-----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, Qc1OPZQ/qFMUn/HO6CVPNDgYjoDr/yxLi6QVq6zZEwBc6fg7ewP5Ot0JIPSaoF57 H9iiv2jTgQQs0F0iHvdYPw== 0000950116-97-000242.txt : 19970222 0000950116-97-000242.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950116-97-000242 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961201 FILED AS OF DATE: 19970213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT MANUFACTURING CO CENTRAL INDEX KEY: 0000049146 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 210481254 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08044 FILM NUMBER: 97530247 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 10-K 1 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 1, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______. COMMISSION FILE NO. 1-8044 HUNT MANUFACTURING CO. ------------------------ (Registrant)
PENNSYLVANIA 21-0481254 (State of Incorporation) (IRS Employer Identification No.) ONE COMMERCE SQUARE, 2005 MARKET STREET, PHILADELPHIA, PA 19103-7085 (Address of Principal Executive Offices) (ZIP Code) Registrant's telephone number, including area code: (215) 656-0300 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED: Common Shares, par value $.10 per share New York Stock Exchange Rights to Purchase Series A Junior New York Stock Exchange Participating Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: None 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. / X / The aggregate market value of the registrant's Common Shares (its only voting stock) held by nonaffiliates of the registrant as of January 3, 1997 was approximately $182,000,000. (Reference is made to the final paragraph of Part I herein for a statement of the assumptions upon which this calculation is based.) The number of shares of the registrant's Common Shares outstanding as of January 3, 1997 was 10,987,796. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's 1997 definitive proxy statement relating to its scheduled April 1997 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. 1 PART I ITEM 1. BUSINESS GENERAL Hunt Manufacturing Co. and its subsidiaries (herein called the "Company," unless the context indicates otherwise) are primarily engaged in the manufacture and distribution of office products and art/craft products which the Company markets worldwide. In December 1995 and January 1996, the Company repurchased an aggregate of 5,104,543 of its Common Shares in a private transaction and in a cash tender offer for an aggregate purchase price, including related expenses, of approximately $86.6 million. In a related transaction, the Company obtained a five-year $125 million credit facility and used borrowings under such facility, together with cash on hand, to fund such Common Share repurchases. The borrowings under this credit facility subsequently were reduced by the proceeds from the private placement of $50 million of senior notes with several insurance companies. See Item 7 of this report and Notes 2 and 8 to Consolidated Financial Statements herein. The Company is currently undergoing, with the assistance of an outside consulting firm, an intensive strategic assessment of its various business segments and markets, the purpose of which is to assist the Company in promptly developing and implementing a strategic plan for the operation and direction of the Company. As part of this strategic assessment, in January 1997, the Company reached agreements in principle to sell its LIT-NING Products business and its Hunt Data Products' MEDIAMATE and CALISE brand products. The sale of both businesses, which are subject to typical conditions, are expected to be completed during the first quarter of 1997. The combined net sales for these business units were $23.9 million, $27.0 million, and $26.8 million for fiscal years 1996, 1995, and 1994, respectively, which are included under the office products business segment. The divestiture of these businesses is not expected to result in a material gain or loss but will allow the Company to focus on its core office products and art/craft businesses. BUSINESS SEGMENTS The following table sets forth the Company's net sales and operating profit by business segment for the last three fiscal years: (IN THOUSANDS) 1996 1995 1994 --------------------------------------------------------------------- NET SALES: Office products ............ $161,169 $163,378 $160,307 Art/Craft products ......... 166,356 150,503 127,896 -------- -------- -------- Total ...................... $327,525 $313,881 $288,203 ======== ======== ======== OPERATING PROFIT: Office products ............ $ 9,892 $ 6,966 $ 12,172 Art/Craft products ......... 24,435 21,678 21,211 -------- -------- -------- Total ...................... $ 34,327 $ 28,644 $ 33,383 ======== ======== ======== See Items 6 and 7 herein and Note 17 to consolidated financial statements herein for further information concerning the Company's business segments (including information concerning identifiable assets). 2 OFFICE PRODUCTS The Company has three major classes of office products: mechanical and electromechanical products; office furniture; and desktop accessories and supplies. The amounts and percentages of net sales of these product classes for the last three fiscal years were as follows:
(DOLLARS IN THOUSANDS) 1996 1995 1994 ------------------------------------------------------------------------------------------- PRODUCT CLASS: Mechanical and electromechanical.......... $ 67,777 42% $ 69,018 42% $ 76,897 48% Office furniture.............. 63,068 39 60,278 37 51,715 32 Desktop accessories and supplies............... 30,324 19 34,082 21 31,695 20 -------- --- -------- --- -------- --- Total........................ $161,169 100% $163,378 100% $160,307 100% ======== === ======== === ======== ===
The Company's mechanical and electromechanical office products currently consist of a variety of items sold under the Company's BO STON brand, including manual and electric pencil sharpeners; paper punches, trimmers and shredders; electric letter openers; spring clips used to hold sheets of paper; manual and electronic staplers; electric air cleaners; fans and heaters; laminators; and other related products. In 1996, the Company obtained the exclusive distribution rights in the United States and Canada for RAPID(1) manual and electric stapling machines which are included under the mechanical and electromechanical product class. The Company's office furniture products are sold primarily under the BEVIS bra nd name. These products include conference, computer, utility and folding tables; office chairs; bookcases and screen panels; metal and wood workstations for computer terminals, personal computers, word processors, printers and other similar electronic office equipment; and home/office furniture. The Company's desktop accessories and supplies currently consist of a broad range of products that support the use of computers, such as computer diskette, CD and CD ROM storage and filing devices; printer stands; mousepads; and other computer-related accessories which are marketed under the MEDIAMATE brand name. Also included in desktop accessories and supplies are an array of items marketed under the LIT-NING brand name, including metal horizontal and vertical files, letter trays, desk organizers and paper sorting racks. As discussed above, in January 1997, the Company reached agreements in principle to sell its LIT-NING Products business and its Hunt Data Products' MEDIAMATE and CALISE brand products. The divestiture of these businesses is expected to allow the Company to focus on its core office products and art/craft businesses. The Company consistently has sought to expand its office products business through internal product development, the acquisition of distribution rights to products which complement or extend the Company's established lines, the acquisition of complementary businesses and through broadened distribution. Examples of new office product introductions by the Company in recent years are BOSTON brand electronic staplers, grip and stand-up staplers, electric letter openers and folders, various models of air cleaners, rotary paper trimmers, fans and heaters, personal paper shredders, electric and battery powered pencil sharpeners and desktop laminators; BEVIS UNIWORX, BEVIS ULTRAWORX and BEVIS MEGAWORX lines of modular office furniture systems; BEVIS CONVERGENCE panel systems; BEVIS PRACTICAL FOUNDATIONS and BEVIS ESSENTIAL FOUNDATIONS training room furniture. In 1994, the Company obtained exclusive distribution rights in the United States and Canada for Schwan-STABILO(2) highlighter markers and writing instruments, and in 1995, the Company acquired the rights to the CALISE line of laptop computer carrying cases, which are included under desktop accessories and supplies. 1 Trademark of Isaberg AB. 2 Trademark of Schwan-STABILO Schwanhausser GmbH & Co. 3 There are three major and generally distinct domestic markets for the Company's office products: commercial offices, home offices and the general consumer. The commercial line of the Company's office products is distributed primarily through a network of office supply wholesalers and dealers and office product superstores. Sales to the home office and the general consumer include mechanical and electromechanical, and desktop accessories and supplies products which are sold through large retail outlets, such as office products superstores, drug and food chain stores, variety stores, discount chains, catalog showrooms and membership chains. The consumer market has increased significantly over the last several years primarily due to the dramatic growth of office products superstores. A more limited line of products is sold to schools through specialized school supply distributors. ART/CRAFT PRODUCTS The Company manufactures and distributes three major classes of art/craft products: presentation graphics products; art supplies; and hobby/craft products. The amounts and percentages of net sales of these three product classes for the last three fiscal years were as follows:
(DOLLARS IN THOUSANDS) 1996 1995 1994 ------------------------------------------------------------------------------------------- PRODUCT CLASS: Presentation graphics $121,339 73% $104,271 69% $ 83,354 65% Art supplies . . 26,492 16 26,610 18 26,772 21 Hobby/craft . . . 18,525 11 19,622 13 17,770 14 -------- --- -------- --- -------- --- Total . . . . . . . . . $166,356 100% $150,503 100% $127,896 100% ======== === ======== === ======== ===
The Company's presentation graphics products are used largely by picture framers, graphic artists, display designers and photo laboratories, and include a range of BIENFANG and CENTAFOAM foam boards (which constitute a significant portion, although less than 40%, of presentation graphics products); TECHMOUNT dry mount adhesive products; pressure sensitive and dry mount adhesive products sold under the SEAL brand, as well as under the COLORMOUNT, SEALEZE, PRINT GUARD, PRINT MOUNT and GARDIAN brand names; THE RMASHIELD laminating films; an array of mounting and laminating equipment sold under the CLEAR TECH, SEALEZE, and IMAGE brand names; and specialty tapes and films supplied under various private brands. The Company's art supply products are used primarily by commercial and amateur artists, and include commercial and fine art papers which the Company converts, finishes and sells under its BIENFANG brand name; various types of X-ACTO brand knives and blades; SPEEDBALL acrylic and watercolor paints; SPEEDBALL PAINTERS and FABRIC PAINTERS markers; and CONTE(3) pastels, crayons and related drawing products, for which the Company is the exclusive United States and Canadian distributor. The Company's hobby/craft products generally are used by hobbyists and craft enthusiasts and include SPEEDBALL print-making products; ACCENT MATS beveled-edge picture framing mats; SPEEDBALL ELEGANT WRITERS; LETTE RSHOP calligraphy kits and PANACHE calligraphy products; a range of punch quilting products; PAPER KRAZE paper making and casting products; CANDLE KRAZE candle-making products; and X-ACTO brand tools and kits. 3 Trademark of Conte S.A. 4 The Company consistently has sought to expand its art/craft business primarily through acquisitions of complementary businesses and of distribution rights to complementary products manufactured by others, through internal product development, and through broadened distribution. Major art/craft products introduced during the last several fiscal years include SINGLE STEP adhesive coated BIENFANG foa m board; BIENFANG project display boards; ARMORCORE, STRATOCORE and MIGHTYCORE line of board products; SHOWTIME portable display products; PANACHE calligrap hy products; LETTERSHOP calligraphy kits; punch quilting products; CANDLE KRAZE candle-making products; the X-ACTO X-2000 knife; CLEAR TECH pouch laminators; IMAGE brand large format laminators; GARDIAN outdoor protective laminates and adhesives; PRINT MOUNT pressure-sensitive adhesives; and THERMASHIELD laminati ng films. In 1993, the Company acquired IMAGE TECHNOLOGIES, Inc., a start-up company engaged in the development and production of large format laminators, which has allowed the Company to broaden its distribution into the digital imaging market. In 1995, the Company acquired the Centafoam business of Spicers, Ltd., a division of David S. Smith (Holdings) PLC, a United Kingdom manufacturer and marketers of a line of styrene-based foam board products, which has enabled the Company to be more competitive in international foam board markets, and has provided the Company with a base from which to build a rigid substrate business for sign and display markets in Europe. BIENFANG foam board has been particularly important as it has allowed the Company to penetrate the picture framing, sign, display and exhibit markets, yet it also holds wide appeal to the traditional customer groups in art supply, hobby/craft and office markets. The success of foam board has been attributable, in significant part, to the Company's ability to offer the end-user a variety of value-added foam board products, such as colored or adhesive-coated foam board. Traditionally, the Company's art/craft products have been distributed primarily through wholesalers (framing, photomounting, art and hobby), dealers (specialized art supply and hobby/craft stores), general consumer-oriented retail outlets (primarily office product superstores and chain stores), industrial concerns (photo labs, screen printers) and through specialized school supply distributors. Over the last several years, consumer-oriented retail outlets have become an increasingly important distribution channel for the Company's art/craft products. SALES AND MARKETING GENERAL The Company has over 12,000 active customers, the 10 largest of which accounted for approximately 37% of its sales in fiscal 1996. Three of these 10 largest customers were office products superstore chains. The largest single customer accounted for 9.7% of sales for that year. There is a continuing trend toward consolidation of wholesalers, dealers and superstores, particularly in the office products market. This has resulted in an increasing percentage of the Company's sales being attributable to a smaller number of customers and increased buying and bargaining power in customers. See Item 7 of this report. Because most of the Company's sales are made from inventory, the Company generally operates without a material backlog. The Company's sales generally are not subject to material seasonal fluctuations. See Note 16 to the Consolidated Financial Statements herein. 5 DOMESTIC OPERATIONS Domestic marketing of the Company's office products and art/craft products is effected principally through six separate sales forces, one each of office products, furniture, computer accessory products, art/craft products, photomounting, and mass market. The combined sales forces are comprised of over 30 company salespeople and over 240 independent manufacturers' representatives. The Company maintains domestic distribution operations in Florence, Alabama for office products; in Naugatuck, Connecticut and Cottage Grove, Wisconsin for art/craft products; and in Statesville, North Carolina for both office and art/craft products. FOREIGN OPERATIONS The Company distributes its products in more than 60 foreign markets through its own sales force of eight area sales managers and nine salespersons, and through over 20 independent sales agents and over 300 distributors. Sales of office products and art/craft products represented approximately 48% and 52%, respectively, of the Company's export sales in fiscal 1996, with electrical and mechanical pencil sharpeners, paper punches, staplers, X-ACTO brand knives and blades, BIENFANG paper and foam board products, and pressure-sensitive and dry mount adhesive products accounting for the major portion of these sales. Sales from foreign operations in Europe included principally presentation grap hics products. See Note 17 to Consolidated Financial Statements herein for further information concerning the Company's foreign operations. The Company maintains distribution operations in Ontario, Canada; Basildon, England; Kornwestheim, Germany; and Hong Kong. Foreign operations are subject to the usual risks of doing business abroad, particularly currency fluctuations and foreign exchange controls. See also Note 1 to Consolidated Financial Statements herein for information concerning hedging. MANUFACTURING AND PRODUCTION The Company's operations include manufacturing and converting of products, as well as purchasing and assembly of various component parts. Excluding products for which it acts as a distributor, the vast majority of the Company's sales are of products which are either manufactured, converted or assembled by it. See Item 2 herein for information concerning the Company's major manufacturing facilities. The Company customarily has more than one source of supply for its critical raw materials and component parts, and its businesses have not been materially hindered by shortages or increased prices of such items. Although higher costs were experienced, particularly during the first quarter of fiscal 1996 for commodities, such as wood, corrugated packaging material, steel and styrene plastic, the Company began experiencing moderation of prices of some of its raw materials near the end of the first quarter of fiscal 1996. However, management expects the price of some of its raw materials to increase in fiscal 1997. See Item 7 herein. 6 COMPETITION The Company does not have any single competitor which offers substantially the same overall lines of either office products or art/craft products as the Company. However, competition in a number of areas of the Company's businesses, such as electric pencil sharpeners, paper punches, staplers, office furniture, computer diskette storage and related accessory products, paints and foam board, is substantial, and some of the Company's competitors are larger and have considerably greater financial resources than the Company. Because of the fragmented nature of the office products and art/craft products businesses, the multiple markets served by the Company, and the absence of published market data, the Company generally is not able to determine with certainty its relative domestic or foreign market share for its various products. Nevertheless, the Company believes that it is among the leaders in domestic markets in a number of its products, including manual and electric pencil sharpeners; electronic staplers; metal desktop paper organizing products; BIENFANG foam board products; presentation graphics materials and equipment; X-ACTO brand knives and blades; and calligraphy products. The Company also believes that it is among the leaders in the United Kingdom picture framing and photomounting market for dry mounting products. 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. The following trademarks, some of which are mentioned in this report, are owned by the Company: ACCENT MATS Registration Mark, ADEMCO-SEAL trademark, AQUASEAL trademark, ARMORCORE Registration Mark, BEVIS Registration Mark, BEVIS Registration Mark, CONVERGENCE Registration Mark, BEVIS Registration Mark ESSENTIAL FOUNDATIONS trademark, BEVIS Registration Mark, MEGAWORX Registration Mark, BEVIS Registration Mark, PRACTICAL FOUNDATIONS trademark, BEVIS Registration Mark, ULTRAWORX Registration Mark, BEVIS Registration Mark, UNIWORX Registration Mark, BIENFANG Registration Mark, BOSTON Registration Mark, CALISE trademark, CANDLE KRAZE trademark, CENTAFOAM trademark, CLEAR TECH Registration Mark, COLORMOUNT Registration Mark, FLOOR GUARD trademark, GARDIAN Registration Mark, IMAGE Registration Mark, JET GUARD trademark, LETTERSHOP Registration Mark, LIT-NING Registration Mark, MEDIAMATE Registration Mark, MEDIAMATE Registration Mark DISCFINDER trademark, MEDIAMATE Registration Mark FASTRAC Registration Mark, MEDIAMATE Registration Mark LASERRAK Registration Mark, MEDIAMATE Registration Mark ROLL 'N RAK Registration Mark, MIGHTYCORE trademark, PANACHE Registration Mark, PAPER KRAZE trademark, PRINT GUARD Registration Mark, PRINT MOUNT Registration Mark, SEAL Registration Mark, SEALEZE Registration Mark, SHOWTIME trademark, SINGLE STEP Registration Mark, SPEEDBALL Registration Mark, SPEEDBALL Registration Mark ELEGANT WRITERS Registration Mark, SPEEDBALL Registration Mark FABRIC PAINTERS trademark, SPEEDBALL Registration Mark PAINTERS Registration Mark, STRATOCORE trademark, TECHMOUNT Registration Mark, THERMASHIELD trademark, X-2000 trademark and X-ACTO Registration Mark. The Company also has been granted exclusive distribution rights in designated territories with respect to various products, including CONTE drawing products; Schwan-STABILO highlighter markers and writing instruments (the distribution rights to which in the U.S. and Canada were obtained in fiscal 1994), air cleaners, fans and heaters which are manufactured by other companies and sold by the Company under the BOSTON brand name; RAPID manual and electric stapling machines (the distribution rights to which were obtained in fiscal 1996); and PERFECT DATA(4) computer cleaning products. Such rights customarily are granted for limited 4 Trademark of Perfect Data Corporation. 7 periods, after which they expire or may be terminated at the option of the grantor. The Company's distribution rights generally are of limited duration (the longest usually not exceeding approximately seven years) and may be terminated or expire, in certain cases, with as little as approximately six months notice from the grantor of such rights. While the Company's business is not dependent upon any of these distribution rights (no line of such distributed products having accounted for as much as 3% of the Company's net sales in fiscal 1996), the loss of the right to market certain products could have an adverse effect on the Company's profitability. RESEARCH AND DEVELOPMENT During fiscal 1996, the Company spent approximately $2.3 million on Company-sponsored research and development, compared with approximately $1.7 million in fiscal 1995 and $1.6 million in fiscal 1994. PERSONNEL As of January 3, 1997, the Company had approximately 2,100 full-time employees. ENVIRONMENTAL MATTERS Prior to the Company's acquisition of Seal Products, Inc. ("Seal") from Bunzl plc in May 1990, it was discovered that some hazardous waste materials had been stored at Seal's premises located in Naugatuck, Connecticut. In compliance with applicable state law, this environmental condition was reported to the Connecticut Department of Environmental Protection by Bunzl. Seal, which now is a subsidiary of the Company, may be partially responsible under law for this environmental condition on the premises and any liabilities resulting therefrom. However, in connection with the Company's acquisition of Seal, Bunzl agreed to take responsibility for correcting this environmental condition and to indemnify Seal and the Company for resulting liabilities, subject to certain limitations. Bunzl is continuing the process of remediating the environmental conditions. A substantial portion of the remediation has been completed, although testing is continuing. The Company is also involved on a continuing basis in monitoring its compliance with environmental laws and in making capital and operating improvements necessary to comply with existing and anticipated environmental requirements. Despite its efforts, the Company has been cited for occasional violations or alleged violations of environmental laws or permits and on several occasions has been named as a potentially responsible party for remediation of sites. Expenses incurred by the Company to date relating to violations of and compliance with environmental laws and permits and site remediation have not been material. While it is impossible to predict with certainty, management currently does not foresee such expenses in the future as having a material effect on the Company's business, results of operations or financial condition. See Note 13 to Consolidated Financial Statements herein. 8 ITEM 2. PROPERTIES The Company presently maintains its principal executive offices at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 in approximately 56,000 square feet of leased space under a sublease expiring in 2002. The following table sets forth information with respect to certain of the other facilities of the Company:
INDUSTRY PRIMARY APPROXIMATE OWNED SEGMENT FUNCTION LOCATION SIZE OR LEASED --------------------------------------------------------------------------------------------------- OFFICE Manufacturing Florence, KY 108,000 sq. ft. bldg. (1) PRODUCTS & Offices on 27 acres Manufacturing, Florence, AL 293,000 sq. ft. bldg. Owned Distribution, on 24 acres & Offices - ---------------------------------------------------------------------------------------------------------- ART/CRAFT Manufacturing Statesville, NC 219,000 sq. ft. bldg. (2) PRODUCTS & Offices on 13 acres Manufacturing, Naugatuck, CT 86,000 sq. ft. bldg. Leased Distribution, on 15 acres (exp. 2000) & Offices Manufacturing, Basildon, England 64,000 sq. ft. Owned Distribution, in two bldgs. & Offices on 3 acres - ---------------------------------------------------------------------------------------------------------- OFFICE PRODUCTS Manufacturing Statesville, NC 218,000 sq. ft. bldg. Owned AND ART/CRAFT & Offices on 16 acres PRODUCTS Distribution Statesville, NC 320,000 sq. ft. bldg. Leased & Offices (exp. 2005) Distribution Ontario, Canada 59,000 sq. ft. bldg. Leased & Offices (exp. 2001) - ----------------------------------------------------------------------------------------------------------
(1) The construction and expansion of this facility was financed by the issuance of industrial revenue bonds by the City of Florence, Kentucky, which bonds have matured and been paid off. The City retains title to the property and leases it to the Company for a nominal consideration, and the Company has the option, subject to certain conditions, to purchase the property for a nominal consideration. It is anticipated that this facility will be part of the sale of the Company's Lit-Ning Products business. (2) A portion of this facility was financed by the issuance of industrial revenue bonds, due 2004, by the Iredell County Industrial Facilities and Pollution Control Financing Authority. The Authority retains title to the property and leases it to the Company for rental payments equal to principal and interest payments on the bonds. The Company has the option, subject to certain conditions, to purchase the property for a nominal consideration upon payment of the bonds. At present, the above facilities generally are believed to be adequately utilized and suitable for the Company's present needs. 9 ITEM 3. PENDING LEGAL PROCEEDINGS There currently are no material pending legal proceedings (within the meaning of the Form 10-K Instructions), other than routine litigation incidental to the business of the Company, to which the Company is a party or to which any of its property is subject. See Note 13 to Consolidated Financial Statements herein and Item 1-"Environmental Matters" herein. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year covered by this report. 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 55 Chairman of the Board, President and Chief Executive Officer John W. Carney 53 Vice President-Human Resources/Strategic Planning William E. Chandler 53 Senior Vice President, Finance; Chief Financial Officer and Secretary Spencer W. O'Meara 50 Executive Vice President and General Manager, Hunt Products W. Ernest Precious 55 Executive Vice President and General Manager, Presentation Graphics Eugene A. Stiefel 49 Vice President-Information Services The executive officers of the Company customarily are elected annually by the Board of Directors to serve, at the pleasure of the Board, for a period of one year or until their successors are elected. All of the executive officers of the Company, except for Messrs. Thompson, Chandler and Stiefel, have served in varying executive capacities with the Company for over five years. Mr. Thompson joined the Company and was elected an executive officer in June, 1996 after 23 years at Avery Dennison Corporation where he served in a variety of positions, the most recent as Group Vice President of the Office Products business. Mr. Chandler was elected an executive officer of the Company in February, 1993. He joined the Company in September, 1992 after three years at Bally Manufacturing Corporation during which he held positions as Acting Chief Financial Officer and Vice President, Financial Operations and Controller. Mr. Stiefel was elected an executive officer of the Company in April, 1993. He joined the Company in February, 1985 and has served as Vice President-Information Services since 1987. 10 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 officers of the Company. However, this should not be deemed to constitute an admission that all directors and officers of the Company are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the Company. Further information concerning shareholdings of officers, directors and principal shareholders is included in the Company's definitive proxy statement filed or to be filed with the Securities and Exchange Commission. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK HOLDER 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 (all as reported by THE WALL STREET JOURNAL):
Fiscal Quarter 1996 ---------------------------------------------------------------------------------------- First Second Third Fourth ---------------------------------------------------------------------------------------- High ................................. $17 1\2 $17 3\8 $16 5\8 $17 5\8 Low .................................. 13 5\8 15 12 3\4 14 1\2 Fiscal Quarter 1995 ---------------------------------------------------------------------------------------- First Second Third Fourth ---------------------------------------------------------------------------------------- High ................................. $14 3\4 $15 1\2 $15 1\4 $18 3\8 Low .................................. 12 5\8 13 13 1\2 13 3\4
See Note 12 to Consolidated Financial Statements herein for information concerning certain Rights which were distributed by the Company to shareholders and which currently are deemed to be attached to the Company's common stock. As of January 3, 1997, there were over 750 record holders of the Company's common shares, which number does not include shareholders whose shares were held in nominee name. During the past two fiscal years, the Company has paid regular quarterly cash dividends on its common shares at the following rates per share: 1996 and 1995-$.095 per quarter. 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 8 to Consolidated Financial Statements herein. During fiscal 1996, the Company issued from its Treasury an aggregate of 14,385 unregistered Common Shares as awards and grants under its long-term incentive compensation program. 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. 11 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. (IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended - ------------------------------------------------------------------------------ DEC. 1, Dec. 3, Nov. 27, Nov. 28, Nov. 29, 1996(1) 1995(2) 1994 1993 1992 - ------------------------------------------------------------------------------ Net sales .......... $327,525 $313,881 $288,203 $256,150 $234,929 Income from continuing operations ....... 15,219 15,335 17,197 14,928 13,302 Income from continuing operations per common share ..... 1.33 .96 1.07 .93 .83 Total assets ....... 175,674 182,810 173,385 156,317 144,170 Long-term debt ..... 64,559 3,559 3,559 3,003 6,160 Cash dividends declared per share .38 .38 .36 .35 .34 (1) In fiscal 1996, the Company recorded a charge to net income of approximately $.2 million, or $.02 per share, for costs related to the relocation and consolidation of certain manufacturing and distribution operations. (2) In fiscal 1995, the Company recorded a charge to net income of approximately $3.5 million, or $.22 per share, for costs relating to organizational changes and relocation and consolidation of operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN OF THE INFORMATION SET FORTH BELOW AND ELSEWHERE IN THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO MATERIALLY DIFFER FROM THOSE SET FORTH IN THE FORWARD LOOKING STATEMENTS. FINANCIAL CONDITION The Company's working capital decreased to $58.3 million at the end of fiscal 1996 from $69.1 million at the end of fiscal 1995 due largely to the Company's repurchases of its common shares discussed below. The debt capitalization percentage increased to approximately 51% at the end of fiscal 1996 from 3% at the end of fiscal 1995 as a net result of the Company's first quarter 1996 repurchases of an aggregate of 5,104,543 of its common shares and related debt incurred to finance the repurchases. Net cash flow of $25.6 million, provided by operating activities in fiscal 1996 combined with available cash balances, were more than sufficient to fund a portion of the common stock repurchases (approximately $10 million), to repay a portion of long-term debt ($17.2 million), to purchase property, plant, and equipment of $7.5 million and to pay cash dividends of $4.2 million. 12 During the first quarter of fiscal 1996, the Company repurchased an aggregate of 5,104,543 of its common shares in a private transaction and a subsequent tender offer. The price of the common shares acquired in the private transaction and tender offer, including related expenses, aggregated approximately $86.6 million. The Company also obtained a new five-year $125 million credit facility, of which $75 million was used to finance the aforementioned repurchases. This new credit facility replaced the revolving credit agreements which were in effect at the end of fiscal 1995. (See Notes 2 and 8 of the Notes to the Consolidated Financial Statements herein.) During the third quarter of fiscal 1996, the Company refinanced $50 million of its $125 million floating rate credit facility through a private placement of senior notes to various insurance companies (see Note 8 to Consolidated Financial Statements herein). This refinancing has provided the Company with long-term capital at a fixed rate and cash flow flexibility that allows for continued growth through both internal investment and possible strategic acquisitions. The return on equity (computed on a 12-month rolling average) before special charges and an accounting change (discussed below) improved to 21.7% in fiscal 1996 from 13.9% in fiscal 1995 and 13.8% in fiscal 1994. The Company's current assets decreased to $92.0 million at the end of fiscal 1996 from $100.1 million at the end of fiscal 1995, primarily as a result of a $14.0 million decrease in cash and cash equivalents, attributable, in part, to the uses of cash mentioned above. Accounts receivable increased to $48.9 million at the end of fiscal 1996 from $42.0 million at fiscal 1995 year-end largely due to higher sales in the last month of fiscal 1996 compared to those at the end of fiscal 1995 and to a reduction in the allowance for doubtful accounts to $1.8 million at the end of fiscal 1996 from $2.3 million at the end of fiscal 1995 as a result of improved collections. The decrease in inventories from $36.1 million at fiscal 1995 year-end to $35.4 million at the end of fiscal 1996 was principally attributable to improved manufacturing processes. Current liabilities of $33.7 million at the end of fiscal 1996 increased from $31.0 million at the end of fiscal 1995 largely due to a $2.5 million increase in accounts payable, which was primarily due to timing of and payment for raw materials received near the end of the fiscal year. Other noncurrent liabilities increased to $10.1 million at the end of fiscal 1996 from $7.6 million at the end of fiscal 1995 due to several factors, including increases in pension liability and accrued incentive compensation for the new Chief Executive Officer hired on June 1, 1996, partially offset by payments associated with the provision for special charges discussed below. The increase in noncurrent deferred income taxes was due largely to excess tax depreciation over book depreciation. The effect of favorable currency exchange rates for the British pound sterling (the functional currency of the Company's U.K. operations) was the principal cause for a $1.9 million increase in the cumulative translation adjustment account in stockholders' equity. At December 1, 1996, the Company had a revolving credit facility and a line of credit with several banks, providing for borrowing capacity totaling $77.5 million. There were borrowings of $11 million under these credit arrangements at December 1, 1996. Management believes that funds generated from operations, combined with the existing credit facility, will be sufficient to meet currently anticipated working capital and other capital and debt service requirements (see Note 8 to Consolidated Financial Statements herein). Should the Company require additional funds, management believes that the Company could obtain them at competitive costs. 