-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GB3TXsrfqGEfaF3H36oLR/lZrE1BPBSFnNAE1IVKNMxxY/+pQGLQlzi2X76nTzWO qlXgDl1rQpQdXogkp+qonQ== 0000950116-02-000306.txt : 20020415 0000950116-02-000306.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950116-02-000306 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20011202 FILED AS OF DATE: 20020304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT CORP 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: 02566119 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157327700 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: HUNT MANUFACTURING CO DATE OF NAME CHANGE: 19920703 10-K 1 ten-k.txt 10-K [LOGO] HUNT 2001 Annual Report on Form 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 2, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______. For the fiscal year ended December 2, 2001 Commission File No. 1-8044 HUNT CORPORATION (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 Offices) (Zip Code) Registrant's telephone number, including area code: (215) 656-0300 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Title of Each Class: Registered: Common Shares, par value $.10 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the registrant's common shares (its only voting stock) held by non-affiliates of the registrant as of February 1, 2002 was approximately $65,115,000. (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, 2002 was 8,903,975. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive proxy statement relating to its scheduled April 2002 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. Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements, including those related to future financial and business performance, represent management's assessment based upon information currently available, but are subject to risks and uncertainties which could cause actual results to differ materially from those set forth in the forward- looking statements. These risks and uncertainties include, but are not limited to, the Company's ability to successfully complete the implementation, and realize the anticipated benefits of its restructuring and cost reduction plans on a timely basis; the effect of, and changes in, worldwide general economic conditions, including the severity of any economic slowdown; price and availability of raw materials; foreign exchange rates; technological and other changes affecting the manufacture of and demand for the Company's products; competitive and other pressures in the marketplace; acts of terrorism; and other risks and uncertainties set forth herein and as may be set forth in the Company's subsequent press releases and/or Forms 10-Q, 8-K, and other filings with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS General Hunt Corporation and its subsidiaries (herein called the "Company" unless the context indicates otherwise) are primarily engaged in the manufacture and distribution of consumer products which the Company markets worldwide. These consumer products are sold through the office, art, and framing markets and include a group of select BOSTON, X-ACTO, and BIENFANG brand products, STURDY BOARD brand foam board, and HUNT brand project display board brand products, as well as a line of finishing equipment, laminates, and adhesives. (Note: All earnings per share amounts are presented on an after-tax, diluted basis in Part I of this Form 10-K.) Effective October 1, 2001, the Company sold its commercial Graphics Products business and related assets to Neschen AG, a German manufacturer of self- adhesive products, for approximately $32.0 million. The commercial Graphics Products business included a full line of mounting and finishing products consisting of large-format laminators, liquid laminators, and pressure- sensitive and heat-activated laminates and adhesives sold through the commercial graphics market, as well as the Company's European foam board business. The Company recorded an after-tax loss of $25.4 million, or $2.83 per share, on this sale. The divested business, representing all of the Company's foreign operations (excluding Canada) and some of its domestic operations, had net sales of approximately $44.3 million in fiscal 2001 (through the effective date of divestiture), $73.0 million in fiscal 2000, and $71.9 million in fiscal 1999. The commercial Graphics Products business is presented as a discontinued operation in the accompanying Consolidated Statements of Operations and Notes to Consolidated Financial Statements. See Item 7 herein and Note 3 to the Consolidated Financial Statements herein for further information. In November 2001, the Company initiated a cost reduction plan (the "2001 cost reduction plan") designed to reduce the Company's cost structure. This plan resulted primarily from the sale of the commercial Graphics Products business and is expected to generate approximately $3.9 million of pre-tax cost savings in fiscal 2002, and annualized pre-tax cost savings of approximately $4.7 million in future years. Although the Company expects to realize such future cost savings, there is no assurance that such savings will actually be achieved. The adoption of the 2001 cost reduction plan in the fourth quarter of fiscal 2001 resulted in the recognition of charges totaling $3.9 million pre-tax ($.30 per share) for that quarter. In addition to the charges related to this plan, the Company expects to spend a total of approximately $1.0 million for implementation costs (which will be recorded as period costs as incurred) over the next three fiscal years. These implementation costs consist primarily of employee severance and outplacement costs. Business Segments As a result of the sale of the commercial Graphics Products business and its impact on the Company's internal organizational structure, the Company now has only a single reportable segment: Consumer Products. The Company has two major classes of consumer products: office supplies and art/framing supplies. The amounts and 2 percentages of net sales from continuing operations of these product classes for the last three fiscal years are as follows:
2001 2000 1999 --------------- --------------- -------------- Product Class: Office supplies.......................... $ 66,969 42% $ 72,088 41% $ 74,831 43% Art/framing supplies..................... 93,901 58% 103,692 59% 98,162 57% -------- --- -------- --- -------- --- Total.................................... $160,870 100% $175,780 100% $172,993 100% ======== === ======== === ======== ===
The Company's office supplies products currently consist of a variety of items sold primarily under the Company's BOSTON brand, including manual and electric pencil sharpeners (which constitute a significant portion, approximately 60%, of office supplies), manual and electric staplers, X-ACTO brand paper trimmers, RAPID(1) manual and electric staplers, and other office supplies products. Effective September 1, 1999, Schwan-STABILO Schwanhausser GmbH & Co. terminated its distribution agreement with the Company relating to Schwan- STABILO(2) highlighter markers and writing instruments, which accounted for most of the decrease in office products net sales in fiscal 2000. The Company's art/framing supplies products are used primarily by picture framers, commercial and amateur artists, hobbyists, and craft enthusiasts and include various types of X-ACTO brand knives and blades; X-ACTO brand tools and kits; board products; CONTE(3) pastels, crayons and related drawing products, for which the Company is the exclusive United States and Canadian distributor; commercial and fine art papers which the Company converts, finishes and sells under its BIENFANG brand name; PAINTERS paint markers, and a line of finishing equipment, laminates, and adhesives currently sold under the SEAL(4) brand name. Board products include STURDY BOARD brand foam boards (which constitute a significant portion, somewhat less than 40%, of art/ framing supplies) and HUNT brand project display boards, which include project display boards sold by the Company under a worldwide exclusive distribution agreement with Showboard, Inc. Finishing equipment consists primarily of mechanical and vacuum presses, and laminates and adhesives consist of pressure-sensitive and heat-activated films and tissues sold in the framing market. The Company consistently has sought to expand its consumer 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 consumer products introductions by the Company in recent years are BOSTON brand electric and battery powered pencil sharpeners, lines of staplers under the STANDUP and ORCA brands, and X-ACTO brand trimmers. The Company's products are sold domestically primarily in the commercial office, home office, framing, and the general consumer markets, chiefly through large retail outlets, such as office products superstores, drug and food chain stores, variety stores, discount chains, and membership chains, and through office supply wholesalers and dealers and framing wholesalers. The consumer market has increased significantly in recent years, largely due to the dramatic growth of office products superstores and discount chains. A more limited line of products is sold to schools through specialized school supply distributors. Sales and Marketing General The Company has more than 3,000 active customers, the ten largest of which accounted for approximately 57% of its net sales in fiscal 2001. Three of these ten largest customers were office products superstore chains. Wal-Mart Stores, Inc. and Staples, Inc. accounted for 13% and 11%, respectively, of total net sales for fiscal 2001. In - ------------ (1) Trademark of Isaberg Rapid AB. (2) Trademark of Schwan-STABILO Schwanhausser GmbH & Co. (3) Trademark of Conte S.A. (4) Trademark of Neschen AG which the Company has the right to continue to use on certain products for a limited amount of time. 3 recent years there has been an increasing percentage of the Company's sales attributable to a smaller number of customers with increased buying and bargaining power. This increase in bargaining power has led to downward pressure on selling prices for the Company's office supplies products and board products. See Item 7 of this report. The Company generally operates without a significant backlog because most of its sales are made from inventory. The Company's sales generally are not subject to significant seasonal fluctuations. See Note 17 to the Consolidated Financial Statements herein. Domestic Operations Domestic marketing of the Company's products is effected principally through two separate sales forces for retail and mass markets. The sales forces are comprised primarily of the Company's own salespeople and independent manufacturers' representatives. The Company currently maintains its primary domestic distribution operations in Statesville, North Carolina. Foreign Operations The Company maintains distribution operations in Ontario, Canada, and also distributes its products in more than 50 foreign markets, primarily through its own sales force and through independent sales agents and distributors. Export sales aggregated $15.2 million in fiscal 2001, as compared to $18.0 million and $16.2 million in fiscal 2000 and 1999, respectively. In fiscal 2001, approximately $10.8 million and $1.2 million of such sales were made in Canada and Mexico, respectively. No other foreign country had sales greater than $.4 million. In fiscal 2001, BOSTON brand electric and mechanical pencil sharpeners, X-ACTO brand knives and blades, BIENFANG brand paper products, and HUNT foam board products accounted for the major portion of export sales. The Company's other foreign operations, including its European distribution operations, were divested as part of the October 2001 sale of its commercial Graphics Products business. See Item 7 herein and Note 3 to the Consolidated Financial Statements herein for further information. Foreign sales of the Company's products are subject to the usual risks of doing business abroad, particularly currency fluctuations and foreign exchange controls, as well as general economic conditions. 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 manufactured, converted or assembled by the Company. See Item 2 herein for information concerning the Company's major manufacturing facilities. The Company customarily has more than one source of supply for its critical raw materials and component parts, and its consumer products business has not been materially hindered by shortages of such items. The Company experienced some cost reductions for certain of its raw materials, such as styrene plastic and facing paper, during fiscal 2001; however, management is uncertain if this trend will continue. See Item 7 herein. Competition The Company does not have any single competitor which offers substantially the same overall lines of products as the Company. However, competition in a number of areas of the Company's businesses, such as electric pencil sharpeners, staplers, foam board, and finishing equipment, laminates, and adhesives 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 consumer products business, 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 BOSTON brand manual and electric pencil sharpeners, STURDY BOARD brand foam board products, HUNT brand project display board products, and X-ACTO brand knives and blades. 4 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 increasingly 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, particularly including BOSTON(R), X-ACTO(R), BIENFANG(R), and HUNT(R). The following additional trademarks, some of which are mentioned in this report, are owned by the Company: BULLDOG(R), THE BUZZ(TM), CLASSIC STANDUP STAPLER(TM), DELUXE STANDUP STAPLER(TM), THE EXECUTIVE STANDUP STAPLER(R), GRIP STANDUP STAPLER(TM), MIGHTY CORE(R), MIGHTY MITE(TM) NAUTILUS(R), ORCA(R), PALM STANDUP STAPLER(TM), PAINTERS(R), POWERHOUSE(R), ROCKET STANDUP(TM), SCHOOL PRO(TM), SHOWTIME(R), STANDUP(R), STURDY BOARD(R), and ULTIMATE STANDUP STAPLER(TM). As previously indicated, the Company also has been granted exclusive distribution rights in designated territories with respect to various products, including CONTE drawing products, RAPID manual and electric stapling machines, and certain project display boards owned by Showboard, Inc. The Company's distribution rights generally are of unlimited duration 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 4% of the Company's net sales in fiscal 2001), the loss of the right to market certain products could have an adverse effect on the Company's profitability. Research and Development During fiscal 2001, the Company spent approximately $1.5 million on Company- sponsored research and development, as compared with approximately $1.6 million in fiscal 2000 and $1.9 million in fiscal 1999. Personnel As of January 2002, the Company had approximately 900 full-time employees. 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 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 15 to the Consolidated Financial Statements herein. 5 ITEM 2. PROPERTIES The Company presently maintains its principal executive offices at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 in approximately 53,000 square feet of leased space under a sublease expiring in 2002. The Company is currently in negotiations to extend its present lease. The following table sets forth information with respect to certain of the other facilities of the Company:
Primary Function Location Approximate Size Owned or Leased - ---------------- --------------- --------------------- ------------------ Manufacturing & Offices Statesville, NC 219,000 sq. ft. bldg. (1) on 13 acres Manufacturing & Offices Statesville, NC 218,000 sq. ft. bldg. Owned on 16 acres Distribution & Offices Statesville, NC 320,000 sq. ft. bldg. Leased (exp. 2005) Distribution & Offices Ontario, Canada 59,000 sq. ft. bldg. Leased (exp. 2006)
- --------------- (1) 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. In connection with the 2001 cost reduction plan, the Company vacated some of the leased space of its executive offices and intends to vacate some of its Ontario, Canada distribution facility. Subject to the preceding sentence, the Company believes that the above facilities generally are adequately utilized and suitable for the Company's present needs. In addition, the Company has retained $4.6 million of assets (consisting of a plant facility and vacant land) related to its fiscal 2001 divested commercial Graphics Products business, all located in the United Kingdom. The Company is actively pursuing the disposition of these non-strategic assets and expect to achieve their sale within a reasonable period of time. See Note 3 to the Consolidated Financial Statements herein and Item 7 of this report. ITEM 3. PENDING LEGAL PROCEEDINGS The Company is not aware of any material pending legal proceedings involving the Company or its subsidiaries other than as set forth in Notes 15 and 20 to the Consolidated Financial Statements herein and in 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. 6 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 ----------------- --- ---------------------------------------- Donald L. Thompson 60 Chairman of the Board and Chief Executive Officer John W. Carney 58 Vice President, Chief Administrative Officer Bradley P. Johnson 39 President and Chief Operating Officer Dennis S. Pizzica 48 Vice President, Chief Financial Officer, Treasurer, and Secretary 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. Johnson and Pizzica, have served in varying executive capacities with the Company for over five years. As previously announced by the Company, Mr. Thompson plans to relinquish his Chief Executive Officer position around mid-year 2002, and to continue to serve as Chairman of the Board until the end of the fiscal year. This is part of a planned implementation of an orderly executive leadership transition to a smaller executive management structure. Mr. Johnson is Mr. Thompson's planned successor. William E. Chandler, former Senior Vice President of Finance, Chief Financial Officer, and Secretary, retired from the Company effective March 1, 2002. Mr. Pizzica is Mr. Chandler's successor. In addition, James P. Machut, the former Vice President of Operations/Supply Chain Logistics, and Eugene A. Stiefel, former Vice President, Information Services and Chief Information Officer, separated from the Company effective March 1, 2002. The Company is not planning to replace the positions previously held by Messrs. Machut and Stiefel. Mr. Johnson was named to the position of President and Chief Operating Officer of the Company effective December 1, 2001. He joined the Company in May 1999 and previously served as Vice President/General Manager of Consumer Products (May 1999-May 2000), Vice President/General Manager of Hunt Products (June 2000-December 2000), and Senior Vice President/General Manager of Hunt Products (January 2001-November 2001). Prior to joining Hunt, Mr. Johnson was General Manager of the Infant Feeding Business Unit at H. J. Heinz Company from 1997 to 1999 and held several marketing related positions with Kimberly- Clark Corporation from 1988 to 1997. Mr. Pizzica was elected to the additional offices of Chief Financial Officer and Secretary in February 2002, effective March 1, 2002. He joined the Company in June 1975 and has been serving as Vice President and Treasurer. _______________________________ For the purposes of calculating the aggregate market value of the common shares 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 executive officers of the Company. However, this should not be deemed to constitute an admission that all directors and executive 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 executive 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. 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common shares are 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 shares during the two most recent fiscal years reported by The Wall Street Journal): Fiscal Quarters 2001 --------------------------------- First Second Third Fourth ----- ------ ----- ------ High $7.60 $7.10 $7.90 $7.63 Low 3.50 5.06 5.34 5.55 Fiscal Quarters 2000 ---------------------------------- First Second Third Fourth ------ ------ ------ ------ High $11.13 $10.63 $10.63 $9.25 Low 8.06 8.38 8.69 3.81 The Company's 1990 Rights Plan and the Rights distributed to shareholders under such plan expired by their terms on December 31, 2000 and are no longer deemed to be attached to the Company's common shares. See Note 14 to the Consolidated Financial Statements herein. As of February 1, 2002 there were approximately 500 record holders of the Company's common shares, which number does not include shareholders whose shares were held in nominee name. During the past two fiscal years, the Company has paid regular quarterly cash dividends on its common shares at $.1025 per quarter per share. There can be no assurance, however, as to the payment or the amount of future dividends, since they are periodically reviewed by the Company's Board of Directors and are subject to possible change based upon the Company's earnings, financial condition, and other factors. Certain of the Company's credit agreements contain representations, warranties, covenants, and conditions, the violation of which could result in restrictions on the Company's present and future ability to pay dividends. See Note 10 to the Consolidated Financial Statements herein. During fiscal 2001, the Company issued from its Treasury an aggregate of 17,876 unregistered common shares under its non-employee director compensation plan. Registration of such shares was not required because their issuance did not involve a "sale" under Section 2(3) of the Securities Act of 1933, or, alternatively, their issuance was exempt pursuant to the private offering provisions of that Act and the rules thereunder. 8 ITEM 6. SELECTED FINANCIAL DATA The following table contains selected financial data derived from the Company's audited Consolidated Financial Statements for each of the 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. The following data is on a continuing operations basis.
Year Ended ------------------------------------------------------ Dec. 2, Dec. 3, Nov. 28, Nov. 29, Nov. 30, 2001 (1) 2000 (2) 1999 (3) 1998 (4) 1997 (5) -------- -------- -------- -------- -------- (In millions, except per share data) Net sales................................................................ $160.9 $175.8 $173.0 $171.3 $182.9 Income (loss) from continuing operations.............................................................. 3.3 4.1 9.6 12.6 (7.6) Income (loss) from continuing operations per common share (6): Basic................................................................... .37 .42 .91 1.12 (.69) Diluted................................................................. .37 .42 .91 1.09 (.69) Total assets............................................................. 106.4 163.5 179.6 186.9 209.5 Long-term debt........................................................... 22.0 54.7 56.6 57.7 54.1 Cash dividends declared per share........................................ .41 .41 .41 .41 .38
- --------------- (1) In fiscal 2001, the Company recorded charges of: (i) $2.7 million after taxes ($.30 per share) for its 2001 cost reduction plan; (ii) $.3 million after taxes ($.03 per share) of implementation costs in connection with the Company's 1999 restructuring plan; (iii) $.1 million after taxes ($.01 per share) for interest on a patent infringement suit judgment; and (iv) $25.4 million after taxes ($2.83 per share) in connection with the divestiture of its commercial Graphics Products business. In fiscal 2001, the Company also reduced by $.2 million after taxes ($.02 per share) some of the reserves established in connection with its 1999 restructuring plan. (2) In fiscal 2000, the Company recorded charges of: (i) $.2 million after taxes ($.02 per share) of implementation costs in connection with the Company's 1999 restructuring plan; and (ii) $2.5 million after taxes ($.25 per share) in connection with a patent infringement suit with respect to one of the Company's minor products. The Company also reduced by $.1 million after taxes ($.01 per share) some of its reserves established in connection with the Company's implementation of its 1999 restructuring plan, and reduced by $.1 million after taxes ($.01 per share) some its reserves in connection with its 1997 business divestitures. (3) In fiscal 1999, the Company recorded a charge for the 1999 restructuring plan of approximately $.5 million after taxes ($.05 per share). In addition, the Company reduced by $.2 million after taxes ($.02 per share) some of its reserves established in connection with the Company's implementation of its 1997 strategic plan and reduced by $.3 million after taxes ($.03 per share) some its reserves in connection with its 1997 business divestitures. (4) In fiscal 1998, the Company on a net basis reduced by $2.4 million after taxes ($.21 per share) some of its reserves established in connection with the implementation of the strategic plan during fiscal 1997. In addition, the Company reduced by $.5 million after taxes ($.04 per share) some of its reserves established in connection with its 1997 business divestitures. (5) In fiscal 1997, the Company recorded a charge for the 1997 strategic plan of approximately $13.2 million after taxes ($1.19 per share) and other related costs of $1.9 million after taxes ($.17 per share) and recorded a net gain on sales of divested businesses (excluding discontinued businesses) of $2.5 million after taxes ($.22 per share). 9 (6) The average common shares outstanding (diluted) during fiscal years 1997 through 2001 were as follows: 1997 - 11,079,000 shares 1998 - 11,556,000 shares 1999 - 10,493,000 shares 2000 - 9,908,000 shares 2001 - 8,976,000 shares 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements represent management's assessment based upon information currently available, but are subject to risks and uncertainties which could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, but are not limited to, the Company's ability to successfully complete the implementation, and realize the anticipated benefits of its restructuring and cost reduction plans on a timely basis; the effect of, and changes in, worldwide general economic conditions, including the severity of any economic slowdown; price and availability of raw materials; foreign exchange rates; technological and other changes affecting the manufacture of and demand for the Company's products; competitive and other pressures in the marketplace; acts of terrorism; and other risks and uncertainties set forth herein and as may be set forth in the Company's subsequent press releases and/or Forms 10-Q, 8-K, and other filings with the Securities and Exchange Commission. (Note: All earnings per share amounts in Management's Discussion and Analysis are presented on an after-tax, diluted basis.) Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer programs, product returns, bad debts, inventories, assets held for sale, intangible assets, cash surrender value of life insurance policies, phantom stock, income taxes, warranty obligations, restructuring, business divestitures, pensions and other employee benefit plans or arrangements, environmental matters, and contingencies and litigation. The Company bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: o The Company records estimated reductions to revenue for customer programs including special promotions and other volume-based incentives. o The Company maintains allowances for doubtful accounts for estimated losses resulting from the Company's review and assessment of its customers' ability to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required. o The Company provides for estimated costs of future anticipated product returns and warranty obligations based on historical experience when related revenues are recognized. o The Company maintains reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assessments about current and future demand and market conditions. If actual market conditions were to be less favorable than those projected by management, additional inventory reserves could be required. o The Company holds life insurance policies for all of its officers in connection with the Company's Supplemental Executive Benefits Plan. The carrying value of these policies is subject to changes in market conditions. o The Company maintains an accrual for a deferred cash account in connection with a long-term incentive compensation agreement with the Company's Chief Executive Officer. The value of the deferred cash account is tied to the Company's stock price. This accrual is subject to changes in market conditions. 11 o The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Discontinued Operations, Cost Reduction and Restructuring Plans, and Related Matters Effective October 1, 2001, the Company sold its commercial Graphics Products business and related assets to Neschen AG for approximately $32.0 million. The Company recorded an after-tax loss of $25.4 million, or $2.83 per share, on this sale. The divested business, representing all of the Company's foreign operations (excluding Canada) and some of its domestic operations, had net sales of approximately $44.3 million in fiscal 2001 (through the effective date of divestiture), $73.0 million in fiscal 2000, and $71.9 million in fiscal 1999. The commercial Graphics Products business is presented as a discontinued operation in the accompanying Consolidated Statements of Operations and Notes to Consolidated Financial Statements. As of December 2, 2001, approximately $7.1 million of this loss remains as an accrual in the accompanying Consolidated Balance Sheets under liabilities. See Note 3 to the Consolidated Financial Statements herein for further information. In addition, the Company and Neschen AG entered into various product manufacturing and transition services agreements whereby each party is providing services to the other for a limited period of time (ranging from four to twelve months) which services are billed at cost. The Company also bills Neschen for management and other net fees. The parties have also entered into various purchase and supply agreements for an initial period of one year from the sale date. In November 2001, the Company initiated a cost reduction plan (the "2001 cost reduction plan") designed to reduce the Company's cost structure. This plan resulted primarily from the sale of the commercial Graphics Products business and is expected to generate approximately $3.9 million of annualized pre-tax cost savings in fiscal 2002 and annualized pre-tax cost savings of approximately $4.7 million in future years. Although the Company expects to realize such future cost savings, there is no assurance that such future cost savings will actually be achieved. The adoption of the 2001 cost reduction plan in the fourth quarter of fiscal 2001 resulted in the recording of charges totaling $3.9 million pre-tax ($.30 per share) for that quarter. These charges are classified as restructuring and other in the accompanying Consolidated Statements of Operations, and include employee severance costs ($3.5 million), recognition of future lease obligations ($.3 million), and other related costs. Twelve positions were eliminated in fiscal 2001, and nineteen positions are expected to be eliminated in the first half of fiscal 2002 in connection with this cost reduction plan (not including 319 positions associated with the sale of the divested business described above). Approximately 99% of the fiscal 2001 cost reduction charge is for cash items, of which $3.9 million remains accrued in the accompanying Consolidated Balance Sheet at December 2, 2001. In addition to the charges related to this plan, the Company expects to spend a total of approximately $1.0 million for implementation costs (which will be recorded as period costs as incurred) over the next three fiscal years. These implementation costs consist primarily of employee severance and outplacement costs. Included in the total employee severance costs referred to above are costs related to the Company's executive leadership transition to a smaller executive management structure more in keeping with the reduced size and complexity of the Company's business following the sale of its commercial Graphics Products business in October 2001. These transition severance costs relate to the planned retirement of the Company's Chairman and Chief Executive Officer and separation of other executive officers of the Company during fiscal 2002. See Notes 3 and 4 to the Consolidated Financial Statements. As a result of the above actions, management believes that the Company has simplified its operations, and thus, is afforded greater potential strategic options. These actions are also expected to improve the overall profitability and financial strength of the Company's continuing operations. During fiscal 1999, the Company initiated a comprehensive reorganization and restructuring plan (the "1999 restructuring plan"), which resulted in recognition of restructuring charges totaling $6.2 million pre-tax, of which 12 $.8 million pre-tax ($.05 per share) is included in restructuring and other in the accompanying Consolidated Statements of Operations, with the remaining $5.4 million pre-tax included in loss from discontinued business. The Company completed the implementation of its 1999 restructuring plan in fiscal 2000. See Note 4 to the Consolidated Financial Statements. During fiscal 2001, the Company reduced by $.4 million pre-tax some of its reserves in connection with the 1999 restructuring plan, of which $.2 million pre-tax ($.02 per share) is included in restructuring and other in the accompanying Consolidated Statements of Operations. These reserve reductions related primarily to lower than anticipated severance costs. During fiscal 2000, the Company reduced by $.5 million pre-tax, of which $.2 million ($.01 per share) is included in restructuring and other in the accompanying Consolidated Statements of Operations, and $.1 million pre-tax ($.01 per share), respectively, some of its reserves for the 1999 restructuring plan and reserves established in connection with the Company's 1997 strategic plan. These reserve reductions related primarily to a decision not to vacate a certain facility, final resolution of lease obligations for a vacant facility, lower than anticipated severance costs, and lower than expected losses on asset disposals. During fiscal 1999, the Company reduced by $.6 million pre-tax ($.04 per share) some of its reserves established in connection with the Company's implementation of its 1997 strategic plan, of which $.3 million ($.02 per share) is included in restructuring and other in the accompanying Consolidated Statements of Operations. This reserve reduction related primarily to a final resolution of lease obligations for a vacated facility and to lower than expected severance costs. During fiscal 2000, the Company reduced by $.1 million pre-tax ($.01 per share) some of its reserves related to its 1997 business divestitures. These reserve reductions related primarily to lower than anticipated inventory returns and environmental reserves. During fiscal 1999, the Company reduced by $.5 million pre-tax ($.03 per share) some of its reserves established with respect to its 1997 business divestitures. This reserve reduction was principally related to lower than expected inventory returns. The following discussion is on a continuing operations basis. Comparison of Fiscal 2001 vs. 2000 The Company's 2001 fiscal year comprised 52 weeks compared to 53 weeks for fiscal 2000. Net Sales. Net sales from continuing operations decreased 8.5% to $160.9 million in fiscal 2001 from $175.8 million in fiscal 2000. This sales decrease was largely due to lower sales of board products, framing products, X-ACTO brand products, and BOSTON brand pencil sharpeners, which, in turn, were largely attributable to the U.S. economic slowdown. Export sales decreased 15.3% in fiscal 2001 from fiscal 2000, mainly due to lower sales in Canada and Latin America. Net sales from continuing operations decreased 15.5% during the fourth quarter of fiscal 2001 as compared with the prior year fourth quarter due primarily to the continuing slowdown in the U.S. and world economies, which was exacerbated by the September 11, 2001 terrorist attacks in the U.S. This economic slowdown prompted some of the Company's key customers to reduce their inventory and purchasing levels, which, in turn, resulted and continues to result in lower orders to and sales by the Company. Management is uncertain how long this situation will continue. In addition, the Company has a number of significant customers, including two customers that together constituted approximately 24% of the Company's net sales in fiscal 2001. See Note 19 to the Consolidated Financial Statements herein. The loss of any of these significant customers could have an adverse effect on the Company's results of operations, financial position, or cash flows. Gross Profit. The Company's gross profit ratio increased to 39.4% of net sales in fiscal 2001 from 39.0% in fiscal 2000, while the gross margin dollars decreased $5.2 million. The increase in gross profit ratio was primarily the result of lower raw material costs and favorable last-in, first-out inventory adjustments, partially offset by unfavorable fixed overhead absorption and higher inventory obsolescence and other inventory adjustments. The decrease in gross profit dollars was largely due to lower sales levels. The Company experienced cost decreases 13 for some of its raw materials, such as styrene plastic and facing paper during fiscal 2001. However, management is uncertain if this trend will continue. Selling, General and Administrative Expenses. Selling, general, and administrative expenses decreased $3.2 million, or 5.8%, in fiscal 2001 from the previous year. The decrease was largely attributable to a special cash award for Company employees in fiscal 2000 and to lower marketing and selling and freight costs in fiscal 2001 as a result of lower sales, partially offset by higher stock-based compensation expense. Restructuring and Other. During the fourth quarter of fiscal 2001, the Company recorded a charge of $3.9 million pre-tax ($.30 per share) in connection with the Company's 2001 cost reduction plan, as previously discussed. This charge is included in restructuring and other in the accompanying Consolidated Statements of Operations. Approximately 99% of the restructuring charge is for cash items and includes employee severance costs ($3.5 million), recognition of future lease obligations ($.3 million), and other related costs. See Note 4 to the Consolidated Financial Statements herein for further information. During fiscal 2000, the Company recorded a charge and related liability of $3.8 million (including interest) in connection with a patent infringement suit judgment with respect to one of its minor products. During fiscal 2001, the Company recorded an additional $.1 million of interest expense related to this litigation and subsequently made a payment to the plaintiff in the amount of approximately $3.9 million with respect to this judgment. In addition, during fiscal 2001 and 2000, the Company reduced by $.2 million pre-tax ($.02 per share) and $.2 million pre-tax ($.01 per share), respectively, some of its reserves relating to its 1999 restructuring plan. These reserve reductions related primarily to lower than anticipated severance costs and lower than expected losses on asset disposals. Also during fiscal 2000, the Company reduced by $.1 million pre-tax ($.01 per share) some of its reserves related to its 1997 business divestitures. These reserve reductions related primarily to lower than anticipated inventory returns and environmental reserves. See Notes 3 and 4 of the Notes to Consolidated Financial Statements. Interest Expense. Interest expense decreased to $4.1 million in fiscal 2001 from $4.2 million in fiscal 2000 due to lower average debt borrowings in fiscal 2001. Interest Income. Interest income decreased $.5 million in fiscal 2001 from fiscal 2000 due to lower interest rates and lower average cash balances. Other Income and Expense. Other income, net was $.3 million in fiscal 2001 compared to other expense, net of $.3 million in fiscal 2000 due principally to management and other net fees billed to Neschen AG for services rendered in connection with the Company's transition services agreements with Neschen AG in fiscal 2001. Provision for Income Taxes. The Company's effective tax rate for continuing operations decreased to 29.5% in fiscal 2001 from 37.2% in fiscal 2000, primarily due to resolution of prior years' tax exposures and to lower amounts not deductible for tax purposes. See Note 11 to the Consolidated Financial Statements. Comparison of Fiscal 2000 vs. 1999 The Company's 2000 fiscal year comprised 53 weeks compared to 52 weeks for fiscal 1999. Net Sales. Net sales from continuing operations increased 1.6% to $175.8 million in fiscal 2000 from $173.0 million in fiscal 1999. This sales increase was primarily the result of broader distribution in current sales channels, expanded placement of existing products and the introduction of new products, partially offset by lower net selling prices, and lower sales of X-ACTO brand products and to the termination (effective September 1, 1999) of the Company's distribution agreement with respect to Schwan-STABILO highlighter markers and writing instruments. Export sales increased 10.8% in fiscal 2000 as compared to fiscal 1999, principally due to higher sales in Latin America and Canada. Gross Profit. The Company's gross profit margin decreased to 39.0% of net sales in fiscal 2000 from 41.5% in fiscal 1999, due to the net result of unfavorable production efficiencies and higher materials costs, partially offset by favorable customer and product mix and lower variable overhead spending. 14 Selling, General and Administrative Expenses. Selling, general, and administrative expenses decreased $.2 million, or .4%, in fiscal 2000 from the previous year. This decrease was largely attributable to lower promotional advertising and packaging development costs, lower discretionary marketing spending, and lower professional services expenses, partially offset by a special cash award to the Company's employees. Restructuring and Other. The Company recorded pre-tax special charges on a continuing operations basis of $6.2 million pre-tax in connection with the Company's 1999 restructuring plan, of which $.8 million pre-tax ($.05 per share) is included in restructuring and other in the accompanying Consolidated Statements of Operations, with the remaining $5.4 million pre-tax included in the loss from discontinued business. In addition, during fiscal 1999, the Company reduced by $.6 million pre-tax ($.04 per share) some of its reserves established in connection with its 1997 strategic plan. This reserve reduction related primarily to a lease facility settlement and to lower than expected severance costs. The Company also reduced, during fiscal 1999, by $.5 million pre-tax ($.03 per share) some of its reserves with respect to its 1997 business divestitures. The reserve reduction was principally related to lower than expected inventory returns. Interest Expense. Interest expense increased to $4.2 million in fiscal 2000 from $4.1 million in fiscal 1999 due to lower interest capitalized in fiscal 2000. Interest Income. Interest income decreased $.2 million in fiscal 2000 from fiscal 1999 due to lower average cash balances. Provision for Income Taxes. The Company's effective tax rate for continuing operations increased to 37.2% in fiscal 2000 from 32.9% in fiscal 1999, primarily due to higher amounts not deductible for tax purposes. See Note 11 to the Consolidated Financial Statements. Financial Condition Working capital decreased to $40.6 million at the end of fiscal 2001 from $56.4 million at the end of fiscal 2000 largely as a result of the Company's fiscal 2001 divestiture of its commercial Graphics Products business and costs related to the 2001 cost reduction plan previously discussed. The Company's debt/capitalization ratio decreased to 42.1% at the end of fiscal 2001 from 46.9% at the end of fiscal 2000 as a net result of the reduction of long-term debt, the reduction in earnings from the sale of the divested business, and the 2001 cost reduction plan discussed above. Funds from operations, proceeds received from the sale of a divested business, and available cash balances were sufficient during fiscal 2001 to enable the Company to reduce debt by $27.7 million, net; to pay $3.9 million in satisfaction of a patent infringement judgment; to fund the repurchase of $3.7 million of the Company's common shares; to fund additions to property, plant and equipment of $3.6 million; to pay cash dividends of $3.6 million; and to make cash payments related to the 1999 restructuring plan of $.4 million. The decrease in current assets from $88.3 million at the end of fiscal 2000 to $72.8 million at the end of fiscal 2001, as well as the decreases in accounts receivable and inventories were due primarily to the sale of the divested business. Other current assets increased to $14.1 million at the end of fiscal 2001 from $2.6 million at the end of fiscal 2000 due largely to an increase in income tax refund receivables ($3.6 million), a reclassification from property, plant and equipment to assets held for sale of certain assets ($4.6 million) relating to the divested business (but not included in the sale to Neschen AG), and to a receivable due from Neschen AG for transitional manufacturing, distribution, and administrative services performed in connection with the sale of the divested business. The decrease in non-current assets of $41.6 million was also due largely to the business divestiture. Current liabilities of $32.2 million at the end of fiscal 2001 increased from $31.9 million at the end of fiscal 2000. This slight increase was due to the reclassification of a portion of long-term debt to current, accruals associated with the Company's 2001 cost reduction plan, and accruals associated with the sale of the divested business, partially offset by the payment of the patent infringement litigation accrual and reductions of accounts payable and accruals as a result of the business divestiture. 15 Other non-current liabilities increased to $14.1 million at the end of fiscal 2001 from $12.5 million at the end of fiscal 2000 due to several factors, including accruals associated with the 2001 cost reduction charges and the sale of the divested business, and to an increase in the Company's Supplemental Executive Benefits Plan liability, partially offset by lower pension accruals. The $6.8 million decrease in the accumulated other comprehensive loss account in stockholders' equity was due to the elimination of the foreign currency translation adjustment account as a result of the sale of the divested business and to a favorable minimum pension liability adjustment. In fiscal 2001 and 2000, the Company repurchased 941,290 and 352,600 shares, respectively, of its stock at a cost of $3.7 million and $3.2 million, respectively. The diluted average common shares outstanding decreased from 9,908,000 shares in fiscal 2000 to 8,976,000 shares in fiscal 2001. These and other previously repurchased shares are held by the Company as treasury stock to be used for company stock-based compensation plans and other general company purposes. As a result of the divestiture of its commercial Graphics Products business in October 2001, the Company was required to modify its existing debt arrangement with its senior note holders and banks. In November 2001, the Company reached an agreement with its senior note holders to modify, in certain respects, the terms of the senior notes, subject to, among other things, the Company's securing and maintaining a $25 million bank credit facility. These modifications included: (i) a principal repayment on the senior notes of $25 million at par; (ii) an increase in the interest rate on the remaining balance of the senior notes from 7.86% to 8.36%; (iii) changes to certain covenant requirements; and (iv) certain restrictions on the Company's ability to repurchase its common stock. The Company used $25 million of the proceeds from the sale of the divested business to reduce the $50 million senior note debt then outstanding. As of December 2, 2001, the Company had received a commitment from two banks for a new $25 million bank credit facility to replace the existing $50 million credit facility. On December 21, 2001, the Company finalized the bank credit agreement with the banks. The terms of the new credit facility include, among other things, LIBOR based loans, financial and other covenant requirements substantially similar to the existing bank credit facility, and limitations on borrowings based on levels of accounts receivable, inventory, and fixed assets. See Note 10 to the Consolidated Financial Statement. There were no outstanding borrowings under the new credit facility as of December 2, 2001. The Company's ability to comply with various of its debt covenants will depend largely on the achievement of the Company's business plan, which, in turn, could be adversely affected by the economic climate, competitive uncertainties, and other factors. In the event that non-compliance with such debt covenants should occur or appear to be likely, the Company would pursue various alternatives to successfully resolve the non-compliance, which might include, among other things, seeking debt covenant waivers or amendments, refinancing of debt, restricting payments of future cash dividends, and/or reducing future capital expenditures. Although the Company believes that it would be successful in resolving any such actual or potential non-compliance with its debt covenants, there can be no assurance that such would be the case. See Note 10 to the Consolidated Financial Statements. Management believes that funds generated from operations, combined with the new credit facility, will be sufficient to meet currently anticipated working capital and other capital and debt service requirements. Should the Company require additional funds in the future, management believes that the Company could obtain them at competitive costs. New Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") approved the issuance of Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"; SFAS No. 142, "Goodwill and Other Intangible Assets"; and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations." The most significant changes made by SFAS No. 141 are requiring the purchase method of accounting for all business combinations initiated after June 30, 2001, establishing specific criteria for the recognition of intangible assets separately from goodwill, and requiring that unallocated negative goodwill be written off immediately as an 16 extraordinary gain. The Company does not expect a material impact from the adoption of SFAS No. 141 on its consolidated financial statements. SFAS No. 142 supersedes APB 17, "Intangible Assets," and primarily addresses accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by SFAS No. 142 are that goodwill and indefinite lived intangible assets will no longer be amortized, goodwill will be tested for impairment at least annually at the reporting unit level, intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and the amortization period of intangible assets with finite lives will no longer be limited to forty years. The Company does not expect a material impact from the adoption of SFAS No. 142 on its consolidated financial statements. SFAS No. 143 requires that entities record as a liability obligations associated with the retirement of a tangible long-lived asset when such obligations are incurred, and capitalize the cost by increasing the carrying amount of the related long-lived asset. SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. The Company does not expect a material impact from the adoption of SFAS No. 143 on its consolidated financial statements. In August 2001, the FASB approved the issuance of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and certain parts of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes an accounting model based on SFAS No. 121 for long lived assets to be disposed of by sale, previously accounted for under APB Opinion No. 30. This Statement is effective for fiscal years beginning after December 15, 2001. The Company is currently assessing the impact of the adoption of this statement, but believes it will not materially affect the Company's financial position or results of operations. 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 a potentially responsible party for the remediation of sites. Expenses incurred by the Company for all years presented in the accompanying consolidated financial statements 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 15 to the Consolidated Financial Statements. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk It is the Company's policy to enter into forward exchange contracts transactions only to the extent necessary to achieve the desired objectives of management in limiting the Company's exposure to the various market risks discussed in item 7 herein. However, the Company does not hedge all of its market risk exposure in a manner that would completely eliminate the impact of changes in interest rates and foreign exchange rates on the Company's net income. The Company does not expect that its results of operations or financial position will be materially affected by these risk management strategies. As a result of the sale of the commercial Graphics Products business in October 2001, the Company's exposure to the impact of foreign currency exchange rate fluctuations has been greatly reduced. The Company plans to continue to enter into foreign exchange forward contracts to reduce risks associated with its Canadian dollar transactions. As of December 2, 2001, the Company had a one-month Canadian forward exchange contract with a notional value of approximately $1.9 million outstanding. There were no forward exchange contracts outstanding 17 as of December 3, 2000. The Company does not hold or purchase any foreign currency contracts for trading purposes. In the normal course of operations, the Company also faces other risks that are either nonfinancial or nonquantifiable. Such risks principally include changes in economic or political conditions, other risks associated with foreign operations, commodity price risk and litigation risks. Interest Rate Risk Management See Item 7 -- "Financial Condition" and Note 10 to the Consolidated Financial Statements. Foreign Exchange Risk Management See Note 1 to the Consolidated Financial Statements. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and supplementary financial information listed in the index appearing under Item 14(a) 1 & 2 herein, together with the reports of PricewaterhouseCoopers LLP thereon, are set forth following the signature pages below. 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 following sections of the Company's definitive proxy statement for its Annual Meeting of Shareholders scheduled to be held April 17, 2002, 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:
Form 10-K Item No. Proxy Statement Section - ------------------ ----------------------- Item 10............................... Proposal 1. "ELECTION OF DIRECTORS"; "ADDITIONAL INFORMATION - Section 16(a) Beneficial Ownership Reporting Compliance" Item 11............................... Proposal 1. "ELECTION OF DIRECTORS - Compensation of Directors"; "ADDITIONAL INFORMATION - Executive Compensation" (not including "Compensation Committee Report on Executive Compensation and Report on Repricing of Options" and "Ten-Year Option Repricings") Item 12............................... Proposal 1. "ADDITIONAL INFORMATION - Common Share Ownership by Certain Beneficial Owners and Management" Item 13............................... Not applicable
18 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of the Report Pages 1. Financial Statements: ----- Report of Independent Accountants F-1 Consolidated Statements of Operations for the fiscal years 2001, 2000, and 1999 F-2 Consolidated Balance Sheets, December 2, 2001 and December 3, 2000 F-3 Consolidated Statements of Stockholders' Equity for the fiscal years 2001, 2000, and 1999 F-4 Consolidated Statements of Comprehensive Income (Loss) for the fiscal years 2001, 2000, and 1999 F-5 Consolidated Statements of Cash Flows for the fiscal years 2001, 2000, and 1999 F-6 Notes to Consolidated Financial Statements F-7 - F-28 2. Financial Statement Schedule Schedule II. Valuation and Qualifying Accounts for the fiscal years 2001, 2000, and 1999 F-29 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. 3. Exhibits: (2) Agreements relating to sale of commercial Graphics Products business: (a) Form of Asset Purchase Agreement (U.S.) dated October 7, 2001, between the Company and two of its subsidiaries and Neschen AG and three of its subsidiaries. (b) Form of UK Asset Purchase Agreement dated October 7, 2001, between the Company and one of its subsidiaries and Neschen AG and one of its subsidiaries. (c) Form of Asset Purchase Agreement (The Netherlands) dated October 9, 2001, between the Company and two of its subsidiaries and Neschen AG and one of its subsidiaries. (d) Form of Share Purchase Agreement (Hong Kong) dated October 9, 2001, between Hunt Holdings Inc. and two other subsidiaries of the Company and Neschen International B.V. (e) Form of Employee and Employee Benefits Transitional Agreement dated October 9, 2001, between the Company and two subsidiaries of Neschen AG. (f) Form of Product Manufacturing and Transition Services Agreement dated October 9, 2001, between the Company and three subsidiaries of Neschen AG. 19 (g) Form of Purchase and Supply Agreement (Foamboard) dated October 9, 2001, between the Company and three subsidiaries of Neschen AG. (h) Form of Purchase and Supply Agreement (Framing Consumables) dated October 9, 2001, between the Company and three subsidiaries of Neschen AG. (Exhibits 2(a) through (h) are incorp. by ref. to Exs. 2(a) through (h), respectively, to Form 10-Q for quarter ended September 2, 2001.) Certain schedules and similar attachments to, and as described in, the above exhibits 2(a) through 2(h) have not been filed with the Commission, but the Company agrees to furnish supplementally to the Commission a copy of any omitted schedule upon request. (A list of schedules so omitted is set forth as Ex. 2 to Form 8-K filed October 9, 2001.) (3) Articles of incorporation and bylaws: (a) Restated Articles of Incorporation (incorp. by ref. to Ex. 3(a) to January 2001 Form 8-K). (b) By-laws, as amended (incorp. by ref. to Ex. 3(b) to January 2001 Form 8-K). (4) Instruments defining rights of security holders, including indentures:* (a) (1) Note Purchase Agreement dated as of August 1, 1996 between the Company and several insurance companies (refiled herewith) and (2) Consent and Amendment to Note Agreement dated as of November 14, 2001 (filed herewith). (b) Credit Agreement dated as of December 21, 2001 between the Company and First Union National Bank, Fleet National Bank, and other lenders (filed herewith). 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. (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 (incorp. by ref. to Ex. 10(a) to fiscal 1999 Form 10-K). (b) 1983 Stock Option and Stock Grant Plan, as amended, of the Company (refiled herewith).** (c)(1) 1993 Stock Option and Stock Grant Plan of the Company, as amended (incorp. by ref. to Ex. 10(c) to Form 10-Q for quarter ended September 3, 2000); (2) Addendum relating to options granted December 16, 1999 (incorp. by ref. to Ex.10(c)(2) to fiscal 2000 Form 10-K); and (3) Description of January 2001 stock grants (incorp. by ref. to Ex.10(c)(3) to fiscal 2000 Form 10-K).** (d) 1994 Non-Employee Directors' Stock Option Plan (incorp. by ref. to Ex. 10(d) to fiscal 1999 Form 10-K).** (e) 1997 Non-Employee Director Compensation Plan (incorp. by ref. to Ex. 10(f) to fiscal 1997 Form 10-K).** (f)(1) Form of Change in Control Agreement between the Company and various officers of the Company (incorp. by ref. to Ex.10(f)(1) to fiscal 2000 Form 10-K) and (2) list of executive officers who are parties (filed herewith).** (g)(1) Form of Supplemental Executive Benefits Plan ("SEBP") of the Company effective January 1, 1997, (incorp. by ref. to Ex. 10(g)(1) of fiscal 1998 Form 10-K); (2) Amendment No. 1 to SEBP (incorp. by ref. to Ex. 10(g)(2) of fiscal 1999 Form 10-K); and (3) form of related Amended and Restated Trust Agreement, effective January 1, 1997 (incorp. by ref. to Ex. 10(g)(2) to fiscal 1998 20 Form 10-K; (4) Amendment No. 2 to SEBP (incorp. by ref. to Ex. 10(g)(4) to fiscal 2000 Form 10-K); (5) Amendment No. 3 to SEBP (incorp. by ref. to Ex. 10(g)(5) to fiscal 2000 Form 10-K); and (6) Amendment No. 4 to SEBP (filed herewith).** (h)(1) Employment Agreement, dated as of April 8, 1996, between the Company and Donald L. Thompson (refiled herewith); (2) Amendment No. 1 dated October 1, 1999 to employment Agreement; (3) Amendment, effective June 28, 2000, to Appendix A to Employment Agreement; and (4) Nonqualified Stock Option Agreement dated June 28, 2000 (Exhibits 10(h)(2), (3), and (4) are incorp. by ref. to Exs. 10(h)(2), (3), and (4), respectively, to Form 10-Q for quarter ended September 3, 2000); and (5) Transition and Separation Agreement dated November 30, 2001 (filed herewith).** (i)(1) Officer Severance Plan (incorp. by ref. to Ex. 10 to Form 10-Q for quarter ended February 28, 1999.); (2) Form of Agreement under the Officer Severance Plan; and (3) list of departing executives whose arrangements are eventually as provided under the Office Severance Plan and Form of Agreement (Exhibits 10(i)(2) and (3) filed herewith).** (j) Supplemental Deferred Compensation Agreement, dated as of February 6, 2002 between the Company and John W. Carney (filed herewith).** (k) Form of arrangement between the Company and Bradley P. Johnson (filed herewith).** (21) Subsidiaries (filed herewith). (23) Consent of PricewaterhouseCoopers LLP to incorporation by reference in registration statements on Form S-8 of their report on the consolidated financial statements and schedule included in this report (filed herewith). * Reference also is made to (1) Articles 5th, 6th, 7th, and 8th of the Company's Restated Articles of Incorporation (ex. 3(a) to this report) and (2) Sections 1 and 6 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 During the fourth quarter of fiscal 2001, the Company filed two reports on Form 8-K with the Securities and Exchange Commissions, relating to the Company's sale of its commercial Graphics Products business. 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 CORPORATION Dated: February 25, 2002 By: \s\ Donald L. Thompson Donald L. Thompson Chairman and Chief Executive Officer 21 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\ Donald L. Thompson February 25, 2002 _____________________________ Donald L. Thompson Chairman and Chief Executive Officer \s\ William E. Chandler February 25, 2002 _____________________________ William E. Chandler Senior Vice President, Finance (Principal Financial Officer) \s\ John Fanelli III February 25, 2002 _____________________________ John Fanelli III Vice President, Corporate Controller (Principal Accounting Officer) \s\ Donald D. Belcher February 25, 2002 _____________________________ Donald D. Belcher Director \s\ Ursula M. Burns February 25, 2002 _____________________________ Ursula M. Burns Director \s\ Jack Farber February 25, 2002 _____________________________ Jack Farber Director \s\ William F. Hamilton, Ph.D. February 25, 2002 _____________________________ William F. Hamilton, Ph.D. Director \s\ Mary R. Henderson February 25, 2002 _____________________________ Mary R. (Nina) Henderson Director \s\ Bradley P. Johnson February 25, 2002 _____________________________ Bradley P. Johnson Director \s\ Gordon A. MacInnes February 25, 2002 _____________________________ Gordon A. MacInnes Director \s\ Robert H. Rock February 25, 2002 _____________________________ Robert H. Rock Director \s\ Victoria B. Vallely February 25, 2002 _____________________________ Victoria B. Vallely Director 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and the Board of Directors of Hunt Corporation In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 19 present fairly, in all material respects, the financial position of Hunt Corporation and its subsidiaries at December 2, 2001 and December 3, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 2, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 14(a)(2) on page 19 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, PA January 29, 2002 F-1 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the fiscal years 2001, 2000, and 1999 (In thousands except per share amounts)
2001 2000 1999 (52 weeks) (53 weeks) (52 weeks) ---------- ---------- ---------- Net sales................................................................................. $160,870 $175,780 $172,993 Cost of sales............................................................................. 97,478 107,232 101,220 -------- -------- -------- Gross profit......................................................................... 63,392 68,548 71,773 Selling, general and administrative expenses.............................................. 51,841 55,055 54,891 Restructuring and other................................................................... 3,841 3,735 (74) -------- -------- -------- Income from operations............................................................... 7,710 9,758 16,956 Interest expense.......................................................................... (4,055) (4,163) (4,114) Interest income........................................................................... 768 1,271 1,439 Other income (expense), net............................................................... 251 (276) (28) -------- -------- -------- Income from continuing operations before income taxes................................................................ 4,674 6,590 14,253 Provision for income taxes................................................................ 1,378 2,453 4,689 -------- -------- -------- Income from continuing operations.................................................... 3,296 4,137 9,564 Discontinued operations: Loss from discontinued business, net of income tax benefits of $652, $1,433, and $2,033 in 2001, 2000, and 1999, respectively........................................................................... (2,444) (2,168) (3,137) Loss on disposal of discontinued business, net of income tax benefit of $6,777.................................................... (25,378) -- -- -------- -------- -------- Net income (loss).................................................................... $(24,526) $ 1,969 $ 6,427 ======== ======== ======== Basic earnings per common share: Income from continuing operations...................................................... $ 0.37 $ 0.42 $ 0.91 Loss from discontinued business........................................................ (0.27) (0.22) (0.30) Loss on disposal of discontinued business.............................................. (2.84) -- -- -------- -------- -------- Net income (loss) per share.......................................................... $ (2.74) $ 0.20 $ 0.61 ======== ======== ======== Diluted earnings per common share: Income from continuing operations...................................................... $ 0.37 $ 0.42 $ 0.91 Loss from discontinued business........................................................ (0.27) (0.22) (0.30) Loss on disposal of discontinued business.............................................. (2.83) -- -- -------- -------- -------- Net income (loss) per share.......................................................... $ (2.73) $ 0.20 $ 0.61 ======== ======== ========
See accompanying notes to consolidated financial statements. F-2 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 2, 2001 and December 3, 2000 (In thousands except share and per share amounts)
