-----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, BZFo6CXB/zp7L7Y/weJpHEp15BaWagCiiJMkbWTMdgmx+7GVgKO0a7Zjf6oK4tBG xASAWmYTNJ0pjHtuRgVFgg== 0000012355-96-000006.txt : 19960301 0000012355-96-000006.hdr.sgml : 19960301 ACCESSION NUMBER: 0000012355-96-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960229 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK & DECKER CORP CENTRAL INDEX KEY: 0000012355 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 520248090 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01553 FILM NUMBER: 96529089 BUSINESS ADDRESS: STREET 1: 701 E JOPPA RD CITY: TOWSON STATE: MD ZIP: 21286 BUSINESS PHONE: 4107163310 FORMER COMPANY: FORMER CONFORMED NAME: BLACK & DECKER MANUFACTURING CO DATE OF NAME CHANGE: 19850206 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER December 31, 1995 1-1553 THE BLACK & DECKER CORPORATION (Exact name of registrant as specified in its charter) Maryland 52-0248090 (State of Incorporation) (I.R.S. Employer Identification Number) Towson, Maryland 21286 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 410-716-3900 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class registered Common Stock, par value $.50 per share New York Stock Exchange Pacific Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), 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 voting stock held by non-affiliates of the registrant as of February 20, 1996 was $2,844,170,036. The number of shares of Common Stock outstanding as of February 20, 1996 was 87,010,938. The exhibit index as required by Item 601(a) of Regulation S-K is included in Item 14 of Part IV of this report. Documents Incorporated by Reference: Portions of the registrant's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders are incorporated by reference in Part III of this report. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS The Black & Decker Corporation (collectively with its subsidiaries, the Corporation), incorporated in Maryland in 1910, is a global marketer and manufacturer of quality products used in and around the home and for commercial applications. With products and services marketed in over 100 countries, the Corporation enjoys worldwide recognition of strong brand names and a superior reputation for quality, design, innovation, and value. The Corporation is the world's leading producer of power tools, power tool accessories and residential security hardware, and the Corporation's product lines hold leading market share positions in these industries. The household products business is the North American leader and is among the major global competitors in the small electric household appliance industry. The Corporation is the worldwide leader in the manufacturing of steel golf club shafts and glass container-making equipment and is the largest global supplier of engineered fastening systems to the markets it serves. These assertions are based on total volume of sales of products compared to the total market for those products and are supported by market research studies sponsored by the Corporation as well as independent industry statistics available through various trade organizations and periodicals, internally generated market data, and other sources. The Corporation's unsecured revolving credit facility (the Credit Facility) provides that the interest rate margin over the London Interbank Offered Rate (LIBOR) declines as the Corporation's leverage ratio improves. Borrowings under the Credit Facility were at LIBOR plus .4375% at December 31, 1994. Due to improvements in the Corporation's leverage ratio, the borrowing rate under the Credit Facility declined by .1125%, effective January 1, 1995, to LIBOR plus .325% and declined by .075%, effective January 1, 1996, to LIBOR plus .25%. The interest rate margin over LIBOR, which cannot exceed .4375%, is determined quarterly based upon the leverage ratio at that time. During 1994, the Corporation filed a shelf registration statement with the Securities and Exchange Commission to issue up to $500 million of debt securities, which may consist of debentures, notes or other unsecured evidences of indebtedness (the Medium Term Notes). During 1994, the Corporation issued $151.8 million aggregate principal amount of Medium Term Notes under this shelf registration statement. During 1995, the Corporation issued an additional $85.0 million aggregate principal amount of Medium Term Notes. For additional information about the shelf registration statement, see Note 9 of Notes to Consolidated Financial Statements, included in Item 8 of Part II of this report. During 1995, the Corporation sold PRC Realty Systems, Inc. (RSI) and PRC Environmental Management, Inc. (EMI) for aggregate proceeds of approximately $100 million. On December 13, 1995, the Corporation announced that it had signed a definitive agreement to sell PRC Inc., to Litton Industries, Inc., for approximately $425 million. Together, PRC Inc., RSI and EMI comprised the Corporation's information technology and services (PRC) segment. On February 16, 1996, the Corporation completed the sale of PRC Inc. For additional information about the discontinued PRC segment, see the discussion under the caption "Discontinued Operations" and Note 2 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. (b) DISCONTINUED OPERATIONS On December 13, 1995, the Corporation announced that it had signed a definitive agreement to sell PRC Inc., the remaining business in its information technology and services (PRC)segment, for $425.0 million. The sale of PRC Inc. was completed on February 16, 1996. Proceeds from the sale were used to reduce debt. A net gain on the sale of PRC Inc. of approximately $80.0 to $90.0 million will be recognized in the first quarter of 1996. For additional information with respect to the pro forma effects of the consummation of the sale of PRC Inc. on the Corporation's financial position as of December 31, 1995, and the pro forma effects of the sales of PRC Inc., RSI, and EMI on the Corporation's earnings from continuing operations for the year then ended, see the unaudited pro forma financial information included in Item 14(d) of Part IV of this report. The Corporation acquired PRC through its acquisition of Emhart Corporation in April 1989. The sale of PRC will allow the Corporation to reduce its debt level and concentrate on its more strategic businesses. Operating results, net assets, and cash flows of the discontinued PRC segment have been reported separately from the continuing operations of the Corporation in the Consolidated Financial Statements included in Item 8 of Part II of this report. Net earnings of the discontinued PRC segment were $38.4 million ($.41 per share on a fully diluted basis) in 1995, $37.5 million ($.44 per share on a fully diluted basis) in 1994, and $31.1 million ($.37 per share on a fully diluted basis) in 1993 on revenues of $800.1 million, $883.1 million, and $760.7 million, respectively. The results of the discontinued PRC segment do not reflect any expense for interest allocated by or management fees charged by the Corporation. (c) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS Unless otherwise indicated, the following discussion of the Corporation's business segments pertains to the continuing operations of the Corporation and excludes any matters in respect of the discontinued PRC segment. The Corporation operates in two business segments: Consumer and Home Improvement Products, including consumer and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service; and Commercial and Industrial Products, including fastening systems and glass container-making equipment. See Note 16 of Notes to Consolidated Financial Statements included in Item 8 of Part II, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. Revenues from continuing operations by product group within business segments are presented in the following table. 1995 Revenues by Product Group within Business Segments (Millions of Dollars)
Year Ended December 31, 1995 Amount % ------ ------ Consumer and Home Improvement Products Power Tools and Product Service ............. $1,826 38% Household Products .......................... 846 18 Security Hardware ........................... 527 11 Accessories ................................. 343 7 Outdoor Products ............................ 321 7 Plumbing Products ........................... 213 5 ------ ------ Total Consumer and Home Improvement Products $4,076 86% ------ ------ Commercial and Industrial Products ............ $ 690 14% ------ ------ Total Revenues ................................ $4,766 100% ====== ======
There is no single class of product within the product groups listed in the above table that represents more than 10% of the Corporation's consolidated revenues from continuing operations. (d) NARRATIVE DESCRIPTION OF THE BUSINESS Unless otherwise indicated, the following discussion of the business of the Corporation pertains to the continuing operations of the Corporation and excludes any matters in respect of the discontinued PRC segment. The following is a brief description of each of the business segments. CONSUMER AND HOME IMPROVEMENT PRODUCTS SEGMENT The Consumer and Home Improvement Products segment is composed of consumer (home use) and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service. Power tools include both corded and cordless electric portable power tools, such as drills, screwdrivers, saws, sanders, grinders, car care products, Workmate workcenters and related products, and bench and stationary tools. Accessories include accessories and attachments for power tools, and a variety of consumer-use fastening products, including gluing, stapling and riveting products. Household products include a variety of both corded and cordless small electric household appliances, including hand-held vacuums; irons; lighting products; food mixers, processors and choppers; can openers; blenders; coffee makers; kettles; toasters and toaster ovens; wafflebakers; knives; breadmakers; and fans. Security hardware includes both residential and commercial door hardware, including locksets, high security and electronic locks and locking devices, deadbolts, door closers, hinges and exit devices, and master keying systems. Outdoor products include a variety of both corded and cordless electric lawn and garden tools, such as hedge and yard trimmers, lawn mowers and edgers, blower/vacuums, shredders, grass shears, lawnrakers, and related accessories. Outdoor products also include recreational products, which include a variety of steel and composite golf club shafts and specialty tubing. Plumbing products include a variety of conventional and decorative faucets, shower valves, and bath accessories. Power tools, household products, electric lawn and garden tools, and related accessories are marketed around the world under the Black & Decker name as well as other trademarks and trade names, including DeWALT, Black & Decker Industry & Construction, Elu, Proline, Macho, TimberWolf, Cyclone, Trimcat, Kodiak, Scrugun, Wildcat, Guaranteed Tough, Versa-Clutch, VersaPak, Workmate, ShopBox, Alligator, Air Station, Dustbuster, SnakeLight, Toast-R-Oven, Handy Steamer, HandyChopper, Light 'N Easy, Groom 'N' Edge, Hedge Hog, Vac 'N' Mulch, Reflex, B&D, Piranha, Piranha Pro, Bullet, Pilot-Point, Scorpion Anti-Slip, Master Series, PowerShot, and POP. Security hardware products are marketed under a variety of trademarks and trade names, including Black & Decker, Geo, Kwikset, TITAN, TITAN Commercial Series, Lane, NEMEF, DOM, and Corbin Co. Recreational products are marketed under the trademarks and trade names True Temper, Dynamic, Dynamic Gold, Dynalite, EI-70, Comet, Rocket, True Lite, SensiCore, TT