13 RECENT DEVELOPMENTS The Company is currently undergoing, with the assistance of an outside consulting firm, an intensive strategic assessment of its various business segments and markets, the purpose of which is to assist the Company in promptly developing and implementing a strategic plan for the operation and direction of the Company. Management anticipates that it will take the balance of the 1997 fiscal year to complete this implementation plan and anticipates incurring charges associated with this plan during fiscal 1997. Obviously, there are risks inherent in the implementation of any major strategic change, but management believes that the result will be a faster-growing, more profitable and forward-looking Company. As part of this strategic assessment, in January 1997, the Company reached agreements in principle to sell its Lit-Ning Products business and its Hunt Data Products' MediaMate and Calise brand products. The sale of both businesses, which are subject to typical conditions, are expected to be completed during the first quarter of 1997. The combined net sales for these business units were $23.9 million, $27.0 million, and $26.8 million for fiscal years 1996, 1995, and 1994, respectively, which are included under the office products business segment. The divestiture of these businesses is not expected to result in a material gain or loss but will allow the Company to focus on its core office products and art/craft businesses. RESULTS OF OPERATIONS COMPARISON OF FISCAL 1996 VS. 1995 The Company's 1996 fiscal year comprises 52 weeks, compared to 53 weeks for fiscal 1995. NET SALES. Net sales increased 4.3% to $327.5 million in fiscal 1996 from $313.9 million in fiscal 1995 primarily as a result of higher unit volume, particularly from new products, and from average selling price increases of approximately 2.5%. Art/craft products sales increased 10.5% to $166.4 million in fiscal 1996 from $150.5 million in fiscal 1995. This increase was led by higher sales of presentation graphics products (up 16.4%), partially offset by lower sales of hobby/craft products (down 5.6%). Art supplies products sales were essentially unchanged in fiscal 1996 when compared to fiscal 1995. The increase in presentation graphics products sales was largely attributable to higher sales of mounting and laminating products (e.g., Seal and Image brand mounting and laminating equipment; and Bienfang and Centafoam brand foam boards and project display boards). The decrease in hobby/craft products sales was due principally to lower sales of Accent Mats brand pre-cut framing mats, craft products, and X-Acto brand knives and tool sets. Export sales of art/craft products were essentially unchanged in fiscal 1996 from fiscal 1995. Foreign sales of art/craft products continued to increase substantially, growing 27.5% in 1996 as compared to fiscal 1995. This increase was primarily due to higher sales of presentation graphics products in Europe, which included sales of products manufactured by the Centafoam operation (acquired in late April, 1995). Excluding the sales of the Centafoam operation, foreign sales grew 17% in fiscal 1996. Office products sales decreased 1.4% in fiscal 1996 to $161.1 million from $163.4 million in fiscal 1995 as a net result of lower sales of desktop accessories and supplies (down 11.1%) and lower mechanical and electromechanical products sales (down 1.8%), partially offset by higher sales of office furniture products (up 4.6%). The sales decrease in desktop accessories and supplies was largely due to lower sales of MediaMate computer accessory products and lower sales of Lit-Ning brand metal desk organizing products. The sales decrease in mechanical and electromechanical products was principally attributable to lower sales of electric and manual pencil sharpeners and paper shredders, partially offset by higher sales of staplers, which were due principally to sales of Rapid brand manual and high-quality electric staplers (the distribution rights to which in the United States and Canada were obtained during the latter part of fiscal 1996). The sales decreases in desktop accessories and supplies and mechanical and electromechanical products were due to a combination of factors: lower consumer demand for certain products, lost distribution at some of the Company's large retail customers, and general softness in demand. The increase in office furniture products sales was due primarily to higher sales 14 of Bevis brand furniture products, particularly folding tables, screen panels, and new products. Export sales of office products grew 34.7% in fiscal 1996 as compared to fiscal 1995, primarily as a result of higher sales in Canada, in Latin America (particularly Mexico), and in Australia. GROSS PROFIT. The Company's gross profit improved slightly to 37.4% of net sales in fiscal 1996 from 37.3% in fiscal 1995. This slight improvement was largely the net result of higher selling prices and lower raw material costs, partially offset by changes in sales mix (i.e., higher sales of office furniture products and foreign sales, which yield lower gross profit percentages than many of the Company's other products) and higher customer rebates and returns. The gross profit percentages for foreign sales were 26.7% in fiscal 1996 and 28.5% in fiscal 1995. Although the Company has realized positive effects from its recent selling price increases and, to some extent, from the stabilization of costs of some of its raw materials, management is uncertain if future selling price increases will offset anticipated raw material increases in fiscal 1997. SELLING, SHIPPING, ADMINISTRATIVE, AND GENERAL EXPENSES. Selling and shipping expenses decreased slightly to 19.0% of net sales in fiscal 1996 from 19.1% in fiscal 1995. This decrease was largely the net result of lower field sales related expenses, such as promotions, partially offset by higher shipping and distribution costs, primarily from higher freight expenses and marketing administrative expenses. Administrative and general expenses increased $4.1 million, or 14.5%, in fiscal 1996 over the previous year. This increase was principally the result of a charge related to incentive compensation arrangements from the June 1, 1996 hiring of a new Chief Executive Officer ($1.6 million pre-tax, or $.09 per share after-tax) and to costs associated with issuance of stock grants to certain employees ($.6 million pre-tax, or $.04 per share after-tax). PROVISION FOR SPECIAL CHARGES. During the first quarter of fiscal 1996, the Company recorded a pre-tax charge of $.4 million, or $.02 per share after-tax, relating to the Company's fiscal 1995 decision to relocate and consolidate certain manufacturing and distribution operations. In fiscal 1995, the Company recorded a provision for organizational changes of $5.3 million (approximately $3.5 million after income taxes, or $.22 per share) for costs incurred in connection with the resignation and replacement of the Company's Chairman and Chief Executive Officer and other organizational changes. (See "Comparison of Fiscal 1995 vs. 1994" below.) Approximately $1.1 million of this provision is included in liabilities as of December 1, 1996, which principally relates to future severance related payments. INTEREST EXPENSE. Interest expense increased to $4.6 million in fiscal 1996 from $.1 million in fiscal 1995 due to significant borrowings under various debt arrangements discussed in Note 8 to Consolidated Financial Statements herein and under "Financial Condition" above. OTHER EXPENSE, NET. Other expense, net, decreased to $18,000 in fiscal 1996 from $.4 million in fiscal 1995 primarily due to a gain on sale of certain distribution rights in fiscal 1996. PROVISION FOR INCOME TAXES. The Company's effective tax rate decreased to 34.6% in fiscal 1996 from 35.1% in fiscal 1995 as a result of several factors, including resolution of certain prior years' tax exposures. EXTRAORDINARY ITEM. During the third quarter of fiscal 1996, the Company placed $50 million of senior notes with several insurance companies, the proceeds of which were used to repay the outstanding balance of the Company's term loan and part of the revolving credit facility. (See Note 8 to Consolidated Financial Statements herein and "Financial Condition" above.) As a result, the Company recorded an after-tax loss of $.3 million, or $.02 per share, for early extinguishment of debt which has been reflected in the Company's Consolidated Statements of Income as an extraordinary item. 15 NEW ACCOUNTING STANDARDS SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires changes in accounting and reporting for impairments of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. Accordingly, the Company will adopt SFAS No. 121 in fiscal 1997. Management does not believe the adoption of SFAS No. 121 will have a material effect on its results of operations or financial position. SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based upon fair value or, alternatively, permits them to continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). Companies choosing not to adopt the expense recognition provisions of SFAS No. 123 are required to disclose pro forma net income and earnings per share data as if such provisions had been applied. The Company anticipates continuing to account for stock-based compensation in accordance with APB No. 25 and, therefore, the adoption of SFAS No. 123 will not have an impact on the Company's financial position or results of operations. The disclosure requirements of SFAS No. 123 are effective for fiscal years beginning after December 15, 1995; therefore, the Company intends to make such disclosures in fiscal 1997. Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities," provides guidance on specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. SOP 96-1 is effective for fiscal years beginning after December 15, 1996. Accordingly, the Company will adopt SOP 96-1 when required. Management believes that the adoption of this statement will not have a material impact on its results of operations or financial position. 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 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 13 of the Notes to Consolidated Financial Statements.) COMPARISON OF FISCAL 1995 VS. 1994 The Company's 1995 fiscal year was comprised of 53 weeks compared to 52 weeks for fiscal 1994. NET SALES AND EARNINGS. Net sales increased 8.9% to $313.9 million in fiscal 1995 from $288.2 million in fiscal 1994. The increase was primarily the result of higher unit volume, particularly from new products, and from average selling price increases of approximately 2%. 16 Office products sales increased 1.9% in fiscal 1995 to $163.4 million from $160.3 million in fiscal 1994 as a result of higher sales of office furniture products (up 16.6%) and desktop accessories and supplies (up 7.5%), partially offset by lower sales of mechanical and electromechanical products (down 10.2%). The sales growth in office furniture products was due primarily to higher sales of Bevis brand products, particularly folding tables, computer-related furniture, conference tables, and screen panels. The sales increase in desktop accessories and supplies was the result of higher sales of MediaMate brand products and Schwan-STABILO brand products, partially offset by lower sales of Lit-Ning brand metal desk organizing products. The decrease in mechanical and electromechanical sales was largely due to lower sales of Boston brand products, particularly pencil sharpeners, manual staplers, paper punches, and office machines. The decrease in Boston brand products was primarily attributable to lost distribution at some of the Company's large retail customers and to general softness in demand. Management is taking measures aimed at regaining such lost market share. Export sales of office products decreased 10.7% in fiscal 1995 as compared to fiscal 1994, primarily due to lower sales to Latin America (particularly Mexico) and, to a lesser extent, the Middle East and Europe. Art/craft products sales of $150.5 million for fiscal 1995 increased 17.7% from fiscal 1994 sales of $127.9 million. This increase was led by higher sales of presentation graphics products, which were up 25.1% due to a combination of factors, including higher sales in Europe, growth in the digital imaging market, and increases in sales of certain mounting and laminating products (e.g., Seal and Image mounting and laminating equipment and Bienfang and Centafoam brand foam boards). Sales of hobby/craft products increased 10.4%, largely due to higher sales of Speedball Elegant Writer calligraphy markers and Speedball Painters markers as well as to the introduction of new products. Art supplies products sales were essentially unchanged in fiscal 1995 when compared to fiscal 1994. Export sales of art/craft products grew by 2.7% in fiscal 1995 from fiscal 1994. Foreign sales of art/craft products continued to increase substantially, growing 51.9% in fiscal 1995 as compared to fiscal 1994. This increase was due primarily to higher sales of presentation graphics products in Europe, which includes sales of products of Centafoam (acquired in late April, 1995). Excluding sales from the Centafoam business, foreign sales grew 33.9% in fiscal 1995. Net income of $15.3 million, or $.96 per share, for fiscal 1995 decreased approximately 15% from fiscal 1994 due to several factors, including a provision in fiscal 1995 for organizational changes and relocation and consolidation of operations aggregating $5.3 million (approximately $3.5 million after income taxes, or $.22 per share) discussed below and the adoption of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," in fiscal 1994, the cumulative effect of which increased fiscal 1994 net income by $.8 million, or $.05 per share. GROSS PROFIT. The Company's gross profit margin decreased to 37.3% of net sales in fiscal 1995 from 39.3% in fiscal 1994. The decrease was primarily the result of changes in product sales mix (i.e., higher sales for certain office furniture products and higher foreign sales, which yield lower gross profit percentages than many of the Company's other products), higher raw material costs, and lower sales and production volume of Boston brand products. The gross profit percentages for foreign sales were 28.5% in fiscal 1995 and 28.7% in fiscal 1994. Higher costs of commodities, such as wood, styrene plastics, and corrugated packaging materials had the greatest impact on raw material cost increases. 17 SELLING, SHIPPING, ADMINISTRATIVE, AND GENERAL EXPENSES. Selling and shipping expenses decreased to 19.1% of net sales in fiscal 1995 from 20.3% in fiscal 1994, largely as a result of lower packing and shipping expenses, primarily freight expenses, and lower sales commission expenses attributable to changes in customer sales mix. Administrative and general expenses increased 3.5% to $28.3 million primarily as a result of salary and wage increases, offset partially by lower fees for professional services. PROVISION FOR ORGANIZATIONAL CHANGES AND RELOCATION AND CONSOLIDATION OF OPERATIONS. During fiscal 1995, the Company recorded a pre-tax charge aggregating $5.3 million (approximately $3.5 million after income taxes, or $.22 per share) as a provision for costs relating to organizational changes and relocation and consolidation of certain manufacturing and distribution operations. The pre-tax charge was comprised of $2.4 million for costs expected to be incurred in connection with organizational changes being made to more effectively align the Company's organization with its markets, including the resignation and planned replacement of the Company's former Chairman and Chief Executive Officer, and $2.9 million for costs relating to the relocation and consolidation of its Hunt Data Products manufacturing and distribution operations located in Nuevo Laredo, Mexico, and Laredo, Texas with its manufacturing facilities in Statesville, North Carolina, and the move of the distribution operations of its Lit-Ning business from Florence, Kentucky to Statesville. The provision included recognition of future lease obligations, write-off of property, plant and equipment, relocation costs, employee severance costs, and other related costs. INTEREST INCOME. Interest income increased $229,000 in fiscal 1995 from fiscal 1994 due primarily to higher average cash balances. PROVISION FOR INCOME TAXES. The Company's effective tax rate decreased to 35.1% in fiscal 1995 from 36.5% in fiscal 1994. This decrease was principally a result of a reversal of valuation allowances relating to tax net operating loss carryforwards from the European operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary financial information specified by this Item, together with the report of Coopers & Lybrand L.L.P. thereon, are presented following Item 14 of this report. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III INCORPORATED BY REFERENCE The information called for by ITEM 10, "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" (other than the information concerning executive officers set forth after Part I, Item 4 herein); ITEM 11, "EXECUTIVE COMPENSATION;" ITEM 12, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT;" and ITEM 13, "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS," is incorporated herein by reference to the Company's definitive proxy statement for its Annual Meeting of Shareholders scheduled to be held April 16, 1997, which definitive proxy statement is expected to be filed with the Commission not later than 120 days after the end of the fiscal year to which this report relates. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) DOCUMENTS FILED AS PART OF THE REPORT 1. FINANCIAL STATEMENTS: PAGES ----------------------------------------------------------- Report of Independent Accountants F-1 Consolidated Statements of Income for the fiscal years 1996, 1995 and 1994 F-2 Consolidated Balance Sheets, December 1, 1996 and December 3, 1995 F-3 Consolidated Statements of Stockholders' Equity for the fiscal years 1996, 1995 and 1994 F-4 Consolidated Statements of Cash Flows for the fiscal years 1996, 1995 and 1994 F-5 Notes to Consolidated Financial Statements F-6-21 2. FINANCIAL STATEMENT SCHEDULE: ----------------------------------------------------------- II. Valuation and Qualifying Accounts for the fiscal years 1996, 1995 and 1994 F-22 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: ----------------------------------------------------------- (3) Articles of incorporation and bylaws: (a) Restated Articles of Incorporation, as amended (composite) (incorp. by ref. to Ex. 4(a) to Reg. Stmt. No. 33-57105 on Form S-8) (reference also is made to Exhibit 4(c) below for the Designation of Powers, Preferences, Rights and Qualifications of Preferred Stock). (b) By-laws, as amended (incorp. by ref. to Ex. 3(b) to Form 10-Q for quarter ended May 28, 1995). 19 (4) Instruments defining rights of security holders, including indentures:* (a) Note Purchase Agreement dated as of August 1, 1996 between the Company and several insurance companies (incorp. by ref. to Ex. 4.2 to Form 10-Q for quarter ended September 1, 1996). (b) (1) Credit Agreement dated December 19, 1995 between the Company and NationsBank, N. A. (incorp. by ref. to Ex. 9(b) to the Company's Schedule 13E-4 filed with the SEC on December 21, 1995 (the "1995 Schedule 13E-4"); (2) Amendment dated as of February 1, 1996 to Credit Agreement (incorp. by ref. to Ex. (4)(a)(2) to fiscal 1995 Form 10-K); and (3) Amendment dated as of February 26, 1996 to Credit Agreement (incorp. by ref. to Ex. (4)(a)(3) to fiscal 1995 Form 10-K); (4) Amendment dated as of August 1, 1996 to Credit Agreement (incorp. by ref. to Ex. 4.1 to Form 10-Q for quarter ended September 1, 1996). (c) Rights Agreement dated as of August 8, 1990 (including as Exhibit A thereto the Designation of Powers, Preferences, Rights and Qualifications of Preferred Stock), between the Company and Mellon Bank (East), N. A., as original Rights Agent (incorp. by ref. to Ex. 4.1 to August 1990 Form 8-K) and Assignment and Assumption Agreement dated December 2, 1991, with American Stock Transfer and Trust Company, as successor Rights Agent (incorp. by ref. to Ex. 4(d) to fiscal 1991 Form 10-K). Miscellaneous long-term debt instruments and credit facility agreements of the Company, under which the underlying authorized debt is equal to less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis, may not be filed as exhibits to this report. The Company agrees to furnish to the Commission, upon request, copies of any such unfiled instruments. (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 1994 Form 10-K). (b) 1978 Stock Option Plan, as amended, of the Company (incorp. by ref. to Ex. 28(a) to Reg. Stmt. No. 33-25947 on Form S-8).** (c) 1983 Stock Option and Stock Grant Plan, as amended, of the Company (filed herewith).** (d) 1993 Stock Option and Stock Grant Plan of the Company, as amended (filed herewith).** (e) 1988 Long-Term Incentive Compensation Plan of the Company (incorp. by ref. to Ex. 10(e) to fiscal 1994 Form 10-K).** 20 (f) Form of Stock Grant Agreement between the Company and Messrs. Carney, Chandler, O'Meara and Precious (incorp. by ref. to Ex. 10(f) to fiscal 1995 Form 10-K).** (g) 1994 Non-Employee Directors' Stock Option Plan (incorp. by ref. to Ex. 10(f) to fiscal 1993 Form 10-K).** (h) (1) Form of Change in Control Agreement between the Company and various officers of the Company (incorp. by ref. to Ex. 10(i) to fiscal 1994 Form 10-K)** and (2) list of executive officers who are parties (filed herewith).** (i) Employment-Severance Agreement between the Company and William E. Chandler (incorp. by ref. to Ex. 10(j) to fiscal 1993 Form 10-K).** (j) (1) Supplemental Executive Benefits Plan of the Company, effective January 1, 1996, and (2) related Amended and Restated Trust Agreement, effective January 1, 1996 (filed herewith).** (k) Employment-Severance arrangements with Robert B. Fritsch (filed herewith).** (l) Transition Agreement dated June 13, 1995 between the Company and Ronald J. Naples (incorp. by ref. to Ex. 10 to Form 10-Q for quarter ended September 3, 1995).** (m) Stock Purchase Agreement, dated December 19, 1996, between the Company and Mary F. Bartol (incorp. by ref. to Ex. 9(c) to the 1995 Schedule 13E-4). (n) Employment Agreement, dated as of April 8, 1996, between the Company and Donald L. Thompson (incorp. by ref. to Ex. 10 to Form 10-Q for quarter ended June 2, 1996).** (11) Statement re: computation of per share earnings (filed herewith). (21) Subsidiaries (incorp. by ref. to Ex. 21 to fiscal 1993 Form 10-K). (23) Consent of Coopers & Lybrand L.L.P. to incorporation by reference in Registration Statements Nos. 33-70660, 33-25947, 33-6359, 2-83144, 33-57105, and 33-57103 on Form S-8 of their report on the consolidated financial statements and schedule included in this report (filed herewith). (27) Financial Data Schedule (filed herewith). (B) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the last quarter of the fiscal year covered by this report. * Reference also is made to (i) Articles 5th, 6th, 7th, and 8th of the Company's composite Articles of Incorporation (Ex. 3(a) to this report) and (ii) to Sections 1, 7, and 8 of the Company's By-laws (Ex. 3(b) to this report). ** Indicates a management contract or compensatory plan or arrangement. 21 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HUNT MANUFACTURING CO. Dated: February 12, 1997 By: \s\ Donald L. Thompson ------------------------------------- Donald L. Thompson Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacities and on the dates indicated: \s\ Donald L. Thompson February 12, 1997 - ------------------------------------- Donald L. Thompson Chairman of the Board, President and Chief Executive Officer \s\ William E. Chandler February 12, 1997 - ------------------------------------- William E. Chandler Senior Vice President, Finance (Principal Financial and Accounting Officer) \s\ Jack Farber February 12, 1997 - ------------------------------------- Jack Farber Director \s\ William F. Hamilton, Ph.D. February 12, 1997 - ------------------------------------- William F. Hamilton, Ph.D. Director \s\ Mary R. Henderson February 12, 1997 - ------------------------------------- Mary R. (Nina) Henderson Director \s\ Gordon A. MacInnes February 12, 1997 - ------------------------------------- Gordon A. MacInnes Director \s\ Wilson D. McElhinny February 12, 1997 - ------------------------------------- Wilson D. McElhinny Director \s\ Robert H. Rock February 12, 1997 - ------------------------------------- Robert H. Rock Director \s\ Roderic H. Ross February 12, 1997 - ------------------------------------- Roderic H. Ross Director \s\ Victoria B. Vallely February 12, 1997 - ------------------------------------- Victoria B. Vallely Director 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and the Board of Directors of Hunt Manufacturing Co.: We have audited the consolidated financial statements and the financial statement schedule of Hunt Manufacturing Co. and Subsidiaries listed in the index on page 19 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hunt Manufacturing Co. and Subsidiaries as of December 1, 1996 and December 3, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 1, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes in fiscal year 1994. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania January 23, 1997 F-1 HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEARS 1996, 1995 AND 1994 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 (52 weeks) (53 weeks) (52 weeks) - --------------------------------------------------------------------------------------------------------------------------- Net sales ......................................................................... $327,525 $313,881 $288,203 Cost of sales ..................................................................... 204,976 196,720 174,927 -------- -------- -------- Gross profit ................................................................ 122,549 117,161 113,276 Selling and shipping expenses ..................................................... 62,241 59,960 58,572 Administrative and general expenses ............................................... 32,387 28,296 27,338 Provision for organizational changes and relocation and consolidation of operations 354 5,342 -- -------- -------- -------- Income from operations ...................................................... 27,567 23,563 27,366 Interest expense (less $336, $229 and $354 capitalized in 1996, 1995 and 1994, respectively) ......................................... (4,579) (109) (85) Interest income ................................................................... 301 571 342 Other expense, net ................................................................ (18) (380) (542) -------- -------- -------- Income before income taxes, extraordinary item and cumulative effect of accounting change .................................... 23,271 23,645 27,081 Provision for income taxes ........................................................ 8,052 8,310 9,884 -------- -------- -------- Income before extraordinary item and cumulative effect of accounting change . 15,219 15,335 17,197 Extraordinary loss on early extinguishment of debt (net of income tax benefit of $134) ........................................... (251) -- -- Cumulative effect of change in accounting for income taxes ........................ -- -- 795 -------- -------- -------- Net income .................................................................. $ 14,968 $ 15,335 $ 17,992 ========= ========= ========= Average shares of common stock outstanding ........................................ 11,462 16,003 16,102 ========= ========= ========= Earnings per common share: Income before extraordinary item and cumulative effect of accounting change .................................................................... $ 1.33 $ .96 $ 1.07 Extraordinary loss on early extinguishment of debt .......................... (.02) -- -- Cumulative effect of change in accounting for income taxes .................. -- -- .05 --------- --------- --------- Net income per share ........................................................ $ 1.31 $ .96 $ 1.12 ========= ========= =========
See accompanying notes to consolidated financial statements. F-2 HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 1, 1996 AND DECEMBER 3, 1995 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents ...................................................................... $ 1,528 $ 15,503 Accounts receivable, less allowance for doubtful accounts: 1996, $1,809; 1995, $2,305 .......... 48,912 42,036 Inventories .................................................................................... 35,391 36,131 Deferred income taxes .......................................................................... 4,563 4,938 Prepaid expenses and other current assets....................................................... 1,606 1,484 ------- -------- Total current assets . ................................................................... 92,000 100,092 Property, plant and equipment, at cost, less accumulated depreciation and amortization ............. 52,711 52,008 Excess of acquisition cost over net assets acquired, less accumulated amortization ................. 18,239 18,204 Intangible assets, at cost, less accumulated amortization .......................................... 6,738 7,793 Other assets ....................................................................................... 5,986 4,713 ------- -------- TOTAL ASSETS ................................................................... $175,674 $182,810 ======== ======== LIABILITIES Current liabilities: Current portion of long-term debt ............................................................... $ -- $ 766 Accounts payable ................................................................................ 13,271 10,759 Accrued expenses: Salaries, wages and commissions ............................................................... 5,284 5,446 Income taxes .................................................................................. 3,770 3,064 Insurance ..................................................................................... 2,082 2,449 Compensated absences .......................................................................... 2,145 1,673 Other ......................................................................................... 7,123 6,793 ------- -------- Total current liabilities ................................................................. 33,675 30,950 Long-term debt, less current portion ................................................................ 64,559 3,559 Deferred income taxes ............................................................................... 4,704 4,520 Other non-current liabilities ....................................................................... 10,056 7,588 Commitments and contingencies STOCKHOLDERS' EQUITY Capital stock: Preferred, $.10 par value, authorized 1,000,000 shares (including 50,000 shares of Series A Junior Participating Preferred); none issued ............. -- -- Common, $.10 par value, authorized 40,000,000 shares; issued: 1996 and 1995-16,152,322 shares ....................................................... 1,615 1,615 Capital in excess of par value ...................................................................... 6,434 6,434 Cumulative translation adjustment ................................................................... 894 (983) Retained earnings ................................................................................... 141,587 131,216 Less cost of treasury stock: 1996-5,178,127 shares; 1995-159,159 shares ......................... (87,850) (2,089) ------- -------- Total stockholders' equity ................................................................ 62,680 136,193 ------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $175,674 $182,810 ======== ========
See accompanying notes to consolidated financial statements. F-3 HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE FISCAL YEARS 1996, 1995 AND 1994 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Common Stock Capital in Cumulative ------------------- Excess of Translation Retained Issued Treasury Par Value Adjustments Earnings - ------------------------------------------------------------------------------------------------------------------------------------ Balances, November 28, 1993 (issued 16,125,321 shares; treasury 18,634 shares) ..................................... $1,613 $ (299) $6,158 $(1,495) $110,290 Net income ...................................................... 17,992 Cash dividends on common stock ($.36 per share).................. (5,794) Translation adjustments ......................................... 856 Purchase of treasury stock (45,600 shares)....................... (728) Exercise of stock options (issued 1,988 shares; treasury 25,925 shares, net of shares received as payment upon exercise) .... 416 16 25 Issuance of stock grants (issued 2,759 shares; treasury 8,364 shares)....................................... 136 43 5 ------ --------- ------ ------- -------- Balances, November 27, 1994 (issued 16,130,068 shares; treasury 29,945 shares)...................................... 1,613 (475) 6,217 (639) 122,518 Net income ...................................................... 15,335 Cash dividends on common stock ($.38 per share) ................. (6,081) Translation adjustments . ....................................... (344) Purchase of treasury stock (204,900 shares) ..................... (2,853) Exercise of stock options (issued 8,044 shares; treasury 70,580 shares, net of shares received as payment upon exercise) .... 1 1,168 55 (562) Issuance of stock grants (issued 14,210 shares; treasury 5,106 shares)....................................... 1 71 162 6 ------ --------- ------ ------- -------- Balances, December 3, 1995 (issued 16,152,322 shares; treasury 159,159 shares)..................................... 1,615 (2,089) 6,434 (983) 131,216 Net income ...................................................... 14,968 Cash dividends on common stock ($.38 per share) ................. (4,168) Translation adjustments ......................................... 1,877 Purchase of treasury stock (5,104,543 shares) ................... (86,550) Exercise of stock options (treasury 71,190 shares, net of shares received as payment upon exercise) ............ 561 (442) Issuance of stock grants (treasury 14,385 shares) ............... 228 13 ------ --------- ------ ------- -------- Balances, December 1, 1996 (issued 16,152,322 shares; treasury 5,178,127 shares) .................................. $1,615 $(87,850) $6,434 $ 894 $141,587 ====== ======== ====== ====== ========
See accompanying notes to consolidated financial statements. F-4 HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS 1996, 1995 AND 1994 (IN THOUSANDS)
1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income .................................................................................. $14,968 $15,335 $17,992 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................................................... 9,170 8,758 8,039 Provision for inventory obsolescence .................................................... 2,216 1,778 2,083 Provision for doubtful accounts ......................................................... 655 916 921 Extraordinary loss on early extinguishment of debt ...................................... 251 -- -- Cumulative effect of change in accounting for income taxes .............................. -- -- (795) Deferred income taxes ................................................................... 559 410 (1,155) Loss on disposal of property, plant and equipment ....................................... 633 184 634 Provision (payments) for organizational changes and relocation and consolidation of operations ............................................ (1,305) 4,109 (132) Issuance of stock under management incentive bonus and stock grant plans ................ 241 240 312 Changes in operating assets and liabilities, net of acquisition of businesses: Accounts receivable ................................................................... (6,921) (705) (2,609) Inventories ........................................................................... (1,139) (4,332) (7,485) Prepaid expenses and other current assets ............................................. 684 44 1,124 Accounts payable ...................................................................... 2,257 529 (1,352) Accrued expenses ...................................................................... 1,763 (2,240) 400 Other noncurrent assets and liabilities ............................................... 1,559 (1,660) 2,820 --------- --------- --------- Net cash provided by operating activities ......................................... 25,591 23,366 20,797 --------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment .............................................. (7,504) (9,523) (9,305) Acquisition of business ................................................................. -- (2,919) -- Other, net .............................................................................. (684) (667) (620) --------- --------- --------- Net cash used for investing activities ............................................ (8,188) (13,109) (9,925) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt ............................................................ 127,404 930 -- Payments of long-term debt, including current maturities ................................ (67,170) (1,167) (1,600) Purchases of treasury stock ............................................................. (86,550) (2,853) (728) Payments of debt issuance costs ......................................................... (1,134) -- -- Proceeds from exercise of stock options ................................................. 119 662 331 Dividends paid .......................................................................... (4,168) (6,081) (5,794) Other, net .............................................................................. (36) (20) (45) --------- --------- --------- Net cash used for financing activities ............................................ (31,535) (8,529) (7,836) --------- --------- --------- Effect of exchange rate changes on cash and cash equivalents ................................ 157 (32) (7) --------- --------- --------- Net (decrease) increase in cash and cash equivalents ........................................ (13,975) 1,696 3,029 Cash and cash equivalents, beginning of year ................................................ 15,503 13,807 10,778 --------- --------- --------- Cash and cash equivalents, end of year ...................................................... $ 1,528 $ 15,503 $ 13,807 ========= ========= =========