2001 2000 -------- -------- ASSETS Current assets: Cash and cash equivalents............................ $ 25,966 $ 23,878 Accounts receivable, less allowance for doubtful accounts: 2001 - $1,031; 2000 - $873 ............... 17,486 35,058 Inventories.......................................... 9,389 21,823 Deferred income taxes................................ 5,834 4,966 Prepaid expenses and other current assets............ 14,101 2,590 --------- -------- Total current assets .............................. 72,776 88,315 Property, plant and equipment, net ..................... 24,188 41,216 Excess of acquisition cost over net assets acquired, net ................................................ 754 22,117 Intangible assets, net ................................. 65 2,416 Other assets ........................................... 8,604 9,468 --------- -------- TOTAL ASSETS ...................................... $ 106,387 $163,532 ========= ======== LIABILITIES Current liabilities: Current portion of debt.............................. $ 5,000 $ -- Accounts payable..................................... 4,428 7,876 Accrued expenses: Salaries, wages and commissions .................... 1,291 2,460 Income taxes ....................................... 638 1,297 Insurance .......................................... 1,690 1,843 Compensated absences ............................... 2,315 2,871 Restructuring ...................................... 2,175 862 Other .............................................. 14,667 14,698 --------- -------- Total current liabilities ......................... 32,204 31,907 Long-term debt, less current portion ................... 22,000 54,682 Deferred income taxes .................................. 1,004 2,434 Other non-current liabilities .......................... 14,106 12,539 Commitments and contingencies (see Note 15) STOCKHOLDERS' EQUITY Capital Stock: Preferred, $.10 par value, authorized 1,000,000 shares; none issued ................................ -- -- Common, $.10 par value, authorized 40,000,000 shares; issued: 2001 and 2000 -16,152,322 shares ........ 1,615 1,615 Capital in excess of par value ......................... 7,412 7,412 Accumulated other comprehensive loss ................... -- (6,840) Retained earnings ...................................... 129,695 158,044 Less cost of treasury stock: 2001 - 7,248,347 shares; 2000 - 6,324,933 shares ............................ (101,649) (98,261) --------- -------- Total stockholders' equity ........................ 37,073 61,970 --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 106,387 $163,532 ========= ========
See accompanying notes to consolidated financial statements. F-3 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the fiscal years 2001, 2000, and 1999 (In thousands except share and per share amounts)
Common Stock Capital in Accumulated Other ------------------ Excess of Comprehensive Retained Issued Treasury Par Value Income (Loss) Earnings ------ --------- ---------- ----------------- -------- Balances, November 29, 1998 (issued 16,152,322 shares; treasury 5,162,082 shares)................................... $1,615 $ (87,386) $6,434 $(1,099) $158,316 Net income..................................................... 6,427 Cash dividends on common stock ($.41 per share)............................................. (4,317) Translation adjustments (net of tax benefit of $1,005)............................... (2,437) Minimum pension adjustment (net of tax expense of $475)................................. 1,077 Purchase of treasury shares (838,500 shares)............................................. (8,171) Issuance of stock grants (13,199 treasury shares)..................................... 215 (159) ------ --------- ------ ------- -------- Balances, November 28, 1999 (issued 16,152,322 shares; treasury 5,987,383 shares)................................... 1,615 (95,342) 6,434 (2,459) 160,267 Net income..................................................... 1,969 Cash dividends on common stock ($.41 per share)............................................. (4,067) Translation adjustments (net of tax benefit of $2,338)............................... (4,518) Minimum pension adjustment (net of tax expense of $71).................................. 137 Tax benefit of stock option transactions....................... 978 Purchase of treasury shares (352,600 shares)............................................. (3,165) Issuance of stock grants (15,050 treasury shares)..................................... 246 (125) ------ --------- ------ ------- -------- Balances, December 3, 2000 (issued 16,152,322 shares; treasury 6,324,933 shares)................................... 1,615 (98,261) 7,412 (6,840) 158,044 Net loss....................................................... (24,526) Cash dividends on common stock ($.41 per share)............................................. (3,645) Translation adjustments (net of tax expense of $2,742)............................... 6,509 Minimum pension adjustment (net of tax expense of $139)................................. 331 Purchase of treasury shares (941,290 shares)............................................. (3,680) Issuance of stock grants (treasury 17,876 shares)..................................... 292 (178) ------ --------- ------ ------- -------- Balances, December 2, 2001 (issued 16,152,322 shares; treasury 7,248,347 shares)................................... $1,615 $(101,649) $7,412 $ -- $129,695 ====== ========= ====== ======= ========
See accompanying notes to consolidated financial statements. F-4 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) for the fiscal years 2001, 2000 and 1999 (In thousands)
2001 2000 1999 -------- ------- ------- Net income (loss)................................................................................. $(24,526) $ 1,969 $ 6,427 Comprehensive income (loss): Foreign currency translation adustments, net of income tax expense (benefit) of $2,742, ($2,338), and ($1,005) in 2001, 2000 and 1999, respectively.............................................. 6,509 (4,518) (2,437) Minimum pension liability adustments, net of income tax expense of $139, $71, and $475 in 2001, 2000 and 1999, respectively.................................................................... 331 137 1,077 -------- ------- ------- Other comprehensive income (loss)................................................................. 6,840 (4,381) (1,360) -------- ------- ------- Comprehensive income (loss)....................................................................... $(17,686) $(2,412) $ 5,067 ======== ======= =======
See accompanying notes to consolidated financial statements. F-5 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the fiscal years 2001, 2000 and 1999 (in thousands)
2001 2000 1999 -------- -------- -------- Cash flows from operating activities: Net income (loss)............................................................................... $(24,526) $ 1,969 $ 6,427 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................................ 7,391 8,604 8,540 Provision for inventory obsolescence......................................................... 2,211 1,007 828 Provision (credit) for doubtful accounts..................................................... 374 (52) 161 Deferred income taxes........................................................................ (2,473) 948 312 Loss on disposal of property, plant and equipment............................................ 125 247 120 Loss (gain) on sale of businesses............................................................ 32,155 (133) (554) Provision (payments/credits) for special charges............................................. 3,073 (4,675) 3,495 Provision (payment) for patent infringement litigation....................................... (3,919) 3,815 -- Issuance of stock under management incentive bonus and stock grant plans 114 118 56 Changes in operating assets and liabilities, net of acquisition of businesses: Accounts receivable........................................................................ 11,419 (2,256) (2,962) Inventories................................................................................ (584) (3,083) (90) Prepaid expenses and other current assets.................................................. (7,116) (1,888) 525 Accounts payable........................................................................... (3,543) (2,436) (1,607) Accrued expenses........................................................................... (1,771) (822) 297 Other non-current assets and liabilities................................................... (2,694) 641 (679) -------- -------- -------- Net cash provided by operating activities................................................ 10,236 2,004 14,869 -------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment................................................... (3,580) (6,439) (4,879) Proceeds from sale of businesses............................................................. 32,069 -- -- Acquisition of businesses.................................................................... -- (417) (1,435) Other, net................................................................................... (200) 63 339 -------- -------- -------- Net cash provided by (used for) investing activities..................................... 28,289 (6,793) (5,975) -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt..................................................... 9,919 13,229 16,132 Reduction of long-term debt, including current maturities.................................... (37,658) (14,642) (17,301) Book overdrafts.............................................................................. (1,522) 498 1,128 Purchases of treasury stock.................................................................. (3,680) (3,163) (8,171) Dividends paid............................................................................... (3,645) (4,066) (4,317) Other, net................................................................................... -- (2) (29) -------- -------- -------- Net cash used for financing activities................................................... (36,586) (8,146) (12,558) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents.................................... 149 (84) (163) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............................................ 2,088 (13,019) (3,827) Cash and cash equivalents, beginning of year.................................................... 23,878 36,897 40,724 -------- -------- -------- Cash and cash equivalents, end of year.......................................................... $ 25,966 $ 23,878 $ 36,897 ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except per share and per share amount, unless otherwise indicated) 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. Significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's fiscal year ends on the Sunday nearest the end of November. Fiscal year 2001 ended December 2, 2001; fiscal year 2000 ended December 3, 2000; and fiscal year 1999 ended November 28, 1999. Fiscal years 2001 and 1999 comprised 52 weeks, while fiscal year 2000 comprised 53 weeks. As a result of the Company's sale of its commercial Graphics Products business effective October 1, 2001, the commercial Graphics Products business is presented as a discontinued operation in the accompanying Consolidated Statements of Operations and certain prior year amounts have been reclassified to reflect the discontinued operations, as described in Note 3 to the Consolidated Financial Statements. Cash and Cash Equivalents: The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less to be cash equivalents. The Company's cash management program utilizes zero balance accounts. Accordingly, all book overdraft balances have been reclassified to other accrued expenses in the accompanying Consolidated Balance Sheets. These balances amounted to $2.6 million at December 2, 2001 and $4.1 million at December 3, 2000. Revenue Recognition: In fiscal 2001, the Company adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." This SAB summarizes certain of the staff's views in applying generally accepted accounting principles to selected revenue recognition issues and provides guidance with respect to the recognition, presentation, and disclosure of revenue in the financial statements. The Company recognizes revenue when products are shipped and title has passed to the customer. Provisions for estimated product returns and warranty costs are accrued in the period of revenue recognition. The adoption of SAB No. 101 did not have a significant impact on the Company's results of operations or financial position. In fiscal 2001, the Company adopted Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," of the Emerging Issues Task Force ("EITF"), a subcommittee of the Financial Accounting Standards Board ("FASB"). This Issue requires that amounts billed to customers related to shipping and handling costs be classified as revenues and all expenses related to shipping and handling be classified as cost of products sold. Historically, the Company has netted the amounts billed to customers against shipping and handling costs in selling, general and administrative expenses. In accordance with the adoption of this issue, net sales and selling, general and administrative expenses have been restated, resulting in increases of $.2 million, $.1 million, and $.1 million for fiscal years 2001, 2000, and 1999, respectively. The Company's shipping and handling costs are included in selling, general and administrative expenses. These costs were $15.0 million, $16.9 million, and $15.8 million in fiscal 2001, 2000, and 1999, respectively. Inventories: Inventories are valued at the lower of cost or market. Cost was determined by the last-in, first-out ("LIFO") method for 73% and 39% of the inventories in 2001 and 2000, respectively. Cost of the remaining inventories is determined using the first-in, first-out ("FIFO") method. The Company uses the FIFO method of inventory valuation for certain product lines because the related products and operations are separate and distinct. Inventory F-7 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued) related to the 2001 business divestiture was accounted for using the FIFO method of valuation, which accounts for the significant increase in the inventory valued using the LIFO method as of December 2, 2001. 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 restructuring and other in the Consolidated Statements of Operations. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Excess of Acquisition Cost Over Net Assets Acquired and Other Intangible Assets: Excess of acquisition cost over net assets acquired relates principally to the Company's acquisition of X-Acto in 1981. The Company's policy is to record an impairment loss against the net unamortized excess of acquisition cost over net assets acquired and net other 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. 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, 3 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 40 years. The costs of other intangible assets are amortized on a straight-line basis over periods ranging from 5 to 30 years. Amortization of assets under capital leases that 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 were not material in any of the years presented in the consolidated financial statements. Advertising Costs: The Company expenses advertising costs as incurred to selling, general and administrative expense. Total advertising expense was $.4 million, $.5 million, and $.7 million in fiscal 2001, 2000, and 1999, respectively. Research and Development Costs: Research and development costs relating to both future and present products are charged to selling, general and administrative expense when incurred. These expenses were approximately $1.5 million, $1.6 million, and $1.9 million in fiscal years 2001, 2000, and 1999, respectively. F-8 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued) Income Taxes: Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. The Company records a valuation allowance for deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of such assets will not be realized. Derivatives: Derivative financial instruments are used to hedge risk caused by fluctuating currency. The Company periodically enters into forward exchange contracts to hedge foreign currency transactions for periods generally consistent with its committed exposure. These transactions were not material in any of the years presented in the consolidated financial statements. As of December 2, 2001, the Company had a one-month Canadian forward exchange contract with a notional value of approximately $1.9 million outstanding. There were no forward exchange contracts outstanding as of December 3, 2000. Cash flows from hedges are classified in the Consolidated Statements of Cash Flows in the same category as the item being hedged. The Company does not hold or issue financial instruments for trading purposes. Earnings (Loss) Per Share: Basic earnings per share is computed by dividing net earnings (loss) by the weighted average of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities that could share in earnings, including stock options. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. The diluted earnings per share does not assume the exercise of options that would have an anti-dilutive effect on earnings per share. All earnings per share amounts are presented on an after-tax, diluted basis unless otherwise noted. A reconciliation of weighted average of common shares outstanding to weighted average of common shares outstanding assuming dilution is shown below:
2001 2000 1999 --------- --------- ---------- Average common shares outstanding-basic ........................................ 8,936,342 9,905,440 10,488,442 Add: common equivalent shares representing shares issuable upon exercise of stock options and stock grants................................................ 39,275 2,959 3,766 --------- --------- ---------- Average common shares and dilutive securities outstanding ...................... 8,975,617 9,908,399 10,492,208 ========= ========= ==========
Comprehensive Income: The Company applies Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires disclosure of comprehensive income. Comprehensive income includes net income, as well as other comprehensive income consisting of unrealized gains and losses which bypass the traditional income statement and are recorded directly into a separate section of shareholders' equity on the balance sheet. The components of other comprehensive income for the Company consist of unrealized gains and losses relating to the translation of foreign currency financial statements and additional minimum pension liability adjustment. Employee Benefit Plans: The Company and its subsidiaries have non-contributory, qualified 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. F-9 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued) The Company also has a nonqualified Supplemental Executive Benefit Plan ("SEBP") which provides supplemental defined benefits in conjunction with its qualified pension plan. The SEBP has an elective deferral feature with a Company matching contribution of 25% of an officer's elective deferral of up to 6% of the officer's compensation. The Company purchases variable universal life insurance policies to facilitate the funding of the SEBP. The Company is the sole owner and beneficiary of such policies. As of December 2, 2001 and December 3, 2000, the cash surrender value of these policies was $8.3 million and $8.7 million, respectively. These amounts are classified as other assets in the accompanying Consolidated Balance Sheets. The Company applies SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits," which does not change the measurement or recognition of those plans, but does require the Company to disclose additional information on changes in the benefit obligations and fair values of plan assets, and eliminates certain disclosures that are no longer useful. The Company has a defined contribution 401(k) plan. For participating employees, the Company matches 25 cents for each dollar contributed to a maximum of 6% of pre-tax compensation, subject to limitations of the plan and the Internal Revenue Code. Stock-Based Compensation Plans: The Company applies Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation. SFAS No. 123, "Accounting for Stock-Based Compensation," provides the option of either continuing the Company's current method of accounting for stock-based compensation or adopting the fair value method of accounting. The Company has elected to continue accounting for stock-based compensation under APB No. 25. 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. Segment Information: The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and uses the management approach to report segment results and operations. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. As a result of the sale of the commercial Graphics Products business in fiscal 2001 and its impact on the Company's internal organizational structure, the Company now has only a single reportable segment: Consumer Products. The Company, however, discloses information about products and services, geographic areas, and major customers. 2. NEW ACCOUNTING STANDARDS: In June 2001, the FASB approved Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"; SFAS No. 142, "Goodwill and Other Intangible Assets"; and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations." The most significant changes made by SFAS No. 141 are requiring the purchase method of accounting for all business F-10 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 2. NEW ACCOUNTING STANDARDS: -- (Continued) combinations initiated after June 30, 2001, establishing specific criteria for the recognition of intangible assets separately from goodwill, and requiring that unallocated negative goodwill be written off immediately as an extraordinary gain. The Company does not expect a material impact from the adoption of SFAS No. 141 on its consolidated financial statements. SFAS No. 142 supersedes APB 17, "Intangible Assets," and primarily addresses accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The provisions of SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001. The most significant changes made by SFAS No. 142 are that goodwill and indefinite lived intangible assets will no longer be amortized, goodwill will be tested for impairment at least annually at the reporting unit level, intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and the amortization period of intangible assets with finite lives will no longer be limited to forty years. The Company does not expect a material impact from the adoption of SFAS No. 142 on its consolidated financial statements. SFAS No. 143 requires that entities record as a liability obligations associated with the retirement of a tangible long-lived asset when such obligations are incurred, and capitalize the cost by increasing the carrying amount of the related long-lived asset. SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. The Company does not expect a material impact from the adoption of SFAS No. 143 on its consolidated financial statements. In August 2001, the FASB approved the issuance of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and certain parts of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes an accounting model based on SFAS No. 121 for long lived assets to be disposed of by sale, previously accounted for under APB Opinion No. 30. This Statement is effective for fiscal years beginning after December 15, 2001. The Company is currently assessing the impact of the adoption of this statement, but believes it will not materially affect the Company's financial position or results of operations. 3. DISCONTINUED OPERATIONS: Effective October 1, 2001, the Company sold its commercial Graphics Products business and related assets to Neschen AG, a German manufacturer of self adhesive products. The sales price, which was determined by arms' length negotiation between the parties, was approximately $32.0 million. The Company recorded an after-tax loss of $25.4 million, or $2.83 per share, related to this sale. This charge includes the loss on the sale of assets (net of proceeds), severance costs, recognition of future lease obligations, and other related costs. As of December 2, 2001, approximately $7.1 million of this loss remains as an accrual in the accompanying Consolidated Balance Sheets under other accrued expenses ($5.4 million) and non-current liabilities ($1.7 million). The divested business had net sales of approximately $44.3 million, $73.0 million, and $71.9 million in fiscal years 2001, 2000, and 1999, respectively. The Company has retained $4.6 million of assets related to the divested business but not included in the sale to Neschen AG. These assets have been reclassified from property, plant and equipment to assets held for sale (included in other current assets in the accompanying Consolidated Balance Sheets). The Company is actively pursuing the disposition of these non- strategic assets and expects to achieve their sale within a reasonable period of time. The divested business has been accounted for as a discontinued operation, and accordingly, has been segregated in the accompanying Consolidated Statements of Operations, and prior periods have been reclassified to conform to the current year's presentation. However, prior periods' Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income (Loss), and Consolidated Statements of Cash Flows have not been reclassified. F-11 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 3. DISCONTINUED OPERATIONS: -- (Continued) In addition, the Company and Neschen AG entered into various product manufacturing and transition services agreements whereby each party is providing services to the other for a limited period of time (ranging from four to twelve months) which services are billed at cost. The Company also bills Neschen for management and other net fees. The parties have also entered into various purchase and supply agreements for an initial period of one year from the sale date. During fiscal 2001, the Company recorded a tax benefit of $.5 million after- tax ($.05 per share) resulting from a resolution of a prior year tax exposure in connection with a 1997 divestiture. This item is included in the total tax benefit recorded for loss on disposal of discontinued business. 4. RESTRUCTURING AND OTHER: Restructuring and other on a continuing operations basis for fiscal years 2001, 2000, and 1999 consists of the following:
2001 2000 1999 ------ ------ ----- Cost reduction plan ....................................................................... $3,858 - - Restructuring ............................................................................. (235) $ (180) $ 462 Patent infringement litigation costs ...................................................... 102 3,815 - Net gain on divestitures .................................................................. - (133) (554) Loss on disposal of property, plant & equipment ........................................... 116 233 18 ------ ------ ----- $3,841 $3,735 $ (74) ====== ====== =====
In November 2001, the Company initiated a cost reduction plan (the "2001 cost reduction plan") designed to reduce the Company's cost structure. This plan resulted primarily from the sale of the commercial Graphics Products business and resulted in the recognition of charges totaling $3.9 million pre-tax in fiscal 2001. These charges include employee severance costs ($3.5 million), recognition of future lease obligations ($.3 million), and other related costs. Twelve positions were eliminated in fiscal 2001, and nineteen positions are expected to be eliminated in the first half of fiscal 2002 in connection with this cost reduction plan. In addition to the cost reduction charges related to this plan, the Company expects to spend a total of approximately $1.0 million for implementation costs over the next three fiscal years. These implementation costs will be recorded as period costs as incurred and will consist primarily of employee severance and outplacement costs. Included in the total employee severance costs are costs related to the Company's executive leadership transition to a smaller executive management structure more in keeping with the reduced size and complexity of the Company's business following the sale of its commercial Graphics Products business in October 2001. These transition severance costs relate to the planned retirement of the Company's Chairman and Chief Executive Officer and separation of other executive officers of the Company during fiscal 2002. The following table sets forth the details and the cumulative activity in the various accruals associated with the 2001 cost reduction plan in the Consolidated Balance Sheets from December 4, 2000 to December 2, 2001:
Balance at Balance at December 4, Current Cash Non-Cash December 2, 2000 Provision Credits Reductions Activity 2001 ----------- --------- ------- ---------- -------- ----------- Lease obligations ................................ - $ 257 - - - $ 257 Severance ........................................ - 3,513 - - - 3,513 Fixed assets ..................................... - 38 - - - 38 Other ............................................ - 50 - - - 50 --- ------ --- --- --- ------ Total ............................................ - $3,858 - - - $3,858 === ====== === === === ======
F-12 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 4. RESTRUCTURING AND OTHER: -- (Continued) During fiscal 2000, the Company recorded a charge and related liability of $3.8 million pre-tax (including interest and other costs) in connection with a patent infringement suit judgment. During fiscal 2001, the Company recorded interest charges of $.1 million pre-tax and made a payment of approximately $3.9 million to the plaintiff in satisfaction of this judgment. During fiscal 1999, a comprehensive reorganization and restructuring plan (the "1999 restructuring plan") was approved by the Company's Board of Directors. This plan resulted in recognition of restructuring charges totaling $6.2 million pre-tax, of which $.8 million is included in restructuring and other in the accompanying Consolidated Statements of Operations, with the remainder included in loss from discontinued business. The major components of this plan included creating manufacturing centers of excellence, outsourcing the Company's European distribution activities, consolidating its U.S. distribution activities, and focusing its product offering and marketing efforts. The restructuring charges included employee severance costs ($2.6 million), recognition of future lease obligations ($1.8 million), fixed asset writedowns ($1.6 million), and other related costs. In addition to such restructuring charges, the Company spent $.3 million pre- tax in fiscal 2001 and $.3 million pre-tax for implementation costs of this plan in fiscal 2000 (recorded as period costs as incurred). During fiscal 2001, the Company reduced by $.4 million pre-tax some of its reserves in connection with the Company's implementation of its 1999 restructuring plan, of which amount $.2 million pre-tax is included in restructuring and other in the accompanying Consolidated Statements of Operations. These reserve reductions related primarily to lower than anticipated severance costs. During fiscal 2000, the Company reduced by $.5 million pre-tax some of its reserves established in connection with the Company's implementation of its 1999 restructuring plan, of which amount $.2 million pre-tax is included in restructuring and other in the accompanying Consolidated Statements of Operations. These reserve reductions related primarily to a decision not to vacate a certain facility, final resolution of lease obligations for a vacant facility, lower than anticipated severance costs, and lower than expected losses on asset disposals. The following table sets forth the details and the cumulative activity in the various accruals associated with the 1999 restructuring plan in the Consolidated Balance Sheets from November 30, 1998 to December 2, 2001:
Balance at Balance at November 30, Current Cash Non-Cash November 28, 1998 Provision Credits Reductions Activity 1999 ------------ --------- ------- ---------- -------- ------------ Lease obligations .............................. - $1,772 - $ (6) - $1,766 Severance ...................................... - 2,593 - (54) - 2,539 Fixed assets ................................... - 1,584 - (3) - 1,581 Other .......................................... - 257 - (80) - 177 --- ------ --- ----- --- ------ Total .......................................... - $6,206 - $(143) - $6,063 === ====== === ===== === ======
Balance at Balance at November 29, Current Cash Non-Cash December 3, 1999 Provision Credits Reductions Activity 2000 ------------ --------- ------- ---------- -------- ----------- Lease obligations ............................... $1,766 - $(117) $(1,400) - $ 249 Severance ....................................... 2,539 - (119) (1,630) - 790 Fixed assets .................................... 1,581 - (124) (212) $(1,225) 20 Other ........................................... 177 - (116) (61) - - ------ --- ----- ------- ------- ------ Total ........................................... $6,063 - $(476) $(3,303) $(1,225) $1,059 ====== === ===== ======= ======= ======
F-13 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 4. RESTRUCTURING AND OTHER: -- (Continued)
Balance at Balance at December 4, Current Cash Non-Cash December 2, 2000 Provision Credits Reductions Activity 2001 ----------- --------- ------- ---------- -------- ----------- Lease obligations ................................ $ 249 - - - - $ 249 Severance ........................................ 790 - (348) (419) - 23 Fixed assets ..................................... 20 - (7) (11) (2) - Other ............................................ - - - - - - ------ --- ---- ---- --- ----- Total ............................................ $1,059 - (355) (430) (2) $ 272 ====== === ==== ==== === =====
During fiscal 2000, the Company completed the implementation its 1997 strategy for growth and restructuring (the "1997 strategic plan") designed to restore higher levels of sales growth and profitability and to reduce its cost structure. During fiscal 2000 and 1999, the Company reduced by $.1 million pre-tax and $.6 million pre-tax, respectively some of its reserves established in connection with its 1997 strategic plan restructuring. The reserve reduction in fiscal 2000 related primarily to lower than expected losses on asset disposals and is included in loss from discontinued operations. The reserve reduction in fiscal 1999 related primarily to a final resolution of lease obligations for a vacant facility and to lower than expected severance costs, and $.3 million pre-tax of this amount is included in restructuring and other in the accompanying Consolidated Statements of Operations. The following table sets forth the details and the cumulative activity in the various accruals and reserves associated with the 1997 strategic plan in the dated Balance Sheets from November 30, 1998 to December 3, 2000:
Balance at Balance at November 30, Current Cash Non-Cash November 28, 1998 Provision Credits Reductions Activity 1999 ------------ --------- ------- ---------- -------- ------------ Inventory ...................................... $ 400 - - $ (370) $ (30) - Lease obligations .............................. 1,873 - $(467) (847) (5) $554 Severance ...................................... 722 - (103) (573) - 46 Fixed assets ................................... 235 - (17) - (218) - Other .......................................... 487 - - (191) - 296 ------ --- ----- ------- ------ ---- Total .......................................... $3,717 - $(587) $(1,981) ($253) $896 ====== === ===== ======= ====== ====
Balance at Balance at November 29, Current Cash Non-Cash December 3, 1999 Provision Credits Reductions Activity 2000 ------------ --------- ------- ---------- -------- ----------- Lease obligations ............................... $554 - - $(554) - - Severance ....................................... 46 - - (46) - - Other ........................................... 296 - $(83) (213) - ---- --- ---- ----- --- --- Total ........................................... $896 - $(83) $(813) - - ==== === ==== ===== === ===
During fiscal 2000 and 1999, the Company reduced by $.1 million pre-tax and $.5 million pre-tax, respectively, some of its reserves established with respect to its 1997 business divestitures. These reductions were principally related to lower than expected inventory returns and environmental reserves. 5. BUSINESS ACQUISITIONS: In October 1999, the Company acquired the business and assets of Axiom Graphics Manufacturing, Inc. ("Axiom") for $1.4 million and future contingent considerations. This acquisition was accounted for under the purchase method of accounting and was financed by internal cash generation. The excess of purchase price over the fair value of the net assets acquired was approximately $1.3 million, to be amortized on a straight line basis for 15 years. This amount was written off in fiscal 2001 in connection with the sale of divested business. Axiom F-14 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 5. BUSINESS ACQUISITIONS: -- (Continued) was included in the disposition of the commercial Graphics Products business in fiscal 2001, and its results of operations are included in discontinued operations in the Company's Consolidated Statements of Operations from the date of acquisition. 6. INVENTORIES: The classification of inventories, net of reserves at the end of fiscal years 2001 and 2000 is as follows:
2001 2000 ------ ------- Finished goods ............................................. $2,973 $10,593 Work in progress ........................................... 1,440 2,784 Raw materials .............................................. 4,976 8,446 ------ ------- $9,389 $21,823 ====== =======
Inventories determined under the LIFO method were $10,653 and $10,773 at December 2, 2001 and December 3, 2000, respectively. The current replacement cost for these inventories exceeded the LIFO cost by $3,772 and $4,234 at December 2, 2001 and December 3, 2000, respectively. Inventory quantities were reduced in fiscal years 2001, 2000, and 1999, resulting in a liquidation of LIFO inventories carried at lower costs prevailing in prior years. The effect of these reductions was to increase net income by $51 ($.01 per share), $237 ($.02 per share), and $236 ($.02 per share), in fiscal years 2001, 2000, and 1999, respectively. 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets at the end of fiscal years 2001 and 2000 were comprised of the following items:
2001 2000 ------- ------ Income tax refund receivable ............................... $ 5,088 $1,494 Assets held for sale ....................................... 4,580 - Receivable from Neschen AG ................................. 3,282 - Other ...................................................... 1,151 1,096 ------- ------ $14,101 $2,590 ======= ======
See Note 3 for discussion of receivable from Neschen AG and assets held for sale. See Note 11 for information regarding the income tax refund receivable. 8. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, net, at the end of fiscal years 2001 and 2000 is as follows:
2001 2000 ------- ------- Land and land improvements ................................ $ 324 $ 2,275 Buildings ................................................. 8,397 14,795 Machinery and equipment ................................... 55,632 67,284 Leasehold improvements .................................... 776 803 Construction in progress .................................. 1,607 2,066 ------- ------- 66,736 87,223 Less accumulated depreciation and amortization ............ 42,548 46,007 ------- ------- $24,188 $41,216 ======= =======
F-15 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 8. PROPERTY, PLANT AND EQUIPMENT: -- (Continued) Depreciation expense was $5,129, $5,290, and $5,338 for fiscal years 2001, 2000, and 1999, respectively. 9. EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED AND INTANGIBLE ASSETS, NET: Excess of acquisition cost over net assets acquired at the end of fiscal years 2001 and 2000 is as follows:
2001 2000 ------ ------- Excess of acquisition cost over net assets acquired.................................................. $1,603 $29,642 Less accumulated amortization .............................. 849 7,525 ------ ------- $ 754 $22,117 ====== =======
The significant decrease in excess of acquisition cost over net assets acquired in fiscal 2001 was due to the 2001 business divestiture. Intangible assets, net, at the end of fiscal years 2001 and 2000 are as follows:
2001 2000 ------ ------ Covenants not to compete .................................... - $2,728 Patents ..................................................... $1,436 1,530 Trademarks .................................................. 74 1,159 Licensing agreements ........................................ 492 492 Other ....................................................... 105 2,295 ------ ------ 2,107 8,204 Less accumulated amortization ............................... 2,042 5,788 ------ ------ $ 65 $2,416 ====== ======
The significant decrease in intangible assets in fiscal 2001 was due to the 2001 business divestiture. 10. DEBT: As a result of the divestiture of its commercial Graphics Products business in October 2001, the Company was required to modify its existing debt arrangement with its senior note holders and banks. In November 2001, the Company reached an agreement with its senior note holders to modify, in certain respects, the terms of the senior notes, subject to, among other things, the Company's securing and maintaining a $25 million bank credit facility. These modifications included: (1) a principal repayment on the senior notes of $25 million at par, (2) an increase in the interest rate on the remaining balance of the senior notes from 7.86% to 8.36%, (3) changes to certain covenant requirements, and (4) certain restrictions on the Company's ability to repurchase its common stock. The Company used $25 million of the proceeds from the sale of the divested business to reduce the $50 million senior note debt then outstanding. As of December 2, 2001, the Company had received a commitment from two banks for a new $25 million bank credit facility to replace the existing $50 million credit facility. On December 21, 2001, the Company finalized the bank credit agreement with the banks. The terms of the new credit facility include, among other things, LIBOR based loans, covenant requirements substantially similar to the existing bank credit facility, and limitations on borrowings based on levels of accounts receivable, inventory, and fixed assets. There were no outstanding borrowings under the new credit facility as of December 2, 2001. F-16 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 10. DEBT: -- (Continued) Debt at the end of fiscal years 2001 and 2000 was as follows:
2001 2000 ------- ------- Senior notes (a) .......................................... $25,000 $50,000 Revolving credit facility ................................. - 2,676 Capitalized lease obligations (b) ......................... 2,000 2,006 ------- ------- 27,000 54,682 Less current portion ...................................... 5,000 - ------- ------- Long-term portion ......................................... $22,000 $54,682 ======= =======
(a) The senior notes are payable in five annual payments of $5 million beginning August 1, 2002 and bear interest at a rate of 8.36%. (b) The capitalized lease obligations are collateralized by the property, plant and equipment described in Note 15. The senior notes and credit facility contain certain representations, warranties, covenants and conditions, including, but not limited to, requirements that the Company comply with certain financial covenants, including fixed charge coverage, leverage ratios, borrowing base ratios, and maintenance of certain levels of net worth; limitations on liens, indebtedness, investments, changes in lines of business, acquisitions, transactions with affiliates and modifications of certain documents; and restrictions on the Company's ability to repurchase its common stock. The Company was in compliance with its debt covenants at December 2, 2001 and December 3, 2000. The Company's ability to comply with various of its debt covenants will depend largely on the achievement of the Company's business plan, which, in turn, could be adversely affected by the economic climate, competitive uncertainties, and other factors. In the event that non-compliance with such debt covenants should occur or appear to be likely, the Company would pursue various alternatives to successfully resolve the non-compliance, which might include, among other things, seeking debt covenant waivers or amendments, refinancing of debt, restricting payments of future cash dividends, and/or reducing future capital expenditures. Although the Company believes that it would be successful in resolving any such actual or potential non-compliance with its debt covenants, there can be no assurance that such would be the case. Aggregate annual maturities for all long-term debt, including the capitalized leases, for each of the four fiscal years subsequent to December 1, 2002 are as follows: 2003 $5,000 2005 $5,000 2004 $7,000 2006 $5,000 11. INCOME TAXES: Income from continuing operations before provision for income taxes consists of the following:
2001 2000 1999 ------ ------ ------- Domestic ............................................................................ $3,926 $4,941 $12,364 Foreign ............................................................................. 748 1,649 1,889 ------ ------ ------- $4,674 $6,590 $14,253 ====== ====== =======
F-17 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 11. INCOME TAXES: -- (Continued) The provision for income taxes from continuing operations consists of the following:
2001 2000 1999 ------ ------ ------ Currently payable: Federal............................................................................. $ (188) $2,680 $ 992 State............................................................................... 67 131 101 Foreign............................................................................. 60 80 103 ------ ------ ------ (61) 2,891 1,196 Deferred............................................................................ 1,439 (438) 3,493 ------ ------ ------ $1,378 $2,453 $4,689 ====== ====== ======
The following is a reconciliation of the statutory federal income tax rate with the Company's effective income tax rate from continuing operations:
2001 2000 1999 ----- ---- ---- Statutory federal rate .................................................................... 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit ............................................ .9 1.3 .5 Effect of life insurance policies ......................................................... 6.0 5.6 (.2) Tax benefit of foreign sales corporation .................................................. (1.7) (2.0) (.9) Resolution of certain prior years' tax exposures .......................................... (10.8) (3.7) (1.0) Other, net ................................................................................ .1 1.0 (.5) ----- ---- ---- Effective rate from continuing operations ................................................. 29.5% 37.2% 32.9% ===== ==== ====
The significant components of deferred tax assets and liabilities at December 2, 2001 and December 3, 2000 consist of:
2001 2000 -------------------- -------------------- Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Inventories ....................................................... $ 662 - $ 808 - Accrued expenses .................................................. 3,591 $ 325 3,500 $ 225 Allowance for doubtful accounts ................................... 377 - 241 224 Net operating loss carryforwards .................................. 1,802 - 754 - Pensions .......................................................... 3,318 350 3,399 - Minimum pension liability adjustment .............................. - - 171 - Depreciation and amortization ..................................... 57 4,184 - 5,853 ------ ------ ------ ------ 9,807 4,859 8,873 6,302 Valuation allowance ............................................... (118) - (39) - ------ ------ ------ ------ $9,689 $4,859 $8,834 $6,302 ====== ====== ====== ======
Included in the above table for December 2, 2001 and December 3, 2000 are deferred tax assets of $4,251 and $514 respectively, relating to the discontinued operations. As of December 2, 2001, the Company had federal net operating loss carryforwards of approximately $4,953 that may be carried forward for 20 years. The valuation allowance of approximately $118 as of December 2, 2001 has been provided to reduce state net operating losses to a level which, more likely than not, will be realized. The net change in the total valuation allowance for the year ended December 2, 2001 was an increase of approximately $79 principally due to state tax loss carryforwards which are not likely to be realized. F-18 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 12. EMPLOYEE BENEFIT PLANS: Pension Plans: Net pension costs for fiscal years 2001, 2000, and 1999 consist of the following:
2001 2000 1999 ------- ------- ------- Service cost ...................................................................... $ 1,721 $ 2,021 $ 2,612 Interest cost ..................................................................... 3,789 3,843 3,744 Expected return on plan assets .................................................... (4,838) (4,681) (4,101) Net amortization & deferral ....................................................... (981) (430) 238 Net curtailment gain .............................................................. (323) (33) - Net settlement loss ............................................................... 956 1 - ------- ------- ------- Net periodic benefit cost ......................................................... $ 324 $ 721 $ 2,493 ======= ======= =======
During fiscal 2001, the Company realized a net curtailment gain of $323 resulting from the divestiture of the commercial Graphics Products business. In addition, in fiscal 2001, the Company realized a settlement loss relating to its United Kingdom pension plan resulting from the business divestiture. Approximately $.7 million of the aggregate of settlement loss and net curtailment gain is included in the loss on disposal of discontinued business. During fiscal 2000, the Company realized a net curtailment gain of $33 resulting from a U.S. plant closing that occurred as part of its 1999 restructuring plan. The reconciliations of the beginning and ending balances of benefit obligations and fair value of plan assets and the funded status of the plans at September 30, 2001 and 2000 (dates of actuarial valuations) are as follows:
2001 2000 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year.................. $51,831 $52,461 Service cost............................................. 1,721 2,021 Interest cost............................................ 3,789 3,843 Participants' contributions.............................. 109 127 Amendments............................................... 2,023 - Actuarial gain........................................... (608) (3,771) Benefits paid............................................ (2,510) (1,886) Exchange rate changes.................................... 33 (665) Curtailments............................................. (1,665) (153) Settlements.............................................. (314) (146) ------- ------- Benefit obligation at end of year........................ $54,409 $51,831 ======= =======
2001 2000 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year........... $55,387 $53,129 Actual return on plan assets............................. (5,419) 4,054 Employer contributions................................... 638 705 Participants' contributions.............................. 109 127 Benefits paid............................................ (2,510) (1,885) Exchange rate changes.................................... 26 (597) Settlements.............................................. (314) (146) ------- ------- Fair value of assets at end of year...................... $47,917 $55,387 ======= =======
F-19 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 12. EMPLOYEE BENEFIT PLANS: -- (Continued)
2001 2000 ------- -------- Reconciliation of funded status: Funded status........................................... $(6,493) $ 3,555 Unrecognized net actuarial gain......................... (1,123) (10,231) Unrecognized prior service cost......................... 2,005 900 Unrecognized transition asset........................... (223) (371) Other................................................... 45 59 ------- -------- Net amount recognized................................... $(5,789) $ (6,088) ======= ========
Amounts recognized in the Consolidated Balance Sheets are as follows:
2001 2000 ------- ------- Pension benefit cost..................................... $ 946 $ 80 Accrued benefit liability................................ (6,735) (7,196) Intangible assets........................................ - 526 Deferred income taxes liability.......................... - 171 Accumulated other comprehensive income................... - 331 ------- ------- Net amount recognized.................................... $(5,789) $(6,088) ======= =======
Significant weighted average assumptions as of the dates of actuarial valuations include:
2001 2000 ---- ---- Discount rate 7.50% 8.00% Expected return on plan assets................................. 9.00% 9.00% Rate of compensation increase.................................. 5.00% 5.00%
The projected benefit obligations for the pension plans with accumulated benefits obligations in excess of plan assets were $54,409 and $7,176 for fiscal years 2001 and 2000, respectively. The accrued benefit liabilities for these plans were $6,735 and $5,787, and the fair values of plan assets were $47,917 and $0 for fiscal years 2001 and 2000, respectively. The Company recognizes a minimum pension liability for underfunded plans. As of September 30, 2001, no minimum pension liability was required since the accumulated benefit obligation less the plan assets does not exceed the net amount recognized. Supplemental Executive Benefits Plan: The Company has a nonqualified, Supplemental Executive Benefits Plan that covers all officers. Expenses of $949, $1,068, and $1,194, in fiscal years 2001, 2000, and 1999, respectively, relating to this Plan were actuarially determined and are included in the pension costs described above. Contributions to the elective salary deferral feature of the plan by the Company were $45, $50, and $48 for fiscal years 2001, 2000, and 1999, respectively. Employee Savings Plan: The Company has a defined contribution 401(k) plan available to its employees in the United States. Contributions to the 401(k) plan by the Company were $303, $317, and $312 for fiscal years 2001, 2000, and 1999, respectively. 13. STOCK-BASED COMPENSATION PLANS: The 1993 Stock Option and Stock Grant Plan which replaced the expired 1983 Stock Option and Stock Grant Plan, authorizes the issuance of up to 3,500,000 common shares for the granting of incentive stock options, F-20 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 13. STOCK-BASED COMPENSATION PLANS: -- (Continued) nonqualified stock options, and stock grants to the Company's directors and key employees. A maximum of 525,000 common shares under the 1993 plan may be issued in the form of stock grants. The limit on the aggregate number of options and/or stock grants that can be granted to any one individual in any one-year period is 300,000 shares. The option price of options granted under the plan may not be less than the fair 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 1993 plan are subject to a vesting period or periods of between one and five years from the date of grant. Common shares subject to a stock grant 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 grantees 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 grantees. Stock options and stock grants under the plan are subject to possible acceleration of vesting and earlier termination in certain circumstances. The Company's 1983 Stock Option and Stock Grant Plan expired by its terms in February 1993, and although incentive stock options and nonqualified stock options granted under that plan remain outstanding, no further options may be granted under the plan. The terms of the 1983 plan are essentially similar to the terms of the 1993 plan described above. Payment upon exercise of stock options under the 1993 and 1983 plans may be in cash and/or in common shares of the Company in an amount equivalent to the fair market value of the stock at the date exercised. The Company's 1994 Non-Employee Directors' Stock Option Plan authorizes the granting at fair market value of up to an aggregate of 90,000 common shares to non-officer directors of the Company. This plan provides for one-time automatic grants of non-qualified options to purchase 5,000 common shares (at a per share price equal to the fair market value of a common share on the grant date of the option) to each of the non-officer directors of the Company. Options granted under this plan extend for a term of ten years from the grant date (subject to earlier termination in certain circumstances) and become exercisable at the rate of 20% per year over five years from the grant date (subject to acceleration in certain circumstances). The Company also has a 1997 Non-Employee Director Compensation Plan for non- employee directors of the Company. The plan includes a compensation package for the Company's non-officer directors which provides for basic directors' fees to be paid in a combination of cash and the Company's common shares. In addition, the plan provides for annual grants to each non-employee director of non-qualified stock options to purchase up to 2,000 common shares at the fair market value of such shares on the date of grant. These options vest after two years (subject to possible acceleration) and extend for ten years (subject to possible earlier termination). A summary of options under the Company's 1993 Stock Option and Stock Grant Plan, the 1994 Non-Employee Directors' Stock Option Plan, and the 1997 Non- Employee Director Compensation Plan is as follows:
2001 2000 1999 --------- --------- --------- Outstanding, beginning of year .............................................. 2,009,351 1,948,677 1,913,027 Options granted ............................................................. 214,600 486,100 139,200 Options terminated .......................................................... (741,617) (425,426) (103,550) --------- --------- --------- Outstanding, end of year .................................................... 1,482,334 2,009,351 1,948,677 ========= ========= ========= Average option price per share .............................................. $13.01 $15.06 $17.27 Outstanding exercisable options, end of year ................................ 1,069,134 1,485,251 792,023 Shares reserved for future stock options and grants......................................................... 1,790,735 1,331,990 1,392,664
F-21 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 13. STOCK-BASED COMPENSATION PLANS: -- (Continued) A summary of options under the Company's 1983 Stock Option and Stock Grant Plan is as follows:
2001 2000 1999 ------- ------- ------- Outstanding, beginning of year .................................................... 99,233 161,633 170,933 Options expired ................................................................... (21,633) (18,200) - Options terminated ................................................................ (26,000) (44,200) (9,300) ------- ------- ------- Outstanding, end of year .......................................................... 51,600 99,233 161,633 ======= ======= ======= Average option price per share .................................................... $14.12 $13.59 $14.66 Outstanding exercisable options, end of year ...................................... 51,600 99,233 161,633 Shares reserved for future stock options and grants ............................... - - -
The following table summarizes information about options outstanding at December 2, 2001 under the Company's 1993 and 1983 Stock Option and Stock Grant Plans, the 1994 Non-Employee Directors' Stock Option Plan, and the 1997 Non-Employee Director Compensation Plan:
Options Outstanding Options Exercisable ---------------------------------------------------------------------------------------------------- ---------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Exercisable Exercise --------------- at 12/2/01 (years) Price at 12/2/01 Price ----------- ---------------- -------- ----------- -------- $ 4.00 - $ 6.11 ....................................... 169,300 9.1 $ 4.22 -- $ -- $ 8.41 - $11.41........................................ 521,100 8.2 $ 9.39 280,200 $ 9.84 $13.06 - $18.69........................................ 735,752 4.1 $16.64 732,752 $16.64 $20.88 - $24.84........................................ 107,782 6.3 $23.44 107,782 $23.44 --------- --- ------ --------- ------ $ 4.00 - $24.84........................................ 1,533,934 6.2 $13.29 1,120,734 $15.60
Other: During 2001, the Company made stock grants under the 1993 Stock Option and Stock Grant Plan of 199,311 common shares to certain executive officers (excluding the chief executive officer) and other officers. By their terms, these grants vest in five years, subject to earlier vesting if specified profit before tax levels are attained by the Company, and in certain other circumstances, including a change in control of the Company, but not sooner than two years from the date of grant. As of December 2, 2001, the number of these outstanding grants had been reduced to 68,272 common shares as a result of terminations related to the sale of the divested business and the 2001 cost reduction plan. The net charges to general and administrative expense with respect to these grants were $64 in fiscal 2001. The Company has a long-term incentive compensation agreement with Donald L. Thompson, Chairman of the Board and Chief Executive Officer, entered into at the time he joined the Company in fiscal 1996. On June 28, 2000, the Company amended its agreement with Mr. Thompson to replace his stock account consisting of 175,000 phantom shares of common stock of the Company (fully vested) with a deferred cash account with an opening balance equal to the closing value of the stock account on June 28, 2000, determined on the basis of the fair market value of a share of the Company's common stock on such date ($9.6875) multiplied by 175,000. Prior to Mr. Thompson's termination of employment, the amount in his deferred cash account will be decreased by $175,000 for each $1.00 decline in the price of the Company's common stock below the $9.6875 stock value and will be subsequently increased by $175,000 for each $1.00 increase in the price of the Company's common stock up to, but not in excess of, the $9.6875 stock value. Mr. Thompson will, however, continue to be credited with dividend amounts as if he were still credited with 175,000 phantom shares. In addition, on June 28, 2000, the Company granted to Mr. Thompson stock options under the Company's 1993 Stock Option and Stock Grant Plan F-22 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 13. STOCK-BASED COMPENSATION PLANS: -- (Continued) for 175,000 common shares at an option price of $9.6875 per share, which was the fair market value of such common shares at the date of grant. The charges (credits) to general and administrative expenses with respect to this plan were $642, $(727), and $(531) in fiscal years 2001, 2000, and 1999, respectively. The Company has adopted the disclosure requirements of SFAS No. 123 "Accounting for Stock-Based Compensation," and as permitted under SFAS No. 123, applies APB No. 25 and related interpretations in accounting for its stock option plans, and accordingly does not record compensation costs. If the Company had elected, beginning in fiscal 1997, to recognize compensation cost based on fair value of the options granted at grant date as prescribed by SFAS No. 123, earnings and earnings per share would have approximated the pro forma amounts shown below:
2001 2000 1999 -------- ------ ------ Earnings: As reported: Income from continuing operations................................................ $ 3,296 $4,137 $9,564 Net income (loss)................................................................ $(24,526) $1,969 $6,427 Pro forma: Income from continuing operations................................................ $ 3,010 $3,454 $8,422 Net income (loss)................................................................ $(24,812) $1,286 $5,285 Basic earnings per share: As reported: Income from continuing operations................................................ $ .37 $ .42 $ .91 Net income (loss)................................................................ $ (2.74) $ .20 $ .61 Pro forma: Income from continuing operations................................................ $ .34 $ .35 $ .80 Net income (loss)................................................................ $ (2.78) $ .13 $ .50 Diluted earnings per share: As reported: Income from continuing operations................................................ $ .37 $ .42 $ .91 Net income (loss)................................................................ $ (2.73) $ .20 $ .61 Pro forma: Income from continuing operations................................................ $ .34 $ .35 $ .80 Net income (loss)................................................................ $ (2.76) $ .13 $ .50
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
2001 2000 1999 ----- ----- ----- Expected dividend yield ................................................................. 9.95% 4.50% 4.21% Risk-free interest rate ................................................................. 5.03% 5.87% 5.45% Expected volatility ..................................................................... 38.08% 33.47% 29.99% Expected life (in years) ................................................................ 4.0 3.6 4.4
The weighted average estimated fair values of employee stock options granted during fiscal 2001, 2000, and 1999 were $.68, $2.08, and $2.18 per share, respectively. These pro forma disclosures are not likely to be representative of the effects on earnings and earnings per common share in future years, because, among other things, they do not take into consideration pro forma compensation expense related to grants made prior to the Company's fiscal year 1997. F-23 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 14. SHAREHOLDERS' RIGHTS PLAN: The Company's 1990 Rights Agreement and the Rights distributed to the Company's shareholders under that Agreement expired by their terms on December 31, 2000, and the Company Series A Junior Participating Preferred Stock authorized for possible issuance pursuant to the Rights has ceased to be a series of stock which the Company is authorized to issue. 15. COMMITMENTS AND CONTINGENCIES: Leases: The capitalized lease obligations (see Note 10) represent amounts payable under leases that are, in substance, installment purchases. Property, plant and equipment includes the following assets under capital leases:
2001 2000 ------- ------- Land ...................................................... $ 152 $ 152 Buildings ................................................. 1,356 1,356 Machinery and equipment ................................... 455 466 Accumulated depreciation .................................. (1,811) (1,816) ------- ------- $ 152 $ 158 ======= =======
The Company has the option to purchase the above assets at any time during the terms of the leases for amounts sufficient to redeem and retire the underlying lessor debt obligations. The capitalized lease obligations have various principal payments that mature no later than June 15, 2004. The minimum rental commitments under all noncancellable leases as of December 2, 2001 are as follows:
Operating Fiscal Period Operating Leases ------------- ---------------- 2002 ........................................................ $2,045 2003 ........................................................ 1,042 2004 ........................................................ 816 2005 ........................................................ 448 2006 ........................................................ 15 Thereafter .................................................. - ------ Minimum lease payments ...................................... $4,366 ======
Rent expense, including related real estate taxes charged to operations, amounted to $3,205, $3,544 and $3,398 for fiscal years 2001, 2000, and 1999, 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 termination policies applicable to officers and other employees which provide 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 $13.2 million at December 2, 2001. 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 F-24 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 15. COMMITMENTS AND CONTINGENCIES: -- (Continued) 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. 16. CASH FLOW INFORMATION: Cash payments (receipts) for interest and income taxes (net of refunds) were as follows:
2001 2000 1999 ------ ------ ------ Interest paid (net of amounts capitalized of $103, $167, and $104 in fiscal years 2001, 2000, and 1999, respectively) .................................................. $4,786 $4,503 $4,661 Income taxes ......................................................................... $ (558) $ 864 $2,934
Excluded from the accompanying Consolidated Statements of Cash Flows are the effects of certain non-cash investing and financing activities as follows:
2001 2000 1999 ---- ---- ---- Fair value of assets acquired .............................................................. -- -- $441 Liabilities assumed or created ............................................................. -- -- 361
17. QUARTERLY FINANCIAL DATA (UNAUDITED): Quarterly financial data for each of the quarters during fiscal years 2001 and 2000 are as follows:
2001 ---------------------------------------- First Second Third Fourth ------- ------- --------- ------- Net sales ............................................................................. $42,263 $39,135 $ 42,743 $36,729 Gross profit .......................................................................... 17,380 15,783 15,689 14,540 Income (loss) from continuing operations .............................................. 2,500 1,179 1,151 (1,534) Loss from discontinued operations ..................................................... (821) (196) (1,132) (295) Gain (loss) on sale of discontinued operations ........................................ -- -- (27,715) 2,337 ------- ------- --------- ------- Net income (loss) ..................................................................... 1,679 983 (27,696) 508 Basic earnings per common share: Income (loss) from continuing operations .............................................. $ .28 $ .13 $. 13 $ (.17) Loss from discontinued operations ..................................................... (.09) (.02) (.13) (.03) Gain (loss) on sale of discontinued operations ........................................ -- -- (3.11) .26 ------- ------- --------- ------- Net income (loss) per share ........................................................... $ .19 $ .11 $ (3.11) $ .06 ======= ======= ========= ======= Diluted earnings per common share: Income (loss) from continuing operations .............................................. $ .27 $ .13 $ .13 $ (.17) Loss from discontinued operations ..................................................... (.09) (.02) (.13) (.03) Gain (loss) on sale of discontinued operations ........................................ -- -- (3.09) .26 ------- ------- --------- ------- Net income (loss) per share ........................................................... $ .18 $ .11 $ (3.09) $ .06 ======= ======= ========= =======
F-25 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 17. QUARTERLY FINANCIAL DATA (UNAUDITED): -- (Continued)
2000 -------------------------------------- First Second Third Fourth ------- ------- ------- ------- Net sales ............................................................................... $43,737 $41,797 $46,801 $43,445 Gross profit ............................................................................ 16,855 16,122 18,754 16,817 Income from continuing operations ....................................................... 2,260 956 302 619 Income (loss) from discontinued operations .............................................. (58) 59 (1,590) (579) ------- ------- ------- ------- Net income (loss) ....................................................................... 2,202 1,015 (1,288) 40 Basic earnings per common share: Income from continuing operations ....................................................... $ .23 $ .10 $ .03 $ .06 Loss from discontinued operations ....................................................... (.01) - (.16) (.06) ------- ------- ------- ------- Net income (loss) per share ............................................................. $ .22 $ .10 $ (.13) - ======= ======= ======= ======= Diluted earnings per common share: Income from continuing operations ....................................................... $ .23 $ .10 $ .03 $ .06 Loss from discontinued operations ....................................................... (.01) - (.16) (.06) ------- ------- ------- ------- Net income (loss) per share ............................................................. $ .22 $ .10 $ (.13) - ======= ======= ======= =======
The sum of the quarterly income (loss) per share data may not be the same as income (loss) per share for the year due to changes in the number of average outstanding shares. The third quarters of fiscal years 2001 and 2000 include 13 weeks and 14 weeks, respectively. The first quarter of fiscal 2001 net income includes pre-tax expenses of $.2 million ($.01 per share) for implementation costs in connection with the 1999 restructuring plan and a pre-tax charge of $.1 million ($.01 per share) for accrued interest relating to the patent infringement litigation. (See Notes 4 and 20.) The second quarter of fiscal 2001 net income includes pre-tax expenses of $.1 million ($.01 per share) for implementation costs in connection with the 1999 restructuring plan and a pre-tax charge of $.1 million ($.01 per share) for accrued interest relating to the patent infringement litigation. (See Notes 4 and 20.) During the third quarter of fiscal 2001, the Company recorded an estimated after-tax loss of $28.2 million, or $3.16 per share, related to the sale of its commercial Graphics Products business, which sale was completed in the fourth quarter of fiscal 2001. In addition, the Company recorded a tax benefit of $.5 million after-tax ($.05 per share) resulting from a resolution of a prior year tax exposure in connection with a 1997 divestiture. This item is included in the total tax benefit recorded for loss on disposal of a discontinued business. (See Note 3.) The third quarter of fiscal 2001 net loss includes pre-tax expenses of $.1 million ($.01 per share) for implementation costs in connection with the 1999 restructuring plan and credits of $.2 million pre-tax ($.02 per share) relating to reductions of some of the reserves related to the 1999 restructuring plan. (See Note 4.) The fourth quarter of 2001 net income includes pre-tax charges of $3.9 million, or $.30 per share, relating to the 2001 cost reduction plan. In addition, the Company adjusted its effective tax rate due to the fourth quarter loss from continuing operations from a 33.2% tax expense in the first nine months of fiscal 2001 to 29.5% for the full year. The effect of this change in estimate was a decrease in the fourth quarter loss from continuing operations of $.7 million, or $.08 per share. See Note 11. The Company also adjusted its estimated after-tax loss related to the 2001 sale of the divested business to reflect certain closing and tax adjustments. The first quarter of fiscal 2000 net income includes pre-tax expenses of $.1 million ($.01 per share) for implementation costs in connection with the 1999 restructuring plan. The second quarter of fiscal 2000 net income includes pre-tax expenses of $.2 million ($.01 per share) for implementation costs in connection with the 1999 restructuring plan. In addition, the Company reduced by $.1 F-26 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 17. QUARTERLY FINANCIAL DATA (UNAUDITED): -- (Continued) million pre-tax ($.01 per share) some of its reserves related to its 1997 strategic plan and its 1997 business divestitures. (See Note 4.) The third quarter of fiscal 2000 net income includes pre-tax expenses of $.1 million ($.01 per share) for implementation costs in connection with the 1999 restructuring plan and a pre-tax charge of $3.6 million ($.24 per share) relating to a patent infringement suit with respect to one of the Company's minor products. (See Notes 4 and 20.) The fourth quarter of fiscal 2000 net income includes a pre-tax charge of $.2 million ($.01 per share) for accrued interest relating to the patent infringement litigation. In addition, the Company reduced by $.2 million pre- tax ($.01 per share) some of its reserves related to the 1999 restructuring plan and 1997 strategic plan. (See Notes 4 and 20.) 18. INDUSTRY SEGMENT INFORMATION: During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires the presentation of descriptive information about reportable segments that is consistent with that made available to management to assess performance. As a result of the sale of the commercial Graphics Products business in fiscal 2001 (see Note 3) and its impact on the Company's internal organizational structure, the Company now has only a single reportable segment: Consumer Products. All of the Company' long-lived assets are located in North America. Total export sales aggregated $15.2 million, $18.0 million, and $16.2 million in fiscal years 2001, 2000, and 1999, respectively, of which $10.8 million, $11.3 million, and $10.5 million in fiscal years 2001, 2000, and 1999, respectively, originated in Canada. The Company's two largest customers together accounted for 24%, 22%, and 20% of net sales in fiscal years 2001, 2000, and 1999, respectively. 19. FINANCIAL INSTRUMENTS: Off-Balance Sheet Risk: Letters of credit are issued by the Company during the ordinary course of business through major domestic banks as required by certain vendor contracts. As of December 2, 2001 and December 3, 2000, the Company had outstanding letters of credit for $1 million. 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 ($20.7 million and $21.4 million at December 2, 2001 and December 3, 2000, 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. However, the Company's ten largest customers accounted for approximately 57% and 46% of accounts receivable at December 2, 2001 and December 3, 2000, and net sales to the Company's two largest customers together were 24%, 22%, and 20% of total net sales for fiscal 2001, 2000, and 1999, respectively. The Company performs ongoing credit evaluations of its customers, maintains allowances for potential credit losses, and carries credit insurance coverage for most of its large customer accounts. F-27 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except per share and per share amount, unless otherwise indicated) 19. FINANCIAL INSTRUMENTS: -- (Continued) Fair Value: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents -- The carrying amount approximates fair value because of the short maturity of these instruments. Debt (excluding capital lease obligations) -- 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 Company entered into a one-month Canadian forward exchange contract with a notional value of approximately $1.9 million. The contract has no carrying value since it was entered into at fair market value on the last day of fiscal 2001. The estimated fair values of the Company's financial instruments as of December 2, 2001 and December 3, 2000 are as follows:
2001 2000 ------------------ ------------------ Carrying Fair Carrying Fair Amount Value Amount Value -------- ------- -------- ------- Cash and cash equivalents ............................................................. $25,966 $25,966 $23,878 $23,878 Debt (excluding capital lease obligations) ............................................ $25,000 $26,222 $52,676 $56,211
20. PATENT INFRINGEMENT LITIGATION: Several years ago, the Company was sued for patent infringement with respect to one of its minor products. After a jury trial in 1998, a judgment was entered against the Company in the amount of $3.3 million, plus interest and costs. The verdict was appealed, and contrary to the expectations of the Company and its patent counsel, a three-judge panel of the U.S. Court of Appeals affirmed the judgment in July 2000. Subsequently, a request filed with the Court of Appeals to have the case reconsidered by all twelve judges of such court was denied in October 2000. As a result, the Company recorded a liability of $3.8 million pre-tax (including interest and other costs) in fiscal 2000. The Company then petitioned for a review of the decision by the Supreme Court of the United States, which petition was denied in April 2001. The Company recorded an additional liability of $.1 million pre-tax for interest costs relating to this matter in fiscal 2001. All amounts recorded relating to this matter are included in the accompanying Consolidated Statements of Operations under restructuring and other. During the fiscal 2001 third quarter, the Company made a payment to the plaintiff in the amount of approximately $3.9 million in satisfaction of this judgment. However, the Company and its patent counsel continue to pursue other options for overturning the verdict. F-28 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for the fiscal years 2001, 2000, and 1999 (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 - -------------- ---------- ---------- ---------- ---------- ---------- 2001: Allowance for doubtful accounts............................... $ 873 $ 374 $ 121(E) $ 337(A) $1,031 ====== ====== ======= ====== ====== Reserve for customer returns and deductions................... $ 926 $ 57 $ (145)(E) $ 133(B) $ 705 ====== ====== ======= ====== ====== Reserve for inventory obsolescence............................ $2,022 $2,211 $(1,891)(E) $ 984(C) $1,358 ====== ====== ======= ====== ====== 2000: Allowance for doubtful accounts............................... $ 967 $ (51) - $ 43(A) $ 873 ====== ====== ======= ====== ====== Reserve for customer returns and deductions................... $1,101 $ 11 - $ 186(B) $ 926 ====== ====== ======= ====== ====== Reserve for inventory obsolescence............................ $2,262 $1,007 - $1,247(C) $2,022 ====== ====== ======= ====== ====== 1999: Allowance for doubtful accounts............................... $1,721 $ 161 $ 14(D) $ 929(A) $ 967 ====== ====== ======= ====== ====== Reserve for customer returns and deductions................... $1,060 $ 176 - $ 135(B) $1,101 ====== ====== ======= ====== ====== Reserve for inventory obsolescence............................ $2,432 $ 828 - $ 998(C) $2,262 ====== ====== ======= ====== ======
(A) Doubtful accounts written off, net of collection expenses and reclasses. (B) Primarily credits issued to customers. (C) Largely the result of programs to dispose of fully reserved obsolete inventory. Amount is net of recoveries. (D) Primarily due to business acquisitions. (E) Primarily due to business divestiture. F-29 EXHIBIT INDEX (of Exhibits filed herewith) (4)(a)(1) Note Purchase Agreement dated as of August 1, 1996 between the Company and several insurance companies (4)(a)(2) Consent and Amendment to Note Agreement dated as of November 14, 2001 (4)(b) Credit Agreement dated as of December 21, 2001 between the Company and First Union National Bank, Fleet National Bank, and other lenders (10)(b) 1983 Stock Option and Stock Grant Plan, as amended, of the Company (10)(f)(2) List of Executive Officers Who Are Parties to Change of Control Agreements (10)(g)(6) Amendment No. 4 to Supplemental Executive Benefits Plan (10)(h)(1) Employment Agreement, dated as of April 8, 1996, between the Company and Donald L. Thompson (10)(h)(5) Transition and Separation Agreement dated November 30, 2001 (10)(i)(2) Form of Agreement under the Officer Severance Plan (10)(i)(3) List of Departing Executive Officers Whose Arrangements are Essentially as Provided Under the Officer Severance Plan and Form of Agreement (10)(j) Supplemental Deferred Compensation Agreement, dated as of February 6, 2002 between the Company and John W. Carney (10)(k) Form of Arrangement between the Company and Bradley P. Johnson (21) Subsidiaries (23) Consent of PricewaterhouseCoopers LLP EX-4 3 exh4a1.txt EXH4A1.TXT EXHIBIT (4)(a)(1) Hunt Manufacturing Co. $50,000,000 7.86% Senior Notes due August 1, 2011 ---------- NOTE PURCHASE AGREEMENT ---------- Dated as of August 1, 1996 ------------------------------------------------------------------------ TABLE OF CONTENTS 1. AUTHORIZATION OF NOTES................................................1 2. SALE AND PURCHASE OF NOTES; GUARANTY..................................1 2.1. Sale and Purchase of Notes..........................1 2.2. Guaranty............................................2 3. CLOSING...............................................................2 4. CONDITIONS TO CLOSING.................................................2 4.1. Representatives and Warranties......................2 4.2. Performance; No Default.............................3 4.3. Compliance Certificates.............................3 4.4. Opinions of Counsel.................................3 4.5. Purchase Permitted by applicable Law, etc...........3 4.6. Sale of Other Notes.................................4 4.7. Payment of Special Counsel Fees.....................4 4.8. Private Placement Number............................4 4.9. Changes in corporate Structure......................4 4.10. Proceedings and Documents...........................4 4.11. Subsidiary Guaranty.................................4 5. REPRESENTATIVES AND WARRANTIES OF THE COMPANY.........................5 5.1. Organization; Power and Authority...................5 5.2. Authorization.......................................5 5.3. Disclosure..........................................5 5.4. Organizations and Ownership of Shares and Subsidiaries; Affiliates............................6 5.5. Financial Statements................................7 5.6. Compliance with Laws, Other Instruments, etc........7 5.7. Governmental Authorizations, etc....................7 5.8. Litigation; Observance of Agreements, Statutes and Orders..........................................7 5.9. Taxes...............................................8 5.10. Title to Property; Leases...........................8 5.11. Licenses, Permits, etc..............................8 5.12. Compliance with ERISA...............................9 5.13. Private Offering by the Company....................10 5.14. Use of Proceeds; Margin Regulations................10 5.15. Existing Indebtedness; Future Liens................11 5.16. Foreign Assets Control Regulations, etc............11 5.17. Status under Certain Statutes......................11 5.18. Environmental Matters..............................11 6. REPRESENTATIONS OF THE PURCHASER.....................................12 6.1. Purchase for Investment............................12 6.2. Source of Funds....................................12 7. INFORMATION AS TO COMPANY............................................14 7.1. Financial and Business Information.................14 7.2. Officer's Certificate..............................17 7.3. Inspection.........................................17 8. PREPAYMENT OF THE NOTES..............................................18 8.1. Required Prepayments...............................18 8.2. Optional Prepayments with Make-Whole Amount........18 8.3. Allocation of Partial Prepayments..................19 8.4. Maturity; Surrender, etc...........................19 8.5. Purchase of Notes..................................19 8.6. Make-Whole Amount..................................19 9. AFFIRMATIVE COVENANTS................................................21 9.1. Compliance with Law................................21 9.2. Insurance..........................................21 9.3. Maintenance of Properties..........................22 9.4. Payment of Taxes and Claims........................22 9.5. Corporate Existence, etc...........................22 10. NEGATIVE COVENANTS...................................................23 10.1. Transactions with Affiliates.......................23 10.2. Merger, Consolidation, and Sale of Assets..........23 10.3. Liens..............................................26 10.4. Consolidated Net Worth.............................28 10.5. Debt...............................................28 10.6. Fixed Charges Coverage Ratio.......................30 10.7. Restricted Payments and Restricted Investments.....30 10.8. Line of Business...................................30 11. EVENTS OF DEFAULT....................................................30 12. REMEDIES ON DEFAULT, ETC.............................................33 12.1. Acceleration.......................................33 12.2. Other Remedies.....................................33 ii 12.3. Recision...........................................34 12.4. No Waivers or Election of Remedies, Expenses, etc..34 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES........................34 13.1. Registration of Notes..............................34 13.2. Transfer and Exchange of Notes.....................35 13.3. Replacement of Notes...............................35 14. PAYMENT ON NOTES.....................................................36 14.1. Place of Payment...................................36 14.2. Home Office Payment................................36 15. EXPENSES, ETC........................................................37 15.1. Transaction Expenses...............................37 15.2. Survival...........................................37 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT............................................................37 17. AMENDMENT AND WAIVER.................................................38 17.1. Requirements.......................................38 17.2. Solicitation of Holders of Notes...................38 17.3. Binding Effect, etc................................39 17.4. Notes held by Company, etc.........................39 18. NOTICES..............................................................39 19. REPRODUCTIONS OF DOCUMENTS...........................................40 20. CONFIDENTIAL INFORMATION.............................................40 21. SUBSTITUTION OF PURCHASER............................................41 22. MISCELLANEOUS........................................................42 22.1. Successors and Assigns.............................42 22.2. Payments due on Non-Business Days..................42 22.3. Severability.......................................42 22.4. Construction.......................................42 22.5. Counterparts.......................................43 22.6. Governing Law......................................43 SCHEDULE A Information Relating to Purchasers iii SCHEDULE B Defined Terms SCHEDULE 5.4 Subsidiaries and Affiliates of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 Financial Statements SCHEDULE 5.11 Patents, etc. SCHEDULE 5.14 Use of Proceeds SCHEDULE 5.15 Existing Indebtedness and Liens EXHIBIT 1 Form of 7.86% Senior Note due August 1, 2011 EXHIBIT 2 Form of Subsidiary Guaranty EXHIBIT 4.4(a) Matters to be Covered in Opinion of Special Counsel to the Company EXHIBIT 4.4(b) Matters to be Covered in Opinion of Special Counsel to the Purchasers iv HUNT MANUFACTURING CO. 2005 Market Street Philadelphia, Pennsylvania 19103 7.86 Senior Notes due August 1, 2011 August 1, 1996 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: Hunt Manufacturing Co., a Pennsylvania corporation (the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $50,000,000 aggregate principal amount of its 7.86% Senior Notes due August 1, 2011 (the "Notes", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement. The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES; GUARANTY. 2.1. Sale and Purchase of Notes. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified opposite your name in Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of each purchaser named in Schedule A (collectively, the "Purchasers") are several and not joint obligations and you shall have no obligation and no liability to any Person for the performance or non-performance by any Other Purchaser thereunder. 2.2. Guaranty. The Notes will be guaranteed by the Subsidiary Guarantors pursuant to the Subsidiary Guaranty. In the event that any other Subsidiary shall hereafter guaranty Indebtedness of the Company for borrowed money, the Company agrees to cause such Subsidiary to guaranty the Notes concurrently therewith to the same extent. Upon receipt of evidence satisfactory to you and the other holders of the Notes that the bank lenders to the Company (and any other lenders which may have refinanced any Indebtedness of the Company to its banks) have released any Subsidiary Guarantor from all Guaranties of Indebtedness to such banks (and any such other lenders), you and the other holders of Notes agree to release such Subsidiary Guarantor from the Subsidiary Guaranty promptly thereafter. 3. CLOSING. The sale and purchase of the Notes to be purchased by you shall occur at the offices of Day, Berry & Howard in Hartford, Connecticut, at 11:00 a.m., Eastern time, at a closing (the "Closing") on August 1, 1996 or on such other Business Day thereafter on or prior to August 15, 1996, as may be agreed upon by the Company and you. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (unless otherwise specified in Schedule A) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds to NationsBank, N.A., ABA No. 111000012 for credit to Hunt Manufacturing Co. Concentration Account 3750248339. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. Representatives and Warranties. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2. Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 2 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1, 10.2, 10.3, 10.5 or 10.7 hereof had such Sections applied since such date. 4.3. Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) Secretary's Certificate. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreements. 4.4. Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Drinker Biddle & Reath, counsel for the Company and the Subsidiary Guarantors, and from Maynard, Cooper and Gale, special Alabama counsel to Bevis Custom Furniture, Inc., together covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Day, Berry & Howard, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.5. Purchase Permitted by applicable Law, etc. On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6. Sale of Other Notes. 3 Contemporaneously with the Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Notes to be purchased by them at the Closing as specified in Schedule A. 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. 4.8. Private Placement Number. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. 4.9. Changes in corporate Structure. The Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.10. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 4.11. Subsidiary Guaranty. Each Subsidiary Guarantor shall have executed and delivered the Subsidiary Guaranty. 5. REPRESENTATIVES AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that. 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as 4 a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 5.2. Authorization. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. Disclosure. The Company, through its agent, NationsBanc Capital Markets, Inc., has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated June 1996 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. This Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 3, 1995, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5 5.4. Organizations and Ownership of Shares and Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.5. Financial Statements. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 6 5.6. Compliance with Laws, Other Instruments, etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 5.7. Governmental Authorizations, etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required by the Company in connection with the execution, delivery or performance of this Agreement or the Notes except those, if any, which NationsBanc Capital Markets, Inc., has obtained or made on behalf of the Company and except for the post-closing filing of a Form D pursuant to Regulation D under the Securities Act which the Company intends to file. 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. Taxes. 7 The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service through the fiscal year ended 1991 and Federal income taxes have been paid for all subsequent fiscal years up to and including the fiscal year ended 1995. 5.10. Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title (including, where applicable, leasehold interests) to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. Licenses, Permits, etc. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and 8 (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12. Compliance with ERISA. The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $1,000,000 in the case of any single Plan and by more than $5,000,000 in the aggregate for all Plans. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be 9 imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more than 60 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation G. 5.15. Existing Indebtedness; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of July 17, 1996, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. 10 (b) Neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.3. 5.16. Foreign Assets Control Regulations, etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Interstate Commerce Act, as amended (except to the extent, if any, that the activities of the Company and its Subsidiaries in transporting goods sold by them are subject to such regulation), the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. 5.18. Environmental Matters. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and 11 (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. Purchase for Investment. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 6.2. Source of Funds. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) if you are an insurance company, either (i) the Source is a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account, or (ii) the Source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60, and the amount of reserves and liabilities for the contract(s) held by or on behalf of each employee benefit plan which has an interest in your general account as a contractholder, together with the amount of reserves and liabilities for the general account contracts held by or on behalf of any other such plan maintained by the same employer (or an affiliate thereof) or by the same employee organization, does not exceed 10% of the total reserves and liabilities of your general account plus surplus as determined pursuant to the provisions of Section I(a) of PTE 95-60; or (b) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1, or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization 12 beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of PTE 84-14 (the "QPAM Exemption")) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1. Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, 13 (i) a consolidated balance sheet of the Company and its Restricted Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Restricted Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a) if the financial statements included in such Quarterly Report are of the Company and its Restricted Subsidiaries (and no other entities); (b) Annual Statements -- within 105 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Restricted Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Restricted Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a report from such accountants stating that in connection with their audit, nothing came to their attention that caused them to believe that the Company failed to comply with the terms, covenants, provisions, or conditions of Sections 10.3(i), 10.4, 10.5.(b) and (c), and 10.6 of this Agreement as they relate to accounting matters or, if they are aware that any such condition or 14 event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default, even if specifically referenced in any such Section, as e.g., in clause (iv)(A) of Section 10.5(b), unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards), provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b) if the financial statements included in such Annual Report are of the Company and its Restricted Subsidiaries (and no other entities); (c) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report (including, without limitation, each report on Form 10-K, 10-Q or 8-K), each registration statement (without exhibits except as expressly requested by such holder), other than registration statements on Form S-8, and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(g), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the 15 termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (g) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. 7.2. Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.3(i) and Sections 10.4 through 10.6 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, reference to the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the 16 statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. Inspection. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES. 8.1. Required Prepayments. On August 1, 2002, and on each August 1 thereafter to and including August 1, 2010, the Company will prepay $5,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium, provided that upon any partial prepayment of the Notes pursuant to Sections 8.2 or 10.2 or purchase of the Notes permitted by Section 8.5, the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the 17 aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase. 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes (other than a partial prepayment pursuant to Section 10.2), the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. In the case of any partial prepayment of the Notes pursuant to Section 10.2, the principal amount of the Notes to be prepaid shall be allocated as provided in such Section. 8.4. Maturity; Surrender, etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and 18 canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.5. Purchase of Notes. Except as provided in Section 10.2, the Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 8.6. Make-Whole Amount. The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or Section 10.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "Discounted Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Access Service (or such other display as may replace Page 678 on Telerate Access Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity 19 Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2, 10.2 or 12.1, as applicable. "Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or 10.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1. Compliance with Law. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other 20 governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2. Insurance. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. Maintenance of Properties. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4. Payment of Taxes and Claims. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such 21 taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5. Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 10.2 the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1. Transactions with Affiliates. The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. It is understood that for purposes of this Section 10.1, repurchases of the Company's stock from shareholders upon fair and reasonable terms to the Company shall be deemed to be in the ordinary course and pursuant to the reasonable requirements of the Company's business. 10.2. Merger, Consolidation, and Sale of Assets. The Company will not, and will not permit any Restricted Subsidiary to, merge or consolidate with another corporation or dispose of all or a substantial part of its assets, provided, however, that: (a) any Restricted Subsidiary may merge into (i) the Company (so long as the Company is the surviving corporation), (ii) a Wholly-Owned Restricted Subsidiary or (iii) a corporation which becomes a Wholly-Owned Restricted Subsidiary as a result of such merger or consolidation, and which, immediately after the consummation of such merger or consolidation, and after giving effect 22 thereto, will be in compliance with all of the provisions herein with respect to Restricted Subsidiaries. (b) the Company may merge or consolidate with, or convey substantially all of its assets to, a Wholly-Owned Restricted Subsidiary or another corporation, provided that (i) no Default or Event of Default arises from such transaction and (ii) if the Company is not the surviving entity, (A) the survivor shall be a corporation incorporated in the United States of America, (B) such surviving corporation shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes, and (C) such corporation shall have caused to be delivered to each holder of any Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; (c) any Restricted Subsidiary may convey all or a substantial part of its assets to the Company or to any Wholly-Owned Restricted Subsidiary; and (d) The Company or any Restricted Subsidiary may dispose of a Substantial Part of the assets of the Company and its Restricted Subsidiaries if, within 12 months after the disposition, the Net Excess Proceeds Amount resulting from such disposition is used either (A) to reduce Senior Debt of the Company and its Restricted Subsidiaries (including the outstanding principal of the Notes of any holder accepting any offer of prepayment required pursuant to Section 10.2(e) below) or (B) to acquire companies, businesses, or capital assets which are similar in nature, purpose or business line to other assets owned or leased by the Company and its Restricted Subsidiaries at the date of the Closing. Promptly following any such disposition of assets, the Company will give to each holder of Notes a statement describing the disposition and a calculation of the Net Excess Proceeds Amount. (e) In the event that the Company is required or chooses to reduce Senior Debt pursuant to Section 10.2(d), the Company shall offer to prepay the Notes in accordance with the following procedure specified in clause (i) through clause (iv): (i) The Company shall irrevocably offer in writing (as provided in clause (iii) below) to apply funds equal to a portion of the Net Excess Proceeds Amount to the prepayment of each outstanding Note (together with all accrued interest in respect thereof as of the date of payment and the Make-Whole Amount, if any, due in connection with such prepayment in accordance with clause (iv) below) in an amount (as to any Note, the "Ratable Portion") for such Note equal to the product of (x) the Net Excess Proceeds Amount being so applied to the payment of Senior Debt multiplied by (y) a fraction the numerator of which is the 23 outstanding principal amount of such Note and the denominator of which is the aggregate principal amount of Senior Debt of the Company and its Restricted Subsidiaries (other than any such Senior Debt which may not be paid as a matter of right within the time period required by Section 10.2(d) and as to which the Company or the appropriate Restricted Subsidiary has not obtained the consent of the holder of such Senior Debt to make such a payment). (ii) Each holder of a Note which does not accept or reject such offer in writing within 20 Business Days of its receipt shall be deemed to have rejected such offer. Upon any rejection of such offer by any such holder, the Ratable Portion which would otherwise be payable to any such rejecting holder shall be offered pro rata to all holders accepting such offer within 5 Business Days of rejection or deemed rejection. Any such holder that does not accept or reject such additional offer within 15 Business Days of its receipt shall be deemed to have rejected such offer. Subject to the provisions of this clause (ii), the Company may retain for its own purposes the Ratable Portion which would otherwise be payable to any rejecting holder. (iii) The written offer of the Company referred to in clause (i) hereof will be given to each holder of Notes not less than 45 days and not more than 60 days prior to the actual date of prepayment. Such notice will set forth the principal amount of the Notes to be so prepaid and the amount of accrued interest thereon being paid and will be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount, if any, due in accordance with clause (iv) below in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. (iv) Any prepayment of the Notes in accordance with the requirements of Sections 10.2(d) and (e) shall be at par and without payment of the Make-Whole Amount or any premiums unless a premium or make-whole amount (other than usual breakage costs associated with the payment of any loan bearing interest at a rate based on a short term fixed rate such as LIBOR prior to the end of the applicable interest period) is paid with respect to any other Senior Debt which has been or is to be paid in accordance with Section 10.2(d) on account of the same disposition of assets resulting in the prepayment of the Notes. If any such premium or make-whole amount is paid in connection with the payment of any such other Senior Debt, then any prepayment of the Notes in accordance with the requirements of Sections 10.2(d) and (e) shall be accompanied by the Make-Whole Amount determined for the principal amount to be prepaid as of the prepayment date. (f) For purposes of this Section 10.2, the following terms have the following meanings: 24 The Company and its Restricted Subsidiaries shall be deemed to have disposed of a "Substantial Part" of their assets if either (i) the book value of all assets (other than assets sold in the ordinary course of business) disposed of by the Company and its Restricted Subsidiaries during any one fiscal year exceeds 15 percent of Consolidated Assets determined at the end of the immediately preceding fiscal year or (ii) the book value of all assets (other than assets sold in the ordinary course of business) disposed of by the Company and its Restricted Subsidiaries during any three-fiscal year period exceeds 30 percent of Consolidated Assets determined at the fiscal year-end immediately prior to the commencement of such three-year period. The "Net Excess Proceeds Amount" means, with respect to any disposition of a Substantial Part of the assets of the Company and its Restricted Subsidiaries, as applicable, either (i) if such disposition is deemed to constitute the disposition of a Substantial Part of such assets on account of clause (i) of the preceding paragraph, the amount by which the Net Proceeds from all dispositions of assets (other than assets sold in the ordinary course of business) by the Company and its Restricted Subsidiaries during the fiscal year in question exceeds 15% of Consolidated Assets determined at the end of the immediately preceding fiscal year or (ii) if such disposition is deemed to constitute the disposition of a Substantial Part of the assets of the Company and its Restricted Subsidiaries on account of clause (ii) of the preceding paragraph, the amount by which the Net Proceeds from all dispositions of assets (other than assets sold in the ordinary course of business) by the Company and its Restricted Subsidiaries during the three-fiscal year period in question exceeds 30% of Consolidated Assets determined at the fiscal year-end immediately prior to the commencement of such three-year period. The "Net Proceeds" from any disposition of assets by the Company or any Restricted Subsidiary shall be the gross proceeds of such disposition less (i) the out-of-pocket costs and expenses of the Company and Restricted Subsidiaries (other than amounts paid to Affiliates) incurred in connection with such disposition, and (ii) any portion thereof used to repay Debt that both (A) was incurred to finance the acquisition or construction of such asset (or incurred as a refinancing of any such acquisition or construction Debt) and (B) is secured by a Lien on such asset. 10.3. Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any right to receive such income or profits, except: 25 (a) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.1 or Section 9.4; (c) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (d) Liens on property or assets of the Company or any of its Restricted Subsidiaries securing Debt owing to the Company or to another Restricted Subsidiary; (e) Liens existing on the date of this Agreement and securing the Debt of the Company and its Restricted Subsidiaries referred to in Schedule 5.15; (f) any Lien created to secure all or any part of the purchase price or cost of construction, or to secure Debt incurred or assumed to pay all or any part of the purchase price or cost of construction, of tangible property (or any improvement thereon) acquired or constructed by the Company or a Restricted Subsidiary after the date of the Closing, provided that (i) any such Lien shall extend solely to the item or items of such property (or improvement thereon) so acquired or constructed and, if required by the terms of the instrument originally creating such Lien, other property (or improvement thereon) which is an improvement to or is acquired for specific use in connection with such acquired or constructed property (or improvement thereon) or which is real property being improved by such acquired or constructed property (or improvement thereon); (ii) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to the lesser of (A) the cost to the Company or such Restricted Subsidiary of the property (or improvement thereon) so acquired or constructed and (B) the Fair Market Value (as determined in good faith by the board of directors of the Company) of such property (or improvement thereon) at the time of such acquisition or construction, and (iii) any such Lien shall be created contemporaneously with, or within 180 days after, the acquisition or construction of such property; (g) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Restricted Subsidiary or its becoming a Restricted Subsidiary, or any Lien existing on any property acquired by the Company or any Restricted Subsidiary at the time such property is so 26 acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Restricted Subsidiary or such acquisition of property, and (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by the terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property; (h) any Lien renewing, extending or refunding any Lien permitted by paragraphs (e), (f) or (g) of this Section 10.3, provided that (i) the principal amount of Debt secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (ii) such Lien is not extended to any other property, and (iii) immediately after such extension, renewal or refunding no Default or Event of Default would exist; and (i) other Liens not otherwise permitted by paragraphs (a) through (h), provided that the outstanding principal amount of the Debt thereby secured, together with the outstanding amount of all Debt of Restricted Subsidiaries (without duplication but excluding debt owed to the Company or a Wholly-Owned Restricted Subsidiary), does not exceed 20% of Consolidated Net Worth. 10.4. Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) $45,000,000, plus (b) an aggregate amount equal to 30% of its Consolidated Net Income (but, in each case, only if a positive number) for each completed fiscal quarter subsequent to December 3, 1995. 10.5. Debt. (a) Clean Down of Current Debt. The Company will not at any time have any Consolidated Current Debt outstanding unless there shall have been during the immediately preceding twelve months a period of at least thirty consecutive days on each of which there shall have been no Consolidated Current Debt outstanding in excess of the amount of additional Funded Debt that the Company would have been permitted to (but did not) incur on such day under Section 10.5 (c). (b) Subsidiary Debt. The Company will not at any time permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, have outstanding, or otherwise become or remain directly or indirectly liable with respect to, any Debt other than: (i) Debt of a Restricted Subsidiary outstanding on the date hereof and disclosed in Schedule 5.15, provided that such Debt may not be extended, 27 renewed or refunded except as otherwise permitted by this Agreement, including clause (iv) below; (ii) Debt of a Restricted Subsidiary owed to the Company or a Wholly-Owned Restricted Subsidiary; and (iii) Debt of a Restricted Subsidiary outstanding at the time such Restricted Subsidiary becomes a Restricted Subsidiary, provided that (A) such Debt shall not have been incurred in contemplation of such Restricted Subsidiary becoming a Restricted Subsidiary and (B) immediately after such Restricted Subsidiary becomes a Restricted Subsidiary no Default or Event of Default shall exist, and provided further that such Debt may not be extended, renewed or refunded except as otherwise permitted by this Agreement, including clause (iv) below; and (iv) Debt of a Restricted Subsidiary in addition to that otherwise permitted by the foregoing provisions of this Section 10.5, provided that on the date the Restricted Subsidiary incurs or otherwise becomes liable with respect to any such additional Debt and immediately after giving effect thereto and the concurrent retirement of any other Debt, (A) no Default or Event of Default exists, and (B) the total amount of all Debt of Restricted Subsidiaries (except Debt owed to the Company or a Wholly-Owned Restricted Subsidiary) and the outstanding principal amount of Debt secured by Liens permitted by Section 10.3(i) hereof (without duplication), does not exceed at any time 20% of Consolidated Net Worth. (c) Restrictions on Consolidated Funded Debt. (i) The Company will not at any time permit the ratio of Consolidated Funded Debt to Consolidated Operating Cash Flow for the most recently ended fiscal year of the Company to exceed the following for the periods indicated: For Fiscal Year Ratio --------------- ----- 1996 3.25 1997 3.00 1998 2.75 1999 and thereafter 2.50 (ii) The Company will not at any time permit the ratio of Consolidated Funded Debt to Consolidated Total Capitalization for the most recently 28 ended fiscal quarter of the Company to exceed the following for the fiscal quarterly periods indicated: From Until (but not including) Ratio ---- ------------------------- ----- Closing November 30, 1997 70.0% November 30, 1997 November 29, 1998 65.0% November 29,1998 and thereafter 60.0% 10.6. Fixed Charges Coverage Ratio. The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 2.0 to 1.0. 10.7. Restricted Payments and Restricted Investments. The Company will not, and will not permit any of its Restricted Subsidiaries to, declare or make, or incur any liability to declare or make, any Restricted Payment or Restricted Investment unless immediately after giving effect to such action, no Default or Event of Default would exist. 10.8. Line of Business. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement as described in the Memorandum. 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Section 7.1 (d); or 29 (d) the Company defaults in the performance of, or compliance with, any terms contained in Section 10 and such default is not remedied within five days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b), (c) and (d) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (e) of Section 11); or (f) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (g) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $10,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $10,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interest and other than as provided in Section 10.2(d)), (x) the Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $10,000,000, or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Indebtedness; or 30 (h) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (i) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within 60 days; or (j) a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (k) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $5,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws 31 from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(k), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in paragraph(h) or (i) of Section 11 (other than an Event of Default described in clause (i) of paragraph (h) or described in clause (vi) of paragraph (h) by virtue of the fact that such clause encompasses clause (i) of paragraph (h)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, the Required Holders, may at any time at their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated 32 as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. Recision. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 50% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4. No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 33 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. Transfer and Exchange of Notes. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $2,000,000, provided that (a) if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $2,000,000 and (b) a Note issued at the Closing to a Purchaser in an amount of less than $2,000,000 may be transferred in its entirety without regard to whether the Purchaser continues to hold other Notes at the time of transfer and provided, further, that the restrictions set forth in the preceding proviso shall not apply to any transfer made while an Event of Default exists. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Section 6.1 and Section 6.2. 13.3. Replacement of Notes. 34 Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $10,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENT ON NOTES. 14.1. Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Philadelphia, Pennsylvania at the principal office of the Company in such city. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in the United States or the principal office of a bank or trust company in the United States. 14.2. Home Office Payment. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your 35 nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. Transaction Expenses. The Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with this Agreement and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2. Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed 36 representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. Requirements. (a) Consent of Holders. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. (b) No Other Consents. The Company shall not make any commitment, or enter into any agreement providing, that any amendment to or any waiver or modification of the provisions of this Agreement or the Notes shall be subject to or require the consent or approval of any Person other than the Company and the holders of the Notes. The Company represents and warrants that no such commitment or agreement shall be in effect as of the time of the original issuance of the Notes hereunder. 17.2. Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. 37 (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. Binding Effect, etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. Notes held by Company, etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: 38 (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or if to the Company, to the Company at its address set forth at the beginning hereof to the attention of William E. Chandler, Senior Vice President, Finance, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTIONS OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good 39 faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20 (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the 40 Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 22. MISCELLANEOUS. 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.2. Payments due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 22.3. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4. Construction. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 41 22.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the Commonwealth of Massachusetts excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * If you are in agreement with the foregoing, please so indicate by signing the acceptance on the signature page of this Agreement on which your name appears (a total of four separate signature pages for the Purchasers follow this page) and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, HUNT MANUFACTURING CO. By ---------------------------- Name: Title: 42 The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: --------------------------------- Name: Title: (This is one of four separate signature pages signed by the Purchasers of the Notes. The remainder of this page is intentionally left blank.) 43 The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. ALLSTATE LIFE INSURANCE COMPANY By: --------------------------------- Name: By: --------------------------------- Name: Authorized Signatories The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. ALLSTATE INSURANCE COMPANY By: --------------------------------- Name: By: --------------------------------- Name: Authorized Signatories (This is one of four separate signature pages signed by the Purchasers of the Notes. The remainder of this page is intentionally left blank.) 44 The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. PROVIDENT MUTUAL LIFE INSURANCE COMPANY--COVENANT By: --------------------------------- Name: Title: The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. PROVIDENT MUTUAL LIFE INSURANCE COMPANY By: --------------------------------- Name: Title: (This is one of four separate signature pages signed by the Purchasers of the Notes. The remainder of this page is intentionally left blank.) 45 The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. MENNONITE MUTUAL AID ASSOCIATION By: --------------------------------- Name: Title: The undersigned hereby accepts and enters into the foregoing Note Purchase Agreement among the Company and the Purchasers, including the undersigned. MENNONITE RETIREMENT TRUST By: --------------------------------- Name: Title: (This is one of four separate signature pages signed by the Purchasers of the Notes. The remainder of this page is intentionally left blank.) 46 DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "Business Day" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Charlotte, North Carolina, are required or authorized to be closed. "Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Closing" is defined in Section 3. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "Company" means Hunt Manufacturing Co., a Pennsylvania corporation. "Confidential Information" is defined in Section 20. "Consolidated Assets" means, at any time, the total assets of the Company and its Restricted Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Restricted Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Restricted Subsidiaries. 47 "Consolidated Current Debt" means, as of any date of determination, the total of all Current Debt of the Company and its Restricted Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Debt" means, as of any date of determination, the total of all Debt of the Company and its Restricted Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Funded Debt" means, as of any date of determination, the total of all Funded Debt of the Company and its Restricted Subsidiaries outstanding on such date, after eliminating all offsetting debits and credits between the Company and its Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Income Available for Fixed Charges" means, with respect to any period, Consolidated Net Income excluding (i) non-cash charges associated with the exercise of stock options, (ii) unusual items, including, but not limited to, refinancing, restructuring, or reorganizational charges, (iii) effects of changes in accounting principles, and (iv) extraordinary items for such period plus all amounts deducted in the computation thereof on account of (a) Fixed Charges and (b) taxes imposed on or measured by income or excess profits. "Consolidated Net Income" means, with reference to any period, the net income (or loss) of the Company and its Restricted Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and its Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Net Worth" means, at any time, (a) the sum of (i) the par value (or value stated on the books of the corporation) of the capital stock (but excluding treasury stock and capital stock subscribed and unissued) of the Company and its Restricted Subsidiaries plus (ii) the amount of the paid-in capital and retained earnings of the Company and its Restricted Subsidiaries, in each case as such amounts would be shown on a consolidated balance 48 sheet of the Company and its Restricted Subsidiaries as of such time prepared in accordance with GAAP, minus (b) to the extent included in clause (a), all amounts properly attributable to minority interests, if any, in the stock and surplus of Restricted Subsidiaries. "Consolidated Operating Cash Flow" means, in respect of any period, the sum of (a) Consolidated Net Income excluding (i) non-cash charges associated with the exercise of stock options, (ii) unusual items, including, but not limited to, refinancing, restructuring, or reorganizational charges, (iii) effects of changes in accounting principles, and (iv) extraordinary items for such period and (b) the amount of all interest expenses, depreciation, amortization, income taxes, deferred items and other non-cash expenses of the Company and its Restricted Subsidiaries, but only to the extent deducted in the determination of Consolidated Net Income for such period. "Consolidated Total Capitalization" means, at any time, the sum of Consolidated Net Worth and Consolidated Debt. "Current Debt" means, with respect to any Person, all Debt of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one year from the date of the creation thereof and is not directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more from such date, provided that (a) Debt outstanding under a revolving credit or similar agreement which obligates the lender or lenders to extend credit over a period of one year or more and (b) Current Maturities of Funded Debt shall constitute Funded Debt and not Current Debt, even though such Debt by its terms matures on demand or within one year from such date. "Current Maturities of Funded Debt" means, at any time and with respect to any item of Funded Debt, the portion of such Funded Debt outstanding at such time which by the terms of such Funded Debt or the terms of any instrument or agreement relating thereto is due on demand or within one year from such time (whether by sinking fund, other required prepayment or final payment at maturity) and is not directly or indirectly renewable, extendible or refundable at the option of the obligor under an agreement or firm commitment in effect at such time to a date one year or more from such time. "Debt" means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); 49 (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (d) hereof. "Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Default Rate" means that rate of interest that is the greater of (i) 2.00% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2.00% over the rate of interest publicly announced by NationsBank, N.A. in Charlotte, North Carolina as its "base" or "prime" rate. "Distribution" means, in respect of any corporation, association or other business entity: (a) dividends or other distributions or payments on capital stock or other equity interest of such corporation, association or other business entity (except distributions in such stock or other equity interest); and (b) the redemption or acquisition of such stock or other equity interests or of warrants, rights or other options to purchase such stock or other equity interests (except when solely in exchange for such stock or other equity interests) unless made, contemporaneously, from the net proceeds of a sale of such stock or other equity interests. "Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. 50 "Event of Default" is defined in Section 11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, at any time and with respect to any property, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell). "Fixed Charges" means, with respect to any period, the sum of (a) Interest Charges for such period and (b) Lease Rentals for such period. "Fixed Charges Coverage Ratio" means, at any time, the ratio of (a) Consolidated Income Available for Fixed Charges for the fiscal year ending on, or most recently ended prior to, such time to (b) Fixed Charges for such year. "Funded Debt" means, with respect to any Person, all Debt of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more (including, without limitation, an option of such obligor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more) from, the date of the creation thereof, provided that Funded Debt shall include, as at any date of determination, Current Maturities of Funded Debt. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authority" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit 51 or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "Holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "Indebtedness" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); 52 (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of unreimbursed draws under letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (e) hereof. "Institutional Investor" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 4% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "Interest Charges" means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Restricted Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Restricted Subsidiaries in accordance with GAAP): (a) all interest in respect of Debt of the Company and its Restricted Subsidiaries (including imputed interest on Capital Lease obligations) deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. "Investment" means any investment, made in cash or by delivery of property, by the Company or any of its Restricted Subsidiaries (i) in any Person, whether by acquisition of stock, indebtedness or other obligation or Security, or by loan, Guaranty, advance, capital contribution or otherwise, or (ii) in any property. "Lease Rentals" means, with respect to any period, the sum of the minimum amount of rental and other obligations required to be paid during such period by the Company or any Restricted Subsidiary as lessee under all leases of real or personal property (other than Capital Leases), excluding any amounts required to be paid by the lessee (whether or not therein designated as rental or additional rental) (a) which are on account of maintenance and repairs, insurance, taxes, assessments, water rates and 53 similar charges, or (b) which are based on profits, revenues or sales realized by the lessee from the leased property or otherwise based on the performance of the lessee. "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "Make-Whole Amount" is defined in Section 8.6. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Restricted Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. "Memorandum" is defined in Section 5.3. "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "Notes" is defined in Section 1. "Officer's Certificate" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "Other Purchasers" means, with respect to any Purchaser named in Schedule A, each other Purchaser named in such schedule. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Person" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "Plan" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which 54 contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "property" or "properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "Purchasers" is defined in Section 2.1. "QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "Required Holders" means, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "Responsible Officer" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "Restricted Investments" means all Investments except the following: (a) property to be used in the ordinary course of business of the Company and its Restricted Subsidiaries; (b) current assets arising from the sale of goods and services in the ordinary course of business of the Company and its Restricted Subsidiaries; (c) Investments in one or more Restricted Subsidiaries or any Person that concurrently with such Investment becomes a Restricted Subsidiary; (d) Investments in United States Governmental Securities, provided that such obligations mature within 365 days from the date of acquisition thereof; (e) Investments in cash, cash equivalents (within the meaning of GAAP), certificates of deposit or banker's acceptances issued by an Acceptable Bank, provided that such obligations mature within 365 days from the date of acquisition thereof; 55 (f) Investments in commercial paper given the highest rating by a credit rating agency of recognized national standing and maturing not more than 270 days from the date of creation thereof; (g) Investments in Repurchase Agreements; and (h) Investments in tax-exempt obligations of any state of the United States of America, or any municipality of any such state, in each case rated "AA" or better by S&P, "Aa2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing, provided that such obligations mature within 365 days from the date of acquisition thereof. As used in this definition of "Restricted Investments": "Acceptable Bank" means any bank or trust company (i) which is organized under the laws of the United States of America or any State thereof, (ii) which has capital, surplus and undivided profits aggregating at least $500,000,000 and (iii) whose long-term unsecured debt obligations (or the long-term unsecured debt obligations of the bank holding company owning all of the capital stock of such bank or trust company) shall have been given a rating of "A" or better by S&P, "A2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing. "Acceptable Broker-Dealer" means any Person other than a natural person (i) which is registered as a broker or dealer pursuant to the Exchange Act and (ii) whose long-term unsecured debt obligations shall have been given a rating of "A" or better by S&P, "A2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing. "Moody's" means Moody's Investors Service, Inc. "Repurchase Agreement" means any written agreement (a) that provides for (i) the transfer of one or more United States Governmental Securities in an aggregate principal amount at least equal to the amount of the Transfer Price (defined below) to the Company or any of its Subsidiaries from an Acceptable Bank or an Acceptable Broker-Dealer against a transfer of funds (the "Transfer Price") by the Company or such Subsidiary to such Acceptable Bank or Acceptable Broker-Dealer, and (ii) a simultaneous agreement by the Company or such Subsidiary, in connection with such transfer of funds, to transfer to such Acceptable Bank or Acceptable Broker-Dealer the same or substantially similar United States Governmental Securities for a price not less than the Transfer Price plus a reasonable return thereon at a date certain not later than 365 days after such transfer of funds, 56 (b) in respect of which the Company or such Subsidiary shall have the right, whether by contract or pursuant to applicable law, to liquidate such agreement upon the occurrence of any default thereunder, and (c) in connection with which the Company or such Subsidiary, or an agent thereof, shall have taken all action required by applicable law or regulations to perfect a Lien in such United States Governmental Securities. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. "United States Governmental Security" means any direct obligation of, or any obligation guaranteed by, the United States of America, or any agency controlled or supervised by or acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, so long as such obligation or guarantee shall have the benefit of the full faith and credit of the United States of America which shall have been pledged pursuant to authority granted by the Congress of the United States of America. "Restricted Payment" means any Distribution in respect of the Company or any Restricted Subsidiary of the Company (other than on account of capital stock or other equity interests of a Restricted Subsidiary owned legally and beneficially by the Company or another Restricted Subsidiary), including, without limitation, any Distribution resulting in the acquisition by the Company of Securities which would constitute treasury stock. For purposes of this Agreement, the amount of any Restricted Payment made in property shall be the greater of (x) the Fair Market Value of such property (as determined in good faith by the board of directors (or equivalent governing body) of the Person making such Restricted Payment) and (y) the net book value thereof on the books of such Person, in each case determined as of the date on which such Restricted Payment is made. "Restricted Subsidiary" shall mean any Subsidiary in existence at the date of the Closing or created or acquired at any time thereafter, except if designated an Unrestricted Subsidiary in compliance with the provisions specified in the definition of "Unrestricted Subsidiary". A Subsidiary which has been so designated as an Unrestricted Subsidiary may be redesignated a Restricted Subsidiary but, following such redesignation, the designation of such Subsidiary cannot be changed again so long as such Subsidiary remains a Subsidiary. "Security" has the meaning set forth in section 2(1) of the Securities Act of 1933, as amended. "Securities Act" means the Securities Act of 1933, as amended from time to time. 57 "Senior Debt" means, with respect to any Person, all Debt of such Person other than Debt that is any manner subordinated in right of payment to any other Debt of such Person. "Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Subsidiary Guarantors" means Bevis Custom Furniture, Inc., Hunt Data Products, Inc., Hunt Holdings, Inc., Hunt X-Acto, Inc. and Seal Products Incorporated and any other Person which hereafter executes and delivers to the holders of the Notes a counterpart signature page to the Subsidiary Guaranty. "Subsidiary Guaranty" The Subsidiary Guaranty executed by the Subsidiary Guarantors, in substantially the form of the attached Exhibit 2, as amended from time to time. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. For purposes of this Agreement, the obligation of any Person with respect to a Swap is considered "Indebtedness" but is not considered "Debt". "Unrestricted Subsidiary" shall mean any Subsidiary that has been designated by the Company's board of directors as an Unrestricted Subsidiary, provided that at the time of such designation (i) the Subsidiary so designated neither owns, directly or 58 indirectly, any Funded debt or capital stock of any Restricted Subsidiary; (ii) such designation is treated as a sale of assets subject to, and complies with, the limitations set forth in clause (v) of paragraph 6D; and (iii) immediately thereafter no other Default or Event of Default would occur or be continuing. "Wholly-Owned Restricted Subsidiary" means, at any time, any Restricted Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Restricted Subsidiaries at such time. 59 EXHIBIT 1 HUNT MANUFACTURING CO. 7.86% SENIOR NOTE DUE AUGUST 1, 2011 No. [_____] [Date] $[_______] PPN: 445636 A* 4 FOR VALUE RECEIVED, the undersigned, HUNT MANUFACTURING CO. (herein called the "Company"), a corporation organized and existing under the laws of the State of Pennsylvania, hereby promises to pay to [ ], or registered assigns, the principal sum of ________________ DOLLARS on August 1, 2011, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.86% per annum from the date hereof, payable semiannually, on the first day of August and February in each year, commencing February 1, 1997 until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.86% or (ii) 2.00% over the rate of interest publicly announced by NationsBank, N.A. from time to time in Charlotte, North Carolina as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at 2005 Market Street, Philadelphia, Pennsylvania 19103 or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to the Note Purchase Agreement, dated as of August 1, 1996 (as from time to time amended, the "Note Purchase Agreement"), among the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreement. This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for EXHIBIT 1 registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement. This Note and the Note Purchase Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the Commonwealth of Massachusetts excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. HUNT MANUFACTURING CO. By__________________________ Name: Title: 2 EXHIBIT 2 SUBSIDIARY GUARANTY THIS SUBSIDIARY GUARANTY dated [ ] (the "Guaranty") is made, jointly and severally, by each of the parties listed on the signature pages hereof and those additional entities that hereafter become parties hereto by executing counterpart signature pages in the form of Annex I hereof (each a "Guarantor" and collectively the "Guarantors") in favor of (i) the Purchasers named in Schedule I to the Note Purchase Agreement dated as of August 1, 1996 (as amended or modified and in effect from time to time, referred to herein as the "Agreement) between Hunt Manufacturing Co., a Pennsylvania corporation (the "Company"), and such Purchasers (the "Purchasers") and (ii) each other holder of the Company's 7.86% Senior Notes due August 1, 2011 (the "Notes") from time to time and their respective successors and assigns (collectively, such Purchasers and other holders and their respective successors and assigns are hereinafter referred to as the "Holders"). All capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Agreement. W I T N E S S E T H: WHEREAS, as an inducement to, and as part of the consideration for, their purchase of the Notes, the Purchasers are to receive, in accordance with the terms of the Agreement, a guarantee of the Company's obligations under the Agreement and the Notes from each of the Guarantors, each of which is a Subsidiary of the Company; WHEREAS, certain of the proceeds of the Notes have been and will be advanced to or for the benefit of the Guarantors, and thus, all unpaid principal of and accrued and unpaid interest on the Notes and all other obligations of the Company to the Holders now existing or hereafter arising under the Note were and continue to be incurred for and have inured and will continue to inure to the benefit of the Guarantors (which benefits are hereby acknowledged); and WHEREAS, in consideration of the benefits that inure to the Guarantors, the Guarantors desire to guarantee the due and punctual payment of all Guaranteed Debt (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Guarantors, jointly and severally, covenant and agree as follows: 1. Guaranty. Each Guarantor, jointly and severally, irrevocably and unconditionally guarantees, subject to the limitations set forth in Section 7, the full and prompt payment when due (whether at stated maturity, upon acceleration or otherwise) of all unpaid principal of, accrued and unpaid interest and Make-Whole Amount, if any, on the Notes, all accrued and unpaid fees and all other obligations of the Company to the EXHIBIT 2 Holders now existing or hereafter incurred under or arising out of or in connection with the Notes or the Agreement, and the performance of the Notes and the Agreement (all such principal, interest, Make-Whole Amount, fees, obligations and liabilities being collectively referred to herein as the "Guaranteed Debt"), whether according to the present terms of the Guaranteed Debt or any change or changes in the terms, covenants and conditions of any of the Guaranteed Debt, now or at any time hereafter made or granted, or any earlier or accelerated date or dates for payment or performance of the agreements set forth in the Guaranteed Debt. It is understood that this Guaranty is a continuing guarantee of the payment of the indebtedness represented by the Guaranteed Debt, is not limited to a guarantee of collection of the indebtedness represented by the Guaranteed Debt and shall remain in full force and effect until the indefeasible payment in full of the Guaranteed Debt. Each Guarantor agrees that all references in this Guaranty to Guaranteed Debt of the Company shall include any successor or assignee of the Company so long as this Guaranty remains in effect. 2. Waiver. Each Guarantor waives notice of the acceptance of this Guaranty and of the occurrence of any and all of the events described in Section 3. Each Guarantor further waives presentment, protest, notice, demand or action on delinquency in respect of the Guaranteed Debt or any part thereof. Each Guarantor agrees that the time or place of payment of the Guaranteed Debt may be changed or extended, in whole or in part, to a time certain or otherwise, and may be renewed or accelerated, in whole or in part; that the Company may be granted indulgences generally; that any of the provisions of the Notes or the Agreement may be modified, amended or waived; that any party liable for the payment thereof may be granted indulgences or released; and that any other party liable for the payment of the Guaranteed Debt or liable upon any security therefor may be released, in whole or in part, at, before and/or after the stated, extended or accelerated maturity of the Guaranteed Debt, all without notice to or further assent by any Guarantor, which shall remain bound thereon, notwithstanding any such exchange, compromise, surrender, extension, renewal, acceleration, modification, indulgence or release. 3. Certain Rights of Holders. The validity and enforceability of this Guaranty against each Guarantor shall not be impaired or affected by any of the following, whether occurring before or after receipt by the Holders of any notice of termination of this Guaranty: (a) any extension, modification, continuation or renewal of, or indulgence with respect to, or substitutions for, the Guaranteed Debt or any part thereof or any agreement relating thereto (other than any agreement between the Holders and one or more Guarantors specifically modifying or amending the terms of this Guaranty in accordance with Section 9) at any time; (b) any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Debt or any part thereof or any agreement relating thereto; (c) any waiver of any right, power or remedy or of any default with respect to the Guaranteed Debt or any part thereof or any agreement relating thereto; (d) any release, surrender, compromise, settlement, waiver, 2 EXHIBIT 2 subordination or modification, with or without consideration, of any other guaranties with respect to the Guaranteed Debt or any part thereof, or any other obligation of any Person with respect to the Guaranteed Debt or any part thereof; (e) the enforceability or validity of the Guaranteed Debt or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto; (f) the application of payments received from any source to the payment of indebtedness of the Company or any Subsidiary other than the Guaranteed Debt, any part thereof or amounts which are not covered by this Guaranty even though a Holder might lawfully have elected to apply such payments to any part or all of the Guaranteed Debt or to amounts which are not covered by this Guaranty; or (g) any other circumstances which otherwise under the laws of any jurisdiction constitute a legal or equitable discharge of a surety or a guarantor or a bar (in the nature of a moratorium or otherwise) to the enforcement of the rights of a Holder against the Company, all whether or not any Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (g) of this paragraph. Each Guarantor agrees that such Guarantor's obligation to make payment in accordance with the terms of this Guaranty shall not be impaired, modified, changed, released or limited in any manner whatsoever in the event any portion of the Guaranteed Debt is invalid or unenforceable against the Company, or by any impairment, modification, change, release or limitations of the liability of the Company or its estate in bankruptcy resulting from the operation of any present or future provision of the Federal Bankruptcy Code or other similar federal or state statute, or from the decision of any court. 4. Absolute Guaranty. The obligations of each Guarantor under this Guaranty are joint and several and are absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, without limitation, (i) any action or inaction by a Holder or any other circumstance contemplated in Section 3; or (ii) the existence of any other guaranties of the Guaranteed Debt, whether or not such other guaranties have been acted upon in any way. 5. Primary Liability of Guarantors. This Guaranty is a primary obligation of each Guarantor. Each Guarantor agrees that this Guaranty may be enforced by the Holders, or any of them, and each Guarantor hereby waives the right to require the Holders (or any of them) to proceed against the Company or any other person (including a co-guarantor) or to require the Holders (or any of them) to pursue any other remedy or enforce any other right. Each Guarantor further agrees that nothing contained herein shall prevent the Holders, or any of them, from suing on the Notes or the Agreement or from exercising any other rights available to it under the Notes or the Agreement and the exercise of any of the aforesaid rights and the completion of any foreclosure proceedings shall not constitute a discharge of any of the Guarantor's obligations hereunder. 6. Continuing Guaranty, etc. This Guaranty shall continue in full force and effect until the Guaranteed Debt is indefeasibly paid in full, notwithstanding any 3 EXHIBIT 2 extensions, modifications, renewals or indulgences with respect to, or substitutions for, the Guaranteed Debt. Notwithstanding the foregoing, this Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Guaranteed Debt is rescinded or must otherwise be restored or returned by any Holder upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any substantial part of its property, or otherwise, all as though such payments had not been made. No failure or delay on the part of any holder in exercising any right, power or privilege hereunder and no course of dealing between any Guarantor or any Holder 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, powers and remedies herein expressly provided are cumulative and not exclusive of any rights, powers or remedies which any Holder would otherwise have. No notice to or demand on any Guarantor in any case shall entitle any Guarantor to any other or future notice or demand in similar or other circumstances or constitute a waiver of the rights of any Holder to act in any circumstances without notice or demand. Credit may be granted or continued from time to time by the Holders to the Company without notice to or authorization from any Guarantor regardless of the Company's financial or other condition at the time of any such grant or continuation. 7. Contribution Among Guarantors. (a) Unless otherwise agreed by and among the Guarantors in the manner described in Section 7(c), the Guarantors acknowledge and agree with each other that they shall share in any payment made by any of them (a "Paying Guarantor") hereunder with respect to any or all of the Guaranteed Debt, each in proportion to their respective Net Worths at the time such Guarantor becomes a party to this Guaranty. For such purposes, the term "Net Worth" shall mean, for each Guarantor, the excess (if any, but never less than zero) of such Guarantor's total assets over its total liabilities, as determined in accordance with generally accepted accounting principles. (b) Upon demand by a Paying Guarantor after making any payment hereunder, each other Guarantor shall promptly pay to the Paying Guarantor an amount sufficient to reimburse the Paying Guarantor for such other Guarantor's portion of such payment, as such portion is determined in accordance with the provisions of this Section 7. (c) The Guarantors may from time to time change the contribution proportion set forth in Section 7(a) to such other proportion as may be mutually 4 EXHIBIT 2 acceptable, by written agreement signed by an authorized officer of each Guarantor that specifically refers to this Guaranty. (d) Nothing contained in this Section 7 shall be construed as altering, impairing or otherwise affecting the respective obligations of each Guarantor to the Holders hereunder. The provisions of this Section 7 shall apply to the Guarantors solely as among themselves and shall in no way alter the obligation of each Guarantor hereunder to pay in full to the Holders all of the Guaranteed Debt when and as required in accordance with the other Sections of this Guaranty. 8. Successors: Assigns. This Guaranty shall be binding upon each Guarantor and its respective successors and permitted assigns and shall inure to the benefit of the Purchasers, each other Holder and their respective successors and assigns. Each Guarantor expressly waives notice of transfer or assignment of the Guaranteed Debt, or any part thereof, or of the rights of any Holder hereunder. Failure to give notice will not affect the liabilities of each Guarantor hereunder. 9. Amendment: Waiver. This Guaranty may be amended only by an instrument in writing executed jointly by the Guarantors and each holder of Notes then outstanding. 10. Note Agreement; Representation and Warranties. (a) Each Guarantor acknowledges that an executed (or conformed) copy of the Agreement has been made available to its principal executive officers and such officers are familiar with the contents thereof. (b) Each Guarantor further represents and warrants that: (a) such Guarantor is a corporation duly organized and validly existing in good standing under the laws of the State of its incorporation and has the full power, authority and legal right to enter into and perform its obligations under this Guaranty; (b) this Guaranty has been duly authorized, executed and delivered by each Guarantor and constitutes the legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms. (c) the execution, delivery and performance by such Guarantor of this Guaranty do not require any stockholder approval or the consent or approval of any of the creditors of such Guarantor (except such as have already been obtained in writing), do not and will not contravene any applicable law, rule, regulation, judgment or order and do not and will not contravene the provisions of, constitute 5 EXHIBIT 2 a breach of or default under, or result in the creation of any security interest, lien or encumbrance on any of the property of such Guarantor pursuant to, such Guarantor's articles of incorporation or by-laws or any indenture, mortgage, license or other contract, agreement or instrument to which such Guarantor is a party or by which it is bound or to or by which any of its properties is subject or affected; and (d) the execution, delivery and performance by such Guarantor of this Guaranty do not require the consent, approval, authorization or order of, the giving of notice to or the registration with, or the taking of any other action with respect to, any governmental authority or agency, foreign or domestic, other than such as have been duly obtained, given or taken. 11. Set off. In addition to, and without limitation of, any rights of the holders under applicable law, any indebtedness from such Holders to any Guarantor (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the obligations owing to such Holders, whether or not the Guaranteed Debt, or any part thereof, shall then be due. 12. Notices. All notices and other communications hereunder shall be made in the manner and with the effect provided in Section 11.2 of the Agreement, if to any Holder, at the address for notices specified in the Agreement, and, if to any Guarantor, to: c/o Hunt Manufacturing Co. One Commerce Square 2005 Market Street Philadelphia, PA 19103 Attention: Senior Vice President/Chief Financial Officer 13. Choice of Law. This Guaranty shall be construed in accordance with the internal laws (and not the law of conflicts) of the Commonwealth of Massachusetts. 14. Expenses: Indemnity. In addition to its Maximum Guaranteed Amount, each Guarantor agrees to reimburse (to the extent the Holder is not so reimbursed by the Company or any other Guarantor) (i) each Holder for any costs and out-of-pocket expenses (including reasonable attorneys' fees and reasonable time charges of attorneys for such Holder, which attorneys may be employees of such Holder) paid or incurred by such holder in connection with any amendment and modification of this Guaranty and (ii) each Holder for any costs and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for such Holder, which attorneys may be employees of such holder) paid or incurred by such Holder in connection with the collection and enforcement of this 6 EXHIBIT 2 Guaranty. Each Guarantor further agrees to indemnify each Holder, and its directors, officers and employees, against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not such Holder is a party thereto) which it may pay or incur arising out of or relating to this Guaranty, provided, however, that such Holder, and its directors, officers or employees, shall not have a right to be indemnified or held harmless hereunder for its own gross negligence or willful misconduct. The obligations of the Guarantors under this Section 14 shall survive the termination of this Guaranty. 15. Submission to Jurisdiction. Each Guarantor hereby irrevocably submits to the jurisdiction of the courts of the Commonwealth of Massachusetts and of the courts of the United States of America having jurisdiction in the Commonwealth of Massachusetts for the purpose of any legal action or proceeding in any such court with respect to, or arising out of, this Guaranty, the Agreement or the Notes. The Guarantors designate and appoint the Company as their lawful agent upon which may be served, and which may accept and acknowledge, for and on behalf of each Guarantor, all process in any action, suit or proceedings that may be brought against any Guarantor in any of the courts referred to in this Section 15 and agrees that such service of process, or the acceptance or acknowledgment thereof by said agent, shall be valid, effective and binding in every respect, provided, however, that if said agency shall cease for any reason whatsoever, each Guarantor designates and appoints, without power or revocation, the Secretary of State of the Commonwealth of Massachusetts to serve as its agent for service of process. If the Purchaser or any other holder of any Note shall cause process to be served upon any Guarantor by being served upon such agent, a copy of such process shall also be mailed to such Guarantor by United States registered mail, first class postage prepaid, at such Guarantor's address set forth in Section 12. 16. Entire Agreement; Severability of Provisions. This Guaranty constitutes the entire agreement of the Guarantors with the Purchasers with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof. Any provision in this Guaranty that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Guaranty are declared to be severable. 17. Captions. Captions are for reference only and in no way limit the terms of this Guaranty. 18. Counterparts. This Guaranty may be executed in one or more counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. The failure of any Guarantor to execute 7 EXHIBIT 2 a counterpart hereof shall not affect or impair the validity or enforceability of this Guaranty against any Guarantor executing this Guaranty. IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as of the date first above written. Bevis Custom Furniture, Inc. By: --------------------------------- Name: Title: Hunt Data Products, Inc. By: --------------------------------- Name: Title: Hunt Holdings, Inc. By: --------------------------------- Name: Title: Hunt X-Acto, Inc. By: --------------------------------- Name: Title: Seal Products Incorporated By: --------------------------------- 8 EXHIBIT 2 Name: Title: 9 Annex 1 to Subsidiary Guaranty By its signature below the undersigned Subsidiary of Hunt Manufacturing Co. (the "Company") hereby becomes a party to, and a Guarantor under, that certain Subsidiary Guaranty dated _________ in favor of the Holders of the Company's 7.86% Senior Notes due August 1, 2011, all with the same force and effect as if the undersigned were one of the original parties to such Subsidiary Guaranty. Date: [Name of Guarantor] - ---------------------------------- ------------------------------------- By ---------------------------------- Name Title Certain schedules and/or exhibits to the foregoing agreement have been omitted, and the Company will provide them to the Securities and Exchange Commission upon request. EX-4 4 exh4a2.txt EXH4A2 HUNT CORPORATION 2005 Market Street Philadelphia, Pennsylvania 19103 --------------------------------------- Consent and Amendment to Note Agreement --------------------------------------- November 14, 2001 To the undersigned Holders of the 7.86% Senior Notes of Hunt Corporation Ladies and Gentlemen: Reference is made to the Note Purchase Agreement dated as of August 1, 1996 among Hunt Corporation, formerly known as Hunt Manufacturing Co., (the "Company"), Massachusetts Mutual Life Insurance Company, Allstate Life Insurance Company, Allstate Insurance Company, Provident Mutual Life Insurance Company - Covenant, Provident Mutual Life Insurance Company, Mennonite Mutual Aid Association, and Mennonite Retirement Trust (the "Note Agreement") pursuant to which the Company has issued $50,000,000 in aggregate principal amount of its 7.86% Senior Notes due August 1, 2011 (the "Notes"). Capitalized terms used herein and not otherwise defined herein have the meanings set forth in the Note Agreement. RECITALS A. The Note Agreement contains various provisions relating to the disposition by the Company of its assets outside the ordinary course of business. The Company has requested the holders of the Notes (the "Holders") to confirm their consent, and the undersigned Holders, who together hold all of the Notes, are willing to confirm their consent, to the sale of the Company's graphics products business and related assets (the "Graphics Sale Transaction"). B. As an inducement to and in consideration of the aforesaid consent on the part of the Holders, the Company has agreed to prepay a portion of the Notes and the Company and the Holders have agreed to make certain modifications to the provisions of the Note Agreement and the Notes, all as hereinafter set forth. AGREEMENTS Now, therefore, the Company and the Holders hereby agree as follows: Section 1 Amendments to Notes and Note Agreement. 1.1 The regular interest rate applicable to the Notes is increased from 7.86% per annum to 8.36% per annum, and all references to "7.86%" in the Note Agreement (including the Schedules and Exhibits thereto) are changed to "8.36%". In consequence of such increase in the regular interest rate applicable to the Notes, and consistent with the definition of "Default Rate", all references in the Notes to "9.86%" shall be changed to "10.36%". 1.2 Section 8.1 of the Note Agreement is modified as follows: (a) The existing text of such Section 8.1 is designated as subsection "(a)", and such text is modified by inserting the phrase "or purchase of the Notes required by Section 9.7" immediately following the phrase "or purchase of the Notes permitted by Section 8.5". (b) A new subsection (b) is added to Section 8.1 to read as follows: (b) On or before November 14, 2001, the Company will prepay $25,000,000 principal amount of the Notes at par and without payment of the Make-Whole Amount but together with all accrued and unpaid interest on the amount to be prepaid to the date of prepayment. Until the Notes have been paid in full, the prepayment required by this Section 8.1(b) shall not reduce or otherwise affect the Company's obligation to make any other payment required with respect to the Notes (except that the provisions of Sections 10.2(d) and (e) shall not be applicable to the Graphics Sale Transaction), including the scheduled payments required by Section 8.1(a). Therefore, following prepayment pursuant to this Section 8.1(b), the final remaining scheduled payment of the Notes pursuant to Section 8.1(a) will be on August 1, 2006, subject to the other provisions of this Note Agreement. 1.3 A new Section 9.6 is added to the Note Agreement to read as follows: 9.6 Maintenance of Credit Facility The Company will at all times after December 31, 2001 maintain in effect a committed, unsecured revolving credit facility in an amount at least equal to $25,000,000 with one or more financial institutions. -2- 1.4 A new Section 9.7 is added to the Note Agreement to read as follows: (a) Notice of Change in Control or Control Event. The Company will, within thirty (30) Business Days after any Responsible Officer has knowledge of the occurrence of any Change in Control or Control Event, give written notice of such Change in Control or Control Event to each Holder unless notice in respect of such Change in Control (or the Change in Control contemplated by such Control Event) shall have been given pursuant to Section 9.7(b). If a Change in Control has occurred, such notice shall contain and constitute an offer to purchase the Notes as described Section 9.7(c) and shall be accompanied by the certificate described Section 9.7(g). (b) Condition to Company Action. The Company will not take any action that consummates or finalizes a Change In Control unless (i) at least thirty (30) days prior to such action it shall have given to each Holder written notice containing and constituting an offer to purchase the Notes as described Section 9.7(c), accompanied by the certificate described in Section 9.7(g), and (ii) contemporaneously with such action, it shall have purchased all Notes required to be purchased in accordance with this Section 9.7. (c) Offer to Purchase Notes. Any offer to purchase the Notes contemplated by this Section 9.7 shall be an offer to purchase all, but not less than all, the Notes held by each Holder on a date specified in such offer (the "Proposed Purchase Date"). If such Proposed Purchase Date is in connection with an offer contemplated by Section 9.7(a), such date shall be not less than sixty (60) days and not more than ninety (90) days after the date of such offer. (d) Acceptance. A Holder may accept any offer to purchase made pursuant to this Section 9.7 by causing a notice of such acceptance to be delivered to the Company on or before the twentieth (20th) day after the date of the offer. A failure by a Holder to respond to an offer to purchase made pursuant to this Section 9.7 within such twenty (20) day period shall be deemed to constitute an acceptance of such offer by such Holder. (e) Purchase, Purchase of any Notes pursuant to this Section 9.7 shall be at 100% of the principal amount of such Notes plus all accrued and unpaid interest on such Notes to the date of purchase but without payment of the Make-Whole Amount. The purchase shall be made on the Proposed Purchase Date except as provided in Section 9.7(f). -3- (f) Deferral Pending Change in Control. The obligation of the Company to purchase Notes pursuant to any offer required by Section 9.7(b) and accepted by a Holder is subject to the occurrence of the Change in Control in respect of which such offer shall have been made. In the event that such Change in Control does not occur on the Proposed Purchase Date in respect thereof, the purchase shall be deferred until and shall be made on the date on which such Change in Control occurs. The Company shall keep each Holder reasonably and timely informed of (i) any such deferral of the date of purchase, (ii) the date on which such Change in Control and the purchase are expected to occur, and (iii) any determination by the Company that efforts to effect such Change in Control have ceased or been abandoned (in which case the offers and acceptances made pursuant to this Section 9.7 in respect of such Change in Control shall automatically be deemed rescinded without the need for any confirmation or other writing). (g) Officer's Certificate. Each offer to purchase the Notes pursuant to this Section 9.7 shall be accompanied by a certificate, executed by a Senior Financial Officer of the Company and dated the date of such offer, specifying (i) the Proposed Purchase Date; (ii) that such offer is made pursuant to this Section 9.7; (iii) the principal amount of each Note offered to be purchased; (iv) the interest that will have accrued and be unpaid on each Note as of the Proposed Purchase Date; (vi) that the conditions of this Section 9.7 have been fulfilled; and (vii) in reasonable detail, the nature and date or proposed date of the Change in Control. (h) "Change in Control" Defined. Change in Control means any of the following events or circumstances: (i) individuals who, at the beginning of any period of 24 consecutive months, constitute the Company's board of directors (together with any new director whose election by the Company's board of directors or whose nomination for election by the Company's stockholders 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 such period or whose election or nomination for election was previously so approved) cease for any reason (other than death or disability) to constitute a majority of the Company's board of directors then in office; or (ii) any Person or Persons acting as a group (as such term is used in Rule l3d-5 under the Exchange Act as in effect on the date hereof) shall in the aggregate, directly or indirectly, control or own (beneficially or otherwise) more than fifty percent (50%) (by number of shares) of the issued and -4- outstanding voting stock of the Company; provided, however, that a "Change in Control" shall not occur if (A) such group includes (x) members of the Bartol family, (y) directors and officers of the Company and its Affiliates as of November 1, 2001 and (z) other directors and officers of the Company or any Affiliates of the Company as of November, 2001 whose election is approved by a vote of at least two-thirds of the directors of the relevant entity then in office who were either themselves in office on November 1, 2001 or subsequently approved as provided in this clause (z), (B) the Persons described in the preceding clause (A) together own at least 20% (by number of shares) of the issued and outstanding voting stock of the Company and (C) no member of the Bartol family has entered into an agreement with any Person not a member of the Bartol family that restricts in any manner how such member of the Bartol family may vote his shares of stock in the Company (i) "Control Event" Defined. Control Event means: (i) the execution by the Company or any of its Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events which, if consummated, individually or in the aggregate, may reasonably be expected to result in a Change in Control; or (ii) the making of any written offer by any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the date hereof or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the date hereof) to the holders of the common stock of the Company, which offer, if accepted by the requisite number of holders, would result in a Change in Control. 1.5 Section 10.4 of the Note Agreement is modified as follows: (a) The existing text of such Section 10.4 is designated as subsection "(a)" and such text is modified by inserting the phrase "prior to the closing of the Graphics Sale Transaction" immediately following the phrase "at any time" in the first fine thereof. (b) A new subsection (b) is added to such Section 10.4 to read as follows: (b) The Company will not, at any time following the closing of the Graphics Sale Transaction, permit Adjusted Consolidated Net Worth to be less than the sum of (i) 85% of Post Transaction Consolidated Net Worth, plus (ii) an aggregate amount equal to 50% of Adjusted Consolidated Net Income (but only if a -5- positive number) for each completed fiscal quarter subsequent to December 2, 2001; provided that, once Adjusted Consolidated Net Worth is equal to at least $60,000,000 as of the end of any fiscal quarter, then effective for that and all subsequent fiscal quarters, the percentage set forth in the preceding clause (ii) shall decrease from 50% to 30%. 1.6 Section 10.5(c)(i) of the Note Agreement is amended to read in its entirety as follows: (i) The Company will not at any time permit the ratio of Consolidated Funded Debt to Consolidated Operating Cash Flow for the most recently ended fiscal year of the Company to exceed the following for the periods indicated: For Fiscal Year Ratio --------------- ----- 1996 3.25 1997 3.00 1998 2.75 1999 and 2000 2.50 2001 3.00 2002 2.75 2003 and thereafter 2.50 1.7 Section 10.5(c)(ii) of the Note Agreement is modified to read in its entirety as follows: (ii) The Company will not at any time permit the ratio of Consolidated Net Funded Debt to Consolidated Total Capitalization for the most recently ended fiscal quarter of the Company to exceed 50%. 1.8 Section 10.7 of the Note Agreement is amended by adding the following sentence immediately after the existing text of such Section: The Company will not redeem or acquire any shares of its capital stock or any warrants, rights or other options to purchase such stock (except when solely in exchange for such stock) unless immediately after giving effect to such action Adjusted Consolidated Net Worth would be at least $60,000,000. 1.9 Schedule B to the Note Agreement is amended by inserting the following new definitions in the appropriate alphabetical positions: "Adjusted Consolidated Net Income" means, for any period, (a) Consolidated Net Income for such period plus (b) all expenses of Cost Base Reduction Activities deducted in the determination of such Consolidated Net Income, -6- provided that the aggregate amount of such expenses of Cost Base Reduction Activities counted in determining Adjusted Consolidated Net Income for all periods subsequent to the Graphics Sale Transaction shall be limited to $3,000,000. "Adjusted Consolidated Net Worth" means, at any time, (a) Consolidated Net Worth plus (b) all expenses of Cost Base Reduction Activities subsequent to the Graphics Sale Transaction up to an aggregate amount of $3,000,000. "Consolidated Net Debt" means, at any time, Consolidated Debt less the amount at which cash and cash equivalents would be shown on a consolidated balance sheet of the Company and its Restricted Subsidiaries at such time in accordance with GAAP. "Consolidated Net Funded Debt" means, at any time, Consolidated Funded Debt less the amount at which cash and cash equivalents would be shown on a consolidated balance sheet of the Company and its Restricted Subsidiaries at such time in accordance with GAAP. "Cost Base Reduction Activities" are those actions the Company will embark upon subsequent to the Graphics Sale Transaction to reduce various ongoing expenses to align the Company's cost structure to its remaining businesses. "Graphics Sale Transaction" means the sale by the Company as of October 9, 2001 in a single transaction of the Company's Graphics Products business and related assets. "Post Transaction Consolidated Net Worth" means an amount equal to the sum of: (a) Consolidated Net Worth as of December 2, 2001, plus (b) without duplication, any expenses of Cost Base Reduction Activities reflected in the determination of such Consolidated Net Worth. 1.10 Schedule B to the Note Agreement is further amended by changing the definition of "Consolidated Total Capitalization" to read as follows: "Consolidated Total Capitalization" means, at any time, the sum of Adjusted Consolidated Net Worth and Consolidated Net Debt. Section 2 Confirmation of Subsidiary Guaranty. By their signatures below, each of Hunt Holdings, Inc. and Hunt X-Acto, Inc. (the "Remaining Subsidiary Guarantors") confirms the continuing validity and effectiveness of the Subsidiary Guaranty as to it, and agrees that such Subsidiary Guaranty shall continue to secure the Notes, as the terms thereof are modified by this Consent and Amendment. -7- Section 3 Consent to Graphics Sale Transaction. By their execution of this Consent and Amendment, each of the undersigned Holders expressly confirms its consent to the Graphics Sale Transaction. Section 4 Representations and Warranties of the Company and Subsidiary Guarantors. To induce the Holders to execute and deliver this Consent and Amendment, the Company (and each Remaining Subsidiary Guarantor as to itself) represents and warrants as follows: 4.1 This Consent and Amendment has been duty authorized, executed, and delivered by the Company and each Remaining Subsidiary Guarantor and constitutes the legal, valid and binding obligation of the Company and each Remaining Subsidiary Guarantor enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws or equitable principles relating to or limiting creditors' rights generally. 4.2 The execution, delivery, and performance by the Company and each Remaining Subsidiary Guarantor of this Consent and Amendment (a) has been duly authorized by all requisite corporate action, (b) does not require the consent or approval of any governmental or regulatory body or agency, and (c) will not (i) violate any provision of any law, statute, rule or regulation applicable to the Company or any Remaining Subsidiary Guarantor, or their respective certificates of incorporation or bylaws or any order of any court or other governmental agency or authority binding upon any thereof or (ii) conflict with or result in a breach of any of the terms, conditions, or provisions of, or constitute a default under, any agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound. 4.3 As of the date hereof and after giving effect to this Consent and Amendment, no Default or Event of Default has occurred that is continuing and no condition exists which, with the lapse of time or giving of notice or both, will become a Default or Event of Default. 4.4 Neither the Company nor any Subsidiary has paid or offered to pay, and neither the Company nor any Subsidiary will pay or offer to pay, any fee to any Holder with respect to, or as an inducement to enter into, this Consent and Amendment unless the same fee (in pro rata amounts and on identical terms) is paid to all Holders. 4.5 Each of Bevis Custom Furniture, Inc. Hunt Data Products, Inc. and Seat Products Incorporated has been sold by the Company. Section 5 Conditions to Effectiveness. 5.1 The amendments and modifications to the Notes and the Note Agreement set forth in Section 1 of this Consent and Amendment shall not become effective until each and every one of the following conditions has been satisfied: -8- (a) executed counterparts of this Consent and Amendment, duly executed by the Company, each Remaining Subsidiary Guarantor and the holders of 100% of the outstanding principal amount of the Notes, shall have been delivered to the Holders or to their special counsel on their behalf; (b) the Company shall have delivered to each Holder, in exchange for each Note held by such Holder, a new Note, substantially in the form of Exhibit 1 to the Note Agreement but reflecting the changes in the regular interest rate and Default Rate applicable to the Notes set forth in Section 1.1 hereof; (c) the Holders shall have received a copy of the resolutions of the Board of Directors of the Company and each Remaining Subsidiary Guarantor duly authorizing the execution, delivery and performance by the Company and such Remaining Subsidiary Guarantor of this Consent and Amendment, certified by its Secretary or an Assistant Secretary; (d) the Company shall have delivered to each Holder a copy of a term sheet or term sheets from financial institutions providing for the revolving credit facility referred to in Section 1.3 above; (e) the Company shall have paid the reasonable fees and expenses of Day, Berry & Howard LLP, special counsel to the Holders, in connection with the negotiation, preparation and delivery of this Consent and Amendment; and (f) the Company shall have paid to each Holder the prepayment contemplated by Section 8.1(b) of the Note Agreement, as set forth in Section 1.2 hereof, and an amendment fee equal to 0.10% of the aggregate outstanding principal amount of the Notes held by such Holder (as such principal amount shall have been reduced by such prepayment). 5.2 The Consent set forth in Section 3 of this Consent and Amendment shall not be effective until each of the conditions set forth in Section 5.1 hereof has been satisfied and, in addition, the Company shall have made (or shall make concurrently with such effectiveness) the prepayment of the Notes contemplated by Section 8.1(b) of the Note Agreement, as set forth in Section 1.2 hereof. Section 6 Miscellaneous. 6.1 This Consent and Amendment shall be construed in connection with and as part of the Note Agreement, and except as modified and expressly amended by this Consent and Amendment, all terms, conditions and covenants contained in the Note Agreement, as heretofore amended, and the Notes are hereby ratified and shall be and remain in full force and effect. 6.2 Any and all notices, requests, certificates, and other instruments executed and delivered after the execution and delivery of this Consent and Amendment may refer to the Note Agreement without making specific reference to this Consent and Amendment but nevertheless -9- all such references shall include this Consent and Amendment unless the context otherwise requires. 6.3 The descriptive headings of the various Sections or parts of this Consent and Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. 6.4 This Consent and Amendment shall be governed by and construed in accordance with Massachusetts law. 6.5 This Consent and Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. IN WITNESS WHEREOF, the undersigned have executed this Consent and Amendment as of the date first written above. Company - ------- HUNT CORPORATION By: ----------------------------------- Name: Title: Remaining Subsidary Guarantors - ------------------------------ HUNT HOLDINGS, INC. By: ----------------------------------- Name: Title: HUNT X-ACTO, INC. By: ----------------------------------- Name: Title: -10 Holder MASSACHUSETTS MUTUAL LIFE - ------ INSURANCE COMPANY By: ----------------------------------- Name: Title: (This is one of 4 separate signature pages signed by the Holders of the Notes. The remainder of this page is intentionally left blank.) Holders ALLSTATE LIFE INSURANCE COMPANY By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: ALLSTATE INSURANCE COMPANY By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: (This is one of 4 separate signature pages signed by the Holders of the Notes. The remainder of this page is intentionally left blank.) -12- Holders PROVIDENT MUTUAL LIFE INSURANCE - ------- COMPANY-COVENANT By: ----------------------------------- Name: Title: PROVIDENT MUTUAL LIFE INSURANCE COMPANY By: ----------------------------------- Name: Title: (This is one of 4 separate signature pages signed by the Holders of the Notes. The remainder of this page is intentionally left blank.) -13- Holders MENNONITE MUTUAL AID ASSOCIATION - ------- By: ----------------------------------- Name: Title: MENNONITE RETIREMENT TRUST By: ----------------------------------- Name: Title: (This is one of 4 separate signature pages signed by the Holders of the Notes. The remainder of this page is intentionally left blank.) -14- EX-4 5 exh4b.txt EXH4B.TXT CREDIT AGREEMENT by and among FIRST UNION NATIONAL BANK, as Agent and Lender, FLEET NATIONAL BANK, as Lender, and any additional Lenders from time to time party hereto, and HUNT CORPORATION, as Borrower December 21, 2001 TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS........................................................1 1.1. Definitions.........................................................1 1.2. Rules of Construction..............................................12 ARTICLE 2 REVOLVING CREDIT FACILITY.........................................13 2.1. The Revolving Credit Facility...................................13 2.2. Promissory Notes................................................13 2.3. Lenders' Participation..........................................13 2.4. Use of Proceeds.................................................13 2.5. Repayment.......................................................14 2.6. Interest........................................................14 2.7. Advances........................................................16 2.8. Reduction and Termination of Commitment.........................17 2.9. Prepayment; Repayment...........................................18 2.10. Funding Costs; Loss of Earnings.................................18 2.11. Payments........................................................18 2.12. Commitment Fee..................................................18 2.13. Arrangement Fee.................................................18 2.14. Agent Fee.......................................................18 2.15. Regulatory Changes in Capital Requirements......................19 2.16. Withholding Taxes...............................................19 ARTICLE 3 LETTERS OF CREDIT.................................................19 3.1. Availability of Credits.........................................19 3.2. Commitment Availability.........................................20 3.3. Approval and Issuance...........................................20 3.4. Obligations of Borrower.........................................21 3.5. Payment by First Union on Letters of Credit.....................21 3.6. Collateral Security.............................................22 3.7. General Terms of Credits........................................22 ARTICLE 4 REPRESENTATIONS AND WARRANTIES....................................23 4.1. Organization and Good Standing..................................24 4.2. Power and Authority; Validity of Agreement......................24 4.3. No Violation of Laws or Agreements..............................24 4.4. Material Contracts..............................................24 4.5. Compliance......................................................24 4.6. Litigation......................................................24 4.7. Title to Assets.................................................24 4.8. Accuracy of Information; Full Disclosure........................25 4.9. Taxes and Assessments...........................................25 4.10. Indebtedness....................................................25 4.11. Investments; Subsidiaries.......................................25 4.12. ERISA...........................................................25 4.13. Fees and Commissions............................................26 4.14. No Extension of Credit for Securities...........................26 4.15. Hazardous Wastes, Substances and Petroleum Products.............26 4.16. Solvency........................................................26 4.17. Foreign Assets Control Regulations..............................27 4.18. Investment Company Act..........................................27 4.19. Public Utility Holding Company Act..............................27 ARTICLE 5 CONDITIONS........................................................27 5.1. First Advance...................................................27 5.2. Subsequent Advances and Issuances of Letters of Credit..........28 5.3. Additional Condition to Lenders' Obligations....................28 5.4. Additional Condition Relating to Permitted Acquisitions.........28 ARTICLE 6 AFFIRMATIVE COVENANTS.............................................29 6.1. Existence and Good Standing.....................................29 6.2. Financial Statements and Public Information.....................29 6.3. Compliance Certificate..........................................30 6.4. Books and Records...............................................30 6.5. Insurance.......................................................30 6.6. Compliance with Laws............................................30 6.7. Taxes...........................................................30 6.8. Costs and Expenses..............................................31 6.9. Notice of Certain Events........................................31 6.10. ERISA...........................................................31 6.11. Deposit Accounts................................................32 6.12. Minimum Net Worth...............................................32 6.13. Consolidated Capitalization Ratio...............................32 6.14. Funded Debt to EBITDA Ratio.....................................32 6.15. Fixed Charge Coverage Ratio.....................................32 6.16. Funded Debt to Borrowing Base Ratio.............................32 6.17. Subsequent Credit Terms.........................................32 6.18. Successor Agent.................................................33 6.19. Transactions Among Affiliates...................................33 6.20. Purchase Documents..............................................33 6.21. Performance of Obligations......................................33 6.22. Audits/Inspections..............................................33 6.23. Ownership of Subsidiaries.......................................33 6.24. Other Information...............................................33 ARTICLE 7 NEGATIVE COVENANTS................................................33 7.1. Indebtedness....................................................33 7.2. Guaranties......................................................34 7.3. Loans...........................................................34 7.4. Liens and Encumbrances..........................................34 7.5. Additional Negative Pledge......................................35 7.6. Restricted Payments.............................................35 7.7. Transfer of Assets; Liquidation.................................35 7.8. Acquisitions and Investments....................................36 7.9. Payments to Affiliates..........................................36 7.10. Use of Proceeds.................................................36 7.11. Governing Documents.............................................36 7.12. Change in Control...............................................36 7.13. Nature of Business..............................................36 7.14. Prepayment of Indebtedness......................................36 7.15. Fiscal Year.....................................................36 7.16. Issuance and Sale of Stock......................................37 7.17. Sale Leasebacks.................................................37 7.18. Operating Lease Obligations.....................................37 ARTICLE 8 DEFAULT...........................................................37 8.1. Events of Default...............................................37 8.2. Remedies........................................................38 8.3. Right of Setoff.................................................38 8.4. Remedies Cumulative; No Waiver..................................39 ARTICLE 9 LENDERS...........................................................39 9.1. Application of Payments.........................................39 9.2. Setoff..........................................................39 9.3. Modifications and Waivers.......................................39 9.4. Obligations Several.............................................40 9.5. Lenders' Representations........................................40 9.6. Investigation...................................................40 9.7. Powers of Agent.................................................40 9.8. General Duties of Agent, Immunity and Indemnity.................40 9.9. No Responsibility for Representations or Validity, etc..........40 9.10. Action on Instruction of Lenders; Right to Indemnity............40 9.11. Employment of Agents............................................41 9.12. Reliance on Documents...........................................41 9.13. Agent's Rights as a Lender......................................41 9.14. Expenses........................................................41 9.15. Resignation of Agent............................................41 9.16. Successor Agent.................................................41 9.17. Enforcement by Agent............................................41 ARTICLE 10 MISCELLANEOUS....................................................41 10.1. Indemnification and Release Provisions..........................41 10.2. Binding and Governing Law.......................................42 10.3. Survival........................................................42 10.4. No Waiver; Delay................................................42 10.5. Modification; Waiver; Assignment................................42 10.6. Headings........................................................42 10.7. Notices.........................................................42 10.8. Payment on Non-Business Days....................................43 10.9. Time of Day.....................................................43 10.10. Severability....................................................43 10.11. Counterparts....................................................44 10.12. Consent to Jurisdiction and Service of Process..................44 10.13. Arbitration.....................................................44 10.14. Preservation and Limitation of Remedies.........................44 10.15. Waiver of Jury Trial............................................45 10.16. Acknowledgements................................................45 LIST OF EXHIBITS Exhibits - -------- Exhibit A: Form of Borrowing Base Certificate Exhibit B: Form of Borrowing Notice Exhibit C: Form of Revolving Credit Note Exhibit D: Form of Compliance Certificate Exhibit E: Form of LC Application Exhibit F: Form of Guaranty Agreement Schedules - --------- Schedule 4.11 Subsidiaries Schedule 4.15 Environmental Disclosures Schedule 7.2 Hunt Corporation Guarantees Schedule 7.4 Existing Liens CREDIT AGREEMENT This CREDIT AGREEMENT is made as of December 21, 2001, by and among HUNT CORPORATION, a Pennsylvania corporation with offices at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 ("Borrower"), FIRST UNION NATIONAL BANK, a national banking association with offices at 123 South Broad Street, Philadelphia, Pennsylvania 19109 ("First Union", and in its capacity as agent hereunder, "Agent"), and FLEET NATIONAL BANK, a national banking association, with offices at 1428 Walnut Street, Philadelphia, Pennsylvania 19102 ("Fleet", and together with First Union each individually a "Lender" and collectively the "Lenders", together with any additional Lenders from time to time party hereto). BACKGROUND A. Borrower desires to obtain a revolving credit facility in the maximum aggregate principal amount of $25,000,000 for the purpose of providing for (a) general corporate purposes, working capital and to support the issuance of documentary and standby letters of credit and (b) acquisitions in the second and third years of the Revolving Credit Facility; and B. The Lenders are willing to lend up to $25,000,000 to Borrower, subject to the terms and conditions hereof; In consideration of the foregoing background and the promises and the agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS 1.1. Definitions. When used in this Agreement, the following terms shall have the respective meanings set forth below. "Adjusted LMI" has the meaning set forth in Section 2.6(a)(i)(A) hereof. "Adjusted Net Income" means, for any period, (a) Net Income for such period plus (b) all expenses of Cost Base Reduction Activities deducted in the determination of such Net Income, provided that the aggregate amount of such expenses of Cost Base Reduction Activities counted in determining Adjusted Net Income for all periods subsequent to the Graphics Sale Transaction shall be limited to $3,000,000 for the Fiscal Year 2001 through Fiscal Year 2003. "Advance" means a borrowing under the Commitment pursuant to Section 2.7 hereof. "Affiliate" means: (i) any Person who or entity which directly or indirectly owns, controls or holds ten percent (10%) or more of the outstanding beneficial interest in Borrower; (ii) any entity of which ten percent (10%) or more of the outstanding beneficial interest is directly or indirectly owned, controlled, or held by Borrower; (iii) any entity which directly or indirectly is under common control with Borrower; (iv) any officer, director or partner of Borrower or any Affiliate; or (v) any immediate family member of any person who is an Affiliate. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise. "Agent" means First Union National Bank, a national banking association, in its capacity as agent for the Lenders hereunder, and its successors and assigns in such capacity. -2- "Agreement" means this Credit Agreement and all exhibits and schedules hereto, as each may be amended from time to time. "Applicable Margin" means the amount set forth in the right column, based on the ratio of Funded Debt to EBITDA set forth in the left column: Funded Debt to EBITDA Applicable Margin --------------------- ----------------- Level 1 Less than 1.00x 1.75% Level 2 1.00x to less than 1.75x 2.00% Level 3 1.75x or above 2.25% Changes in the Applicable Margin shall be based upon the Compliance Certificate most recently delivered to the Agent pursuant to Section 6.2 hereof and shall become effective on (a) as to any Compliance Certificate relating to one of the first three fiscal quarters of the Borrower's fiscal year, the forty-fifth (45th) day following the end of such fiscal quarter, and (b) as to any Compliance Certificate delivered following the end of a fiscal year, the ninetieth (90th) day following the end of such fiscal year; provided, however, that (i) following the occurrence and during the continuance of any Event of Default, the Applicable Margin shall be 2.25%, and (ii) the initial Applicable Margin shall be 2.00%. "Appraisals" means the appraisal dated November 5, 2001 prepared by Marshall & Stevens, setting forth the aggregate value of the Fixed Assets of Borrower, using an orderly liquidation value for machinery and equipment and the appraisal dated October 30, 2001 prepared by Fortenberry, Lambert Inc., setting forth the fair market value for the Borrower's real property, each in form and substance satisfactory to the Lenders. "Bartol Family" means 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. "Borrower" means Hunt Corporation, a Pennsylvania corporation, and any successors or permitted assigns. "Borrowing Base" means, as of the date of determination, the sum of: (a) seventy percent (70%) of Eligible Accounts Receivable; (b) ninety percent (90%) of CSVLI; (c) the lesser of (i) forty percent (40%) of Eligible Inventory and (ii) $5,000,000; (d) seventy percent (70%) of the aggregate value of Fixed Assets set forth in the Appraisals, such value being reduced by the value (as set forth in the Appraisals) of any such Fixed Asset which was or becomes, after the date hereof, sold, transferred, destroyed or obsolete or otherwise ceases to maintain its functional use to the Borrower; and (e) eighty percent (80%) of Unfinanced Capital Expenditures, such expenditures being reduced by the amount of any such Unfinanced Capital Expenditure for which the related Fixed Asset was or has become, sold, transferred, destroyed or obsolete or otherwise ceases to maintain its functional use to the Borrower. "Borrowing Base Certificate" means the certificate in the form attached hereto as Exhibit A, to be delivered by Borrower to the Lenders pursuant to Section 6.2(c) hereof. "Borrowing Notice" means the certificate in the form attached hereto as Exhibit B to be delivered by Borrower to Agent as a condition of each Advance. 2 "Business Day" means (i) for most purposes, any day not a Saturday, Sunday or day on which commercial banks in Philadelphia, Pennsylvania or Charlotte, North Carolina are required or permitted to be closed, and (ii) in addition, with respect to matters in connection with LIBOR, any such day on which commercial banks in London, England also are not required or permitted to be closed. "Calculation Date" means the last day of each fiscal quarter of Borrower. "Capital Expenditures" means the expenditures of Borrower and their Consolidated Subsidiaries for any Fixed Asset having a useful life of more than one (1) year, or any improvements or additions thereto, including direct or indirect acquisition of such assets, and including any obligations to pay rent or other amounts under a Capital Lease. "Capital Leases" means any lease with respect to which the obligation for rental payments is required to be capitalized on a balance sheet of the Borrower or any Consolidated Subsidiary in accordance with GAAP. "Capital Lease Obligations" means all obligations of Borrower and its Consolidated Subsidiaries to pay rent or other amounts under Capital Leases. "Change in Control" means any of the following events or circumstances: (i) individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute Borrower's board of directors (together with any new director whose election by Borrower's board of directors or whose nomination for election by Borrower's stockholders 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 such period or whose election or nomination for election was previously so approved) cease for any reason (other than death or disability) to constitute a majority of the Borrower's board of directors then in office; or (ii) any Person or Persons acting as a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the date hereof) shall in the aggregate, directly or indirectly, control or own (beneficially or otherwise) more than fifty percent (50%) (by number of shares) of the issued and outstanding voting stock of Borrower; provided, however, that a "Change in Control" shall not occur if (A) such group includes (x) members of the Bartol Family, (y) directors and officers of Borrower and its Affiliates as of November 1, 2001 and (z) other directors and officers of Borrower or any Affiliates of Borrower as of November 1, 2001whose election is approved by a vote of at least two-thirds of the directors of the relevant entity then in office who were either themselves in office on November 1, 2001 or subsequently approved as provided in this clause (z), (B) the Persons described in the preceding clause (A) together own at least 20% (by number of shares) of the issued and outstanding voting stock of Borrower and (C) no member of the Bartol family has entered into an agreement with any Person not a member of the Bartol Family that restricts in any manner how such member of the Bartol Family may vote his shares of stock in Borrower. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and all rules and regulations with respect thereto in effect from time to time. "Commitment" means the obligation of the Lenders to make Advances and issue Letters of Credit hereunder, in the maximum aggregate principal or stated amount, as applicable, including, without limitation, amounts advanced under the Revolving Credit Facility and the face amount of all Letters of Credit and the amount of Reimbursement Obligations outstanding under the Letter of Credit Sublimit, not to exceed Twenty Five Million Dollars ($25,000,000), as such amount may be reduced from time to time pursuant to Section 2.8 or Section 8.2 hereof. 