereof in the following
circumstances:
(i) the Executive's Death;
(ii) at the option of the Company in the event of
the Executive's Disability (as defined below);
(iii) at the option of the Company for Cause (as
defined below) or without Cause; or
(iv) upon resignation of the Executive in the
circumstances set forth in Section 6(b)(ii) or
(iii).
For purposes of this Agreement: "Disability" shall mean: (1) a physical or
mental disability which, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company
or its insurers and reasonably acceptable to the Executive or the Executive's
legal representative or (2) if the Company then has in effect a disability
plan covering executives generally, including the Executive, the definition
of covered total and permanent "disability" set forth in such plan; and
"Cause" shall mean (A) willful and material breach of this Agreement by the
Executive, (B) dishonesty, fraud, willful malfeasance, gross negligence or
other gross misconduct, in each case relating to the performance of the
Executive's employment hereunder, which is materially injurious to the
Company, or (C) conviction of or plea of guilty to a felony; such Cause to be
determined, in each case, by a resolution approved by at least two-thirds of
the Directors of the Company after having afforded the Executive a reasonable
opportunity to appear before the Board of Directors of the Company and
present his position.
(b) The Company shall give the Executive not less than 60
days prior written notice of any intended termination of the Executive's
employment by the Company and its subsidiaries for Cause or without Cause.
In the event of a proposed termination for Cause, such notice shall specify
the grounds for such termination, and the Company and its subsidiaries shall
only be entitled to terminate the Executive for Cause if the Executive shall
have failed to remedy such Cause within said 60-day notice period. The
Executive shall give the Company not less than 60 days prior written notice
of any proposed resignation by the Executive.
6. Compensation, Benefits, etc. upon Termination.
(a) If the Executive's Employment Period is terminated by
death, Disability, resignation (other than
a resignation in the circumstances set forth in subsection (b) below) or for
Cause, the Company shall be obligated only to provide the compensation,
benefits, etc. set forth in Section 4 hereof up to the date of termination;
provided, however, that the Executive shall be entitled to such additional
compensation and benefits, if any, as may be provided for under the express
terms of any benefit plans or programs of the Company and its subsidiaries in
which he is then participating.
(b) If the Executive's Employment Period is terminated by:
(i) the Company without Cause;
(ii) resignation of the Executive at any time during
the four-month period commencing one year after
the Effective Date; or
<PAGE> 154
(iii) resignation of the Executive as a result of:
(1) a material change in the nature or scope of
the Executive's authorities, powers, functions
or duties from those described in Section 3
hereof, a reduction in the Executive's total
compensation, benefits, etc. from those
provided for in Section 4 hereof, or a material
breach by the Company of any other provision of
this Agreement, or (2) a reasonable
determination by the Executive that, as a
result of a Change in Control of the Company
and a change in the Company's circumstances
and/or operations thereafter significantly
affecting his or her position, he or she is
unable effectively to exercise the authorities,
powers, functions or duties contemplated by
Section 3 hereof; there shall have been deemed
to be a "Covered Termination" for the purposes
of this Agreement, and the Executive shall be
entitled to the compensation, benefits, etc.
hereinafter provided in this Section 6.
(c) In the event of a Covered Termination of the Executive
during the Employment Period, the Company shall pay or cause to be paid to
the Executive in cash a severance allowance (the "Severance Allowance") equal
to **** times the sum of the amounts determined in accordance with the
following paragraphs (i) and (ii):
(i) an amount equivalent to the highest annualized
base salary which the Executive was entitled to
receive from the Company and its subsidiaries
at any time during the Employment Period prior
to the Covered Termination; and
(ii) an amount equal to the average of the aggregate
annual cash amounts paid to the Executive under
all applicable short-term and long-term
incentive compensation plans maintained by the
Company and its subsidiaries during the three
calendar years prior to the year such Covered
Termination occurs (provided, however, that (1)
such calculation shall be made on an individual
incentive plan basis, (2) in determining the
average amount paid under a given incentive
plan during such period there shall be excluded
any year in which no amounts were paid to the
Executive under the plan, and (3) there shall
be excluded from such calculation any amounts
paid to the Executive under any such incentive
compensation plan as a result of the
acceleration of such payments under such plan
due to termination of the plan, a Change in
Control of the Company or a similar
occurrence).
- -----------
**** 2.99 times in the case of Ronald J. Naples, 2 times in the case of
other executive officers; and one time in the case of other officers.