See accompanying notes to consolidated financial statements F-5 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. The 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 1996 ended December 1, 1996; fiscal year 1995 ended December 3, 1995; fiscal year 1994 ended November 27, 1994. Fiscal year 1996 comprised 52 weeks; fiscal year 1995 comprised 53 weeks; fiscal year 1994 comprised 52 weeks. CASH EQUIVALENTS: The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES: Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for over half of the inventories and by the first-in, first-out (FIFO) method for the remainder. The Company uses the FIFO method of inventory valuation for certain acquired businesses because the related products and operations are separate and distinct from the Company's other businesses. PROPERTY, PLANT AND EQUIPMENT: Expenditures for additions and improvements to property, plant and equipment are capitalized, and normal repairs and maintenance are charged to expense as incurred. The related cost and accumulated depreciation of depreciable assets disposed of are eliminated from the accounts, and any profit or loss is reflected in other expense, net. EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED AND INTANGIBLE ASSETS: Excess of acquisition cost over net assets acquired relates principally to the Company's acquisitions of X-Acto (1981), Bevis Custom Tables, Inc. (1985), the Graphic Arts Group of Bunzl plc (1990) and Centafoam (1995). The Company's policy is to record an impairment loss against the net unamortized excess of acquisition cost over net assets acquired and net intangible assets in the period when it is determined that the carrying amount of the net assets may not be recoverable. The Company performs this evaluation on a quarterly basis. This determination includes evaluation of factors such as current market value, future asset utilization, business climate and future net cash flows (undiscounted and without interest) expected to result from the use of the net assets. DEPRECIATION AND AMORTIZATION: Depreciation for financial reporting purposes is computed using the straight-line method over the estimated useful life of the asset as follows: buildings, 12 to 40 years; machinery and equipment, four to 12 years; and leasehold improvements over the lease term. Depreciation for tax purposes is computed principally using accelerated methods. The excess of acquisition cost over net assets acquired is amortized on a straight-line basis over periods ranging from 20 to 40 years. The costs of intangible assets are amortized on a straight-line basis over their respective estimated useful lives, ranging from five to 30 years. Amortization of assets under capital leases which contain purchase options is provided over the assets' useful lives. Other capital leases are amortized over the terms of the related leases or asset lives, if shorter. F-6 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): 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. INCOME TAXES: Effective November 29, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 changed the Company's method of accounting for income taxes from the deferral method under Accounting Principles Board Opinion No. 11 to an asset/liability approach. The adoption of SFAS No. 109 has been recognized as the effect of a change in accounting principle and increased net income in fiscal 1994 by $795, or $.05 per share. The increase in net income results primarily from adjusting deferred tax balances to current tax rates. HEDGING: In fiscal year 1995, the Company adopted SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." 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. Cash flows from hedges are classified in the statement 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 PER SHARE: Earnings per share are calculated based on the weighted average number of common shares outstanding. The effect of outstanding stock options and stock grants is not material and has not been included in the calculation. EMPLOYEE BENEFIT PLANS: The Company and its subsidiaries have noncontributory, defined benefit pension plans covering the majority of its 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. In fiscal year 1995, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires the accrual of postemployment benefits if the obligation is attributable to employees' services already rendered, employees' rights to those benefits accumulate or vest, payment of the benefits is probable and the amount of the benefits can be reasonably estimated. The adoption of this standard did not have a material effect on the Company's results of operations or financial condition. ENVIRONMENTAL MATTERS: Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are also expensed. The Company records liabilities for environmental costs when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. The liability for future environmental remediation costs is evaluated on a quarterly basis by management. Generally, the timing of these accruals coincides with the earlier of the completion of a feasibility study or the Company's commitment to a plan of action based on the then-known facts. Recoveries of expenditures are recognized as a receivable only when they are estimable and probable. F-7 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 2. PRIVATE STOCK PURCHASE AND TENDER OFFER: On December 19, 1995, the Company purchased from Mary F. Bartol an aggregate of 2,150,165 of the Company's common shares for a cash purchase price of $16.32 per share, or $35.1 million in a private transaction. Mrs. Bartol is the widow of George E. Bartol III, the late Chairman of the Board, the mother-in-law of Gordon A. MacInnes, the then Chairman of the Board, and the mother of Victoria B. Vallely, another Director of the Company. On December 21, 1995, the Company commenced a tender offer to purchase up to 3,230,000 of the Company's common shares at a price of $17.00 net per share in cash. The Company purchased 2,954,378 common shares in January 1996 under the terms and subject to conditions of the tender offer. The aggregate purchase price of the common shares and estimated expenses pursuant to the tender offer was $51.5 million. In connection with these transactions, the Company entered into certain credit facilities and debt agreements which are discussed in detail in Note 8. 3. PROVISION FOR ORGANIZATIONAL CHANGES AND RELOCATION AND CONSOLIDATION OF OPERATIONS: During fiscal 1996 and 1995, the Company recorded pre-tax charges aggregating $.4 million (approximately $.2 million after taxes, or $.02 per share) and $5.3 million (approximately $3.5 million after income taxes, or $.22 per share), respectively, as a provis ion for costs relating to organizational changes and relocation and consolidation of certain manufacturing and distribution operations. The fiscal 1996 charge of $.4 million and $2.9 million of the fiscal 1995 charge were for costs relating to the relocation and consolidation of its Hunt Data Products manufacturing and distribution operations located in Nuevo Laredo, Mexico, and Laredo, Texas, with its manufacturing facilities in Statesville, North Carolina, and the move of the distribution operations of its Lit-Ning business from Florence, Kentucky, to Statesville. The fiscal 1995 pre-tax charge was also comprised of $2.4 million for costs incurred in connection with organizational changes being made to more effectively align the Company's organization with its markets including the resignation and replacement of the Company's former Chairman and Chief Executive Officer. The relocation and consolidation of operations is expected to reduce costs and improve product quality and distribution performance. The provision included recognition of future lease obligations, write-off of property, plant, and equipment, relocation costs, employee severance costs, and other related costs. Approximately $1.1 million and $2.2 million of this provision is included in liabilities as of December 1, 1996 and December 3, 1995, respectively, which principally relates to future severance related payments. 4. BUSINESS ACQUISITION: In late April 1995, the Company acquired the Centafoam business of Spicers, Ltd., a division of David S. Smith (Holdings) PLC, for cash consideration and related costs aggregating approximately $2.8 million. Centafoam, whose facilities are located in the United Kingdom, manufactures and markets a line of styrene-based foam board products. Pro forma information is not presented as this acquisition had no material effect on the Company's results of operations or financial condition for any of the years presented. 5. INVENTORIES: The classification of inventories at the end of fiscal years 1996 and 1995 is as follows: 1996 1995 - -------------------------------------------------------------------------------- Finished goods ............................... $19,664 $18,118 Work in process .............................. 4,839 5,452 Raw materials ................................ 10,888 12,561 ------ ------ $35,391 $36,131 ======= ======= F-8 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 5. INVENTORIES (CONTINUED): Inventories determined under the LIFO method were $20,696 and $18,446 at December 1, 1996 and December 3, 1995, respectively. The current replacement cost for these inventories exceeded the LIFO cost by $7,287 and $6,226 at December 1, 1996 and December 3, 1995, respectively. Inventory quantities were reduced in fiscal years 1996, 1995 and 1994, resulting in a liquidation of certain LIFO inventories carried at lower costs prevailing in prior years. The effect of these reductions was to increase net income by $109, or $.01 per share, $115, or $.01 per share, and $315, or $.02 per share in fiscal years 1996, 1995 and 1994, respectively. 6. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment at the end of fiscal years 1996 and 1995 is as follows: 1996 1995 - -------------------------------------------------------------------------------- Land and land improvements .......................... $ 4,031 $ 3,823 Buildings ........................................... 18,253 17,655 Machinery and equipment ............................. 80,830 70,874 Leasehold improvements .............................. 1,041 907 Construction in progress ............................ 2,493 6,860 ----- ----- 106,648 100,119 Less accumulated depreciation and amortization ...... 53,937 48,111 ------ ------ $ 52,711 $ 52,008 ======== ======== Depreciation expense was $6,940, $6,669 and $6,001 for fiscal years 1996, 1995 and 1994, respectively. 7. EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED AND INTANGIBLE ASSETS: Excess of acquisition cost over net assets acquired at the end of fiscal years 1996 and 1995 is as follows: 1996 1995 - -------------------------------------------------------------------------------- Excess of acquisition cost over net assets acquired .... $22,674 $21,902 Less accumulated amortization .......................... 4,435 3,698 ------- ------- $18,239 $18,204 ======= ======= Intangible assets at the end of fiscal years 1996 and 1995 are as follows: 1996 1995 - -------------------------------------------------------------------------------- Covenants not to compete ......................... $11,551 $11,646 Customer lists ................................... 1,510 1,510 Patents .......................................... 1,533 1,533 Trademarks ....................................... 1,443 1,411 Licensing agreements ............................. 1,154 1,154 Other ............................................ 2,338 2,137 ------ ------ 19,529 19,391 Less accumulated amortization .................... 12,791 11,598 ------ ------ $ 6,738 $ 7,793 ======= ======= F-9 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED AND INTANGIBLE ASSETS (CONTINUED): NEW ACCOUNTING STANDARD: SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires changes in accounting and reporting for impairments of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. Accordingly, the Company will adopt SFAS No. 121 in fiscal 1997. Management does not believe the adoption of SFAS No. 121 will have a material effect on its results of operations or financial condition. 8. DEBT: CREDIT FACILITY, SENIOR NOTES AND LINES OF CREDIT: During the first quarter of fiscal 1996, the Company obtained a new five-year $125 million bank credit facility, consisting of a revolving credit facility in an amount up to $81.725 million, and an amortizing term loan in the amount of $43.275 million. The Company used borrowings of $75 million under this credit facility, together with cash on hand, to fund the shares repurchased from Mary F. Bartol and in the tender offer. (See Note 2 above.) An additional $2.4 million was borrowed through the revolving credit facility during the second and third quarters of fiscal 1996 to meet current working capital needs. This credit facility replaced the revolving credit agreements (totaling $45 million) which were in effect at December 3, 1995. During the second half of fiscal 1996, the Company placed $50 million of senior notes with several insurance companies. The proceeds of this transaction were used to repay the outstanding balance of the amortizing term loan referred to above and to reduce the outstanding balance on the revolving credit facility. In addition, the terms of the credit facility were revised, among other things, to reduce the amount of funds available under the facility from $81.725 million to $75 million; to modify certain limitations, covenants, borrowings and facility fee margins; and to provide for additional borrowing options. The costs associated with these financing activities are amortized over the life of each of the respective instruments and charged to interest expense. The charge to interest expense with respect to this amortization was $122 in fiscal year 1996. At December 1, 1996, the Company also had a line of credit agreement that provides for unsecured borrowings up to $2.5 million. There were no borrowings under this agreement at December 1, 1996. LONG-TERM DEBT: Long-term debt at the end of fiscal years 1996 and 1995 is as follows: 1996 1995 - -------------------------------------------------------------------------------- Senior notes (a) ........................................ $50,000 -- Revolving credit facility (b) ........................... 11,000 -- Line of credit .......................................... -- $ 766 Capitalized lease obligation ............................ 2,000 2,000 Industrial development revenue bond (c) ................. 1,559 1,559 ------- ------ 64,559 4,325 Less current portion .................................... -- 766 ------- ------ Long-term debt, less current portion .................... $64,559 $3,559 ======= ====== (a) The senior notes are payable in 10 annual payments of $5,000,000 beginning August 1, 2002 and bear interest at a rate of 7.86%. F-10 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 8. DEBT (CONTINUED): (b) The revolving credit facility, which allows for borrowings of up to $75 million, matures on December 31, 2000. The interest rates under this facility (5.73% at December 1, 1996) are, at the option of the Company, one of the following: a base rate (defined as the higher of (i) the applicable prime rate of the bank or (ii) the federal funds rate plus 50 basis points); LIBOR plus a margin of between 27.5 and 50.0 basis points, the margin in each case to be adjusted quarterly based on the Company's leverage ratio (as defined in the credit facility); a competitive bid rate based on a competitive bid made by a competitive bid lender; or a quoted rate offered by a swingline lender. (c) This industrial development revenue bond has a maturity date of June 15, 1999. The interest rate (5.3625% at December 1, 1996) is 65% of the lending bank's average daily prime rate. 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 interest coverage, fixed charge coverage and leverage ratios, and maintenance of certain levels of net worth, and also contain limitations on liens, indebtedness, investments, changes in lines of business, acquisitions, transactions with affiliates, and modifications of certain documents. Under the most restrictive covenant, the Company is required to maintain a minimum consolidated net worth that is the sum of $45 million plus an aggregate amount equal to 30% of its consolidated net income for each completed fiscal quarter subsequent to December 3, 1995. As of December 1, 1996, the Company had $13.2 million excess consolidated net worth under this provision which would be available for payment of dividends. As a result of the Company's issuance of the senior notes and the use of the proceeds to pay down debt referred to above, the Company recorded an after-tax loss of $.3 million, or $.02 per share, for the early extinguishment of debt which has been reflected in the Company's Consolidated Statements of Income as an extraordinary item. The capitalized lease obligation is collateralized by the property, plant and equipment described in Note 13. Aggregate annual maturities for all long-term debt, including the capitalized leases, for each of the four fiscal years subsequent to November 30, 1997 are as follows: 1998 -- 2000 -- 1999 $ 1,559 2001 $11,000 9. INCOME TAXES: Income before provision for income taxes, net of extraordinary item, consists of the following: 1996 1995 1994 - -------------------------------------------------------------------------------- Domestic ............................... $18,637 $19,999 $24,935 Foreign ................................ 4,249 3,646 2,146 ------- ------- ------- $22,886 $23,645 $27,081 ======= ======= ======= The provision for income taxes, net of extraordinary item, consists of the following: 1996 1995 1994 - -------------------------------------------------------------------------------- Currently payable: Federal ................................ $6,411 $7,084 $ 9,863 State .................................. 237 707 1,009 Foreign ................................ 711 109 167 ------ ------ ------- 7,359 7,900 11,039 Deferred ............................... 559 410 (1,155) ------ ------ ------- $7,918 $8,310 $ 9,884 ====== ====== ======= F-11 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 9. INCOME TAXES (CONTINUED): The following is a reconciliation of the statutory federal income tax rate with the Company's effective income tax rate: 1996 1995 1994 - -------------------------------------------------------------------------------- Statutory federal rate .................... 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit ................................. 1.9 1.8 2.1 Tax benefit of loss carryforwards of foreign subsidiaries ................. (.3) (2.3) (.4) Resolution of certain prior years' tax exposures .............................. (2.7) -- -- Other, net ................................ .7 .6 (.2) ---- ---- ---- Effective tax rate ........................ 34.6% 35.1% 36.5% ==== ==== ==== Effective November 29, 1993, the Company adopted SFAS No. 109. (See Note 1.) The significant components of deferred tax assets and liabilities at December 1, 1996 and December 3, 1995 consist of:
1996 1995 - ------------------------------------------------------------------------------------------------------ Assets Liabilities Assets Liabilities - ------------------------------------------------------------------------------------------------------ Inventories ......................................... $1,982 -- $2,138 -- Accrued expenses .................................... 3,293 $ 434 3,277 $ 499 Allowance for doubtful accounts ..................... 595 -- 746 -- Net operating loss carryforwards - foreign ............................ 121 -- 207 -- Pensions ............................................ 1,014 12 1,014 441 Net operating loss carryforward - states .............................. 539 -- 347 -- Depreciation and amortization ....................... 99 6,767 759 6,701 ------ ------ ------ ------ 7,643 7,213 8,488 7,641 Valuation allowance ................................. (571) -- (429) -- ------ ------ ------ ------ $7,072 $7,213 $8,059 $7,641 ====== ====== ====== ======
As of December 1, 1996, the Company had foreign net operating loss carryforwards of approximately $467 which may be carried forward indefinitely, approximately $48 of which were acquired in connection with business acquisitions. The valuation allowance of approximately $571 relates to net operating losses for which realization is not more likely than not as of December 1, 1996. The net change in the total valuation allowance for the year ended December 1, 1996 was an increase of approximately $142. The Company has recognized approximately $27 of deferred tax assets relating to the likely future utilization of net operating losses. Of this amount, approximately $9 relates to net operating losses acquired in connection with business acquisitions. 10. EMPLOYEE BENEFIT PLANS: PENSION PLANS: Net pension costs for fiscal years 1996, 1995, and 1994 consist of the following: 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost-benefits earned during the period $ 2,206 $ 1,901 $ 2,049 Interest cost on projected benefit obligation 2,696 2,387 2,155 Actual return on plan assets ................. (4,598) (4,749) (1,031) Net amortization and deferral ................ 2,101 2,643 (759) ------- ------- ------- Net pension costs ............................ $ 2,405 $ 2,182 $ 2,414 ======= ======= ======= F-12 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 10. EMPLOYEE BENEFIT PLANS (CONTINUED): Net amortization and deferral consists of the deferral of the excess of actual return on assets over estimated return and amortization of the net unrecognized transition asset on a straight-line basis, principally over 15 years. The funded status of the Company's pension plans at September 30, 1996 and 1995 (dates of actuarial valuations) was as follows:
1996 1995 - ------------------------------------------------------------------------------------------------------------- Over- Under- Over- Under- funded funded funded funded - ------------------------------------------------------------------------------------------------------------- Plan assets at fair value ............................ $ 36,753 $ 791 $ 32,192 $ 728 -------- -------- -------- -------- Actuarial present value of benefit obligations: Vested .............................................. 25,618 3,355 23,324 2,429 Non-vested .......................................... 152 281 79 390 -------- -------- -------- -------- Accumulated benefit obligation ....................... 25,770 3,636 23,403 2,819 Effect of increase in compensation ................... 9,950 707 8,634 1,396 -------- -------- -------- -------- Projected benefit obligation ......................... 35,720 4,343 32,037 4,215 -------- -------- -------- -------- Projected benefit obligation less than (in excess of) plan assets ........................................ 1,033 (3,552) 155 (3,487) Unrecognized net (gain) loss ......................... (2,319) 619 123 816 Unrecognized transition asset ........................ (1,231) (12) (1,457) (16) Unrecognized prior service cost ...................... 435 1,202 495 1,344 Minimum liability adjustment ......................... (35) (1,096) -- (763) -------- -------- -------- -------- Pension liability .................................... $ (2,117) $ (2,839) $ (684) $ (2,106) ======== ======== ======== ========
Pension costs are determined using the assumptions as of the beginning of the year. The funded status is determined using the assumptions as of the date of the actuarial valuation and is deemed overfunded or underfunded based on a comparison of the plan assets at fair value with the accumulated benefit obligation. Plan assets consist principally of common stock and U.S. Government and corporate obligations. Significant assumptions as of the dates of actuarial valuations include: 1996 1995 1994 - -------------------------------------------------------------------------------- Discount rate ..................................... 7.75% 7.50% 8.00% Rate of increase in compensation levels ........... 6.00% 6.00% 6.00% Expected long-term rate of return on plan assets .. 7.50% 7.50% 7.50% SUPPLEMENTAL EXECUTIVE BENEFITS PLAN: The Company has instituted a nonqualified, Supplemental Executive Benefits Plan which constitutes a significant portion of the underfunded status above and covers all officers. Expenses of $421, $505 and $394 in fiscal years 1996, 1995 and 1994, respectively, relating to this plan were actuarially determined and are included in the pension costs described above. In 1994, the Company added an elective salary deferral feature to this plan. Contributions to this portion of the plan by the Company were $36 and $32 for fiscal 1996 and 1995, respectively. EMPLOYEE SAVINGS PLAN: The Company has a defined contribution 401(k) plan available to a majority of its employees in the United States. For participating employees, the Company matches 25 cents for each dollar contributed up to a maximum of 6% of pre-tax compensation, subject to limitations of the plan and the Internal Revenue Code. Contributions to the 401(k) plan by the Company were $461, $433 and $407 for fiscal years 1996, 1995 and 1994, respectively. F-13 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 11. STOCK OPTION, STOCK GRANT AND LONG-TERM INCENTIVE COMPENSATION PLANS: In 1993, the Company adopted the 1993 Stock Option and Stock Grant Plan which replaced the expired 1983 Stock Option and Stock Grant Plan. The 1993 plan authorizes the issuance of up to 1,750,000 common shares, for the granting of incentive stock options, nonqualified stock options and stock grants to key employees. The option price of options granted under the plan may not be less than the market value of the shares at the date granted. Options may be granted for terms of between two and 10 years and generally become exercisable not less than one year following the date of grant. Stock grants under the 1993 plan, which are limited to an aggregate of 525,000 shares, are subject to a vesting period or periods of between one and five years from the date of grant. Common shares are not actually issued to recipients of stock grants until such shares have vested under the plan. The plan also provides for the payment of an annual cash bonus to recipients of stock grants in an amount equal to the cash dividends which would have been received had the shares not yet vested under the grant been actually held by the recipients. The Company's 1983 Stock Option and Stock Grant Plan and 1978 Stock Option Plan expired by their terms in February 1993 and November 1988, respectively, and no further options may be granted under these two plans, although some options remain outstanding under the 1983 plan. The terms of the 1983 plan are essentially similar to the terms of the 1993 plan described above. Under the 1978 plan, options for common shares were authorized for the granting of options to key employees at option prices not less than the market value of the common shares at the date of grant. Options granted under that plan had terms of not more than 10 years and generally became exercisable not less than one year following the date of grant. Payment upon exercise of stock options under the 1993, 1983 and 1978 plans may be by cash and/or in common shares in an amount equivalent to the market value of the stock at the date exercised. A summary of options under the Company's stock option plans is as follows:
1993 Plan 1983 Plan - -------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------- Outstanding, beginning of year .... 634,800 363,400 631,842 730,003 Options granted ................... 364,923 317,300 -- -- Options exercised (at an average price per share of $15.63, $12.74 and $9.55, respectively) ........ (5,000) -- (256,236) (89,561) Options expired ................... -- -- -- -- Options terminated ................ -- (45,900) (20,000) (8,600) -------- -------- -------- -------- Outstanding, end of year .......... 994,723 634,800 355,606 631,842 ======== ======== ======== ======== Average option price per share .... $ 15.56 $ 15.05 $ 14.49 $ 13.95 Outstanding exercisable options, end of year ..................... -- -- 355,606 631,842 Shares reserved for future stock options and grants .............. 750,277 1,115,200 -- --
In 1994, there were 31,501 options exercised at an average price of $13.44 under the 1983 Plan. At the end of 1995, there remained 2,638 outstanding exercisable options at an average option price per share of $10.58 under the 1978 plan. These options were exercised in fiscal 1996. The Company's 1988 Long-Term Incentive Compensation Plan provided for the granting to management- level employees of long-term incentive awards, payable in cash and/or by the Company's common stock at the end of a designated performance period of from two to five years, based upon the degree of attainment of pre-established performance standards during the performance period. A maximum of 180,000 shares were authorized for issuance under this plan. This plan was terminated during fiscal 1996. F-14 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 11. STOCK OPTION, STOCK GRANT AND LONG-TERM INCENTIVE COMPENSATION PLANS (CONTINUED): As of the end of fiscal 1996, an aggregate of 97,339 shares had been earned under this plan (12,217, 19,114 and 17,042 shares in fiscal years 1996, 1995 and 1994, respectively, and 48,966 shares in all previous years), and an aggregate of 9,350 shares were subject to outstanding unvested grants. The charges to administrative and gene ral expenses relating to this plan were $84, $186 and $532 in fiscal years 1996, 1995 and 1994, respectively. In fiscal 1994, the Company adopted the 1994 Non-Employee Directors' Stock Option Plan authorizing the granting of up to an aggregate of 90,000 common shares to nonofficer directors of the Company. Options to purchase an aggregate of 45,000 common shares at $16.875 per share were automatically granted in January 1994 in equal amounts to each of the nonofficer directors of the Company. Options granted under this plan extend for a term of 10 years and become exercisable at the rate of 20% per year over five years commencing one year after the date of grant. No other options have been granted and, as of December 1, 1996, no options have been exercised. OTHER GRANTS: During 1995, the Company made stock grants under the 1993 Stock Option and Stock Grant Plan in the amount of 84,759 common shares to certain officers and other employees. By their terms, these grants will vest at varying times during 1997. The charges to administrative and general expense with respect to these grants were $955 and $310 in fiscal years 1996 and 1995, respectively. The Company has a long-term incentive compensation agreement with Donald L. Thompson, Chairman of the Board, President and Chief Executive Officer, who joined the Company in fiscal 1996. Among the provisions of this agreement is a so-called "Phantom Stock Plan." Under this plan, Mr. Thompson earns the right to the cash value of a total of 175,000 common shares to be awarded as follows, provided that he 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 and 100% on December 1, 1999. The charge to administrative and general expenses with respect to this plan was $1,621 in fiscal 1996. NEW ACCOUNTING STANDARD: SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based upon fair value or, alternatively, permits them to continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). Companies choosing not to adopt the expense recognition provisions of SFAS No. 123 are required to disclose pro forma net income and earnings per share data as if such provisions had been applied. The Company anticipates continuing to account for stock-based compensation in accordance with APB No. 25; and, therefore, the adoption of SFAS No. 123 in fiscal 1997 will not have an impact on the Company's financial position or results of operations. 12. SHAREHOLDERS' RIGHTS PLAN: In 1990, the Company adopted a Shareholders' Rights Agreement and declared a dividend of one right (a "Right") for each outstanding share of the Company's common shares held of record as of the close of business on August 22, 1990. The Rights initially are deemed to be attached to the common shares and detach and become exercisable only if (with certain exceptions and limitations) a person or group attempts to obtain beneficial ownership of 15% or more of the Company's common shares or is determined to be an "adverse person" by the Board of Directors of the Company. Each Right, if and when it becomes exercisable, initially will entitle holders of the Rights to purchase one one-thousandth of a share of Junior Participating Preferred Shares (Series A, of which 50,000 shares currently are authorized for issuance) for $60, subject to adjustment. The Rights will convert into the right to purchase common shares or other securities or property of the Company or an acquiring company in certain other potential or actual takeover situations. The Rights are redeemable by the Company at $.01 per Right in certain circumstances and expire, unless exercised or redeemed earlier, on December 31, 2000. F-15 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 13. COMMITMENTS AND CONTINGENCIES: LEASES: The capitalized lease obligation (see Note 8) represents the amount payable under a lease which is, in substance, an installment purchase. Property, plant and equipment includes the following assets under a capital lease: 1996 1995 - -------------------------------------------------------------------------------- Land ......................................... $ 314 $ 314 Buildings .................................... 2,632 2,632 Machinery and equipment ...................... 1,009 1,009 Accumulated depreciation ..................... (2,960) (2,853) ------- ------ $ 995 $ 1,102 ======= ======= The Company has the option to purchase the above assets at any time during the term of the lease for amounts sufficient to redeem and retire the underlying lessor debt obligation. The capitalized lease obligation has one principal payment at maturity on June 15, 2004. The minimum rental commitments under all noncancellable leases as of December 1, 1996 are as follows: Fiscal Operating Period Leases - ------------------------------------------------------------------- 1997 .................................................. $ 3,783 1998 .................................................. 3,389 1999 .................................................. 2,960 2000 .................................................. 2,830 2001 .................................................. 1,785 Thereafter ............................................ 6,788 ------- Minimum lease payments ................................ $21,535 ======= Rent expense, including related real estate taxes charged to operations, amounted to $4,932, $4,637 and $3,912 for fiscal years 1996, 1995 and 1994, respectively. CONTINGENCIES: The Company has employment/severance (change in control) agreements with its officers under which severance payments and benefits would become payable in the event of specified terminations of employment following a change in control (as defined) of the Company. The Company also has a termination policy applicable to other employees which provides severance payments and benefits in the event of certain terminations of employment. In the event of a change in control of the Company and subsequent termination of all employees, the maximum contingent severance liability would have been approximately $17.7 million at December 1, 1996. Prior to the acquisition of the Graphic Arts Group by the Company from Bunzl plc in May 1990, it was discovered that some hazardous waste materials had been stored on the premises of one of the Graphic Arts Group companies, Seal, located in Naugatuck, Connecticut. In compliance with applicable state law, this environmental condition was reported to the Connecticut Department of Environmental Protection by Bunzl. Seal, which is now a subsidiary of the Company, may be partially responsible under law for this environmental condition on the premises and any liabilities resulting therefrom. However, in connection with the Company's acquisition of Seal, Bunzl agreed to take responsibility for correcting this environmental condition and to indemnify Seal and the Company for resulting liabilities, subject to certain limitations. Management believes that this contingency will not have a material effect on the Company's results of operations or financial condition. F-16 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 13. COMMITMENTS AND CONTINGENCIES (CONTINUED): The Company is also involved on a continuing basis in monitoring its compliance with environmental laws and in making capital and operating improvements necessary to comply with existing and anticipated environmental requirements. Despite its efforts, the Company has been cited for occasional violations or alleged violations of environmental laws or permits and on several occasions has been named as a potentially responsible party for the remediation of sites. Expenses incurred by the Company to date relatin g to violations of and compliance with environmental laws and permits and site remediation have not been material. While it is impossible to predict with certainty, management currently does not foresee such expense in the future as having a material effect on the Company's business, results of operations or financial condition. There are other contingent liabilities with respect to product warranties, legal proceedings and other matters occurring in the normal course of business. In the opinion of management, all such matters are adequately covered by insurance or by accruals, and if not so covered, are without merit or are of such kind, or involve such amounts, as would not have significant effect on the financial condition or results of operations of the Company, if disposed of unfavorably. NEW ACCOUNTING STANDARD: Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities," provides guidance on specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. SOP 96-1 is effective for fiscal years beginning after December 15, 1996. Accordingly, the Company will adopt SOP 96-1 when required. Management believes that the adoption of this statement will not have a material impact on its results of operations or financial position. 14. RESEARCH AND DEVELOPMENT: Research and development expenses were approximately $2,320, $1,705 and $1,606 in fiscal years 1996, 1995 and 1994, respectively. 15. CASH FLOW INFORMATION: Cash payments for interest and income taxes (net of refunds) were as follows: 1996 1995 1994 - -------------------------------------------------------------------------------- Interest paid ........................................ $3,500 $ 282 $ 408 Income taxes ......................................... 6,653 8,941 9,481 Excluded from the Consolidated Statements of Cash Flows are the effects of certain non-cash investing and financing activities as follows: 1996 1995 1994 - -------------------------------------------------------------------------------- Fair value of assets acquired .................... -- $3,863 -- Liabilities assumed or created ................... -- 944 -- Value of common shares received as payment upon exercise of stock options ................... $3,227 150 $ 62 F-17 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 16. QUARTERLY FINANCIAL DATA (UNAUDITED): Results of operations for each of the quarters during fiscal years 1996 and 1995 are as follows: 1996 - -------------------------------------------------------------------------------- First Second Third Fourth Total - -------------------------------------------------------------------------------- Net sales .......... $ 73,668 $ 81,225 $ 83,881 $ 88,751 $327,525 Gross profit ....... 26,788 30,080 31,795 33,886 122,549 Net income ......... 2,826 3,273 3,150 5,719 14,968 Net income per share ........ .22 .30 .29 .52 1.31 1995 - -------------------------------------------------------------------------------- First Second Third Fourth Total - -------------------------------------------------------------------------------- Net sales .......... $ 70,530 $ 74,881 $ 86,302 $ 82,168 $313,881 Gross profit ....... 25,642 28,086 31,247 32,186 117,161 Net income ......... 3,347 2,934 3,655 5,399 15,335 Net income per share ...... .21 .18 .23 .34 .96 The number of weighted average shares outstanding decreased during fiscal 1996 as a result of the private purchase and stock tender offer discussed in Note 2. For this reason, the sum of the quarterly net income per share data is not the same as net income per share for the year. The first quarter of fiscal 1996 includes charges to net income of $.2 million, or $.02 per share, and the second, third and fourth quarters of fiscal 1995 results include charges to net income of approximately $1.4 million, or $.09 per share; $1.0 million, or $.06 per share; and $1.1 million, or $.07 per share, respectively, relating to the provision for organizational changes and relocation and consolidation of operations as described in Note 3. The third quarter of fiscal years 1996 and 1995 contained 13 weeks and 14 weeks, respectively. 17. INDUSTRY SEGMENT INFORMATION: The Company operates in two industry segments, Office Products and Art/Craft Products. Total export sales aggregated $23,354 in fiscal 1996, $20,559 in fiscal 1995 and $21,235 in fiscal 1994, of which $14,913, $12,921, and $11,844 in fiscal years 1996, 1995 and 1994, respectively, were made in Canada. Operating profits include all revenues and expenses of the reportable segment except for general corporate expenses, interest expense, interest income, other expenses, other income and income taxes. Identifiable assets are those assets used in the operations of each business segment. Corporate assets include cash and miscellaneous other assets not identifiable with any particular segment. Capital additions include amounts related to acquisitions. F-18 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 17. INDUSTRY SEGMENT INFORMATION (CONTINUED):
Office Art/Craft Corp. Consoli- FISCAL YEAR 1996 Products Products Assets dated - ----------------------------------------------------------------------------------------------------- Net sales ................................... $161,169 $166,356 $327,525 ======== ======== ======== Operating profit* ........................... $ 9,892 $ 24,435 $ 34,327 ======== ======== General corporate ........................... (6,760) Interest expense ............................ (4,579) Interest income ............................. 301 Other expense, net .......................... (18) -------- Income before income taxes .................. $ 23,271 ======== Identifiable assets ......................... $ 78,648 $ 83,063 $ 13,963 $175,674 ======== ======== ======== ======== Capital additions ........................... $ 4,085 $ 3,212 $ 207 $ 7,504 ======== ======== ======== ======== Depreciation and amortization ............... $ 4,621 $ 3,837 $ 712 $ 9,170 ======== ======== ======== ========
* Includes the provision for organizational changes and relocation and consolidation of operations which reduced the office products operating profit by $.4 million.
Office Art/Craft Corp. Consoli- FISCAL YEAR 1995 Products Products Assets dated - ----------------------------------------------------------------------------------------------------- Net sales ................................... $163,378 $150,503 $313,881 ======== ======== ======== Operating profit* ........................... $ 6,966 $ 21,678 $ 28,644 ======== ======== General corporate ........................... (5,081) Interest expense ............................ (109) Interest income ............................. 571 Other expense, net .......................... (380) -------- Income before income taxes .................. $ 23,645 ======== Identifiable assets ......................... $ 78,272 $ 77,310 $27,228 $182,810 ======== ======== ======= ======== Capital additions ........................... $ 5,619 $ 3,550 $ 1,473 $ 10,642 ======== ======== ======= ======== Depreciation and amortization ............... $ 4,494 $ 3,676 $ 588 $ 8,758 ======== ======== ======= ========
* Includes the provision for organizational changes and relocation and consolidation of operations which reduced the office products operating profit by $4.1 million and art/craft products operating profit by $1.2 million. ** Includes $1.1 million of capital additions relating to business acquisitions.
Office Art/Craft Corp. Consoli- FISCAL YEAR 1994 Products Products Assets dated - ----------------------------------------------------------------------------------------------------- Net sales ................................... $160,307 $127,896 $288,203 ======== ======== ======== Operating profit ............................ $ 12,172 $ 21,211 $ 33,383 ======== ======== General corporate ........................... (6,017) Interest expense ............................ (85) Interest income ............................. 342 Other expense, net .......................... (542) -------- Income before income taxes .................. $ 27,081 ======== Identifiable assets ......................... $ 80,218 $ 70,362 $22,805 $173,385 ======== ======== ======= ======== Capital additions ........................... $ 5,923 $ 3,109 $ 273 $ 9,305 ======== ======== ======= ======== Depreciation and amortization ............... $ 4,123 $ 3,286 $ 630 $ 8,039 ======== ======== ======= ========
F-19 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 17. INDUSTRY SEGMENT INFORMATION (CONTINUED): The Company's operations by geographical areas for fiscal years 1996, 1995 and 1994 are presented below. Intercompany sales to affiliates represent products which are transferred between geographic areas on a basis intended to reflect as nearly as possible the market value of the products.