3 "Consolidated Tangible Net Worth" means, as of the date of determination, Net Worth minus the value of the Intangible Assets of the Borrower and its Consolidated Subsidiaries. "Control Event" means: (i) the execution by Borrower or any of its Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events which, if consummated, individually or in the aggregate, may reasonably be executed to result in a Change in Control; or (ii) the making of any written offer by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act as in effect on the date hereof or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the date hereof) to the holders of the common stock of Borrower which offer, if accepted by the requisite number of holders, would result in a Change in Control. "Cost Base Reduction Activities" means those activities the Borrower will embark upon subsequent to the Graphics Sale Transaction to reduce various ongoing expenses to align the Borrower's cost structure to its remaining businesses. "Credit Documents" means this Agreement, the Notes and any other agreements, documents, instruments and writings now or hereafter existing, creating, evidencing, guarantying, security or relating to any of the liabilities of Borrower hereunder or in connection herewith, together with all amendments, modifications, renewals or extensions thereof. "CSVLI" means the aggregate cash surrender value of any life insurance policy for which of Borrower or Consolidated Subsidiary is listed as the sole beneficiary. "Debt Service" means, for any period, all payments of principal, Interest Expense and fees made or required to be made on account of Funded Debt. "Default" means an event, condition or circumstance the occurrence of which would, with the giving of notice or the passage of time or both, constitute an Event of Default. "Dollar Equivalent" means, on any date of determination, the amount, as determined by the Agent, of Dollars which could be purchased with the amount of Canadian Dollars involved in such computation at the spot rate at which Dollars may be exchanged into Canadian Dollars as set forth on such date on the applicable Dow Jones Telerate (or any successor pages) or, if such rate does not appear on such pages, at the at the rate of exchange quoted by the Agent in Philadelphia, Pennsylvania at 11:00 a.m. on the date of determination, to prime banks in New York City for the spot purchase in the New York foreign exchange market of such amount of Dollars with Canadian Dollars, as the case may be. "EBITDA" means, for any period, the sum, for any Person and its Consolidated Subsidiaries, of (i) Net Income for such period but excluding (A) non-cash charges associated with exercise of stock options, (B) unusual items, including but not limited to refinancing, restructuring or reorganization charges, (C) effects of changes in accounting principles and (D) extraordinary items, (ii) an amount which, in the determination of Net Income for such period, has been deducted for (A) Interest Expense for such period and (B) total federal, state and local income taxes for such period, and (iii) an amount which, in the determination of Net Income for such period, has been deducted for depreciation and amortization expense for such period, each determined in accordance with GAAP. 4 "Eligible Accounts Receivable" means, as of any date of determination thereof, the aggregate of all trade account receivables of Borrower and its Consolidated Subsidiaries, without duplication, at book value net of reserves and contractual allowances (including provisions for returns) determined in accordance with GAAP, excluding, without duplication: (a) any receivable not payable in United States Dollars or Canadian Dollars (provided, that the value of any receivable payable in Canadian Dollars shall, for the purposes of any calculations, be valued at the Dollar Equivalent as of the date of such calculation); (b) any receivable for which an original invoice is not issued within thirty (30) days after the applicable sale of goods; (c) any receivable due from Borrower or any Subsidiary or Affiliate of Borrower; (d) any receivable with respect to all or part of which a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been presented for payment and returned uncollected for any reason; (e) any receivable as to which the applicable owner knows that any one or more of the following events has occurred with respect to the account debtor: death or judicial declaration of incompetency; the filing by or against such account debtor of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by such account debtor for the benefit of creditors; the appointment of a receiver or trustee for such account debtor or for any of the assets of such account debtor, including, without limitation, the appointment of or taking possession by a "custodian," as defined in the U.S. Bankruptcy Code; the institution by or against such account debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States or elsewhere) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, such account debtor; the sale, assignment, or transfer of all or substantially all of the assets of such account debtor; the inability to pay or the nonpayment by such account debtor of its debts generally as they become due; the cessation of the business of such account debtor as a going concern; or, in Agent's sole reasonable judgment, unsatisfactory general financial performance or credit standing or likelihood of unsatisfactory general financial performance or credit standing in the near future; (f) any receivable which is outstanding more than ninety (90) days past the original date such installment is due; (g) the aggregate amount of all receivables owed by an account debtor fifty percent (50%) or more of which are outstanding in excess of the period set forth in clause (f) above; (h) any receivable as to which there is any unresolved dispute, defense, offset or counterclaim with or by the account debtor; (i) any receivable that has not been created in the ordinary course of business; and (j) any receivable representing an obligation for goods placed on consignment and not yet sold by the consignee, or for goods on approval. 5 "Eligible Inventory" means all finished goods inventory of Borrower and its Consolidated Subsidiaries, at the lesser of book value determined in accordance with GAAP, and market value, excluding, without duplication: (a) any inventory located outside of the United States or Canada, or in the possession of a contract manufacturer; (b) any inventory in the possession of a third party on consignment or pursuant to a sale on approval or sale or return, or otherwise located at the place of business of a third party at which such party deals in goods of that kind; and (c) any inventory represented by warehouse receipts or other documents of title. "Environmental Control Statutes" means any federal, state, county, regional or local laws governing the control, storage, removal, spill, release or discharge of Hazardous Substances, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1976, the Hazardous Materials Transportation Act, the Emergency Planning and Community Right to Know Act of 1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of 1990, the Clean Air Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Emergency Planning and Community Right-to-Know Act, the Atomic Energy Act and any so-called "Super Fund" or "Super Lien" law or environmental laws administered by the Environmental Protection Agency, any similar or implementing state law, and in each case, as amended from time to time, and all rules and regulations with respect thereto in effect from time to time. "EPA" means the United States Environmental Protection Agency, or any successor thereto. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, any successor statute of similar import, and all rules and regulations with respect thereto in effect from time to time. "ERISA Affiliate" means, any person that is a member of any group or organization within the meaning of Code Sections 414(b), (c), (m) or (o) of which Borrower or any Subsidiary is a member. "Event of Default" means an event described in Section 8.1 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any rule or regulations in effect from time to time under such act. "Existing Letters of Credit" means the letter of credit in the amount of $800,000 to secure workers' compensation obligations of the Borrower and the letter of credit in the amount of $125,000 to secure product liability insurance, issued by Brown Brothers at the request of the Borrower. "Existing Capital Lease Obligations" means all Capital Lease Obligations in existence on the date of this Agreement. 6 "Fixed Assets" means, as of the date of determination, all of Borrower's and its Consolidated Subsidiaries' machinery, equipment, real property and other fixed assets, initially as set forth in the Appraisals and as the same exists from time to time. "Fixed Charge Coverage Ratio" means, as of any Calculation Date, beginning with December 2, 2001, the ratio of (a) EBITDA less (i) Capital Expenditures and (ii) Restricted Payments, all for the related Rolling Period to (b) the sum of (i) Interest Expense and (ii) Scheduled Funded Debt Payments, during such Rolling Period. For the purposes of calculating this ratio prior to March 1, 2003, EBITDA will be calculated to include the applicable Consolidated quarterly Proforma EBITDA calculations previously provided to the Agent for the fiscal quarters ending March 4, 2001, June 3, 2001 and September 2, 2001 and a calculation for the fiscal quarter ending December 2, 2001, which the Borrower will submit to the Agent no later than February 28, 2002. "Funded Debt" means, as of the date of determination, the aggregate principal amount of all Indebtedness of Borrower and its Consolidated Subsidiaries for: (i) borrowed money other than trade indebtedness incurred in the normal and ordinary course of business for value received; (ii) "synthetic" leases or other similar lease arrangements; (iii) installment purchases of real or personal property; (iv) Capital Lease Obligations; and (v) guaranties of Funded Debt of others, without duplication. "GAAP" means generally accepted accounting principles set forth in the Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and in statements of the Financial Accounting Standards Board and in such other statements by such other entity as Agent may reasonably approve, which are applicable in the circumstances as of the date in question; and such principles observed in a current period shall be comparable in all material respects to those applied in a preceding period. "Governmental Authorities" means individually and collectively the federal, state and local governmental authorities and administrative agencies which govern the business or industrial facilities owned or operated by Borrower. "Graphics Sale Transaction" means the sale by the Borrower as of October 9, 2001 in a single transaction of the Borrower's graphics products business and related assets. "Guarantor" means individually, and "Guarantors" means collectively, jointly and severally, Hunt Holdings, Inc., a Delaware corporation, and Hunt X-ACTO, Inc., a Pennsylvania corporation, and each entity that becomes a Guarantor under the Guaranty Agreement after the date hereof. "Guaranty Agreement" means the Guaranty Agreement in the form of Exhibit F attached hereto which the Guarantors are required to deliver to the Agent pursuant to Section 5.1(b) of this Agreement, as the same may be amended, modified or restated from time to time. "Hazardous Substance" means petroleum products and items defined in the Environmental Control Statutes as "hazardous substances", "hazardous wastes", "pollutants" or "contaminants" and any other toxic, reactive, corrosive, carcinogenic, flammable or hazardous substance or other pollutant. 7 "Indebtedness" of any person means and includes all obligations of such person which, in accordance with GAAP, shall be classified on a balance sheet of such person as liabilities of such person and in any event shall include all (i) obligations of such person for borrowed money or which have been incurred in connection with acquisition of property or assets, (ii) obligations secured by any lien upon property or assets owned by such person, notwithstanding that such person has not assumed or become liable for the payment of such obligations, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (iv) Capital Leases, (v) guarantees and (vi) letters of credit and letter of credit reimbursement obligations. "Intangible Assets" means for the applicable entity, all assets of such entity which would be classified in accordance with GAAP as intangible assets, including without limitation, all franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade-names, goodwill, experimental or organization expenses and other like intangibles and unamortized debt discount. "Internal Loan" means, any loan made from any Subsidiary to the Borrower or either Guarantor or from the Borrower to either Guarantor; provided that, the Borrower or Guarantor, as applicable, shall not make any payment as to any such loan following the occurrence and during the continuance of any Default or Event of Default. "Interest Expense" means, for any period, all interest expense of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Interest Period" means, with respect to each Portion bearing interest at a LIBOR-Based Rate, a period of one (l), two (2) or three (3) months' duration, as Borrower may elect, during which a specific LIBOR-Based Rate is applicable; provided, however, that (i) interest on each such Portion shall accrue from and including the first day of the applicable Interest Period to, but excluding, the day on which such Interest Period expires; (ii) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, as applicable, subject to clause (iii) below; and (iii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "IRB Bonds" means the Industrial Revenue Refunding Bonds. (Hunt Manufacturing Co. Project), Series 1994, issued by Iredell County Industrial Facilities and Pollution Control Financing Authority. "Lender" means individually and "Lenders" means collectively, First Union and Fleet, their respective successors and assigns. "LC Application" means the Letter of Credit Application in the form of Exhibit E attached hereto to be delivered by the Borrower to First Union pursuant to Section 3.3 hereof, as same may be amended or modified or extended or restated from time to time. 8 "Letter of Credit" means individually, and "Letters of Credit" means collectively, the letter(s) of credit in the form agreed upon by the Borrower and First Union at the time of issuance of the applicable Letter of Credit pursuant to the terms and conditions of Article 3 hereof. "Letter of Credit Sublimit" means that portion of the Commitment which First Union has agreed to make available under Article 3 hereof (including the aggregate amount of all Reimbursement Obligations), being on the date hereof, Five Million Dollars ($5,000,000), as such amount may be reduced from time to time pursuant to Section 2.8 hereof. "LIBOR" means a rate of interest per annum (rounded to the next higher 1/100 of 1%) for United States Dollar deposits in the London Interbank Market, as reported on Telerate page 3750 as of 11:00 a.m. London time, on the second Business Day prior to the commencement of the relevant Interest Period in amounts substantially equal to the Portion as to which Borrower may elect the LIBOR-Based Rate to be applicable and with a maturity of comparable duration to the Interest Period selected by Borrower for such Portion, as may be adjusted for reserves by dividing that rate by the result of 1.00 minus the LIBOR Reserve. "LIBOR-Based Rate" has the meaning set forth in Section 2.6(a)(i)(B) hereof. "LIBOR Market Index Rate" means, for any day, the rate for one (1) month United States Dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a Business Day, then the immediately preceding Business Day (or if not so reported, then as determined by the Agent from another recognized source or interbank quotation). "LIBOR Reserve" means, for a Lender, on any day, that percentage (expressed as a decimal) which is in effect (whether or not actually incurred) with respect to a Lender on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor or any other banking authority to which a Lender is subject including any board or governmental or administrative agency of the United States or any other jurisdiction to which a Lender is subject), for determining the maximum reserve requirement (including without limitation any basic, supplemental, marginal or emergency reserves) for Eurocurrency liabilities as defined in Regulation D or deposits in any non-United States or an international office of such Lender in an amount and with maturities of comparable duration to the Interest Period elected by Borrower. Notwithstanding the foregoing, if the undersigned has hedged the LIBOR-Based Rate by entering into an interest rate swap agreement, LIBOR shall be rounded five decimal places in accordance with the 1991 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. "Loan" means the sum of (a) all outstanding principal balance of Indebtedness advanced under the Revolving Credit Facility, (b) the aggregate amount available to be drawn under all Letters of Credit issued hereunder, and (c) the aggregate amount of Reimbursement Obligations, in each case, together with interest accrued thereon and fees and expenses incurred in connection therewith. "Material Adverse Effect" means either singly or in the aggregate, a material adverse effect on the business, financial condition or prospects of Borrower and its Consolidated Subsidiaries taken as a whole as a result of any condition, circumstance or contingency arising after the date hereof. "Maximum Principal Amount" means, as to any Lender, the maximum principal amount of the Commitment which such Lender has agreed to lend as set forth in Section 2.3 hereof. "Net Funded Debt" means as at any time Funded Debt less the amount at which cash would be shown on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries at such time in accordance with GAAP. 9 "Net Income" means, for any period, net income after taxes for such period for Borrower and its Consolidated Subsidiaries, as determined in accordance with GAAP. "Net Worth" means, as of any date, total shareholders' equity of the Borrower and its Consolidated Subsidiaries as of such date, as determined in accordance with GAAP. "Note Purchase Agreement" means the Note Purchase Agreement dated as of August 1, 1996 among Hunt, Massachusetts Mutual Life Insurance Company, Allstate Life Insurance Company, Allstate Insurance Company, Provident Mutual Life Insurance Company - Covenant, Provident Mutual Life Insurance Company, Mennonite Mutual Aid Association and Mennonite Retirement Trust, as amended by a Consent and Amendment to Note Agreement dated November 14, 2001, and as amended from time to time, to the extent permitted hereby. "Notes" means collectively the Revolving Credit Notes in the form of Exhibit C attached hereto to be delivered by Borrower to each Lender pursuant to Section 5.1(a) hereof, as same may be amended or modified or extended or restated from time to time. "Operating Lease" means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any property (whether real, personal or mixed) which is not a Capital Lease other than any such lease in which that Person is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Permitted Acquisitions" means any acquisition by the Borrower of any other Person or a substantial portion of the Assets of any other Person, the form and substance of which has, prior to such acquisition, been consented to in writing by the Lenders. "Permitted Investments" means: (i) investments in commercial paper or variable rate or fixed rate notes maturing in 180 days or less from the date of issuance which is rated A1 or better by Standard & Poor's Corporation or P1 or better by Moody's Investors Services, Inc.; (ii) investments in direct obligations of the United States of America or obligations of any agency thereof which are guaranteed by the United States of America, provided that such obligations mature within twelve (12) months of the date of acquisition thereof; (iii) investments in time deposits, repurchase agreements and certificates of deposit maturing within one (1) year from the date of acquisition thereof issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $500,000,000 and the long-term deposits of which are rated A1 or better by Moody's Investors Services, Inc. or equivalent by Standard & Poor's Corporation; (iv) investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended; (v) investments consisting of stock, obligations, securities or other property received by the Borrower in settlement of accounts receivable (created in the ordinary course of business) from bankrupt obligors; (vi) loans permitted by Section 7.3 hereof; (vii) investments in joint ventures and partnerships, provided that the aggregate outstanding principal amount of all such investments does not, at any time, exceed ten percent (10%) of Consolidated Tangible Net Worth; (viii) investments made pursuant to and in accordance with the Borrower's Corporation Supplemental Executive Benefits Plan, as in effect on the date hereof; (ix) investments in Subsidiaries existing as of the date hereof, which have been disclosed on Schedule 4.11 hereto; and (x) other investments of types not otherwise described above, provided that the aggregate outstanding principal amount of all such investments does not, at any time, exceed One Million Dollars ($1,000,000). 10 "Person" means any individual, sole proprietorship, partnership, corporation, business trust, joint stock company, trust, unincorporated organization, association, limited liability company, institution, public benefit corporation, joint venture, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" means any pension benefit or welfare benefit plan as defined in Sections 3(1), (2) or (3) of ERISA maintained or sponsored by, contributed to, or covering employees of, Borrower or any ERISA Affiliate. "Portion" means a portion of an Advance as to which Borrower has elected a specific interest rate and, except with respect to a Portion bearing interest at the Adjusted LMI, an Interest Period. "Prime Rate" means the rate of interest announced by Agent from time to time as its prime rate and is one of several interest rate bases used by Agent. Agent lends at rates both above and below its Prime Rate and Borrower acknowledges that the Prime Rate is not represented or intended to be the lowest or most favorable rate of interest offered by Agent. "Pro Rata Share" means as to any Lender the ratio which the outstanding principal balance of its portion of the Indebtedness advanced under the Revolving Credit Facility hereunder bears to the aggregate outstanding principal balance of the Indebtedness advanced under the Revolving Credit Facility at any time; or if no indebtedness is outstanding hereunder, its percentage share of the Commitment. "Purchase Documents" means documents and agreements entered into from time to time in connection with Permitted Acquisitions, each in form and substance reasonably satisfactory to the Lenders. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, comprising Part 204 of Title 12, Code of Federal Regulations, as amended from time to time, and any successor thereto. "Reimbursement Obligations" means Borrower's obligations with respect to drafts paid under Letters of Credit, as further defined in Section 3.4(b) hereof. "Release" means any spill, leak, emission, discharge or the pumping, pouring, emptying, disposing, injecting, escaping, leaching or dumping of a Hazardous Substance. "Required Lenders" means, (i) if less than three Lenders are party to this Agreement, all Lenders, and (ii) if three or more Lenders are party to this Agreement, those Lenders (which may include Agent) holding fifty-one percent (51%) or more of the amount of the Commitment or, if Indebtedness is outstanding hereunder, fifty-one percent (51%) or more of such outstanding Indebtedness. "Restricted Payments" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Borrower or any of its Subsidiaries, at any time outstanding, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of the Borrower or any of its Subsidiaries, at any time outstanding and (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Borrower or any of its Subsidiaries, at any time outstanding (excluding, for purposes of clauses (i), (ii) or (iii) above, any payment made to Borrower or any of its Subsidiaries). "Revolving Credit Facility" has the meaning ascribed to such term in Section 2.1 hereof. 11 "Rolling Period" means, as of any date, the most recent four (4) consecutive fiscal quarters of Borrower completed on or before such date. "Scheduled Funded Debt Payments" means, as of any Calculation Date, the scheduled payments of principal on Funded Debt. "Shares" of any corporation means any and all shares of capital stock of such corporation of any class or other shares, interests, participation or other equivalents (however designated) in the capital of such corporation. "Subsidiary" with respect to any person means any corporation of which such person and/or one or more other Subsidiaries of such person shall at the time own Shares (however designated) having ordinary voting power for the election of at least a majority of the board of directors (or other governing body) of such corporation, other than Shares having such power only by reason of the happening of a contingency. Unless otherwise specified, the term "Subsidiary" shall mean a Subsidiary of Borrower. "Termination Date" means the earlier of (i) December 21, 2004 or (ii) the date on which the Commitment is terminated pursuant to Section 2.8 hereof. "Unfinanced Capital Expenditures" means Capital Expenditures made after the date of this Agreement which are purchased with cash or the proceeds of any Advance hereunder and are, following such purchase, unencumbered by any lien or security interest of any other Person. "Unused Commitment Fee Rate" means the amount set forth in the right column, based on the ratio of Funded Debt to EBITDA set forth in the left column: Unused Commitment Funded Debt to EBITDA Fee Rate --------------------- -------- Level 1 Less than 1.00x 0.30% Level 2 1.00x to less than1.75x 0.40% Level 3 1.75x and above 0.50% Changes in the Unused Commitment Fee Rate shall be based upon the Compliance Certificate most recently delivered to the Agent pursuant to Section 6.2 hereof and shall become effective on (a) as to any Compliance Certificate relating to one of the first three fiscal quarters of the Borrower's fiscal year, the forty-fifth (45th) day following the end of such fiscal quarter, and (b) as to any Compliance Certificate delivered following the end of a fiscal year, the ninetieth (90th) day following the end of such fiscal year; provided, however, that (i) following the occurrence and during the continuance of any Event of Default, the Unused Commitment Fee Rate shall be 0.50%, and (ii) the initial Unused Commitment Fee Rate shall be 0.40%. 1.2. Rules of Construction. (a) GAAP. Except as otherwise provided herein, financial and accounting terms used in the foregoing definitions or elsewhere in this Agreement, shall be defined in accordance with GAAP. (b) Use of Term "Consolidated." Any term defined in Section 1.1 hereof, when modified by the word "Consolidated," shall have the meaning given to such term herein as to Borrower and all entities whose accounts, financial results or position, for either federal income tax or financial accounting purposes, are consolidated with those of Borrower in accordance with GAAP, and any financial terms used herein shall be presumed to be calculated on a Consolidated basis unless otherwise stated. 12 ARTICLE 2 REVOLVING CREDIT FACILITY 2.1. The Revolving Credit Facility. From time to time prior to the Termination Date, subject to the provisions below, each Lender shall make Advances to Borrower, which Borrower may repay and reborrow, up to an aggregate outstanding principal amount not to exceed at any time the Commitment as from time to time in effect (the "Revolving Credit Facility"). Notwithstanding the foregoing, the Borrower shall not be entitled to any Advance if, after giving effect to such Advance, the aggregate unpaid amount of the outstanding Advances under the Revolving Credit Facility, when added to (a) the aggregate face amount of all Letters of Credit then outstanding and (b) the aggregate amount of all Reimbursement Obligations then outstanding, would exceed the lesser of: (i) the Borrowing Base or (ii) the amount of the Commitment. 2.2. Promissory Notes. The indebtedness of Borrower to each Lender under the Loan will be evidenced by a Note executed by Borrower in favor of such Lender in the form of Exhibit C hereto. The original principal amount of each Lender's Note will be the amount identified in Section 2.3 hereof as its respective Maximum Principal Amount; provided, however, that notwithstanding the face amount of each such Note, Borrower's liability under each such Note shall be limited at all times to its actual indebtedness, principal, interest and fees, then outstanding hereunder. 2.3. Lenders' Participation. Lenders shall participate in the Loan up to the respective Maximum Principal Amounts and in the respective percentages set forth in the schedule below. Pro Rata Share Maximum (as percentage Lender Principal Amount of Commitment) ------ ---------------- -------------- First Union $15,000,000 60% Fleet $10,000,000 40% ----------- --- TOTAL: $25,000,000 100% 2.4. Use of Proceeds. Funds advanced under the Loan shall be used (a) to fund general corporate purposes and working capital of Borrower and to support the issuance of Letters of Credit and (b) to fund Permitted Acquisitions consummated at any time after the first anniversary of the date hereof and prior to the Termination Date; provided, that no proceeds of the Loan will be loaned, contributed or otherwise used to fund any Subsidiary of the Borrower. 13 2.5. Repayment. The aggregate outstanding principal balance under the Loan shall be due and payable on the Termination Date. 2.6. Interest. Portions shall bear interest on the outstanding principal amount thereof in accordance with the following provisions: (a) Available Interest Rates. (i) In the absence of an Event of Default hereunder, and prior to maturity, any Portion shall bear interest at any one of the following rates: (A) Adjusted LMI. The LIBOR Market Index Rate plus the Applicable Margin. (B) LIBOR-Based Rate. LIBOR plus the Applicable Margin. (ii) Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of Default or Default hereunder, including after maturity and before and after judgment, Borrower hereby agree to pay to Lenders interest on the outstanding principal balance of the Loan and, to the extent permitted by law, overdue interest with respect thereto, at the rate of three percent (3%) per annum in excess of the rates then available to and elected by Borrower for each Portion then outstanding through the end of the applicable Interest Periods and, thereafter, at the rate of three percent (3%) per annum in excess of Adjusted LMI. (b) Procedure for Determining Interest Periods and Rates of Interest. (i) If Borrower elects Adjusted LMI to be applicable to a Portion, Borrower must notify Agent of such election prior to ten o'clock (10:00) a.m. Philadelphia time on the day the proposed application of such rate. If Borrower elects the LIBOR-Based Rate to be applicable to a Portion, Borrower must notify Agent of (i) such election and (ii) the Interest Period selected prior to ten o'clock (10:00) a.m. Philadelphia time at least three (3) Business Days prior to such Advance or the commencement of the proposed Interest Period. If Borrower does not provide the applicable notice for the LIBOR-Based Rate, then Borrower shall be deemed to have requested that Adjusted LMI shall apply to any Portion as to which the Interest Period is expiring and to any new Advance until Borrower shall have given proper notice of a change in or determination of the rate of interest in accordance with this Section 2.6(b). (ii) Borrower shall not elect more than five (5) different Portions (other than Portions bearing interest at Adjusted LMI) to be applicable to Advances at any one time. (c) Payment and Calculation of Interest. Interest shall be calculated in accordance with the election made pursuant to Section 2.6(b) hereof and as set forth below. (i) With respect to Portions which bear interest at the LIBOR-Based Rate, interest shall be due and payable in arrears on the last day of each Interest Period for each Portion; provided, however, that with respect to Portions having an Interest Period in excess of three (3) months, Borrower shall pay interest quarterly in arrears commencing on the first Business Day of the calendar quarter next succeeding the date on which such Interest Period commences and continuing on the first Business Day of each January, April, July and October thereafter and on the expiration of the Interest Period. Interest based on the LIBOR-Based Rate shall be calculated on the basis of the actual number of days elapsed over a year of three hundred sixty (360) days. 14 (ii) With respect to Portions which bear interest at Adjusted LMI, Borrower shall pay interest on the first Business Day of the month commencing on the first such date after the first Advance which bears interest at Adjusted LMI. Interest based on the LIBOR Market Interest Rate shall be calculated on the basis of the actual number of days elapsed over a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as the case may be. (d) Reserves. If at any time when a Portion is subject to the LIBOR-Based Rate (or any other match-funded rate), and a Lender is subject to and incurs a LIBOR Reserve, Borrower hereby agrees to pay within five (5) Business Days of demand thereof from time to time, as billed by Agent on behalf of itself or a Lender, such additional amount as is necessary to reimburse such Lender for its costs in maintaining such LIBOR Reserve. Such amount shall be computed by taking into account the cost incurred by such Lender in maintaining such LIBOR Reserve in an amount equal to such Lender's ratable share of the Portion on which such LIBOR Reserve is incurred. The determination by the Lender of such costs incurred and the allocation, if any, of such costs among Borrower and other customers which have similar arrangements with such Lender shall be prima facie evidence of the correctness of the fact and the amount of such additional costs. Such Lender will notify Borrower of any event occurring after the date of this Agreement that will entitle the Lender to compensation pursuant to this Section 2.6(d) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. A certificate of such Lender setting forth such amount or amounts as shall be necessary to compensate such Lender or its holding company as specified above shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate delivered by such Lender within three (3) Business Days after its receipt of the same. Failure on the part of any Lender to demand compensation for increased costs or reduction in amounts received or receivable or reductions in return on capital with respect to any period shall not constitute a waiver of such Lender's right to demand compensation with respect to such period or any other period; provided, that in no event shall such Lender request compensation for periods in excess of six (6) months retroactively from the date of any demand. (e) Special Provisions Applicable to LIBOR-Based Rate. The following special provisions shall apply to the LIBOR-Based Rate: (i) Change of LIBOR-Based Rate. The LIBOR-Based Rate may be automatically adjusted by Agent on a prospective basis to take into account additional or increased costs due to changes in applicable law or regulation or the interpretation thereof occurring subsequent to the commencement of the then applicable Interest Period, including but not limited to changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), that increase the cost to Lenders of funding the Loan or any Portion thereof bearing interest at the LIBOR-Based Rate. Agent shall give Borrower notice of such a determination and adjustment, which determination shall be prima facie evidence of the correctness of the fact and the amount of such adjustment. Borrower may, by notice to Agent, (A) request Agent to furnish to Borrower a statement setting forth the basis for adjusting such LIBOR-Based Rate and the method for determining the amount of such adjustment; and/or (B) repay the Portion with respect to which such adjustment is made in accordance with Section 2.9 hereof. (ii) Unavailability of Eurodollar Funds. In the event that Borrower shall have requested the LIBOR-Based Rate in accordance with Section 2.6(b) hereof and any Lender shall have reasonably determined that Eurodollar deposits equal to the principal amount of such Lender's share of the Portion and for the Interest Period specified are unavailable, or that the LIBOR-Based Rate will not adequately and fairly reflect the cost of making or maintaining such Lender's share of the principal amount of the Portion specified by Borrower during the Interest Period specified or that by reason of circumstances affecting Eurodollar markets, adequate and reasonable means do not exist for ascertaining the LIBOR-Based Rate applicable to the specified Interest Period, Agent shall promptly give notice of such determination to Borrower that the LIBOR-Based Rate is not available. A determination by such Lender hereunder shall be prima facie evidence of the correctness of the fact and amount of such additional costs. Upon such a determination, (i) the Lenders' obligation to advance or maintain Portions at the LIBOR-Based Rate shall be suspended until Agent shall have notified Borrower and Lenders that such conditions shall have ceased to exist, and (ii) Borrower shall elect Adjusted LMI to be applicable to Portions. 15 (iii) Illegality. In the event that it becomes unlawful for a Lender to maintain Eurodollar liabilities sufficient to fund such Lender's share of any Portion subject to the LIBOR-Based Rate, then such Lender shall immediately notify Borrower thereof (with a copy to Agent) and such Lender's obligations hereunder to make or maintain Advances at the LIBOR-Based Rate shall be suspended until such time as such Lender may again cause the LIBOR-Based Rate to be applicable to its share of any Portion and until such time, such Lender's share of any Portion shall then be subject to either Adjusted LMI (plus the then Applicable Margin) or the Prime Rate, as Borrower may elect in accordance with the provisions of this Section 2.6. 2.7. Advances. (a) In addition to providing the requisite notices set forth in Section 3.1 hereof (relating to submission of applications for Letters of Credit) and at the times set forth in Section 2.6(b) hereof (relating to the election of interest rates), Borrower shall give the Agent at least three (3) Business Days' prior written notice not later than eleven o'clock (11:00) a.m. on the date of each requested Advance under the Commitment, specifying the date, amount and purpose thereof. Such notice shall be in the form of the Borrowing Notice attached hereto as Exhibit B, shall be certified by the treasurer, assistant treasurer or chief financial officer of Borrower and shall contain the following information and representations, which shall be deemed affirmed and true and correct as of the date of the requested Advance: (i) the aggregate amount of the requested Advance, which shall be in multiples of $100,000 but not less than the lesser of $500,000 or the unborrowed balance of the Commitment; (ii) confirmation of the interest rate(s) Borrower has elected to apply to the above Advance and, if more than one interest rate has been elected, the amount of the Portion as to which each interest rate shall apply; (iii) with respect to any Portion bearing interest at the LIBOR-Based Rate, the Interest Period selected; (iv) confirmation of Borrower's compliance with Sections 6.12 through 6.16 and 7.1 through 7.18 following such Advance; and (v) statements that: the representations and warranties set forth in Article 4 hereof are true and correct as of the date thereof, except with regard to facts and circumstances occurring after the date hereof without any breach of covenant by Borrower and of which the Agent has been provided notice; no Default or Event of Default hereunder has occurred and is then continuing or would result from such Advance; and, there has been no material adverse change in Borrower's financial condition, operations or business since the date of this Agreement. 16 (b) (i) Upon receiving a request for an Advance in accordance with subsection (a) above, Agent shall request by two (2) Business Days' notice to Lenders that each Lender advance funds to Agent so that each Lender participates in the requested Advance in the same percentage as it participates in the Commitment. Each Lender shall advance its applicable percentage of the requested Advance to Agent by delivering federal immediately available funds at Agent's offices prior to twelve o'clock (12:00) noon on the date of the Advance. Subject to the satisfaction of the terms and conditions hereof, Agent shall promptly make the requested Advance available to Borrower by crediting such amount to the designated deposit account with Agent on the day of the requested Advance; provided, however, that in the event Agent does not receive a Lender's share of the requested Advance by such time as provided above, Agent shall not be obligated to Advance such Lender's share. (ii) Unless Agent shall have been notified by a Lender prior to the date such Lender's share of any such Advance is to be made by such Lender that such Lender does not intend to make its share of such requested Advance available to Agent, Agent may assume that such Lender has made or will make such proceeds available to Agent on such date, and Agent may, in reliance upon such assumption (but shall not be obligated to), make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to Agent by such Lender on the date the Advance is made, Agent shall be entitled to recover such amount, on demand from such Lender, together with interest thereon in respect of each day during the period commencing on the date such amount was made available to Borrower and ending on (but excluding) the date Agent recovers such amount, from such Lender, at a rate per annum, equal to the overnight "Federal Funds Rate" in New York as reported in publication H.15 by the Federal Reserve Bank of New York for such day (or, if such day is not a Business Day, for the next preceding Business Day) for three (3) days and, thereafter, at Adjusted LMI. (iii) Each Lender shall receive interest on its share of any Advance from the date on which the amount of its share of such Advance is received by Agent and not from the date on which Agent makes such Advance (if it elects to do so as permitted in clause (ii) of subsection 2.7(b)) unless such dates are the same. (c) Each request for an Advance pursuant to this Section 2.7 shall be irrevocable and binding on Borrower. In the case of any Advance which is to be based upon the LIBOR-Based Rate, Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such request for an Advance the applicable conditions set forth in Article 5, including, without limitation, any loss (including loss of margin and anticipated profits), cost or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender when such Advance, as a result of such failure, is not made on such date, as calculated by Agent in accordance with Section 2.10 hereof. 2.8. Reduction and Termination of Commitment. (a) Borrower. Borrower shall have the right at any time and from time to time, upon thirty (30) Business Days' prior written notice to Agent, to reduce the Commitment in whole or in part pro rata among the Lenders in a minimum amount of $500,000 and increments of $100,000 in excess thereof without penalty or premium, provided that on the effective date of such reduction Borrower shall (i) make a prepayment of the Loan in an amount, if any, by which the aggregate outstanding principal balance of the Loan exceeds the amount of the Commitment as then so reduced, together with accrued interest on the amount so prepaid, and (ii) if a Portion is paid prior to the last day of an Interest Period, pay on such effective date any funding costs and loss of earnings and anticipated profits which may arise in connection with such prepayment or repayment, as calculated by Agent in accordance with Section 2.10 hereof. 17 (b) Lenders. Pursuant to Section 8.2 hereof, Required Lenders shall have the right to terminate the Commitment at any time, in their discretion, following the occurrence of any Event of Default hereunder. Any payment following the occurrence of an Event of Default, acceleration and demand for payment shall include the payment of any amounts due pursuant to Section 2.10 hereof. (c) Restoration Only With Consent. Any termination or reduction of the Commitment pursuant to subsections 2.8(a) and (b) shall be permanent, and the Commitment cannot thereafter be restored or increased without the written consent of all Lenders. 2.9. Prepayment; Repayment. Upon one (1) Business Day's prior written notice by Borrower to Agent, Borrower may prepay the outstanding principal balance under the Loan at any time without premium or penalty, provided that (i) prepayments prior to the Termination Date shall not reduce the Commitment and may be reborrowed; (ii) partial prepayments will be applied first to accrued interest and fees and then to outstanding Advances; (iii) prepayments shall be in amounts of $500,000 and increments of $100,000 in excess thereof; and (iv) such prepayment shall be accompanied by any amounts which may be due pursuant to Section 2.10 hereof. 2.10. Funding Costs; Loss of Earnings. In connection with any prepayment or repayment of a Portion bearing interest at a LIBOR-Based Rate, made on other than the last day of the applicable Interest Period, whether such prepayment or repayment is voluntary, mandatory, by demand, acceleration or otherwise, Borrower shall pay to Lenders any loss (including loss of margin and anticipated profits), costs or expense incurred by Lenders or any of them, which may arise in connection with such prepayment or repayment, as calculated by Agent. 2.11. Payments. All payments of principal, interest, fees and other amounts due hereunder, including any prepayments thereof, shall be made by Borrower to Agent in immediately available funds before twelve o'clock (12:00) noon on any Business Day at the principal office of Agent set forth at the beginning of this Agreement. Borrower hereby authorizes (a) Agent and First Union to charge any account of Borrower with Agent and (b) Fleet to charge any account of Borrower with Fleet or any successor or replacement account, for all payments of principal, interest and fees when due hereunder. 2.12. Commitment Fee. Borrower shall pay to Agent (for the benefit of Lenders) a non-refundable commitment fee at the Unused Commitment Fee Rate on the unborrowed portion of the Commitment from the date hereof through the Termination Date, which fee shall be payable at the offices of Agent, quarterly in arrears on the first day of each January, April, July and October, commencing April 1, 2002, as billed by Agent. Lenders shall share in such commitment fee in the same proportion as they participate in the Commitment. The commitment fee shall be calculated on the basis of the actual number of days elapsed over a year of three hundred sixty (360) days. 2.13. Arrangement Fee. On the date of execution of this Agreement, Borrower shall pay to Agent (for the benefit of Lenders) at the offices of Agent an arrangement fee equal to one quarter of one percent (0.25%) of the Commitment, in which Lenders shall share in the same proportion as they participate in the Commitment. 2.14. Agent Fee. Borrower agrees to pay Agent an agent fee on the first day of each fiscal quarter of the Borrower, so long as any amount is available or outstanding under the Commitment or the Loan. 18 2.15. Regulatory Changes in Capital Requirements. If any Lender shall have determined that the adoption or the effectiveness after the date hereof of any law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender (or any lending office of such Lender) or such Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement, the Commitment, Advances or the Loan made by such Lender pursuant hereto to a level below that which such Lender or its holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or its holding company for any such reduction suffered from the effective date of any such event, together with interest on each such amount from the date demanded until payment in full thereof at the rate provided in Section 2.6(a)(ii) hereof with respect to amounts not paid when due. Such Lender will notify Borrower of any event occurring after the date of this Agreement that will entitle the Lender to compensation pursuant to this Section 2.15 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. A certificate of such Lender setting forth such amount or amounts as shall be necessary to compensate such Lender or its holding company as specified above shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay such Lender the amount shown as due on any such certificate delivered by such Lender within three (3) Business Days after its receipt of the same. Failure on the part of any Lender to demand compensation for increased costs or reduction in amounts received or receivable or reductions in return on capital with respect to any period shall not constitute a waiver of such Lender's right to demand compensation with respect to such period or any other period; provided, that in no event shall such Lender request compensation for periods in excess of six (6) months retroactively from the date of any demand. 2.16. Withholding Taxes. All amounts payable under this Agreement, whether principal, interest or otherwise, shall be paid in full, free and clear of any present or future taxes, (other than taxes measured by the income of Agent or any Lender), levies, imposts, duties, charges, fees or withholdings and without setoff or counterclaim or any restriction or condition or deduction whatsoever. If Borrower is compelled by law to make any deduction or withholding, it will ensure that the same does not exceed the minimum liability therefor and will promptly pay Agent (for the benefit of Lenders) such additional amount as will result in the net amount received by Lenders being equal to the full amount which would have been receivable had there been no deduction or withholding. ARTICLE 3 LETTERS OF CREDIT 3.1. Availability of Credits. Subject to the terms and conditions set forth herein, the Agent shall from time to time prior to the Termination Date issue Letters of Credit for the account of Borrower on the following terms and conditions: (i) at the time of issuance of any Letter of Credit, the unused portion of the Letter of Credit Sublimit shall equal or exceed the face amount of such Letter of Credit; 19 (ii) at the time of issuance of any Letter of Credit, the face amount of such Letter of Credit aggregated with (A) the face amount of all other Letters of Credit then outstanding hereunder, (B) all amounts outstanding under the Revolving Credit Facility, and (C) all Reimbursement Obligations, shall not exceed in the aggregate the lesser of (x) the Commitment or (y) the Borrowing Base then in effect; (iii) the final expiry date of each Letter of Credit shall be the earlier of (a) 365 days after the date of issuance of such Letter of Credit or (b) the Termination Date; (iv) there shall not exist at the time of issuance of the Letter of Credit, and as a result thereof, any Event of Default or Default; (v) Borrower shall have completed and delivered to the Agent (A) the Borrowing Notice form and (B) an LC Application as provided in Section 3.2 hereof; (vi) each Letter of Credit issued under this Article 3 shall be required by Borrower in its ordinary course of business; and (vii) Borrower shall have paid any and all LC Fees (as defined in Section 3.4(a) hereof) then outstanding or due in connection with such issuance. (b) Extension of Letters of Credit. Notwithstanding the provisions of this Section 3.1 requiring that the final expiry of each Letter of Credit be on or before the Termination Date, Lenders hereby agree that the Agent may issue, upon Borrower's request if required by a proposed beneficiary, a Letter of Credit which by its terms may be extended beyond the Termination Date. With respect to any such Letter of Credit issued hereunder, Borrower hereby agrees it will deliver to Agent on or before the Termination Date cash collateral as required by Section 3.6 hereof. 3.2. Commitment Availability. The Commitment as from time to time in effect shall be reduced by the face amount of any outstanding Letters of Credit. Such Commitment amount shall be restored but simultaneously reduced by the amount of any Advances under Section 2.7 which are made to Borrower to reimburse Agent for draws under the Letters of Credit as required pursuant to Section 3.4 hereof. 20 3.3. Approval and Issuance. (a) Borrower shall provide Agent not less than three (3) Business Days' prior written notice of each request for the issuance of a Letter of Credit by delivery of an Borrowing Notice form and the Agent's LC Application in the form attached hereto as Exhibit E. Each Borrowing Notice form submitted by Borrower to Agent requesting the issuance of a Letter of Credit shall (a) be certified by the treasurer, assistant treasurer or chief financial officer of Borrower, (b) list all Letters of Credit outstanding to the Borrower as of such date and, for each Letter of Credit so listed, its face amount, outstanding undrawn balance and expiration date, and (c) represent as to the matters set forth in Section 2.7(a) hereof. (b) Agent will promptly provide to Lenders written or telephonic notification of Agent's receipt of the Borrowing Notice form and the LC Application which shall state (i) the amount of the Letter of Credit requested and (ii) the expiration date of the Letter of Credit. 3.4. Obligations of Borrower. (a) Borrower agrees to pay to Agent in connection with each Letter of Credit issued hereunder: (i) immediately upon the demand of Agent, the amount paid by the Agent with respect to such Letter of Credit; (ii) immediately upon demand of Agent, the amount of any draft presented purporting to be drawn under such Letter of Credit provided that the draft and accompanying documents conform to the terms of the Letter of Credit but subject to the terms of Section 3.7 hereof (whether or not the Agent has at such time honored such draft) and any other amounts paid thereunder (it being understood that Agent is not required to make demand upon or proceed against the Agent or other party or to resort to any collateral before obtaining payment from Borrower); (iii) (A) with respect to standby Letters of Credit annually in advance, a fee for the benefit of the Agent of one-half of one percent (1/2%) per annum on the outstanding face amount of such Letter of Credit and (B) with respect to documentary Letters of Credit, the standard rates and fees charged by the Agent, including without limitation, such issuance negotiations, review and other fees as the Agent from time to time shall notify Borrower (in either case the "LC Fee"); provided, however, that if any Letter of Credit is canceled and surrendered to Agent, the Agent agrees to promptly pay to Agent for rebate to Borrower the LC Fee multiplied by the actual number of days remaining in the applicable period for which such LC Fee was paid divided by 360; and (iv) interest on any Indebtedness outstanding with respect to such Letter of Credit, whether for funds paid on drafts on such Letter of Credit, or otherwise (but such Indebtedness shall not include undrawn balances of such Letter of Credit issued hereunder) calculated at the rate and paid at the times and in the manner set forth for the calculation of interest and payment thereof on Advances in Section 2.6 hereof. Interest under clause (iv) above shall accrue on amounts paid on a Letter of Credit (if not reimbursed by Borrower on the same day) from the date of payment by Agent, whether or not demand is made, until such amounts are reimbursed by Borrower whether before, at or after demand. (b) In the absence of an Event of Default or Default hereunder, and subject to the provisions of this Agreement including Sections 2.4, 2.7, 5.2 and 5.3 hereof, Lenders hereby agree to advance funds to Borrower under the Revolving Credit Facility to make the payments required under Sections 3.4(a)(i) and (ii) hereof with respect to amounts paid or payable on account of a draft drawn under a Letter of Credit. Borrower's obligation to reimburse the Agent for such advances shall be deemed "Advances" under Article 2 hereof; and such Advances shall bear interest, be repayable, prepayable and otherwise subject to all the terms and conditions hereof as if advanced by Lenders pursuant to Section 2.7 hereof. If any payment by the Agent of a draft drawn under a Letter of Credit is for any reason (including without limitation the occurrence or continuation of a Default or an Event of Default hereunder) not advanced pursuant to this Article or otherwise is not reimbursed prior to or on the date of such payment, the amount of such payment shall thereupon be deemed for purposes hereof a "Reimbursement Obligation" hereunder. Such Reimbursement Obligation shall bear interest at the default rate set forth in Section 2.6(c) hereof with respect to amounts outstanding under the Revolving Credit Facility, shall be repayable upon demand, and shall reduce Borrower's availability under the Revolving Credit Commitment by the amount of such Reimbursement Obligation. Notwithstanding the foregoing, the creation of such Reimbursement Obligation shall not in any way limit the Agent's or any Lender's ability to treat as an Event of Default hereunder Borrower's failure to make such reimbursement. 3.5. Payment by First Union on Letters of Credit. (a) With respect to each Letter of Credit issued hereunder, First Union agrees that it is irrevocably obligated to pay to Agent for each such Letter of Credit each and every payment made or to be made by Agent under such Letter of Credit (each such payment to be made, a "LC Contribution"). First Union's LC Contribution shall be due immediately upon, and in any event no later than the same day as, receipt of written notice (which may be sent by telex) from Agent that (i) it has made a payment or (ii) a draft has been presented purporting to be drawn on a Letter of Credit issued hereunder. Such payment shall be made at Agent's offices in immediately available federal funds. 21 (b) The obligation of First Union to make its LC Contribution hereunder is absolute, continuing and unconditional, and Agent shall not be required first to make demand upon or proceed against Borrower or any other guarantor or surety, or any others liable with respect to the applicable Letter of Credit and shall not be required first to resort to any collateral. LC Contributions shall be made without regard to termination of this Agreement or the Commitment, the existence of an Event of Default or event which, with the passage of time or the giving of notice or both would constitute an Event of Default hereunder, the acceleration of indebtedness hereunder or any other event or circumstance. 3.6. Collateral Security. Immediately upon the termination of the Commitment (including voluntary termination of the Commitment by Borrower) or the occurrence of an Event of Default, and within five (5) Business Days prior to the Termination Date, First Union may require (and in the case of an Event of Default occurring under Section 8.1(h) it shall be required automatically) that Borrower deliver to Agent, cash or U.S. Treasury Bills with maturities of not more than ninety (90) days from the date of delivery (discounted in accordance with customary banking practice to present value to determine amount) in an amount equal at all times to one hundred ten percent (110%) of the outstanding undrawn amount of all Letters of Credit, such cash or U.S. Treasury Bills and all interest earned thereon to constitute cash collateral for all such Letters of Credit. At such time as such cash collateral or U.S. Treasury Bills is required to be and has not been deposited, Agent on behalf of First Union shall be entitled to liquidate such of the other collateral as is necessary or appropriate in its sole judgment so as to create such cash collateral. Any cash collateral so deposited and all interest earned thereon, shall be held by Agent and invested and reinvested at the expense and the written direction of Borrower, in U.S. Treasury Bills with maturities of no more than thirty (30) days from the date of investment. To the extent of any draws reducing the outstanding amount of any Letter of Credit for which the Borrower has provided the reserve required above, the Borrower may instruct the Agent to draw from such reserve an amount sufficient to pay the related Reimbursement Obligations to First Union and may thereafter maintain the reserve at such reduced amount and, upon (a) expiration of such Letter of Credit and (b) repayment of all related Reimbursement Obligations, any amounts remaining in such reserve shall be promptly returned to the Borrower. 3.7. General Terms of Credits. The following terms and conditions apply with respect to each Letter of Credit (a "Credit") notwithstanding anything to the contrary contained herein: (a) Borrower assumes all risks of the acts or omissions of the beneficiary of each Credit with respect to the use of the Credit or with respect to the beneficiary's obligations to Borrower. None of First Union nor any of its officers or directors shall be liable or responsible for (and First Union hereby agrees to indemnify and hold the Agent and any issuer of a Credit harmless with respect to): (i) the use which may be made of the Credit or for any acts or omissions of the beneficiary in connection therewith; (ii) the accuracy, truth, validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should in fact prove to be in any or all respects false, misleading, inaccurate, invalid, insufficient, fraudulent or forged; (iii) the payment by Agent against presentation of facially conforming documents; (iv) any other circumstances whatsoever in making or failing to make payment under a Credit unless paid despite non-conforming documents or not paid despite conforming documents; or (v) any inaccuracy, interruption, error or delay in transmission or delivery of correspondence or documents by post, telegraph or otherwise. In furtherance and not in limitation of the foregoing, Agent may accept facially conforming documents without responsibility for further investigation, regardless of any notice or information to the contrary. (b) To the extent any failure to comply with the provisions of this Section 3.7(b) could, either individually or in the aggregate, result in a Material Adverse Effect, Borrower agrees to procure or to cause the beneficiaries of each Credit to procure promptly any necessary import and export or other licenses for the import or export or shipping of any goods referred to in or pursuant to a Credit and to comply and to cause the beneficiaries to comply with all foreign and domestic governmental regulations with respect to the shipment and warehousing of such goods or otherwise relating to or affecting such Credit, including governmental regulations pertaining to transactions involving designated foreign countries or their nationals, and to furnish such certificates in that respect as Agent may at any time reasonably require, and to keep such goods adequately covered by insurance in amounts, with carriers and for such risks as shall be customary in the industry and to cause First Union's interest to be endorsed on such insurance and to furnish Agent at its request with reasonable evidence thereof. Should such insurance (or lack thereof) upon said goods for any reason not be reasonably satisfactory to Agent, Agent may (but is not obligated to) obtain, at Borrower's expense, insurance satisfactory to Agent. 22 (c) In connection with each Credit, neither First Union nor any correspondent shall be responsible for: (i) the existence, character, quality, quantity, condition, packing, value or delivery of the property purporting to be represented by documents; (ii) any difference in character, quality, quantity, condition or value of the property from that expressed in documents; (iii) the time, place, manner or order in which shipment of the property is made; (iv) partial or incomplete shipment referred to in such credit; (v) the character, adequacy or responsibility of any insurer, or any other risk connected with insurance; (vi) any deviation from instructions, delay, default or fraud by the beneficiary or any one else in connection with the property or the shipping thereof; (vii) the solvency, responsibility or relationship to the property of any party issuing any documents in connection with the property; (viii) delay in arrival or failure to arrive of either the property or any of the documents relating thereto; (ix) delay in giving or failure to give notice of arrival or any other notice; (x) any breach of contract between the Letter of Credit beneficiaries and Borrower; (xi) any laws, customs, and regulations which may be effective in any jurisdiction where any negotiation and/or payment of such Credit occurs; (xii) failure of documents (other than documents required by the terms of the Credit) to accompany any draft at negotiation; or (xiii) failure of any entity to note the amount of any document or draft on the reverse of such Credit or to surrender or to take up such Credit or to forward documents other than documents required by the terms of the Credit. In connection with each Credit, First Union shall not be responsible for any error, neglect or default of any of their correspondents. None of the above shall affect, impair or prevent the vesting of any of First Union's rights or powers hereunder. If a Credit provides that payment is to be made by the issuing First Union's correspondent, neither First Union nor such correspondent shall be responsible for the failure of any of the documents specified in such Credit to come into the Agent's hands, or for any delay in connection therewith, and Borrower's obligation to make reimbursements shall not be affected by such failure or delay in the receipt of any such documents. (d) Notwithstanding but without limiting any of the foregoing, with respect to any Credit, Borrower shall have a claim against Agent, and Agent shall be liable to Borrower, to the extent, but only to the extent, of any direct, as opposed to indirect or consequential, damages suffered by Borrower caused by the Agent's willful misconduct or gross negligence. (e) To the extent not inconsistent with this Agreement, (i) the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, and (ii) the International Standby Practices 1998, International Chamber of Commerce Publication No. 590, is hereby made a part of this Agreement with respect to obligations in connection with each Credit, to the extent applicable. ARTICLE 4 REPRESENTATIONS AND WARRANTIES Borrower represents and warrants, as to itself and its Subsidiaries, as applicable, as follows: 23 4.1. Organization and Good Standing. Borrower and each Subsidiary is duly organized and existing and in good standing, under the laws of the state of its incorporation, has the power and authority to carry on its business as now conducted, and is qualified to do business in all other states in which the nature of its business or the ownership of its properties requires such qualification and in which failure to so qualify is reasonably likely to have a Material Adverse Effect. 4.2. Power and Authority; Validity of Agreement. Borrower has the power and authority under Pennsylvania law and under its articles of incorporation and by-laws to enter into and perform this Agreement, the Notes and all other agreements, documents and actions required hereunder; and all actions (corporate or otherwise) necessary or appropriate for Borrower's execution and performance of this Agreement, the Notes and the other Credit Documents and actions required hereunder have been taken, and, upon their execution, the same will constitute the valid and binding obligations of Borrower, to the extent it is a party thereto, enforceable in accordance with their terms. 4.3. No Violation of Laws or Agreements. The making and performance of this Agreement, the Notes and the other Credit Documents and actions required of Borrower hereunder will not violate any provisions of any law or regulation, federal, state or local, or the respective articles of incorporation and by-laws of Borrower or any Subsidiary or result in any breach or violation of, or constitute a default under, any agreement or instruments by which Borrower or any Subsidiary or its respective property may be bound. 4.4. Material Contracts. No Borrower nor any Subsidiary is a party to or in any manner obligated under any contracts material to its business including, without limitation, the Note Purchase Agreement, the IRB Bonds and the Existing Letters of Credit, except contracts under which there exists no material default of Borrower or such Subsidiary. 