Lite, Release, and others. Plumbing products are marketed under the trademarks and trade names Price Pfister, The Pfabulous Pfaucet With The Pfunny Name, Genesis, Society Brass Collection, Verve, Windsor, Georgetown, Jet Setter, Society Finishes, and others. The Corporation's product service program supports its power tools, electric lawn and garden products, and household products businesses. Replacement parts and product repair services are available through a network of company-operated service centers, which are identified and listed in product information material generally included in product packaging. At December 31, 1995, there were over 200 such service centers, of which approximately one-half were located in the United States. The remainder were located around the world, primarily in Europe, Mexico, Australia, Canada, and Latin America. These company-operated service centers are supplemented by several hundred authorized service centers operated by independent local owners. The Corporation also operates a reconditioning center in which power tools and household appliances are reconditioned and then re-sold through numerous company-operated factory outlets and service centers. Most of the Corporation's consumer products sold in the United States carry a two-year warranty, pursuant to which the consumer can return defective products during the two years following the purchase in exchange for a replacement product or repair at no cost to the consumer. Consumer products sold outside the United States generally have similar warranty arrangements. Such arrangements vary, however, depending upon local market conditions and laws and regulations. The Corporation's product offerings in the Consumer and Home Improvement Products segment are sold primarily to retailers, wholesalers, distributors, and jobbers, although some reconditioned power tools and household products are sold through company-operated service centers and factory outlets directly to end users. Certain security hardware products are sold to commercial, institutional, and industrial customers. The principal materials used in the manufacturing of products in the Consumer and Home Improvement Products segment are plastics, aluminum, copper, steel, bronze, zinc, brass, certain electronic components, and batteries. These materials are used in various forms. For example, aluminum or steel may be used in wire, sheet, bar, and strip stock form. The materials used in the various manufacturing processes are purchased on the open market, and the majority are available through multiple sources and are in adequate supply. The Corporation has experienced no significant work stoppages to date as a result of shortages of materials. The Corporation has certain long-term commitments for the purchase of various component parts and raw materials and believes that it is unlikely that any of these agreements would be terminated prematurely. Alternate sources of supply at competitive prices are available for most, if not all, materials for which long-term commitments exist. The Corporation believes that the termination of any of these commitments would not have a material adverse effect on operations. From time to time, the Corporation enters into commodity hedges on certain raw materials used in the manufacturing process to reduce the risk of market price fluctuations. As of December 31, 1995, the amount of product under commodity hedges was not material to the Corporation. As a global marketer and manufacturer, the Corporation purchases materials and supplies from suppliers in many different countries around the world. Certain of the finished products and component parts are purchased from suppliers that have manufacturing operations in mainland China. China has been granted Most Favored Nation (MFN) status through July 3, 1996, and currently there are no significant trade restrictions or tariffs imposed on such products. The Corporation has investigated alternate sources of supply in case the MFN status is not extended. Alternative sources of supply are available, or can be developed, for many of these products. The Corporation believes that, although there could be some disruption in the supply of certain of these finished products and component parts if China's MFN status is not extended or if significant trade restrictions or tariffs are imposed, the impact would not have a material adverse effect on the operating results of the Corporation. Principal manufacturing and assembly facilities in the United States are located in Fayetteville and Asheboro, North Carolina; Easton and Hampstead, Maryland; Anaheim and Pacoima, California; Denison, Texas; Amory and Olive Branch, Mississippi; and Bristow, Oklahoma. Principal facilities outside the United States are located in Buchlberg and Bruhl, Germany; Molteno and Perugia, Italy; Spennymoor, Meadowfield, and Rotherham, England; Brockville, Canada; Queretaro, Mexico; Jurong Town, Singapore; Kuantan, Malaysia; Newcastle, Australia; and Apeldoorn, Netherlands. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." As previously announced, during 1995, the Corporation closed its manufacturing facilities located in Tarboro, North Carolina, and Delemont, Switzerland, and transferred production from those locations to other manufacturing facilities of the Corporation. The Corporation ceased manufactuing at its facility in Santo Andre, Brazil, late in 1995 and will begin to manufacture at a new owned facility in Uberaba, Brazil, in early 1996. Administrative offices remain at the Santo Andre site. These plant actions are part of the Corporation's continuing effort to identify opportunities to improve its manufacturing cost structure. The Corporation holds various patents and licenses on many of its products and processes in the Consumer and Home Improvement Products segment. Although these patents and licenses are important, the Corporation is not materially dependent on such patents or licenses with respect to its operations. The Corporation holds various trademarks that are employed in its businesses and operates under various trade names, some of which are stated above. The Corporation believes that these trademarks and trade names are important to the marketing and distribution of its products. A significant portion of the Corporation's revenues in the Consumer and Home Improvement Products segment is derived from the do-it-yourself and home modernization markets, which generally are not seasonal in nature. However, sales of household products and certain consumer power tools tend to be higher during the period immediately preceding the Christmas gift-giving season, while the sales of most electric lawn and garden tools are at their peak during the winter and early spring period. Most of the Corporation's other product lines within this segment are not generally seasonal in nature but may be influenced by trends in the residential and commercial construction markets and other general economic trends. The Corporation is one of the world's leaders in the manufacturing and marketing of portable power tools, small electric household appliances, electric lawn and garden tools, security hardware, plumbing products, and accessories. Worldwide, the markets in which the Corporation sells these products are highly competitive on the basis of price, quality, and after-sale service. A number of competing domestic and foreign companies are strong, well-established manufacturers that compete on a global basis. Some of these companies manufacture products that are competitive with a number of the Corporation's product lines. Other competitors restrict their operations to fewer categories, and some offer only a narrow range of competitive products. Competition from certain of these manufacturers has been intense in recent years and is expected to continue. COMMERCIAL AND INDUSTRIAL PRODUCTS SEGMENT The Corporation's fastening systems business manufactures an extensive line of metal and plastic fasteners and engineered fastening systems for commercial applications, including blind riveting and stud welding systems, specialty screws, prevailing torque nuts and assemblies, and insert systems. The fastening systems products are marketed under the trademarks and trade names Emhart Fastening Teknologies, POP, HeliCoil, Parker-Kalon, Gripco, Warren, Tucker, NPR, Dodge, POP NUT, WELL-NUT, and others. The principal markets for these products include the automotive, transportation, construction, electronics, aerospace, machine tool, and appliance industries. Substantial sales are made to automotive manufacturers worldwide. Some of these products also are sold through the Corporation's Consumer and Home Improvement Products segment. Products are marketed directly to customers and also through distributors and representatives. These products face competition from many manufacturers in several countries. Product quality, performance, reliability, price, delivery, and technical and application engineering services are the primary competitive factors. Except for sales to automotive manufacturers, which historically schedule plant shutdowns during July and August of each year, there is little seasonal variation. The Corporation owns a number of United States and foreign patents, trademarks, and license rights relating to the fastening systems business. While the Corporation considers those patents, trademarks, and license rights to be valuable, the Corporation is not materially dependent upon such patents or license rights with respect to its operations. Principal manufacturing facilities for the fastening systems business in the United States are located in Danbury and Shelton, Connecticut; South Whitley and Montpelier, Indiana; Campbellsville and Hopkinsville, Kentucky; and Mt. Clemens, Michigan. Principal facilities outside the United States are located in Birmingham, England; Giessen, Germany; and Toyohashi, Japan. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The raw materials used in the fastening systems business consist primarily of ferrous and nonferrous metals in the form of wire, bar stock, strip and sheet metals, and chemical compounds, plastics, and rubber. These materials are readily available from a number of suppliers. The Corporation manufactures a variety of automatic, high-speed machines for the glass container-making industry, including machines for supplying molten glass for the forming process and electronic inspection equipment for monitoring quality levels. These machines are used in producing bottles, jars, tumblers, and other glass containers primarily for food, beverage, pharmaceutical, and household products packaging. The Corporation also provides replacement parts and a variety of engineering, repairing, rebuilding, and other services to the glass container-making industry throughout the world, and these activities generate nearly two-thirds of the sales in this business. These products and services are marketed principally under the trademarks and trade names Emhart, Emhart Glass, Powers, FlexLine, T-600 Forming Control System, Verti-Flow Cooling System, and Total Inspection Machine. The Corporation sells glass container-making machinery and replacement parts primarily through its own sales force directly to glass container manufacturers throughout the world. The business is not dependent on one or a few customers, the loss of which would have a material adverse effect on operating results of the business. Some domestic manufacturers and a number of foreign manufacturers compete with the Corporation in the manufacture and sale of various types of glass container-making equipment. However, the Corporation believes that it is the leading supplier and offers the most complete line of glass