Europe Adjustments North and and Consoli- FISCAL YEAR 1996 America Other Corporate Eliminations dated - --------------------------------------------------------------------------------------------------------------------- Net sales: Customers ................................ $293,099 $34,426 -- $327,525 Intercompany ............................. 7,111 3,369 $(10,480) -- -------- ------- -------- -------- Total ...................................... $300,210 $37,795 $(10,480) $327,525 ======== ======= ======== ======== Operating profit ........................... $ 31,768 $ 2,559 -- $ 34,327 ======== ======= ======== ======== Identifiable assets ........................ $133,824 $27,887 $13,963 -- $175,674 ======== ======= ======= ======== ======== Europe Adjustments North and and Consoli- FISCAL YEAR 1995 America Other Corporate Eliminations dated - --------------------------------------------------------------------------------------------------------------------- Net sales: Customers ................................ $285,313 $28,568 -- $313,881 Intercompany ............................. 8,866 3,257 $(12,123) -- -------- ------- -------- -------- Total ...................................... $294,179 $31,825 $(12,123) $313,881 ======== ======= ======== ======== Operating profit ........................... $ 26,622 $ 2,022 -- $ 28,644 ======== ======= ======== ======== Identifiable assets ........................ $131,496 $24,086 $27,228 -- $182,810 ======== ======= ======= ======== ======== Europe Adjustments North and and Consoli- FISCAL YEAR 1994 America Other Corporate Eliminations dated - --------------------------------------------------------------------------------------------------------------------- Net sales: Customers ................................ $268,710 $19,493 -- $288,203 Intercompany ............................. 5,060 2,154 $ (7,214) -- -------- ------- -------- -------- Total ...................................... $273,770 $21,647 $ (7,214) $288,203 ======== ======= ======== ======== Operating profit ........................... $ 32,648 $ 735 -- $ 33,383 ======== ======= ======== ======== Identifiable assets ........................ $131,310 $19,270 $22,805 -- $173,385 ======== ======= ======= ======== ========
F-20 HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) 18. 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 1, 1996 and December 3, 1995, the Company had outstanding letters of credit for $115 and $400, respectively. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments ($.1 million and $13.7 million at December 1, 1996 and December 3, 1995, 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, their dispersion across many different industries and geographies, with no single customer accounting for more than 10% of net sales; however, the Company's 10 largest customers accounted for approximately 36% and 37% of accounts receivable at December 1, 1996 and December 3, 1995, 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. 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 OBLIGATION) - The fair value of the Company's debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair values of the Company's financial instruments at December 1, 1996 and December 3, 1995 are as follows: 1996 1995 - -------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - -------------------------------------------------------------------------------- Cash and cash equivalents ...... $ 1,538 $ 1,538 $15,503 $15,503 Debt (excluding capital lease obligation) ........... 62,559 67,622 2,325 2,303 DEBT AND EQUITY SECURITIES: In fiscal 1995, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires changes in accounting and reporting for certain investments in debt and equity securities. The adoption of this standard had no effect on the Company's results of operations or financial position for any of the years presented. F-21 HUNT MANUFACTURING CO. AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS (CONTINUED) FOR THE FISCAL YEARS 1996, 1995 AND 1994 (IN THOUSANDS)
Column C Column A Column B Additions Column D Column E - ---------------------------------------------------------------------------------------------------------------------------------- Charged Balance at to Costs Charged Balance Beginning and to Other End of Classification of Period Expenses Accounts Deductions Period - ---------------------------------------------------------------------------------------------------------------------------------- 1996: Allowance for doubtful accounts ............................ $2,305 $ 655(a) -- $1,151(c) $1,809 ====== ====== ====== ====== ====== Reserve for customer returns and deductions ................ $1,721 $ 34(b) -- $ 867(d) $ 888 ====== ====== ====== ====== ====== Reserve for inventory obsolescence ......................... $2,421 $2,216 -- $2,408(e) $2,229 ====== ====== ====== ====== ====== 1995: Allowance for doubtful accounts ............................ $2,510 $ 916 -- $1,121(c) $2,305 ====== ====== ====== ====== ====== Reserve for customer returns and deductions ................ $1,267 $ 735(b) -- $ 281(d) $1,721 ====== ====== ====== ====== ====== Reserve for inventory obsolescence ......................... $3,530 $1,778 -- $2,887(e) $2,421 ====== ====== ====== ====== ====== 1994: Allowance for doubtful accounts ............................ $2,643 $ 921 -- $1,054(c) $2,510 ====== ====== ====== ====== ====== Reserve for customer returns and deductions ................ $ 702 $1,539(b) -- $ 974(d) $1,267 ====== ====== ====== ====== ====== Reserve for inventory obsolescence ......................... $2,236 $2,083 -- $ 789 $3,530 ====== ====== ====== ====== ======
(a) Decrease versus prior years due, in part, to increased use of credit insurance for larger accounts and improved collection efforts. (b) Represents reserves which principally relate to specific, known returns not yet received as of year-end. (c) Doubtful accounts written off, net of collection expenses. (d) Primarily credits issued to customers. (e) Largely the result of programs in effect during 1996 and 1995 to dispose of fully reserved obsolete inventory. Amount is net of recoveries. EXHIBIT INDEX (Exhibits being filed with this Form 10-K) (10) Material Contracts: (c) 1983 Stock Option and Stock Grant Plan, as amended, of the Company. (d) 1993 Stock Option and Stock Grant Plan of the Company, as amended. (h)(2) List of executive officers who ar parties to Change in Control Agreement. (j)(1) Supplemental Executive Benefits Plan of the Company, effective January 1, 1996. (j)(2) Amended and Restated Trust Agreement, effective January 1, 1996. (k) Employment-Severance arrangements with Robert B. Fritsch. (11) Statement re: computation of per share earnings. (23) Consent of Coopers & Lybrand L.L.P. to incorporation by reference, in Registration Statement Nos. 33-70660, 33-25947, 33-6359, 2-83144, 33-57105, and 33-57103 on Form S-8 of their report on the consolidated financial statements and schedules included in the report. (27) Financial Data Schedule. EX-10.C 2 EXHIBIT (10)(C) Exhibit (10)(C) 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.D 3 EXHIBIT (10)(D) As Amended and Restated effective November 1, 1996 HUNT MANUFACTURING CO. 1993 STOCK OPTION AND STOCK GRANT PLAN 1. Purpose. The 1993 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 (the "Code") and are designated as incentive stock options in the Option Agreement (as hereinafter defined). 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 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 granted and the Stock Grants made 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, up to an aggregate maximum of 1,750,000 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, however, that, of such amount, not more than 525,000 Shares shall be available for Stock Grants, and further provided, that, no Eligible Employee (as hereinafter defined) or Consultant (as defined below) shall receive Options and/or Stock Grants for more than 300,000 Shares over any one-year period. 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; provided, however, that: (a) If an Option is cancelled or if a Stock Grant is terminated, the Shares subject to the unexercised portion of such Option and/or the unvested Shares covered by such Stock Grant shall continue to be counted against the maximum number of Shares specified above which may be awarded to an Eligible Employee or Consultant during the one-year period in which the Option or Stock Grant was originally awarded, and (b) If the exercise price of an Option is reduced after the date of grant, the transaction shall be treated as a cancellation of the original Option and the grant of a new Option for purposes of such maximum. -2- 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. Independent consultants who perform consulting services for the Company and any of its subsidiaries ("Consultants") shall also be eligible to participate. Incentive stock options, nonqualified stock options, or Shares, or a combination thereof, may be granted under the Plan to an Eligible Employee, and nonqualified stock options and Shares, or a combination thereof, but not incentive stock options, may be granted under the Plan to a Consultant. In making any determination as to whether a given employee or Consultant 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 or Consultant, 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 and/or Consultants ("Optionees") under the Plan such 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; and provided further that incentive stock options shall not be granted to Consultants. 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 (j), 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 100 percent 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 -3- (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) and in Section 8, and except as otherwise provided in Subsection (j), the term of each Option shall not be less than two nor more than ten 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 year from the date of grant, as the Committee may specify. Except as otherwise expressly provided in the Plan, Options shall be exercisable by an Optionee only 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 of Option Shares 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 which is not less than the holding period described in Section 422(a)(1) or 423(a)(1) of the Code, as applicable); (iii) If and to the extent 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 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 -4- 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 prior to the expiration date of his/her Option 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)), 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 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 purposes of the Plan, a leave of absence of one 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 longer than one year shall be deemed to constitute a termination of employment, unless the Committee determines otherwise. For purposes of this Section 5, an Optionee who is a Consultant shall be deemed to have terminated employment if such person's consulting relationship with the Company and its subsidiaries is terminated. (e) Death of Optionee. If an Optionee's employment is terminated (within the meaning of Subsection (d)) 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), 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: -5- (i) One 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), shall be deemed to mean the expiration of the exercise period determined thereunder). Notwithstanding the foregoing, in the 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 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) and his/her employment with the Company and its subsidiaries is terminated (within the meaning of Subsection (d)) 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 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 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: -6- (i) Three months after the date of retirement, or (ii) The expiration date specified in such Option. Notwithstanding the foregoing, the Committee may, in its discretion, extend the period for exercise following an Optionee's retirement for up to nine 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 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. 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(l) 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) Ten Percent Shareholder. Notwithstanding any other provision of the Plan, if an Eligible Employee owns more than ten percent 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 110 percent 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 years from the date the incentive stock option is granted. As used in this Plan, the term "Related Corporation" shall mean a subsidiary or a corporate parent of the Company as defined in Section 424 of the Code. -7- (k) Annual Limit on Grant of Incentive Stock Options. 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 $100,000. (l) 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 the exercise of nonqualified stock options under the Plan, the Committee 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. (m) 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 and/or Consultants ("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 -8- of the Committee, except that (subject to Subsection (c) and Section 8) such period or periods shall not be less than one year nor more than five 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 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. (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), 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 shall immediately 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. For purposes of this Section 6, a Grantee who is a Consultant shall be deemed to have terminated employment if such person's consulting relationship with the Company and its subsidiaries is terminated. (ii) Other Terminations of Employment. If a Grantee's employment is terminated (within the meaning of Paragraph (i)) for any reason other than his/her death, disability, or retirement as aforesaid, the -9- unvested portion of the Grantee's Stock Grant shall immediately 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 shall promptly 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 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 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. -10- 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 and the maximum number of Shares with respect to which Options and/or Stock Grants may be awarded to any Eligible Employee or Consultant under the Plan, both as stated in Section 3, 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. 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 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 -11- 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). The Committee, in its discretion, may also immediately vest all or a portion of the remaining unvested Shares under any Stock Grant which is to be so determined. The Committee, in its discretion, may also 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 votes cast at a duly held stockholders' meeting at which a quorum representing a majority of the outstanding shares of the Company is, either in person or by proxy, present and voting on the action: (a) The class of individuals eligible to receive Options or Stock Grants shall not be changed; (b) 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; (c) The limitations on the price at which Options may be granted shall not be changed; and (d) The duration of the Plan, as specified in Section 12, shall not be extended. -12- Notwithstanding the foregoing, 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 or Consultant 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, 1993. Unless earlier terminated as provided in the Plan, the Plan shall terminate at 12:00 midnight on February 6, 2003, and no Options or Stock Grants shall be granted or made thereafter. However, 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. -13- 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, 1996, to vest in three annual increments of 10,000 Shares each on February 10, 1997, 1998, and 1999, respectively, and if the Grantee, while still an employee of the Company, should die on August 10, 1997, the number of Shares vested would be 22,465, calculated as follows: 1. The 10,000 Share increment scheduled to vest on February 10, 1997, would already have vested in full. 2. The 10,000 Share increment scheduled to vest on February 10, 1998, would vest automatically as to 7,479 Shares (i.e., out of the total Vesting Period of 730 days with respect to such Shares, 546 days would have elapsed; 546/730 = .747945 x 10,000 Shares = 7,479 Shares). 3. The 10,000 Share increment scheduled to vest on February 10, 1999, would vest automatically as to 4,986 Shares (i.e., out of the total Vesting Period of 1,095 days with respect to such Shares 546 days would have elapsed; 546/1,095 = .498630 x 10,000 Shares = 4,986 Shares). -14- EX-10.H2 4 EXHIBIT (10)(H)(2) EXHIBIT (10)(h)(2) The Company has Change in Control Agreements in essentially the form incorporated by reference in Exhibit 10(h)(1) with various of its officers, including the following executive officers: Executive Officers John W. Carney Vice President, Human Resource/Strategic Planning William E. Chandler Senior Vice President, Finance (Chief Financial Officer) and Secretary Spencer W. O'Meara Executive Vice President and General Manager W. Ernest Precious Executive Vice President and General Manager Eugene A. Stiefel Vice President, Information Services EX-10.J1 5 EXHIBIT (10)(J)(1) HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN (AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996) AUGUST 1996 TABLE OF CONTENTS Page Article I - Purpose............................................................1 1.1 Purpose......................................................1 Article II - Definitions.......................................................2 2.1 Account or Accounts..........................................2 2.2 Accrual Computation Period...................................2 2.3 Accrued Benefit..............................................2 2.4 Actuarial Equivalent.........................................2 2.5 Actuary......................................................2 2.6 Affiliate....................................................2 2.7 Annuity Starting Date........................................3 2.8 Applicable Compensation......................................3 2.9 Applicable Interest Rate.....................................3 2.10 Applicable Mortality Table...................................3 2.11 Appropriate Form.............................................3 2.12 Average Monthly Compensation.................................3 2.13 Base Salary..................................................4 2.14 Beneficiary..................................................4 2.15 Board........................................................4 2.16 Cause........................................................4 2.17 Code.........................................................4 2.18 Committee....................................................4 2.19 Company......................................................4 2.20 Computation Period...........................................4 2.21 Corporate Officer............................................4 2.22 Deferral Account.............................................5 2.23 Deferral Amounts.............................................5 2.24 Deferral Percentage..........................................5 2.25 Disability...................................................5 2.26 Earliest Retirement Age......................................5 2.27 Early Retirement Date........................................5 2.28 Eligible Spouse or Surviving Spouse..........................5 2.29 Employee.....................................................5 2.30 Employer.....................................................5 2.31 Employment Commencement Date.................................5 2.32 ERISA........................................................5 2.33 Executive Officer............................................6 2.34 Hour of Service..............................................6 2.35 Insolvency...................................................8 2.36 Insolvency Creditor..........................................8 2.37 Joint and Survivor Annuity...................................8 2.38 Late Retirement Date.........................................8 2.39 Matching Account.............................................8 2.40 Matching Amounts.............................................8 2.41 Normal Retirement Age........................................8 2.42 Normal Retirement Date.......................................8 2.43 One-Year Break in Service....................................8 2.44 Participant..................................................9 -i- Page 2.45 Participating Company........................................9 2.46 Pension Plan.................................................9 2.47 Phantom Stock Plan...........................................9 2.48 Plan.........................................................9 2.49 Plan Year....................................................9 2.50 Preretirement Survivor Annuity...............................9 2.51 Present Value...............................................10 2.52 Related Company.............................................10 2.53 Spouse......................................................10 2.54 Trust.......................................................10 2.55 Trustee.....................................................10 2.56 Vesting Computation Period..................................10 2.57 Year of Benefit Service.....................................10 2.58 Year of Vesting Service.....................................10 Article III - Participation...................................................10 3.1 Retirement Benefits.........................................10 3.2 Death Benefits..............................................11 3.3 Salary Deferral Benefits....................................11 Article IV - Retirement Benefits..............................................12 4.1 General Rules...............................................12 4.2 Normal Retirement Pension...................................12 4.3 Early Retirement............................................13 4.4 Late Retirement.............................................13 4.5 Disability Retirement Pension...............................13 4.6 Separation..................................................16 4.7 Preretirement Survivor Annuity..............................16 4.8 Forms of Pension............................................17 4.9 Beneficiary Designation and Proof...........................17 4.10 Divestment for Cause........................................18 4.11 Elective Transfer of Life Insurance Policies Providing Article IV Benefits........................................18 Article V - Death Benefits....................................................20 5.1 Death Benefits..............................................20 5.2 Divestment for Cause........................................20 Article VI - Salary Deferral Benefits.........................................21 6.1 Participation...............................................21 6.2 Accounts....................................................21 6.3 Vesting.....................................................22 6.4 Valuation of Accounts.......................................22 6.5 Manner and Time of Distribution of Accounts.................22 6.6 Hardship Distributions......................................23 6.7 Distribution on Account of Educational Expenses.............23 6.8 Beneficiary Designation.....................................24 6.9 Divestment for Cause........................................24 6.10 Elective Transfer of Life Insurance Policies Providing Article VI Benefits........................................24 Article VII - Payment of Benefits.............................................24 -ii- Page 7.1 Plan Unfunded...............................................24 7.2 Review of Funding Status....................................28 7.3 Acceleration of Payments:...................................29 7.4 Creation of Separate Subfund in Trust upon Termination of Employment..............................................29 Article VIII - Administration.................................................30 8.1 Appointment of Committee....................................30 8.2 Organization................................................30 8.3 Committee Action............................................30 8.4 Claims Procedure............................................30 8.5 Committee Powers and Responsibilities.......................32 8.6 Information from Participating Companies to Committee.......32 8.7 Records.....................................................33 8.8 Determination of Right to Benefits..........................33 8.9 Expert Services.............................................33 Article IX - Amendment and Termination of Plan; Successor Employer............33 9.1 Right of Company to Amend Plan..............................33 9.2 Amendment Procedure.........................................33 9.3 Termination of Plan.........................................33 9.4 Successor Employer..........................................34 Article X - Miscellaneous.....................................................34 10.1 No Right to Employment......................................34 10.2 Right to Withhold...........................................34 10.3 Nonalienation of Benefits...................................34 10.4 Expenses of Plan............................................34 10.5 Incapacitated Beneficiaries.................................34 10.6 Gender and Number...........................................35 10.7 Law Governing Construction..................................35 10.8 Change in Control Agreements................................35 10.9 Headings Not a Part Hereof..................................35 10.10 Severability of Provisions..................................35 10.11 Reporting and Disclosure Requirements.......................35 10.12 Special Provisions Relating to Ronald J. Naples.............35 10.13 Special Provisions Relating to Donald L. Thompson...........35 Article XI - Adoption of Plan by Affiliates ..................................36 11.1 Adoption of Plan............................................36 11.2 Company Appointed Agent of Participating Company............36 11.3 Withdrawal from Plan........................................36 PLAN EXHIBIT A - EARLY RETIREMENT FACTORS....................................A-1 PLAN EXHIBIT B - SPECIAL PROVISIONS FOR RONALD J. NAPLES.....................B-1 PLAN EXHIBIT C - SPECIAL PROVISIONS FOR DONALD L. THOMPSON...................C-1 PLAN EXHIBIT C - APPENDIX A PHANTOM STOCK PLAN FOR DONALD L. THOMPSON.......CA-1 -iii- HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN (AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996) WHEREAS, HUNT MANUFACTURING CO. (the "Company") established the Supplemental Executive Benefits Plan (the "Plan") effective April 16, 1992; and WHEREAS, the Company amended and restated the Plan, effective January 1, 1995, in order to permit salary deferrals and Employer matching contributions for a select group of management or highly compensated employees and to make certain other changes; and WHEREAS, the Company again desires to amend and restate the Plan, effective January 1, 1996, in order to conform the Plan to the requirements of the Employment Agreement between the Company and Donald L. Thompson, dated April 8, 1996, under which Donald L. Thompson was employed as Chairman and Chief Executive Officer of the Company effective June 1, 1996; and WHEREAS, the Company reserved the right to amend the Plan at any time in Section 9.1; NOW, THEREFORE, effective January 1, 1996, the Company amends and restates the HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN, as follows: Article I - Purpose 1.1 Purpose: (a) Retirement Benefits: The Plan is to provide for the payment by the Company of retirement benefits under Article IV to a select group of management and highly compensated employees within the meaning of section 201(2) of ERISA that would have been paid under the Pension Plan but for the benefit limitations imposed by, inter alia, sections 401(a)(17), 401(l), and 415 of the Code. Moreover, the target benefit under the Plan is to be similar to the benefit formula under the Pension Plan, prior to its amendment to comply with the requirements of section 401(l) of the Code and the Treasury regulations thereunder. However, in order to maintain ease of administration, the target benefit is not to be integrated with Social Security; accordingly, the applicable benefit percentages are to apply to all compensation. Except as otherwise specifically provided herein, the provisions of the Plan are to be substantially the same as those of the Pension Plan, as amended and restated effective October 1, 1989. (b) Death Benefits: The Plan is also intended to provide for the payment by the Company of death benefits under Article V to the beneficiaries of a select group of management and highly compensated employees within the meaning of section 201(2) of ERISA. The amount of the death benefit is to equal three times the Participant's Base Salary, reduced by the $50,000 death benefit provided under the Hunt Manufacturing Co. Group Life Insurance Plan. (c) Salary Deferral Benefits: The Plan is also intended to provide for the payment by the Company of salary deferral benefits under Article VI to a select group of management and highly compensated employees within the meaning of section 201(2) of ERISA. -1- (d) Plan Exhibit B and C Benefits: The Plan is also intended to provide for the payment by the Company of the benefits provided under, or pursuant to, Plan Exhibits B and C to Ronald J. Naples and Donald L. Thompson, respectively. (e) Other: Lastly, the Plan is to be compatible with the Change in Control Agreements entered into between the Company and the various Participants in the Plan. The assets from which the benefits are to be paid are to be held in a grantor trust subject, in the case of Insolvency, to the Insolvency Creditors of the Company. Article II - Definitions Where the following words and phrases appear in this Plan, they shall have the respective meanings set forth below, unless the context clearly requires otherwise: 2.1 Account or Accounts: The Deferral Account and/or the Matching Account maintained on behalf of each Executive Officer Participant under Article VI, as the context requires. 2.2 Accrual Computation Period: The Computation Period ending September 30. 2.3 Accrued Benefit: The annual retirement pension which a Participant shall have earned under Article IV up to any given date, which shall be equal to the benefit provided by Section 4.2(a) based on the Participant's Years of Benefit Service and Average Monthly Compensation as of the determination date. 2.4 Actuarial Equivalent: A benefit of equal value, when computed in accordance with the following actuarial assumptions: (a) Other than Present Value and Single Sum Calculations: (1) Interest: 7-1/2 percent per annum. (2) Mortality: 1984 Unisex Pension Tables with a two-year set-back for a Participant and a one-year set-back for the Participant's Spouse or other Beneficiary. (b) Present Value and Single Sum Calculations: (1) Interest: Applicable Interest Rate. (2) Mortality: Applicable Mortality Rate. All Actuarial Equivalents shall be determined under Section 2.4(a) prior to October 1, 1996. On and after October 1, 1996, Actuarial Equivalents shall be determined under Section 2.4(a) or 2.4(b), as applicable. 2.5 Actuary: The enrolled actuary selected by the Company to provide actuarial services in connection with the administration of the Plan. 2.6 Affiliate: A member of a group of employers, of which the Company or other Participating Company is a member and which group constitutes: -2- (a) A controlled group of corporations (as defined in section 414(b) of the Code); (b) Trades or businesses (whether or not incorporated) which are under common control (as defined in section 414(c) of the Code); (c) Trades or businesses (whether or not incorporated) which constitute an affiliated service group (as defined in section 414(m) of the Code); or (d) Any other entities required to be aggregated with the Company or other Participating Company pursuant to section 414(o) of the Code and Treasury regulations thereunder. 2.7 Annuity Starting Date: The first day of the first period for which an amount is paid to a Participant as an annuity or in any other form under the Plan. 2.8 Applicable Compensation: All compensation reported on the Participant'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 Company's Long Term Incentive Plan (terminated on February 14, 1996) actually paid by a Participating Company to a Participant during the calendar year, but adding thereto any amount which is contributed by a Participating Company pursuant to a salary reduction agreement and which is not includible in a Participant'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 Company's Long Term Incentive Plan (terminated on February 14, 1996), and excluding therefrom any awards under the Company's Phantom Stock Plan maintained for the benefit of Donald L. Thompson, and 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). 2.9 Applicable Interest Rate: For any Plan Year, the interest rate established on the first day of such Plan Year which shall be the annual rate of interest on 30-year Treasury securities, as specified by the Commissioner of Internal Revenue, for the calendar month of July preceding the beginning of such Plan Year, all as provided under section 417(e)(3) of the Code. This Section 2.9 shall be effective on and after October 1, 1996. 2.10 Applicable Mortality Table: The table described in Rev. Rul. 95-6, or any successor table prescribed by the Commissioner of Internal Revenue in revenue rulings, notices or other published guidance, all as provided under section 417(e)(3) of the Code. This Section 2.10 shall be effective on and after October 1, 1996. 2.11 Appropriate Form: The form provided or prescribed by the Committee for a particular purpose. 2.12 Average Monthly Compensation: The total Applicable Compensation received by a Participant from a Participating Company during the five consecutive calendar years out of his or her last ten calendar years of employment ending with the calendar year in which occurs the earlier of the Participant'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 a Participant 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 a Participant during such part-year shall not be annualized, and the part-year shall be treated, for purposes of the -3- calculation, as a full year. For any Participant who has less than five consecutive calendar years of employment, Average Monthly Compensation shall be equal to the total Applicable Compensation received by the Participant during his or her total period of employment with a Participating Company divided by the number of his or her total months of employment in such period of employment. 2.13 Base Salary: A Participant's annual base rate of salary, determined as of a given date. 2.14 Beneficiary: (a) Retirement Benefits: Such person or persons or legal entity or entities designated by a Participant to receive benefits under Article IV or Plan Exhibits B and C after such Participant's death, or the personal or legal representative of the Participant, all as herein described and provided. If no Beneficiary is designated by the Participant or if no Beneficiary survives the Participant, the Beneficiary shall be the Participant's Surviving Spouse if the Participant has a Surviving Spouse and otherwise the Participant's estate. (b) Death Benefits: Such person or persons or legal entity or entities designated by a Participant or otherwise eligible to receive, pursuant to Article V or Plan Exhibits B and C, death benefits upon the Participant's death under the Hunt Manufacturing Co. Group Life Insurance Plan. (c) Salary Deferral Benefits: Such person or persons or legal entity or entities designated by a Participant or otherwise eligible to receive, pursuant to Article VI or Plan Exhibits B and C, salary deferral benefits upon the Participant's death. (d) Plan Exhibit B Benefits: Such person or persons or legal entity or entities designated by Ronald J. Naples to receive, pursuant to Plan Exhibit B, any benefits due under Plan Exhibit B upon Ronald J. Naples' death. (e) Plan Exhibit C Benefits: Such person or persons or legal entity or entities designated by Donald L. Thompson to receive, pursuant to Plan Exhibit C, any benefits due under Plan Exhibit C upon Donald L. Thompson's death. 2.15 Board: The Board of Directors of the Company. 2.16 Cause: The Participant's: (a) Dishonesty, fraud, willful malfeasance, gross negligence or other gross misconduct, which is materially injurious to the Company or other Employer, or (b) Conviction of or plea of guilty to a felony. 2.17 Code: The Internal Revenue Code of 1986, as it may be amended from time to time. 2.18 Committee: The Pension Committee appointed under the provisions of Article VIII to administer the Plan. 2.19 Company: HUNT MANUFACTURING CO. 2.20 Computation Period: Any 12-consecutive-month period. 2.21 Corporate Officer: Any Employee of the Company designated by the Company as a Corporate Officer to receive benefits under Section 3.2, provided he or she is a member of a select -4- group of management or highly compensated employees within the meaning of section 201(2) of ERISA. 2.22 Deferral Account: An account established under Article VI, and maintained under this Plan solely as a bookkeeping entry for each Executive Officer Participant, to which Deferral Amounts, and earnings on such amounts, are credited, and from which distributions to the Executive Officer Participant or his or her Beneficiary are debited. 2.23 Deferral Amounts: Amounts credited to an Executive Officer Participant's Deferral Account pursuant to Section 6.2(b)(1). 2.24 Deferral Percentage: The percentage of an Executive Officer Participant's Applicable Compensation that the Executive Officer Participant has elected to defer to his or her Deferral Account. An Executive Officer Participant's Deferral Percentage may be any whole number as elected by the Executive Officer Participant on the Appropriate Form. 2.25 Disability: A physical or mental condition enduring for a period of six months or more, if the affected Participant submits evidence to the Committee that he or she is totally and permanently disabled and is eligible to receive disability benefits under the Federal Social Security Act. 2.26 Earliest Retirement Age: The earliest date on which, under the Plan, the Participant could elect to receive retirement benefits. 2.27 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 15 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. 2.28 Eligible Spouse or Surviving Spouse: The spouse or surviving spouse of a Participant, provided, however, that for purposes of determining whether such spouse is eligible for survivor benefits under Section 4.7, such spouse must have been married to the Participant throughout the one-year period preceding the Participant's death. 2.29 Employee: Any person employed by a Participating Company. 2.30 Employer: The entity that establishes or maintains the Plan; any other organization which has adopted the Plan with the consent of such establishing employer; and any successor of such employer. 2.31 Employment Commencement Date: The date on which the Employee first performs an Hour of Service for a Participating Company, a Related Company, or an Affiliate. 2.32 ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time. -5- 2.33 Executive Officer: Any Employee who is an officer or director (as such terms are defined in Section 16 of the Securities Exchange Act of 1934 and the rules, regulations and interpretations thereunder) of the Company or of HUNT MANAGEMENT COMPANY, INC. ("HMC") or of any other Participating Company, or who is an officer of the Company or HMC of the rank of Vice President or above, provided he or she is a member of a select group of management or highly compensated employees within the meaning of section 201(2) of ERISA. 2.34 Hour of Service: An hour of service determined as follows: (a) Each hour for which: (1) An Employee is paid, or entitled to payment, for the performance of duties for the Employer; (2) An Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence; or (3) Back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer, provided that the same Hours of Service shall not be credited under Section 2.34(a)(1) or Section 2.34(a)(2) and under this Section 2.34(a)(3). (b) Effective for Plan Years beginning after December 31, 1984, solely for purposes of determining whether a One-Year Break in Service has occurred during a Vesting Computation Period, an Employee who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such Employee but for such absence, or in any case in which such Hours of Service cannot be determined, eight Hours of Service per day of such absence. For purposes of this Section 2.34(b), an absence from work for maternity or paternity reasons means an absence: (1) By reason of the pregnancy of the Employee; (2) By reason of a birth of a child of the Employee; (3) By reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee; or (4) For purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this Section 2.34(b) shall be credited (i) in the Vesting Computation Period in which the absence begins if the crediting is necessary to prevent a One-Year Break in Service in that Computation Period, or (ii) in all other cases, in the following Vesting Computation Period. (c) Notwithstanding Section 2.34(a)(2): (1) No more than 501 Hours of Service shall be credited under Section 2.34(a)(2) to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single Computation Period); -6- (2) Hours of Service shall not be credited under Section 2.34(a)(2) to an Employee for payments made or due under a plan maintained solely for the purpose of complying with any applicable workers' compensation, unemployment compensation, or disability insurance laws; (3) Hours of Service shall not be credited under Section 2.34(a)(2) to an Employee for any payment which solely reimburses him or her for medical or medically related expenses he has incurred; and (4) Hours of Service shall not be credited under Section 2.34(a)(2) to an Employee for any payments made or due to him or her under this Plan or under any other pension or profit-sharing plan maintained by the Employer. (d) In the case of a payment which is made, or due, on account of a period during which an Employee performs no duties, and which results in the crediting of Hours of Service under Section 2.34(a)(2), or in the case of an award or agreement for back pay, to the extent that such award or agreement is made with respect to a period described in Section 2.34(a)(2), the number of Hours of Service to be credited shall be determined in accordance with the applicable regulations prescribed by the Secretary of Labor and set forth in 29 CFR Section 2530.200b-2(b). (e) Hours of Service described in Section 2.34(a)(1), Section 2.34(a)(2), and Section 2.34(a)(3) shall be credited to Computation Periods in accordance with the applicable regulations prescribed by the Secretary of Labor and set forth in 29 CFR Section 2530.200b-2(c). (f) This Section 2.34 shall not be construed so as to alter, amend, modify, invalidate, impair, or supersede any law of the United States or any rule or regulation issued under any such law. The nature and extent of credit for Hours of Service recognized under this Section 2.34 shall be determined under such law. (g) In the case of an Employee who is on leave of absence for service on active duty in the Armed Forces of the United States, such Employee shall receive, upon return to the service of the Employer, in addition to credit for Hours of Service to which such Employee is entitled under this Section 2.34, such other credit as may be prescribed by Federal laws relating to military service and veterans' reemployment rights. (h) The number of Hours of Service to be credited to an Employee in a Computation Period shall be determined in the following manner: (1) In the case of an Employee for whom the Employer maintains records of his or her hours worked and hours for which payment is made or due, the number of Hours of Service to be credited to such Employee in a Computation Period shall be determined from such records. (2) In the case of an Employee for whom the Employer does not maintain records of his or her hours worked and hours for which payment is made or due, the number of Hours of Service to be credited to such Employee in a Computation Period shall be determined on the basis of periods of employment which shall be the payroll periods of the Employer applicable to such Employee. An Employee shall be credited with a number of Hours of Service, determined in accordance with the following table, for each of his or her payroll periods in which he or she actually has at least one Hour of Service: -7- PAYROLL PERIOD HOURS OF SERVICE CREDITED ---------------- --------------------------- Daily 10 Weekly 45 Semimonthly 95 Monthly 190 (i) This Section 2.34 shall be administered and interpreted in a manner which complies with regulations prescribed by the Secretary of Labor and set forth in 29 CFR Section 2530.200b-2(a), (b), and (c). (j) Service prior to October 1, 1987, shall be calculated in accordance with the provisions of the Pension Plan as in effect from time to time prior to October 1, 1989. 2.35 Insolvency: The Company's becoming insolvent within the meaning of 13 PA. CONS. STAT. ANN. Section 1201 (1984) as presently enacted (i.e., when the Company either has ceased to pay its debts in the ordinary course of business or cannot pay its debts as they become payable) or the Company's becoming insolvent within the meaning of the Federal bankruptcy law, or becoming a debtor in a proceeding under the Federal bankruptcy code. 2.36 Insolvency Creditor: Any creditor of the Company to whom a distribution may be made in the event of the Company's Insolvency in accordance with State and Federal bankruptcy laws to the same effect that unencumbered assets held by the Company are available to satisfy such claims. 