<PAGE> 155
(d) The Severance Allowance shall be paid to the Executive:
(i) in a lump sum within 60 days after the date of any termination of the
Executive covered by Sections 6(b)(i) or 6(b)(iii)(1); and (ii) in *****
equal monthly installments beginning within 30 days after any termination by
the Executive covered by Sections 6(b)(ii) or 6(b)(iii)(2), subject to
subsection (h) below.
(e) Subject to subsection (h) below:
(i) for a period of one year following a Covered
Termination of the Executive, the Company shall
make or cause to be made available to the
Executive, at its expense, (1) outplacement
counseling and other outplacement services
comparable to those available for the Company's
senior executives prior to the Effective Date
and (2) an office with standard telephone
equipment at the Executive's primary place of
business prior to termination, or at another
location reasonably satisfactory to the
Executive; and
(ii) for a period of ****** years following a
Covered Termination of the Executive, the
Executive and the Executive's dependents shall
be entitled to participate in the Company's
life, medical and dental insurance plans at the
Company's expense (to the extent provided in
such plans at the time of such covered
Termination) as if the Executive were still
employed by the Company or its subsidiaries
under this Agreement. The Executive also shall
be entitled during such period to the continued
use of an automobile, at the Company's or its
subsidiaries' expense, if one was being
provided by the Company or its subsidiaries for
the Executive's use at the time of such Covered
Termination or at any time during the Base
Period; provided that if such automobile is
under lease, such right to continued use shall
not extend beyond the expiration of the term of
such lease, but if the Company, its
subsidiaries or the Executive have an option to
purchase the automobile under such lease, the
Executive shall have the right to cause such
purchase option to be exercised and to purchase
said automobile at its depreciated cost (as
determined in accordance with the Company's
policies as in effect on October 1, 1994).
(f) If, despite the provisions of subsection (e) above, life,
medical or dental insurance benefits are not paid or provided under any such
plan to the Executive or his dependents because the Executive is no longer
an employee of the Company or its subsidiaries, the Company itself shall, to
the extent necessary, pay or otherwise provide for such benefits to the
Executive or his dependents.
- -----------
***** 36 months in the case of Mr. Naples, 24 months for other
executive officers; and 12 months for other officers.
****** 3 years in the case of Mr. Naples; 2 years for other executive
officers; and 1 year for other officers.
<PAGE> 156
(g) Except as expressly provided in subsections (a), (c),
(d), (e) and (f) above or under the express terms of any compensation or
benefit plans of the Company or its subsidiaries applicable to the Executive,
upon the date of any Covered Termination, all other compensation and benefits
of the Executive shall cease to accrue; provided, however, that the Severance
Allowance payable hereunder shall be in lieu of any severance payments to
which the Executive might otherwise be entitled under the terms of any
severance pay plan, policy or arrangement maintained by the Company and shall
be credited against any severance payments to which the Executive may be
entitled by statute.
(h) Except as otherwise provided under the express terms of
any compensation or benefit plans of the Company or its subsidiaries, the
Company's obligations to make payments or continue benefits pursuant to
sections 6(d)(ii), 6(e) and 6(f) shall terminate on the earlier to occur of:
(i) the termination date therefor specified in such sections and (ii) the
date of a determination by a court or arbitration panel pursuant to Sections
7(c) or 9 hereof, respectively, that the Executive has materially and
willfully violated the provisions of Section 7(a) or (b) hereof. Further, in
the event the Executive becomes employed (as defined below) during the period
with respect to which payments or benefits are continuing pursuant to
Sections 6(d)(ii), 6(e) and/or 6(f) hereof: (1) the Executive shall notify
the Company not later than the day such employment commences, (2) the
benefits provided for in Sections 6(e) and 6(f) shall terminate as of the
date of such employment, and (3) the amount of the Severance Allowance which
the Company is obligated to pay the Executive pursuant to Section 6(d)(ii)
shall be reduced on a continuing basis by the Internal Revenue Service Form
W-2 or equivalent compensation earned by the Executive from such new
employment. For the purposes of this subsection (h), the Executive shall be
deemed to have become "employed" by another entity or person only if the
Executive becomes essentially a full-time employee of a person or an entity
(not more than 30% of which is owned by the Executive and/or members of his
family); and the Executive's "family" shall mean his parents, his siblings
and their spouses, his children and their spouses, and the Executive's spouse
and her parents and siblings. Nothing herein shall relieve the Company of
its obligations for compensation or benefits accrued up to the time of
termination provided for herein.