4.5. Compliance. Borrower and each Subsidiary is in compliance in all material respects with all applicable laws and regulations, federal, state and local (including without limitation those administered by the Governmental Authorities, applicable to the conduct of its business and operations; Borrower and each Subsidiary possesses all the franchises, permits, licenses, certificates of compliance and approval and grants of authority necessary or required in the conduct of its respective business(es), and the same are valid, binding, enforceable and subsisting without any defaults thereunder or enforceable adverse limitations thereon and are not subject to any proceedings or claims opposing the issuance, development or use thereof or contesting the validity thereof; and no authorization, consent, approval, waiver, license or formal exemptions from, nor any filing, declaration or registration with, any court or consents, governmental agency or regulatory authority (federal, state or local) or non-governmental entity, under the terms of contracts or otherwise, is required by reason of or in connection with Borrower's or any Subsidiary's execution and performance of this Agreement, the Notes and other Credit Documents and actions required hereunder. 4.6. Litigation. There are no actions, suits, proceedings or claims which are pending or, to the best of Borrower's knowledge or information, threatened against Borrower or any Subsidiary which, if adversely resolved, would have a Material Adverse Effect. 4.7. Title to Assets. Borrower and each Subsidiary has good and marketable title to all of its properties and assets free and clear of any liens and encumbrances (other than liens and encumbrances permitted under Section 7.4 hereof), and all such assets are in good order and repair and fully covered (except for deductibles in customary and reasonable amounts) by the insurance required under Section 6.5 hereof. 24 4.8. Accuracy of Information; Full Disclosure. (a) All information furnished to Lenders concerning the financial condition of Borrower and the Subsidiaries, including Borrower's annual financial statement for the period ending December 3, 2000, and the interim financial statements dated September 2, 2001, copies of which have been furnished to Lenders, has been prepared in accordance with GAAP and fairly presents the financial condition of Borrower and its Subsidiaries as of the dates and for the periods covered and discloses all liabilities of Borrower and its Subsidiaries and there has been no material adverse change in the financial condition or business of Borrower or its Subsidiaries from the date of such statements to the date hereof; and (b) All financial statements and other documents furnished by Borrower to the Lenders in connection with this Agreement and the Notes do not and will not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading. Borrower has disclosed to the Lenders in writing any and all facts which materially and adversely affect the business, properties, operations or condition, financial or otherwise, of Borrower or of Borrower and its Subsidiaries, considered as a whole, or Borrower's ability to perform its obligations under this Agreement and the Notes. 4.9. Taxes and Assessments. (a) Borrower and each Subsidiary has filed all required tax returns or has filed for extensions of time for the filing thereof, and has paid all applicable federal, state and local taxes, other than taxes not yet due or which may be paid hereafter without penalty; provided that no such taxes shall be required to be paid if they are being contested in good faith by appropriate proceedings and are covered by appropriate reserves maintained in cash or cash equivalents and in accordance with GAAP; and (b) Borrower has no knowledge of any deficiency or additional assessment in connection therewith not provided for in the financial statements required hereunder. 4.10. Indebtedness. Borrower has no presently outstanding Indebtedness or obligations, including contingent obligations and obligations under leases of property from others, except the Indebtedness and obligations: (a) reflected in Borrower's financial statements which have been furnished to Lenders pursuant to Section 4.8 hereof; (b) as permitted pursuant to Section 7.1 hereof; and (c) contracts in the ordinary course of business. 4.11. Investments; Subsidiaries. Borrower has (a) no investments in or loans to any other individuals or business entities, other than Permitted Investments, and (b) no Subsidiaries other than those reflected on Schedule 4.11. 4.12. ERISA. Borrower and each Subsidiary and ERISA Affiliate is in compliance in all material respects with all applicable provisions of ERISA and the regulations promulgated thereunder, and: (a) none of Borrower, any Subsidiary, nor any ERISA Affiliate maintains or contributes to or has maintained or contributed to any multiemployer plan (as defined in section 4001 of ERISA) under which Borrower, any Subsidiary or any ERISA Affiliate could have any withdrawal liability; 25 (b) none of Borrower, any Subsidiary, nor any ERISA Affiliate, sponsors or maintains any Plan under which there is an accumulated funding deficiency within the meaning of ss.412 of the Code, whether or not waived; (c) the aggregate liability for accrued benefits and other ancillary benefits under each Plan subject to Title IV of ERISA that is sponsored or maintained by Borrower, any Subsidiary or any ERISA Affiliate (determined on the basis of the actuarial assumptions prescribed for valuing benefits under terminating single-employer defined benefit plans under Title IV of ERISA) does not exceed the aggregate fair market value of the assets under each such Plan; (d) the aggregate liability of Borrower and each Subsidiary and each ERISA Affiliate arising out of or relating to a failure of any Plan to comply with the provisions of ERISA or the Code, will not have a Material Adverse Effect on Borrower or any Subsidiary; and (e) there does not exist any unfunded liability (determined on the basis of actuarial assumptions utilized by the actuary for the plan in preparing the most recent Annual Report) of Borrower, any Subsidiary or ERISA Affiliate under any plan, program or arrangement providing post-retirement life or health benefits. 4.13. Fees and Commissions. Borrower owes no fees or commissions of any kind, and knows of no claim for any fees or commissions, in connection with Borrower's obtaining the Commitment or the Loan from Lenders, except those provided herein. 4.14. No Extension of Credit for Securities. Borrower is not now, nor at any time has it been engaged principally, or as one of its important activities, in the business of extending or arranging for the extension of credit, for the purpose of purchasing or carrying any margin stock or margin securities; nor will the proceeds of the Loan be used by Borrower directly or indirectly, for such purposes. 4.15. Hazardous Wastes, Substances and Petroleum Products. Except as disclosed in Schedule 4.15 hereto: (a) Borrower and each Subsidiary: (i) has received all permits and filed all notifications necessary to carry on their respective business(es); and (ii) is in compliance in all respects with all Environmental Control Statutes. (b) None of Borrower nor any Subsidiary has given any written or oral notice, nor has it failed to give required notice, to the Environmental Protection Agency ("EPA") or any state or local agency with regard to any actual or imminently threatened Release of Hazardous Substances on properties owned, leased or operated by Borrower or any Subsidiary or used in connection with the conduct of its business and operations. (c) None of Borrower nor any Subsidiary has received notice that it is potentially responsible for costs of clean-up or remediation of any actual or imminently threatened Release of Hazardous Substances pursuant to any Environmental Control Statute. 4.16. Solvency. Borrower is, and after receipt and application of the first Advance will be, solvent such that (i) the fair value of its assets (including without limitation the fair salable value of the goodwill and other intangible property of Borrower) is greater than the total amount of its liabilities, including without limitation, contingent liabilities, (ii) the present fair salable value of its assets (including without limitation the fair salable value of the goodwill and other intangible property of Borrower) is not less than the amount that will be required to pay the probable liability on its debts as they become absolute and matured, and (iii) it is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business. Borrower (i) does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature, and (ii) is not engaged in a business or transaction, or about to engage in a business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice and industry in which it is engaged. For purposes of this Section 4.16, in computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual matured liability of Borrower. 26 4.17. Foreign Assets Control Regulations. Neither the borrowing by Borrower nor its use of the proceeds thereof will violate the Foreign Assets Control Regulations, the Foreign Funds Control Regulations, the Transactions Control Regulations, the Cuban Assets Control Regulations, the Iranian Assets Control Regulation, the Libyan Sanctions Regulations, the Nicaraguan Trade Control Regulations or the South African Transactions Regulations of the United States Treasury Department (31 C.F.R. Subtitle B, Chapter V, as amended). 4.18. Investment Company Act. Borrower is not directly or indirectly controlled by or acting on behalf of any person which is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.19. Public Utility Holding Company Act. Borrower is not a "public utility holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), nor does the execution, delivery and performance of this Agreement and the Notes require any filing, authorization or consent under the 1935 Act. ARTICLE 5 CONDITIONS 5.1. First Advance. The obligation of Lenders to make the first Advance or issue the first Letter of Credit shall be subject to Lenders' receipt of the following documents, each in form and substance satisfactory to Lenders: (a) Revolving Credit Notes. The Notes duly executed by Borrower. (b) Guaranty Agreement. The Guaranty Agreement duly executed by the Guarantors. (c) Authorization Documents. A certified copy of the articles of incorporation, bylaws and resolutions of the Board of Directors of Borrower authorizing Borrower's execution and full performance of this Agreement, the Notes and all other documents and actions required hereunder, and an incumbency certificate setting forth the officers of Borrower and those persons authorized to execute this Agreement and the other Credit Documents. (d) Certificates of Good Standing. A certificate of good standing or subsistence, as applicable issued by the Secretary of State of the state of organization of Borrower and of each jurisdiction in which Borrower is authorized to operate or do business. (e) Opinion of Counsel. An opinion letter from counsel for Borrower covering with such exceptions and qualifications as may be satisfactory to Lenders, certain representations and warranties set forth in Article 4 hereof and such other items as are required by the Lenders. 27 (f) Borrowing Notice. A completed Borrowing Notice required under Section 2.7(a), hereof, and any other documents or information reasonably required by Lenders in connection therewith, including, with respect to any Letter of Credit, the LC Application. (g) Borrowing Base Certificate. A completed Borrowing Base Certificate prepared as of December 2, 2001. (h) Fees. Payment of the arrangement fee required by Section 2.13 hereof. (i) Searches. Uniform Commercial Code, tax, judgment, PBGC and EPA lien searches against Borrower in those offices and jurisdictions as the Lenders shall reasonably request. (j) Appraisals. The Appraisals, in form and substance satisfactory to the Lenders. (k) Financial Statements. Consolidated Financial Statements of the Borrower for the period ending September 2, 2001. (l) Other Documents. Such additional documents as Lenders reasonably may request. 5.2. Subsequent Advances and Issuances of Letters of Credit. The obligation of Lenders to make additional Advances under the Commitment and to issue Letters of Credit shall be subject to Agent's receipt of: (a) a completed Borrowing Notice, including, with respect to any Letter of Credit, the LC Application; (b) a completed Borrowing Base Certificate dated as of the last day of the fiscal month immediately preceding the date of the requested Advance or issuance of Letter of Credit; and (c) as to any Advance or issuance of Letter of Credit requested to fund a Permitted Acquisition, the delivery to all Lenders of the documents set forth in Section 5.4 hereof, each in form and substance satisfactory to Required Lenders, and the fulfillment of the other conditions set forth therein. 5.3. Additional Condition to Lenders' Obligations. It shall be a condition to Lenders' obligation hereunder to make any Advance or issue any Letter of Credit that the statements made in related Borrowing Notice shall be true and correct as if made on the date of such Advance or issuance of such Letter of Credit, that no Default or Event of Default shall have occurred and be continuing on the date of such Advance or issuance of such Letter of Credit or be caused by such Advance or issuance of such Letter of Credit, that all fees required pursuant to Sections 2.12, 2.13 and 2.14 hereof have been paid as and when due, and there shall have been no material adverse change in Borrower's financial condition or business since the date hereof. 5.4. Additional Condition Relating to Permitted Acquisitions. In addition to the delivery of a Borrowing Notice required by Section 5.2, in connection with the funding of any Advance to provide funds for any Permitted Acquisition, Borrower represents and warrants as follows, as applicable: (a) Validity. Borrower has the power and authority under the laws of Borrower's state of incorporation and under its articles of incorporation and by-laws to enter into and perform the related Purchase Documents and all other agreements, documents and actions required thereunder; and all actions (corporate or otherwise) necessary or appropriate for Borrower's execution and performance of such Purchase Documents and all other documents, agreements and actions required thereunder have been taken, and, upon their execution, such Purchase Documents will constitute the valid and binding obligation of Borrower, enforceable in accordance with its terms. 28 (b) No Violations. The making and performance of the Purchase Documents, and all other agreements, documents and actions required thereunder, will not violate any provision of any law or regulation, federal, state or local, including without limitation all state corporate laws and judicial precedents of Borrower's state of incorporation and will not violate any provisions of the articles of incorporation and by-laws of Borrower, or constitute a default under any agreement by which Borrower or its property may be bound. (c) Purchase Documents. As to any Permitted Acquisition, final drafts of all Purchase Documents in connection with the Permitted Acquisition have been delivered to each Lender. ARTICLE 6 AFFIRMATIVE COVENANTS Borrower covenants and agrees that so long as the Commitment, any Letter of Credit or any Indebtedness of Borrower to Lenders is outstanding, Borrower will and will cause each of its Subsidiaries (and with respect to Section 6.10, will cause each ERISA Affiliate) to: 6.1. Existence and Good Standing. Preserve and maintain its existence as a corporation, and its good standing in all states in which it conducts business and the validity of all its franchises, licenses, permits, certificates of compliance or grants of authority required in the conduct of its business, except as permitted under Sections 7.7 and 7.8. 6.2. Financial Statements and Public Information. Furnish to the Agent the following financial and public information: (a) not later than ninety (90) days after the end of each fiscal year, audited consolidated year-end financial statements for Borrower and its Subsidiaries, including, but not limited to, statements of financial condition, income and cash flows, a reconciliation of net worth, notes to financial statements and any other information which may assist the Lenders in assessing Borrower's financial condition (all of the above prepared in accordance with GAAP, consistently applied, and accompanied by an opinion, satisfactory in form and substance to the Agent, by an independent Certified Public Accountant ("CPA") acceptable to the Agent, and certified as true, correct and complete by Borrower's assistant treasurer, treasurer or chief financial officer; (b) not later than forty-five (45) days after the end of each fiscal quarter: (i) consolidated financial statements for Borrower and its Subsidiaries including, but not limited to, statements of financial condition, income and cash flows, and a reconciliation of net worth (certified as true, correct and complete by Borrower's assistant treasurer, treasurer or chief financial officer); and (ii) a Borrowing Base Certificate dated as of the last day of such quarter and certified as true, correct and complete by Borrower's assistant treasurer, treasurer or chief financial officer; (c) prior to December 1, 2002, so long as any amount of the Loan (including any Letter of Credit) is outstanding, not later than fifteen (15) calendar days after the end of each applicable month, a Borrowing Base Certificate dated as of the last day of such month and certified as true, correct and complete by Borrower's assistant treasurer, treasurer or chief financial officer; (d) not later than ninety (90) days after the end of each fiscal year of the Borrower, an annual business plan and budget containing, among other things, projected financial statements for the next fiscal year. 29 (e) not later than five (5) calendar days after receipt thereof by Borrower or any of its Subsidiaries a copy of any management letter or report for Borrower or such Subsidiary prepared by a CPA; (f) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its stockholders, copies of all registration statements (without exhibits), and all annual, quarterly or other reports which Borrower files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission) including without limitation, Forms 10Q and Forms 10K; and (g) such other information respecting the operations, financial or otherwise, of Borrower or any of its Subsidiaries, as the Lenders or any of them may from time to time reasonably request. 6.3. Compliance Certificate. Furnish to the Agent, together with each set of financial statements described in Sections 6.2(a) and (b) above, a Compliance Certificate in the form of Exhibit D hereto, showing the calculation of the covenants set forth in Sections 6.12 through 6.16 hereof and signed by Borrower's assistant treasurer, treasurer or chief financial officer, certifying that (i) all representations and warranties set forth in this Agreement and in any other Credit Document remain true and correct; (ii) none of the covenants in this Agreement or in any other Credit Document has been breached; and (iii) no Default or Event of Default under this Agreement or under the other Credit Documents has occurred and is continuing. 6.4. Books and Records. Keep and maintain satisfactory and adequate books and records of account in accordance with GAAP and make or cause the same to be made available to Lenders or their agents or nominees at any reasonable time upon reasonable notice for inspection and to make extracts thereof and permit Agent or any Lender to discuss contents of same with senior officers of Borrower and each Subsidiary and also with outside auditors and accountants of Borrower. 6.5. Insurance. Keep and maintain all of its property and assets in good working order and repair and fully covered by insurance (subject to deductibles in customary and reasonable amounts) with reputable and financially sound insurance companies against such hazards and in such amounts as are customary in the industry, and to furnish or cause to be furnished to Agent certificates evidencing such insurance upon request. 6.6. Compliance with Laws. Comply in all material respects with all local, state and federal laws and regulations applicable to its business, including without limitation the Environmental Control Statutes, and the Securities Act and all laws and regulations of the SEC and other Governmental Authorities, and the provisions and requirements of all franchises, permits, certificates of compliance and approval issued by regulatory authorities and other like grants of authority held by Borrower or any Subsidiary, except where failure to maintain any such franchise, permit, certificate of compliance or approval issued by any regulatory authority or other like grant of authority is, individually or in the aggregate, not reasonably likely to have a Material Adverse Effect. 6.7. Taxes. Pay and discharge all taxes, assessments or other governmental charges or levies imposed on it or any of its property or assets prior to the date on which any penalty for non-payment or late payment is incurred, unless the same are (a) currently being contested in good faith by appropriate proceedings, diligently prosecuted and (b) are covered by appropriate reserves maintained in cash or cash equivalents in accordance with GAAP. 30 6.8. Costs and Expenses. Pay or reimburse Agent and each Lender for all out-of-pocket costs and expenses (including but not limited to reasonable attorneys' fees and disbursements) Agent or any Lender may pay or incur in connection with the preparation and review of this Agreement and all waivers, consents and amendments in connection therewith and all other documentation related thereto, the making of the Loan hereunder, and the collection, administration or enforcement of the same, including without limitation any fees and disbursements incurred in defense of or to retain any amounts of principal, interest or fees paid. All obligations provided for in this Section 6.8 shall survive any termination of this Agreement or the Commitment and the repayment of the Loan. 6.9. Notice of Certain Events. Notify Agent in writing promptly: (a) of the institution of any litigation, the commencement of any administrative proceedings, the happening of any event or the assertion or threat of any claim which is reasonably likely to have a Material Adverse Effect or the occurrence of any Default or Event of Default hereunder; (b) of any material default under the Note Purchase Agreement, the IRB Bonds, either Existing Letter of Credit or any other material contract; (c) in detail of any actual or alleged failure to comply with or perform, breach, violation or default under any applicable local, state and federal laws or regulations or under the terms of any of such franchises or licenses, grants of authority, or of the occurrence or existence of any facts or circumstances which with the passage of time, the giving of notice or otherwise could create such a breach, violation or default or could occasion the termination of any of such franchises or grants of authority; if any of the foregoing is reasonably likely to have a Material Adverse Effect; (d) with respect to the Environmental Control Statutes, in connection with the conduct of Borrower's or any Subsidiary's business(es) or operations, any person (including, without limitation, EPA or any state or local agency) provides oral or written notification to Borrower or any Subsidiary, or Borrower or any Subsidiary otherwise becomes aware of a condition with regard to an actual or imminently threatened Release of Hazardous Substances; and notify Agent in detail immediately upon the receipt by Borrower or any Subsidiary of an assertion of liability under the Environmental Control Statutes, of any actual or alleged failure to comply with or perform, breach, violation or default under any such statutes or regulations or of the occurrence or existence of any facts, events or circumstances which with the passage of time, the giving of notice, or both, could create such a breach, violation or default; if any of the foregoing is reasonably likely to have a Material Adverse Effect; and (e) upon the occurrence of any Change in Control or Control Event, of such Change in Control or Control Event unless notice in respect of such Change in Control (or Change in Control contemplated by such Control Event) shall have been given pursuant to Section 7.12. 6.10. ERISA. (a) Comply in all material respects with the provisions of ERISA to the extent applicable to any Plan maintained for the employees of Borrower, any Subsidiary or any ERISA Affiliate; (b) do or cause to be done all such acts and things that are required to maintain the qualified status of each Plan which is intended to be qualified under Section 4.01(a) of the Code and the tax-exempt status of each trust forming part of such Plan; (c) not incur any material accumulated funding deficiency (within the meaning of ERISA and the regulations promulgated thereunder), or any material liability to the PBGC (as established by ERISA); (d) permit any event to occur (i) which would permit the PBGC to terminate a Plan under Section 4042 of ERISA or (ii) which may result in the imposition of a lien on its properties or assets; and (e) notify Agent in writing promptly after it has come to the attention of senior management of Borrower of the occurrence of any "reportable event" under Section 4043 of ERISA (other than an event for which notice is waived), or other event which would permit the PBGC to terminate a Plan under Section 4042 of ERISA (relating to the soundness of a Plan) or the PBGC's ability to assert a material liability against it or impose a lien on Borrower's, any Subsidiary's, or any ERISA Affiliate's properties or assets; and (f) refrain from engaging in any non-exempt prohibited transactions or actions causing liability under Section 502 of ERISA. 31 6.11. Deposit Accounts. Maintain all of its primary operating accounts with the Agent. 6.12. Minimum Net Worth. Maintain at all times, to be tested as of each Calculation Date, Net Worth of not less than the greater of (a) 85% of Net Worth calculated as of December 2, 2001 or (b) $30,000,000 provided, that in performing such calculation, an amount not to exceed Three Million Dollars ($3,000,000) deducted from Net Worth in connection with Cost Base Reduction Activities will be added back to Net Worth; and increasing each fiscal quarter thereafter, on a cumulative basis over such amount, by an amount equal to (i) fifty percent (50%) of Adjusted Net Income for such fiscal quarter, so long as Net Worth is less than $60,000,000 and (ii) thirty percent (30%) of Adjusted Net Income for such fiscal quarter, if Net Worth is at least $60,000,000, such adjustment to be made in either case without allowance for any losses. 6.13. Consolidated Capitalization Ratio. Maintain at all times, to be tested as of each Calculation Date, a percentage ratio of (a) Net Funded Debt to (b) the sum of (i) Net Funded Debt and (ii) Net Worth, not to exceed fifty percent (50%); provided, that in performing such calculation, an amount not to exceed Three Million Dollars ($3,000,000) deducted from Net Worth in connection with Cost Base Reduction Activities will be added back to Net Worth. 6.14. Funded Debt to EBITDA Ratio. Maintain at all times, to be tested as of each Calculation Date, a ratio of Funded Debt to EBITDA, of not more than 2.5 to 1.0. For the purposes of calculating this ratio prior to March 1, 2003, EBITDA will be calculated to include the applicable Consolidated quarterly Proforma EBITDA calculations previously provided to the Lenders for the fiscal quarters ending March 4, 2001, June 3, 2001 and September 2, 2001 and a calculation for the fiscal quarter ending December 2, 2001, which the Borrower will submit to the Lenders no later than February 28, 2002. 6.15. Fixed Charge Coverage Ratio. Maintain at all times, to be tested as of each Calculation Date, a Fixed Charge Coverage Ratio not less than 1.3 to 1.0 for each Calculation Date; provided, that for the Calculation Date September 1, 2002 such ratio shall be not less than 1.2 to 1.0. 6.16. Funded Debt to Borrowing Base Ratio. Maintain at all times, to be tested as of the last day of each fiscal quarter, a ratio of Funded Debt to the Borrowing Base, of not more than 1.0 to 1.0. 6.17. Subsequent Credit Terms. (a) Notify Agent in writing not less than five (5) Business Days prior to its entering into any amendment, modification of any existing credit arrangement, including, without limitation, the Note Purchase Agreement and the IRB Bonds, pursuant to which Borrower or any of them shall agree to financial covenants which are more restrictive to Borrower or its Consolidated Subsidiaries than those contained in Articles 6 and 7 hereof. Upon Borrower's entry into any such amendment or modification or agreement with respect to same, the corresponding covenants, terms and conditions of this Agreement shall be and shall be deemed to be automatically and immediately amended to conform with and to include the applicable covenants, terms and/or conditions of such other agreement; provided, however, that the foregoing shall not be applicable to or be deemed to affect any provision of this Agreement if any amendment or modification is less restrictive to Borrower and its Consolidated Subsidiaries. 32 (b) In the event any property of Borrower or any Subsidiary is subject to a lien, security interest or other encumbrance in violation of Section 7.4 hereof, Borrower or such Subsidiary shall make, or cause to be made, provisions whereby the Notes shall be secured equally and ratable with all other obligations secured thereby, and in any case the Notes shall have the benefit, to the full extent that, and with such priority as the holders may be entitled thereto under applicable law, of any equitable lien on such property securing the Notes. Such violation of Section 7.4 hereof shall constitute an Event of Default hereunder, whether or not the Notes are secured pursuant to this Section 6.17(b); and. (c) Borrower hereby agrees promptly to execute and deliver any and all such documents and instruments and to take all such further actions as Lender may, in its sole discretion, deem necessary or appropriate to effectuate the provisions of this Section 6.17. 6.18. Successor Agent. In the event of the appointment of any successor Agent pursuant to Section 9.15 hereof, execute and deliver any documents reasonably requested by Lenders to effectuate and confirm the transfer to such successor Agent of all rights, powers, duties, obligations and property vested in its predecessor Agent hereunder. 6.19. Transactions Among Affiliates. Cause all transactions between and among Affiliates to be on an arms-length basis and on such terms and conditions as are customary in the applicable industry between and among unrelated entities. 6.20. Purchase Documents. Provide Agent with copies of all Purchase Documents promptly upon execution thereof. 6.21. Performance of Obligations. Perform in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound. 6.22. Audits/Inspections. Upon reasonable notice and during normal business hours, permit representatives appointed by the Agent, including, without limitation, independent accountants, agents, attorneys and appraisers to visit and inspect its property, including its books and records, its accounts receivable and inventory, its facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Agent or its representatives to investigate and verify the accuracy of information provided to the Agent and to discuss all such matters with the officers, employees and representative of such Person. 6.23. Ownership of Subsidiaries. Borrower shall directly or indirectly own at all times 100% of the Shares of each of its Subsidiaries. 6.24. Other Information. Provide Lenders with any other documents and information, financial or otherwise, reasonably requested by Lenders from time to time. ARTICLE 7 NEGATIVE COVENANTS So long as the Commitment, any Letter of Credit or any Indebtedness of Borrower to Lenders remains outstanding hereunder, Borrower covenants and agrees that without Required Lenders' prior written consent, it will not and it will not permit any Subsidiary to: 33 7.1. Indebtedness. Borrow any monies or create any Indebtedness except: (a) borrowings from the Lenders hereunder; (b) under the Note Purchase Agreement, the IRB Bonds and the Existing Letters of Credit; (c) trade Indebtedness and other obligations and liabilities which appear on the balance sheet of the Borrower, each to the extent incurred in the normal and ordinary course of business for value received; (d) Existing Capital Lease Obligations; (e) guaranties permitted under Section 7.2; and (f) Internal Loans; provided, however, that the Borrower may incur up to an aggregate of $2,000,000 principal amount of Indebtedness in any fiscal year, in addition to the Indebtedness permitted above, so long as immediately prior to and following any such incurrence of additional Indebtedness no Default or Event of Default exists or would exist hereunder. 7.2. Guaranties. Guarantee or assume or agree to become liable in any way, either directly or indirectly, for any additional indebtedness or liability of others except (a) to endorse checks or drafts in the ordinary course of business, (b) in the normal and ordinary course of business not to exceed in the aggregate $1,000,000 at any time, and (c) the guarantees described on Schedule 7.2 hereof, provided that the Borrower's guarantee to ING Bank in the Netherlands described on Schedule 7.2 will be terminated no later than February 1, 2002. 7.3. Loans. Make any loans or advances to any Person, other than (a) loans to directors, officers, employees, agents customers and suppliers that do not exceed in the aggregate, the principal amount of Five Hundred Thousand Dollars ($500,000) at any one time outstanding; and (b) the Internal Loans. 7.4. Liens and Encumbrances. Create, permit or suffer the creation of any liens, security interests, or any other encumbrances on any of its property, real or personal, except: (a) in favor of Lenders, as security for the Loan; (b) liens arising in favor of sellers or lessors for Indebtedness and obligations incurred to purchase or lease fixed or capital assets permitted under Section 7.1 hereof, provided, however, that such liens secure only the indebtedness and obligations created thereunder and are limited to the assets purchased or leased pursuant thereto; (c) liens for taxes, assessments or other governmental charges, federal, state or local, which are then being currently contested in good faith by appropriate proceedings and are covered by appropriate reserves maintained in cash or cash equivalents and in accordance with GAAP; (d) pledges or deposits to secure obligations under workmen's compensation, unemployment insurance or social security laws or similar legislation; (e) deposits to secure performance or payment bonds, bids, tenders, contracts, leases, franchises or public and statutory obligations required in the ordinary course of business; (f) deposits to secure surety, appeal or custom bonds required in the ordinary course of business; (g) existing liens on the real property and related assets located in Statesville, North Carolina in favor of the holders of the IRB Bonds; (h) statutory liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and suppliers and other liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business; provided, that such liens secure only amounts not yet due and payable or, if due and payable, are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such lien is not yet subject to foreclosure, sale or loss on account thereof); 34 (i) liens in connection with any judgment, writ, warrant or attachment or execution or similar process (including judgment or appeal bonds), which would not, either singularly or in the aggregate result in or constitute an Event of Default pursuant to Section 8.1(j) hereof; (j) easements, right-of-way, restrictions (including zoning restrictions, minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use of the encumbered Property for its intended purposes; (k) leases or subleases granted to others not interfering in any material respect with the business of Borrower or any Subsidiary; (l) any interest of title of a lessor under, and liens arising from UCC financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases permitted by this Agreement; (m) normal and customary rights of setoff with respect to deposits of cash in favor of banks or other depository institutions; and (n) Liens existing on the date hereof and set forth on Schedule 7.4; provided, that (i) no such lien shall at any time be extended to or cover any property of the Borrower or any Subsidiary other than the property subject thereto on the date hereof and (ii) the principal amount of the Indebtedness secured by such liens shall not be increased. 7.5. Additional Negative Pledge. Enter into, assume, or be or become subject to any agreement, covenant, or promise with any person or entity (other than (a) hereunder and (b) as exists on the date hereof in the Note Purchase Agreement and the Existing Letter of Credit) restricting in any manner its ability to pledge its assets or properties or otherwise grant any liens, security interests or encumbrances on its property. 7.6. Restricted Payments. Make any Restricted Payment if, immediately prior to or following any such payment, a Default or Event of Default exists or would exist hereunder. 7.7. Transfer of Assets; Liquidation. (a) Sell, lease, transfer or otherwise dispose of all or any portion of its assets, real or personal, other than such transactions in the normal and ordinary course of business for value received; provided, however, that the Borrower and any Subsidiary may sell, lease, transfer and otherwise dispose of assets outside the ordinary course of its business so long as (i) no Default or Event of Default exists immediately prior to or following any such action and (ii) the aggregate fair market value of such assets sold, leased, transferred or otherwise disposed of does not exceed in the aggregate $12,000,000; or (b) discontinue, liquidate, or change in any material respect any substantial part of its operations or business(es); provided, however, that the Borrower and Subsidiaries may take such actions so long as (A) no Default or Event of Default exists immediately prior to or following any such action and (B) each such action is in respect of an operation or business producing annual sales (in the fiscal year most recently preceding such action) in an amount which when aggregated with all other actions under this subsection (b) does not exceed $8,500,000. 35 7.8. Acquisitions and Investments. (a) Purchase or otherwise acquire (including without limitation by way of share exchange) any part or amount of the capital stock or assets of, or make any investments; provided that, Borrower may (i) make Permitted Acquisitions, (ii) purchase goods and services in the ordinary course of the Borrower's business and (iii) make Permitted Investments, subject to the conditions and limitations set forth in the definition thereof, in, any other firm or corporation; (b) enter into any new business activities or ventures not directly related to its present business; (c) merge or consolidate with or into any other firm or corporation, except for mergers that result in the Borrower being the surviving entity to the extent no Default or Event of Default exists immediately prior to or following any such action; provided, that the consent of the Lenders to any such action solely among Subsidiaries shall not be unreasonably withheld; or (d) create any subsidiary corporations, unless such subsidiary becomes a Guarantor hereunder on terms acceptable to the Required Lenders, provided that, no Default or Event of Default exists immediately prior to or following any such action. 7.9. Payments to Affiliates. Pay any salaries or other compensation, fees (including but not limited to management and consulting fees) or other payments to any Affiliate of Borrower other than at market rates and in the ordinary course of business. 7.10. Use of Proceeds. Use any of the proceeds of the Loan, directly or indirectly, to (i) purchase or carry margin securities within the meaning of Regulation U of the Board of Governors of the Federal Reserve Systems; (ii) engage as its principal business in the extension of credit for purchasing or carrying such securities, or (iii) to fund, by loan, contribution or otherwise, any Subsidiary of the Borrower. 7.11. Governing Documents. Either (i) amend or permit any amendments to Borrower's articles of incorporation or by-laws or the Note Purchase Agreement, the IRB Bonds or the reimbursement obligations in connection with either Existing Letter of Credit, or (ii) make any amendment to any other material contract, which amendment under (i) or (ii) is adverse to the Lenders. 7.12. Change in Control. The Borrower will not take any action that consummates or finalizes a Change in Control unless (i) at least thirty (30) days prior to such action it shall have given to each Lender written notice and (ii) the Required Lenders shall have provided written consent to such Change in Control. 7.13. Nature of Business. Substantially alter the character or conduct of the business conducted by the Borrower or any Subsidiary as of the date hereof. 7.14. Prepayment of Indebtedness. If any Default or Event of Default has occurred and is continuing or would be directly or indirectly caused as a result thereof, make (or give any notice with respect thereto) any voluntary or optional payment or prepayment or redemption or acquisition for value (including, without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinancing or exchange of any other Indebtedness. 7.15. Fiscal Year. Without the prior written approval of the Agent, change its fiscal year. 36 7.16. Issuance and Sale of Stock. Except (a) to qualify directors where required by applicable law and (b) to the extent permitted pursuant to Sections 7.7 and 7.8 hereof, sell, transfer or otherwise dispose of, any shares of capital stock of Borrower or any Subsidiary or permit any of its Subsidiaries to issue, sell or otherwise dispose of, any shares of capital stock of any Subsidiary. 7.17. Sale Leasebacks. Except as permitted pursuant to Section 7.1, directly or indirectly, become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (whether real or personal or mixed), whether now owned or acquired after the Closing Date, (i) which such Person has sold or transferred or is to sell or transfer to any other Person other than Borrower or (ii) which such Person intends to use for substantially the same purpose as any other Property which has been sold or is to be sold or transferred by such Person to any other Person in connection with such lease. 7.18. Operating Lease Obligations. Borrower will not, nor will it permit any of its Subsidiaries to, enter into, assume or permit to exist any obligations for the payment of rental under Operating Leases which in the aggregate for all such Persons would exceed $6,000,000 in any fiscal year. ARTICLE 8 DEFAULT 8.1. Events of Default. Each of the following events shall be an Event of Default hereunder: (a) if Borrower shall fail to pay as and when due any installment of principal, interest, fees, costs, expenses or any other sum payable to Lenders hereunder or otherwise; (b) if any representation or warranty made herein or in connection herewith or in any statement, certificate or other document furnished hereunder is false or misleading in any material respect when made; (c) if Borrower or any Subsidiary shall default in any payment or performance of any other obligation(s) or Indebtedness (other than the obligations and Indebtedness hereunder) owing to either Lender or to any other Person (i) under or in connection with the Note Purchase Agreement, the IRB Bonds or, unless cured within thirty (30) days, reimbursement obligations arising in connection with either Existing Letter of Credit or (ii) otherwise, if the outstanding amount (including outstanding principal and any accrued and unpaid interest and fees due thereunder) of which, either singly or in the aggregate, is in excess of $3,500,000, whether such obligation(s) or Indebtedness are now or hereafter incurred; (d) if Borrower shall default in or fail to observe at any test date the covenants set forth in Sections 6.12 through 6.16 hereof or 7.1 through 7.18 hereof; (e) if Borrower or any Subsidiary shall default in the performance of any other agreement or covenant contained herein (other than as provided in subsections (a), (b), (c) or (d) above) or in any document executed or delivered in connection herewith, and such default shall continue uncured for thirty (30) days after Borrower had or should have had knowledge of such breach; (f) if any Change of Control occurs; (g) if custody or control of any substantial part of the property of Borrower or any Subsidiary shall be assumed by any governmental agency or any court of competent jurisdiction at the instance of any governmental agency; if any material license or franchise shall be suspended, revoked or otherwise terminated, or if any governmental regulatory authority or judicial body shall make any other final non-appealable determination the effect of which would be to affect materially and adversely affect the operations of Borrower and its Subsidiaries taken as a whole as now conducted; 37 (h) if: Borrower or any Guarantor becomes insolvent, bankrupt or generally fails to pay its debts as such debts become due, is adjudicated insolvent or bankrupt, admits in writing its inability to pay its debts, suffers a custodian, receiver or trustee for it or substantially all of its property to be appointed, makes an assignment for the benefit of creditors, or suffers proceedings under any law related to bankruptcy, insolvency, liquidation or the reorganization, readjustment or the release of debtors to be instituted against it; proceedings under any law related to bankruptcy, insolvency, liquidation, or the reorganization, readjustment or the release of debtors is instituted or commenced by Borrower or any Guarantor; any order for relief is entered relating to any of the foregoing proceedings; Borrower or any Guarantor shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or Borrower or any Guarantor shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; (i) any event or condition shall occur or exist with respect to any activity or substance regulated under the Environmental Control Statutes and as a result of such event or condition, Borrower or any Subsidiaries have incurred or in the opinion of the Lenders are reasonably likely to incur a liability in excess of $1,000,000 during any consecutive twelve (12) month period; or (j) if any judgment, writ, warrant or attachment or execution or similar process which calls for payment or presents liability either singly or in the aggregate in excess of $1,000,000 shall be rendered, issued or levied against Borrower or any Subsidiary or its respective property and such process shall not be paid, waived, stayed, vacated, discharged, settled, satisfied or fully bonded within sixty (60) days after its issuance or levy. 8.2. Remedies. Upon the occurrence of any Event of Default and at any time thereafter, at the election of Required Lenders, and by notice by Agent to Borrower (except if an Event of Default described in Section 7.1(h) shall occur in which case acceleration shall occur automatically without notice), Required Lenders may declare the entire unpaid balance, principal, interest and fees, of all Indebtedness of Borrower to Lenders, hereunder or otherwise, to be immediately due and payable. Upon such declaration, the Commitment shall immediately and automatically terminate and Lenders shall have no further obligation to make any Advances and the immediate right to enforce or realize on any collateral security granted therefor in any manner or order it deems expedient without regard to any equitable principles of marshalling or otherwise. In addition to any rights granted hereunder or in any documents delivered in connection herewith, Lenders shall have all the rights and remedies granted by any applicable law, all of which shall be cumulative in nature. 8.3. Right of Setoff. If any of the Liabilities shall be due and payable or any one or more Events of Default shall have occurred, whether or not the Agent shall have made demand under any Credit Document and regardless of the adequacy of any collateral for the Liabilities or other means of obtaining repayment of the Liabilities, each Lender shall have the right, without notice to Borrower and is specifically authorized hereby to set-off against and apply to the then unpaid balance of the Liabilities any items or funds of Borrower held by each Lender or any affiliate of such Lender, any and all deposits (whether general or special, time or demand, matured or unmatured) or any other property of Borrower including, without limitation, securities and/or certificates of deposit, now or hereafter maintained by Borrower for its own account with any Lender or any affiliate of such Lender, and any other indebtedness at any time held or owing by any Lender or any affiliate of such Lender, to or for the credit or the account of Borrower, even if effecting such setoff results in a loss or reduction of interest or the imposition of a penalty applicable to the early withdrawal of time deposits. For such purpose, the Lenders shall have, and Borrower hereby grants to each Lender, a first lien on and security interest in such deposits, property, funds and accounts and the proceeds thereof. 38 8.4. Remedies Cumulative; No Waiver. The rights, powers and remedies of the Lenders provided in this Agreement and any in the other Credit Documents are cumulative and not exclusive of any right, power or remedy provided by law or equity. No failure or delay on the part of the Agent or any Lender in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. ARTICLE 9 LENDERS This Article sets forth the relative rights and duties of Agent and Lenders respecting the Loan and does not confer any enforceable rights on Borrower against Lenders or create on the part of Lenders any duties or obligations to Borrower. 9.1. Application of Payments. Agent shall apply all payments of principal, interest, commitment fee or other amounts hereunder made to Agent by or on behalf of Borrower, to Lenders on the basis of their Pro Rata Shares of the outstanding principal balance of indebtedness hereunder, except (i) the fees payable under Sections 2.12 and 2.13 hereof which shall be distributed to each Lender in the respective percentage in which such Lender participates in the Commitment and (ii) the fees payable under Section 2.14 hereof, which shall be paid solely to Agent. Such distribution of payments shall be made promptly in federal funds immediately available at the office of each Lender set forth above. 9.2. Setoff. In the event a Lender, by exercise of its right of setoff, otherwise, reduces indebtedness owing to it hereunder by an amount greater than its Pro Rata Share of such amount based upon the Lenders' respective shares of principal indebtedness outstanding immediately before such setoff, such Lender shall purchase a portion of the indebtedness hereunder owing to each other Lender so that after such purchase each Lender shall hold its Pro Rata Share of all the indebtedness then outstanding hereunder, provided that if all or any portion of such excess payment is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of any such recovery, but without interest. 9.3. Modifications and Waivers. No modification or amendment hereof, consent hereunder or waiver of Event of Default shall be effective except by written consent of the Required Lenders; provided, however, that (a) the written consent of all Lenders shall be required to: (i) decrease the rate(s) of interest applicable to any Advance; (ii) increase the amount of the Commitment, and the Lenders' respective shares thereof, (iii) modify the Commitment Fee, or (iv) modify, amend, waive, discharge, terminate or suspend compliance with (A) the dates of payment hereunder, or (B) the provisions of this Section 9.3; and (b) in the absence of the existence of an Event of Default or a Default hereunder, Borrower may propose the replacement of, and with the written consent of the Agent may replace, any Lender. The Lenders hereby agree to execute such further documents including without limitation amendments to this Agreement, and the Note(s), and certificates and deliver such opinions as the Agent and its counsel shall so request to implement any termination or replacement contemplated hereby. Any amendment or waiver made pursuant to this Section 9.3 shall apply to and bind all of the Lenders and any future holder of any Notes. No modification or waiver of any provision of this Agreement or any Note, nor any consent to any departure by Borrower herefrom or therefrom, shall in any case be effective unless the same be in writing, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in any similar or other circumstances. 39 9.4. Obligations Several. The obligations of the Lenders hereunder are several, and each Lender hereunder shall not be responsible for the obligations of the other Lenders hereunder, nor, will the failure of one Lender to perform any of its obligations hereunder relieve the other Lenders from the performance of their respective obligations hereunder. 9.5. Lenders' Representations. Each Lender represents and warrants to the other Lenders that (i) it has been furnished all information it has requested for the purpose of evaluating its proposed participation under this Agreement; (ii) it has decided to enter into this Agreement on the basis of its independent review and credit analysis of Borrower, this Agreement and the documentation in connection therewith and has not relied for such analysis on any information or analysis provided by any other Lender; (iii) it is participating herein for its own account as a commercial transaction and not with a view to the distribution, disposition or participation of its interest herein, and it has no present intention of making any such distribution, disposition or participation. 9.6. Investigation. No Lender shall have any obligation to the others to investigate the condition of Borrower or any other matter concerning the Loan. 9.7. Powers of Agent. Agent shall have and may exercise those powers specifically delegated to Agent herein, together with such powers as are reasonably incidental thereto. 9.8. General Duties of Agent, Immunity and Indemnity. In performing its duties as Agent hereunder, Agent will take the same care as it takes in connection with loans in which it alone is interested, subject to the limitations on liabilities contained herein; provided that Agent shall not be obligated to ascertain or inquire as to the performance of any of the terms, covenants or conditions hereof by Borrower. Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action or omission by any of them hereunder or in connection herewith except for gross negligence or willful misconduct. Subject to such exception, each of the Lenders hereby indemnifies Agent on the basis of such Lender's Pro Rata Share, against any such liability, claim, loss or expense; provided, however, that if one or more of the Lenders shall make any payments to Agent for any such liability, claim, loss or expense for which Borrower subsequently reimburses Agent, Agent shall promptly remit to each such Lender the respective amount received from such Lender on account thereof or, if less than full payment is received from by Borrower, the proportionate amount thereof paid by each such Lender. 9.9. No Responsibility for Representations or Validity, etc. Each Lender agrees that Agent shall not be responsible to any Lender for any representations, statements, or warranties of Borrower herein. Neither Agent nor any of its directors, officers, employees or agents shall be responsible for the validity, effectiveness, sufficiency, perfection or enforceability of this Agreement and any collateral security therefor, or any documents relating thereto or for the priority of any of Lenders' security interests in any such collateral security. 9.10. Action on Instruction of Lenders; Right to Indemnity. Agent shall in all cases be fully protected in acting or refraining from acting hereunder in accordance with written instructions to it signed by Required Lenders unless the consent of all the Lenders is expressly required hereunder in which case Agent shall be so protected when acting in accordance with such instructions from all the Lenders. Such instructions and any action taken or failure to act pursuant thereto shall be binding on all the Lenders, provided that except as otherwise provided herein, Agent may act hereunder in its own discretion without requesting such instructions. Agent shall be fully justified in failing or refusing to take any action hereunder unless it shall first be specifically indemnified to its satisfaction by the other Lenders on the basis of their respective Pro Rata Shares, against any and all liability and expense which it may incur by reason of taking or continuing to take any such action. 40 9.11. Employment of Agents. In connection with its activities hereunder, Agent may employ agents and attorneys-in-fact and shall not be answerable, except as to money or securities received by it or its authorized agents, for the default or misconduct of agents or attorneys-in-fact selected with reasonable care. 9.12. Reliance on Documents. Agent shall be entitled to rely upon (a) any paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and (b) upon the opinion of its counsel with respect to legal matters. 9.13. Agent's Rights as a Lender. With respect to its share of the indebtedness hereunder, Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not Agent. Each of the Lenders may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with Borrower as if it were not Agent or a Lender hereunder. 9.14. Expenses. Each of the Lenders shall reimburse Agent, from time to time at the request of Agent, for its Pro Rata Share of any expenses incurred by Agent in connection with the performance of its functions hereunder, provided however that in the event Lenders shall reimburse Agent for expenses for which Borrower subsequently reimburses Agent, Agent shall remit to each Lender the respective amount received from such Lender against such expenses. 9.15. Resignation of Agent. Agent may at any time resign its position as Agent, without affecting its position as a Lender, by giving written notice to Lenders and Borrower. Such resignation shall take effect upon the appointment of a successor agent in accordance with this Section. In the event Agent shall resign, Lenders shall appoint a Lender as successor agent. If within thirty (30) days of the Agent's notice of resignation no successor agent shall have been appointed by Lenders and accepted such appointment, then Agent, in its discretion may appoint any other Lender as a successor agent. 9.16. Successor Agent. The successor Agent appointed pursuant to Section 9.15 shall execute and deliver to its predecessor and Lenders an instrument in writing accepting such appointment, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the properties, rights, duties and obligations of its predecessor Agent. The predecessor Agent shall deliver to its successor Agent forthwith all collateral security, documents and moneys held by it as Agent, if any, whereupon such predecessor Agent shall be discharged from its duties and obligations as Agent under this Agreement. 9.17. Enforcement by Agent. All rights of action under this Agreement and under the Notes and all rights to the collateral security, if any, hereunder may be enforced by Agent and any suit or proceeding instituted by Agent in furtherance of such enforcement shall be brought in its name as Agent without the necessity of joining as plaintiffs or defendants any other Lenders, and the recovery of any judgment shall be for the benefit of Lenders subject to the expenses of Agent. ARTICLE 10 MISCELLANEOUS 10.1. Indemnification and Release Provisions. Borrower hereby indemnifies and agrees to protect, defend and hold harmless Agent and each Lender and its directors, officers, officials, agents, employees and counsel and their respective heirs, administrators, executors, successors and assigns, from and against, any and all losses, liabilities (including without limitation settlement costs and amounts, transfer taxes, documentary taxes, or assessments or charges made by any governmental authority), claims, damages, interest, judgments, costs, or expenses, including without limitation fees and disbursements of counsel, incurred by any of them arising out of or in connection with or by reason of this Agreement, the Commitment, the issuance of any Letter of Credit, the making of the Loan or any other Credit Document, including without limitation, any and all losses, liabilities, claims, damages, interests, judgments, costs or expenses relating to or arising under any Environmental Control Statute or the application of any such Statute to any of Borrower's or a Subsidiary's properties or assets. Borrower hereby releases Agent and each Lender and its respective directors, officers, agents, employees and counsel from any and all claims for loss, damages, costs or expenses caused or alleged to be caused by any act or omission on the part of any of them except to the extent relating to such party's gross negligence or willful misconduct. All obligations provided for in this Section10.1 shall survive any termination of this Agreement or the Commitment and the repayment of the Loan. 41 10.2. Binding and Governing Law. This Agreement and all documents executed hereunder shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed as to their validity, interpretation and effect by the laws of the Commonwealth of Pennsylvania. 10.3. Survival. All agreements, representations, warranties and covenants of Borrower contained herein or in any documentation required hereunder shall survive the execution of this Agreement and the making of the Loan hereunder and except for Sections 6.8 and 10.1 which provide otherwise, will continue in full force and effect as long as any indebtedness or other obligation of Borrower to any Lender remains outstanding. 10.4. No Waiver; Delay. If Lenders or any of them shall waive any power, right or remedy arising hereunder or under any applicable law, such waiver shall not be deemed to be a waiver upon any other Lender or the later occurrence or recurrence of any of said events with respect to any Lender. No delay by Lenders in the exercise of any power, right or remedy shall, under any circumstances, constitute or be deemed to be a waiver, express or implied, of the same and no course of dealing between the parties hereto shall constitute a waiver of Lenders' powers, rights or remedies. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 10.5. Modification; Waiver; Assignment. Except as otherwise provided in this Agreement, no modification or amendment hereof, waiver or consent hereunder, or assignment hereof or participation herein, shall be effective unless made in a writing signed by appropriate officers of the parties hereto; provided that any Lender may, at any time, pledge or assign its interest in the Loan or its Note, including any collateral therefor, to any Federal Reserve Bank in accordance with applicable law. 10.6. Headings. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. 10.7. Notices. Any notice, request or consent required hereunder or in connection herewith shall be deemed satisfactorily given if in writing (including facsimile transmissions) and delivered by hand or mailed (registered or certified mail) to the parties at their respective addresses or telecopier number set forth below or such other addresses or telecopier numbers as may be given by any party to the others in writing: if to Borrower: Hunt Corporation One Commerce Square 2005 Market Street Philadelphia, PA 19103 Attention: Dennis Pizzica Telecopier: (215) 656-3711 42 with a copy to: Samuel Mason, Esq. Drinker, Biddle & Reath One Logan Square 18th & Cherry Street Philadelphia, PA 19103 Telecopier: (215) 988-2757 if to Agent or First Union: First Union National Bank 123 South Broad Street Philadelphia, PA 19109 Attention: Robert J. Dite Telecopier: (215) 670-6542 with a copy to: Lisa R. Jacobs, Esquire Pepper Hamilton LLP 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103-2799 Telecopier: (215) 981-4750 if to Fleet: Fleet National Bank 1428 Walnut Street Philadelphia, PA 19102 Attention: Thomas F. Gordon Telecopier: (215) 772-1437 10.8. Payment on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, provided however that such extension of time shall be included in the computation of interest due in conjunction with such payment or other fees due hereunder, as the case may be. 10.9. Time of Day. All time of day restrictions imposed herein shall be calculated using Agent's local time. 10.10. Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 43 10.11. Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all the signatures on such counterparts appeared on one document, and each such counterpart shall be deemed to be an original. 10.12. Consent to Jurisdiction and Service of Process. Borrower irrevocably appoints each and every officer of Borrower as its attorney upon whom may be served any notice, process or pleading in any action or proceeding against it arising out of or in connection with any of the Credit Documents; and Borrower hereby consents that any action or proceeding against it be commenced and maintained in any court within the Commonwealth of Pennsylvania or in the United States District Court for the Eastern District of Pennsylvania by service of process on any such officer; and Borrower agrees that the courts of the Commonwealth of Pennsylvania and the United States District Court for the Eastern District of Pennsylvania shall have jurisdiction with respect to the subject matter hereof and the person of Borrower. Notwithstanding the foregoing, the Lender, in its absolute discretion may also initiate proceedings in the courts of any other jurisdiction in which Borrower may be found or in which any of its properties may be located. 10.13. Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Agreement and other Credit Documents ("Disputes") between or among parties to this Agreement shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, claims arising from Credit Documents executed in the future, or claims arising out of or connected with the transaction reflected by this Agreement. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in the city in which the office of Lender first stated above is located. The expedited procedures set forth in Rule 53 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted or if such person is not available to serve, the single arbitrator may be a licensed attorney. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. 10.14. Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, Lenders and Borrower agree to preserve, without diminution, certain remedies that any party hereto may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought. Lenders and Borrower shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted under the Credit Documents or under applicable law or by judicial foreclosure and sale, including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, setoff, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. 44 Borrower and Lenders agree that they shall not have a remedy of punitive or exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. 10.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY LENDER OR AGENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH LENDER'S ENTERING INTO THIS AGREEMENT. 10.16. ACKNOWLEDGEMENTS. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND, SPECIFICALLY, SECTIONS 10.16 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAS BEEN FULLY EXPLAINED TO BORROWER BY SUCH COUNSEL. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 45 IN WITNESS WHEREOF, the undersigned, by their duly authorized officers, have executed this Credit Agreement the day and year first above written. ATTEST: HUNT CORPORATION By: By: ------------------------------ ----------------------------------- Name: Mark Pave Name: Dennis Pizzica Title: Assistant Treasurer Title: Treasurer [CORPORATE SEAL] FIRST UNION NATIONAL BANK, individually and in its capacity as Agent hereunder By: ----------------------------------- Name: Robert J. Dite Title: Senior Vice President FLEET NATIONAL BANK By: ----------------------------------- Name: Thomas F. Gordon Title: Vice President 46 EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E EXHIBIT F SCHEDULE 4.11 SCHEDULE 4.15 Schedule 7.2 Guaranties Hunt Corporation has issued Corporate Guaranties on two UK facilities (leased by Hunt Graphics Europe Ltd.), the assets of which were sold as part of the Graphics business. Hunt Graphics has sublease arrangements on those two facilities. The obligations of these leases are outlined below. Additionally a Corporate Guarantee to ING Bank in the Netherlands for overdrafts and a line of credit of 2.5 million guilders or $1.0 million is currently in the process of being terminated as bank accounts are being transferred to the new owners of the Graphics business. There are no overdrafts or borrowings under this account.