2.37 Joint and Survivor Annuity: An annuity described in Section 4.8(b). 2.38 Late Retirement Date: Any first day of the month following a Participant's Normal Retirement Date. 2.39 Matching Account: An account established under Article VI, and maintained under this Plan solely as a bookkeeping entry for each Executive Officer Participant, to which Matching Amounts, and earnings on such amounts, are credited, and from which distributions to the Executive Officer Participant or his or her Beneficiary are debited. 2.40 Matching Amounts: Amounts credited to an Executive Officer Participant's Matching Account pursuant to Section 6.2(b)(2). 2.41 Normal Retirement Age: The later of: (a) The date a Participant attains age 65; or (b) The fifth anniversary of the date a Participant commenced participation in the Plan. The participation commencement date is the first day of the first Plan Year in which the Participant commenced participation in the Plan. 2.42 Normal Retirement Date: The first day of the month coincident with, or immediately following, the Participant's Normal Retirement Age. 2.43 One-Year Break in Service: Any applicable Vesting Computation Period in which the Employee completes not more than 500 Hours of Service. -8- 2.44 Participant: (a) Retirement Benefits: An Executive Officer participating in the Plan in accordance with the provisions of Section 3.1, Article IV, Plan Exhibit C or any former Executive Officer having deferred vested rights under Article IV and/or Plan Exhibit B. (b) Death Benefits: A Corporate Officer or former Corporate Officer participating in the Plan in accordance with the provisions of Section 3.2, Article V, Plan Exhibit B and Plan Exhibit C. (c) Salary Deferral Benefits: An Executive Officer participating in the Plan in accordance with the provisions of Section 3.3, Article VI and Plan Exhibit C. (d) Plan Exhibit B Benefits: Ronald J. Naples. (e) Plan Exhibit C Benefits: Donald L. Thompson. 2.45 Participating Company: The Company and each Affiliate which adopts the Plan in accordance with Article XI. 2.46 Pension Plan: The Hunt Manufacturing Co. Pension Plan. 2.47 Phantom Stock Plan: The Hunt Manufacturing Co. Phantom Stock Plan maintained for the benefit of Donald L. Thompson and set forth in Plan Exhibit C - - Appendix A. 2.48 Plan: The HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN, as set forth herein, which plan is intended to be a plan solely covering a select group of management or highly compensated employees within the meaning of section 201(2) of ERISA and the DOL regulations thereunder. 2.49 Plan Year: The fiscal period adopted by the Company for filing its Federal income tax return. 2.50 Preretirement Survivor Annuity: Under Article IV, a survivor annuity for the life of the Participant's Surviving Spouse, under which annuity the payments to the Surviving Spouse are equal to the amounts which would be payable as a survivor annuity under the Joint and Survivor Annuity if: (a) In the case of a Participant who dies after his or her Earliest Retirement Age, such Participant had retired with an immediate Joint and Survivor Annuity providing a 50 percent survivor annuity on the day before the Participant's date of death; or, (b) In the case of a Participant who dies on or before his or her Earliest Retirement Age, such Participant had: (1) Separated from service on his or her date of death or, if earlier, his or her actual date of separation; (2) Survived to his or her Earliest Retirement Age; (3) Retired with an immediate Joint and Survivor Annuity providing a 50 percent survivor annuity at his or her Earliest Retirement Age; and -9- (4) Died on the day after his or her Earliest Retirement Age. 2.51 Present Value: The present value of a benefit determined on the basis of the Applicable Interest Rate and the Applicable Mortality Table. 2.52 Related Company: Any predecessor in interest to the Company or to any Affiliate. 2.53 Spouse: The Eligible Spouse of a Participant under Article IV. 2.54 Trust: The grantor trust (within the meaning of section 671 of the Code) established pursuant to the HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN TRUST AGREEMENT. 2.55 Trustee: CORESTATES BANK, N.A., or any corporate successor thereto appointed by the Committee to administer the Trust. 2.56 Vesting Computation Period: Under Article IV, the 12-month period beginning on an Employee's Employment Commencement Date and successive anniversaries thereof. 2.57 Year of Benefit Service: Under Article IV, a Year of Benefit Service as defined in the Pension Plan. 2.58 Year of Vesting Service: Under Articles IV and VI, a Year of Vesting Service as defined in the Pension Plan. Article III - Participation 3.1 Retirement Benefits: (a) Eligibility to Participate: (1) Any Executive Officer participating in the Plan on December 31, 1995, with respect to the retirement benefits provided under Article IV, shall continue to be eligible to participate in the Plan on January 1, 1996, provided he or she is an Executive Officer on such date. (2) Any Employee who becomes an Executive Officer on January 1, 1996, shall be eligible to participate in the Plan, with respect to the retirement benefits provided under Article IV, on January 1, 1996. Any other Employee who becomes an Executive Officer after January 1, 1996, shall be eligible to participate in the Plan, with respect to the retirement benefits provided under Article IV, as of the date such Employee becomes an Executive Officer. (b) Participation: Any Executive Officer participating in the Plan on December 31, 1995, with respect to retirement benefits provided under Article IV, shall continue to participate in the Plan on January 1, 1996, provided he or she is still an Executive Officer on such date. Any other Employee who meets the eligibility requirements of Section 3.1 shall become a Participant in the Plan, with respect to the retirement benefits provided under Article IV, as of the latest of: (1) January 1, 1996, (2) The date he or she meets such eligibility requirements, or -10- (3) The date he or she becomes a participant in the Pension Plan. 3.2 Death Benefits: (a) Eligibility to Participate: (1) Any Corporate Officer participating in the Plan on December 31, 1995, with respect to the death benefits provided under Article V, shall continue to be eligible to particpate in the Plan on January 1, 1996, provided he or she is a Corporate Officer on such date. (2) Any Employee who becomes a Corporate Officer on January 1, 1996, shall be eligible to participate in the Plan, with respect to the death benefits provided under Article V, on January 1, 1996. Any other Employee who is designated by the Company as a Corporate Officer after January 1, 1996, shall be eligible to participate in the Plan, with respect to the death benefits provided under Article V, as of the date such Employee is designated by the Company as a Corporate Officer. (b) Participation: Any Corporate Officer participating in the Plan on December 31, 1995, with respect to the death benefits provided under Article V, shall continue to participate in the Plan on January 1, 1996, provided he or she is still a Corporate Officer on such date. Any other Employee who meets the eligibility requirements of Section 3.2 shall become a Participant in the Plan, with respect to the death benefits provided under Article V, as of the later of (1) January 1, 1996, or (2) The date he or she meets such eligibility requirements. 3.3 Salary Deferral Benefits: (a) Eligibility to Participate: (1) Any Employee who is an Executive Officer (other than Robert B. Fritsch) on January 1, 1996, shall be eligible to participate in the Plan, with respect to the salary deferral benefits provided under Article VI, on January 1, 1996. (2) Any Employee who becomes an Executive Officer after January 1, 1996, shall be eligible to participate in the Plan, with respect to the salary deferral benefits provided under Article VI, as of the date such Employee becomes an Executive Officer. (b) Participation: An Employee who meets the eligibility requirements of Section 3.3 shall become a Participant in the Plan, with respect to the salary deferral benefits provided under Article VI, as of the latest of: (1) January 1, 1996, (2) The date he or she meets such eligibility requirements, or (3) The date he or she meets the requirements of Section 6.1. -11- Article IV - Retirement Benefits 4.1 General Rules: (a) Eligibility: Only those Participants who are Executive Officers meeting the requirements of Section 3.1 shall be entitled to the retirement benefits provided by this Article IV. (b) Retirement Dates: Subject to the provisions of the Plan, an Executive Officer Participant's Early, Normal, or Late Retirement Date, as the case may be, shall occur on the date provided by the Plan, provided the Executive Officer Participant is living on that date. An Executive Officer Participant who does not retire or otherwise separate from service on or before his or her Normal Retirement Date shall continue to participate in the Plan until he or she retires on his or her Late Retirement Date. (c) Amount and Manner of Payment of Retirement Benefits: All retirement benefits shall be in the amount provided by the benefit formula under Section 4.2 and as determined in accordance with the provisions of this Plan, and shall, except as otherwise specifically provided herein, be paid in monthly installments. At least 30 days prior to the Executive Officer Participant's retirement date, the Committee and Trustee shall take all necessary steps and shall execute or have requested execution by the Executive Officer Participant of all documents required to provide for the payment of the Executive Officer Participant's retirement benefit. 4.2 Normal Retirement Pension: (a) In General: Each Executive Officer Participant shall accrue a monthly retirement pension payable at his or her Normal Retirement Date in the form of a single life annuity (normal retirement pension) equal to the following: (1) 2% of such Executive Officer Participant's Average Monthly Compensation, multiplied by such Executive Officer Participant's Years of Benefit Service not in excess of 25 Years of Benefit Service; plus (2) 1% of the Executive Officer Participant's Average Monthly Compensation, multiplied by such Executive Officer Participant's Years of Benefit Service in excess of 25 Years of Benefit Service, up to a maximum of 10 such excess Years of Benefit Service; reduced by (3) The monthly retirement pension payable to the Executive Officer Participant at his or her Normal Retirement Date in the form of a single life annuity under the Pension Plan. (b) Vested Benefit: An Executive Officer Participant shall have a nonforfeitable (vested) right to his or her normal retirement pension when he or she attains his or her Normal Retirement Age. (c) Monthly Pension: An Executive Officer Participant who retires on his or her Normal Retirement Date shall be entitled to receive his or her normal retirement pension, as calculated under Section 4.2(a), in accordance with the provisions of Section 4.1(b), commencing on his or her Normal Retirement Date (except as otherwise provided in Section 4.11) and payable for his or her lifetime. -12- (d) Normal Form of Payment: The form of benefit paid under Section 4.2(c) (i.e., payment of the benefit calculated under Section 4.2(a) to the Executive Officer Participant for his or her life as a single life annuity) is the normal form of benefit under this Article IV. 4.3 Early Retirement: An Executive Officer Participant may retire on his or her Early Retirement Date. An Executive Officer Participant retiring under this Section 4.3 shall be entitled to receive the benefit described in Section 4.2 commencing, except as otherwise provided below, as of the date which would have been his or her Normal Retirement Date,unless he or she irrevocably elects, 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 the Annuity Starting Date, to have payment of a reduced pension commence on a date specified by him or her. Such 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, and (3) Prior to the date which would have been his or her Normal Retirement Date. If payment of a reduced pension commences prior to the date the Executive Officer Participant attains Normal Retirement Age, said reduced pension shall be equal to the Executive Officer Participant's Accrued Benefit reduced by the factors set forth in Table I of Plan Exhibit A. 4.4 Late Retirement: An Executive Officer Participant who retires after his or her Normal Retirement Date shall receive a monthly pension commencing as of the first day of the month coincident with or next following the date on which he or she actually retires, which shall be his or her Late Retirement Date. Such pension shall be in an amount based on his or her Years of Benefit Service with a Participating Company (up to 35), as calculated under Section 4.2, rendered up to his or her actual retirement date, without actuarial increase to reflect the Executive Officer Participant's shorter life expectancy. 4.5 Disability Retirement Pension: (a) Eligibility and Commencement Date: Subject to Section 4.5(c), an Executive Officer Participant who separates from service by reason of Disability shall be eligible for a retirement pension in accordance with (1) or (2) below: (1) Executive Officer Participant Ineligible to Receive Benefits under Long-Term Disability Plan of a Participating Company: (A) Eligibility for Disability Benefit: If the Executive Officer Participant is not eligible for benefits under a long-term disability plan maintained by a Participating Company, such Executive Officer Participant shall be eligible for a Disability retirement pension if he or she retires on or after the first day of the month coincident with or next following the determination by the Committee of the Executive -13- Officer Participant's eligibility for a Disability retirement pension. Such pension shall commence on the date which would have been the Executive Officer Participant's Normal Retirement Date, unless he or she irrevocably elects, no later than 30 days prior to the first day of his or her taxable year in which occurs the Annuity Starting Date, to have payment commence on a date specified by him or her which date must be: (i) After the date he or she terminates employment with the Participating Companies by reason of Disability, (ii) No earlier than the first day of his or her taxable year following the date of his or her election, and (iii) Prior to the date which would have been his or her Normal Retirement Date. (B) Cessation of Disability: Disability shall be considered to have ended, and entitlement to a Disability retirement pension shall cease, if, prior to his or her Normal Retirement Date, the Executive Officer Participant: (i) Is reemployed by a Participating Company; (ii) Engages in any substantially gainful activity, except for such employment as is found by the Committee to be for the primary purpose of rehabilitation or not incompatible with a finding of total and permanent disability; (iii) Has sufficiently recovered in the opinion of the Committee, based on a medical examination by a doctor or clinic appointed by the Committee, to be able to engage in regular employment with a Participating Company and refuses an offer of employment by a Participating Company; or (iv) Refuses to undergo any medical examination requested by the Committee, provided that a medical examination shall not be required more frequently than twice in any calendar year. If entitlement to a Disability retirement pension ceases in accordance with the provisions of this Section 4.5(a)(1)(B), such Executive Officer Participant shall not be prevented from qualifying for a benefit under another provision of the Plan, and the Disability retirement pension payments received shall be disregarded in computing the amount of such benefit. However, the Executive Officer Participant shall not be credited with either Years of Vesting Service or Years of Benefit Service during the period he or she receives or could have received a Disability retirement pension pursuant to this Section 4.5(a)(1). (2) Executive Officer Participant Eligible to Receive Benefits under Long-Term Disability Plan of Participating Company: If the Executive Officer Participant is eligible for benefits under a long-term disability plan maintained by a Participating Company, he or she shall not be entitled to receive a pension under Section 4.5(a)(1), but shall be deemed to continue to be an Executive Officer Participant in this Plan and shall continue to be credited with Years of Vesting Service and Years of Benefit Service during the period of his or her Disability, provided, however, that no Years of Benefit Service shall be credited after such Executive Officer Participant attains his or her Normal Retirement Date. If such Executive -14- Officer Participant continues in Disability status until his or her Normal Retirement Date, he or she shall be eligible for a Disability retirement pension at his or her Normal Retirement Date and payment of such pension shall commence on his or her Normal Retirement Date. If an Executive Officer Participant's Disability ends prior to his or her Normal Retirement Date for any of the reasons specified in Section 4.5(a)(1)(B) above and he or she is reemployed by a Participating Company within a reasonable period of time as specified by the Committee, he or she shall continue to be an Executive Officer Participant, and the period during which he or she was on Disability, even if such period exceeds one year, shall not be deemed to be a One-Year Break in Service. Such Executive Officer Participant shall, upon his or her reemployment by a Participating Company, be credited with Years of Vesting Service and Years of Benefit Service during his or her period of Disability, and, for purposes of determining his or her retirement pension under the Plan, his or her Applicable Compensation earned in the calendar year immediately preceding his or her Disability shall be assumed to remain constant until his or her Disability ends. If the Executive Officer Participant does not become an Employee within the period specified by the Committee, he or she will not be credited with any additional Years of Vesting Service or Years of Benefit Service for the period of his or her Disability, and his or her right to any benefits under the Plan shall be determined in accordance with the provisions of the Plan without regard to this Section 4.5. (b) Amount and Manner of Payment: (1) Amount: The amount of the Disability retirement pension, on a single-life basis, shall be determined in the same manner as the normal retirement pension under Section 4.2, based upon: (A) In the case of an Executive Officer Participant described in Section 4.5(a)(1), his or her Years of Benefit Service rendered to the date of Disability, calculated in the same manner as set forth in Section 4.2, without actuarial reduction. (B) In the case of an Executive Officer Participant described in Section 4.5(a)(2), the Executive Officer Participant's Average Monthly Compensation, determined as though he or she continued to earn, in each calendar year of his or her Disability, the greater of the following amounts: (i) The Applicable Compensation earned during the calendar year which includes his or her first date of absence due to Disability; or (ii) The Applicable Compensation earned during the calendar year immediately preceding the calendar year which includes his or her first date of absence due to Disability. (2) Manner of Payment: Payment shall be made in accordance with the provisions of Section 4.1(b). (c) Prior Election of Early Retirement Pension: An Executive Officer Participant who has attained his or her Early Retirement Date and has elected an early retirement pension under either the Plan or the Pension Plan shall not be eligible for a Disability retirement pension under the Plan unless such Executive Officer Participant separated from service with the Participating Companies by reason of Disability and payment of an early retirement pension was made solely on an interim basis until a determination could be made, by the Federal Social Security Administration, of the -15- eligibility of such Executive Officer Participant to receive disability benefits under the Federal Social Security Act as a result of such Executive Officer Participant's incurring a Disability prior to the termination of such Executive Officer Participant's service with the Participating Companies. Any Disability payments under this Section 4.5 shall be made retroactive to the date payment of the Executive Officer Participant's early retirement pension commenced but shall be reduced by any early retirement pension payments previously made to such Executive Officer Participant. No further early retirement pension payments shall be made after the determination of the Executive Officer Participant's eligibility for a Disability pension. 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 15 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 he or she completes 15 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 15 Years of Vesting Service but before his or her Early Retirement Date shall be entitled to a deferred pension commencing at the date which would have been his or her Normal Retirement Date, unless the Executive Officer Participant irrevocably elects 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 which date must be (i) after the date he or she terminates employment with the Participating Companies, (ii) no earlier than the first day of his or her taxable year following the date of his or her election, (iii) no earlier than the date on which he or she attains age 55, and (iv) 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. 4.7 Preretirement Survivor Annuity: (a) Death of Executive Officer Participant after Earliest Retirement Age: If an Executive Officer Participant dies after his or her Earliest Retirement Age, the Executive Officer Participant's Surviving Spouse (if any) shall receive a Preretirement Survivor Annuity as determined under Section 2.50(a). (b) Death of Executive Officer Participant on or before Earliest Retirement Age: If an Executive Officer Participant dies on or before the Earliest Retirement Age, the Executive Officer Participant's Surviving Spouse (if any) shall receive a Preretirement Survivor Annuity as determined under Section 2.50(b). (c) Commencement Date of Payments: Payments to an Executive Officer Participant's Surviving Spouse under a Preretirement Survivor Annuity shall begin within 60 days following the later of the date of the Executive Officer Participant's death or the date which would have been the Executive Officer Participant's Earliest Retirement Age unless the Executive Officer Participant elected, prior to his or her death, to have payment commence at a later date specified by him or her but a date which is no later than the date which would have been his or her Normal Retirement Date. Benefits commencing after the later of the Executive Officer Participant's date of death or Earliest Retirement Age shall be the Actuarial Equivalent of the benefit to which the Surviving Spouse would have been entitled if benefits had commenced at the later of the Executive Officer Participant's date of death or Earliest Retirement Age under an immediate Joint and Survivor Annuity in accordance with Section 4.8(b). -16- 4.8 Forms of Pension: An Executive Officer Participant's benefit under this Article IV may be paid in any one of the following forms, each of which shall be the Actuarial Equivalent of the vested Accrued Benefit (i.e., the single life annuity under Section 4.2(d)) to which such Executive Officer Participant would otherwise be entitled: (a) Single Life Annuity: A single life annuity for the Executive Officer Participant's life commencing on his or her Annuity Starting Date and ending on the date of his or her death. (b) Joint and Survivor Annuity: An immediate annuity for the life of the Executive Officer Participant with a survivor annuity for the life of his or her Surviving Spouse which is equal to 50 percent or 100 percent of the amount of the annuity payable during the joint lives of the Executive Officer Participant and his or her Spouse. (c) Period Certain and Life Annuity: An annuity payable to the Executive Officer Participant for life in equal monthly payments, but, in the event of his or her death within the period of ten years after commencement of benefits, the same reduced amount to be paid for the remainder of such ten-year period to the Executive Officer Participant's Beneficiary. In the event of the death of the Executive Officer Participant and his or her Beneficiary before the full value of the pension has been paid out, the commuted value of the balance of the payments, as determined by the Committee, shall be paid in a lump sum to the following relatives of the Executive Officer Participant, if living, in the order set forth: (1) Spouse; (2) Children and their issue, per stirpes; (3) Parents, in equal shares; (4) Brothers and sisters, in equal shares; and (5) Nephews and nieces, in equal shares. If no such relatives are living, the commuted value shall be paid to the Executive Officer Participant's estate. A single Executive Officer Participant's pension under this Article IV shall be paid in the form of a single life annuity, and a married Executive Officer Participant's pension under this Article IV shall be paid in the form of a Joint and 50% Survivor Annuity. Notwithstanding the foregoing, an Executive Officer Participant shall be entitled to elect (with the consent of his or her spouse if he or she is married), 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 receive his or her benefit under this Article IV in any of the optional forms provided above. 4.9 Beneficiary Designation and Proof: (a) Designation of Beneficiary: At any time, and from time to time, each Executive Officer Participant and former Executive Officer Participant shall have the unrestricted right to designate the Beneficiary to receive the benefits due such Executive Officer Participant or former Executive Officer Participant under this Article IV upon his or her death, and to revoke any such designation. Each such designation, or revocation thereof, shall be evidenced on the Appropriate Form signed by the Executive Officer Participant and filed with the Committee. If no such -17- designation is on file with the Committee at the time of the death of an Executive Officer Participant or former Executive Officer Participant, or if such designation is not effective for any reason, as determined by the Committee, then the executor of the will or administrator of the estate of such Executive Officer Participant or former Executive Officer Participant shall be conclusively deemed to be the Beneficiary designated to receive such death benefit. (b) Documentary Proof: The Committee and the Trustee may require the execution and delivery of such documents, papers, and receipts as they may deem reasonably necessary in order to be assured that the payment of any death benefit is made to the person or persons entitled thereto. 4.10 Divestment for Cause: Notwithstanding any provision in the Plan to the contrary, any benefit payable under this Article IV shall be forfeited in the event Participant's employment with a Participating Company is terminated for Cause or in the event it is found by the Committee that a Participant hereunder, following termination of employment with a Participating Company, willfully engaged in any activity which is determined by the Committee to be an activity which might reasonably be considered by the Committee to constitute Cause. If the Committee so finds, it may suspend such benefits to such retired Participant or his or her Beneficiary and, after furnishing notice to the retired Participant, may terminate such benefits under this Plan. The Committee shall consider in its deliberation relative to this provision any explanation or justification submitted to it in writing by the retired Participant or his or her Beneficiary within 60 days following the giving of said notice. Except as heretofore provided for in this Section 4.10, the acceptance by a retired Participant of any benefit under this Article IV shall constitute an agreement with the provisions of this Plan and a representation that he or she is not engaged or employed in any activity serving as a basis for suspension or forfeiture of benefits hereunder. The Committee may require each retired Participant eligible for a benefit under this Article IV to acknowledge in writing prior to payment of such benefit that he or she will accept payment of benefits under this Article IV only if there is no basis for such suspension or forfeiture. 4.11 Elective Transfer of Life Insurance Policies Providing Article IV Benefits: (a) Retirement. Any Participant who retires on or after his or her Early Retirement Date may elect, upon such retirement, or thereafter, in the manner provided in Section 4.11(e), to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan. In the event of such transfer, such retired Participant shall be entitled to no further benefits under this Article IV. (b) Disability: Any Participant who separates from service by reason of Disability under Section 4.5 may elect, at the time such Participant is entitled to receive a retirement pension under Section 4.5, or thereafter, in the manner provided in Section 4.11(e), to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan. In the event of such transfer, such Participant shall be entitled to no further benefits under this Article IV. (c) Death: This Section 4.11 shall not apply to any Participant or his or her beneficiary if such Participant dies before the transfer of the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan. (d) Termination of Employment for Reasons Other than Retirement, Disability or Death: The following provisions apply to a Participant whose employment terminates for any reason other than retirement, Disability or death: -18- (1) Voluntary Termination of Employment: (A) Voluntary Termination with Less than 15 Years of Vesting Service: Any Participant who voluntarily terminates his or her employment with the Participating Companies with less than 15 Years of Vesting Service shall not be entitled to elect to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan. Such Participant shall be entitled to no benefits under this Article IV. (B) Voluntary Termination with 15 or More Years of Vesting Service: Any Participant who voluntarily terminates his or her employment with the Participating Companies with 15 or more Years of Vesting Service may elect, upon his or her termination of employment, or thereafter, in the manner provided in Section 4.11(e), to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan. In the event of such transfer, such Participant shall be entitled to no further benefits under this Article IV. (2) Involuntary Termination of Employment: (A) Involuntary Termination for Any Reason Other than Cause or Performance Limitations: Any Participant whose employment is involuntarily terminated for any reason other than Cause or performance limitations may elect, without regard to the number of Years of Vesting Service he or she has completed, upon his or her involuntary termination of employment, or thereafter, in the manner provided in Section 4.11(e), to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan subject to the following conditions: (i) If such Participant is entitled to receive "Salary Continuation Benefits" under the Hunt Manufacturing Co. Officers' Severance Plan (the "Severance Plan"), such Participant must sign a "Separation Agreement" under the Severance Plan; and (ii) Such elective transfer shall not occur until the end of the "Severance Period" under the Severance Plan. In the event of such transfer, such Participant shall be entitled to no further benefits under this Article IV. (B) Involuntary Termination of Participant with 15 or more Years of Vesting Service for Performance Limitations: If the employment of a Participant who has completed 15 or more Years of Vesting Service is involuntarily terminated for performance limitations, such Participant may elect, upon his or her involuntary termination of employment for performance limitations, or thereafter, in the manner provided in Section 4.11(e), to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article IV of the Plan subject to the following conditions: (i) If such Participant is entitled to receive "Salary Continuation Benefits" under the Hunt Manufacturing Co. Officers' Severance -19- Plan (the "Severance Plan"), such Participant must sign a "Separation Agreement" under the Severance Plan; and (ii) Such elective transfer shall not occur until the end of the "Severance Period" under the Severance Plan. In the event of such transfer, such Participant shall be entitled to no further benefits under this Article IV. (C) Involuntary Termination of Participant with Less than 15 Years of Vesting Service for Performance Limitations: This Section 4.11 shall not apply to any Participant whose employment is terminated for performance limitations if such Participant has not completed at least 15 Years of Vesting Service. Such Participant shall not be entitled to any benefits under this Article IV. (D) Involuntary Termination for Cause: This Section 4.11 shall not apply to any Participant whose employment is terminated for Cause regardless of the number of Years of Vesting Service such Participant has completed. Such Participant shall not be entitled to any benefits under this Article IV. (e) Manner and Effect of Election: Any election under this Section 4.11 to have transferred to the Participant his or her life insurance policies held by the Trust under the Plan to provide such Participant benefits under this Article IV must be made at least 60 days before the beginning of the Participant's taxable year in which such transfer is to be made. In the event of such transfer, such Participant shall be entitled to no further benefits under this Article IV. Article V - Death Benefits 5.1 Death Benefits: Upon the death of a Corporate Officer Participant while employed by a Participating Company or during the period such Corporate Officer Participant is receiving "Salary Continuation Benefits" under the Hunt Manufacturing Co. Officers Severance Plan, a death benefit shall be payable to a Corporate Officer Participant's Beneficiary within a reasonable period of time following the death of the Corporate Officer Participant. The amount of the death benefit shall be: (a) Three times the Corporate Officer Participant's Base Salary (determined as of the date of his or her death); reduced by (b) $50,000. The death benefit payable under this Section 5.1 shall be automatically adjusted to reflect any increase or decrease in the Corporate Officer Participant's Base Salary. No death benefit shall be payable if the death of the Corporate Officer Participant occurs after his or her retirement or other termination of employment with the Company or Participating Company. 5.2 Divestment for Cause: There shall be no divestment for Cause of any benefits under this Article V. -20- Article VI - Salary Deferral Benefits 6.1 Participation: (a) An Executive Officer (other than Robert B. Fritsch) may elect to participate in the salary deferral portion of the Plan by filing an election stating his or her desired Deferral Percentage on the Appropriate Form with the Committee. An Executive Officer's participation in the salary deferral portion of the Plan shall commence on January 1 of the calendar year immediately following the year in which the Executive Officer files the election, except that when an Executive Officer files an election within 30 days of first becoming eligible to participate in the Plan, participation shall commence on the date of such filing. (b) Participation in the salary deferral portion of the Plan shall continue until the Executive Officer Participant furnishes written notice to the Committee of the Executive Officer Participant's election to terminate his or her participation in the salary deferral portion of the Plan or until such time as the Company terminates the Plan pursuant to Section 9.3 below. An Executive Officer Participant's election to terminate participation shall be made by written notice delivered or mailed to the Committee no later than December 31 of the calendar year preceding the calendar year in which such termination is to take effect. (c) An Executive Officer Participant who has terminated his or her participation in the salary deferral portion of the Plan may subsequently elect to participate in the Plan by filing a new election in accordance with Section 6.1(a). (d) An Executive Officer Participant may alter his or her Deferral Percentage for any future calendar year by filing a new election with the Committee on or before December 31 of the calendar year preceding the calendar year for which the new Deferral Percentage is to take effect. 6.2 Accounts: (a) Establishment of Accounts: For each Executive Officer Participant, the Committee shall establish, on the books of the Participating Company, a Deferral Account and a Matching Account, to record Deferral Amounts and Matching Amounts credited to the Executive Officer Participant, as well as the periodic adjustments made to such amounts in accordance with Section 6.4(a). (b) Crediting of Accounts: (1) Deferral Amounts: While an Executive Officer Participant participates in the Plan pursuant to an election on an Appropriate Form, the Participating Company shall credit a Deferral Amount to the Executive Officer Participant's Deferral Account each payroll period. The Deferral Amount shall equal the Executive Officer Participant's Applicable Compensation for the payroll period multiplied by his or her Deferral Percentage. (2) Matching Amounts: For each payroll period in which a Deferral Amount is credited to an Executive Officer Participant's Deferral Account, the Participating Company shall credit a Matching Amount to the Executive Officer Participant's Matching Account. The Matching Amount shall equal twenty-five percent (25%) of the Allowed Deferral Amount. For purposes of this subsection, the Allowed Deferral Amount shall be the lesser of the Executive Officer Participant's Deferral Amount for the payroll period, or six percent (6%) of the Executive Officer Participant's Applicable Compensation for the payroll period. -21- (3) Earnings on Accounts: An Executive Officer Participant shall request that amounts credited to his or her Accounts be allocated among the investment options available under the Plan by submitting a written request to the Committee on the Appropriate Form prior to the date deferrals are scheduled to begin. The Committee shall specify from time to time the investment options available under the Plan. The Executive Officer Participant may request that the investment allocation of his or her Accounts as well as that of future amounts credited to his or her Accounts be changed by submitting a written request to the Committee on the Appropriate Form. Such changes shall become effective as soon as administratively feasible after the Committee receives such request. The Executive Officer Participant's Accounts will be credited with any income, gains, and losses that would have been realized if amounts equal to the Deferral and Matching Amounts had been invested in accordance with the Executive Officer Participant's allocation request on the date such amounts were credited to the Executive Officer Participant's Accounts and reinvested in accordance with any subsequent investment allocation requests. For this purpose, any amounts that would have been received from a chosen investment option as interest, dividends, distributions, or otherwise, had the amounts actually been invested as described above, will be treated as if reinvested in that option on the date such amounts would have been received. 6.3 Vesting: (a) Deferral Account: Each Executive Officer Participant will be one-hundred percent (100%) vested in the balance in his or her Deferral Account at all times. (b) Matching Account: Each Executive Officer Participant will become vested in the balance in his or her Matching Account after completing the number of Years of Vesting Service set forth in the following table: YEARS OF VESTING SERVICE PERCENT VESTED -------------------------- ---------------- Less than 1 0 1 20 2 40 3 60 4 80 5 or more 100 6.4 Valuation of Accounts: (a) Quarterly Valuations: At least quarterly, the Committee shall adjust the Accounts of each Executive Officer Participant to reflect distributions and income earned since the previous valuation date. (b) Statement of Accounts: At least once each Plan Year, the Committee shall furnish each Executive Officer Participant with a written statement of his or her Accounts. 6.5 Manner and Time of Distribution of Accounts: (a) Normal Manner and Time of Distribution: The vested balance in an Executive Officer Participant's Accounts shall be paid in a single sum as soon as practicable after the Executive -22- Officer Participant separates from service with the Participating Companies and all their Affiliates for any reason. (b) Election of Distribution Dates: An Executive Officer Participant may choose a date of distribution for the amounts credited to his or her Accounts in future calendar years, other than the date specified in Section 6.5(a), by filing an election with the Committee on or before December 31 of the calendar year preceding the calendar year in which Deferral Amounts and Matching Amounts subject to the new date of distribution are to be credited. Each time an Executive Officer Participant so changes the date of distribution, a new Deferral Account and a new Matching Account may be established to track future Deferral Amounts and Matching Amounts and earnings thereon. (c) Election of Manner of Distribution: An Executive Officer Participant may elect any of the distribution methods provided under Section 6.5(d), rather than the single sum manner of distribution provided under Section 6.5(a), for amounts credited to his or her Accounts in future calendar years, by filing an election with the Committee on or before December 31 of the calendar year preceding the calendar year in which Deferral Amounts and Matching Amounts subject to the new manner of distribution are to be credited. Each time an Executive Officer Participant so changes the manner of distribution, a new Deferral Account and a new Matching Account may be established to track future Deferral Amounts and Matching Amounts and earnings thereon. (d) Methods of Distribution: Distribution of vested Account balances under this Article VI may be made in a single sum or in installments, payable monthly, quarterly or annually, over a period not to exceed ten years, as elected by the Participant in accordance with Section 6.5(c). (e) Death of Executive Officer Participant: Notwithstanding any elections under Sections 6.5(b) or 6.5(c), if an Executive Officer Participant dies prior to the complete distribution to him or her of his or her Accounts, the remaining vested balance in such Accounts shall be paid to the Beneficiary of the Executive Officer Participant in a single sum as soon as practicable after the Executive Officer Participant's death. 6.6 Hardship Distributions: The Committee may at any time make a payment to an Executive Officer Participant in an amount up to the Executive Officer Participant's vested balance in his or her Accounts upon a showing of an unforeseeable emergency. An unforeseeable emergency is a severe financial hardship to the Executive Officer Participant resulting from a sudden and unexpected illness or accident of the Executive Officer Participant or of a dependent (as defined in section 152(a) of the Code) of the Executive Officer 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 Executive Officer Participant. The need to send an Executive Officer 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 Executive Officer 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 exists shall be made at the sole discretion of the Committee. The amount of any such emergency distribution shall be limited to the amount necessary to meet the emergency. 6.7 Distribution on Account of Educational Expenses: An Executive Officer Participant may request a distribution in an amount up to the Executive Officer Participant's vested balance in his or her Accounts for tuition, related educational fees, and room and board for the next 12 months of post-secondary education for the Executive Officer Participant, his or her spouse or children or dependents. -23- Such request must be made on or before December 31 of the calendar year preceding the calendar year of distribution. The Committee may grant such request in its sole discretion. 6.8 Beneficiary Designation: Each Executive Officer Participant shall designate on the Appropriate Form the Beneficiary or Beneficiaries to whom the vested balance of his or her Accounts shall be paid in the event of his or her death prior to the complete distribution of his or her Accounts to him. Each Beneficiary designation shall be effective only when filed with the Committee during the Executive Officer Participant's lifetime. Any Beneficiary designation may be changed by an Executive Officer Participant without the consent of any designated Beneficiary or any other person by the filing of a new Beneficiary designation with the Committee. The filing of a new Beneficiary designation shall cancel all Beneficiary designations previously filed. If any Executive Officer Participant fails to designate a Beneficiary in the manner provided above, if the Beneficiary designated by an Executive Officer Participant predeceases the Executive Officer Participant, or if the Beneficiary designated by an Executive Officer Participant dies after the Executive Officer Participant dies, but before receiving distribution of the Executive Officer Participant's Accounts, the Committee shall direct such Executive Officer Participant's Accounts (or the balance thereof) to be distributed: (a) To the Executive Officer Participant's surviving spouse; or (b) If the Executive Officer Participant has no surviving spouse, then to the Executive Officer Participant's estate. 