container-making and inspection machinery, parts, and service. In recent years, the glass container-making equipment business has experienced the effects of increased competition with packaging applications of plastic and other non-glass containers. Important competitive factors are price, technological and machine performance features, product reliability, and technical and application engineering services. There is little seasonal variation in this business. The Corporation owns a number of United States and foreign patents, trademarks, and license rights relating to the glass container-making business. While the Corporation considers those patents, trademarks, and license rights to be valuable, this business is not materially dependent upon such patents or license rights with respect to its operations. The principal glass container-making machinery manufacturing facility in the United States is located in Windsor, Connecticut. Principal manufacturing facilities outside the United States are located in Oerebro and Sundsvall, Sweden. For additional information with respect to these and other properties owned or leased by the Corporation, see Item 2, "Properties." The principal raw materials required for the glass container-making equipment business are steel, iron, copper and copper-based materials, aluminum and refractory materials, and electronic components. Manufactured parts are purchased from a number of suppliers. All such materials and components are generally available in adequate quantities. During 1992, the Corporation commenced a restructuring plan which included the reorganization of Dynapert, the Corporation's printed circuit board assembly equipment business. The business was divided into the through-hole and surface-mount machinery product lines. This restructuring plan included the withdrawal from the manufacturing of surface-mount machinery in Europe which was completed in 1993. The Corporation sold the remaining through-hole business in 1993 and the remaining surface-mount business in 1995. BACKLOG The following is a summary of total backlog by business segment as of the referenced dates
(Millions of Dollars) December 31, 1995 1994 ---- ---- Consumer and Home Improvement Products ............... $ 96 $103 Commercial and Industrial Products ................... 134 126 ---- ---- Total Backlog ............................... $230 $229 ==== ====
None of the backlog at December 31, 1995, or at December 31, 1994, included unfunded amounts. OTHER INFORMATION The Corporation's product development program in the United States for the Consumer and Home Improvement Products segment is coordinated from the Corporation's headquarters in Towson, Maryland, for power tools and accessories; from Shelton, Connecticut, for household products; from Anaheim, California, for residential security hardware; and from Pacoima, California, for plumbing products. Outside the United States, product development activities for power tools and accessories and household products are coordinated from Slough, England, and are carried on at facilities in Spennymoor, England; Brockville, Canada; Civate, Italy; Idstein, Germany; and Croydon, Australia. Product development activities for the Commercial and Industrial Products segment are currently carried on at various product or business group headquarters or at principal manufacturing locations as previously noted. Costs associated with development of new products and changes to existing products are charged to operations as incurred. See Note 1 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report for amounts of expenditures for product development activities. As of December 31, 1995, the Corporation employed approximately 29,300 persons in its continuing operations worldwide (approximately 34,200 persons, including the employees of its discontinued PRC segment). Approximately 2,100 employees in the United States are covered by collective bargaining agreements. During 1995, several collective bargaining agreements in the United States were negotiated without material disruption to operations. A number of other agreements are scheduled for negotiation during 1996. Also, the Corporation has government-mandated collective bargaining arrangements or union contracts with employees in other countries. The Corporation's operations have not been affected significantly by work stoppages and, in the opinion of management, employee relations are good. The Corporation's operations worldwide are subject to certain foreign, federal, state and local environmental laws and regulations. In recent years, many state and local governments have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of products containing certain materials deemed to be environmentally sensitive. These laws and regulations not only limit the acceptable methods for disposal of products and components that contain certain substances, but also require that products be designed in a manner to permit easy recycling or proper disposal of environmentally sensitive components such as nickel cadmium batteries. The Corporation is in substantial compliance with these laws and regulations. Although compliance involves continuing costs, it has not materially increased capital expenditures and has not had a material adverse effect on the Corporation. Pursuant to authority granted under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the United States Environmental Protection Agency (EPA) has issued a National Priority List (NPL) of sites at which action is to be taken by the EPA or state authorities to mitigate the risk of release of hazardous substances into the environment. The Corporation is engaged in continuing activities with regard to various sites on the NPL and other sites covered under CERCLA. As of December 31, 1995, the Corporation had been identified as a potentially responsible party (PRP) in connection with approximately 27 sites being investigated by federal or state agencies under CERCLA. The Corporation also is engaged in site investigations and remedial activities to address environmental contamination from past operations at current and former manufacturing facilities in the United States and abroad. To minimize the Corporation's potential liability, when appropriate, management has undertaken, among other things, active participation in steering committees established at the sites and has agreed to remediation through consent orders with the appropriate government agencies. Due to uncertainty over the Corporation's involvement in some of the sites, uncertainty over the remedial measures to be adopted at various sites and facilities, and the fact that imposition of joint and several liability with the right of contribution is possible under CERCLA, the liability of the Corporation with respect to any site at which remedial measures have not been completed cannot be established with certainty. On the basis of periodic reviews conducted with respect to these sites, however, appropriate liability accruals have been established by the Corporation. As of December 31, 1995, the Corporation's aggregate probable exposure with respect of environmental liabilities, for which accruals have been established in the Consolidated Financial Statements, was $61.0 million. With respect to environmental liabilities, unless otherwise noted below, the Corporation does not believe that its liability with respect to any individual site will exceed $10.0 million. Pursuant to the terms of the Corporation's agreement to sell the Bostik chemical adhesives business to Orkem S.A., the Corporation agreed to indemnify Orkem against costs incurred or claims made with respect to environmental matters at Bostik facilities within four years from the date of sale to the extent that the aggregate costs and claims exceeded $5.0 million; provided, however, that the Corporation's total liability to Orkem for all environmental matters with respect to Bostik facilities shall not exceed $10.0 million. By letter dated November 22, 1993, Orkem's successor in interest ("Total, S.A.") notified the Corporation that within the four-year period following the closing it had incurred costs of approximately $5.4 million and demanded payment of the amount in excess of $5.0 million. Total, S.A. also demanded indemnification for a number of environmental conditions identified in its letter, the cost of which it estimated would exceed the $10.0 million limitation of the Corporation's indemnification obligation. The Corporation and Total, S.A. continue to review the indemnification claims and, as of December 31, 1995, the Corporation had paid $2,225,670 of the claims. Emhart previously received a notice of responsibility from the Massachusetts Department of Environmental Protection for the 90-acre site of the former United Shoe Machinery business at Beverly, Massachusetts. The site has been classified a non-priority site, with a waiver of approvals allowed. An investigation of contamination has been completed, and a remediation plan has been proposed (estimated at $1.0 million) under the Massachusetts Contingency Plan. In or about 1985, as a consequence of investigations stemming from an underground storage tank leak from a nearby gas station, the Corporation discovered certain groundwater contamination at its facility located in Hampstead, Maryland. Upon discovery of the groundwater contamination, the Corporation, in cooperation with the Department of the Environment of the State of Maryland (MDE), embarked on a program to remediate groundwater contamination, including installation of an air stripping system designed to remove contaminants from groundwater. The Corporation, in cooperation with MDE, conducted extensive investigations as to potential sources of the groundwater contamination. Following submission of the results of its investigations to MDE, the Corporation proposed to expand its groundwater remediation system and also proposed to excavate and remediate soils in the vicinity of the plant that appear to be a source area for certain contamination. The Corporation has received all permits necessary to operate its expanded groundwater treatment facility at the Hampstead facility, and the system is fully operational. In October 1994, suit was filed in the United States District Court for the District of Maryland against the Corporation by the owners of a farm that is adjacent to the Hampstead facility (Leister et al. v. The Black & Decker Corporation (Civil Action No. JFM 94-2809)). Plaintiffs claim that contamination, allegedly emanating from the facility, has migrated in groundwater and has adversely affected plaintiffs' property. Plaintiffs have alleged various claims for relief, including causes of action under the Federal Resource Conservation and Recovery Act, CERCLA, and the Clean Water Act, as well as various state tort claims, including claims for negligence, nuisance, intentional misrepresentation, and negligent misrepresentation. Plaintiffs seek various forms of relief, including compensatory damages of $20.0 million and punitive damages of $100.0 million. The Corporation filed various motions to, among other things, dismiss plaintiffs' claims, and the Court granted the Corporation's motion to dismiss all but one claim. Following that ruling, both the Corporation and plaintiffs filed motions for summary judgment on the remaining claim. The Corporation believes that plaintiffs' claims are without merit and intends to defend vigorously against the allegations made in this matter. Management is of the opinion that the ultimate resolution of this matter will not have a material adverse effect on the Corporation. In October 1992, the Corporation's Price Pfister subsidiary received a 60-day notice of intent to file suit under