Facility Annual Rent Lease Term Sublease Rent Sublease Term - -------- ----------- ---------- ------------- ------------- Unit # 6 (pound)161,000 1991-2016 (pound)161,000 2000-2010* Scimitar Park *Subtenant may break lease in Courtaulds Road, Burnt Mills 2005 with no penalty. Basildon, Essex SS13 1ND England Unit #1 (pound)297,000 1997-2022* (pound)315,000 2001-2011* 1 Watkins Close *May break lease * Subtenant may break lease Burnt Mills Industrial Estate in 2012 with no in 2003 with options to break Basildon, Essex SS13 1BJ penalty. lease annually thereafter. England
Schedule 7.4 Existing Liens
- -------------------- --------------------------------- ------------------------------ ---------------------------------- Debtor Name Jurisdiction of related Filing Secured Party Status and Collateral - -------------------- --------------------------------- ------------------------------ ---------------------------------- Hunt Corporation PA Department of State-UCC Toyota Motor Credit File Date: 9-13-01 Section Corporation File # : 34350987 Collateral: Equipment (See attached schedule to related financing statement) - -------------------- --------------------------------- ------------------------------ ---------------------------------- Hunt Corporation PA Department of State-UCC Toyota Motor Credit File Date: 9-26-01 Section Corporation File # : 34391325 Collateral: Equipment (See attached schedule to related financing statement) - -------------------- --------------------------------- ------------------------------ ----------------------------------
EX-10 6 exh10b.txt EXHIBIT 10(B) Exhibit (10)(b) As Amended and Restated effective November 1, 1996 HUNT MANUFACTURING CO. 1983 STOCK OPTION AND STOCK GRANT PLAN 1. Purpose. The 1983 Stock Option and Stock Grant Plan (the "Plan") is designed to enable Hunt Manufacturing Co. (the "Company") and its subsidiaries to attract and retain capable officers and key management level employees and to provide an inducement to such personnel to promote the best interests of the Company and its subsidiaries by enabling and encouraging them, through the grant of incentive and nonqualified stock options ("Options") and/or stock ("Stock Grants") to acquire stock in the Company. As used in the Plan, the term "incentive stock options" means options which, at the time such options are granted under the Plan, qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). The term "nonqualified stock options" means all other options granted under the Plan. The term "subsidiary" means any corporation which, at the time an Option is granted or Stock Grant is made under the Plan, qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" contained in Section 424(f) of the Code, or any similar provision hereafter enacted, except that such term shall not include any corporation which is classified as a foreign corporation pursuant to Section 7701 of the Code. 2. Administration. The Plan shall be administered by the Company's Compensation Committee (the "Committee") which shall consist of not less than three non-employee directors (within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor thereto) who are also outside directors (within the meaning of Treas. Reg. ss.1.162-27(e)(3), or any successor thereto) of the Company who shall be appointed by, and shall serve at the pleasure of, the Company's Board of Directors (the "Board"). Each member of the Committee, while serving as such, shall be deemed to be acting in his/her capacity as a director of the Company. 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 take such action as may be appropriate and/or necessary to insure the continued qualification of any incentive stock options granted under the Plan, to select the persons to whom Options will be granted and/or Stock Grants made under the Plan, to grant Options and make Stock Grants and set the date of grant and other terms and conditions thereof, to make recommendations to the Board, and to take all such steps and make all such determinations in connection with the Plan and the Options and stock 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. 3. Stock Subject to the Plan. Subject to the provisions of Section 8 hereof, up to an aggregate maximum of 1,348,125 of the Company's Common Shares, par value $.10 per share ("Shares") shall be authorized for the grant of Options and/or Stock Grants under the Plan, provided that, of such amount, not more than 373,125 Shares shall be available for Stock Grants. Shares issuable under the Plan may be authorized but unissued Shares or reacquired Shares, as the Board shall determine. If any Option granted under the Plan expires or otherwise terminates, in whole or in part, without having been exercised, or if any Stock Grant hereunder is terminated, in whole or in part, the Shares subject to the unexercised portion of such Option and the unvested Shares covered by such Stock Grant shall be available for the granting of Options and Stock Grants under the Plan as fully as if such Shares had never been subject to an Option or a Stock Grant. 4. Eligibility. Those persons eligible to participate in the Plan shall be the officers and other key management level employees of the Company and any of its subsidiaries ("Eligible Employees"), including directors who are also officers or key management level employees of the Company or any of its subsidiaries. Incentive stock options, nonqualified stock options or Shares, or a combination thereof, may be granted under the Plan to an Eligible Employee. In making any determination as to whether a given employee shall receive a grant under the Plan, and in determining the size and nature of any such grant, the Committee shall take into account the duties of such employee, his/her past, present and potential contributions to the success of the Company and its subsidiaries and such other factors as the Committee shall deem relevant in accomplishing the purposes of the Plan. 5. Grants, Terms and Conditions of Options. From time to time until the expiration or earlier termination of the Plan, the Committee may grant to Eligible Employees ("Optionees") under the Plan such -2- incentive and/or nonqualified stock options as it determines are warranted; provided, however, that grants of incentive and nonqualified options shall be separate and not in tandem. Options granted pursuant to the Plan shall be in such form as the Committee, from time to time, shall approve, and shall be subject to the following terms and conditions: (a) Price. Except as provided in Subsection (k), the price per Share under each Option granted under the Plan shall be determined and fixed by the Committee in its discretion but shall not be less than the higher of one hundred percent (100%) of the Fair Market Value of the Shares, or the par value thereof, on the date of grant of such Option. As used in the Plan, the term "Fair Market Value" shall mean: (i) if the principal market for the Shares is a registered securities exchange, the mean between the highest and lowest quoted selling prices of such Shares on the date of grant, or, if there are no such reported sales on that date, then on the last previous date (within a reasonable period prior to the date of grant) 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 by the Committee. (b) Term. Subject to earlier termination as provided in Subsections (c) through (g) below and in Section 8 hereof, and except as otherwise provided in Subsection (k) below, the term of each Option shall not be less than two (2) nor more than ten (10) years from the date of grant. (c) Exercise and Payment. Options shall be exercisable in such installments and on such dates, not less than one (1) year from the date of grant, as the Committee may specify. Except as otherwise expressly provided in the Plan, Options shall only be exercisable by an Optionee while he/she remains in the employment of the Company or a subsidiary. Any Option Shares, the right to the purchase of which has accrued, may be purchased at any time up to the expiration or termination of the Option. Options may be exercised, in whole or in part, from time to time, by giving written notice of exercise to the Company at its principal office, specifying the number of Shares to be purchased and accompanied by payment in full of the aggregate purchase price for such Shares. Only full shares shall be issued and any fractional share which might otherwise be issuable upon exercise of an Option granted hereunder shall be forfeited. The purchase price shall be payable: (i) in cash or its equivalent; (ii) if the Committee, in its discretion, permits, in whole or in part through the surrender or delivery of Shares previously acquired by the Optionee (provided that if such Shares are statutory option stock, as defined in Section 424(c)(3) of the Code, such Shares have been held by the Optionee for a period not less than the holding period described in Section 422(a)(1) or 423(a)(1) of the Code, as applicable); (iii) if the Committee, in its discretion, permits, in whole or in part through the surrender or delivery of Shares newly acquired by the Optionee upon exercise of such Option (which surrender or delivery shall constitute a disqualifying -3- disposition in the case of an Option which is an incentive stock option); or (iv) if and to the extent the Committee, in its discretion, permits, by delivering a properly executed notice of exercise of the Option to the Company and a broker, with irrevocable instructions to the broker promptly to deliver to the Company the amount of sale or loan proceeds necessary to pay the exercise price of the Option (the sale of Shares pursuant to such instructions shall constitute a disqualifying disposition in the case of an Option which is an incentive stock option). In the event such purchase price is paid, in whole or in part, with Shares, the portion of the purchase price so paid shall be equal to the Fair Market Value, on the date of exercise of the Option, of the Shares surrendered or delivered in payment of such purchase price. (d) Termination of Optionee's Employment. If an Optionee's employment by the Company and its subsidiaries is terminated by either party for any reason, with or without cause, other than by reason of death, disability, or retirement (as provided in Subsections (e), (f) and (g) hereof) prior to the expiration date of his/her Option, such Option shall terminate immediately upon such termination of employment, provided that the Committee, in its discretion, may extend the period for exercise following any such termination of employment, to the extent of the number of Shares with respect to which the Optionee could have exercised it on the date of such termination, for up to three (3) months, but not beyond the expiration date of such Option. Notwithstanding the foregoing, in the event an Optionee's employment is terminated as contemplated in this Subsection and Options held by him/her have not yet become exercisable in accordance with their terms, the Committee, in its discretion, may allow all or a part of such Options to be exercised pursuant to this Subsection, provided that such Options have been outstanding for at least one year at the time of the Optionee's termination of employment. For the purposes of the Plan, a leave of absence of one (1) year or less which has been expressly approved by the Board shall not be deemed to constitute a termination of employment. A leave of absence for longer than one (1) year shall be deemed to constitute a termination of employment, unless the Committee otherwise determines. (e) Death of Optionee. If an Optionee's employment is terminated by reason of his/her death prior to the expiration of his/her Option, or if an Optionee shall die following his/her termination of employment but prior to the expiration date of his/her Option or expiration of the period determined under Subsection (d), (f) or (g) hereof, if earlier, such Option may be exercised, by the Optionee's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, in whole or in part, but only to the extent of the number of Shares with respect to which the Optionee could have exercised it on the date of his/her death, at any time prior to the earlier of (i) one (1) year following the date of the Optionee's death, or (ii) the expiration date of such Option (which, in the case of death following a termination of employment pursuant to Subsection (d), (f) or (g) hereof, shall be deemed to mean the expiration of the exercise period determined thereunder). Notwithstanding the foregoing, in the -4- event that an Optionee's employment is terminated by his/her death and Options held by him/her have not yet become exercisable in accordance with their terms, the Committee, in its discretion, may allow all or a part of such Options to be exercised pursuant to this Subsection, provided that such Options have been outstanding for at least one (1) year at the time of the Optionee's death. (f) Disability of Optionee. If an Optionee shall become permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) during his/her employment and his/her employment with the Company and its subsidiaries is terminated as a consequence of such disability prior to the expiration date of his/her Option, such Option may be exercised by the Optionee, in whole or in part, but only to the extent of the number of Shares with respect to which the Optionee could have exercised it on the date of such termination of employment, at any time prior to the earlier of (i) one (1) year following the date of the Optionee's termination of employment, or (ii) the expiration date of such Option. Notwithstanding the foregoing, if at the time of termination of an Optionee's employment due to disability, Options held by such Optionee have not yet become exercisable in accordance with their terms, the Committee, in its discretion may allow all or a part of such Options to be exercised pursuant to this Subsection, provided that such Options have been outstanding for at least one (1) year at the time of the Optionee's termination of employment. (g) Retirement of Optionee. If an Optionee retires in accordance with the retirement policy of the Company, or with the express consent of the Board, prior to the expiration date of his/her Option, such Option may be exercised by the Optionee, in whole or in part, but only to the extent of the number of Shares with respect to which the Optionee could have exercised it on the date of his/her retirement, at any time prior to the earlier of (i) three (3) months after the date of retirement or (ii) the expiration date specified in such Option. Notwithstanding the foregoing, the Committee may, in its discretion, (x) extend the period for exercise following an Optionee's retirement for up to nine (9) additional months, but not beyond the expiration date of such Option, despite the fact that such an extension would prevent an Option from qualifying as an incentive stock option under the Code and/or (y) in the event that any Options held by a retiring Optionee have not yet become exercisable in accordance with their terms, allow all or a part of such Options to be exercised pursuant to this Subsection provided that such Options have been outstanding for at least one year at the time of the Optionee's retirement. (h) Transferability. No Option intended to be an incentive stock option shall be assignable or transferable by an Optionee otherwise than by will or by the laws of descent and distribution. Unless otherwise permitted by the Committee, all other Options shall not be assignable or transferable by an Optionee otherwise than by will or by the laws of descent and distribution. -5- A transferred Option shall continue to be subject to the same terms and conditions as were applicable to such Option immediately prior to transfer, and the Optionee shall remain subject to tax withholding under Section 5(m) with respect to such Option. The events of termination of employment of Section 5 shall also continue to be applied with respect to the original Optionee, following which events the transferred Option shall be exercisable by the transferee only to the extent, and for the periods specified in, Sections 5(c), (d), (e), (f) and (g). (i) Rights as a Stockholder. An Optionee shall have no rights as a stockholder with respect to any Shares covered by his/her Option until the issuance of a stock certificate to him/her representing such Shares. (j) Sequential Exercise of Incentive Stock Options. No incentive stock option granted under the Plan prior to January 1, 1987, shall be exercisable while there is outstanding (within the meaning of Section 422A(c)(7) of the Code as in effect prior to January 1, 1987) any other incentive stock option which was granted before the granting of such incentive stock option to the same Optionee to purchase Shares, or to purchase stock in a corporation which (as the time of granting of such incentive stock option) was a Related Corporation or to purchase stock in a predecessor corporation of the Company or a Related Corporation. As used in the Plan, the term "Related Corporation" shall mean a subsidiary or a corporate parent of the Company as defined in Section 424 of the Code. (k) Ten Percent Shareholder. Notwithstanding any other provision of the Plan, if an Eligible Employee owns more than ten percent (10%) of the total combined voting power of all shares of stock of the Company or of a Related Corporation at the time an incentive stock option is granted to such Eligible Employee, the incentive stock option price shall not be less than one hundred ten percent (110%) of the Fair Market Value of the optioned Shares on the date the incentive stock option is granted, and such incentive stock option by its terms shall not be exercisable after the expiration of five (5) years from the date the incentive stock option is granted. (l) Annual Limit on Grant of Incentive Stock Options. Effective for options granted after December 31, 1986, the aggregate Fair Market Value (determined as of the time an incentive stock option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time during any calendar year (under this Plan and any other incentive stock option plan of the Company or a Related Corporation) shall not exceed one hundred thousand dollars ($100,000). (m) Use of Shares to Satisfy Tax Obligation. When an Optionee is required to pay to the Company or a Related Corporation an amount required to be withheld under applicable federal, state or local income tax or similar laws in connection with exercise of nonqualified stock options under the Plan, the Committee -6- may, in its discretion and subject to such rules as it may adopt, permit the Optionee to satisfy the obligation, in whole or in part, by electing to have the Company withhold Shares (or by returning to the Company previously held Shares), which shares shall be valued, for this purpose, at their Fair Market Value on the date of exercise of the nonqualified stock option (or, if later, the date on which the Optionee recognizes ordinary income with respect to such exercise). If Shares acquired by exercise of an incentive stock option are used for such purpose, and if the holding period requirements of Section 422(a)(1) of the Code have not been met with respect to such Shares, the use of such Shares to satisfy the withholding obligation will be a disqualifying disposition of such Shares. (n) Option Agreement and Further Conditions. Each Optionee shall enter into, and be bound by the terms of, a stock option agreement (the "Option Agreement") which shall include or incorporate by reference the terms of the Option and the Plan and which shall contain such other terms, conditions and restrictions not inconsistent with the Plan (or, in the case of incentive stock options, the provisions of Section 422(b) of the Code) as the Committee shall determine. Without limiting the generality of the foregoing, the Committee, in its discretion, may impose further conditions upon the exercisability of Options, and restrictions on transferability and repurchase rights with respect to Shares issued upon exercise of Options. 6. Terms and Conditions of Stock Grants. From time to time until the expiration or earlier termination of the Plan, the Committee may make such Stock Grants under the Plan to Eligible Employees ("Grantees") as it determines are warranted. Stock Grants shall be subject to the following terms and conditions: (a) Vesting Period. The Committee shall establish one or more vesting periods ("Vesting Periods") with respect to the Shares covered by a Stock Grant. The length of such Vesting Period shall be within the discretion of the Committee, except that (subject to Subsection (c) below and Section 8 hereof) such period or periods shall not be less than one (1) year nor more than five (5) years from the date of grant. Subject to the provisions of this Section 6, Shares subject to a Stock Grant shall vest in the Grantee upon the expiration of the Vesting Period with respect to such Shares. (b) Bonus Payment. For so long as a Grantee's Stock Grant remains outstanding and unvested, the Company shall pay to the Grantee a cash bonus equal to the dividends which the Grantee would have received from the Company had he/she actually held the Shares represented by the unvested portion of his/her Stock Grant. Such payments shall be made within sixty (60) days following the end of each fiscal quarter of the Company with respect to any dividends which may have been paid by the Company on its Shares during such quarter, and will constitute wages subject to withholding for Federal income tax purposes. -7- (c) Termination. (i) Death, Disability or Retirement. If, prior to the expiration of the Vesting Period with respect to Shares subject to a Stock Grant ("Unvested Shares"), a Grantee's employment with the Company and its subsidiaries is terminated by reason of his/her death, or by reason of his/her disability or retirement (as provided in Sections 5(f) and (g) hereof, respectively), then in each such case there shall immediately be vested in the Grantee, or in his/her beneficiary or estate, that number of full Shares that bears the same ratio to all the Grantee's Unvested Shares having the same Vesting Period as the number of the days which have elapsed from the date of the original Stock Grant of such Shares to the date of such termination of the Grantee's employment bears to the total number of days in the Vesting Period with respect to such Shares. [An example of the operation of the preceding sentence is set forth in the Appendix to the Plan.] The remainder of the Grantee's Stock Grant not vested pursuant to the preceding sentence immediately shall terminate, except that the Committee, if it determines that the circumstances warrant, may direct that all or a portion of such remaining Unvested Shares also be vested in the Grantee, subject to such further terms and conditions, if any, as the Committee may determine. (ii) Other Terminations of Employment. If a Grantee's employment is terminated for any reason other than his/her death, disability or retirement as aforesaid, the unvested portion of the Grantee's Stock Grant immediately shall terminate, except that the Committee, if it determines that the circumstances warrant, may direct that all or a portion of the Grantee's Unvested Shares be vested in the Grantee, subject to such further terms and conditions, if any, as the Committee may determine. (d) Delivery of Certificates. Upon the vesting of a Stock Grant, the Company promptly shall issue certificates representing the vested Shares to the Grantee or to his/her beneficiary or estate. Only full shares shall be issued, and any fractional shares which might otherwise be issuable pursuant to a Stock Grant shall be forfeited. (e) Transferability. No Stock Grant shall be assignable or transferable by a Grantee otherwise than by will or by the laws of descent and distribution. (f) Rights as a Stockholder. A Grantee shall have no rights as a stockholder with respect to any Shares covered by a Stock Grant until the issuance of a stock certificate to him/her representing such Shares. (g) Use of Shares to Satisfy Tax Obligation. When a Grantee is required to pay the Company or a Related Corporation an amount required to be withheld under applicable federal, state or local income tax or similar laws in connection with the vesting of a Stock Grant under this Plan, the Committee may, in -8- its discretion and subject to such rules as it may adopt, permit the Grantee to satisfy the obligation, in whole or in part, by electing to have the Company withhold Shares (or by returning to the Company previously held Shares), which Shares shall be valued, for this purpose, at their Fair Market Value on the date of vesting of the Stock Grant (or, if later, the date on which the Grantee recognizes ordinary income with respect to such Stock Grant). If Shares acquired by the exercise of an incentive stock option are used for such purpose, and if the holding period requirements of Section 422(a)(1) of the Code have not been met with respect to such Shares, the use of such Shares to satisfy the withholding obligation will be a disqualifying disposition of such Shares. (h) Stock Grant Agreement. Each Grantee shall enter into, and be bound by the terms of, a Stock Grant Agreement (the "Stock Grant Agreement") which shall include or incorporate by reference the terms of the Stock Grant and of the Plan and which shall contain such other terms, conditions and restrictions not inconsistent with the Plan as the Committee shall determine. 7. Listing and Registration of Shares. Each Option and each Stock Grant under the Plan shall be subject to the requirement that, if at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the Shares covered thereby upon any securities exchange or under the laws of any jurisdiction, or the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option, the making of such Stock Grant or the purchase or vesting of Shares thereunder, then no such Option may be exercised in whole or in part and no certificate representing Shares shall be issued pursuant to such Stock Grant unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, on conditions acceptable to the Board. Each Optionee and Grantee, or his/her legal representative or beneficiaries, also may be required to give satisfactory assurance that Shares purchased upon exercise of an Option or received pursuant to a Stock Grant are being acquired for investment and not with a view to distribution, and certificates representing such Shares may be legended accordingly. 8. Adjustment Upon Changes in Capitalization, Mergers and Other Events. The number of Shares which may be issued under the Plan, as stated in Section 3 hereof, and the number of Shares issuable upon exercise of outstanding Options (as well as the exercise price per Share under such outstanding Options) or issuable upon vesting of outstanding Stock Grants shall be adjusted, as may be determined appropriate by the Committee (which determination shall be subject to ratification by the Board), to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. -9- In the event the Company is liquidated or a corporate transaction described in Section 424(a) of the Code and the Treasury Regulations issued thereunder (including, for example, a merger, consolidation, acquisition of property or stock, separation or reorganization) occurs, each outstanding Option and Stock Grant shall be assumed by the surviving or successor corporation, if any; provided, however, that the Committee, in its discretion, may terminate all or a portion of the outstanding Options and/or Stock Grants if it determines that such termination would be in the best interests of the Company. If the Committee decides to terminate an outstanding Option by reason of such liquidation or corporate transaction, the Committee shall give the holder thereof not less than twenty-one (21) days' prior notice of any such termination, and such outstanding Option may be exercised up to, and including, the date immediately preceding such termination, if the Option has not otherwise expired, and if it is then exercisable under the Option Agreement. With respect to any Option which has not yet become exercisable, the Committee also, in its discretion, may allow an Optionee to exercise such Option in whole or in part (if it has not otherwise terminated or expired). If the Committee decides to terminate an outstanding Stock Grant by reason of such liquidation or corporate transaction, the Stock Grant shall vest on such termination date to the same extent as is provided in the first sentence of Section 6(c)(i) hereof. The Committee, in its discretion, also immediately may vest all or a portion of the remaining unvested Shares under any Stock Grant which is to be so determined. The Committee further, in its discretion, may change the number of Shares issuable upon exercise of outstanding Options (as well as the exercise price per Share under such outstanding Options) and Shares covered by outstanding Stock Grants to reflect any such corporate transaction, provided, in the case of an incentive stock option, that any such change is made in accordance with Section 424(a) of the Code and is excluded from the definition of "modification" under Section 424(h) of the Code. Notwithstanding any other provisions of the Plan, the Committee, in its discretion, may accelerate, in whole or in part, the date on which Options become exercisable and/or the vesting of any Stock Grant in the event that the Committee determines that a change in control of the Company has occurred or is likely to occur. 9. Amendment or Discontinuance of the Plan. The Board, from time to time, may suspend or discontinue the Plan or amend it, and the Committee may amend any outstanding Options and Stock Grants, in any respect whatsoever; provided, however, that, without the approval of the holders of at least a majority of the outstanding Shares of the Company: (i) the class of individuals eligible to receive Options or Stock Grants shall not be changed, (ii) the maximum number of Shares with respect to which grants may be made under the Plan shall not be increased otherwise than as permitted under Section 8 hereof, (iii) the -10- limitations on the price at which Options may be granted shall not be changed, and (iv) the duration of the Plan, as specified in Section 12 hereof, shall not be extended; and provided further, that no such suspension, discontinuance, or amendment shall impair the rights of any holder of an outstanding Option or Stock Grant without the consent of such holder. 10. Absence of Rights. The recommendation or selection of an Eligible Employee as a recipient of an Option or a Stock Grant under the Plan shall not entitle such person to any Option or Stock Grant unless and until the grant actually has been made by appropriate action of the Committee; and any such grant is subject to the provisions of the Plan. Further, the granting of an Option or the making of a Stock Grant to a person shall not entitle that person to continued employment by the Company or its subsidiaries, and the Company shall have the absolute right, in its discretion, to retire such person in accordance with its retirement policies or otherwise to terminate his/her employment, whether or not such termination may result in a partial or total termination of his/her Option or of his/her Stock Grant. 11. Application of Funds. The funds received by the Company upon the exercise of Options and otherwise under the Plan shall be used for general corporate purposes. 12. Effective Date and Duration. The Plan became effective on February 7, 1983. The Plan terminated at 12:00 midnight on February 6, 1993, and no Options or Stock Grants shall be granted or made thereafter. However, the termination of the Plan shall not affect any Options or Stock Grants theretofore granted or made, which Options and Stock Grants shall remain in effect in accordance with their terms and the terms of the Plan. -11- APPENDIX Accelerated Vesting Pursuant to Section 6(c) of the Plan Example: If a Stock Grant of 30,000 shares is made to a Grantee on February 10, 1983 to vest in three annual increments of 10,000 Shares each on February 10, 1984, 1985 and 1986, respectively, and if the Grantee, while still an employee of the Company, should die on August 10, 1984, the number of Shares vested would be 22,474, calculated as follows: 1. The 10,000 Share increment scheduled to vest on February 10, 1984, would already have vested in full. 2. The 10,000 Share increment scheduled to vest on February 10, 1985 would vest automatically as to 7,483 Shares (i.e., out of the total Vesting Period of 731 days with respect to such Shares, 547 days would have elapsed; 547/731 = .748290 x 10,000 Shares). 3. The 10,000 Share increment scheduled to vest on February 10, 1986 would vest automatically as to 4,991 Shares (i.e., out of the total Vesting Period of 1,096 days with respect to such Shares 547 days would have elapsed; 547/1,096 = .499088 x 10,000 Shares = 4,991 Shares). EX-10 7 ex10f-2.txt EXHIBIT 10(F)(2) Exhibit (10)(f)(2) HUNT CORPORATION Executive Officers Who Are Parties to Change in Control Agreement The following current Executive Officers of Hunt Corporation are parties to the aforesaid Change in Control Agreement: John W. Carney, Bradley P. Johnson, and Dennis S. Pizzica. Donald L. Thompson, Chairman, President and CEO of the Company, is not a party to that Change in Control Agreement, but has change in control provisions providing for a higher level of benefits in his April 8, 1996 Employment Agreement, as amended. All other non-executive officers also are parties to change in control agreements which are similar to those of Executive Officers, but with lower levels of benefits. EX-10 8 ex10g-6.txt EXHIBIT 10(G)(6) Exhibit (10)(g)(6) AMENDMENT NO. 4 TO THE HUNT CORPORATION SUPPLEMENTAL EXECUTIVE BENEFITS PLAN (As Amended and Restated Effective January 1, 1997) WHEREAS, Hunt Corporation (the "Company") maintains the Hunt Corporation Supplemental Executive Benefits Plan (the "Plan"); and WHEREAS, the Company most recently amended and restated the Plan effective January 1, 1997, and has subsequently further amended the Plan from time to time; and WHEREAS, the Company desires to amend the Plan in order to provide for full vesting in certain benefits after five Years of Vesting Service; NOW, THEREFORE, effective October 1, 2001, with respect to any Participant who is in the active employ of a Participating Company on or after such date, the Plan is hereby amended as follows: 1. Section 2.30 of the Plan is amended to read as follows: 2.30 Early Retirement Date: The first day of any month coincident with, or immediately following, the earlier of: (a) The Participant's 55th birthday, provided he or she has completed 10 or more Years of Vesting Service with a Participating Company on such date; or (b) The Participant's 52nd birthday, provided he or she has completed 20 or more Years of Vesting Service with a Participating Company on such date, and further provided, in either case, that he or she has not reached his or her Normal Retirement Date. 2. Section 4.6 of the Plan is amended to read as follows: 4.6 Separation: An Executive Officer Participant shall be fully vested in his or her Accrued Benefit under the Plan when he or she completes five Years of Vesting Service. Except as otherwise provided in the Plan, such Executive Officer Participant shall have no vested interest in benefits under this Article IV until her or she completes five Years of Vesting Service. Any Executive Officer Participant who separates from the service of a Participating Company (other than for purposes of transferring to another Participating Company) after he or she has completed five Years of Vesting Service but before his or her Normal Retirement Date shall be entitled to a deferred pension commencing at the date which would have been his or her Normal Retirement Date. An Executive Officer Participant who separates from service after he or she has completed ten Years of Vesting Service may instead irrevocably elect, on the Appropriate Form filed with the Committee, no later than the later of: (a) 30 days prior to his or her termination of employment with the Participating Companies; or (b) 30 days prior to the beginning of his or her taxable year in which occurs his or her Annuity Starting Date, to have payment commence on a date specified by him or her in such election which date must be: (1) after the date he or she terminates employment with the Participating Companies; (2) no earlier than the first day of his or her taxable year following the date of his or her election; (3) no earlier than the date on which he or she attains age 55; and (4) prior to the date which would have been his or her Normal Retirement Date. The amount of the deferred pension shall be in accordance with the Executive Officer Participant's vested Accrued Benefit calculated as of the date of his or her separation from service, but reduced, if payment commences prior to Normal Retirement Date, by the factors set forth in Table II of Plan Exhibit A. IN WITNESS WHEREOF, Hunt Corporation has caused these presents to be duly executed this 4th day of October, 2001. Attest: HUNT CORPORATION /s/ By: /s/ - - --------------------------------- -------------------------------- EX-10 9 exh10h-1.txt EXH10H-1.TXT Exhibit (10)(h)(1) EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of April 8, 1996, between HUNT MANUFACTURING CO., a Pennsylvania corporation (the "Company"), and DONALD L. THOMPSON (the "Executive"). W I T N E S S E T H T H A T WHEREAS, the Company desires to employ Executive as its Chairman and Chief Executive Officer, and Executive desires to accept such employment; and WHEREAS, the parties further desire to set forth herein the terms and conditions of the Executive's employment by the Company in an Employment Agreement. THEREFORE, in consideration of the mutual obligations and agreements contained herein and the mutual benefits to be derived herefrom, and intending to be legally bound hereby, the Executive and the Company agree as follows: SECTION 1. CAPACITY AND DUTIES 1.1 Employment; Acceptance of Employment. Company hereby employs Executive and Executive hereby accepts employment by Company for the period and upon the terms and conditions hereinafter set forth. 1.2 Capacity and Duties. (a) Executive shall be employed by Company generally as its Chairman and Chief Executive Officer and, subject to the supervision of the Board of Directors of Company (the "Board"), shall perform such duties and shall have such authority consistent with his position as may from time to time be specified by the Board. Executive shall report directly to the Board and shall perform his duties for Company principally from Company's office located in the Philadelphia metropolitan area, except for periodic travel that may be necessary or appropriate in connection with the performance of Executive's duties hereunder. (b) Executive shall devote his full working time, energy, skill and best efforts to the performance of his duties hereunder, in a manner which will faithfully and diligently further the business and interests of Company and its affiliates (as defined below), and shall not be employed by or participate or engage in or be a part of in any manner the management or operation of any business enterprise other than Company and its affiliates without the prior written consent of 1 the Board, which consent may be granted or withheld in its sole discretion. For purposes of this Agreement, "affiliate" means any entity of which at least 50% of the voting power thereof is controlled by the Company. SECTION 2. TERM OF EMPLOYMENT 2.1 Term. The Executive's employment under this Agreement shall commence as of June 1, 1996, or such earlier date as the Company and Executive shall agree, and shall, unless sooner terminated in accordance with the provisions hereof, continue uninterrupted for an initial two-year term expiring May 31, 1998. The Executive's employment shall continue thereafter from year-to-year, until terminated in accordance with the provisions hereof. SECTION 3. COMPENSATION 3.1 Basic Compensation. As compensation for Executive's services hereunder, Company shall pay to Executive a salary at the annual rate of $450,000 (the "Base Salary"), payable in periodic installments in accordance with Company's regular payroll practices in effect from time to time. If Executive commences employment prior to June 1, 1996, he shall be paid a pro rata portion of the Base Salary for the period of his employment prior to June 1, 1996. The Base Salary shall be reviewed from time to time by the Compensation Committee of the Board as conditions warrant, but not less frequently than on each anniversary of the Executive's employment; such review shall consider, but not be limited to, Executive's performance as determined by the Compensation Committee. Executive's Base Salary may be increased as a result of such review but shall not be decreased except as part of an overall reduction in the compensation of the Company's senior executive officers. 3.2 Incentive Compensation; Stock Options; Phantom Stock. (a) Annual Incentive Pay/Bonus. In addition to the Base Salary provided for in Section 3.1, the Executive will participate in the Company's Incentive Compensation Program, with targets to be established by the Board, under which the Executive may receive incentive pay up to a maximum of 70 percent of Base Salary in each of the Company's fiscal years (such Base Salary for the fiscal year ending November 26, 1996 to be the amount actually paid to the Executive for such fiscal year pursuant to Section 3.1 hereof), provided, however, that for the 1996 fiscal year, such incentive pay shall not be less than $300,000, such minimum amount to be paid on or before December 31, 1996, and for the 1997 fiscal year ending in November, 1997, shall not be less than $225,000, such minimum amount to be paid on or before December 31, 1997. (b) Stock Option Grants. As an inducement to the Executive to increase shareholder value, the Company desires that the Executive acquire a substantial number of shares of the Company's common stock. To carry out this purpose, the following stock option grants will be provided by the Company: 2 (i) One-Time Grant. On the Executive's employment commencement date, the Company will grant a nonqualified stock option to the Executive to purchase 175,000 shares of the Company's common stock ("Common Stock") pursuant to a separate stock option agreement made under and subject to the Company's 1993 Stock Option and Stock Grant Plan (the "Stock Option Plan"), with the exercise price under the option to be the mean between the highest and lowest quoted selling prices of the Common Stock on the New York Stock Exchange on the Executive's employment commencement date, or, if such date is not a regular business day, on the immediately preceding regular business day, and with such option to be exercisable, in whole or in part, beginning one year after the date of grant and continuing for ten years from the date of grant. (ii) Annual Stock Option Grants. During the Executive's employment hereunder, the Company will make, commencing in fiscal 1997, annual grants of nonqualified stock options to the Executive for a number of shares of Common Stock as determined by the Compensation Committee of the Board but which shall be equivalent in value, on the date of grant, of up to one times the Executive's Base Salary. Such annual grants shall be made generally at such times, at such exercise prices, and in a manner consistent with, and under the same terms and conditions as are contained in, options granted to other senior officers of the Company, as determined by the Compensation Committee, and shall be made under and subject to the Stock Option Plan, or any successor plan. By way of illustration, such annual grants are customarily made within two months following the close of the Company's fiscal year. (iii) Long-Term Incentive Stock Option Grants. It is intended that the Executive during his employment hereunder shall participate in a long-term incentive program for the executive officers of the Company now in the process of development by the Compensation Committee. Until such program has been completed and adopted by the Board, the Company will make, commencing in fiscal 1997, an annual grant of nonqualified stock options to the Executive in a number of shares of Common Stock as determined by the Compensation Committee equivalent in value, on the Date of Grant, of up to one and one-half times the Executive's Base Salary. Such annual grants shall be made generally at such times, at such exercise prices, and in a manner consistent with, and under the same terms and conditions as are contained in options granted to other senior officers of the Company, as determined by the Compensation Committee, and shall be made under and subject to the Stock Option Plan, or any successor plan. By way of illustration, such annual grants are customarily made within two months following the close of the Company's fiscal year. (c) Phantom Stock Award. On the Executive's employment commencement date, the Executive will become a participant in a special phantom stock plan, as set forth in Appendix A hereto, which will include an award to the Executive of 175,000 phantom shares of Company Common Stock, and in which the Executive shall become vested in accordance with the following vesting schedule: 3 No. of Phantom Shares Date Becoming Vested ---- --------------------- December 1, 1996 43,750 December 1, 1997 43,750 December 1, 1998 43,750 December 1, 1999 43,750 ------- 175,000 The specific terms and conditions pertaining to the phantom stock are set forth in Appendix A. 3.3 Executive Benefits. In addition to the compensation provided for in Sections 3.1 and 3.2 hereof, the Executive shall be entitled during the term of his employment hereunder to participate in the benefit plans maintained by the Company for its senior corporate officers, which currently include, among others, the Company's Pension Plan, Savings Plan, Supplemental Executive Benefits Plan, and Group Life and Medical Plans. Executive shall also be eligible for such other of Company's employee benefit plans and benefit programs as may from time to time be provided for other employees of Company whose duties, responsibilities, and compensation are reasonably comparable to those of Executive, but, other than as set forth in Sections 4.4 and 4.5 hereof, shall not be eligible for any severance or termination benefits under any Company plans, policies or procedures providing for such benefits, including, but not limited to, the Hunt Manufacturing Co. Officers' Severance Plan and the Hunt Manufacturing Co. Non-Officer Severance Plan, and any predecessor or successor plan. 3.4 Vacation. After ninety days of service, Executive shall be entitled to five weeks of paid vacation during each twelve-month period ending on the anniversary of his date of employment. 3.5 Expense Reimbursement. During the term of his employment hereunder, Company shall reimburse Executive for all reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with its regular reimbursement policies as in effect from time to time and upon receipt of itemized vouchers therefor and such other supporting information as Company may reasonably require. In addition, Company shall reimburse Executive for the reasonable moving expenses incurred by him in moving his family's residence from Los Angeles, CA to Philadelphia, PA to commence employment hereunder, including specifically the cost of a relocation service to purchase Executive's home at its current appraised value; the cost of the physical move of household goods; prevalent real estate sales commissions; legal expenses; mortgage points that are customary and prevalent at the time of purchase of a principal residence, provided such points are incurred within one year from his date of employment; temporary living expenses for a period not in excess of three months; and the cost of two trips from Los Angeles to Philadelphia for Executive and his spouse, of up to five days' duration each, for the purpose of locating a satisfactory personal residence. Temporary living expenses shall include rental of temporary housing; laundry 4 charges; breakfast and dinner expenses; the cost of a rental car until the Company-provided leased car arrives; and temporary living costs while waiting for a moving truck to arrive in Los Angeles or Philadelphia. Reasonable moving expenses shall also include the reimbursement of Executive's interest expense, for a period of up to six months, on a swing loan obtained by the Executive pending the sale of his Los Angeles residence and the reimbursement of duplicate carrying charges consisting of interest and real estate taxes, for a period of up to six months, on Executive's personal residence in Los Angeles following his purchase of a personal residence in Philadelphia. To the extent that the expenses reimbursed under this Section 3.5 are included in the Executive's income for purposes of federal, state or local taxes, the Company shall increase such reimbursement, first, by an amount sufficient to provide for the payment of such taxes, and, second, by an amount sufficient to provide for the payment of taxes on such taxes, but not by any additional amount. 3.6 Automobile. During the term of his employment hereunder, Company shall provide Executive with a leased automobile, for which the Company shall pay a minimum of $22,500 over the term of a three-year lease, with increasing payments in accordance with Company policies, for use in connection with the performance of his duties hereunder and shall reimburse him for all expenses reasonably incurred by him for the maintenance, insurance and operation, including fuel, of such automobile in connection with the performance of his duties hereunder, upon receipt of itemized vouchers therefor and such other supporting information as Company may reasonably require. In accordance with Company policies, the Executive shall be charged for personal use of the automobile. Company shall also provide a car telephone and reimburse Executive for monthly business telephone charges. 3.7 Other Perquisites. In addition to the fringe benefits described in Sections 3.3 through 3.6, during the term of his employment hereunder the Company will reimburse Executive for the cost of his participation in airline clubs used when travelling on Company business on commercial airlines; for initiation fees and monthly dues for membership in a business club in Philadelphia; for the cost of preparation of Executive's tax returns; and will provide a Company computer for use in his home on Company business, including hardware and necessary software. SECTION 1. TERMINATION OF EMPLOYMENT 1.1 Death of Executive. Executive's employment hereunder shall immediately terminate upon his death. If the Executive's death occurs during the initial two-year term of his employment, the Company shall promptly pay to Executive's estate all of the compensation provided for in Sections 3.1 and 3.2(a) hereof to be paid during the remainder of such term, but in no event for less than six months following the date of death. If Executive's death occurs after the initial two-year term of his employment, the Company shall promptly pay to Executive's estate all of the compensation provided for in Sections 3.1 and 3.2(a) hereof for a period of six months following the date of death. The Company shall also be obligated to provide such additional vesting as is specified in Section 4.4(c) hereof, relating to termination without Cause. 5 1.2 Disability of Executive. In the event of the Executive's Disability (as defined below), the Board shall have the right to terminate Executive's employment upon 90 days' prior written notice to Executive at any time during the continuation of such Disability. For purposes of this Agreement, "Disability" shall mean: (A) 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 (B) 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. If the Executive's employment is terminated pursuant to this Section 4.2 during the initial two-year term of his employment, Company shall continue to pay to Executive the compensation provided for in Sections 3.1 and 3.2(a) hereof until the end of such term but in no event for less than six months following the date of termination. If the Executive's employment is terminated pursuant to this Section 4.2 after the initial two-year term, the Company shall continue to pay to Executive the compensation provided for in Sections 3.1 and 3.2(a) hereof for six months following the date of termination. The Company shall also be obligated to provide such additional vesting and other benefits as are specified in Section 4.4(c), relating to termination without Cause. 1.3 Termination for Cause. Executive's employment hereunder shall terminate immediately upon notice that the Board is terminating Executive for "Cause" (as defined below), in which event Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, bonuses, expense reimbursement, etc.) accrued under this Agreement as of the date of such termination in accordance with generally accepted accounting principles. As used herein, "Cause" shall mean: (A) willful and material breach of this Agreement by the Executive, (B) Executive's dishonesty, fraud, willful malfeasance, gross negligence or other gross misconduct, in each case relating to the performance of the Executive's employment hereunder, 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 Company after having afforded the Executive a reasonable opportunity to appear before the Board and present his position. 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. 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. 1.4 Resignation; Termination without Cause. (a) After the initial term of his employment, the Executive may resign at any time upon not less than 180 days' prior written notice to the Board of such proposed resignation, or upon such shorter notice as the parties may agree. The Executive shall, in any event, retire from Company on the first day of the month following his 65th birthday. If Executive's employment is terminated by such resignation or retirement, the Company shall be obligated only to provide the compensation, benefits, etc. set forth in Section 3 hereof up to the date of termination; provided, however, that the Executive shall be entitled to such additional compensation and benefits, if any, as 6 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, including, without limitation, the Executive's Phantom Stock Plan attached as Appendix A hereto. (b) The Board in its sole discretion may terminate Executive's employment hereunder without Cause at any time upon 180 days' prior written notice to Executive, or upon such shorter notice as the parties may agree. In the event of the termination of Executive's employment by the Board pursuant to this Section 4.4(b), or if the Executive resigns from his employment as a result of a material reduction in the nature or scope of his authority, power, functions or duties from those described in Section 1.2(a) hereof, the Company shall continue to pay to Executive, for a period of two years from the date of termination, the Base Salary described in Section 3.1 hereof and the average annual incentive compensation determined pursuant to Section 3.2(a) hereof, if any, received by Executive during the period of his employment, such Base Salary to be paid monthly and such annual incentive pay to be paid at the conclusion of the applicable fiscal year. (c) In the event of a termination of Executive's employment pursuant to Section 4.4(b) hereof, and in addition to the payments to be made pursuant to Section 4.4(b), any shares of phantom stock which have not become vested by reason of the passage of time shall become vested upon the date of termination of employment and the Executive's benefits described in Section 3.3 hereof shall be continued during the two-year period following the date of termination of Executive's employment, either pursuant to the applicable plan or, in the sole discretion of the Company, on an unfunded basis by the Company. Executive shall not be entitled to participate in the Company's Savings Plan following his termination of employment, but during the two-year period shall be entitled to receive comparable benefits pursuant to the Supplemental Executive Benefits Plan. Executive shall also be entitled to receive all pension benefits accrued pursuant to the Company's Pension Plan and Supplemental Executive Benefits Plan to the date of termination and during the two-year period thereafter during which Executive receives payments under Section 4.4(b) hereof. If the Executive has not become fully vested in his accrued benefit under the Company's Pension Plan on the date of the termination of his employment, the Company shall provide for such accrued benefit to be paid pursuant to the Supplemental Executive Benefits Plan and, likewise, shall provide for additional pension accruals subsequent to the termination of Executive's employment to be paid from the Supplemental Executive Benefits Plan. 1.5 Change in Control. (a) Effective Date of Section 4.5. At such time, if any, as a Change in Control (as defined in Section 4.5(b) hereof) of the Company occurs, the provisions of this Section 4.5 shall become effective (the "Change in Control Date"); provided, however, that the provisions of this Section 4.5 shall be of no further force and effect if: (i) a Change in Control shall not have occurred by December 31, 1999, or such later date as shall have been approved by the Board and agreed to by the Executive; or 7 (ii) prior to the Change in Control 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 (1) 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 (2) otherwise arose in connection with or in anticipation of an imminent Change in Control, then this Section 4.5 shall become effective, and the "Change in Control Date" shall be, the date of such termination. (b) Change in Control. As used in this Section 4.5, a "Change in Control" of the Company shall be deemed to have occurred if: (i) 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 (1) the Company and/or its wholly-owned subsidiaries, (2) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such plan, (3) 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 (4) 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 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 shall determine; provided, however that a Change in Control shall not be deemed to have occurred under the provisions of this subsection (i) 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; 8 (ii) during any two-year period beginning after June 1, 1996, or, if earlier, the date of Executive's employment, 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 (i) or (iii) hereof) whose election by the Board, 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 (iii) the Company's shareholders or the Board shall approve (1) 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 Stock would be converted into cash, securities and/or other property, other than a merger of the Company in which holders of voting Common Stock 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 voting Common Stock immediately before, (2) 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 (3) 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. (c) Continuation of Employment. (i) If a Change in Control occurs, the Executive's employment shall continue after the Change in Control Date in accordance with the terms and conditions contained in the other Sections of this Agreement. However, if the Executive's employment is terminated under the circumstances set forth in Section 4.5(d)(ii) before the second anniversary of the Change in Control Date or, if earlier, the first day of the month following the Executive's 65th birthday (the "Change in Control Period"), the Executive shall be entitled to the Severance Allowance set forth in Section 4.5(d)(iii) hereof. (ii) Notwithstanding any other provision of this Section 4.5, 9 (1) the Board may authorize an increase in the amount, duration and nature of and or the acceleration of any compensation or benefits payable under this Section 4.5, as well as waive or reduce the requirements for entitlement thereto, and (2) 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. (d) Compensation, Benefits, etc. upon Termination. (i) If the Executive's employment is terminated during the Change in Control Period by death, Disability, Cause or by his resignation (other than a resignation in the circumstances set forth in subsections (ii)(2) or (ii)(3) below), Executive or his estate shall be entitled to the compensation and benefits set forth in Sections 4.1, 4.2, 4.3 and 4.4(a) respectively. (ii) If the Executive's employment is terminated during the Change in Control Period by: (1) the Company without Cause; (2) resignation of the Executive at any time during the four-month period commencing one year after the Change in Control Date; or (3) resignation of the Executive as a result of: (A) a material change in the nature or scope of the Executive's authorities, powers, functions or duties from those described in Section 1 hereof; a material change in the Executive's travel requirements or a change in the Executive's primary employment location to a location which is more than 25 miles from the location at which he was primarily employed prior to the Change in Control; a reduction in the Executive's total compensation, benefits, etc. from those provided for in Section 3 hereof; or a material breach by the Company of any other provision of this Agreement, or (B) 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 position, he is unable effectively to exercise the authorities, powers, functions or duties contemplated by Section 1 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 4.5(d), including the Phantom Stock Plan referred to above. 10 (iii) In the event of a Covered Termination of the Executive during the Change in Control Period, the Company shall pay or cause to be paid to the Executive in cash a severance allowance (the "Severance Allowance") equal to 2.99 times the sum of the amounts determined in accordance with the following paragraphs (1) and (2): (1) 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 prior to the Covered Termination; and (2) an amount equal to the average of the aggregate annual cash amounts paid or payable 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 (A) such calculation shall be made on an individual incentive plan basis, (B) 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 (C) 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). (iv) The Severance Allowance shall be paid to the Executive: (1) in a lump sum within 60 days after the date of any termination of the Executive covered by Sections 4.5(d)(ii)(1) or 4.5(d)(ii)(3)(A); and (2) in 36 equal monthly installments beginning within 30 days after any termination by the Executive covered by Sections 4.5(d)(ii)(2) or 4.5(d)(ii)(3)(B), subject to subsection (viii) below. (v) Subject to subsection (viii) below: (1) 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, 11 (A) outplacement counseling and other outplacement services comparable to those available for the Company's senior executives prior to the Change in Control Date and (B) 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 (2) for a period of three 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 prior thereto; 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 June 1, 1996). (vi) If, despite the provisions of subsection (v) 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. (vii) Except as expressly provided in subsections (i), (iii), (iv), (v) and (vi) 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. (viii) Except as otherwise provided under the express terms of any compensation or benefit plans of the Company or its subsidiaries, including the Phantom Stock Plan for Donald L. Thompson, attached hereto as Appendix A, the Company's obligations to make payments or continue benefits pursuant to Sections 4.5(d)(iv)(2), 4.5(d)(v) and 4.5(d)(vi) shall terminate on the earlier to occur of: 12 (1) the termination date therefor specified in such sections and (2) the date of a determination by a court or arbitration panel pursuant to Sections 5.4 or 6.1 hereof, respectively, that the Executive has materially and willfully violated the provisions of Sections 5.1 or 5.3 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 4.5(d)(iv)(2), 4.5(d)(v) and/or 4.5(d)(vi) hereof: (A) the Executive shall notify the Company not later than the day such employment commences, (B) the benefits provided for in Sections 4.5(d)(v) and 4.5(d)(vi) shall terminate as of the date of such employment, and (C) the amount of the Severance Allowance which the Company is obligated to pay the Executive pursuant to Section 4.5(d)(iv)(2) shall be reduced on a continuing basis by the Internal Revenue Service Form W-2 "wages, tips or other compensation" block, or equivalent compensation earned by the Executive from such new employment. For the purposes of this subsection (viii), 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 Executives 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. (e) Set-Off Mitigation. Subject to Section 4.5(d)(viii) 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. (f) Certain Additional Payments by the Company. (i) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive by reason of a Change in Control with respect to which the Change in Control Date is on or before May 31, 1998 (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4.5(f) (a "Payment") would be subject to the excise 13 tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 4.5(f)(iii), all determinations required to be made under this Section 4.5(f), including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 4.5(f), shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 4.5(f)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (iii) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of 14 taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (1) give the Company any information in Executive's possession reasonably requested by the Company relating to such claim, (2) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company. (3) cooperate with the Company in good faith in order effectively to contest such claim, and (5) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4.5(f), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for a taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4.5(f)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the 15 requirements of Section 4.5(f)(iii)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto), If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4.5(f)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (g) Limitation on Payment Obligation for Change in Control on or after June 1, 1998. (i) For purposes of this Section 4.5(g), all terms capitalized but not otherwise defined herein shall have the meanings as set forth in Section 280G of the Code, together with any applicable regulations thereunder. In addition: (1) 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 Section 280G(b)(6), of the Code; (2) 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 (3) 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. (ii) 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, by reason of a Change in Control with respect to which the Change in Control Date is on or after June 1, 1998, 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 (1) three times the Executive's Base Amount and (2) the aggregate Reasonable Compensation allocable to such Parachute Payments. Unless otherwise agreed by the Executive and the Company, any 16 reduction in Parachute Payments caused by reason of this subsection (ii) shall be made, first, against the Severance Allowance and, second, proportionately with respect to each other Parachute Payment. This subsection (ii) 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 (ii) 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 (ii), 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. (iii) Notwithstanding any other provision of this Section 4.5, 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. 1.6 No Additional Benefits. The compensation and benefits required to be paid by the Company pursuant to Section 4 are the only compensation and benefits to which the Executive is entitled upon a termination of employment or Change in Control, except as otherwise required by law or by the express terms of any benefit plan of the Company. SECTION 2. RESTRICTIVE COVENANTS 2.1 Confidentiality. Executive acknowledges a duty of confidentiality owed to Company and shall not, at any time during or after his employment by Company, retain in writing, use, divulge, furnish, or make accessible to anyone, without the express authorization of the Board, any trade secret, private or confidential information or knowledge of Company or any of its affiliates obtained or acquired by him while so employed. All computer software, address books, rolodexes, business cards, telephone lists, customer lists, price lists, contract forms, catalogs, books, records, and files and know-how acquired while an employee of Company, are acknowledged to be the property of Company and shall not be duplicated, removed from Company's possession or made use of other than in pursuit of Company's business and, upon termination of employment for any reason, Executive shall deliver to Company, without further demand, all copies thereof which are then in his possession or under his control. 2.2 Inventions and Improvements. During the term of his employment, Executive shall promptly communicate to Company all ideas, discoveries and inventions which are or may be useful to Company or its business. Executive acknowledges that all ideas, discoveries, inventions, 17 and improvements which are made, conceived, or reduced to practice by him and every item of knowledge relating to Company's business interests (including potential business interests) gained by him during his employment hereunder are the property of Company, and Executive hereby irrevocably assigns all such ideas, discoveries, inventions, improvements, and knowledge to Company for its sole use and benefit, without additional compensation. The provisions of this Section shall apply whether such ideas, discoveries, inventions, improvements or knowledge are conceived, made or gained by him alone or with others, whether during or after usual working hours, whether on or off the job, whether applicable to matters directly or indirectly related to Company's business interests (including potential business interests), and whether or not within the specific realm of his duties. It shall be conclusively presumed that ideas, inventions, and improvements relating to Company's business interests or potential business interests conceived during the two-year period following termination of employment are, for the purposes of this Agreement, conceived prior to termination of employment. Executive shall, upon request of Company, but at no expense to Executive, at any time during or after his employment with Company, sign all instruments and documents requested by Company and otherwise cooperate with Company to protect its right to such ideas, discoveries, inventions, improvements, and knowledge, including applying for, obtaining, and enforcing patents and copyrights thereon in any and all countries. 2.3 Noncompetition. During the term of Executive's employment and for two years after any termination of employment, and, if Executive's employment is terminated by Executive pursuant to Sections 4.5(f)(ii)(2) or 4.5(f)(ii)(3)(B), for so long as payments are being made to the Executive pursuant to Section 4.5(f)(iv)(2) hereof, Executive shall not directly or indirectly: (i) engage, anywhere in the world, in the manufacture, assembly, design, distribution or marketing of any product or equipment substantially similar to any product or equipment which at any time during the term of such employment or the immediately preceding twelve month period has been manufactured, sold or distributed by Company or any product or equipment which Company was developing during such period for future manufacture, sale or distribution; (ii) be or become a stockholder, partner, owner, officer, director or employee or agent of, or a consultant to or give financial or other assistance to, any person or entity considering engaging in any such activities or so engaged; (iii) seek in competition with the business of Company to procure orders from or do business with any customer of Company; (iv) solicit, or contact with a view to the engagement or employment by, any person or entity of any person who is an employee of Company; (v) seek to contract with or engage (in such a way as to adversely affect or interfere with the business of Company) any person or entity who has been contracted with or engaged to manufacture, assemble, supply or deliver products, goods, materials or services to Company; or (vi) engage in or participate in any effort or act to induce any of the customers, associates, consultants, or employees of Company or any of its affiliates to take any action which might be disadvantageous to Company or any of its affiliates; provided, however, that nothing herein shall prohibit the Executive and his affiliates from owning, as passive investors, in the aggregate not more than 5% of the outstanding publicly traded stock of any corporation so engaged. The duration of the Executive's covenants set forth in this Section shall be extended by a period of time equal to the number of days, if any, during which the Executive is finally determined by a court of competent jurisdiction to be in violation of the provisions hereof. 18 2.4 Injunctive and Other Relief. (a) Executive acknowledges and agrees that the covenants contained herein are fair and reasonable in light of the consideration paid hereunder, and that damages alone shall not be an adequate remedy for any breach by Executive of his covenants contained herein and accordingly expressly agrees that, in addition to any other remedies which Company may have, Company shall be entitled to injunctive relief in any court of competent jurisdiction for any breach or threatened breach of any such covenants by Executive. Nothing contained herein, including, without limitation, Section 6.1 hereof, shall prevent or delay Company from seeking, in any court of competent jurisdiction, specific performance or other equitable remedies in the event of any breach or intended breach by Executive of any of its obligations hereunder. (b) Notwithstanding the equitable relief available to Company, the Executive, in the event of a breach of his covenants contained in Section 5 hereof, understands and agrees that the uncertainties and delay inherent in the legal process would result in a continuing breach for some period of time, and therefore, continuing injury to Company until and unless Company can obtain such equitable relief. Therefore, in addition to such equitable relief, Company shall be entitled to monetary damages for any such period of breach until the termination of such breach, in an amount deemed reasonable to cover all actual and consequential losses, plus all monies received by Executive as a result of said breach and all costs and attorneys' fees incurred by Company in enforcing this Agreement. If Executive should use or reveal to any other person or entity any confidential information, this will be considered a continuing violation on a daily basis for so long a period of time as such confidential information is made use of by Executive or any such other person or entity. SECTION 3. MISCELLANEOUS 3.1 Arbitration. (a) All disputes arising out of or relating to this Agreement which cannot be settled by the parties shall promptly be 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 6.1. 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 19 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. 3.2 Prior Employment. Executive represents and warrants that he is not a party to any other employment, non-competition or other agreement or restriction which could interfere with his employment with Company or his or Company's rights and obligations hereunder; and that his acceptance of employment with Company and the performance of his duties hereunder will not breach the provisions of any contract, agreement, or understanding to which he is party or any duty owed by him to any other person. 3.3 Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof. If any provision hereof is determined to be invalid or unenforceable by a court of competent jurisdiction, Executive and Company shall negotiate in good faith to provide Company and Executive with protection as nearly equivalent to that found to be invalid or unenforceable and if any such provision shall be so determined to be invalid or unenforceable by reason of the duration or geographical scope of the covenants contained therein, such duration or geographical scope, or both, shall be considered to be reduced to a duration or geographical scope to the extent necessary to cure such invalidity. 3.4 Assignment. This Agreement shall not be assignable by Executive, and shall be assignable by Company only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to Company in the business or a portion of the business presently operated by it. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators. 3.5 Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by telegram, fax or telecopy (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any such action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law. 20 (a) If to Company: One Commerce Square 2005 Market Street Philadelphia, PA 19103-7085 Tel: (215) 656-0300 Fax: (215) 656-3712 Attention: Vice President, Human Resources With a copy to: John C. Bennett, Jr., Esq. Drinker Biddle & Reath Philadelphia National Bank Building 11th Floor 1345 Chestnut Street Philadelphia, PA 19107-3496 Tel: (215) 988-2700 Fax: (215) 988-2757 (b) If to Executive: Donald L. Thompson 32 Sicilian Walk Long Beach, CA 90803 With a copy to: Wm. Scott Magargee, III, Esq. Dechert Price & Rhoads 4000 Bell Atlantic Tower, 1717 Arch St. Philadelphia, PA 19103-2793 Tel: (215) 994-4000 Fax: (215) 994-2222 3.6 Entire Agreement and Modification. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. Any amendment, modification, or waiver of this Agreement shall not be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power, or privilege 21 with respect to any occurrence be construed as a waiver of any right, remedy, power, or privilege with respect to any other occurrence. 3.7 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the internal laws of the Commonwealth of Pennsylvania (and United States federal law, to the extent applicable), without giving effect to otherwise applicable principles of conflicts of law. 3.8 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute but one and the same Agreement. 3.9 Further Assurances. Each of the parties hereto shall execute such further instruments and take such other actions as any other party shall reasonably request in order to effectuate the purposes of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. HUNT MANUFACTURING CO. By ---------------------------- Chief Executive Officer ----------------------------- Donald L. Thompson Executive 22 APPENDIX A HUNT MANUFACTURING CO. PHANTOM STOCK PLAN FOR DONALD L. THOMPSON ARTICLE I Purpose of Plan 0.1 Purpose. The purpose of the HUNT MANUFACTURING CO. PHANTOM STOCK PLAN FOR DONALD L. THOMPSON (the "Plan") is to further the long-term growth in earnings of Hunt Manufacturing Co. by offering long-term financial incentives to the Chairman and Chief Executive Officer of the Company. ARTICLE II Definitions Whenever the following terms are used in the Plan, they shall have the meanings specified below unless the context clearly indicates to the contrary: 0.1 Beneficiary shall mean such person or persons or legal entity as may be designated by the Participant to receive benefits hereunder after the Participant's death, or in the absence of such designation, the personal or legal representative of the Participant. 0.2 Benefit Account shall mean the account established pursuant to Section 6.2(A). 0.3 Board shall mean the Board of Directors of the Company. 0.4 Code shall mean the Internal Revenue Code of 1986, as amended. 0.5 Committee shall mean the Compensation Committee of the Board. 