6.9 Divestment for Cause: There shall be no divestment for Cause of any benefits under this Article VI. 6.10 Elective Transfer of Life Insurance Policies Providing Article VI Benefits: Any Participant who has a vested interest in his or her Accounts may elect, upon his or her termination of employment, or thereafter in the manner provided in this Section 6.10, to have transferred to him or her the life insurance policies held by the Trust under the Plan to provide benefits to such Participant under this Article VI, after removing from such life insurance policies the portion of such Participant's Accounts which is not vested and any insurance company charges and fees related thereto. Such election must be made at least 90 days before the beginning of the Participant's taxable year in which such transfer is to be made. In the event of such a transfer, such Participant shall be entitled to no further benefits under this Article VI. Article VII - Payment of Benefits 7.1 Plan Unfunded: (a) General: It is the intention of the Company and the Participants that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA. Benefits under this Plan shall be paid out of the general assets of the Company. However, the Company shall establish a grantor trust (the "Trust") within the meaning of section 671 of the Code under the HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN TRUST AGREEMENT (the "Trust Agreement"), to which the Company may make contributions in order to provide for the payment of benefits under the Plan. Such contributions may consist of cash, annuity contracts, insurance policies or other property acceptable to the Trustee. The Trustee shall be responsible for the investment of all Trust assets; however, the Trustee may follow any investment directions or guidelines given the Trustee -24- by the Company. Such directions or guidelines may reflect investment allocation requests made by Participants. Notwithstanding the foregoing, Trust assets shall be treated as assets of the Company and shall remain, in the event of the Company's Insolvency, subject to the Company's Insolvency Creditors. Moreover, no Participant, former Participant, Spouse, or Beneficiary shall have any property interest whatsoever in any specific assets of the Trust or of the Company. A Participant, former Participant, Spouse, or Beneficiary shall have only the rights of a general, unsecured creditor against the Company for any distributions due under this Plan, and the Plan shall constitute a mere promise by the Company to make benefit payments in the future. To the extent that the assets of the Trust are insufficient to pay any benefits which are due under the Plan, such benefits may, at the direction of the Compensation Committee of the Board, be paid out of other general assets of the Company. (b) Purchase of Insurance Contracts: The Company shall purchase a separate insurance contract on the life of each Participant in the Plan. The Company shall retain all ownership rights in such contracts but such contracts shall be held by the Trustee for the sole benefit of the Company. No Participant shall have any rights in such contracts. (c) Change in Control: (1) Article IV Benefit: In the event of a "Change in Control" (as defined in Section 7.1(d)(1)), the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) may cause the Accrued Benefit payable under Article IV to an Executive Officer Participant, as determined on the date of the Change in Control, to be paid from the Trust to such Executive Officer Participant. Moreover, in the event of a Change in Control, if the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) does not exercise its discretion to cause said payment to the Executive Officer Participant, the Trustee, at the request of 51% of the Participants or in the Trustee's discretion, may cause the Accrued Benefit payable under Article IV to an Executive Officer Participant, as determined on the date of the Change in Control, to be paid from the Trust to such Executive Officer Participant. To the extent there are sufficient assets in the Trust, any distribution under this Section 7.1(c)(1) shall be increased by the amount necessary to pay all Federal, state, and local income taxes and any excise taxes imposed by section 4999 of the Code and other taxes resulting from the distribution (including any additional taxes resulting from the increase under this sentence). All payments made pursuant to this Section 7.1(c)(1) shall be made in one lump sum and shall equal the Present Value of the Accrued Benefit payable to the Executive Officer Participant under Article IV as determined on the date of the Change in Control, plus any additional amount described in the preceding sentence. The intent of this Section 7.1(c)(1) is that, in the event distribution is made under this Section 7.1(c)(1), the recipient Executive Officer Participant shall be paid, to the extent there are sufficient assets in the Trust, by the Trust, an additional amount (the "Gross Up") such that the net amount retained by the recipient Executive Officer Participant after deduction of Federal, state and local income taxes and any excise taxes imposed by section 4999 of the Code and any other taxes resulting from the distribution shall be equal to the Present Value of the Accrued Benefit payable to the Executive Officer Participant under Article IV as determined on the date of the Change in Control. For purposes of determining the amount of the Gross Up, the Executive Officer Participant shall be deemed to pay Federal, state and local income taxes at the highest marginal rate of taxation in the calendar year in which the distribution is to be made. The determination of whether an excise tax under section 4999 of the Code is payable and the amount thereof shall be based upon the opinion of tax counsel selected by the Trustee and acceptable to the Executive Officer Participant. If such opinion is not finally accepted by the Internal Revenue Service upon audit, then appropriate adjustments shall be computed (without interest but with Gross Up, if applicable) by such tax -25- counsel based upon the final amount of the excise tax so determined. The amount shall be paid by the appropriate party in one lump-sum cash payment within 30 days of such computation. (2) Article V Benefit: In the event of a "Change in Control" (as defined in Section 7.1(d)(1)), the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) may cause all or a portion of the assets allocated to the Trust Account of a Corporate Officer Participant, as of the date of the Change in Control, to be used to purchase a paid-up insurance contract providing a death benefit equal to the benefit determined under Article V with respect to such Corporate Officer Participant as of the date of the Change in Control, or such lesser amount as the Actuary determines may be purchased with the Trust assets allocated to the Corporate Officer Participant's Trust Account. Moreover, in the event of a Change in Control, if the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) does not exercise its discretion to cause the purchase of such paid-up insurance contract, the Trustee, at the request of 51% of the Participants or in the Trustee's discretion, may cause all or a portion of the assets allocated to the Trust Account of a Corporate Officer Participant, as of the date of the Change in Control, to be used to purchase a paid-up insurance contract providing a death benefit equal to the benefit determined under Article V with respect to such Corporate Officer Participant, as of the date of the Change in Control, or such lesser amount as the Actuary determines may be purchased with the Trust assets allocated to the Corporate Officer Participant's Trust Account. In addition, to the extent there are sufficient assets in the Trust, an amount shall be paid to each Corporate Officer Participant receiving a distribution under this Section 7.1(c)(2) as necessary to pay all Federal, state, and local income taxes and any excise taxes imposed by section 4999 of the Code and other taxes resulting from the distribution (including any additional taxes resulting from the increase under this sentence). Any paid-up contract described in this Section 7.1(c)(2), plus any additional amount described in the preceding sentence, shall be distributed to the Corporate Officer Participant as soon as practicable. The intent of this Section 7.1(c)(2) is that in the event distribution is made under this Section 7.1(c)(2) the recipient Corporate Officer Participant shall be paid, to the extent there are sufficient assets in the Trust, by the Trust, an additional amount (the "Gross Up") such that the net amount deemed to be received by the recipient Corporate Officer Participant (i.e., the fair market value of the paid-up insurance contract) after deduction of Federal, state and local income taxes and any excise taxes imposed by section 4999 of the Code and any other taxes resulting from the distribution shall be equal to the fair market value of the paid-up insurance contract purchased for the Corporate Officer Participant pursuant to this Section 7.1(c)(2). For purposes of determining the amount of the Gross Up, the Corporate Officer Participant shall be deemed to pay Federal, state and local income taxes at the highest marginal rate of taxation in the calendar year in which the distribution is to be made. The determination of whether an excise tax under section 4999 of the Code is payable and the amount thereof shall be based upon the opinion of tax counsel selected by the Trustee and acceptable to the Corporate Officer Participant. If such opinion is not finally accepted by the Internal Revenue Service upon audit, then appropriate adjustments shall be computed (without interest but with Gross Up, if applicable) by such tax counsel based upon the final amount of the excise tax so determined. The amount shall be paid by the appropriate party in one lump-sum cash payment within 30 days of such computation. (3) Article VI Benefits: In the event of a "Change in Control" (as defined in Section 7.1(d)(1)), the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) may cause the balance in an Executive Officer Participant's Accounts under Article VI, as determined on the date of the Change in Control, to be paid from the Trust to such Executive Officer Participant. Moreover, in the event of a -26- Change in Control, if the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) does not exercise its discretion to cause said payment to the Executive Officer Participant, the Trustee, at the request of 51% of the Participants or in the Trustee's discretion, may cause the balance in an Executive Officer Participant's Accounts under Article VI, as determined on the date of the Change in Control, to be paid from the Trust to such Executive Officer Participant. To the extent there are sufficient assets in the Trust, any distribution under this Section 7.1(c)(1) shall be increased by the amount necessary to pay all Federal, state, and local income taxes and any excise taxes imposed by section 4999 of the Code and other taxes resulting from the distribution (including any additional taxes resulting from the increase under this sentence). All payments made pursuant to this Section 7.1(c)(1) shall be made in one lump sum. The intent of this Section 7.1(c)(1) is that, in the event distribution is made under this Section 7.1(c)(1), the recipient Executive Officer Participant shall be paid, to the extent there are sufficient assets in the Trust, by the Trust, an additional amount (the "Gross Up") such that the net amount retained by the recipient Executive Officer Participant after deduction of Federal, state and local income taxes and any excise taxes imposed by section 4999 of the Code and any other taxes resulting from the distribution shall be equal to the balance in the Executive Officer Participant's Accounts under Article VI, as determined on the date of the Change in Control. For purposes of determining the amount of the Gross Up, the Executive Officer Participant shall be deemed to pay Federal, state and local income taxes at the highest marginal rate of taxation in the calendar year in which the distribution is to be made. The determination of whether an excise tax under section 4999 of the Code is payable and the amount thereof shall be based upon the opinion of tax counsel selected by the Trustee and acceptable to the Executive Officer Participant. If such opinion is not finally accepted by the Internal Revenue Service upon audit, then appropriate adjustments shall be computed (without interest but with Gross Up, if applicable) by such tax counsel based upon the final amount of the excise tax so determined. The amount shall be paid by the appropriate party in one lump-sum cash payment within 30 days of such computation. (d) Definition: (1) Change in Control: As used in Sections 7.1(c)(1), (2), and (3), a "Change in Control" of the Company shall be deemed to have occurred if: (A) Any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (i) the Company and/or its wholly-owned subsidiaries, (ii) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such plan, (iii) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company or (iv) the Participant or any group of Persons of which he or she 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 Section 7.1(d)(1)(A) by reason of the beneficial ownership of voting securities by members of the Bartol Family (as defined below) unless and until the beneficial ownership of all members of the Bartol Family (including any other individuals or entities who or which, together with any member or members of the Bartol Family, are deemed under Sections -27- 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined voting power of the Company's then outstanding securities. (B) During any two-year period beginning after September 12, 1990, 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 Section 7.1(d)(1)(A) or (C)) 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 (C) The Company's shareholders or the Board shall approve (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's voting common shares (the "Common Shares") would be converted into cash, securities and/or other property, other than a merger of the Company in which holders of Common Shares immediately prior to the merger have the same proportionate ownership of common shares of the surviving corporation immediately after the merger as they had in the Common Shares immediately before, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets or earning power of the Company, or (iii) the liquidation or dissolution of the Company. As used in this Section 7.1(d)(1), "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. 7.2 Review of Funding Status: At least annually, the Compensation Committee of the Board shall make a determination as to whether the Trust described in Section 7.1 provides adequate security to Participants. The Chairman of the Company may also call upon the Compensation Committee of the Board to make such a determination at any time. (a) Determination of Inadequate Security: If the Compensation Committee of the Board determines that the Trust does not provide adequate security, the Compensation Committee of the Board shall cause: (1) A single sum payment equal to the Present Value of the Accrued Benefit payable under Article IV to an Executive Officer Participant, as determined on the date of the Compensation Committee of the Board's determination, to be paid from the Trust to such Executive Officer Participant; (2) All or a portion of the assets allocated to the Trust Account of a Corporate Officer Participant, as of the date of the Compensation Committee of the Board's determination, to be used to purchase a paid-up insurance contract providing a death benefit equal to the death benefit determined under Article V with respect to the Corporate Officer Participant; and -28- (3) The balance in the Executive Officer Participant's Accounts under Article VI, as determined on the date of the Compensation Committee of the Board's determination, to be paid from the Trust to such Executive Officer Participant. If the assets in the Trust are not adequate to pay the amounts payable under this Section 7.2, the Company shall be liable for and shall pay the deficiency to the Participant. (b) Gross Up: To the extent there are sufficient assets in the Trust, any distribution under Section 7.2(a) shall be increased by the amount necessary to pay all Federal, state, and local income taxes and any other taxes resulting from the distribution (including any additional taxes resulting from the increase under this sentence). All payments made pursuant to this Section 7.2(b) shall be made in one lump sum. The intent of this Section 7.2(b) is that, in the event distribution is made under Section 7.2(a), the recipient Participant shall be paid, to the extent there are sufficient assets in the Trust, by the Trust, an additional amount (the "Gross Up") such that the net amount retained by the recipient Participant after deduction of Federal, state and local income taxes and any other taxes resulting from the distribution (all as determined on the date of distribution) shall be equal to the sum of the following: (1) The amount payable under Section 7.2(a)(1); (2) The amount payable under Section 7.2(a)(2); and (3) The amount payable under Section 7.2(a)(3). For purposes of determining the amount of the Gross Up, the recipient Participant shall be deemed to pay Federal, state and local income taxes at the highest marginal rate of taxation in the calendar year in which the distribution is to be made. 7.3 Acceleration of Payments: Notwithstanding any other provision of the Plan or Trust Agreement, if the Trustee determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under section 7121 of the Code that is approved by the Commissioner, that such Participant or Beneficiary has recognized or will recognize income for Federal income tax purposes with respect to retirement benefits that are or will be payable to the Participant under Article IV, the death benefits that are or will be payable to the Participant or Beneficiary under Article V, or the salary deferral benefits that are or will be payable to the Participant or Beneficiary under Article VI before they otherwise would be paid to the Participant or the Beneficiary (as applicable), upon the request of the Participant or Beneficiary, the Trustee shall immediately make distribution from the Trust to the Participant or Beneficiary of the amount so taxable. Moreover, in the event of a Change in Control, payment of retirement benefits provided under Article IV (and any additional amounts provided under Section 7.1(c)(1)) shall be made in accordance with Section 7.1(c)(1), payment of death benefits provided under Article V (and any additional amounts provided under Section 7.1(c)(2)) shall be made in accordance with Article V and Section 7.1(c)(2), and payment of salary deferral benefits provided under Article VI (and any additional amounts provided under Section 7.1(c)(3)) shall be made in accordance with Section 7.1(c)(3). Moreover, in the event of a determination of inadequate security under Section 7.2(a), payment shall be made in accordance with Section 7.2(a) (and any additional amounts provided under Section 7.2(b) shall be made in accordance with Section 7.2(b)). 7.4 Creation of Separate Subfund in Trust upon Termination of Employment: Upon the termination of a Participant's employment with the Participating Companies (except for Cause), a -29- separate subfund in the Trust under the Plan shall be established to hold all insurance contracts which will provide benefits for the Participant under the Plan. Article VIII - Administration 8.1 Appointment of Committee: To supervise and administer the Plan, the Board shall appoint a Committee consisting of not less than three persons who shall serve without compensation and at the pleasure of the Board. Any member of the Committee may be removed at any time by the Board, which shall fill all vacancies in the Committee, however occurring (if there are less than three persons remaining on the Committee; if there are more than three persons remaining on the Committee the Board may, but is not required to, fill such vacancy or vacancies). Until a new appointment is made, the Committee shall have full authority to act. The Company shall notify the Trustee of the appointment of the Committee and of any subsequent changes in its membership. 8.2 Organization: The Committee shall enact such rules and regulations consistent with the Plan as it may consider desirable for the conduct of its business and for the administration of the Plan. Its members shall elect a chairman, who shall be a member of the Committee, and a secretary who may, but need not, be a member of the Committee. 8.3 Committee Action: A majority of the members of the Committee shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting shall be by vote of the majority of the Committee members present at such meeting. Resolutions may be adopted or other action taken without a meeting upon written consent signed by all of the members of the Committee. No member of the Committee shall act on any matter which involves his or her personal interest or benefit under the Plan as distinguished from the general interest of all Participants. The Committee shall maintain full and complete records of its deliberations and decisions, and the minutes of its proceedings shall be conclusive proof of the facts stated therein. 8.4 Claims Procedure: (a) Filing Claim for Benefits: If an individual (hereinafter referred to as the "Applicant," which reference shall include the legal representative, if any, of the individual) does not receive the timely payment of the benefits to which the Applicant believes he or she is entitled under the terms of the Plan, the Applicant may make a claim for benefits in the manner hereinafter provided. All claims for benefits under the Plan 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. In the event the Claims Coordinator denies a claim for benefits, in whole or in part, the Claims Coordinator shall notify the Applicant in writing of the denial of the claim and notify such -30- Applicant of his or her right to a review of the Claims Coordinator's decision by the Committee. Such notice by the Claims Coordinator shall also set forth, in a manner calculated to be understood by the Applicant, the specific reason for such denial, the specific Plan provisions on which the denial is based, a description of any additional material or information necessary to perfect the claim, with an explanation of why such material or information is necessary, and an explanation of the Plan's claim review procedure as set forth in this Section 8.4. 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) Appeals Procedure: Any 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 the Plan; (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 Claimant deems pertinent to the appeal. The Committee shall regularly review appeals by Claimants. The Committee shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing the Claimant's request for review. If such an extension of time for processing is required, written notice of the extension shall be forwarded to the Claimant prior to the commencement of the extension. In no event shall such extension exceed a period of 120 days after the request for review is received by the Committee. The Committee shall make a full and fair review of each appeal and any written materials submitted by the Claimant or a Participating Company in connection therewith. The Committee may require the Claimant or a Participating Company 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 given the opportunity to review pertinent documents or materials upon submission of a written request to the Committee, provided the Committee finds the requested documents or materials are pertinent to the appeal. On the basis of its review, the Committee shall make an independent determination of the Claimant's eligibility for benefits under the Plan. 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 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 Plan provisions on which the Committee decision was based. It is intended that the claims procedure of this Plan be administered in accordance with the claims procedure regulations of the Department of Labor set forth in 29 CFR Section 2560.503-1. -31- 8.5 Committee Powers and Responsibilities: Except as otherwise provided in the Plan and Trust Agreement, the Committee shall have sole responsibility for administration of the Plan and shall supervise and control the operation of the Plan in accordance with its terms. Except as otherwise provided in the Plan and Trust Agreement, the Committee shall have the responsibility, the power, the authority, and discretion to do all things necessary to accomplish that purpose, including, but not limited to, the responsibility, power, authority, and discretion to do the following: (a) To construe and interpret the Plan, decide all questions of eligibility, and determine the amount, manner, and time of payment of any benefits hereunder; (b) To prescribe procedures to be followed by Participants or Beneficiaries filing applications for benefits; (c) To prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; (d) To require a Participant to complete and file with the Committee an application for a benefit and all other forms approved by the Committee, and to furnish all pertinent information requested by the Committee (the Committee may rely upon all such information so furnished, including the Participant's current mailing address); (e) To furnish the Participating Companies, upon request, such annual reports with respect to the administration of the Plan as are reasonable and appropriate; (f) To appoint or employ, at the expense of the Participating Companies, persons to carry out administrative duties under the Plan and any other agents it deems advisable, including, but not limited to, actuaries, accountants, and legal counsel, and to rely in good faith upon the opinion of any professional or specialist so employed; (g) To adopt such rules and make such determinations as are appropriate to the administration of the Plan, provided that all rules of the Committee shall be uniformly and consistently applied to all Participants in similar circumstances, and that, when making a determination or calculation, the Committee shall be entitled to rely upon information furnished by a Participant or Beneficiary, a Participating Company, the legal counsel of a Participating Company, the Trustee, or other appropriate persons; (h) To bring suit in a court of competent jurisdiction, or to take any other action necessary either to ascertain the proper actions to be taken in the event that a reasonable interpretation of applicable law precludes the Committee from satisfying its requirements under the Plan and Trust or to enforce the rights of the Participants under the Plan and Trust; (i) To delegate certain of its responsibilities relating to the administration of the Plan to responsible persons; (j) To supervise the investment of assets held in the grantor trust; and (k) To do such other acts as may be necessary or desirable in order to administer the Plan. 8.6 Information from Participating Companies to Committee: To enable the Committee to perform its functions, the Participating Companies shall supply full and timely information to the Committee on all matters relating to the pay and service of Participants, their retirement, Disability, -32- death, or other cause for separation from service, and such other pertinent facts as the Committee may require; and the Committee shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties. 8.7 Records: The Committee shall maintain records containing all relevant data pertaining to Participants and Beneficiaries and their rights under the Plan. Records pertaining solely to a particular Participant or Beneficiary shall be made available to him or her for examination during business hours. 8.8 Determination of Right to Benefits: Except as otherwise provided in the Plan and Trust Agreement, the Committee shall make all determinations as to the right of any person to a benefit under the Plan. The procedures relating to the submission of claims for benefits, their review, and the appeal of denied claims are set forth in Section 8.4. 8.9 Expert Services: The Committee may, in accordance with Section 8.5(f), contract for actuarial, legal, accounting, clerical, trustee, custodial, investment and other services necessary to carry out its responsibilities under the Plan. Article IX - Amendment and Termination of Plan; Successor Employer 9.1 Right of Company to Amend Plan: (a) General: Subject to the limitations set forth in this Section 9.1, the Company reserves the right to amend the Plan with respect to all Participating Companies by action of the Board at any time and from time to time, to the extent it may deem advisable or appropriate. (b) Limitations: No amendment shall cause or permit the duties or liabilities of the Committee or Trustee to be increased without the written consent of the party affected. In addition, no amendment to the Plan (including a change in the actuarial basis for determining optional or early retirement benefits) shall be effective to the extent that it has the effect of decreasing a Participant's Accrued Benefit under Article IV , death benefit under Article V, or vested salary deferral benefits under Article VI (all as determined as of the date on which the amendment becomes effective). No amendment shall be permitted on or after the day preceding the date of a Change in Control (within the meaning of Section 7.1(d)(1)) without the consent of at least 51% of the Participants participating in the Plan on the day before the date of such Change in Control. 9.2 Amendment Procedure: Any amendment shall be made only pursuant to written resolution adopted by the Board at a duly held meeting of said Board or by unanimous written consent of the Board. A certified copy of the resolutions adopting any amendment and a copy of the adopted amendment as executed by the Company shall be delivered to the Committee and to the Trustee. Upon the taking of such action by the Board, the Plan shall be deemed amended as of the date specified as the effective date by such Board action or in the instrument of amendment. The effective date of any amendment may be before, on, or after the date of such Board action. 9.3 Termination of Plan: The Company reserves, with respect to all Participating Companies, the right to terminate the Plan at any time by written resolution adopted by the Board at a duly held meeting of said Board or by unanimous written consent of the Board. Moreover, each other Participating Company reserves the right, by written resolution adopted by the Board at a duly held meeting of said Board or by unanimous written consent of the Board, to terminate the Plan as to such Participating Company as provided herein. Upon termination of the Plan, each Executive Officer -33- Participant shall continue to have the right to receive his or her vested Accrued Benefit under Article IV , each Corporate Officer Participant shall continue to have the right to have his or her Beneficiary receive a death benefit under Article V, and each Executive Officer Participant shall continue to have the right to receive vested salary deferral benefits under Article VI (all as determined as of the date on which the Plan is terminated) in accordance with the terms of the Plan as in effect immediately prior to its termination. Moreover, upon the termination of the Plan, life insurance in an amount equal to three times his or her Base Salary shall be restored to each Corporate Officer Participant under the group term life insurance plan of his or her Participating Company, at the expense of the Participating Company. 9.4 Successor Employer: In the event of the dissolution, merger, consolidation, or reorganization of a Participating Company, provision may be made by which the Plan and Trust will be continued by the successor to such Participating Company; and, in that event, such successor shall be substituted for the Participating Company under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all of the powers, duties, and responsibilities of the Participating Company under the Plan. Neither the Company nor any Participating Company nor Affiliate shall have any further liability with respect to the making of contributions on behalf of the employees of any such Participating Company which continues the Plan and Trust for its employees. Article X - Miscellaneous 10.1 No Right to Employment: Participation in the Plan shall not be deemed to be consideration for, an inducement to, or a condition of the employment of any Employee. The establishment of the Plan shall not confer upon any Employee or Participant the right to be continued in the employ of a Participating Company, and the Participating Company expressly reserves the right to terminate the employment of any Employee, whether or not a Participant, whenever the interest of the Participating Company, in its sole judgment, may so require. 10.2 Right to Withhold: The Company shall have the right to withhold from all distributions from the Plan any Federal, state, or local taxes required by law to be withheld with respect to such distributions. 10.3 Nonalienation of Benefits: Except as otherwise required by applicable law, the right of any Participant or Beneficiary to any benefit or interest under any of the provisions of this Plan shall not be subject to encumbrance, attachment, execution, garnishment, assignment, pledge, alienation, sale, transfer, or anticipation, either by the voluntary or involuntary act of any Participant or his or her Beneficiary or by operation of law, nor shall such payment, right, or interest be subject to any other legal or equitable process. 10.4 Expenses of Plan: All expenses of the Plan shall be paid by the Participating Companies. 10.5 Incapacitated Beneficiaries: If any person entitled to receive benefits hereunder shall at any time be mentally or physically incapacitated, or for any other reason shall be incapable of properly or legally receipting for, receiving, and dispensing the benefits to which he or she is entitled hereunder, the payments to which such person shall be entitled under this Plan during such period of incapacity may, at the direction of the Committee, be used, expended, or applied by the Participating Companies for the maintenance, education, or support of such person or his or her dependents without the intervention of a guardian or committee. -34- 10.6 Gender and Number: Whenever any words are used herein in any specific gender, they shall be construed as though they were also used in any other applicable gender. The singular form, whenever used herein, shall mean or include the plural form, and vice versa, as the context may require. 10.7 Law Governing Construction: The construction and administration of the Plan, the Trust Agreement, and the Trust maintained thereunder, and all questions pertaining thereto, shall be governed by ERISA and other applicable Federal law and, to the extent not governed by Federal law, by Pennsylvania law. 10.8 Change in Control Agreements: To the extent possible, this Plan shall be construed in a manner compatible with any applicable change in control agreement between a Participating Company and a Participant and in accordance with Section 7.1(c). 10.9 Headings Not a Part Hereof: Any headings preceding the text of the several Articles, Sections, subsections, or paragraphs hereof are inserted solely for convenience of reference and shall not constitute a part of the Plan, nor shall they affect its meaning, construction, or effect. 10.10 Severability of Provisions: If any provision of this Plan is determined to be void by any court of competent jurisdiction, the Plan shall continue to operate and, for the purposes of the jurisdiction of that court only, shall be deemed not to include the provision determined to be void. 10.11 Reporting and Disclosure Requirements: In order to comply with the requirements of Title I of ERISA, the Committee shall: (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 employer maintains the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees 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 the requirements of DOL Reg. Section 2520.104-23. This method of compliance is available to the Plan only so long as the Plan is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and for which benefits are paid as needed solely from the general assets of the employer or are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or both. 10.12 Special Provisions Relating to Ronald J. Naples: Notwithstanding any other provision of the Plan, the provisions of Plan Exhibit B shall apply to the benefits provided hereunder for Ronald J. Naples, formerly Chief Executive Officer of the Company. 10.13 Special Provisions Relating to Donald L. Thompson: Notwithstanding any other provision of the Plan, the provisions of Plan Exhibit C shall apply to the benefits provided hereunder for Donald L. Thompson, Chairman and Chief Executive Officer of the Company, effective June 1, 1996. -35- Article XI - Adoption of Plan by Affiliates 11.1 Adoption of Plan: The Plan may be adopted by any Affiliate provided: (a) The Company consents to such adoption; (b) The Board of Directors or other governing entity of the Affiliate adopts the Plan by appropriate action; and (c) The adopting Affiliate executes such documents as may be required to make such Affiliate a party to the Plan as a Participating Company. An Affiliate which adopts the Plan shall thereafter be a Participating Company with respect to its Employees for purposes of the Plan. 11.2 Company Appointed Agent of Participating Company: Each Participating Company appoints the Company as its agent to exercise on its behalf all of the powers and authority conferred upon the Company by this Plan, including, without limitation, the power to amend the Plan or to terminate the Plan. 11.3 Withdrawal from Plan: Any Participating Company may, at any time, withdraw from the Plan upon giving the Company and the Committee at least 30 days' notice in writing of its intention to withdraw. IN WITNESS WHEREOF, HUNT MANUFACTURING CO. has caused these presents to be duly executed, under seal this ___________ day of ____________________, 1996. [CORPORATE SEAL] HUNT MANUFACTURING CO. Attest: _______________________ By:__________________________________ Dennis S. Pizzica, John W. Carney, Vice President, Assistant Secretary Human Resources CORESTATES BANK, N.A. hereby agrees to assume all duties and responsibilities imposed on it under this amended and restated Plan and therefore has caused these presents to be duly executed, under seal this _______ day of __________________, 1996. TRUSTEE: [CORPORATE SEAL] CORESTATES BANK, N.A. Attest: _______________________ By:__________________________________ Trust Officer Vice President -36- PLAN EXHIBIT A - EARLY RETIREMENT FACTORS TABLE I Participants Who Terminate Employment on or After Early Retirement Date Age at Benefit Early Commencement Commencement Reduction Factor - -------------- --------------------- 62 and over 1.0000 61 0.9333 60 0.8667 59 0.8000 58 0.7333 57 0.6667 56 0.6333 55 0.6000 54 0.5666 53 0.5333 52 0.5000 TABLE II Participants Who Terminate Employment Prior to Early Retirement Date Age at Benefit Early Commencement Commencement Reduction Factor - -------------- --------------------- 65 and over 1.0000 64 0.9333 63 0.8667 62 0.8000 61 0.7333 60 0.6667 59 0.6333 58 0.6000 57 0.5667 56 0.5333 55 0.5000 IN NO EVENT SHALL BENEFITS BE ACTUARIALLY INCREASED FOR COMMENCEMENT OF BENEFITS SUBSEQUENT TO AGE 62 (FOR TABLE I) OR SUBSEQUENT TO AGE 65 (FOR TABLE II). A-1 PLAN EXHIBIT B - SPECIAL PROVISIONS FOR RONALD J. NAPLES I. Continued Participation in Plan by Naples. In accordance with the terms of the Transition Agreement (the "Agreement") entered into on June 13, 1995, between the Company and Ronald J. Naples, formerly Chief Executive Officer of the Company ("Naples"), Naples shall continue to participate in the Plan, which provides supplemental retirement benefits under Article IV of the Plan, life insurance benefits under Article V of the Plan, and salary deferral benefits (including matching employer contributions) under Article VI of the Plan, subject to, and in accordance with, the terms of the Plan and this Plan Exhibit B. II. Calculation and Payment of Benefit under Article IV of Plan. (A) Calculation of Benefit. For purposes of calculating Naples's benefit under Article IV of the Plan, Naples shall be credited with Years of Benefit Service from July 20, 1995, through July 19, 1998, and with Applicable Compensation during such time at the rate of $565,000 per year (without regard to any mitigation pursuant to Section 4(b) of the Agreement during the period from July 20, 1997, through July 19, 1998). Notwithstanding the preceding sentence, Naples's Applicable Compensation for computing benefits under Article IV of the Plan for calendar year 1995 shall include, in addition to the $565,000, any pro rata bonuses for 1995. (B) Payment of Benefit. Under the Plan, any Participant (including Naples) who retires after age 52 with at least 20 Years of Vesting Service shall be able to commence receiving payments under Article IV of the Plan at such time. Such payments shall be actuarially reduced in accordance with the terms of the Plan. III. Naples's Life Insurance Benefit and Determination of Base Salary under Article V. (A) Life Insurance Benefit. Life insurance benefits (three times Naples's Base Salary as determined under III(B) of this Plan Exhibit B) for Naples under Article V of the Plan shall continue until July 19, 1997, or, if later, until the termination of his employment with the Company. (B) Base Salary. Naples's Base Salary for purposes of Article V of the Plan from July 20, 1995, through July 19, 1998, shall be at the rate of $565,000 per year (without regard to any mitigation pursuant to Section 4(b) of the Agreement during the period from July 20, 1997, through July 19, 1998). IV. Application to Naples of Article VI and Determination of Applicable Compensation under Article VI. (A) Application of Article VI to Naples. Naples may continue to make Deferral Amounts and be credited with Matching Amounts thereon in accordance with Section 6.2 of the Plan until his employment with the Company is terminated. Moreover, Naples may continue to make Deferral Amounts but without Matching Amounts with respect to consulting payments as provided under the terms of the Agreement. (B) Applicable Compensation. Naples's Applicable Compensation for purposes of Article VI of the Plan from July 20, 1995, through July 19, 1998, shall be at the rate of $565,000 per year (without regard to any mitigation pursuant to Section 4(b) of the Agreement during the period from July 20, 1997, through July 19, 1998). B-1 V. Election to Take Ownership of Certain Insurance Policies under Article VI of Plan. Pursuant to the terms of Article VI of the Plan, Naples shall be entitled to elect to take ownership of certain life insurance policies held by the Trust under the Plan for benefits under Article VI of the Plan, in lieu of receiving such benefits under the Plan. Such election shall be made in accordance with the terms of Section 6.9 of the Plan. VI. Use of Cash Value of Separate Insurance Contracts Purchased on Naples's Life. Under the Plan, the cash value of any separate insurance contracts purchased on Naples's life shall be used solely for the payment of benefits under the Plan to Naples (to the extent such cash value does not exceed the Company's obligation to Naples under the Plan). Upon Naples's termination of employment, a separate subfund shall be established within the Trust pursuant to Section 7.4 of the Plan for such contracts. The Company agrees to pay the premiums on such contracts as they come due, until June 1, 1998, and expects to continue to make contributions to the Trust thereafter in accordance with the normal funding procedures of the Plan. Notwithstanding the foregoing, the proceeds of any death benefit received pursuant to such contracts may be used for any purpose under the Plan and Trust. Naples shall have only the rights of a general, unsecured creditor against the Company for any distributions due under the Plan and Trust, and shall not have any property interest in such insurance contracts or any other assets of the Plan and Trust. VII. Section 4.10 (Divestment for Cause) not Applicable to Naples. Section 4.10 of the Plan (Divestment for Cause) shall not be applicable to Naples. B-2 PLAN EXHIBIT C - SPECIAL PROVISIONS FOR DONALD L. THOMPSON I. Participation in Plan. In accordance with the Employment Agreement (the "Agreement") between the Company and Donald L. Thompson ("Executive") dated April 8, 1996, Executive shall participate in the Plan which provides supplemental retirement benefits under Article IV of the Plan, life insurance benefits under Article V of the Plan, and salary deferral benefits (including matching employer contributions) under Article VI of the Plan, subject to, and in accordance with, the terms of the Plan and this Plan Exhibit C. II. Phantom Stock Plan. In accordance with the Agreement, the Company established a Phantom Stock Plan for Executive effective June 1, 1996. A copy of the Phantom Stock Plan is attached hereto as Appendix A. Although the Phantom Stock Plan is unfunded, in order to enable Company to provide for the payment of benefits under the Phantom Stock Plan as they become due, Company shall establish a separate Phantom Stock Account under the Trust to which it shall make contributions at such times and in such amounts as the Board, in its sole discretion, shall determine. III. Death of Executive. In the event Executive's death occurs while employed by Employer, notwithstanding any provision of the Plan to the contrary, Executive shall be fully vested in all benefits to which he is entitled under the terms of the Plan, and if Executive has not become fully vested in his accrued benefit under the Company's Pension Plan on the date of his death, the Company shall provide for such accrued benefit to be paid pursuant to the Plan. IV. Disability of Executive. In the event of Executive's "Disability", as such term is defined in Section 4.2 of the Agreement, notwithstanding any provision of the Plan to the contrary, Executive shall be fully vested in all benefits to which he is entitled under the terms of the Plan, and if Executive has not become fully vested in his accrued benefit under the Company's Pension Plan on the date of his "Disability", the Company shall provide for such accrued benefit to be paid pursuant to the Plan. V. Executive's Resignation or Termination without Cause. (A) Resignation or Retirement. Upon Executive's resignation or retirement pursuant to Section 4.4(a) of the Agreement, Executive shall be entitled only to those benefits under the Plan which are provided by the express terms of the Plan and by the express terms of the Phantom Stock Plan. (B) Termination of Executive's Employment without Cause. Upon the termination by the Board of Executive's employment under the Agreement without Cause (as such term is defined in Section 4.3 of the Agreement) pursuant to Section 4.4(b) of the Agreement or upon Executive's resignation from his employment pursuant to a material reduction in the nature or scope of his authority, power, functions or duties, all as described in Section 4.3(b) of the Agreement, any shares of phantom stock which have not become vested by the passage of time shall become fully vested upon the date of such termination of employment and, to the extent not otherwise paid, shall be paid by the Plan in accordance with the terms of the Agreement and the Phantom Stock Plan. Executive shall also be entitled to receive all pension benefits accrued under the Company's Pension Plan and the Plan to the date of termination and during the two-year period thereafter during which Executive receives payments under Section 4.4(b) of the Agreement. If Executive is not fully vested in the Pension Plan on the date of his termination of employment, such accrued benefit shall be paid pursuant to the Plan and, likewise, additional pension accruals under the Company's Pension Plan subsequent to the termination of Executive's termination of employment shall be paid from the Plan. C-1 VI. Executive's Termination for Cause. In the event of Executive's termination of employment for "Cause" (within the meaning of Section 4.3 of the Agreement), Executive shall be entitled to no further accruals under the Plan, all as provided in Section 4.3 of the Agreement. VII. Change in Control. The Change in Control provisions of the Plan shall apply to Executive except to the extent that any such provisions conflict with the terms of the Agreement in which case the terms of the Agreement shall control. VIII. Agreement to Control. This Plan Exhibit C is in all respects to be governed by the terms of the Agreement and in the event of any conflict between the terms of the Agreement and the terms of this Plan Exhibit C, the terms of the Agreement shall control. C-2 PLAN EXHIBIT C - APPENDIX A PHANTOM STOCK PLAN FOR DONALD L. THOMPSON HUNT MANUFACTURING CO. PHANTOM STOCK PLAN FOR DONALD L. THOMPSON ARTICLE I - Purpose of Plan 1.1 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: 2.1 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. 2.2 Benefit Account shall mean the account established pursuant to Section 6.2(A). 2.3 Board shall mean the Board of Directors of the Company. 2.4 Code shall mean the Internal Revenue Code of 1986, as amended. 2.5 Committee shall mean the Compensation Committee of the Board. 2.6 Common Stock shall mean shares of Hunt Manufacturing Co. common stock, par value $.10 per share. 2.7 Company shall mean Hunt Manufacturing Co. 2.8 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. 2.9 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. 2.10 Effective Date shall mean June 1, 1996, or, if earlier, the date on which the Participant commences employment with the Company. 2.11 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. CA-1 2.12 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. 2.13 Participant shall mean Donald L. Thompson. 2.14 Phantom Stock shall mean the number of shares credited to the Participant's Stock Account as provided in Article V. 2.15 Plan shall mean the HUNT MANUFACTURING CO. PHANTOM STOCK PLAN FOR DONALD L. THOMPSON. 2.16 Plan Year shall mean the fiscal year of the Plan ending each December 31. 2.17 Separation Date shall mean the date on which a Participant terminates employment with the Company (whether by retirement, death, resignation, discharge, or otherwise). 2.18 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. 2.19 Valuation Date shall mean June 1, 1996, and the last day of each calendar month thereafter. 2.20 Vesting Percentage shall mean that percentage of the Participant's Stock Account to which he has a vested (non-forfeitable) right. ARTICLE III - Participation 3.1 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 4.1 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. 4.2 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. 4.3 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 CA-2 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. 4.4 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 5.1 Dividend Account. The Committee shall establish and maintain, for the Participant, a separate Dividend Account to record the undistributed Dividend Amounts of the Participant. 5.2 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. 5.3 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. 5.4 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 6.1 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: CA-3 (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 distributed to the Participant), multiplied by (b) the Participant's Vesting Percentage (as determined under 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 8, 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. 6.2 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. 6.3 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 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 CA-4 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 7.1 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 8.1 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. 8.2 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 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. 8.3 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. 8.4 Payments of Expenses. The Company shall pay all expenses of administering the Plan. 8.5 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 CA-5 their responsibilities in connection with the Plan, unless the same is determined to be due to gross negligence or willful misconduct. 8.6 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. 8.7 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. 8.8 Reporting and Disclosure Requirements. In order to comply with the requirements of Title I of ERISA, the Company shall: (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. Section 2520.104-23. ARTICLE IX - Amendment and Termination 9.1 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 10.1 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. 10.2 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. CA-6 10.3 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. 10.4 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. [CORPORATE SEAL] HUNT MANUFACTURING CO. Attest: ___________________________ By:________________________________ Secretary Chief Executive Officer CA-7 EX-10.J2 6 EXHIBIT (10)(J)(2) HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN TRUST AGREEMENT (As Amended and Restated Effective January 1, 1996) AUGUST 1996 TABLE OF CONTENTS