California's Proposition 65 from the Natural Resources Defense Council (NRDC) and the Environmental Law Foundation (ELF), alleging improper warnings and discharge of lead into drinking water in California. On December 15, 1992, Price Pfister and numerous other plumbing manufacturers were sued by the State of California in the Superior Court for the City and County of San Francisco. On the same day, a separate suit was filed by the NRDC and the ELF. The suits filed by the State of California and the NRDC and the ELF included substantially the same allegations, namely that lead leaches from brass faucets into tap water in violation of California's lead discharge prohibitions of Proposition 65, that the manufacture and sale of brass faucets exposes individuals to lead without a proper "clear and reasonable warning," and that such violations of Proposition 65 also constitute unfair business practices under California law. The NRDC and the ELF suit also alleged breach of warranty and breach of contract claims against Price Pfister and the other plumbing manufacturers. The State of California and the NRDC and the ELF generally sought the following relief: (a) elimination of lead from brass faucets; (b) improved public disclosure programs regarding lead in brass faucets; (c) commencement of a public information campaign regarding alleged health risks arising from lead exposure; (d) restitution to purchasers of faucets; (e) statutory penalties and punitive damages in unstated amounts; and (f) attorneys' fees and other costs. Subsequent to the filing of their complaints, plaintiffs filed a motion for a preliminary injunction seeking to require Price Pfister and certain other defendants to provide specific warning language in a particular manner with faucets at the time of sale. Plaintiff's motion for a preliminary injunction was denied, and the trial court accepted defendants' proposed warning system. Defendants filed demurrers to the State of California's claim that brass faucets result in a "prohibited discharge" of lead into drinking water under California law and to the standing of the NRDC and the ELF to bring their claims. In May 1994, Judge Bea of the California Superior Court for the City and County of San Francisco issued an order rejecting the Attorney General's claims that lead which leaches from faucets constitutes a prohibited discharge of lead into water or onto or into land where lead will pass or is at least likely to pass into a source of drinking water. Judge Bea's order granted the Attorney General 20 days to amend his complaint to state a cause of action under Proposition 65. In the companion case involving similar claims by the NRDC and the ELF, Judge Cahill of the California Superior Court for the City and County of San Francisco denied defendants' challenges to the standing of the NRDC and the ELF to bring these claims and refused to stay the proceedings pending resolution of the claims by the Attorney General. Subsequent to Judge Bea's order rejecting the Attorney General's claims and granting the Attorney General 20 days to amend his complaint to state a cause of action under Proposition 65, the Attorney General filed an appeal of Judge Bea's order. Prior to a final ruling on the appeal in the case involving the Attorney General's claims, the Corporation entered into a settlement pursuant to which the Corporation agreed to take certain actions with respect to the future sale of its products in California and agreed to the payment of specified amounts to the State of California and the attorneys for the NRDC and the ELF. In 1988, J.C. Rhodes, a former subsidiary of Emhart Industries, Inc., was notified by both the EPA and the State of Massachusetts that it was considered a PRP with regard to the Sullivan's Ledge site in New Bedford, Massachusetts. Emhart and 11 other companies formed a PRP group to respond to the EPA's and Massachusetts' demands, and, in September 1990, executed a Consent Order to perform the remedial action recommended by the EPA in its Record of Decision. The remedial action is now underway. A second area of the Sullivan's Ledge site, known as Middle Marsh, was investigated by the EPA, and a Record of Decision was issued in September 1991. In September 1992, Emhart, 11 other companies, and the City of New Bedford, Massachusetts, executed a Consent Order to perform the remediation required in the Middle Marsh section of the site. At this time, Emhart's estimated liability for remediation cost at the Sullivan's Ledge site is estimated at $2.0 million. The Corporation has been investigating certain environmental matters at its NEMEF security hardware facility in the Netherlands. The NEMEF facility has been a manufacturing operation since 1921. During building construction in 1990, soil and groundwater contamination was discovered on the property. Investigations to understand the full extent of the contamination were undertaken at that time, and those investigations are continuing. The Corporation is continuing to work with consultants and local authorities to develop a comprehensive remediation plan in conjunction with neighboring property owners. In the opinion of management, the costs of compliance with respect to the matters set forth above and other remedial costs have been adequately accrued, and the ultimate resolution of these matters will not have a material adverse effect on the Corporation. The ongoing costs of compliance with existing environmental laws and regulations have not had, nor are they expected to have, a material adverse effect upon the Corporation's capital expenditures or financial position. (e) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Reference is made to Note 16 of Notes to Consolidated Financial Statements, entitled "Business Segment and Geographic Areas," included in Item 8 of Part II and to the section entitled "Business Segments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this report. (f) EXECUTIVE OFFICERS AND OTHER SENIOR OFFICERS OF THE CORPORATION The current Executive Officers and Other Senior Officers of the Corporation, their ages, current offices or positions, and their business experience during the past five years is set forth below. Nolan D. Archibald - 52 Chairman, President, and Chief Executive Officer, January 1990 - present; President and Chief Executive Officer, May 1989 - January 1990. Raymond A. DeVita - 59 Executive Vice President and President - Commercial and Industrial Group, May 1989 - present. Dennis G. Heiner - 52 Executive Vice President and President - Security Hardware Group, January 1992 - present; Executive Vice President and President - Household Products Group, May 1989 - January 1992. Don R. Graber - 52 Group Vice President and President - Household Products, July 1994 - present; Group Vice President and President - International, March 1993 - July 1994; Vice President and President - International, February 1992 - March 1993; President - Black & Decker Canada, September 1988 - February 1992. Roger H. Thomas - 53 Group Vice President and Chairman - Eastern Hemisphere, October 1995 - present; Group Vice President and President - Eastern Hemisphere, April 1994 - October 1995; Group Vice President and President - Europe, May 1989 - April 1994. Charles E. Fenton - 47 Vice President and General Counsel, May 1989 - present. Joseph Galli - 37 Group Vice President and President - Power Tools, October 1995 - present; Vice President and President - North American Power Tools, October 1993 - October 1995; President - U.S. Power Tools, February 1993 - October 1993; Vice President Sales and Marketing - U.S. Power Tools, May 1991 - February 1993; Vice President Marketing - U.S. Power Tools, August 1990 - May 1991. Kathleen W. Hyle - 37 Vice President and Treasurer, May 1994 - present; Assistant Treasurer, Domestic, December 1992 - May 1994; Director, Domestic Finance, February 1990 - December 1992. Barbara B. Lucas - 50 Vice President - Public Affairs and Corporate Secretary, July 1985 - present. Thomas M. Schoewe - 43 Vice President and Chief Financial Officer, October 1993 - present; Vice President - Finance, January 1990 - October 1993. Steven E. Simms - 39 Group Vice President and President - Accessories, October 1995 - present; President - North American Accessories, April 1993 - October 1995; Vice President - European Marketing and Product Planning, September 1990 - April 1993. Leonard A. Strom - 50 Vice President - Human Resources, May 1986 - present. ITEM 2. PROPERTIES Unless otherwise indicated, the following discussion of the Corporation's properties pertains to the continuing operations of the Corporation and excludes any matters in respect of the discontinued PRC segment. The Corporation and its subsidiaries operate 47 manufacturing facilities around the world, including 22 located outside the United States in 13 foreign countries. The major properties associated with each business segment are listed in Narrative Description of the Business in Item 1(d) of Part I of this report. The Corporation owns most of its facilities with the exception of the following major leased facilities. In the United States: Mt. Clemens, Michigan; Amory, Mississippi; Shelton, Connecticut; and Towson, Maryland. Outside the United States: Rotherham, England, and Kuantan, Malaysia. During 1993, the Corporation recorded a charge of $29 million for the closure and reorganization of certain manufacturing sites. These plant actions were substantially completed during 1994. During 1995, the Corporation closed its manufacturing facilities in Tarboro, North Carolina, and Delemont, Switzerland, and transferred production from those locations to other manufacturing facilities of the Corporation. The Corporation ceased manufacturing at its facility in Santo Andre, Brazil late in 1995 and will begin to manufacture at a new owned facility in Uberaba, Brazil, in early 1996. These plant actions are part of the Corporation's continuing effort to identify opportunities to improve its manufacturing cost structure. Additional property both owned and leased by the Corporation in Towson, Maryland, is used for administrative offices. Subsidiaries of the Corporation lease certain locations primarily for smaller manufacturing and/or assembly operations, service operations, sales and administrative offices, and for warehousing and distribution centers. The Corporation also owns a manufacturing plant which is located on leased land in Jurong Town, Singapore. The Corporation's average utilization rate for its manufacturing facilities for 1995 was in the range of 75% to 85%. The Corporation continues to evaluate its worldwide manufacturing cost structure to identify opportunities to improve capacity utilization and will take appropriate action as deemed necessary. Management believes that its owned and leased facilities are suitable and adequate to meet the Corporation's anticipated needs. ITEM 3. LEGAL PROCEEDINGS The Corporation is involved in various lawsuits in the ordinary course of business. These lawsuits primarily involve claims for damages arising out of the use of the Corporation's products and allegations of patent and trademark infringement. The Corporation also is involved in litigation and administrative proceedings involving employment matters and commercial disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. The Corporation, using current product sales data and historical trends, actuarially calculates the estimate of its exposure for product liability. The Corporation is insured for product liability claims for amounts in excess of established deductibles and accrues for the estimated liability as described above up to the limits of the deductibles. As previously noted under Item 1 of Part I of this