7. Confidentiality and Non-Competition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company and its subsidiaries all secret or confidential
information, knowledge or data relating to the Company or any of its
subsidiaries and their respective businesses which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its subsidiaries and which shall not have become public knowledge (other than
by acts by the Executive or his representatives in violation of this
Agreement). After termination of the Executive's employment with the Company
and its subsidiaries for any reason, the Executive shall not, without the
prior written consent of the Company, use for the Executive's own benefit or
communicate or divulge to anyone other than the Company and those designated
by it any such information, knowledge or data.
(b) The Executive agrees that, during the Executive's
employment by the Company or any of its subsidiaries and, if Executive's
employment is terminated by Executive pursuant to Sections 6(b)(ii) or
6(b)(iii)(2), for so long as payments are being made to the Executive
pursuant to Section 6(d)(ii) hereof, the Executive shall not: (i) directly
or indirectly, anywhere in the world, manufacture, produce, sell or market or
cause or assist any other person or entity to manufacture, produce, sell or
market any product in direct competition with any product then sold or
marketed by the Company or any of its subsidiaries, whether or not utilizing
any confidential information of the Company or any of its subsidiaries, or
(ii) be an employee, employer, consultant, officer, director, partner,
trustee or shareholder of more than 5% of the outstanding common stock of any
person or entity that is engaged in any such activities.
<PAGE> 157
(c) The Executive acknowledges that the covenants of the
Executive contained in subsections (a) and (b) above are reasonable and
necessary for the protection of the Company's legitimate interests. However,
in the event that the duration and/or scope of any such covenant of the
Executive are finally determined by any court or arbitration panel of
applicable jurisdiction to be of such length or breadth as to render the
covenant unenforceable, the duration and/or scope of such covenant shall be
reduced to such length and/or breadth as shall render such covenant
enforceable. Notwithstanding the provisions of Section 9 hereof, the Company
shall be entitled to seek equitable remedies, including injunctive relief, in
any court of applicable jurisdiction in the event of any breach or threatened
breach by the Executive of the covenants contained in subsection (a) above
(but no such equitable judicial remedy shall be available for a breach of
subsection (b) above).
(d) In the event that it is determined by a court or
arbitration panel pursuant to Sections 7(c) or 9 hereof, respectively, that
Executive has materially and willfully violated the provisions of Section
7(a) or (b) hereof, the court or arbitration panel may award damages to the
Company; provided, however, that such damages, in the case of a violation of
Section 7(b) hereof, shall not exceed the amount of the compensation and the
cost to the Company of the benefits received by the Executive under this
Agreement during the period that the violation existed plus interest thereon.
In no event shall an asserted violation of the provisions of Section 7(a) or
(b) hereof constitute a basis for deferring or withholding any compensation
or benefits otherwise payable to the Executive under this Agreement unless
and until the existence of a material and willful violation is determined by
a court or by arbitration pursuant to Sections 7(c) or 9 hereof,
respectively.
8. Set-Off Mitigation. Subject to Section 6(h) hereof, the
Company's obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any
of the provisions of this Agreement.
9. Arbitration; Costs and Expenses of Enforcement.
(a) Except as otherwise provided in Section 7(c) and 10(b)
hereof, any controversy or claim arising out of or relating to this Agreement
or the breach thereof which cannot promptly be resolved by the parties shall
be promptly submitted to and settled exclusively by arbitration in the City
of Philadelphia, Pennsylvania in accordance with the laws of the Commonwealth
of Pennsylvania by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and the third of whom shall be appointed by the
first two arbitrators. The arbitration shall be conducted in accordance with
the rules of the American Arbitration Association, except with respect to the
selection of arbitrators which shall be as provided in this Section 9.
Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
(b) In the event that it shall be necessary or desirable for
the Executive to retain legal counsel and/or incur other costs and expenses
in connection with the enforcement of any and all of his rights under this
Agreement, the Company shall pay (or the Executive shall be entitled to
recover from the Company, as the case may be) his reasonable attorneys' fees
and costs and expenses in connection with the enforcement of his said rights
(including those incurred in or related to any arbitration proceedings
provided for in subsection (a) above and the enforcement of any arbitration
award in court), regardless of the final outcome, unless the arbitrators or a
court shall determine that under the circumstances recovery by the Executive
of all or a part of any such fees and costs and expenses would be unjust.
<PAGE> 158
10. Limitation on Payment Obligation.
(a) For purposes of this Section 10, all terms capitalized
but not otherwise defined herein shall have the
meanings as set forth in Section 280G of the Internal Revenue Code of 1986,
as amended, together with any applicable regulations thereunder (the "Code").