Page ---- ARTICLE I -- DEFINITIONS............................................................................... 2 1.1 Change in Control.................................................................... 2 1.2 Death Benefits....................................................................... 3 1.3 Deferred Benefits.................................................................... 3 1.4 Fiduciary............................................................................ 3 1.5 Grantor.............................................................................. 3 1.6 Insurance Contract................................................................... 4 1.7 Insurer.............................................................................. 4 1.8 Plan................................................................................. 4 1.9 Salary Deferral Benefits............................................................. 4 1.10 Trust Account........................................................................ 4 1.11 Trust Agreement...................................................................... 4 1.12 Trust Assets......................................................................... 4 1.13 Trustee.............................................................................. 4 1.14 Valuation Date....................................................................... 4 ARTICLE II -- THE TRUST ASSETS......................................................................... 4 2.1 Continuation of Trust................................................................ 4 2.2 Future Contributions................................................................. 4 2.3 Rights in Trust Assets............................................................... 5 2.4 Nontransferability................................................................... 6 2.5 Permitted Investments................................................................ 6 2.6 Investment Directions................................................................ 6 2.7 Allocation of Investment Responsibilities............................................ 6 2.8 Investment after Change in Control................................................... 6 2.9 Distribution of Trust Assets......................................................... 6 2.10 Termination of Trust................................................................. 8 ARTICLE III -- ALLOCATION OF RESPONSIBILITIES.......................................................... 8 3.1 General Responsibilities............................................................. 8 3.2 Designated Fiduciaries............................................................... 9 3.3 Delegation of Fiduciary Duties; Employment of Agents and Certain Other Matters.............................................................................. 9 3.4 Allocation of Responsibility......................................................... 9 3.5 Duties of the Board and Compensation Committee of the Board:......................... 9 3.6 Duties of the Committee.............................................................. 10 3.7 Duties of Trustee.................................................................... 11 3.8 Board, Compensation Committee of the Board and Committee Directions, Instructions or Data................................................................. 14 3.9 Indemnification of Trustee........................................................... 14 ARTICLE IV -- ADMINISTRATIVE PROVISIONS................................................................ 15 4.1 General Administrative Powers........................................................ 15 4.2 Payment of Deferred Benefits, Death Benefits, Salary Deferral Benefits and Plan Exhibits B and C Benefits............................................................ 16 4.3 Distribution......................................................................... 17
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Page ---- 4.4 Account Records...................................................................... 17 4.5 Notices, Directions and Other Communications......................................... 18 4.6 Reports by Trustee................................................................... 18 4.7 Notification of Rights Regarding Securities.......................................... 18 4.8 Tax Assessments...................................................................... 18 4.9 Validity of Contracts................................................................ 19 4.10 Principal and Income................................................................. 19 ARTICLE V -- PROVISIONS RELATING TO TRUSTEE............................................................ 19 5.1 Resignation and Removal.............................................................. 19 5.2 Appointment of Successor............................................................. 19 5.3 Information Furnished to Trustee..................................................... 20 5.4 Expenses and Trustee Compensation.................................................... 20 ARTICLE VI -- AVAILABILITY OF TRUST FUND............................................................... 21 6.1 Trust Irrevocable; Amendments........................................................ 21 6.2 Participants' Rights to Trust Assets................................................. 21 6.3 Grantor Trust........................................................................ 21 ARTICLE VII -- MISCELLANEOUS........................................................................... 21 7.1 Applicable Law....................................................................... 21 7.2 Binding Effect....................................................................... 21 7.3 Separability......................................................................... 21 7.4 Notices to Parties................................................................... 22 7.5 Headings............................................................................. 22 7.6 Gender and Number.................................................................... 22 7.7 Incorporation of Plan................................................................ 22 7.8 Conflicting Provisions............................................................... 22 7.9 Effective Date....................................................................... 22 7.10 Court Proceedings.................................................................... 22 7.11 Successors and Assigns............................................................... 22 7.12 Prohibition on Trustee............................................................... 23 TRUST EXHIBIT A -- SPECIAL PROVISIONS RELATING TO RONALD J. NAPLES..................................... 24 TRUST EXHIBIT B -- SPECIAL PROVISIONS RELATING TO DONALD L. THOMPSON................................... 25
-ii- HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN TRUST AGREEMENT (AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996) THIS AMENDED AND RESTATED TRUST AGREEMENT, made by and between HUNT MANUFACTURING CO. ("Grantor"), with its principal place of business at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103, and CORESTATES BANK, N.A. ("Trustee"), with an office at 16th and Market Streets, Centre Square West, Philadelphia, PA 19102, WITNESSETH: WHEREAS, effective April 16, 1992, Grantor established the HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN (the "Plan") to provide deferred compensation to certain eligible officers who constitute a select group of management or highly compensated employees of Grantor within the meaning of section 201(2) of ERISA ("Executive Officers") and to provide death benefits to the beneficiaries ("Beneficiaries") of certain officers of Grantor ("Corporate Officers"); and WHEREAS, effective January 1, 1995, Grantor amended the Plan to provide salary deferral and matching contributions to said Executive Officers and to make certain other changes; and WHEREAS, Article IV of the Plan provides for payment of deferred compensation to Plan participants who are Executive Officers ("Participants") or their beneficiaries upon death, disability or other termination of employment ("Deferred Benefits"); and WHEREAS, Article V of the Plan provides for payment of a death benefit to Beneficiaries of the Corporate Officers upon the death of such Corporate Officers ("Death Benefits"); and WHEREAS, Article VI of the Plan provides for salary deferrals and matching contributions to Plan participants who are Executive Officers ("Salary Deferral Benefits"); and WHEREAS, effective April 16, 1992, Grantor and Trustee entered into the HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN TRUST AGREEMENT (the "Trust Agreement"), whereby Grantor placed certain funds in a grantor trust (the "Trust") to be used to pay such Deferred Benefits to Participants and their beneficiaries under the terms and conditions set forth in Article IV of the Plan, if not otherwise paid by Grantor, and to pay such Death Benefits to the Beneficiaries of the Corporate Officers under the terms and conditions set forth in Article V of the Plan, if not otherwise paid by Grantor; and WHEREAS, effective February 17, 1993, Grantor and Trustee amended and restated the Trust Agreement in order to provide for a broader range of investment alternatives and to facilitate the payment of benefits paid under the Plan from the Trust from the investments held in the Trust or from contributions made by the Grantor to the Trust prior to the investment thereof; and WHEREAS, effective January 1, 1995, Grantor and Trustee again amended and restated the Trust Agreement in order to place certain funds in the Trust to be used to pay said Salary Deferral Benefits to Participants and their beneficiaries under the terms and conditions set forth in Article VI of the Plan, if not otherwise paid by Grantor, and to make certain other changes; and -1- WHEREAS, effective January 1, 1996, the Plan was amended by adding thereto Plan Exhibits B and C and by making certain other changes in order to provide certain benefits to Ronald J. Naples, formerly Chief Executive Officer of Grantor, and to Donald L. Thompson, Chairman and Chief Executive Officer of Grantor; and WHEREAS, Grantor and Trustee again desire to amend and restate the Trust Agreement in order to conform the Trust Agreement to the Plan, as thus amended and restated effective January 1, 1996; NOW, THEREFORE, EFFECTIVE JANUARY 1, 1996, UNLESS SPECIFICALLY PROVIDED OTHERWISE: (a) The Grantor hereby reappoints CORESTATES BANK, N.A., as trustee of the grantor trust continued by this Trust Agreement; (b) CORESTATES BANK, N.A. accepts its reappointment as trustee of the grantor trust continued by this Trust Agreement and agrees to hold all funds which it has received and may receive hereunder, IN TRUST, upon the terms and conditions hereinafter stated; and (c) The parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I -- DEFINITIONS Except as otherwise provided in this Article I, and unless the context of this Trust Agreement clearly indicates otherwise, the terms defined in the Plan shall, when used herein, have the same meaning as in the Plan. The following additional words and phrases, as used herein, shall have the following meanings, unless the context clearly indicates otherwise: 1.1 Change in Control: A "Change in Control" of the Grantor shall be deemed to have occurred if: (a) Any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (1) the Grantor and/or its wholly-owned subsidiaries, (2) any ESOP or other employee benefit plan of the Grantor, 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 Grantor in substantially the same proportions as their ownership of stock of the Grantor or (4) the Participant 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 Grantor representing thirty (30) percent or more of the combined voting power of the Grantor's then outstanding securities, or such lesser percentage of voting power, but not less than fifteen (15) percent, as the Board shall determine; provided, however, that a Change in Control shall not be deemed to have occurred under the provisions of this Section 1.1(a) by reason of the beneficial ownership of voting securities by members of the Bartol Family (as defined below) unless and until the beneficial ownership of all members of the Bartol Family (including any other individuals or entities who or which, together with any member or members of the Bartol Family, are deemed under Sections 13(d) or 14(d) of the Exchange Act -2- to constitute a single Person) exceeds fifty (50) percent of the combined voting power of the Grantor's then outstanding securities. (b) During any two-(2-) year period beginning after September 12, 1990, Directors of the Grantor 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 Grantor to effect a transaction within the purview of Section 1.1(a) or (c)) whose election by the Board, or whose nomination for election by the Grantor's shareholders, was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, shall cease for any reason to constitute at least a majority of the Board; or (c) The Grantor's shareholders or the Board shall approve (1) any consolidation or merger of the Grantor in which the Grantor is not the continuing or surviving corporation or pursuant to which the Grantor's voting common shares (the "Common Shares") would be converted into cash, securities and/or other property, other than a merger of the Grantor 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, (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 Grantor, or (3) the liquidation or dissolution of the Grantor. As used in this Section 1.1, "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, and 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). 1.2 Death Benefits: The benefits payable to Beneficiaries of Participants who are Corporate Officers or former Corporate Officers under the terms of Article V of the Plan and Plan Exhibits B and C. The term "Death Benefits" shall also include paid-up Insurance Contracts which may be purchased for Participants who are Corporate Officers or former Corporate Officers under Article V of the Plan and Plan Exhibits B and C in the event of a Change in Control. 1.3 Deferred Benefits: The benefits payable to Participants who are Executive Officers or former Corporate Officers under the terms of Article IV of the Plan and Plan Exhibits B and C. 1.4 Fiduciary: The Board, the Compensation Committee of the Board, the Committee, the Trustee, and any person to whom the responsibilities of such persons under this Trust Agreement are delegated in accordance with Section 3.3. References to such persons as Fiduciaries herein are for convenience only and shall not be construed to create or enlarge any duties of such persons under any statute or at common law. The Grantor and Trustee intend that such persons shall not be subject to the fiduciary responsibility provisions of Part 4 of Title I of ERISA. 1.5 Grantor: HUNT MANUFACTURING CO. -3- 1.6 Insurance Contract: Any insurance contract issued by an Insurer. 1.7 Insurer: Any insurance company authorized to do business in any State provided such insurance company has the highest rating (AA or better from Standard and Poor's Corporation, Moody's Investors Services, or Duff and Phelps, or A+ from A.M. Best) from any two (2) of Standard and Poor's Corporation, Moody's Investors Services, A.M. Best, and Duff and Phelps. 1.8 Plan: The HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN, and as the same may be amended from time to time. 1.9 Salary Deferral Benefits: The benefits payable to Participants who are Executive Officers or former Executive Officers under the terms of Article VI of the Plan and Plan Exhibits B and C. 1.10 Trust Account: An account to which Trust Assets are allocated to cover the Grantor's obligations to a Participant or Beneficiary under the Plan. 1.11 Trust Agreement: The HUNT MANUFACTURING CO. SUPPLEMENTAL EXECUTIVE BENEFITS PLAN TRUST AGREEMENT, as set forth herein and as the same may be amended from time to time. 1.12 Trust Assets: The Insurance Contracts, cash and other property contributed by Grantor to the Trust under Sections 2.1 and 2.2, and any earnings thereon. 1.13 Trustee: CORESTATES BANK, N.A., or any corporate successor thereto appointed pursuant to Section 3.6(a) or 5.2. 1.14 Valuation Date: The last day of each Plan Year and each February 28/29, May 31, and August 31, and such other date or dates as the Committee shall from time to time direct the Trustee. ARTICLE II -- THE TRUST ASSETS 2.1 Continuation of Trust: The Trustee shall continue to hold, manage, and distribute, as hereinafter provided, the assets of the Trust. As of January 1, 1996, such assets consist of Insurance Contracts on the lives of the Participants in the Plan and such cash and other property as has been contributed to the Trust. Each Insurance Contract and other amounts shall continue to be held by and owned by the Trustee as agent of the Grantor, and to be allocated to the Trust Account maintained with respect to the Participant on whose life such Insurance Contract was purchased or with respect to whom such additional amounts were contributed. 2.2 Future Contributions: At the direction of the Committee, the Grantor shall contribute to the Trust such amounts as are necessary to purchase Insurance Contracts providing benefits under the Plan and to make scheduled premium payments under such Insurance Contracts, and any additional amounts necessary to cover the Grantor's potential liabilities under the Plan to each Participant. Any such Insurance Contract or additional amounts shall be allocated to the Trust Account maintained with respect to the Participant on whose life such Insurance Contract was purchased or with respect to whom such additional amounts are contributed. The Grantor's contributions may consist of cash, Insurance Contracts, or other property valued at fair market value and acceptable to -4- the Trustee. All contributions shall be paid to the Trustee for investment and reinvestment pursuant to the terms of this Trust Agreement and in accordance with the written directions issued by the Committee pursuant to Section 2.6. The Trustee shall have no duty to determine or inquire whether any contributions to this Trust are in compliance with the Plan, or to compute any amount to be paid to the Trustee; nor shall the Trustee be responsible for the collection or adequacy of any contributions to this Trust to meet and discharge liabilities to the Participants and/or Beneficiaries under the Plan. 2.3 Rights in Trust Assets: (a) Use of Trust Assets: The Trust Assets shall remain in this Trust until used to pay: (1) All Deferred Benefits due the Participants under Article IV of the Plan and Plan Exhibits B and C, (2) All Death Benefits due to Participants or Beneficiaries under Article V of the Plan and Plan Exhibits B and C, (3) All Salary Deferral Benefits due the Participants under Article VI of the Plan and Plan Exhibits B and C, (4) All other payments due under, or pursuant to, Plan Exhibits B and C, (5) The expenses of this Trust, or (6) The claims of Insolvency Creditors of the Grantor, or until returned to the Grantor on termination of this Trust pursuant to Section 2.10. (b) Purposes: The Trustee shall hold, invest, and dispose of all Trust Assets in accordance with the applicable provisions of the Plan and this Trust Agreement. Until such time as all Deferred Benefits due the Participants have been paid, and until such time as all Death Benefits due the Participants and Beneficiaries have been paid, and until such time as all Salary Deferral Benefits due the Participants have been paid, and until such time as all other payments due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C have been made, no part of the Trust Assets, other than such part as is required to pay taxes or administration expenses as provided herein, shall be used for, or diverted to, purposes other than the payment of Deferred Benefits to the Participants , or the payment of Death Benefits to the Participants and Beneficiaries , or the payment of Salary Deferral Benefits to the Participants , or the payment of other benefits to Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, or the payment of obligations to the Insolvency Creditors of the Grantor. (c) Insolvency Creditors: All Trust Assets held shall at all times remain subject to the claims, if any, of the Insolvency Creditors of the Grantor. (d) Return to Grantor: Trust Assets remaining in this Trust, if any, after all Deferred Benefits due the Participants and all Death Benefits due the Participants and Beneficiaries and all Salary Deferral Benefits due the Participants and all other benefits due -5- Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C are paid shall revert to the Grantor in accordance with Section 2.10. 2.4 Nontransferability: Except as otherwise required by applicable law, the interest, if any, of the Participants and Beneficiaries in this Trust shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance, nor to legal process, nor to the debts, contracts, liabilities, engagements or torts of any Participant or Beneficiary. 2.5 Permitted Investments: All investments under this Article II may be made in any property, real, personal, or mixed, wherever situate, without being limited to the classes of property in which trustees are authorized to invest trust funds by any law, or any rule of court, of any State, except that no investments in employer securities or employer real property shall be permitted. 2.6 Investment Directions: The Committee shall provide written investment directions to the Trustee. The investment directions shall be in accordance with Sections 2.5, 2.8 and with the terms of the Plan. 2.7 Allocation of Investment Responsibilities: The Trustee shall control and manage the Trust Assets, and shall invest and reinvest the same without distinction between income and principal in accordance with the guidelines in Sections 2.5, 2.8, the written investment directions issued by the Committee pursuant to Section 3.6(b), and the terms of the Plan; provided, however, that at any time prior to the date of any Change in Control (but not after such date) the Committee may allocate and reallocate investment responsibility with respect to any Trust Assets between the Committee and the Trustee. Any such allocation or reallocation of investment responsibility shall be made by the Committee in a written instrument delivered to the Trustee. 2.8 Investment after Change in Control: Upon any Change in Control, the Trust Assets, to the extent not invested in Insurance Contracts, shall be invested and reinvested in short-term liquid investments until such Trust Assets are used to pay out the Deferred Benefits to the Participants in accordance with Section 7.1(c)(1) of the Plan and to provide for the payment of Death Benefits to the Participants and Beneficiaries in accordance with Section 7.1(c)(2) of the Plan and to pay out the Salary Deferral Benefits to the Participants in accordance with Section 7.1(c)(3) of the Plan and to pay out the other Plan Exhibit B and C benefits to Ronald J. Naples and Donald L. Thompson in accordance with Plan Exhibits B and C. 2.9 Distribution of Trust Assets: (a) Payment of Deferred Benefits, Death Benefits, Salary Deferral Benefits and Other Plan Exhibits B and C Benefits: The Trustee shall pay the Deferred Benefits in cash to Participants (or, at the election of Participants pursuant to the Plan, shall distribute paid-up Insurance Contracts to Participants) on behalf of the Grantor in satisfaction of the Grantor's obligations under the Plan and shall pay the Death Benefits in cash to Beneficiaries (or shall distribute paid-up Insurance Contracts to Participants) on behalf of the Grantor in satisfaction of the Grantor's obligations under the Plan and shall pay the Salary Deferral Benefits in cash to Participants (or, at the election of Participants pursuant to the Plan, shall distribute paid-up Insurance Contracts to Participants) on behalf of the Grantor in satisfaction of the Grantor's obligations under the Plan and shall pay the other benefits provided under, or pursuant to, Plan Exhibits B and C to Ronald J. Naples and Donald L. Thompson, respectively (or, at the election of Ronald J. Naples or Donald L. Thompson, as applicable, pursuant to the Plan, shall distribute paid-up Insurance Contracts to Ronald J. Naples or Donald L. Thompson, as applicable), on -6- behalf of the Grantor in satisfaction of the Grantor's obligations under, or pursuant to, Plan Exhibits B and C to the extent Grantor does not make such payments directly to Participants and Beneficiaries, respectively (or to Ronald J. Naples or Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, as applicable). To the extent sufficient Trust Assets do not exist to pay Deferred Benefits to a Participant or Death Benefits to a Participant or Beneficiary or Salary Deferral Benefits to a Participant , or other benefits under, or pursuant to, Plan Exhibits B and C to Ronald J. Naples and Donald L. Thompson, respectively, neither the Trust nor Trustee shall be liable to such Participant or such Beneficiary. The Grantor's obligations shall not be limited to the value of the Trust Assets, and a Participant and/or Beneficiary (as applicable) shall have a claim against the Grantor for any payment not made by the Trustee. The Trustee shall make payments in accordance with Section 4.2. The Trustee shall make any required income tax withholding and shall pay amounts withheld to taxing authorities on the Grantor's behalf or determine that such amounts have been paid by the Grantor. (b) Acceleration of Payments: Notwithstanding any other provision of this Trust Agreement, if the Trustee determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, a decision by a court of competent jurisdiction involving a Participant, or a closing agreement involving a Participant made under section 7121 of the Code that is approved by the Commissioner, that such Participant or Beneficiary has recognized or will recognize income for Federal income tax purposes with respect to the Deferred Benefits that are or will be payable to the Participant or the Death Benefits that are or will be payable to the Participant or Beneficiary or the Salary Deferral Benefits that are or will be payable to the Participant or the other benefits that are or will be payable under, or pursuant to, Plan Exhibits B and C to Ronald J. Naples and Donald L. Thompson) before they otherwise would be paid to the Participant or the Beneficiary (as applicable), upon the request of the Participant or Beneficiary, the Trustee shall immediately make distribution to the Participant or Beneficiary of the amount so taxable. Moreover, in the event of a Change in Control, payment of Deferred Benefits provided under Article IV of the Plan (and any additional amounts provided under Section 7.1(c)(1) of the Plan) shall be made in accordance with Article IV of the Plan and Section 7.1(c)(1) of the Plan and payment of Death Benefits provided under Article V of the Plan (and any additional amounts provided under Section 7.1(c)(2) of the Plan) shall be made in accordance with Article V of the Plan and Section 7.1(c)(2) of the Plan and payment of Salary Deferral Benefits provided under Article VI of the Plan (and any additional amounts provided under Section 7.1(c)(3) of the Plan) shall be made in accordance with Article VI of the Plan and Section 7.1(c)(3) of the Plan and the payment of benefits under, or pursuant to, Plan Exhibits B and C shall be made in accordance with Plan Exhibits B and C. Moreover, in the event the Compensation Committee of the Board determines that the Trust does not provide adequate security for payment of benefits under the Trust pursuant to Section 7.2 of the Plan, at the direction of the Compensation Committee of the Board, payment of Deferred Benefits provided under Article IV of the Plan (and any additional amounts provided under Section 7.2(b)(1) of the Plan) shall be made in accordance with Article IV of the Plan and Section 7.2(b)(1) of the Plan and payment of Death Benefits provided under Article V of the Plan (and any additional amounts provided under Section 7.2(b)(2) of the Plan) shall be made in accordance with Article V of the Plan and Section 7.2(b)(2) of the Plan and payment of Salary Deferral Benefits provided under Article VI of the Plan (and any additional amounts provided under Section 7.2(b)(3) of the Plan) shall be made in accordance with Article VI of the Plan and Section 7.2(b)(3) of the Plan and payment of benefits provided under, or pursuant to, Plan Exhibits B and C for Ronald J. Naples -7- and Donald L. Thompson, respectively, shall be made in accordance with Plan Exhibits B and C. (c) Confirmation of Payment: The Trustee shall provide Grantor and the Committee with written confirmation of the fact and time of any payment hereunder within ten (10) business days after any payment to a Participant or a Beneficiary is made or any series of payments to a Participant commences. (d) Nonliability of Trustee: The Grantor shall not bring any action or proceeding against the Trustee for making or refraining from making any payment in accordance with the provisions of this Section 2.9. 2.10 Termination of Trust: The Trust shall terminate on the first date on which: (a) All Deferred Benefits due Participants and all Death Benefits due Participants or Beneficiaries and all Salary Deferral Benefits due Participants and all benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, respectively, have been paid, or (b) There are no remaining Trust Assets. Upon termination of the Trust, any and all Trust Assets remaining in the Trust, after the payment to Participants and Beneficiaries of all amounts to which they are entitled and after payment of expenses under Section 5.4, shall revert to the Grantor, and the Trustee shall promptly take such action as shall be necessary to transfer any such Trust Assets to the Grantor. In no event, however, shall the Trust be terminated solely for the purpose of accelerating the payment of Deferred Benefits or Death Benefits or Salary Deferral Benefits hereunder or solely for the purpose of accelerating the payment of benefits under, or pursuant to, Plan Exhibit B and/or C. ARTICLE III -- ALLOCATION OF RESPONSIBILITIES 3.1 General Responsibilities: In establishing and continuing this Trust, it is the intention of the Grantor and the Trustee that, except in the event of the Insolvency of the Grantor or subsequent to the satisfaction of all liabilities of the Grantor to the Participants under Article IV of the Plan and to the Participants or Beneficiaries under Article V of the Plan and to the Participants under Article VI of the Plan and to Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, all Trust Assets held pursuant to this Trust shall be used only for the following purposes: (a) To pay any Deferred Benefits due the Participants; (b) To pay any Death Benefits due the Participants or Beneficiaries; (c) To pay any Salary Deferral Benefits due the Participants; (d) To pay any other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, respectively; or -8- (e) To pay the expenses, including Trustee's fees, incurred in the administration of this Trust and any taxes assessed in accordance with Section 4.8. In the event of the Insolvency of the Grantor, all Trust Assets then held pursuant to this Trust shall be available to pay the claims of any Insolvency Creditor of the Grantor to whom a distribution may be made in accordance with State and Federal bankruptcy laws to the same extent that unencumbered assets held by the Grantor are available to satisfy such claims. Each Fiduciary, in carrying out the responsibilities assigned to him under this Trust Agreement, shall act in accordance with the intent and the terms of the Plan and this Trust Agreement using the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 3.2 Designated Fiduciaries: The following Fiduciaries are designated to control and manage the operation and administration of this Trust: (a) The Board, including, but not limited to, the Compensation Committee of the Board; (b) The Committee; and (c) The Trustee. 3.3 Delegation of Fiduciary Duties; Employment of Agents and Certain Other Matters: Each Fiduciary (other than the Trustee) designated pursuant to Section 3.2 (herein referred to as a "designated Fiduciary") may delegate any or all of its responsibilities to persons who are not designated Fiduciaries with respect to the specific responsibility or responsibilities so delegated; provided, however, that the duties of the Compensation Committee (as it is constituted on the day preceding the date of a Change in Control) may not be delegated following a Change in Control. Any such delegation shall be in writing and shall be made a permanent part of the records of the designated Fiduciary. Such delegation shall be reviewed periodically by the designated Fiduciary and shall be terminable under such conditions and upon such notice as the designated Fiduciary, in its sole discretion, deems reasonable and prudent under the circumstances. No such delegation shall relieve a Fiduciary from liability for a breach by persons to whom responsibilities have been delegated. In addition, each designated Fiduciary (including the Trustee) shall be entitled to employ and consult with such agents and counsel as may be reasonably necessary in connection with the performance of such designated Fiduciary's responsibilities hereunder, and to pay them or cause them to be paid reasonable compensation out of this Trust. 3.4 Allocation of Responsibility: The responsibilities of the Fiduciaries designated in Section 3.2 shall be allocated among them as provided in Sections 3.5 through 3.8, and the Committee may allocate among its designees its responsibilities under this Trust, and the Board and the Compensation Committee of the Board (except to the extent prohibited after a Change in Control under Section 3.3) may do the same with respect to the responsibilities of the Board and the Compensation Committee of the Board hereunder. Except as otherwise provided by applicable law, no Fiduciary shall be liable for a breach by another Fiduciary. 3.5 Duties of the Board and Compensation Committee of the Board: The Board shall provide written notice to the Trustee of the Grantor's Insolvency as soon as possible after such Insolvency becomes known to the Grantor. -9- Upon a Change in Control, the Compensation Committee of the Board (as it is constituted on the day preceding the date of the Change in Control) may, in its discretion, issue written directions to the Trustee which shall govern the distribution of Trust Assets in accordance with Section 7.1(c)(1) of the Plan with respect to Deferred Benefits and in accordance with Section 7.1(c)(2) of the Plan with respect to Death Benefits and in accordance with Section 7.1(c)(3) of the Plan with respect to Salary Deferral Benefits and in accordance with Plan Exhibits B and C with respect to benefits payable under, or pursuant to, Plan Exhibits B and C. The directions shall be in accordance with Section 7.1(c)(1) of the Plan with respect to Deferred Benefits and in accordance with Section 7.1(c)(2) of the Plan with respect to Death Benefits and in accordance with Section 7.1(c)(3) of the Plan with respect to Salary Deferral Benefits and in accordance with Plan Exhibits B and C with respect to benefits payable under, or pursuant to, Plan Exhibits B and C all as they exist on the day before the date of any Change in Control. After such written directions have been issued to the Trustee, they shall be amended only with the consent of the Participant or Beneficiary to whom such directions apply. Said Compensation Committee of the Board shall furnish a copy of the directions issued under this Section 3.5 to the Trustee who shall promptly acknowledge receipt of such directions to the Grantor and shall furnish a copy of such directions to each Participant and to each Beneficiary. In the event that all members of the Compensation Committee of the Board (as it is constituted on the day preceding the date of a Change in Control) die or otherwise become incapacitated, the duties and responsibilities of the Compensation Committee shall devolve upon the Trustee. 3.6 Duties of the Committee: The Committee shall have sole authority and responsibility for: (a) Prior to a Change in Control, the removal of the Trustee and the appointment of one or more successor Trustees, subject to the provisions of Sections 5.1 and 5.2; (b) The issuance of written investment directions pursuant to Section 2.6 and in accordance with the standards set forth in Section 2.8 and with the terms of the Plan to be followed by the Fiduciary or Fiduciaries to whom investment responsibilities have been allocated; (c) The allocation of investment responsibilities between itself and the Trustee in accordance with Section 2.10; (d) Subject to the provisions of Sections 3.5 and 3.7(a)(4) and prior to a Change in Control, the issuance of written directions to the Trustee which shall govern the distribution of Trust Assets; such directions shall be made in accordance with the terms of the Plan; (e) Providing to the Trustee such statements as may be appropriate to inform the Trustee of Deferred Benefits payable to the Participants and of Death Benefits payable to Participants and Beneficiaries and of Salary Deferral Benefits payable to the Participants and of other benefits payable to Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, as they exist on the day before the date of any Change in Control and as may be required by the Trustee to implement the written directions issued by the Compensation Committee of the Board under Section 3.5 or the Committee under -10- Section 3.6(b); after the day before the date of any Change in Control, such statements shall be amended only with the consent of the Participants under the Plan; (f) The preparation and filing of reports and other information concerning this Trust as may be required by the Plan, the Trust Agreement and by applicable law, except such reports and information as are specifically required by law to be prepared and filed by the Trustee; (g) Subject to the provisions of Section 2.7, acting on behalf of the Grantor in connection with the termination of this Trust; (h) Except as provided in Section 3.5, all other acts permitted or required to be performed by the Grantor under this Trust Agreement. 