report, the Corporation also is party to litigation and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Certain of these matters assert damages and liability for remedial investigations and clean-up costs with respect to sites at which the Corporation has been identified as a PRP under federal and state environmental laws and regulations. Other matters involve sites that the Corporation owns and operates or previously sold. On or about March 31, 1989, a purported class action complaint, titled Cooperman et al. v. The Black & Decker Corporation et al., No. 89 Civ 2177 (the Cooperman Complaint), was filed in the United States District Court for the Southern District of New York alleging that the Corporation's settlement agreement with Topper Acquisition Corp. and Topper L.P., bidders for Emhart Corporation, and the payments by the Corporation thereunder violated the federal securities laws, particularly sections 10(b) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations, including rules 10b-13 and 14d-10, thereunder. Plaintiffs initially sought injunctive relief prohibiting the Corporation from consummating its tender offer for Emhart and now seek rescissory damages as well as costs, disbursements, and reasonable attorneys' and other fees. The Corporation's request for leave to move for summary judgment was denied by the District Court, and the District Court issued an order directing that discovery be completed by June 1, 1991, and providing that the Corporation might again apply for leave to move for summary judgment on or before June 15, 1991. The parties subsequently have entered into a number of stipulations and orders amending the date for the completion of discovery and the date before which the Corporation may again apply for leave to move for summary judgment. The Corporation believes the claims made in the Cooperman Complaint are without merit and intends to defend vigorously against the allegations made in this matter. In the opinion of management, the ultimate resolution of the Cooperman Complaint will not have a material adverse effect on the Corporation. In March 1990, the Corporation's former PRC subsidiary was served by the Inspector General of the United States Department of Defense with a subpoena for documents from the period 1986 to 1990 in connection with a criminal investigation of bid and proposal cost charging practices of certain divisions of PRC. Since that date, PRC has been served with two additional Inspector General subpoenas for marketing and proposal-related documents. During 1992, PRC and some former employees also received grand jury subpoenas issued by the United States District Court for the Eastern District of Virginia. During 1993, PRC received an additional subpoena from the grand jury directing PRC to provide information concerning the procurement and government property management functions of certain divisions of PRC. In January 1996, the United States Attorney advised PRC that the criminal investigation has concluded without further action and the matter is being transferred to the Civil Division of the Department of Justice. In connection with the Corporation's sale of PRC to Litton Industries, Inc., the Corporation agreed to indemnify Litton for various liabilities, including liabilities relating to the matters subject to the foregoing subpoenas. The Corporation cannot predict the eventual outcome of these investigations, but, based on currently available information, management believes that the investigations will not have a material adverse effect on the Corporation. On June 1, 1994, Masco Corporation of Indiana ("Masco") filed suit against the Corporation's Price Pfister subsidiary in the United States District Court for the Eastern District of Virginia (Civ. No. 94-728A). Masco alleged that Price Pfister's manufacture, use and sale of its Genesis Model 42 Series of lavatory faucets infringed and induced infringement of Masco's U.S. Design Patent No. 323,877, was unfair competition under federal and Virginia law, and infringed the trade dress rights associated with lavatory faucets of Delta Faucet Company, a division of Masco. Masco sought an injunction, profits, damages (trebled), costs and attorneys' fees. Price Pfister filed a counterclaim for infringement by Masco of Price Pfister's rights in U.S. Design Patent Nos. 329,911, 328,335, and 327,732, for unfair competition and patent misuse under common statutory law, for abuse of process, and for trademark infringement under Price Pfister's U.S. Trademark Registration No. 1,808,996 and trademark registrations of several states. Masco counterclaimed for cancellation of U.S. Trademark Registration No. 1,808,996 and also instituted a separate Cancellation Proceeding in the U.S. Patent and Trademark Office. Following the filing by Masco and Price Pfister of a number of motions, trial on the claims and counterclaims in this matter was held in November 1994. The trial resulted in a verdict in favor of Masco on Masco's design patent infringement claim with damages being awarded against Price Pfister in the amount of $1,374,596.35, plus interest, and Price Pfister being enjoined from continued infringement of Masco's rights. All other claims and counterclaims were dismissed. Price Pfister filed an appeal of this decision, but on appeal the decision of the trial court was upheld. Price Pfister has paid the judgment in this matter. In the opinion of management, amounts accrued for awards or assessments in connection with the matters specified above and in Item 1 of Part I of this report with respect to environmental matters and other litigation and administrative proceedings to which the Corporation is a party are adequate and, accordingly, ultimate resolution of these matters will not have a material adverse effect on the Corporation. As of December 31, 1995, the Corporation had no known probable but inestimable exposures for awards and assessments in connection with the matters specified above and in Item 1 of Part I of this report with respect to environmental matters and other litigation and administrative proceedings that could have a material effect on the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY STOCK AND RELATED SECURITY HOLDER MATTERS (a) MARKET INFORMATION The Corporation's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange and also is traded on the London, Frankfurt, and Swiss exchanges. The following table sets forth, for the periods indicated, the high and low sales prices of the Common Stock as reported in the consolidated reporting system for the New York Stock Exchange Composite Transactions:
Quarter 1995 1994 ------- ------------------ ------------------ January to March .. $29-5/8 to $22-7/8 $22-3/8 to $19-1/4 April to June ..... $33 to $27-1/2 $21 to $17 July to September . $34-5/8 to $30-1/4 $23-1/8 to $17 October to December $38-1/8 to $32-1/8 $25-3/4 to $21-1/8
(b) HOLDERS OF THE CORPORATION'S CAPITAL STOCK As of February 20, 1996, there were 18,811 holders of record of the Corporation's Common Stock. As of February 20, 1996, there was one holder of record of the Corporation's Series B Cumulative Convertible Preferred Stock (the Series B Preferred Stock). (c) DIVIDENDS The Corporation has paid consecutive quarterly dividends on its Common Stock since 1937. Future dividends necessarily will depend upon the Corporation's earnings, financial condition, and other factors, and the payment of dividends on the outstanding shares of Series B Preferred Stock. The Credit Facility does not restrict the Corporation's ability to pay regular dividends in the ordinary course of business on the Common Stock or the Series B Preferred Stock. In the event that dividends on the Series B Preferred Stock are in arrears, thereafter and until all accrued but unpaid dividends on the shares of Series B Preferred Stock shall have been paid in full, the Corporation may not declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of Common Stock. Quarterly dividends per common share for the most recent two years are as follows:
Quarter 1995 1994 ------- ---- ---- January to March $.10 $.10 April to June .10 .10 July to September .10 .10 October to December .10 .10 ---- ---- $.40 $.40 ==== ====
In February 1996, the Board of Directors approved a 20% increase in the quarterly cash dividend per common share, from $.10 to $.12 per share, beginning in March 1996. During each of the quarters in 1995 and 1994, the Corporation declared a dividend of approximately $2.9 million on its shares of Series B Preferred Stock. During the most recent two years, no other dividends were declared or paid in respect of shares of preferred stock of the Corporation. Common Stock: 150,000,000 authorized, $.50 par value; 86,447,588 shares and 84,688,803 shares outstanding as of December 31, 1995 and 1994, respectively. Preferred Stock: 5,000,000 authorized, without par value; 150,000 shares of Series B Cumulative Convertible Preferred Stock outstanding as of December 31, 1995 and 1994. ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY (Millions of Dollars Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------- 1995(a) 1994 1993(b) 1992(c) 1991 - ---------------------------------------------------------------------------------------------------------- Revenues $4,766.1 $4,365.2 $4,121.5 $4,045.7 $3,952.6 Earnings (loss) from continuing operations 216.5 89.9 64.1 (95.3) 16.1 Earnings from discontinued operations (d) 38.4 37.5 31.1 22.0 36.9 Extraordinary items (30.9) -- -- (22.7) -- Cumulative effects of changes in accounting principle -- -- (29.2) (237.6) -- Net earnings (loss) 224.0 127.4 66.0 (333.6) 53.0 Earnings (loss) per common and common equivalent share: Primary: Continuing operations 2.33 .93 .63 (1.40) .21 Discontinued operations .44 .44 .37 .29 .60 Extraordinary items (.35) -- -- (.30) -- Cumulative effects of accounting changes -- -- (.35) (3.11) -- Net earnings (loss) 2.42 1.37 .65 (4.52) .81 Assuming full dilution: Continuing operations 2.29 .93 .63 (1.40) .21 Discontinued operations .41 .44 .37 .29 .60 Extraordinary items (.33) -- -- (.30) -- Cumulative effects of accounting changes -- -- (.35) (3.11) -- Net earnings (loss) 2.37 1.37 .65 (4.52) .81 Total assets 5,545.3 5,264.3 5,166.8 5,295.0 5,456.8 Long-term debt 1,704.5 1,723.2 2,069.2 2,108.5 2,625.8 Cash dividends per common share .40 .40 .40 .40 .40 - ----------------------------------------------------------------------------------------------------------
