-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, A1zWBdOw3fEFUyWJql4tlhEPu3SEOY6inRlfblwliZxQiUI347L9dROZuDwVqVEb oSkr6/bq8H6n3btKCJvTkA== 0000950116-95-000026.txt : 19950224 0000950116-95-000026.hdr.sgml : 19950224 ACCESSION NUMBER: 0000950116-95-000026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941227 FILED AS OF DATE: 19950223 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT MANUFACTURING CO CENTRAL INDEX KEY: 0000049146 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 210481254 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08044 FILM NUMBER: 95514523 BUSINESS ADDRESS: STREET 1: 230 S BROAD ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2157327700 MAIL ADDRESS: STREET 1: 230 S. BROAD STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-K 1 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. 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% ======== === ======== === ======== === 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. 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. 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. 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. 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 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 ----------------- 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. 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. ----------------------- 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. 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. 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. 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. 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). 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. 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. 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. 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. 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). 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. -------------------- 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 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. 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. 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)
Common Stock Capital Cumulative --------------- Excess of Translation Retained Issued Treasury Par Value Adjustments Earnings ------ -------- --------- ----------- --------- 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.
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. 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. 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. 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. 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 ======= ======= 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. 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). 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. 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) ====== ======= ====== ====== 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. 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. 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. 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. 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 ======== ======= ======== ======== 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. 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. 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. 43 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for the fiscal years 1994, 1993 and 1992 (in thousands)
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 -------------- ---------- ---------- ----------- ---------- ------------ 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.
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 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 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 EX-10 2 EXHIBIT 10(A) 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. ================================================================================ 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 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 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 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 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 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 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 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: 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 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. I-2 58 (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; I-3 59 (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. I-4 60 (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. I-5 61 (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. I-6 62 (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. I-7 63 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. I-8 64 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. II-1 65 (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. II-2 66 (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. II-3 67 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. III-1 68 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. III-2 69 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. III-3 70 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. IV-1 71 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. IV-2 72 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: V-1 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. V-2 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. V-3 75 (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. V-4 76 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. V-5 77 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. VI-1 78 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 VI-2 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. VI-3 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 VI-4 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. VI-5 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), VII-1 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. VII-2 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 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. VII-4 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. VII-5 87 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 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 89 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 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 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 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 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 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 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 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 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. X-3 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 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-1 100 (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-2 101 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-3 102 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-1 103 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-1 104 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-2 105 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-3 106 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-4 107 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] 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: 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 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 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- 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- 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- 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- 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- 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- 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 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 EX-10 3 EXHIBIT 10(E) 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-1 120 (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. A-2 121 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. A-3 122 (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. A-4 123 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. A-5 124 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. A-6 125 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. A-7 126 (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. A-8 127 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. A-9 EX-10 4 EXHIBIT 10(G) 128 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: 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: 2 130 (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 -3- 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. -4- 132 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"). -5- 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. -6- 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. -7- 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. -8- 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. -9- 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 -10- 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. ------------------------------------------- EX-10 5 EXHIBIT 10(H) 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 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 -2- 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 -3- 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. -4- 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"). -5- 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. -6- 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. -7- 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. -8- 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- 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- 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. -------------------------------------------------- EX-10 6 EXHIBIT 10(I)(1) 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 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 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. 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 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. 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. 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. 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. 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. 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. 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: - ------------------------ EX-10 7 EXHIBIT 10(I)(2) 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 EX-11 8 EXHIBIT 11 162 Exhibit 11 Computation of Per Share Earnings (In thousands except per share amounts)
November 27, November 28, November 29, 1994 1993 1992 ------------ ------------ ------------ 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 ============ ============ ============
EX-23 9 EXHIBIT 23 163 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 EX-27 10 EXHIBIT 27
5 0000049146 HUNT MANUFACTURING CO. 1,000 12-MOS NOV-27-1994 NOV-29-1993 NOV-27-1994 13,807 0 43,900 (2,510) 33,550 95,318 95,892 (46,163) 173,385 30,715 3,559 1,613 0 0 127,621 173,385 288,203 288,203 174,927 174,927 85,531 921 (257) 27,081 9,884 17,197 0 0 795 17,992 1.11 1.10
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