0.6 Common Stock shall mean shares of Hunt Manufacturing Co. common stock, par value $.10 per share. 0.7 Company shall mean Hunt Manufacturing Co. A-1 APPENDIX A 0.8 Dividend Account shall mean the account established by the Committee for the Participant and to which the undistributed portion of the Participant's Dividend Amounts and payments attributable thereto are credited or debited. 0.9 Dividend Amount shall mean the amount to which the Participant becomes entitled at the time that shareholders of Common Stock are paid cash dividends on such Stock, determined as provided in Article V. 0.10 Effective Date shall mean June 1, 1996, or, if earlier, the date on which the Participant commences employment with the Company. 0.11 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. 0.12 Interest shall mean the average monthly rate of interest paid on ten-year bonds on a specified date, as evidenced by the Moody's Ten-Year Bond Index, multiplied by 1.333. 0.13 Participant shall mean Donald L. Thompson. 0.14 Phantom Stock shall mean the number of shares credited to the Participant's Stock Account as provided in Article V. 0.15 Plan shall mean the HUNT MANUFACTURING CO. PHANTOM STOCK PLAN FOR DONALD L. THOMPSON. 0.16 Plan Year shall mean the fiscal year of the Plan ending each December 31. 0.17 Separation Date shall mean the date on which a Participant terminates employment with the Company (whether by retirement, death, resignation, discharge, or otherwise). 0.18 Stock Account shall mean the account established by the Committee for the Participant and to which the Participant's Phantom Stock and all assumed appreciation, depreciation, and payments attributable thereto are credited or debited. 0.19 Valuation Date shall mean June 1, 1996, and the last day of each calendar month thereafter. 0.20 Vesting Percentage shall mean that percentage of the Participant's Stock Account to which he has a vested (non-forfeitable) right. A-2 ARTICLE III Participation 0.1 Participation. Participation shall begin on the Effective Date. Participation in the Plan shall continue until the Participant's Separation Date. ARTICLE IV Establishment of Stock Account 0.1 Stock Account. The Committee shall establish and maintain, for the Participant, a Stock Account to record the value of the Participant's interest under the Plan. On the Effective Date, for the purpose of computing the value of the cash benefits to which Participant is entitled hereunder, the Participant's Stock Account shall be credited with 175,000 shares of Phantom Stock which shall be deemed to be the equivalent of an equal number of shares of Common Stock. 0.2 Valuation of Stock Account. As of each Valuation Date the Committee shall determine the value of each share of Phantom Stock credited to the Stock Account by reference to the mean between the highest and lowest quoted selling prices of the Common Stock on the New York Stock Exchange on the Valuation Date, as reported in The Wall Street Journal or, if the Valuation Date is not a regular business day, on the immediately preceding regular business day. Such value, as determined by the Committee, shall be conclusive. 0.3 Adjustments to Stock Account. In the event of a change in the outstanding shares of Common Stock by reason of a recapitalization, stock split, stock dividend, merger, consolidation, reorganization, or similar corporate change, the Committee shall make equitable adjustments in the Stock Account of the Participant so that the number of shares of Phantom Stock credited to the Stock Account is not diluted as a result of such change. 0.4 No Shareholder Rights. The crediting of Phantom Stock to the Participant's Stock Account shall not entitle the Participant to voting rights or any other rights of a shareholder with respect to such Phantom Stock (except for the crediting to Participant's Dividend Account of an amount equal to the dividends paid on the Common Stock.) ARTICLE V Establishment of Dividend Account and Allocation and Crediting of Dividend Amounts 0.1 Dividend Account. The Committee shall establish and maintain, for the Participant, a separate Dividend Account to record the undistributed Dividend Amounts of the Participant. A-3 0.2 Entitlement to and Calculation of Dividend Amounts. Whenever the shareholders of Common Stock become entitled to receive cash dividends on such common stock, the Participant shall become entitled to a Dividend Amount. Such Dividend Amount shall be determined by multiplying the per share cash dividend payable to shareholders of the Common Stock by the number of shares of Phantom Stock allocated to the Participant's Stock Account. 0.3 Distribution of Vested Dividend Amounts. Not later than November 30, 1996, and each November 30 thereafter until the Participant's Separation Date, the Participant may elect, by filing an appropriate form with the Committee, to receive a cash distribution of the Dividend Amount otherwise allocable to the Participant's Dividend Account for the following calendar year, multiplied by the Participant's Vesting Percentage. Such cash distribution shall be made to the Participant at the same time that cash dividends are paid to the shareholders of Common Stock. Such cash distributions shall not be treated as "compensation" for purposes of benefits pursuant to the Company's benefit plans. 0.4 Treatment of Undistributed Dividend Amounts. That portion of the Participant's Dividend Amount which is not distributed in accordance with Section 5.3 shall be credited to his Dividend Account and shall vest in accordance with Section 6.1(B). Amounts credited to the Participant's Dividend Account shall be credited with earnings, on the last day of each month, at the rate of Interest in effect on the first day of the month. The vested amount in the Participant's Dividend Account shall be distributed in accordance with Section 6.2. ARTICLE VI Distribution of Benefits on Separation 0.1 Vesting. (A) Stock Account. The Participant's right to the cash value of the amounts credited to his Stock Account shall become vested (non-forfeitable) in accordance with the following schedule, provided Participant is employed by the Company on each of the dates shown: 25% on December 1, 1996 50% on December 1, 1997 75% on December 1, 1998 100% on December 1, 1999 (B) Dividend Account. The Participant shall have a vested (non-forfeitable) right to the amount credited to his Dividend Account equal to: (1) the product of (a) the total of all Dividend Amounts to which the Participant has become entitled (including portions of such Dividend Amounts which have been A-4 distributed to the Participant), multiplied by (b) the Participant's Vesting Percentage (as determinedunder Section 6.1(A); less (2) the total of all Dividend Amounts which have been distributed to the Participant. (C) Special Vesting. The preceding provisions of Section 6.1 notwithstanding, the Participant shall have a vested (non-forfeitable) right to the amounts credited to his Stock Account and Dividend Account in the event of (1) the termination of his employment by the Company without Cause, as provided in Section 4.4 of the Employment Agreement between the Participant and the Company dated April ___, 1996; (2) a Change in Control of the Company, as defined in Section 4.5(b) of the Employment Agreement; (3) the Participant's death; or (4) the Participant's Disability, as determined pursuant to Section 4.2 of the Employment Agreement. 0.2 Distribution of Benefits on Separation. (A) Amount of Benefits. The amount of benefits payable to a Participant (or his Beneficiary) under the Plan, as a distribution after the Participant's Separation Date, shall be equal to the sum of (a) the Participant's vested interest in his Dividend Account, such vesting to be determined pursuant to Section 6.1(B) or (C), plus (b) the product of his Vesting Percentage (determined as of his Separation Date) multiplied by the value of the Participant's Stock Account as of the Valuation Date last preceding such Separation Date. Such valuation shall be determined in accordance with Section 4.2. Effective as of such Valuation Date, the amount of benefit so determined shall be credited to the Participant's Benefit Account and shall thereafter be credited with Interest on the last day of each month at the rate of Interest determined on the first day of such month. (B) Method and Timing of Payment. The Participant's Benefit Account, as determined under Section 6.2(A), shall be distributed to him (or to his Beneficiary if he has died) in 240 monthly installments, payable on the first of each month commencing on January 1 of the year following the Participant's Separation Date. The amount of each installment shall be equal to 1/n multiplied by the balance credited to the Participant's Benefit Account as of the last day of the month preceding the payment date, where "n" equals the number of payments yet to be made. The final payment will equal the balance in the Participant's Benefit Account on the date of payment. For example, if payments begin on January 1, 2005, the first payment will be equal to 1/240 of the balance in the Benefit Account on December 31, 2004, the February 1, 2005 payment will be equal to 1/239 of the balance in the Benefit Account of January 31, 2005, and so on until 240 installments have been paid. 0.3 Emergency Distributions. (A) The Compensation Committee may at any time make a payment to a Participant in an amount up to the Participant's vested portion of his Stock and Dividend Accounts A-5 upon a showing of an unforeseeable emergency. An unforeseeable emergency is a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in section 152(a) of the Code) of the Participant, loss of property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The need to send a Participant's child to college or the desire to purchase a home are not unforeseeable emergencies. Payments may not be made to the extent the hardship is or may be relieved (1) through reimbursement or compensation by insurance or otherwise, or (2) by liquidation of the Participant's assets, to the extent such liquidation would not itself cause severe financial hardship. The determination of whether an unforeseeable emergency within the meaning of this Section 6.3(A) exists shall be made at the sole discretion of the Compensation Committee. The amount of any such emergency distribution shall be limited to the amount necessary to meet the emergency. (B) In addition to the distributions permitted under Section 6.3(A), the Participant may, at any time, request the Compensation Committee to distribute all or part of the vested portion of his Stock and Dividend Accounts to him, which distributions shall be reduced by an 8% discount as a restriction on the availability of distributions pursuant to this Section 6.3(B). ARTICLE VII Funding 0.1 Plan Unfunded. The Plan shall be unfunded and no trust shall be created. The Participant's Stock Account shall be reflected solely through bookkeeping entries. No actual funds shall be set aside. All benefits shall be paid by the Company from its general assets, and the Participant (or his Beneficiary) shall have only the rights of a general, unsecured creditor against the Company for any distributions due hereunder. The foregoing notwithstanding, the Company shall establish a grantor or "rabbi" trust for the purpose of enabling the Company to provide for the payment of benefits hereunder as they come due. Contributions to the rabbi trust shall be made by the Company at such times and in such amounts as the Board, in its sole discretion, shall determine. ARTICLE VIII Administration 0.1 Compensation Committee. The Compensation Committee of the Board shall be in charge of the operation and administration of the Plan. The Committee may, however, delegate specific administrative responsibilities to officers or employees of the Company or to other individuals, all of whom shall serve at the pleasure of the Committee and, if full-time employees of the Company, without additional compensation. 0.2 Powers and Duties of Committee. The Committee shall administer the Plan in accordance with its terms and shall have all the powers necessary to carry out such terms. The A-6 Committee shall act by a majority of its members at the time in office, and such action may be taken by a vote at a meeting or in writing without a meeting. The Chairman, or any member of the Committee designated by the Chairman, shall execute any certificate, instrument or other written direction on behalf of the Committee and shall direct the payment of benefits under the Plan. All interpretations of the Plan, and questions concerning its administration and application, shall be determined by the Committee in its sole discretion, and such determination shall be binding on all Participants and their Beneficiaries. 0.3 Records and Reports. The Committee shall maintain records which shall contain all relevant data pertaining to the Participant and his rights under the Plan. It shall have the duty to carry into effect all rights or benefits provided hereunder to the extent Company assets are properly available therefor. 0.4 Payments of Expenses. The Company shall pay all expenses of administering the Plan. 0.5 Indemnification for Liability. The Company shall indemnify the members of the Committee and other employees of the Company to whom the Committee has delegated administrative or fiduciary duties against any and all claims, losses, damages, expenses, and liabilities arising from their responsibilities in connection with the Plan, unless the same is determined to be due to gross negligence or willful misconduct. 0.6 Claims Procedure. A claim for benefits under the Plan shall be filed with the Chairman of the Committee. Written notice of the disposition of a claim shall be furnished the Participant within 30 days after the application therefor is filed. In the event the claim is denied, the specific reasons for such denial shall be set forth, pertinent provisions of the Plan shall be cited and, where appropriate, an explanation as to how the Participant can perfect his claim will be provided. 0.7 Claims Review Procedure. The Participant or a Beneficiary who has been denied a benefit, shall be entitled, upon request to the Chairman of the Committee, to receive a written notice of such action, together with a full and clear statement of the reasons for the action. If the Participant or Beneficiary wishes further consideration of such claimant's position, the claimant may by written application request a hearing. The written request together with a written statement of the claimant's position, shall be filed with the Committee no later than 90 days after receipt of the written notification provided for above or in Section 8.6. The Committee shall schedule an opportunity for a full and fair hearing of the issue within 30 days following receipt of the claimant's written statement. The decision following such hearing shall be made within 30 days of such hearing and shall be communicated in writing to the claimant. 0.8 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Company shall: A-7 (a) File a statement with the Secretary of Labor that includes the name and address of the employer, the employer identification number assigned by the Internal Revenue Service, a declaration that the Company maintains the Plan primarily for the purpose of providing deferred compensation for a management and highly compensated employee and a statement of the number of such plans and the number of employees in each; and (b) Provide plan documents, if any, to the Secretary of Labor upon request as required by Section 104(a)(1) of ERISA. It is intended that this provision comply with requirements of DOL Reg. ss.2520.104-23. ARTICLE IX Amendment and Termination 0.1 Amendment and Termination. The Board shall have the right, at any time, by an affirmative vote of a majority thereof, to amend or terminate, in whole or in part, the Plan, provided that such amendment or termination shall not adversely affect the right of the Participant to the benefits set forth in the Plan as effective June 1, 1996, including the right to accrue further Interest as provided herein. ARTICLE X Miscellaneous Provisions 0.1 Alienation or Assignment of Benefits. The Participant's rights and interest under the Plan may not be assigned or transferred prior to his death, and then only pursuant to the provisions of this Plan. 0.2 Right to Withhold. The Company shall have the right to deduct from all cash payments any Federal, state or local taxes required by law to be withheld with respect to such cash payments. 0.3 Construction. All legal questions pertaining to the Plan shall be determined in accordance with the laws of the Commonwealth of Pennsylvania except as preempted by Federal law. A-8 0.4 Headings. The headings are for reference only. In the event of a conflict between a heading and the content of an Article or Section, the content of the Article or Section shall control. IN WITNESS WHEREOF, HUNT MANUFACTURING CO. has caused this Plan to be duly executed, under seal, this ___________ day of _________________________, 1996. ATTEST: HUNT MANUFACTURING CO. ___________________________ By:________________________________ Secretary Chief Executive Officer [Corporate Seal] A-9 EX-10 10 ex10h-5.txt EXHIBIT 10(H)5 Exhibit (10)(h)(5) TRANSITION AND SEPARATION AGREEMENT This Transition and Separation Agreement (the "Agreement") is entered into this 30th day of November, 2001, between HUNT CORPORATION, a Pennsylvania corporation (the "Company"), and DONALD L. THOMPSON ("Thompson"). BACKGROUND Thompson currently is President, Chief Executive Officer and Chairman of the Board of Directors of the Company. The parties desire by this Agreement to set forth the terms of Thompson's separation from and transition out of the Company as hereinafter provided. THEREFORE, in consideration of the mutual obligations and agreements contained herein and intending to be legally bound, the Company and Thompson hereby agree as follows: 1. Status and Duties. (a) Resignation as President. Thompson hereby resigns as President, effective November 30, 2001. (b) Termination of Employment. Thompson's employment with the Company and its subsidiaries shall terminate on May 31, 2002, but he shall continue as Chairman of the Board and a director of the Company as hereinafter provided. (c) Duties during Transition Period. During the period from the date of this Agreement until his termination of employment (the "Transition Period"), Thompson shall continue as Chief Executive Officer of the Company and, in addition to the duties of such position as set forth in Section 1 of the Employment Agreement between the Company and Thompson dated April 8, 1996, as amended (the "Employment Agreement"), shall assist with the orientation and training of a successor Chief Executive Officer; provided, however, that the Board of Directors shall have the right to require the resignation of Thompson as Chief Executive Officer earlier during the Transition Period if it so desires, but his ceasing to be Chief Executive Officer shall not affect his status as an employee of the Company or his right to his compensation and benefits through the end of the Transition Period, unless his employment is terminated for cause (as defined in the Employment Agreement) occurring after the date of this Agreement ("Cause"). (d) Compensation and Benefits during Transition Period. During the Transition Period, Thompson shall be entitled to the compensation and benefits set forth in Section 3 of the Employment Agreement and Appendix A thereto, as amended. In the event, however, of Thompson's death prior to May 31, 2002, the Transition Period shall end and commencing with the month following his date of death, the Company shall pay to Thompson's designated beneficiary, or if none is designated, to his estate over a thirty month period the severance compensation described in paragraph 2 of this Agreement and Section 4.1 of the Employment Agreement shall not apply. (e) Duties as Chairman of the Board. Following his termination of employment and until his resignation as Chairman of the Board, Thompson, as part of his duties as Chairman, shall continue to assist with the orientation and training of the new Chief Executive Officer and shall otherwise assist the Board of Directors as reasonably requested, particularly in connection with strategic issues and planning for the Company. Thompson shall not be entitled to any compensation from the Company (for services as a director or otherwise) other than his severance compensation during the time he serves as a non-employee director. (f) Resignation as Chairman of the Board. Thompson shall resign as Chairman of the Board of Directors of the Company and as a director of all subsidiaries of the Company effective November 30, 2002, or as of such earlier date as may be requested by the Board of Directors. Thompson may continue to serve out the remainder of his current term as a director of the Company if he so chooses. 2. Severance Compensation Following Termination of Employment. (This provision amends and is substituted for the provisions of Section 4.4(b) of the Employment Agreement.) Commencing May 31, 2002, the Company shall pay to Thompson (or in the event of his death, to his designated beneficiary or, if none, to his estate) as severance thirty months of Base Salary as described in Section 3.1 of the Employment Agreement. Following the end of the fiscal year commencing on December 3, 2001, the Company shall pay Thompson the annual incentive pay, if any, to which he would have been entitled had he remained Chief Executive Officer until the end of such fiscal year, provided his employment is not terminated for Cause. Such incentive pay, if any, with respect to the fiscal year commencing on December 3, 2001 shall be in lieu of any other incentive pay provided for under his Employment Agreement. With respect to the fiscal years commencing on December 2, 2002 and December 1, 2003, the Company shall pay to Thompson the average annual incentive compensation determined pursuant to Section 3.2(a) of the Employment Agreement, if any, received by Thompson from the Company with respect to fiscal years ending prior to January 1, 2003. The Base Salary shall be paid monthly and the annual incentive pay shall be paid at the conclusion of the applicable fiscal year. Such payments (other than any annual incentive pay earned for the fiscal year ending in 2002) shall be deemed to relate to services by Thompson prior to the execution date of this Agreement, and from and after the date of this Agreement, Thompson shall have the irrevocable right to receive such payments during such thirty-month period (the "Severance Period"). 3. Benefits Following Termination of Employment. (This provision amends and is substituted for the provisions of Section 4.4(c) of the Employment Agreement.) Thompson's benefits described in Section 3.3 of the Employment Agreement shall be continued during the Severance Period, either pursuant to the applicable plan or, in the sole discretion of the Company, on an unfunded basis by the Company, or in the case of medical and dental coverage, on an insured basis by the purchase of an individual policy, provided Thompson's employment is not terminated for Cause. Thompson shall not be entitled to participate in the -2- Company's Savings Plan and shall not be entitled to contribute Deferral Amounts to the Supplemental Executive Benefits Plan following his termination of employment. Thompson shall be entitled to receive all pension benefits accrued pursuant to the terms of the Company's Pension Plan and Supplemental Executive Benefits Plan to the date of termination and thereafter until the end of the Severance Period. The Severance Period shall be credited as benefit service and the compensation received by Thompson during such Severance Period shall constitute compensation for pension accrual purposes under the Supplemental Executive Benefits Plan to the extent not taken into account for pension accrual purposes under the Pension Plan, except as otherwise provided in the event of a Change in Control under Section 4.5(d)(vii) of the Employment Agreement. Such benefits shall be deemed to relate to services by Thompson prior to the execution date of this Agreement and from and after the date of this Agreement, Thompson shall have the irrevocable right (provided he is not terminated for Cause) to receive such benefits during the Severance Period. 4. Modification of Deferred Compensation Plan. Notwithstanding the terms of the Deferred Compensation Plan, the following provisions shall take precedence and apply: (a) Separation Date shall mean November 30, 2002. (b) Thompson's initial election regarding distribution of his Deferred Cash and Dividend Accounts shall be made at least 60 days prior to the calendar year in which he elects to have his benefits commence. 5. Change in Control. Notwithstanding any provision of the Employment Agreement to the contrary, Section 4.5 of the Employment Agreement with respect to a Change in Control shall continue to apply until November 30, 2002, provided, however, that the payments received under Section 2 of this Agreement shall reduce the amount of severance payable under Section 4.5(d)(iii) of the Employment Agreement and that the continuation of the benefits specified under Section 4.5(d)(v)(2) of the Employment Agreement shall in no event extend beyond the end of the thirty-sixth month following the earlier of May 31, 2002 or the date of a Change in Control. Therefore, if a Change in Control as defined in the Employment Agreement occurs after May 31, 2002 and prior to December 1, 2002, for purposes of Section 4.5 of the Employment Agreement, Thompson shall be treated as if his employment had been terminated by the Company without cause immediately following such Change in Control. In no event shall there be any duplication of compensation or benefits as a result of a Change in Control. Nothing in this Agreement or Appendix I hereto is intended in any way to limit Thompson's right to assert a claim that he is entitled to the benefits of Section 4.5 of the Employment Agreement with respect to a Change in Control occurring after November 30, 2002. 6. Modification of Employment Agreement. This Agreement is a modification of certain provisions of the Employment Agreement as specified above. Except as modified above, the provisions of the Employment Agreement remain in full force and effect. -3- 7. Mutual Release. The compensation and benefits provided for in this Agreement constitute the entire compensation and benefits which Thompson shall be entitled to receive. Further, the parties concurrently herewith shall execute the Mutual Release attached hereto as Appendix I. If Thompson revokes such Mutual Release as provided in Section 3 thereof, this Agreement also shall be canceled and of no further force and effect. 8. Knowing and Voluntary Agreement. Thompson acknowledges that he has carefully read and fully understands all of the provisions and effects of this Agreement, that he has received or had the opportunity to receive the assistance and advice of legal counsel of his choice in connection with this Agreement, that he knowingly and voluntarily, of his own free will without any duress, being fully informed and after due deliberation accepts the terms hereof, and that the Company has provided him with no less than 21 days to consider the terms of this Agreement before executing it. 9. Governing Law. The provisions of this Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without reference to principles of conflicts of laws. 10. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties with respect to the subject matter hereof except as otherwise provided in this Agreement. This Agreement may not be altered or amended except by an agreement in writing signed by or on behalf of the party to be bound. 11. 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. 12. 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, Thompson has hereunto set his hand and, pursuant to the authorization from the Board of Directors of the Company, the Company has caused these presents to be executed in its name and on its behalf by its duly authorized officers. - ---------------------------- ----------------------------------- Witness Donald L. Thompson ATTEST: HUNT CORPORATION By: - ----------------------------- --------------------------------- Secretary Its: -------------------------------- APPENDIX I to TRANSITION AND SEPARATION AGREEMENT MUTUAL RELEASE This Mutual Release is entered into this ___ day of _________, 2001 between HUNT CORPORATION, a Pennsylvania corporation, (the "Company"), and DONALD L. THOMPSON ("Thompson"). WHEREAS, the Company and Thompson desire to enter into a mutual release pursuant to a Transition and Separation Agreement between the Company and Thompson dated of even date herewith (the "Transition and Separation Agreement"); NOW, THEREFORE, in consideration of the mutual promises set forth below and the parties entering into the Transition and Separation Agreement, and intending to be legally bound, the Company and Thompson hereby agree as follows: 1. Release by Thompson. (a) Release. Thompson hereby releases and forever discharges the Company (including its subsidiaries, related companies, predecessors, successors, affiliates and their respective employees, officers, directors, shareholders and members) from any and all liabilities, obligations, claims, actions, causes of actions and demands of any type or nature whatsoever - known or unknown, suspected or unsuspected - which against any of them, Thompson, his heirs, successors and assigns, or any of them, ever had, now have or hereafter can or shall or may have, arising out of or based on any event or events from the beginning of the world to the date of this Mutual Release. Without limitation, this includes any and all claims arising from Thompson's employment, the termination of his status as an officer of the Company and or its subsidiaries or related companies, and the termination of his employment as contemplated in the Transition and Separation Agreement, including any claim of employment discrimination under the Age Discrimination in Employment Act ("ADEA"), the Pennsylvania Human Relations Act ("PHRA"), Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act ("ADA"), or any other claim arising under any other federal, state or local law. The above release does not waive any rights or claims under the Transition and Separation Agreement which may arise after this Mutual Release is signed by Thompson. (b) Covenant Not to Sue. Thompson also hereby covenants and agrees that he will never institute a claim or sue the Company (including its subsidiaries, related companies, predecessors, successors, affiliates and their employees, officers, directors, shareholders and members), concerning any potential claim released under subsection (a) above. (c) Transition and Separation Agreement Governs. Thompson hereby acknowledges that he shall be entitled only to the payments and benefits specifically provided in the Transition and Separation Agreement and shall not be entitled to any other payments or benefits from the Company. 2. Release by Company. (a) Release. The Company for itself and its subsidiaries hereby releases and forever discharges Thompson from any and all liabilities, obligations, claims, actions, causes of actions and demands of any type or nature whatsoever - known or unknown, suspected or unsuspected - which against Thompson the Company, its subsidiaries and their respective successors and assigns, or any of them, ever had, now have or hereafter can or shall or may have, arising out of or based on any event or events from the beginning of the world to the date of this Mutual Release. Without limitation, this includes any and all claims arising from Thompson's employment, the termination of his status as an officer of the Company, its subsidiaries and related companies, and the termination of his employment as contemplated in the Transition and Separation Agreement, or any other claim arising under any other federal, state or local law. The above release does not waive any rights or claims under the Transition and Separation Agreement which may arise after this Mutual Release is executed by the Company. (b) Covenant Not to Sue. In exchange for consideration provided under the Transition and Separation Agreement and Thompson's release of claims provided in Section 1 hereof, the Company also hereby covenants and agrees for itself and its subsidiaries that it and they will never institute a claim or sue Thompson concerning any potential claim released under subsection (a) above. 3. Thompson Review of Mutual Release. The Company has given Thompson not less than twenty-one (21) days to consider this Mutual Release, and Thompson has been advised by the Company to consult an attorney prior to signing this Mutual Release. Thompson shall have the right to revoke or cancel this Mutual Release by submitting written notice of his revocation to the Company within seven (7) days after the date of his execution of this Mutual Release. If Thompson does not revoke it in the manner described, this Mutual Release shall become binding, irrevocable, and enforceable at the expiration of such seven (7) day revocation period, effective as of the date first above written. -2- THOMPSON'S SIGNATURE BELOW ACKNOWLEDGES THAT HE HAS CAREFULLY READ AND UNDERSTANDS THIS MUTUAL RELEASE AND IS ENTERING INTO THE MUTUAL RELEASE VOLUNTARILY AND WITH THE INTENT TO BE LEGALLY BOUND. IN WITNESS WHEREOF, Thompson has hereunto set his hand and, pursuant to the authorization from the Board of Directors of the Company, the Company has caused these presents to be executed in its name and on its behalf by its duly authorized officers all as of the day and year first above written. - ---------------------------- ----------------------------------- Witness Donald L. Thompson ATTEST: HUNT CORPORATION By: - ----------------------------- --------------------------------- Secretary Its: -------------------------------- EX-10 11 ex10i-2.txt EXHIBIT 10(I)(2) Exhibit (10)(i)(2) SEPARATION AGREEMENT In exchange for the mutual promises set forth below, and intending to be legally bound, you and Hunt Corporation (the "Company") acknowledge and agree to the following terms and conditions governing your separation from employment: 1. Termination Date: Your employment with the Company will be terminated on __________. 2. Transition: Between the date of this notification and __________ you will be responsible for carrying out your regular duties in an effective manner and executing a complete transition of your responsibilities to ____________. 3. Severance: Beginning on _____________ you will receive severance pay equivalent to your _________ base compensation in effect on your termination date for a period of ______________. Your severance pay will continue until you are employed or the conclusion of your severance payment period, whichever comes earlier. Severance payments will occur in installments on the regular payroll cycle and will be subject to taxation and applicable deductions for continued benefit coverage during your severance period. Elective deductions, e.g. 401(k) contribution, will be discontinued. 4. Severance Beneficiary: Should you become deceased while you are receiving severance payments, your beneficiary will receive a lump sum payment equivalent to total payments for the remainder of the potential _____________ severance period. A form (Exhibit A) is provided for designation of your beneficiary. Please complete this form and send it to ____________________. 5. Time of Payment: Severance payments will begin ______________ if the Company has received a Separation Agreement signed by you in advance of_______________. However, severance payments, benefit coverage, and outplacement service will not occur until a Separation Agreement is executed with the Company. 6. Vacation Pay: Payment for unused vacation in existence on your date of termination shall be made within 30 days of your date of termination. This payment is in addition to severance payments. 7. Medical Benefits: Group health insurance shall be provided to you until the end of the month in which your severance pay ends, or, if earlier, the date on which medical coverage is obtained through another employer. Your normal contributions for medical coverage shall be deducted from your severance pay. Should you remain unemployed at the end of your severance period, you have the right to continue health plan benefits under the terms of Federal COBRA legislation. It is your responsibility to notify ________________ immediately if health insurance coverage is obtained through another organization. Detailed information regarding COBRA coverage will be sent to your home address at the conclusion of your severance pay period. 8. Life Insurance: Your $____________ group term life insurance coverage will be provided until the end of your severance pay period. At that time, you will be given the option to convert your group term life policy to an individual policy. You will have 31 days from that date to make your individual policy coverage election. Your additional life insurance coverage (___________________) which is provided through the Supplemental Executive Benefit Plan will also remain in effect through the end of your severance pay period. This coverage concludes at the end of the severance pay period, however, it is not convertible to an individual policy. 9. Company car: You may continue the use of your company car until ______________. At the conclusion of this period, you may elect to purchase your company car. You are to notify _______________ regarding your decision by______________. If you do not wish to purchase your company car, you must arrange to return the car to _________ or his designee by ____________. If you elect to purchase your car, __________ will inform you of the purchase price and the purchase requirements. You are reminded that you are obligated to maintain the car in good operating condition, report any accidents promptly to our Insurer, and to abide by the limitation on authorized drivers, during this period of time. -1- 10. Pension Plan: You have met the _________ requirement to be vested under the provisions of the Hunt Corporation Pension Plan. As a terminated vested associate, you have a right to a future pension benefit from Hunt. If you wish, you may obtain an estimate of your future pension benefit by contacting _______________. 11. Supplemental Executive Retirement Benefit: You have satisfied the ___________ service requirement for vesting under the provisions of the Supplemental Executive Retirement Plan. 12. Hunt Savings Plan: Unless your balance is less than $5,000, you may leave your savings in the Hunt Savings Plan (401k) or you may transfer your savings over into another qualified tax-deferred arrangement. If you leave your savings in the Hunt Savings Plan, you will not be able to make further contributions. However, in the event that you have an outstanding loan from your plan accounts, you may continue to make loan payments by payroll deduction during your severance payment period. If you transfer your savings to another tax-deferred arrangement, you will be able to continue making contributions. You are cautioned not to have an elected distribution of your savings, for the purposes of transfer to a new tax deferred arrangement, sent to you directly. Doing so triggers a personal tax liability that can be properly avoided by having the distribution sent directly to the new qualified arrangement. __________________ will send you further guidance on this subject. Should you have any questions regarding this plan, please contact ____________________. 13. Supplemental Executive Deferral Plan: Your Supplemental Executive Deferral Plan asset will be transferred to you, following your termination date, as soon as practical administratively. You may take the asset in the form of an insurance policy or a cash payment. Both forms of distribution are taxable as ordinary income. You should contact______________________, at _____________ to obtain current information regarding the value of your Supplemental Executive Deferral Plan account and to make your distribution election. _____________ will inform you regarding the personal financial and tax consequences of the distribution alternatives. 14. Annual Bonus: Should a bonus be paid under the provisions of the Company's Annual Bonus Plan for Company performance in the Fiscal _________ period, you will be awarded a prorated bonus award based on your employment through______________. The prorated bonus award, if earned, would be paid after Fiscal Year results are audited and approved by the Board of Directors. 15. Stock Options: Stock options are cancelled as of your termination date or on the expiration date of the stock option agreement, whichever comes earlier. 16. Outplacement: Executive outplacement services will be provided ___________________________. A brochure regarding their services is attached. Our representative with _______________ is ___________. ________ phone number is __________________ You may meet with _______________ professionals in advance of your termination date to gain familiarity with their numerous support resources and to make arrangements for a location that is the most practical for you. Please call ____________ to set up an orientation appointment. 17. Company Property: You are expected to return your company credit cards and any other Hunt property in your possession to ______________ or her designee prior to_______________. -2- 18. Confidentiality Agreement: Attached is a copy of the "Invention and Confidential Information Agreement" you have signed with Hunt Corporation as a reminder of your obligations under this Agreement. 19. Other Covenants: In return for the provision of these severance arrangements, we require your agreement that you will not disparage or harm the reputation of Hunt Corporation; neither will you engage in acts which have or will have a material adverse effect on Hunt. Additionally, for ________________ period following your termination, you will not compete with Hunt as an employee of or as a consultant to divisions of companies in the ________________ markets that compete with Hunt's products in those markets. Likewise, you will not take any action to recruit Hunt employees for positions elsewhere. 20. Release: Further, in exchange for the benefits described above, you hereby release and discharge the Company from any and all claims, damages, expense, or liability based on any act, event, or occurrence up to and including the date of this Agreement. Without limitation, this includes any claims arising from your employment or termination of employment, including any claim of employment discrimination under the Age Discrimination in Employment Act, the Pennsylvania Human Relations Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, or any other federal, state or local statute, regulation, law or common-law claim. The above release does not waive any rights or claims due to occurrences that may arise after you sign this Agreement. 21. Breach of Agreement: If you breach the terms of this Agreement in any respect, your entitlement to salary continuation benefits or to any other benefits offered shall immediately cease. A form, which designates by your signature that you acknowledge and accept these requirements, is attached. Please sign and return the form to _________________ within twenty-one days of the date of this notification. Please be reminded that Severance arrangements will not begin until the Agreement is signed and received by the Company. As noted, you have 21 days to consider this Agreement and we advise you to consult an attorney prior to signing it. Seven days after you sign the Agreement, it will become binding, irrevocable and enforceable, unless you revoke the Agreement during this seven-day period by written notice. -3- YOUR SIGNATURE BELOW ACKNOWLEDGES THAT YOU HAVE CAREFULLY READ AND UNDERSTAND THIS AGREEMENT AND ARE ENTERING INTO THE AGREEMENT VOLUNTARILY AND WITH THE INTENT TO BE LEGALLY BOUND. Name (please print): Signature: Date: Witness: HUNT CORPORATION Signature: -4- EXHIBIT A HUNT CORPORATION OFFICER SEVERANCE PLAN DESIGNATION OF BENEFICIARY FORM TO: HUNT CORPORATION FROM: SOCIAL SECURITY NO ADDRESS: This Designation of Beneficiary Form relates only to amounts which may become payable upon my death under the Hunt Corporation Officer Severance Plan (the "Plan"). I hereby revoke all my prior Beneficiary designations (if any) and hereby designate the following as my Beneficiary to receive any amount which may become payable under the Plan upon my death: NAME: RELATIONSHIP: ADDRESS: SOCIAL SECURITY NO: I understand that if on my date of death no properly designated Beneficiary survives me, my estate will be the Beneficiary designated to receive such amounts. Date Signature of Employee Witness EX-10 12 ex10i-3.txt EXHIBIT 10(I)(3) Exhibit (10)(i)(3) HUNT CORPORATION Departing Executive Officers Whose Arrangements Are Essentially as Provided in the Officer Severance Plan and Form of Agreement The following departing Executive Officers of Hunt Corporation are parties to the Officer Severance Plan and have separation agreements which are essentially as provided in the Form of Agreement under the Officer Severance Plan: William E. Chandler, James P. Machut, W. Ernest Precious, and Eugene A. Stiefel. EX-10 13 ex10j.txt EXHIBIT 10(J) SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT BETWEEN HUNT CORPORATION AND JOHN W. CARNEY THIS AGREEMENT, entered into this ____ day of __________, 2002, by and between Hunt Corporation (the "Employer") and John W. Carney (the "Officer"), WITNESSETH: WHEREAS, the Officer has rendered and will continue to render valuable services to the Employer, and the Employer desires to provide supplemental deferred compensation to the Officer; NOW, THEREFORE, in consideration of the Officer's continued services to the Employer, the parties hereto, intending to be legally bound hereby, agree as follows: Section 1. Definitions. For purposes of this Agreement, the following definitions shall apply: (a) "Agreement" shall mean this Supplemental Deferred Compensation Agreement between the Employer and the Officer. (b) "Applicable Compensation" shall mean all compensation reported on the Officer's Form W-2 (Wages, tips, other compensation box) for a calendar year, including, but not limited to, any overtime and bonuses and cash awards under the Employer's Long Term Incentive Plan (terminated on February 14, 1996) actually paid by the Employer to the Officer during the calendar year, but adding thereto any amount which is contributed by the Employer pursuant to a salary reduction agreement and which is not includible in the Officer's gross income under section 125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code, and excluding therefrom amounts received as stock awards under the Employer's Long Term Incentive Plan (terminated on February 14, 1996), and excluding therefrom any taxable employee benefits of any kind (e.g., reimbursements of moving and relocation expenses, insurance premiums, automobile, health, medical, and dental expenses, the cost of group term life insurance, compensation arising from the exercise of a nonqualified stock option or from a stock grant, and any fringe benefit which is not excluded from gross income under section 132 of the Code). (c) "Average Monthly Compensation" shall mean the total Applicable Compensation received by the Officer from the Employer during the five consecutive calendar years out of his last ten calendar years of employment ending with the calendar year in which occurs the earlier of the Officer's retirement or termination of employment, which will produce the highest Average Monthly Compensation, divided by 60. For purposes of the preceding sentence, any part-year in which the Officer is employed shall be included within the five-consecutive-calendar-year period if the inclusion thereof produces a higher Average Monthly Compensation; in all other cases, part-years shall be disregarded. If a part-year is included, the Applicable Compensation received by the Officer during such part-year shall not be annualized, and the part-year shall be treated, for purposes of the calculation, as a full year. (d) "Board" shall mean the Board of Directors of the Employer. (e) "Cause" shall mean the Officer's: (1) Dishonesty, fraud, willful malfeasance, gross negligence, or other gross misconduct, which is materially injurious to the Employer; or (2) Conviction of or plea of guilty to a felony. (f) "Change in Control" shall mean the occurrence of any of the following: (1) 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 Employer and/or its wholly-owned subsidiaries, (ii) any employee stock ownership plan or other employee benefit plan of the Employer, 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 Employer in substantially the same proportions as their ownership of stock of the Employer, or (iv) the Officer 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 indirectly, of securities of the Employer representing 30% or more of the combined voting power of the Employer's then outstanding securities, or such lesser percentage of voting power, but not less than 15%, as the Board shall determine; provided, however, that a Change in Control shall not be deemed to have occurred under the provisions of this paragraph (1) 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 Employer's then outstanding securities. (2) During any two-year period, Directors of the Employer in office at the beginning of such period plus any new Director designated by a Person who has entered into an agreement with the Employer to effect a transaction within the purview of paragraph (1) or (3) whose election by the Board, -2- or whose nomination for election by the Employer'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 (3) The Employer's shareholders or the Board shall approve (i) any consolidation or merger of the Employer in which the Employer is not the continuing or surviving corporation or pursuant to which the Employer's voting common shares (the "Common Shares") would be converted into cash, securities, or other property, other than a merger of the Employer 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 Employer, or (iii) the liquidation or dissolution of the Employer. As used in this subsection (f), "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. Whether a Change in Control has occurred shall be determined by the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control), subject to the provisions of Section 3.7(d) of the Trust Agreement. (g) "Change in Control Agreement" shall mean the Change in Control Agreement between the Officer and the Employer. (h) "Code" shall mean the Internal Revenue Code of 1986, as amended. (i) "Committee" shall mean the Pension Committee appointed by the Board. (j) "Employer" shall mean Hunt Corporation, a Pennsylvania corporation, or any successor thereto. (k) "Joint and Survivor Annuity" shall mean an immediate annuity for the life of the Officer, with a survivor annuity for the life of his Spouse which is equal to 50 percent of the amount of the annuity payable during the joint lives of the Officer and his Spouse. (l) "Officer" shall mean John W. Carney, an officer of the Employer. -3- (m) "Pension Plan" shall mean the Hunt Corporation Pension Plan, as amended from time to time. (n) "Retirement Date" shall mean the first day of the month coinciding with or immediately following the date of the Officer's termination of employment. (o) "Spouse" shall mean the Officer's spouse to whom he is married at the earlier of his Retirement Date or date of death. (p) "Supplemental Plan" shall mean the Hunt Corporation Supplemental Executive Benefits Plan, as amended from time to time. (q) "Trust Agreement" shall mean the Hunt Corporation Supplemental Executive Benefits Plan Trust Agreement. Section 2. Supplemental Benefit. Except as provided inss.4, the Officer shall be entitled to a monthly retirement pension, commencing at his Retirement Date and continuing until the first day of the month in which his death occurs, equal to the following: (a) 60% of the Officer's Average Monthly Compensation; reduced by (b) The sum of: (1) The monthly retirement pension payable to the Officer at his Retirement Date under the Pension Plan in the form of and Joint and Survivor Annuity (whether or not the Officer actually receives his benefit under the Pension Plan in such form or on such date); plus (2) The monthly retirement pension payable to the Officer at his Retirement Date under Article IV of the Supplemental Plan in the form of a Joint and Survivor Annuity (whether or not the Officer actually receives his benefit under the Supplemental Plan in such form or on such date). Section 3. Survivor Annuity. Except as provided in ss.4, upon the Officer's death, his surviving Spouse (if any) shall be entitled to a monthly survivor pension, commencing as of the first day of the month following the Officer's death and continuing until the first day of the month in which the Spouse's death occurs. If the Officer dies on or after his Retirement Date, the amount of the monthly survivor pension shall be one-half of the amount of the supplemental benefit to which the Officer was entitled. If the Officer dies prior to his Retirement Date, the amount of the monthly survivor pension shall be one-half of the amount of the supplemental benefit determined under ss.2 as of the Officer's date of death. If the Officer's Spouse does not survive him, no benefits shall be payable under this Agreement after the Officer's death. Section 4. Forfeiture of Benefits. No benefits shall be payable underss.2 orss.3 of this Agreement if: -4- (a) The Officer voluntarily terminates employment prior to age 62 (unless the Officer's termination of employment is in connection with a Change in Control and constitutes a "Covered Termination" as defined in Section 6(b) of the Change in Control Agreement); or (b) The Officer is terminated for Cause. Section 5. Withholding; Payroll Taxes. The Employer shall withhold from payments made under this Agreement any taxes required to be withheld for Federal, state, or local taxes. Section 6. Source of Funds. (a) This Agreement shall be unfunded, and, except as provided in subsection (b), payment of any benefits hereunder shall be made from the general assets of the Employer. Any assets which may be set aside, earmarked, or identified as being intended for the payment of benefits under this Agreement shall remain assets of the Employer and shall be subject to the claims of its general creditors. The Officer and his Spouse shall be general and unsecured creditors of the Employer to the extent of the value of the amounts payable hereunder, and shall have no right, title, or interest in any specific asset that the Employer may set aside, earmark, or identify as for the payment of benefits under this Agreement. The Employer's obligation under this Agreement shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. (b) Notwithstanding subsection (a), assets shall be set aside in a grantor trust under the Trust Agreement and earmarked for the payment of benefits under this Agreement, provided that the Officer and his Spouse shall continue to be general and unsecured creditors of the Employer with respect to assets set aside in such trust. Section 7. Administrator. (a) This Agreement shall be administered by the Pension Committee appointed by the Board, except that the Officer shall not take part in any action or decision by the Committee under this Agreement. Unless this Agreement specifically provides otherwise, the Committee shall have sole discretion to construe and interpret the provisions of this Agreement and to determine all questions concerning benefit entitlements, including the power to construe and determine disputed and doubtful terms. To the maximum extent permissible under law, the determinations of the Committee on all such matters shall be final and binding upon all persons involved. (b) The Committee shall keep a record of its proceedings and actions and shall maintain all books of account, records, and other data as shall be necessary for the proper administration of this Agreement. Such records shall contain all relevant data pertaining to the Officer and his rights under this Agreement. The Committee shall -5- have the duty to carry into effect all rights or benefits provided hereunder to the extent assets of the Employer are properly available therefor. (c) The Employer shall pay all expenses of administering this Agreement. Such expenses shall include any expenses incident to the functioning of the Committee. (d) The Employer shall indemnify the members of the Committee and the employees of the Employer to whom the Committee delegates duties under this Agreement against any and all claims, losses, damages, expenses, and liabilities arising from their responsibilities in connection with this Agreement, unless the same is determined to be due to gross negligence or willful malfeasance. The Employer may purchase insurance covering its liabilities under this subsection (d). Section 8. Claims Procedure. (a) If the Officer or his Spouse (hereinafter referred to as the "Applicant," which reference shall include the legal representative, if any, of the Officer or Spouse) does not receive the timely payment of the benefits to which the Applicant believes he or she is entitled under the terms of this Agreement, the Applicant may make a claim for benefits in the manner hereinafter provided. All claims for benefits under this Agreement shall be made in writing and shall be signed by the Applicant. Claims shall be submitted to a representative designated by the Committee and hereinafter referred to as the "Claims Coordinator." The Claims Coordinator may, but need not, be a member of the Committee. If the Applicant does not furnish sufficient information with the claim for the Claims Coordinator to determine the validity of the claim, the Claims Coordinator shall furnish the Applicant with forms prescribed by the Committee within ten days of receipt of the initial claim, indicating any additional information which is necessary for the Claims Coordinator to determine the validity of the claim. Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim. The written or electronic notice which the Claims Coordinator shall provide to the Applicant in the event of a denial of a claim for benefits shall set forth in a manner calculated to be understood by the Applicant: (1) The specific reason or reasons for the denial; (2) Specific references to pertinent provisions of this Agreement on which the denial is based; (3) A description of any additional material or information necessary for the Applicant to perfect the claim and an explanation of why the material or information is necessary; and -6- (4) A description of the review procedures under this Agreement and the time limits applicable to such procedures, including a statement of the Applicant's right to bring a civil action under section 502(a) of ERISA (if applicable) following an adverse benefit determination on review. If no action is taken by the Claims Coordinator on an Applicant's claim within 60 days after receipt by the Claims Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure. (b) An Applicant whose claim for benefits is denied in whole or in part (such Applicant being hereinafter referred to as the "Claimant") may appeal from such denial to the Committee for a review of the decision by the entire Committee. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above. An appeal must be submitted in writing within such period and must: (1) Request a review by the entire Committee of the claim for benefits under this Agreement; (2) Set forth all of the grounds upon which the Claimant's request for review is based and any facts in support thereof; and (3) Set forth any issues or comments which the Committee deems pertinent to the appeal. The Committee shall make its decision on review within 60 days after receipt of the Claimant's request for review, unless special circumstances require an extension of the time for processing the Claimant's request for review, in which case written notice of the extension and circumstances shall be provided to the Claimant prior to the termination of the initial 60-day period and a decision shall be rendered as soon as possible but not later than 120 days after receipt of the request for review; provided, however, that if the Claimant fails to submit information necessary to make a benefit determination on review, such period shall be tolled from the date on which the extension notice is sent to the Claimant until the date on which the Claimant responds to the request for additional information. -7- The Committee shall make a full and fair review of the appeal and any written materials submitted by the Claimant or the Employer in connection therewith. The Committee may require the Claimant and the Employer to submit such additional facts, documents, or other evidence as the Committee in its discretion deems necessary or advisable in making its review. The Claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits. The Claimant shall also have the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits, and the Committee shall take into account all such information submitted without regard to whether such information was submitted or considered in the initial benefit determination. On the basis of its review, the Committee shall make an independent determination of the Claimant's eligibility for benefits under this Agreement. The decision of the Committee on any claim for benefits shall be final and conclusive upon all parties thereto. In the event the Committee denies an appeal, in whole or in part, the Committee shall give written or electronic notice of the decision to the Claimant, which notice shall set forth in a manner calculated to be understood by the Claimant the specific reasons for such denial and which shall make specific reference to the pertinent provisions of this Agreement on which the Committee decision was based. The decision on review shall also include (i) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and (ii) a statement describing any voluntary appeal procedures offered under this Agreement, and a statement of the Claimant's right to bring an action under section 502(a) of ERISA (if applicable). It is intended that the claims procedure under this Agreement be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 C.F.R. ss.2560.503-1. Section 9. Nonalienation of Benefits. Except as otherwise required by applicable law, the right of the Officer or his Spouse to any benefit or interest hereunder shall not be subject to encumbrance, attachment, execution, garnishment, assignment, pledge, alienation, sale, transfer, or anticipation, either by the voluntary or involuntary act of the Officer or his Spouse or by operation of law, nor shall such payment, right, or interest be subject to any other legal or equitable process. Section 10. Amendment and Termination. The Board may amend or terminate this Agreement only with the written consent of the Officer (or, after the Officer's death, his Spouse). Section 11. Miscellaneous. (a) No Contract of Employment. Nothing contained herein shall be construed as conferring upon the Officer the right to continue in the employ of the Employer. (b) Relationship to Change in Control Agreement, Severance Plan. The payment of benefits hereunder shall not affect the Officer's entitlement to payments under the Change in Control Agreement or the Hunt Corporation Officer Severance Plan, nor shall any payments made under the Change in Control Agreement or under the Hunt Corporation Severance Plan affect the Officer's entitlement to benefits hereunder. -8- (c) Costs and Expenses of Enforcement. In the event that it shall be necessary or desirable for the Officer to retain legal counsel or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, the Employer shall pay (or the Officer shall be entitled to recover from the Employer, as the case may be) his reasonable attorneys' fees and cost and expenses in connection with the enforcement of his said rights, regardless of the final outcome, unless a court shall determine that under the circumstances recovery by the Officer of all or a part of any such fees and costs and expenses would be unjust. (d) Applicable Law. The provisions of this Agreement shall be construed and interpreted according to the laws of the Commonwealth of Pennsylvania (without regard to principles of conflict of laws), to the extent not superseded by Federal law. (e) Successors. The provisions of this Agreement shall bind and inure to the benefit of the Employer and its successors and assigns. The term "successors" as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of the Employer, and successors of any such corporation or other business entity. (f) Headings. The headings of the sections and subsections of this Agreement are for reference only. In the event of a conflict between a heading and the contents of a section or subsection, the contents of the section or subsection shall control. IN WITNESS WHEREOF, the Employer and the Officer have caused this Supplemental Deferred Compensation Agreement to be duly executed this ____ day of _________, 2002. Attest: HUNT CORPORATION By: - ----------------------------------- ------------------------------------- - ----------------------------------- ---------------------------------------- John W. Carney -9- EX-10 14 ex10k.txt EXHIBIT 10(K) Exhibit (10)(k) SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT BETWEEN HUNT CORPORATION AND BRADLEY P. JOHNSON THIS AGREEMENT, entered into this ____ day of __________, 2002, by and between Hunt Corporation (the "Employer") and Bradley P. Johnson (the "Officer"), WITNESSETH: WHEREAS, the Officer has rendered and will continue to render valuable services to the Employer, and the Employer desires to provide supplemental deferred compensation to the Officer; NOW, THEREFORE, in consideration of the Officer's continued services to the Employer, the parties hereto, intending to be legally bound hereby, agree as follows: ss.1. Definitions. For purposes of this Agreement, the following definitions shall apply: (a) "Agreement" shall mean this Supplemental Deferred Compensation Agreement between the Employer and the Officer. (b) "Board" shall mean the Board of Directors of the Employer. (c) "Change in Control Agreement" shall mean the Change in Control Agreement between the Officer and the Employer. (d) "Employer" shall mean Hunt Corporation, a Pennsylvania corporation, or any successor thereto. (e) "Officer" shall mean Bradley P. Johnson, an officer of the Employer. (f) "Pension Plan" shall mean the Hunt Corporation Pension Plan, as amended from time to time. (g) "Supplemental Plan" shall mean the Hunt Corporation Supplemental Executive Benefits Plan, as amended from time to time. (h) "Trust Agreement" shall mean the Hunt Corporation Supplemental Executive Benefits Plan Trust Agreement. ss.2. Supplemental Benefit. If the Officer's employment with the Employer terminates as a result of a Change in Control as defined in the Change in Control Agreement prior to the date he becomes fully vested in his benefits under the Pension Plan and the Supplemental Plan, he shall as of the date of such termination of employment (i) be deemed to have five Years of Benefit Service, as defined under the Supplemental Plan, for purposes of determining the amount of his accrued benefit as of such date under Article IV of the Supplemental Plan, and (ii) be deemed to have five Years of Vesting Service, as defined under the Supplemental Plan, for purposes of becoming fully vested in such accrued benefit. ss.3. Withholding; Payroll Taxes. The Employer shall withhold from payments made under this Agreement any taxes required to be withheld for Federal, state, or local taxes. ss.4. Source of Funds. (a) This Agreement shall be unfunded, and, except as provided in subsection (b), payment of any benefits hereunder shall be made from the general assets of the Employer. Any assets which may be set aside, earmarked, or identified as being intended for the payment of benefits under this Agreement shall remain assets of the Employer and shall be subject to the claims of its general creditors. The Officer shall be a general and unsecured creditor of the Employer to the extent of the value of the amounts payable hereunder, and shall have no right, title, or interest in any specific asset that the Employer may set aside, earmark, or identify as for the payment of benefits under this Agreement. The Employer's obligation under this Agreement shall be merely that of an unfunded and unsecured promise of the Employer to pay money in the future. (b) Notwithstanding subsection (a), assets shall be set aside in a grantor trust under the Trust Agreement and earmarked for the payment of benefits under this Agreement, provided that the Officer shall continue to be a general and unsecured creditor of the Employer with respect to assets set aside in such trust. ss.5. Administrator. (a) This Agreement shall be administered by the Pension Committee appointed by the Board, except that the Officer shall not take part in any action or decision by the Committee under this Agreement. Unless this Agreement specifically provides otherwise, the Committee shall have sole discretion to construe and interpret the provisions of this Agreement and to determine all questions concerning benefit entitlements, including the power to construe and determine disputed and doubtful terms. To the maximum extent permissible under law, the determinations of the Committee on all such matters shall be final and binding upon all persons involved. (b) The Committee shall keep a record of its proceedings and actions and shall maintain all books of account, records, and other data as shall be necessary for the proper administration of this Agreement. Such records shall contain all relevant data pertaining to the Officer and his rights under this Agreement. The Committee shall have the duty to carry into effect all rights or benefits provided hereunder to the extent assets of the Employer are properly available therefor. -2- (c) The Employer shall pay all expenses of administering this Agreement. Such expenses shall include any expenses incident to the functioning of the Committee. (d) The Employer shall indemnify the members of the Committee and the employees of the Employer to whom the Committee delegates duties under this Agreement against any and all claims, losses, damages, expenses, and liabilities arising from their responsibilities in connection with this Agreement, unless the same is determined to be due to gross negligence or willful malfeasance. The Employer may purchase insurance covering its liabilities under this subsection (d). ss.6. Claims Procedure. (a) If the Officer or his spouse or other beneficiary (hereinafter referred to as the "Applicant," which reference shall include the legal representative, if any, of the Officer or spouse or other beneficiary) does not receive the timely payment of the benefits to which the Applicant believes he or she is entitled under the terms of this Agreement, the Applicant may make a claim for benefits in the manner hereinafter provided. All claims for benefits under this Agreement shall be made in writing and shall be signed by the Applicant. Claims shall be submitted to a representative designated by the Committee and hereinafter referred to as the "Claims Coordinator." The Claims Coordinator may, but need not, be a member of the Committee. If the Applicant does not furnish sufficient information with the claim for the Claims Coordinator to determine the validity of the claim, the Claims Coordinator shall furnish the Applicant with forms prescribed by the Committee within ten days of receipt of the initial claim, indicating any additional information which is necessary for the Claims Coordinator to determine the validity of the claim. Each claim hereunder shall be acted on and approved or disapproved by the Claims Coordinator within 60 days following the receipt by the Claims Coordinator of the information necessary to process the claim. The written or electronic notice which the Claims Coordinator shall provide to the Applicant in the event of a denial of a claim for benefits shall set forth in a manner calculated to be understood by the Applicant: (1) The specific reason or reasons for the denial; (2) Specific references to pertinent provisions of this Agreement on which the denial is based; -3- (3) A description of any additional material or information necessary for the Applicant to perfect the claim and an explanation of why the material or information is necessary; and (4) A description of the review procedures under this Agreement and the time limits applicable to such procedures, including a statement of the Applicant's right to bring a civil action under section 502(a) of ERISA (if applicable) following an adverse benefit determination on review. If no action is taken by the Claims Coordinator on an Applicant's claim within 60 days after receipt by the Claims Coordinator, such application shall be deemed to be denied for purposes of the following appeals procedure. (b) An Applicant whose claim for benefits is denied in whole or in part (such Applicant being hereinafter referred to as the "Claimant") may appeal from such denial to the Committee for a review of the decision by the entire Committee. Such appeal must be made within six months after the Claimant has received written notice of the denial as provided above. An appeal must be submitted in writing within such period and must: (1) Request a review by the entire Committee of the claim for benefits under this Agreement; (2) Set forth all of the grounds upon which the Claimant's request for review is based and any facts in support thereof; and (3) Set forth any issues or comments which the Committee deems pertinent to the appeal. The Committee shall make its decision on review within 60 days after receipt of the Claimant's request for review, unless special circumstances require an extension of the time for processing the Claimant's request for review, in which case written notice of the extension and circumstances shall be provided to the Claimant prior to the termination of the initial 60-day period and a decision shall be rendered as soon as possible but not later than 120 days after receipt of the request for review; provided, however, that if the Claimant fails to submit information necessary to make a benefit determination on review, such period shall be tolled from the date on which the extension notice is sent to the Claimant until the date on which the Claimant responds to the request for additional information. The Committee shall make a full and fair review of the appeal and any written materials submitted by the Claimant or the Employer in connection therewith. The Committee may require the Claimant and the Employer to submit such additional facts, documents, or other evidence as the Committee in its discretion deems necessary or advisable in making its review. The Claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits. The Claimant shall also have the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits, and the Committee shall take into account all such information submitted without regard to whether such information was submitted or considered in the initial benefit determination. -4- On the basis of its review, the Committee shall make an independent determination of the Claimant's eligibility for benefits under this Agreement. The decision of the Committee on any claim for benefits shall be final and conclusive upon all parties thereto. In the event the Committee denies an appeal, in whole or in part, the Committee shall give written or electronic notice of the decision to the Claimant, which notice shall set forth in a manner calculated to be understood by the Claimant the specific reasons for such denial and which shall make specific reference to the pertinent provisions of this Agreement on which the Committee decision was based. The decision on review shall also include (i) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and (ii) a statement describing any voluntary appeal procedures offered under this Agreement, and a statement of the Claimant's right to bring an action under section 502(a) of ERISA (if applicable). It is intended that the claims procedure under this Agreement be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 C.F.R. ss.2560.503-1. ss.7. Nonalienation of Benefits. Except as otherwise required by applicable law, the right of the Officer or his spouse or other beneficiary to any benefit or interest hereunder shall not be subject to encumbrance, attachment, execution, garnishment, assignment, pledge, alienation, sale, transfer, or anticipation, either by the voluntary or involuntary act of the Officer or his spouse or other beneficiary or by operation of law, nor shall such payment, right, or interest be subject to any other legal or equitable process. ss.8. Amendment and Termination. The Board may amend or terminate this Agreement only with the written consent of the Officer. This Agreement shall automatically terminate on the date the Officer becomes fully vested in his accrued benefit under the Pension Plan and under Article IV of the Supplemental Plan. ss.9. Miscellaneous. (a) No Contract of Employment. Nothing contained herein shall be construed as conferring upon the Officer the right to continue in the employ of the Employer. -5- (b) Relationship to Other Benefits. The payment of benefits hereunder shall not affect the Officer's entitlement to payments under the Change in Control Agreement or the Hunt Corporation Officer Severance Plan, nor shall any payments made under the Change in Control Agreement or under the Hunt Corporation Severance Plan affect the Officer's entitlement to benefits hereunder. (c) Costs and Expenses of Enforcement. In the event that it shall be necessary or desirable for the Officer to retain legal counsel or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, the Employer shall pay (or the Officer shall be entitled to recover from the Employer, as the case may be) his reasonable attorneys' fees and cost and expenses in connection with the enforcement of his said rights, regardless of the final outcome, unless a court shall determine that under the circumstances recovery by the Officer of all or a part of any such fees and costs and expenses would be unjust. (d) Applicable Law. The provisions of this Agreement shall be construed and interpreted according to the laws of the Commonwealth of Pennsylvania (without regard to principles of conflict of laws), to the extent not superseded by Federal law. (e) Successors. The provisions of this Agreement shall bind and inure to the benefit of the Employer and its successors and assigns. The term "successors" as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of the Employer, and successors of any such corporation or other business entity. (f) Headings. The headings of the sections and subsections of this Agreement are for reference only. In the event of a conflict between a heading and the contents of a section or subsection, the contents of the section or subsection shall control. IN WITNESS WHEREOF, the Employer and the Officer have caused this Supplemental Deferred Compensation Agreement to be duly executed this ____ day of _________, 2002. Attest: HUNT CORPORATION By: - ------------------------------- ------------------------------ - ------------------------------- ---------------------------------- Bradley P. Johnson -6- EX-21 15 ex21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF HUNT CORPORATION Hunt Holdings, Inc., a Delaware Corporation Hunt X-Acto, Inc., a Pennsylvania Corporation Hunt Americas Corporation, a Delaware Corporation Hunt Europe Limited, a United Kingdom Corporation Hunt Europe B.V., a Netherlands Corporation The Company holds all of the outstanding capital stock of Hunt Holdings, Inc. Hunt Holdings, Inc., in turn, holds all of the outstanding capital stock of Hunt X-Acto, Inc., Hunt Americas Corporation, Hunt Europe Limited, and Hunt Europe B.V. EX-23 16 ex23.txt EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-73197, 33-57103, 33-57105, 33-70660, 33-25947, 33-6359 and 2-83144) of Hunt Corporation of our report dated January 29, 2002 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Philadelphia, PA March 4, 2002 -----END PRIVACY-ENHANCED MESSAGE-----