(a) Earnings from continuing operations for 1995 include a $65.0 million reduction in income tax expense as a result of the reversal of a portion of the Corporation's deferred tax asset valuation allowance. In 1995, the Corporation recognized a $30.9 million extraordinary loss from extinguishment of debt, net of income tax benefit of $2.6 million. (b) Effective January 1, 1993, the Corporation changed its method of accounting for postemployment benefits. In addition, earnings from continuing operations for 1993 include a restructuring credit of $6.3 million before tax ($.2 million after tax). (c) Effective January 1, 1992, the Corporation changed its methods of accounting for income taxes and postretirement benefits other than pensions. In 1992, the Corporation recognized a $22.7 million extraordinary loss from extinguishment of debt. In addition, earnings from continuing operations for 1992 included a restructuring charge of $142.4 million before tax ($134.7 million after tax). (d) Earnings from discontinued operations represent the earnings, net of applicable income taxes, of the Corporation's discontinued PRC segment. The earnings of the discontinued PRC segment do not reflect any charge for interest allocated to that segment by the Corporation. For additional information about the discontinued PRC segment, see the discussion under the caption "Discontinued Operations" included in Item 1 of Part I of this report and Note 2 of Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported net earnings of $224.0 million or $2.37 per share on a fully diluted basis for the year ended December 31, 1995, compared to net earnings of $127.4 million or $1.37 per share on a fully diluted basis in 1994. Excluding the effects of a $65.0 million decrease in income tax expense as a result of the Corporation's reduction in its deferred tax asset valuation allowance in 1995, earnings from continuing operations increased from $89.9 million ($.93 per share on a fully diluted basis) in 1994 to $151.5 million ($1.60 per share on a fully diluted basis) in 1995. This improvement in earnings from continuing operations in 1995 over 1994 was a function of strong operating results, a lower effective tax rate, and lower interest expense. No interest expense was allocated by the Corporation to its discontinued operations. On December 13, 1995, the Corporation announced that it had reached a definitive agreement to sell PRC Inc., the remaining business in its information technology and services segment. The sale of PRC Inc. is expected to be completed in the first quarter of 1996. During 1995, the Corporation generated free cash flow (cash available for debt reduction prior to the effects of cash proceeds received from sales of businesses, equity offerings, and sales of receivables) of $34.7 million compared to free cash flow of $116.1 million in 1994. The decrease in free cash flow in 1995 from the 1994 level was primarily the result of higher working capital levels and capital expenditures in 1995 than in 1994 when the Corporation experienced particularly strong free cash flow from the initial effects of more stringent working capital management. The combination of strong operating results and the proceeds received from sales of portions of the discontinued information technology and services segment in 1995 enabled the Corporation to reduce its ratio of debt to total capitalization from 67% at December 31, 1994, to 62% at December 31, 1995. DISCONTINUED OPERATIONS On December 13, 1995, the Corporation announced that it had signed a definitive agreement to sell PRC Inc., the remaining business in its information technology and services segment, for $425.0 million. The sale is expected to be completed in the first quarter of 1996. A net gain on the sale of PRC Inc., estimated at $80.0 to $90.0 million, will be recognized upon completion of the sale. Proceeds from the sale of PRC Inc. will be used to reduce debt. The Corporation sold PRC Realty Systems, Inc. (RSI) and PRC Environmental Management, Inc. (EMI) earlier in 1995 for aggregate proceeds of approximately $100 million. Together, PRC Inc., RSI, and EMI comprised the Corporation's information technology and services (PRC) segment. The Corporation acquired PRC through its acquisition of Emhart Corporation in April 1989. The sale of PRC will allow the Corporation to reduce its debt level and concentrate on its more strategic businesses. Operating results, net assets, and cash flows of the discontinued PRC operations have been segregated in the accompanying Consolidated Financial Statements. Net earnings of the discontinued PRC segment were $38.4 million ($.41 per share on a fully diluted basis) in 1995, $37.5 million ($.44 per share on a fully diluted basis) in 1994, and $31.1 million ($.37 per share on a fully diluted basis) in 1993 on revenues of $800.1 million, $883.1 million and $760.7 million, respectively. CONTINUING OPERATIONS REVENUES The following chart sets forth an analysis of the consolidated changes in revenues for the years ended December 31, 1995, December 31, 1994, and December 31, 1993. ANALYSIS OF CHANGES IN REVENUES OF CONTINUING OPERATIONS For the Year Ended December 31, (Dollars in Millions) 1995 1994 1993 ------- ------- ------- Total revenues ........................... $ 4,766 $ 4,365 $ 4,122 Unit volume - existing (1) ............... 6% 8% 5% - disposed (2) ............... --% (3)% --% Price .................................... 1% 1% 1% Currency ................................. 2% --% (4)% ------- ------- ------- Change in total revenues ................. 9% 6% 2% ======= ======= ======= In the above chart and throughout the remainder of this discussion, the following definitions apply: (1) Existing - Reflects the change in unit volume for businesses where period-to-period comparability exists. (2) Disposed - Reflects the change in total revenues from continuing operations for businesses that were included in prior year results, but subsequently have been sold. Total revenues for the year ended December 31, 1995, were $4.8 billion, which represents a 9% increase over 1994 revenues of $4.4 billion. Despite an increasingly difficult retail environment throughout 1995, the Corporation achieved 6% growth in existing unit volume in 1995 over the level experienced in 1994. The 1995 growth in unit volume was experienced both in the Consumer and Home Improvement Products (Consumer) segment and in the Commercial and Industrial Products (Commercial) segment. Total revenues for the year ended December 31, 1994, were $4.4 billion, which represented a 6% increase over 1993 revenues of $4.1 billion. During 1994, existing unit volume grew by 8% compared to 5% growth in 1993, due primarily to revenue growth in the Consumer segment. EARNINGS Operating income from continuing operations as a percentage of revenues was 8.9% for 1995 compared to 8.1% and 7.3% for 1994 and 1993, respectively. Gross margin as a percentage of revenues in 1995 was 36.7% compared to 36.6% for 1994 and 35.5% for 1993. Gross margin in 1995 was slightly higher than the prior year level. The impact of increased manufacturing productivity and cost reduction initiatives during 1995, however, was substantially offset by rising commodity costs and by reduced gross margin in the European operations. Gross margin in 1995 was adversely affected by a softening European retail environment in the fourth quarter of 1995 and by residual inefficiencies in European operations associated with the closure of two manufacturing facilities since mid 1994. The improvement in gross margin during 1994 over the 1993 level stemmed from improvements in the Consumer segment, which resulted primarily from increased manufacturing productivity, the implementation of cost reduction initiatives, and the realization of the leverage effects of higher sales volume on fixed and semi-fixed costs. Marketing and administrative expenses as a percentage of revenues were 27.8% for 1995 compared to 28.5% for 1994 and 28.2% for 1993. The improvement in 1995 compared to 1994 was the result of cost reduction initiatives and the leverage of fixed and semi-fixed costs over a higher sales base. Marketing and administrative expenses as a percentage of revenues increased by .3% from 28.2% for 1993 to 28.5% for 1994 as a result of higher promotion costs in 1994, partially offset by the effects on 1994 results of cost reduction initiatives and the leverage of fixed and semi-fixed costs over a higher sales base. Net interest expense (interest expense less interest income) was $184.4 million in 1995 compared to $187.9 million in 1994 and $171.8 million in 1993. Net interest expense for 1995 was below the 1994 level as a result of reduced borrowing levels during the year, partially offset by higher interest rates on variable rate debt. Higher interest rates during 1994, partially offset by reduced borrowing levels in that year, caused an increase in net interest expense in 1994 over the 1993 level. Other expense for 1995, 1994, and 1993 primarily included costs associated with the sale of receivables programs. As more fully described in Note 12 of Notes to Consolidated Financial Statements, a full valuation allowance was provided on net deferred tax assets in the United States at December 31, 1994, based on the Corporation's history of taxable earnings (losses) over the past several years and the volatility of comprehensive taxable earnings (losses) in the United States due to foreign exchange contracts. In addition, a full valuation allowance on net tax assets in certain foreign taxing jurisdictions was provided at December 31, 1994, based on the history of taxable earnings (losses), the tax carryforward periods, and projected earnings. During 1995, the Corporation reversed a portion of the deferred tax asset valuation allowance based on its projection of future taxable earnings in the United States, including the impact of the pending sale of PRC Inc. The effect of this reduction in the deferred tax asset valuation allowance was to decrease 1995 income tax expense by $65.0 million. An analysis of taxes on earnings is included in Note 12 of Notes to Consolidated Financial Statements. Excluding the effects of the $65.0 million income tax benefit that resulted from the reduction of its deferred tax asset valuation allowance in 1995, the Corporation's reported tax rate on continuing operations was 33% in 1995 compared to a rate of 40% in 1994 and 48% in 1993. Contributing to the lower tax rate for 1995 compared to 1994 and 1993 were higher taxable earnings in the United States and a change in mix of operating income outside the United States from those subsidiaries in higher rate tax jurisdictions to subsidiaries in lower rate tax jurisdictions or subsidiaries that profit from the utilization of net operating loss carryforwards. BUSINESS SEGMENTS The Corporation operates in two business segments: Consumer and Home Improvement Products, including consumer and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service; and Commercial and Industrial Products, including fastening systems and glass container-making equipment. REVENUES AND OPERATING INCOME BY BUSINESS SEGMENT For the Year Ended December 31, (Millions of Dollars) 1995 1994 1993 ------ ------ ------ Consumer and Home Improvement Products Total revenues ...................................... $4,076 $3,774 $3,530 Operating income .................................... 348 294 216 Operating income excluding restructuring costs or credits and goodwill amortization ....... 400 351 281 Commercial and Industrial Products Total revenues ...................................... 690 591 592 Operating income .................................... 75 53 77 Operating income excluding restructuring costs or credits and goodwill amortization ....... 92 69 73 Corporate and Eliminations Operating income .................................... 3 5 10 ------ ------ ------ Total revenues ...................................... $4,766 $4,365 $4,122 Total operating income .............................. $ 426 $ 352 $ 303 Total operating income excluding restruc- turing credits and goodwill amortization ......... $ 495 $ 425 $ 364 ------ ------ ------ CONSUMER AND HOME IMPROVEMENT PRODUCTS The following chart sets forth an analysis of the change in revenues for the year ended December 31, 1995, compared to the year ended December 31, 1994, by geographic area within the Consumer segment. United Total States Europe Other Consumer Existing unit volume .......... 7% 4% 4% 5% Price ......................... --% --% 4% 1% Currency ...................... --% 9% (5)% 2% ----- ----- ----- ----- Total Consumer ................ 