3.7 Duties of Trustee: (a) Authority and Responsibility: The Trustee shall have sole authority and responsibility for: (1) The control, management, investment, and reinvestment of the Trust Assets of this Trust in accordance with the written investment directions provided by the Committee under Section 3.6(b) and in accordance with the standards set forth in Section 2.8 and with the terms of the Plan, unless and to the extent the Committee has allocated such powers to another Fiduciary; (2) The valuation of the Trust Assets; (3) The maintenance and production of records and reports pertaining to the administration of this Trust; (4) At the request of a Participant or Beneficiary, determining whether the written distribution instructions issued by the Compensation Committee of the Board pursuant to Section 3.5 or by the Committee pursuant to Section 3.6(b) (or in either case, the failure to issue written instructions) are in accordance with the terms of the Plan as it exists on the day before the date of any Change in Control and then determining what the rights of such Participant or Beneficiary are; (5) Payment of Deferred Benefits in accordance with Article IV of the Plan and Section 7.1(c)(1) of the Plan and Section 4.2 and Death Benefits in accordance with Article V of the Plan and Section 7.1(c)(2) of the Plan and Section 4.2 and payment of Salary Deferral Benefits in accordance with Article VI of the Plan and Section 7.1(c)(3) of the Plan and Section 4.2 and payment of benefits under, or pursuant to, Plan Exhibits B and C; (6) Promptly furnishing to the Participants a copy of the written notice of Insolvency received pursuant to Section 3.5; and (7) The performance of the general administrative powers conferred under Article IV; subject, however, to the directions of Fiduciaries specifically authorized to direct the Trustee with respect to the exercise of such powers. -11- (b) Insolvency: In the event that the Trustee is informed of the Grantor's Insolvency pursuant to Section 3.5, the Trustee shall suspend payments to the Participants under Article IV of the Plan and to the Participants and Beneficiaries under Article V of the Plan and to the Participants under Article VI of the Plan and to Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C and shall hold the Trust Assets for the benefit of the Insolvency Creditors of the Grantor. In addition, if the Trustee receives other written allegations of the Grantor's Insolvency, the Trustee shall suspend payments of Deferred Benefits to the Participants and payments of Death Benefits to the Participants and Beneficiaries and payments of Salary Deferral Benefits to the Participants and payments of other benefits to Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C and shall hold the Trust Assets for the benefit of the Grantor's Insolvency Creditors, and shall take such steps as it determines, in its sole discretion, to be reasonably necessary to determine within thirty (30) days whether the Grantor is Insolvent. Upon a determination that the Grantor is solvent, the Trustee shall resume payments of Deferred Benefits to the Participants and payments of Death Benefits to the Participants and Beneficiaries and payments of Salary Deferral Benefits to the Participants and payments of other benefits to Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C, including any Deferred Benefits or Death Benefits or Salary Deferral Benefits or Plan Exhibit B benefits or Plan Exhibit C benefits previously suspended. In the case of the Trustee's actual knowledge of, or determination of, or receipt of a court order evidencing the Grantor's Insolvency, the Trustee shall deliver Trust Assets as necessary to satisfy claims of the Insolvency Creditors of the Grantor as directed by a court of competent jurisdiction. Unless the Trustee has actual knowledge of the Grantor's Insolvency, or has received notice from the Grantor or a person claiming to be a creditor alleging Grantor's Insolvency, the Trustee shall have no duty to inquire as to the Insolvency of Grantor. The Trustee may, in all events, rely on such evidence concerning Grantor's solvency as may be furnished to the Trustee pursuant to this Section 3.7(b) and that provides the Trustee with a reasonable basis for making a determination concerning Grantor's solvency. (c) Change in Control: If a Change in Control occurs: (1) Subject to Sections 7.1(c)(1) and 7.1(c)(2) and 7.1(c)(3) of the Plan and Plan Exhibits B and C, the Trustee shall follow the written distribution directions issued by the Compensation Committee of the Board pursuant to Section 3.5; provided, however, that if the Trustee determines, pursuant to Section 3.7(a)(4), that the written distribution instructions issued by the Compensation Committee of the Board pursuant to Section 3.5 or the Committee pursuant to Section 3.6 are not in accord with the Plan as it exists on the day before the date of any Change in Control, or if there are no written directions from the Compensation Committee, the Trustee shall determine the rights of Participants and Beneficiaries; and (2) The Trustee shall distribute the Trust Assets in accordance with Section 7.1(c)(1) of the Plan with respect to Deferred Benefits and Section 7.1(c)(2) of the Plan with respect to Death Benefits and Section 7.1(c)(3) of the Plan with respect to Salary Deferral Benefits and in accordance with Plan Exhibits B and C with respect to benefits payable under, or pursuant to, Plan Exhibits B and C. (d) Determination of Change in Control: At the request of fifty-one (51) percent or more of the Participants in the Plan, or in the Trustee's discretion, the Trustee shall request that the Grantor furnish evidence to enable the Trustee to determine whether a Change -12- in Control has occurred. The Trustee shall make such determination in accordance with the definition of Change in Control in this Trust Agreement. In performing its duties pursuant to Sections 2.9, 4.2 and 4.3, the Trustee may rely on its determination, including an opinion of counsel (who may be counsel to the Trustee), that a Change in Control has occurred, as long as the Trustee acts in accordance with the terms of the Plan and this Trust Agreement using the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Except as provided in the next succeeding sentence, the Trustee's determination that a Change in Control has occurred shall be binding and conclusive on all persons. Notwithstanding the foregoing, if the Compensation Committee of the Board (as it is constituted on the day before the date of a Change in Control) determines that a Change in Control has occurred prior to the date such determination is made by the Trustee or, if the Trustee has determined that a Change of Control has not occurred, after the date of such Trustee determination, the determination of the Compensation Committee of the Board that a Change in Control has occurred shall be final and binding on the Trustee and on all other persons. (e) Notice by Trustee of Payment of Deferred Benefits, Death Benefits, Salary Deferral Benefits and Plan Exhibits B and C Benefits: The Trustee shall promptly provide written notice to the Grantor and each Participant and Beneficiary when it believes that all Deferred Benefits due each such Participant and that all Death Benefits due each such Participant or Beneficiary and that all Salary Deferral Benefits due each such Participant and that all other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C under the distribution directions on which it is relying have been paid. Such notice shall state that the Trustee believes that all Deferred Benefits, Death Benefits, Salary Deferral Benefits and other benefits under, or pursuant to, Plan Exhibits B and C due from the Trust have been paid and that if any Participant or Beneficiary (as applicable) disagrees with this determination he must do so within sixty (60) days of the date of the notice. Such Participant or Beneficiary (as applicable) shall notify the Trustee within sixty (60) days of the date of the notice if he believes all Deferred Benefits or Death Benefits or Salary Deferral Benefits (as applicable) due the Participant or Beneficiary (as applicable) under the Plan or other benefits under, or pursuant to, Plan Exhibits B and C due Ronald J. Naples or Donald L. Thompson (as applicable) have not been paid. If the Participant or Beneficiary (as applicable) provides such notice to the Trustee, the Trustee shall make an independent determination of whether all Deferred Benefits due the Participants and all Death Benefits due the Participants and Beneficiaries and all Salary Deferral Benefits due the Participants and all other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C have been paid. Any such determination shall be in accordance with the Plan as it exists on the day before the date of any Change in Control. In performing its duties pursuant to this Section 3.7(e) and pursuant to Section 2.3(d), the Trustee may rely on an opinion of counsel (who may be counsel to the Trustee but shall not be counsel to the Grantor) that all such Deferred Benefits due the Participants and all such Death Benefits due the Participants and Beneficiaries and all such Salary Deferral Benefits due the Participants and all other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C have been paid, as long as the Trustee acts in accordance with the terms of the Plan and this Trust Agreement using the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The determination made by the Trustee in this manner shall be conclusive on all persons. -13- If the Trustee determines that all Deferred Benefits due the Participant and/or all the Death Benefits due the Participant and/or Beneficiary and/or all Salary Deferral Benefits due the Participant and/or all the other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C have not been paid, the Trustee shall make such further payments as it determines are due. If (1) the Trustee determines that all Deferred Benefits due the Participant and all Death Benefits due the Participant and/or Beneficiary and all Salary Deferral Benefits due the Participant and all other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C have been paid or (2) the Participant and/or Beneficiary does not provide notice to the Trustee within the sixty (60)-day period described above that such Participant believes that all Deferred Benefits due have not been paid or that such Participant or Beneficiary believes that all Death Benefits due have not been paid or that such Participant believes that all Salary Deferral Benefits due have not been paid or that Ronald J. Naples or Donald L. Thompson believe that all other benefits due under, or pursuant to, Plan Exhibits B and C have not been paid, then the Trustee shall pay to the Grantor all Trust Assets remaining in this Trust, if any. 3.8 Board, Compensation Committee of the Board and Committee Directions, Instructions or Data: The Trustee shall not be liable for losses or unfavorable results arising from its compliance with, or reliance on, proper directions, instructions or data from the Board, Compensation Committee of the Board or the Committee given prior to the date of any Change in Control in accordance with the terms of the Plan and this Trust Agreement; provided, however, the Trustee shall not be entitled to rely on any directions, instructions or data: (a) Received from the Grantor after the day before the date of any Change in Control, but only if the Trustee is aware that a Change in Control has occurred; (b) If, after the day before the date of any Change in Control, any Participant or Beneficiary requests that the Trustee make a determination pursuant to Section 3.7(a)(4); or (c) If, after the day before the date of any Change in Control, any Participant or Beneficiary requests that the Trustee make a determination pursuant to Section 3.7(e). 3.9 Indemnification of Trustee: The Grantor hereby indemnifies the Trustee against, and agrees to hold the Trustee harmless from, all liabilities and claims (including reasonable attorneys' fees and expenses in defending against such liabilities and claims) against the Trustee as a result of: (a) Any breach of Fiduciary responsibility by a Fiduciary other than the Trustee unless the Trustee participates knowingly in such breach, has actual knowledge of such breach and fails to take reasonable remedial action to remedy such breach, or is negligent in performing its own specific Fiduciary responsibilities; (b) The Trustee's payment of Deferred Benefits to the Participant pursuant to Article IV of the Plan and Section 7.1(c)(1) of the Plan and Section 4.2 and of Death Benefits to the Participant or Beneficiary pursuant to Article V of the Plan and Section 7.1(c)(2) of the Plan and Section 4.2 and of Salary Deferral Benefits to the Participant pursuant to Article VI of the Plan and Section 7.1(c)(3) of the Plan and Section 4.2 and of other benefits -14- to Ronald J. Naples and Donald L. Thompson pursuant to Plan Exhibits B and C and Section 4.2; (c) The Trustee's determination under Section 3.7(d) as to whether a Change in Control has occurred; (d) The Trustee's determination under Section 3.7(a)(4) of the rights of a Participant or Beneficiary; or (e) The Trustee's determination under Section 3.7(e) as to whether all Deferred Benefits due the Participants and all Death Benefits due the Participants and Beneficiaries and all Salary Deferral Benefits due the Participants and all other benefits due Ronald J. Naples and Donald L. Thompson under, or pursuant to, Plan Exhibits B and C have been paid. ARTICLE IV -- ADMINISTRATIVE PROVISIONS 4.1 General Administrative Powers: The Trustee shall have the rights, powers, and privileges of an absolute owner when dealing with property of the Trust, including, without limitation, the powers listed below. Except as otherwise specified below, the Trustee's exercise of such powers shall be subject to the direction of a Fiduciary authorized to direct the Trustee under this Trust Agreement with respect to the management or control of Trust Assets and any earnings thereon: (a) To hold, manage, and control all property; to sell, convey, transfer, exchange, and otherwise dispose of such property from time to time in such manner, for such consideration, and upon such terms and conditions, including credit, as may be deemed proper; (b) To exercise any option, conversion privilege, or subscription right given the Trustee as the owner of any security held in this Trust; to vote any corporate stock either in person or by proxy, with or without power of substitution; to consent to, or oppose, any reorganization, consolidation, merger, readjustment of financial structure, sale, lease, or other disposition of the assets of any corporation or other organization, and to take any action in connection therewith and receive and retain any securities resulting therefrom; (c) To deposit any security with any protective or reorganization committee, and to delegate to such committee such power and authority with respect thereto as may be deemed proper, and to pay out of this Trust an appropriate portion of the expenses and compensation of such committee; (d) Regardless of whether the Trustee or any other Fiduciary has responsibility to manage or control the Trust Assets, to cause any Insurance Contracts to be issued, held, or registered in the name of the Trustee as Trustee, or in the name of a nominee or in such form that title will pass by delivery, provided that the records of the Trustee shall in all events indicate the true ownership of such property; (e) To renew or extend the time of payment of any obligation due or to become due; -15- (f) To commence or defend suits or legal or administrative proceedings, and to compromise, arbitrate, or settle claims, debts, or damages in favor of or against this Trust and to deliver or accept, in either total or partial satisfaction of any indebtedness or other obligation, any property, and to continue to hold for such period of time as may be deemed appropriate any property so received, and to pay all costs and reasonable attorneys' fees in connection therewith out of the Trust Assets; and to select counsel acceptable to the Trustee and to the Committee or, on or after a Change in Control, acceptable to the Compensation Committee of the Board (as it is constituted on the day before the date of a Change in Control), and to conduct the prosecution or defense of any litigation or legal dispute subject to the control of the Committee or, on or after a Change in Control, subject to the control of the Compensation Committee of the Board (as it is constituted on the day before the date of a Change in Control); (g) To foreclose any obligation by judicial proceeding or otherwise; (h) Regardless of whether the Trustee or the Committee has responsibility to manage or control the Trust Assets, to deposit any securities held in this Trust with a securities depository; and (i) To hold amounts contributed to the Trust by the Grantor for the payment of premiums on Insurance Contracts uninvested for such limited periods of time not to exceed five (5) business days as may be necessary for purposes of orderly account administration or pending required directions, without liability for payment of interest prior to the payment of such premiums to the Insurer; provided, however, that regardless of whether the Trustee or any other Fiduciary has responsibility to manage such Trust Assets, the Trustee shall be authorized in its discretion to invest such Trust Assets, pending receipt of such directions, in interest bearing accounts (including interest bearing accounts established with the Trustee). 4.2 Payment of Deferred Benefits, Death Benefits, Salary Deferral Benefits and Plan Exhibits B and C Benefits: The Trustee shall, subject to the claims of the Insolvency Creditors, if any, of the Grantor, make payment of Deferred Benefits due a Participant directly to the Participant (or the Spouse or other Beneficiary of the Participant). The Trustee shall, subject to the claims of the Insolvency Creditors, if any, of the Grantor, make payment of Death Benefits due a Participant or Beneficiary directly to the Participant or Beneficiary. The Trustee shall, subject to the claims of the Insolvency Creditors, if any, of the Grantor, make payment of Salary Deferral Benefits due a Participant directly to the Participant (or the Spouse or other Beneficiary of the Participant). The Trustee shall, subject to the claims of the Insolvency Creditors, if any, of the Grantor, make payment of Plan Exhibits B and C benefits due Ronald J. Naples and Donald L. Thompson (as applicable) under, or pursuant to, Plan Exhibits B and C directly to Ronald J. Naples and Donald L. Thompson (as applicable) (or the Spouse or other Beneficiary of Ronald J. Naples or Donald L. Thompson (as applicable)). To the extent Trust Assets are insufficient to pay such Deferred Benefits and/or Death Benefits and/or Salary Deferral Benefits and/or Plan Exhibit B or C benefits, the Grantor shall make such payments. Such payments shall be made pursuant to written directions issued by the Committee under Section 3.6(b) prior to any Change in Control and, upon a Change in Control, pursuant to Section 3.5, and subject, in each case, to the terms of the Plan as it exists on the day before the date of any Change in Control. After the day before the date of any Change in Control, modifications to the written directions of the Committee or to the Plan shall be effective as to the Participant or Beneficiary (as applicable) with respect to payments from this Trust only if the Compensation Committee of the Board (as constituted on the day before the date of the Change in Control) and such Participant or Beneficiary (as applicable) both -16- consent in writing to such modification. In the event that the Trustee determines, pursuant to Section 3.7(a)(4), that written directions issued by the Committee pursuant to Section 3.6(b) or by the Compensation Committee pursuant to Section 3.5 are not in accordance with the terms of the Plan as it exists on the day before the date of any Change in Control, or the failure to issue such directions is not in accordance with the terms of the Plan as it exists on the day before the date of any Change in Control, the Trustee shall act in accordance with the determination made by the Trustee pursuant to Section 3.7(a)(4). The establishment of this Trust shall not reduce the Grantor's obligations to the Participant pursuant to the provisions of Article IV of the Plan or to the Participants or Beneficiaries pursuant to the provisions of Article V of the Plan or to the Participant pursuant to the provisions of Article VI of the Plan or to Ronald J. Naples or to Donald L. Thompson pursuant to the provisions of Plan Exhibits B and C. If for any reason the Trustee fails to make payment of the Deferred Benefit due a Participant in accordance with the terms of Article IV of the Plan or of a Death Benefit due a Participant or Beneficiary in accordance with the terms of Article V of the Plan or of the Salary Deferral Benefit due a Participant in accordance with the terms of Article VI of the Plan or of the Plan Exhibit B and C benefits due Ronald J. Naples or Donald L. Thompson (as applicable) in accordance with the terms of Plan Exhibits B and C, the Grantor shall remain fully liable for the payment of such amounts. Such liability of the Grantor constitutes an unsecured promise to pay Deferred Benefits and/or Death Benefits and/or Salary Deferral Benefits and/or Plan Exhibit B and C benefits and the Participant's and/or Beneficiary's (as applicable) status shall be that of a general unsecured creditor. In the event of the Grantor's Insolvency or any written allegation of such Insolvency, the Trustee shall apply the Trust Assets in accordance with Section 3.7(b). The Trustee shall be authorized to apply to a court of competent jurisdiction for direction at any time it determines that it has insufficient information to determine the amounts of Deferred Benefit and/or Death Benefit and/or Salary Deferral and/or Plan Exhibits B and C payments that would be consistent with the provisions of the Plan. In the event that the Trustee applies to a court for direction pursuant to this Section 4.2, all costs and reasonable attorneys' fees incurred in connection with such application shall be paid by the Grantor. The Trustee shall withhold from any payment to the Participant (or his Spouse or other beneficiary) under Article IV of the Plan and from any payment to the Participant or Beneficiary under Article V of the Plan and from any payment to the Participant (or his Spouse or other Beneficiary) under Article VI of the Plan and from any payment to Ronald J. Naples (or his Spouse or other Beneficiary) and to Donald L. Thompson (or his Spouse or other Beneficiary) under Plan Exhibits B and C the amount required by law to be withheld under Federal, State and local wage withholding requirements and shall pay over to the appropriate governmental authority any amount so withheld. 4.3 Distribution: Except as otherwise provided in Section 2.9(a), distribution of Deferred Benefits payable to the Participant or his Spouse or other Beneficiary and of Death Benefits payable to the Participant or Beneficiary and of Salary Deferral Benefits payable to the Participant or his Spouse or other Beneficiary and of Plan Exhibit B benefits payable to Ronald J. Naples or his Spouse or other Beneficiary and of Plan Exhibit C benefits payable to Donald L. Thompson or his Spouse or other Beneficiary shall be made in accordance with the terms of Articles IV, V and VI of the Plan and of Plan Exhibits B and C as in effect on the day before the date of a Change in Control. 4.4 Account Records: All accounting records, valuation schedules, periodic statements, and audits pertaining to this Trust and the Trust Accounts shall be retained as a part of the permanent records of the Trustee in accordance with its usual recordkeeping procedures for trust -17- accounts. The Committee may, in its discretion, direct the Trustee to retain, at the expense of this Trust, independent certified public accountants to audit such records; provided, however, that nothing in this Trust Agreement shall be construed so as to deprive the Trustee of the right to seek and obtain a judicial settlement of its accounts at the expense of this Trust. 4.5 Notices, Directions and Other Communications: All notices, directions, and other communications by a Fiduciary pursuant to this Trust Agreement (herein referred to as "directions") shall be given or made in writing by the person or persons specifically authorized by the Fiduciary to act on its behalf, and shall be deemed effective upon receipt by the addressee; provided, however, that transmission of such directions by photostatic teletransmission with duplicate or facsimile signature shall be an authorized method of communication until the Fiduciary is notified by the Committee that the use of such device is no longer authorized, and provided further that transmission of such directions by telephone shall also be an authorized method of communication until the Fiduciary is notified by the Committee to the contrary. Any direction transmitted by telephone shall be promptly confirmed by a written instrument. The Trustee shall be entitled to act upon and settle any transactions with the Insurer in reliance upon directions transmitted by telephone as recorded and transcribed by the Trustee. If the Trustee fails to receive a written confirmation of such a direction transmitted by telephone within five (5) business days following the date of receipt of such direction, or if a written confirmation received conflicts with the oral direction received by telephone, the Trustee shall promptly notify the Fiduciary giving the direction orally of such fact and request (a) delivery of such written confirmation forthwith if it has not been received, or (b) an additional direction if there is a conflict between the oral directions and the written confirmation. Notwithstanding the foregoing, the Trustee is authorized to settle trades effected by a Fiduciary having investment authority through a securities depository utilizing an institutional delivery system, in which event the Trustee may deliver or receive securities in accordance with appropriate trade reports or statements given the Trustee by such depository without having received communications or instructions directly from the Fiduciary. 4.6 Reports by Trustee: The Trustee shall submit to the Committee and each Participant in the Plan such interim valuations, reports, or other information as the Committee and such Participant may reasonably request. Within sixty (60) days after (a) the end of each Plan Year, (b) the end of each Plan Year quarter, (c) the effective date of the Trustee's removal or resignation, or (d) the effective date of termination of this Trust, unless a different period is mutually agreed upon, the Trustee shall submit to the Committee and the Participants in the Plan a written report relating to the period following the period covered by its last report. Such report shall set forth all transactions relating to this Trust during the applicable period, including, but not limited to, investment purchases and sales, receipts, disbursements, and a listing of the Trust Assets by Trust Account showing carrying and market values as of the end of the report period. 4.7 Notification of Rights Regarding Securities: The Trustee shall have no obligation to determine the existence of any conversion, redemption, exchange, subscription, or other right relating to any securities purchased hereunder of which notice was given prior to the purchase of such securities, and shall have no obligation to exercise any such right unless it is informed of the existence of the right and is instructed to exercise such right, in writing, by the Fiduciary making or directing the investment in such securities, within a reasonable time prior to the expiration of such right. 4.8 Tax Assessments: In the event that any income or other tax or assessment is levied upon or assessed against this Trust or any portion thereof, or upon or against the interest, if any, of any person in this Trust or any portion thereof, or the transfer or payment of such interest to any such person, or upon the Trustee by reason of the existence of this Trust or anything done by the Trustee pursuant thereto, the Trustee shall immediately notify the Committee thereof. If the Trustee -18- receives no notice or direction from the Committee, the Trustee shall have the power to pay such tax or assessment to the extent not paid by the Grantor from such portion of this Trust against which the tax or assessment has been levied; or if such tax or assessment is not applicable to any specific portion of this Trust or to the interest, if any, of any specific person therein, the Trustee shall have authority to pay such tax or assessment from this Trust. In the event that the Committee desires to contest the validity, in whole or in part, of any such tax or assessment, it shall give the Trustee notice thereof, and the Trustee, upon receiving reasonable indemnity (including reasonable attorneys' fees and expenses) therefor from the Grantor, shall take such steps as the Committee directs with respect to contesting the validity, in whole or in part, of any such tax or assessment. The Trustee shall further, upon receiving reasonable indemnity from the Grantor, either permit the Committee to bring such action or proceeding in the name of the Trustee as said Committee deems advisable to test the validity of such tax or assessment, or the Trustee itself shall bring such action. Whether the action is brought in the name of the Trustee by the Committee or prosecuted directly by the Trustee, the Committee shall have the right to select counsel acceptable to the Trustee and to control the prosecution of said action or proceeding. The Trustee, however, shall not be required to bring any action or proceeding to test the validity, in whole or in part, of any such tax or assessment unless so directed by the Committee, and upon giving said Committee notice of the levy of any such tax or assessment, the Trustee shall not itself be required to inquire into or question the validity of such tax or assessment. Prior to making any payments, transfers or distributions of, or from, any portion of this Trust as provided in this Trust Agreement, the Trustee may require such releases or other documents from any lawful taxing authorities as it shall deem necessary or advisable. 4.9 Validity of Contracts: The Trustee shall not be responsible for the validity or proper execution of any contract delivered to it, nor for any act of any person which may render any such contract void or voidable. 4.10 Principal and Income: No distinction shall be made between the principal and income in the management and administration of this Trust. ARTICLE V -- PROVISIONS RELATING TO TRUSTEE 5.1 Resignation and Removal: The Trustee may resign at any time upon sixty (60) days' written notice to the Committee, unless a shorter period is acceptable to the Committee. The Committee may at any time prior to the date of a Change in Control remove the Trustee upon sixty (60) days' written notice to the Trustee, unless a shorter period is acceptable to the Trustee. On or after the date of a Change in Control, the Compensation Committee of the Board (as it is constituted on the day before the date of a Change in Control) may, with the written consent of at least fifty-one (51) percent of the Participants in the Plan, remove the Trustee upon sixty (60) days' written notice to the Trustee, unless a shorter period is acceptable to the Trustee. 5.2 Appointment of Successor: In the event of the removal of, or resignation of, the Trustee prior to a Change in Control, the Committee shall appoint a successor with the written consent of the Grantor. In the event of the removal of, or resignation of, the Trustee on or after the date of a Change in Control, the Compensation Committee of the Board (as it is constituted on the day before the date of a Change in Control) shall appoint a successor with the written consent of at least fifty-one (51) percent of the Participants in the Plan. If the Committee, or said Compensation Committee of the Board, fails to appoint a successor by the end of the sixty (60)-day period referred to in Section 5.1, the Trustee may secure the appointment of a successor by a court of competent jurisdiction. All expenses of the Trustee in connection with the proceeding shall be allowed as an -19- expense of the Trust. The Trustee shall remain vested with the rights, powers and duties set forth in this Trust Agreement until its successor delivers written acceptance of such appointment to the Committee (or Compensation Committee of the Board, if applicable) and the retiring Trustee. Upon the receipt of such written acceptance, the successor Trustee shall be vested with all the rights, powers and duties of the Trustee under this Trust Agreement, and the retiring Trustee shall endorse, transfer, assign, convey and deliver to its successor all of the Insurance Contracts and other property then held by it under this Trust, except such amount as shall be agreed upon between the Trustee and the Committee (or Compensation Committee of the Board, if applicable), as reasonable compensation and expenses in connection with the settlement of accounts and the delivery of the assets to the successor Trustee. A successor Trustee may not be the Grantor, any person who would be a "related or subordinate party" to the Grantor within the meaning of section 672(c) of the Code, or a corporation that would be a member of an "affiliated group" of corporations including the Grantor within the meaning of section 1504(a) of the Code if the words "80 percent" were replaced by the words "50 percent" wherever they appear in such section. 5.3 Information Furnished to Trustee: Upon the original execution of this Trust Agreement, the Grantor delivered to the Trustee the name, address, date of birth, and Social Security number of each Participant covered under Article IV of the Plan and each Participant covered under Article V of the Plan and the name, address, date of birth and social security number of each Beneficiary of each Participant covered under Article V of the Plan. Upon the execution of the Trust Agreement, as previously amended and restated, the Grantor delivered to the Trustee the name, address, date of birth, and Social Security number of each Participant covered under Article VI of the Plan. Upon the execution of the Trust Agreement, as amended and restated herein, the Grantor shall deliver to the Trustee the address, date of birth, and Social Security number of Ronald J. Naples and Donald L. Thompson who are entitled to benefits under, or pursuant to, Plan Exhibits B and C, respectively. Not later than sixty (60) days after the end of each calendar year, Grantor shall provide Trustee with any changes in such information through the close of the calendar year. 5.4 Expenses and Trustee Compensation: The Trustee shall be entitled to reasonable compensation for its services and shall be reimbursed for all reasonable expenses incurred by it in performing its duties hereunder, including, but not limited to, legal and accounting expenses. Such compensation is set forth in a separate schedule. Such schedule may be modified from time to time as agreed to by the Committee (or Compensation Committee of the Board, if applicable) and the Trustee. All such compensation and expenses shall be paid to the Trustee by the Grantor; provided, however, that such compensation and expenses shall constitute a charge upon this Trust, and may be withdrawn by the Trustee from this Trust upon prior written notice to the Grantor if not otherwise paid. Any costs or expenses that are chargeable to this Trust but which for administrative convenience and efficiency are paid or incurred by the Grantor shall be fully reimbursed by this Trust to the Grantor upon presentation to the Trustee of an accounting of such costs and expenses, including any costs and expenses incurred by the Committee or any employees in connection with administrative activities relating to the Plan. In all cases the Trustee shall be entitled to rely upon the Grantor's statement and directions concerning the payment of any such administration expenses and shall be fully protected in making such payments pursuant to the directions of the Committee. -20- ARTICLE VI -- AVAILABILITY OF TRUST FUND 6.1 Trust Irrevocable; Amendments: The Trust shall be irrevocable and may not be amended or terminated by the Grantor in whole or in part, except as follows: (a) The Grantor and the Trustee may amend this Trust Agreement by written instrument executed by both parties, without the consent of the Participants in the Plan, provided such amendment does not have an adverse effect on the rights of such Participants hereunder. (b) Except as provided in Section 6.1(a), the Grantor and the Trustee may amend this Trust Agreement by written instrument executed by both parties and consented to in writing by Participants having at least fifty-one (51) percent of the value of the Deferred Benefits and Death Benefits under the Plan and of the value of benefits under, or pursuant to, Plan Exhibits B and C at the time of the amendment. 6.2 Participants' Rights to Trust Assets: No Participant in the Plan shall have any preferred claim on, or any beneficial ownership interest in, any of the Trust Assets prior to the time such Trust Assets are paid to such Participant or to his Beneficiary as provided in Section 2.9, and all rights created under the Trust and the Plan shall be mere unsecured contractual rights of such Participants against the Grantor. 6.3 Grantor Trust: The Trust is intended to be a trust of which the Grantor is treated as the owner for Federal income tax purposes in accordance with the provisions of sections 671 through 679 of the Code. If the Trustee, in its sole discretion, deems it necessary or advisable for the Grantor or the Trustee to undertake or refrain from undertaking any actions (including, but not limited to, making or refraining from making any elections or filings) in order to ensure that the Grantor is at all times treated as the owner of the Trust for Federal income tax purposes, the Grantor or the Trustee will undertake or refrain from undertaking (as the case may be) such actions. The Grantor hereby irrevocably authorizes the Trustee to be its attorney-in-fact for the purpose of performing any act which the Trustee, in its sole discretion, deems necessary or advisable in order to accomplish the purposes and the intent of this Section 6.3. The Trustee shall be fully protected in acting or refraining from acting in accordance with the provisions of this Section 6.3. ARTICLE VII -- MISCELLANEOUS 7.1 Applicable Law: This Trust Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania except where pre-empted by Federal law. 7.2 Binding Effect: This Trust Agreement shall be binding upon the heirs, personal representatives, successors, and assigns of any and all present and future parties. 7.3 Separability: In the event that any provision of this Trust Agreement or the application thereof to any person or circumstances shall be determined by a court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Trust Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Trust Agreement shall be valid and enforced to the fullest extent permitted by law. -21- 7.4 Notices to Parties: Any notice or instructions required under any of the provisions of this Trust Agreement shall be deemed effectively given only if such notice is in writing and is delivered personally or by certified or registered mail, return receipt requested and postage prepaid, and shall be effective when actually delivered or, if mailed, when deposited. Mail to a party shall be directed to the following addresses or to such other address as either party may specify by notice to the other party: (a) Grantor: One Commerce Square 2005 Market Street Philadelphia, PA 19103 (b) Trustee: 16th and Market Streets Centre Square West Philadelphia, PA 19102 7.5 Headings: Headings of Articles and Sections or any divisions thereof are inserted for convenience only and do not constitute an operative part of this Trust Agreement. 7.6 Gender and Number: The masculine pronoun wherever used shall include the feminine and neuter and the singular may include the plural, and vice versa, as the context may require. 7.7 Incorporation of Plan: All the provisions of the Plan are incorporated herein by reference. 7.8 Conflicting Provisions: In the event of any conflict between the provisions of this Trust Agreement and the provisions of the Plan, the provisions of the Plan shall control. 7.9 Effective Date: The original effective date of the Trust Agreement was April 16, 1992. The effective date of the Trust Agreement, as last amended and restated herein, was January 1, 1995. The effective date of the Trust Agreement, as amended and restated herein, shall be January 1, 1996. 7.10 Court Proceedings: In the case of any court proceeding involving the Trustee or this Trust, only the Grantor and the Trustee shall be necessary or proper parties thereto; provided, however, that the Trustee shall notify the Committee, the Compensation Committee of the Board (as constituted on the day before the date of the Change in Control (if applicable)) and each Participant in the Plan of any such court proceeding, and such Participants shall have the right to intervene. Any final judgment entered in any such proceeding shall be conclusive upon the Grantor, the Trustee, the Participants in, and Beneficiaries under the Plan and the creditors, including Insolvency Creditors, of the Grantor. 7.11 Successors and Assigns: This Trust Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their successors and assigns, except as is expressly provided to the contrary herein. -22- 7.12 Prohibition on Trustee: Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or applicable laws, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom within the meaning of Treas. Reg. ss. 301.7701-2. IN WITNESS WHEREOF, the Trustee and the Grantor have caused this amended and restated Trust Agreement to be executed by their duly authorized officers and their seals to be hereunto affixed as of the 28th day of August, 1996. [CORPORATE SEAL] Grantor: HUNT MANUFACTURING CO. Attest: ________________________________ By:________________________________ Dennis S. Pizzica, John W. Carney, Vice President, Assistant Secretary Human Relations [CORPORATE SEAL] Trustee: CORESTATES BANK, N.A. Attest: ________________________________ By:________________________________ Trust Officer Vice-President -23- TRUST EXHIBIT A -- SPECIAL PROVISIONS RELATING TO RONALD J. NAPLES I. The provisions of Plan Exhibit B shall apply. -24- TRUST EXHIBIT B -- SPECIAL PROVISIONS RELATING TO DONALD L. THOMPSON I. Preamble. Hunt Manufacturing Co. ("Grantor") entered into an Employment Agreement (the "Agreement") with Donald L. Thompson ("Executive") on April 8, 1996. Pursuant to the Agreement, Executive shall participate in the Plan in accordance with the terms of the Plan and Plan Exhibit C to the Plan. II. Phantom Stock Account. In accordance with the Agreement and Plan Exhibit C to the Plan, there shall be established under the Trust a separate Phantom Stock Account for Executive. Grantor shall make contributions to such Phantom Stock Account at such times and in such amounts as the Board, in its sole discretion, shall determine. -25- EX-10.K 7 EXHIBIT (10)(K) EXHIBIT (10)(k) Employment-Severance Arrangement with Robert B. Fritsch In January 1996, the Company and Robert B. Fritsch agreed that Mr. Fritsch would continue to serve as President and Chief Executive Officer of the Company until September 30, 1996 or until a new Chief Executive Officer was employed, whichever came first. Under the terms of this arrangement, Mr. Fritsch's salary was increased to $450,000 annually effective December 1, 1995; a special bonus award of $112,000 was paid to Mr. Fritsch in January 1996; and Mr. Fritsch received a payment of $240,000 the day the new Chief Executive Officer began employment with the Company (June 1, 1996). This latter payment was in lieu of any 1996 pro-rated bonus based on the annual incentive plan. Between June 1, 1996 and December 31, 1996, Mr. Fritsch served in a transitional role during which he continued to receive his salary and certain benefits. Upon retirement, Mr. Fritsch also received title to his company automobile. Upon his retirement, Mr. Fritsch agreed to provide consulting services to the Company from January 1, 1997 through December 31, 1997 for a monthly fee of $3,333. EX-11 8 EXHIBIT 11 Exhibit 11 Computation of Per Share Earnings (In thousands except per share amounts)
December 1, December 3, November 27, 1996 1995 1994 ----------- ----------- ------------ Income before extraordinary item and cumulative effect of accounting change $15,219 $15,335 $17,197 Extraordinary loss on early extinquishment of debt (net of income tax benefit of $134) (251) - - Cumulative effect of change in accounting for income taxes - - 795 ------- ------- ------- Net income $14,968 $15,335 $17,992 ======= ======= ======= Primary per share earnings Average number of common shares outstanding 11,462 16,003 16,102 Add - common equivalent shares representing shares issuable upon excercise of stock options and stock grants 187 161 194 ------- ------- ------- Average shares used to calculate primary per share earnings 11,649 16,164 16,296 ======= ======= ======= Primary per share earnings before extraordinary item and change in accounting for income taxes $1.31 $0.95 $1.06 Extraordinary loss on early extinquishment of debt (net of income tax benefit of $134) (0.02) - - Cumulative effect of change in accounting for income taxes - - 0.05 ------- ------- ------- Net primary per share earnings $1.29 $0.95 $1.11 ======= ======= ======= Fully diluted per share earnings Average number of common shares outstanding 11,462 16,003 16,102 Add - common equivalent shares representing shares issuable upon excercise of stock options and stock grants 215 172 216 ------- ------- ------- Average shares used to calculate fully diluted per share earnings 11,677 16,175 16,318 ======= ======= ======= Fully diluted per share earnings before extra- ordinary item and change in accounting for income taxes $1.30 $0.95 $1.05 Extraordinary loss on early extinquishment of debt (net of income tax benefit of $134) (0.02) - - Cumulative effect of change in accounting for income taxes - - 0.05 ------- ------- ------- Net fully diluted per share earnings $1.28 $0.95 $1.10 ======= ======= =======
EX-23 9 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Registration Statements Nos. 33-57103, 33-57105, 33-70660, 33-25947, 33-6359, and 2-83144 on Forms S-8 dated December 28, 1994, December 28, 1994, October 21, 1993, December 7, 1988, June 29, 1986 and April 8, 1983, respectively, of our report, which includes an explanatory paragraph regarding a change in the Company's method of accounting for income taxes, dated January 23, 1997 on our audits of the consolidated financial statements and the financial statement schedule of Hunt Manufacturing Co. and Subsidiaries (Company) as of December 1, 1996 and December 3, 1995 and for each of the three years in the period ended December 1, 1996 which report is included in this Form 10-K. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, PA February 12, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 0000049146 HUNT MANUFACTURING CO. 1,000 U.S. DOLLARS YEAR DEC-01-1996 DEC-04-1995 DEC-01-1996 1 1,528 0 50,721 (1,809) 35,391 92,000 106,648 (53,937) 175,674 33,675 64,559 0 0 1,615 61,065 175,674 327,525 327,525 204,976 204,976 94,345 655 4,278 23,271 8,052 15,219 0 251 0 14,968 1.29 1.28
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