In addition:
(i) The term "Parachute Payment" shall mean a
payment described in Section 280G(b)(2)(A) or
Section 280G(b)(2)(B) (including, but not limited
to, any stock option rights, stock grants and
other cash and noncash compensation amounts that
are treated as payments under either such
section), and not excluded under Section
280G(b)(4)(A) or *280G(b)(6), of the Code;
(ii) The term "Reasonable Compensation" shall mean
reasonable compensation for prior personal
services as defined in Section 280G(b)(4)(B) of
the Code and subject to the requirement that any
such reasonable compensation must be
established by clear and convincing evidence;
and
(iii) The portion of the "Base Amount" and the amount
of "Reasonable Compensation" allocable to any
"Parachute Payment" shall be determined in
accordance with Section 280G(b)(3) and (4) of the
Code.
(b) Notwithstanding any other provision of this Agreement, each
Parachute Payment to be made to or for the benefit of the Executive, whether
pursuant to this Agreement or otherwise, with respect to a Change in Control
shall be reduced if and to the extent necessary so that the aggregate Present
Value of all such Parachute Payments shall be at least one dollar ($1) less than
the greater of (i) three times the Executive's Base Amount and (ii) the
aggregate Reasonable Compensation allocable to such Parachute Payments. Unless
otherwise agreed by the Executive and the Company, any reduction in Parachute
Payments caused by reason of this subsection (b) shall be made proportionately
with respect to each such Parachute Payment.
This subsection (b) shall be interpreted and applied to limit the
amounts otherwise payable to the Executive under this Agreement or otherwise
only to the extent required to avoid any material risk of the imposition of
excise taxes on the Executive under Section 4999 of the Code or the disallowance
of a deduction to the Company under Section 280G(a) of the Code. In the making
of any such interpretation and application, the Executive shall be presumed to
be a disqualified individual for purposes of applying the limitations set forth
in this subsection (b) without regard to whether or not the Executive meets the
definition of disqualified individual set forth in Section 280G(c) of the Code.
In the event that the Executive and the Company are unable to agree as to the
application of this subsection (b), the Company's independent auditors shall
select independent tax counsel to determine the amount of such limits. Such
selection of tax counsel shall be subject to the Executive's consent, provided
that the Executive shall not unreasonably withhold his consent. The
determination of such tax counsel under this Section shall be final and binding
upon the Executive and the Company.
(c) Notwithstanding any other provision of this Agreement, no
payments shall be made hereunder to or for the benefit of the Executive if
and to the extent that such payments are determined to be illegal.
<PAGE> 159
11. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be sufficient if in
writing and if hand delivered or if sent by registered or certified mail, if
to the Executive, at the last address he has filed in writing with the
Company or, if to the Company, at its principal executive offices. Notices,
requests, etc. shall be effective when actually received by the addressee or
at such address.
12. Assignment and Benefit.
(a) This Agreement is personal to the Executive and shall not
be assignable by the Executive, by operation of law or otherwise, without the
prior written consent of the Company, otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of and
be enforceable by the Executive's heirs and legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns, including without
limitation, any subsidiary of the Company to which the Company may assign any
of its rights hereunder; provided, however, that no assignment of this
Agreement by the Company, by operation of law or otherwise, shall relieve it
of its obligations hereunder, except an assignment of this Agreement to, and
its assumption by, a successor pursuant to subsection (c) below.
(c) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation operation of law or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly 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, but, irrespective of any such
assignment or assumption, this Agreement shall inure to the benefit of and be
binding upon such a successor. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid.
13. Governing Law. The provisions of this Agreement shall be
construed in accordance with the laws of the Commonwealth of Pennsylvania
without reference to principles of conflicts of laws.
14. Full Settlement. In the event of the termination of the
Executive's Employment Period under this Agreement, the payments and other
benefits provided for by this Agreement (except as otherwise provided under
the express terms of any compensation or benefit plans of the Company or its
subsidiaries or as may otherwise be provided by applicable law) shall
constitute the entire obligation of the Company and its subsidiaries to the
Executive and shall also constitute full and complete settlement of any claim
under law or in equity that the Executive might otherwise assert against the
Company, its subsidiaries or any of its or their respective directors,
officers or employees on account of such termination of employment.
15. Entire Agreement. This Agreement represents the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and it may not be altered or amended except by an agreement in
writing.
16. No Waiver. The failure to insist upon strict compliance with
any provision of this Agreement by any party shall not be deemed to be a
waiver of any future noncompliance with such provision or of noncompliance
with any other provision.