7% 13% 3% 8% ===== ===== ===== ===== Total revenues in the Consumer segment for 1995 were 8% higher than in 1994, with existing unit volume up 5% over the 1994 level. Unit volume in the United States increased by 7% in 1995 over the 1994 level as a result of strong unit volume growth in the power tools and accessories and household products businesses, partially offset by unit volume declines in the security hardware and plumbing products businesses. The 1995 domestic growth in the power tools and accessories business was the result of continued strong demand for DeWALT professional power tools and accessories and the successful expansion in the latter half of 1995 of a line of consumer products that use the VersaPak interchangeable battery system. During 1995, the household products business achieved a double-digit rate of growth in unit volume driven by the continued success of the SnakeLight flexible flashlight, which was introduced late in 1994. The domestic security hardware and plumbing products businesses each experienced modest unit volume declines from 1994 levels during 1995. The decrease in unit volume of the security hardware business was due to inventory reductions made by its customers in the latter part of 1995. While the plumbing products business experienced unit volume growth in the second half of 1995 over the corresponding period in 1994, that growth was not sufficient to cover revenue shortfalls experienced in the first half of 1995 as a result of poor weather conditions in the western United States and the resulting soft demand in professional distribution channels. Excluding the substantial positive effects of changes in foreign exchange rates, revenues in the Corporation's Consumer businesses in Europe increased by 4% in 1995 over the 1994 level despite a weak fourth quarter in 1995. This 4% increase was composed of increased sales of power tools and accessories, household products, and security hardware, offset by decreased sales of outdoor products. The growth in power tools and accessories revenues during 1995 over the prior year level was attributable to strong sales of professional products, partially offset by sales declines in consumer power tools and accessories. The increased household products revenues in 1995 over the 1994 level was due primarily to the introduction of the SnakeLight flexible flashlight in Europe late in 1995. An extremely dry winter and late spring resulted in decreased revenues for outdoor products in 1995 compared to 1994. Exclusive of positive effects of changes in foreign exchange rates during 1995, some European countries achieved results substantially higher than the prior year level, and other countries, most notably, Germany, the United Kingdom, and France, reported results essentially equal to or below the prior year level. Excluding the negative effects of changes in foreign exchange rates principally due to the Mexican peso devaluation, revenues in the Corporation's Consumer businesses in other geographic regions increased by 8% in 1995 over the 1994 level. Revenue growth occurred in a number of countries, including Canada and, most strongly, Brazil, while revenues in other countries were essentially equal to or below the prior year level. Operating income as a percentage of revenues for the Consumer segment was 8.6% in 1995 compared to 7.8% in 1994. Excluding the effect of goodwill amortization, operating income as a percentage of revenues would have been 9.8% in 1995 compared to 9.3% in 1994. The household products business achieved strong improvement in operating income in 1995 as a result of increased sales volume, higher manufacturing productivity, and actions taken by the business to either improve profitability or drop certain lower margin products from its product lines. Improved operating income levels in 1995 over 1994 in the worldwide power tools and accessories business resulted principally from substantial improvements in the domestic power tools and accessories business as a result of increased sales volume, higher manufacturing productivity, and the impact of cost reduction initiatives, partially offset by reduced profitability in the European operations. A softening retail environment in the fourth quarter of 1995, expenses incurred in connection with the reorganization of certain European operations, and residual inefficiencies associated with the closure of two manufacturing facilities since mid 1994 contributed to markedly lower profitability in the Corporation's Consumer businesses in Europe in 1995 than in 1994. Cost reduction initiatives and manufacturing productivity improvements resulted in increased operating income as a percentage of revenues during 1995 compared to 1994 in the security hardware business, despite year-to-year sales declines in its domestic operations. A decline in operating income in the plumbing products business in 1995 compared to 1994 resulted from reduced sales and rising material costs. Total revenues in the Consumer segment for 1994 were 7% higher than in 1993. Existing unit volume increased by 8% for 1994 over the 1993 level. Unit volume in the United States for 1994 rose by 8% over the 1993 level. The domestic unit volume increase resulted from double-digit rates of growth in the power tools and accessories, security hardware, and plumbing products businesses. This growth primarily stemmed from the continued strong demand for the DeWALT professional power tools and accessories line, expanded distribution of TITAN locksets, and the introduction of the Genesis series of single-control faucets. Despite strong demand experienced late in 1994 when the SnakeLight flexible flashlight and a new line of under-the-cabinet kitchen appliances were introduced in the United States, unit volume in the household products business was down slightly in 1994 compared to the prior year level. The Corporation's consumer power tools business in Europe achieved moderate unit volume growth in 1994 over the 1993 level. All major European power tool markets achieved unit volume increases in 1994, except the United Kingdom and Germany, where unit volumes were essentially flat compared to the prior year levels. Unit volume in the European security hardware business was also essentially flat compared to the prior year. Unit volume in the Far East and in a number of consumer businesses in Latin America, including those in Brazil and Mexico, increased substantially in 1994 over the 1993 level. Operating income as a percentage of total revenues for the Consumer segment was 7.8% for 1994 compared to 6.1% for 1993. Excluding the effects of goodwill amortization and, for 1993, restructuring charges of $13.1 million, operating income as a percentage of total revenues for the Consumer segment would have been 9.3% for 1994 compared to 8.0% for 1993. The improvement in operating income levels in 1994 over 1993 in the worldwide power tools and accessories business as well as in the domestic security hardware and plumbing products businesses was primarily the result of increased manufacturing productivity, the implementation of cost reduction initiatives, and the effect of leveraging fixed and semi-fixed costs over a higher sales base. Partially offsetting this improvement was a decline in the operating income level in 1994 over 1993 for the household products business. This decline was primarily the result of increased promotion spending and administrative expenses in 1994, which were not offset by revenue increases. In addition, operating income improved during 1994 for the golf club shafts business over the low level experienced in 1993 due to shifting consumer preferences to graphite golf club shafts from steel golf club shafts. COMMERCIAL AND INDUSTRIAL PRODUCTS The following chart sets forth an analysis of the change in revenues for the year ended December 31, 1995, compared to the year ended December 31, 1994, by geographic area within the Commercial segment. United Total States Europe Other Commercial Existing unit volume ............. (2)% 24% 7% 10% Price ............................ 1% 1% --% 1% Currency ......................... --% 13% 7% 6% ----- ----- ----- ----- Total Commercial ................. (1)% 38% 14% 17% ===== ===== ===== ===== Total revenues in the Commercial segment for 1995 were 17% higher than the 1994 level. Excluding the substantial positive effects of changes in foreign exchange rates, revenues in the Commercial segment were 11% higher in 1995 than in the preceding year. The fastening systems (Fastening) business achieved solid unit volume growth in 1995 over the prior year level, as softening industrial sales in the United States and Europe were more than offset by increased automotive sales in those regions. The glass container-making equipment (Glass) business experienced a double-digit rate of growth in unit volume in 1995 compared to a weak 1994 despite declines in volumes in the United States. The backlog of orders in the Glass business at December 31, 1995, was slightly above the 1994 level, reflecting strong order levels experienced during 1995. Operating income as a percentage of revenues for the Commercial segment was 10.8% in 1995 compared to 8.9% in 1994. Excluding the effects of goodwill amortization, operating income as a percentage of revenues would have been 13.3% in 1995 compared to 11.6% in 1994. The Fastening and Glass businesses each experienced improvements in operating income percentages. Total revenues in the Commercial segment for 1994 were essentially flat compared to those of the prior year. An increase of 4% in existing unit volume, coupled with the positive effects of pricing and changes in foreign exchange rates, were offset by the effects of the sale of the remaining Dynapert business late in 1993. A double-digit rate of increase in unit volume in the Fastening business was partially offset by a volume decline in the Glass business. Fastening business sales improved during 1994 in the United States and Europe, primarily as a result of the strengthening of the automotive industry. Sales in the Glass business were weak throughout all geographic areas during 1994. Operating income as a percentage of total revenues for the Commercial segment for 1994 was 8.9% compared to 12.9% for 1993. Excluding the effects of goodwill amortization and, for 1993, restructuring credits of $19.4 million relating to the gain on the sale of Dynapert's through-hole business, operating income as a percentage of total revenues for the Commercial segment would have been 11.6% for 1994 compared to 12.4% for 1993. Operating income improved in the Fastening business in 1994 as a result of increased sales and cost reduction initiatives, but was offset by an operating income decline in the Glass business due to revenue shortfalls. FINANCIAL CONDITION Operating activities of continuing operations before the sale of receivables generated cash of $316.9 million for the year ended December 31, 1995, compared to $304.4 million for the year ended December 31, 1994. This increase in cash generation during 1995 was primarily the result of increased profitability, partially offset by increased working capital levels. The major cause of the working capital increase at December 31, 1995, over the prior year level was an increase in inventories. Despite a weakening retail environment, the Corporation achieved sales growth of 6%, excluding the positive effects of changes in foreign exchange rates, in the fourth quarter of 1995 over the corresponding period in 1994. That growth, however, was below the Corporation's expectations, and inventory levels at year end were higher than planned. While a portion of the inventory increase is required to support new product initiatives and manufacturing rationalizations that are underway and should further improve manufacturing productivity, the Corporation will actively seek to reduce inventory levels in 1996. In addition to measuring its cash flow generation and usage based upon the operating, investing, and financing classifications included in the Consolidated Statement of Cash Flows, the Corporation monitors its free