<PAGE> 160
17. Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, and
attested by its Secretary or Assistant Secretary, all as of the day and year
first above written.
EXECUTIVE
------------------------------------
[name]
HUNT MANUFACTURING CO.
By
----------------------------------
Its
-------------------------------
ATTEST:
- ------------------------
<PAGE> 161
EXHIBIT 10(i)(2)
The Company has Change in Control Agreements in essentially
the form attached as Exhibit 10(i)(1) (with the indicated variations on pp.
7, 8 and 9) with various of its officers, including the following executive
officers:
Executive Officers
------------------
Name Title
---- -----
Ronald J. Naples Chairman and Executive Officer
John W. Carney Vice President, Human Resources
William E. Chandler Senior Vice President, Finance (Chief Financial
Officer) and Secretary
Roy M. Delizia Vice President, Corporate Planning and
Development
Robert B. Fritsch President and Chief Operating Officer
Spencer W. O'Meara Vice President and General Manager
W. Ernest Precious Vice President and General Manager
Eugene A. Stiefel Vice President, Information Services
<PAGE> 162
Exhibit 11
Computation of Per Share Earnings
(In thousands except per share amounts)
<TABLE>
<CAPTION>
November 27, November 28, November 29,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income before cumulative effect of
accounting change $17,197 $14,928 $13,302
Cumulative effect of change in
accounting for income taxes 795 -- --
------------ ------------ ------------
Net income $17,992 $14,928 $13,302
============ ============ ============
Primary per share earnings
- --------------------------
Average number of common shares
outstanding 16,102 16,107 16,104
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 194 146 112
------------ ------------ ------------
Average shares used to calculate
primary per share earnings 16,296 16,253 16,216
============ ============ ============
Primary per share earnings before
change in accounting for income
taxes $ 1.06 $ 0.92 $ 0.82
Cumulative effect of change in
accounting for income taxes 0.05 -- --
------------ ------------ ------------
Net primary per share earnings $ 1.11 $ 0.92 $ 0.82
============ ============ ============
Fully diluted per share earnings
- --------------------------------
Average number of common shares
outstanding 16,102 16,107 16,104
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 216 167 132
------------ ------------ ------------
Average shares used to calculate
fully diluted per share earnings 16,318 16,274 16,236
============ ============ ============
Fully diluted per share earnings
before change in accounting for
income taxes $ 1.05 $ 0.92 $ 0.82
Cumulative effect of change in
accounting for income taxes 0.05 -- --
------------ ------------ ------------
Net fully diluted per share earnings $ 1.10 $ 0.92 $ 0.82
============ ============ ============
</TABLE>
<PAGE> 163
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in Registration Statements Number
33-57103, Number 33-57105, Number 33-70660, Number 33-25947, Number 33-6359 and
Number 2-83144 on Form S-8 dated December 28, 1994, December 28, 1994, October
21, 1993, December 7, 1988, June 29, 1986 and April 8, 1983, respectively, of
our report, which includes an explanatory paragraph regarding a change in the
Company's method of accounting for income taxes, dated January 16, 1995 on our
audits of the consolidated financial statements and the financial statement
schedule of Hunt Manufacturing Co. and Subsidiaries (Company) as of November 27,
1994 and November 28, 1993 and for each of the three years in the period ended
November 27, 1994 which report is included in the Company's Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000049146
<NAME> HUNT MANUFACTURING CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-27-1994
<PERIOD-START> NOV-29-1993
<PERIOD-END> NOV-27-1994
<CASH> 13,807
<SECURITIES> 0
<RECEIVABLES> 43,900
<ALLOWANCES> (2,510)
<INVENTORY> 33,550
<CURRENT-ASSETS> 95,318
<PP&E> 95,892
<DEPRECIATION> (46,163)
<TOTAL-ASSETS> 173,385
<CURRENT-LIABILITIES> 30,715
<BONDS> 3,559
<COMMON> 1,613
0
0
<OTHER-SE> 127,621
<TOTAL-LIABILITY-AND-EQUITY> 173,385
<SALES> 288,203
<TOTAL-REVENUES> 288,203
<CGS> 174,927
<TOTAL-COSTS> 174,927
<OTHER-EXPENSES> 85,531
<LOSS-PROVISION> 921
<INTEREST-EXPENSE> (257)
<INCOME-PRETAX> 27,081
<INCOME-TAX> 9,884
<INCOME-CONTINUING> 17,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 795
<NET-INCOME> 17,992
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