cash flow, a measure commonly employed by bond rating agencies and banks. The Corporation defines free cash flow as cash available for debt reduction (including short-term borrowings), prior to the effects of cash proceeds received from sales of divested businesses, equity offerings, and sales of receivables. Free cash flow, a more inclusive measure of cash flow generation than cash flows from operating activities included in the Consolidated Statement of Cash Flows, considers items such as cash used for capital expenditures and dividends, as well as net cash inflows or outflows from hedging activities. During the year ended December 31, 1995, the Corporation generated free cash flow of $34.7 million compared to $116.1 million of free cash flow generated in 1994. The decrease in free cash flow in 1995 from the 1994 level was primarily the result of higher working capital levels and capital expenditures in 1995 than in 1994 when the Corporation experienced particularly strong free cash flow from the initial effects of more stringent working capital management. The Corporation expects to reduce debt by approximately $400.0 million in the first quarter of 1996 upon receipt of the proceeds from the sale of PRC Inc. Had the sale of PRC Inc. closed prior to December 31, 1995 and a net gain of $80.0 million been recognized upon the sale, the Corporation's ratio of debt to total capitalization would have decreased from 62.3% at December 31, 1995, to approximately 57%. The total amount of receivables sold under the Corporation's sale of receivables program at December 31, 1995, was $230.0 million compared to $244.0 million at December 31, 1994. The sale of receivables program provides for a seasonal expansion of the amount of receivables that may be sold, from $200.0 million to $275.0 million during the period from October 1 through January 31. The Corporation's liquidity facility, which supports the sale of receivables program, expires in May 1996. The Corporation expects to be able to extend this facility beyond December 1996. Excluding amounts related to discontinued operations, investing activities for 1995 used cash of $195.5 million compared to $205.0 million of cash used in 1994. Capital expenditures of $203.1 million during 1995 exceeded the 1994 level of $181.5 million. During 1995, approximately 91% of the capital expenditures were in the Consumer segment, primarily in support of new product initiatives and productivity enhancements. The Corporation expects capital spending in 1996 to approximate the 1995 level. The Corporation actively seeks to identify opportunities to improve its cost structure. These opportunities may involve the closure of manufacturing facilities or the reorganization of other operations. The ongoing costs of compliance with existing environmental laws and regulations have not had, nor are they expected to have, a material adverse effect on the Corporation's capital expenditures or financial position. The Corporation has a number of manufacturing sites throughout the world and sells its products in over 100 countries. As a result, the Corporation is exposed to movements in the exchange rates of various currencies against the United States dollar. The major foreign currencies in which the Corporation has foreign currency risk are the pound sterling, deutsche mark, Dutch guilder, Canadian dollar, Swedish krona, Japanese yen, French franc, Italian lira, Australian dollar, Mexican peso, and Brazilian real. Assets and liabilities of the Corporation's subsidiaries located outside the United States are translated at rates of exchange at the balance sheet date, as more fully explained in Note 1 of Notes to Consolidated Financial Statements. The resulting translation adjustments are included in equity adjustment from translation, a separate component of stockholders' equity. During 1995, translation adjustments, recorded in the equity adjustment from translation component of stockholders' equity, increased stockholders' equity by $44.9 million compared to an increase of $98.7 million in 1994. As more fully explained in Note 10 of Notes to Consolidated Financial Statements, the Corporation historically has hedged a portion of its net investment in foreign subsidiaries. During 1995, the Corporation decided to limit the future hedging of its net investment in foreign subsidiaries. This action may increase the volatility of reported equity in the future, but will result in more predictable cash flows from hedging activities. During 1994, the Corporation elected to hedge a portion, generally limited to tangible net worth, of its foreign subsidiaries. Prior to 1994, the Corporation operated under a full hedge policy, hedging the net assets, including goodwill, of its foreign subsidiaries. In hedging the exposure to foreign currency fluctuations on its net investments in subsidiaries located outside the United States, the Corporation has entered into various currency forward contracts and options. These hedging activities generate cash inflows and outflows that offset the translation adjustment. During 1995, these activities netted to a cash outflow of $4.7 million compared to a cash outflow of $35.5 million in 1994. The corresponding gains and losses on these hedging activities were recorded in the equity adjustment from translation component of stockholders' equity. Also included in the equity adjustment from translation component were the costs of maintaining the hedge portfolio of foreign exchange contracts. These hedge costs decreased stockholders' equity by $8.7 million and $33.0 million in 1995 and 1994, respectively. As more fully described in Note 10 of Notes to Consolidated Financial Statements, the Corporation seeks to minimize through its foreign currency hedging activities the risk that its United States dollar cash flows resulting from product sales outside the United States will be affected by changes in exchange rates. Foreign currency commitment and transaction exposures generally are an integral part of the responsibility of management of the Corporation's individual operating units. These management responses to foreign exchange movements vary. For example, pricing actions, changes in cost structures, and changes in hedging strategies may all be effective responses to a change in exchange rates. In late 1994, the Mexican peso was severely devalued. Because the Corporation's Mexican peso exposure was hedged, this devaluation did not have a significant effect on earnings in 1994. While the currency situation in Mexico had an adverse effect on Mexican revenues in 1995, the effect on operating income was substantially offset by pricing actions and changes in cost structures and by the lower relative costs of Mexican production during 1995. Financing activities for 1995 used cash of $127.0 million compared to $210.9 million of cash used in 1994. During 1995, the Corporation recognized a $30.9 million extraordinary loss, $26.5 million of which was a non-cash charge, as a result of the early redemption of its Emhart subsidiary's 9.25% sinking fund debentures in the aggregate principal amount of $150.0 million. This extraordinary loss consisted of the write-off of the associated debt discount, plus premiums and costs associated with the redemption, net of related income tax benefits. As more fully explained in Note 10 of Notes to Consolidated Financial Statements, the Corporation seeks to issue debt opportunistically, whether at fixed or variable rates, at the lowest possible costs. Based upon its assessment of the future interest rate environment and its desired variable rate debt to total debt ratio, the Corporation may later convert such debt from fixed to variable or from variable to fixed interest rates, or from United States dollar-based rates to rates based upon another currency, through the use of interest rate swap agreements. In addition, the Corporation may enter into interest rate cap agreements in order to limit the effects of increasing interest rates on a portion of its variable rate debt. In order to meet its goal of fixing or limiting interest costs, the Corporation maintains a portfolio of interest rate hedge instruments. These interest rate hedges could change the mix of fixed and variable rate debt as actual interest rates move outside the ranges covered by these instruments. The Corporation's variable rate debt to total debt ratio, after taking interest rate hedges into account, was 43% at December 31, 1995, compared to 34% at December 31, 1994, and 46% at December 31, 1993. At December 31, 1995, average debt maturity was 4.0 years compared to 4.9 years at December 31, 1994, and 4.8 years at December 31, 1993. The Corporation's unsecured revolving credit facility (the Credit Facility) includes certain covenants that require the Corporation to meet specified minimum cash flow coverage and maximum leverage (debt to equity) ratios during the term of the loan, as more fully explained in Note 9 of Notes to Consolidated Financial Statements. The Corporation's leverage ratio during the life of the Credit Facility may not exceed 2.2 at the end of any fiscal quarter. The cash flow coverage ratio calculated as of the end of each fiscal quarter must be greater than 2.5 for any 12-month period. At December 31, 1995, the Corporation was well within the limits specified for the leverage and cash flow coverage ratios and was in compliance with all other covenants and provisions of the Credit Facility. The Corporation began the process of negotiating a replacement to the Credit Facility during the first quarter of 1996. The replacement facility is not expected to contain terms more stringent than those set forth in the Credit Facility and is expected to expire in the year 2001. The Corporation expects to continue to meet the covenants imposed by the Credit Facility (or any replacement facility) over the next 12 months. The Corporation will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, and to service debt. In order to meet these cash requirements, the Corporation intends to use internally generated funds and to borrow under the Credit Facility or under short-term borrowing facilities. Management believes that cash generated from these sources will be adequate to meet the Corporation's cash requirements over the next 12 months. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Corporation and its subsidiaries are included herein as indicated below: Consolidated Financial Statements Consolidated Statement of Earnings - years ended December 31, 1995, 1994, and 1993 Consolidated Balance Sheet - December 31, 1995 and 1994 Consolidated Statement of Cash Flows - years ended December 31, 1995, 1994, and 1993 Notes to Consolidated Financial Statements Report of Independent Auditors CONSOLIDATED STATEMENT OF EARNINGS The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------- Revenues $4,766.1 $4,365.2 $4,121.5 Cost of goods sold 3,016.7 2,769.7 2,657.4 Marketing and administrative expenses 1,323.3 1,243.6 1,161.4 - ---------------------------------------------------------------------------------------------------------------------------- Operating Income 426.1 351.9 302.7 Interest expense (net of interest income of $8.6 for 1995, $6.9 for 1994, and $8.2 for 1993) 184.4 187.9 171.8 Other expense 16.2 15.4 7.4 - ---------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations Before Income Taxes 225.5 148.6 123.5 Income taxes 9.0 58.7 59.4 - ---------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations 216.5 89.9 64.1 Earnings from discontinued operations (net of income taxes of $8.7 for 1995, $4.0 for 1994, and $1.3 for 1993) 38.4 37.5 31.1 - ---------------------------------------------------------------------------------------------------------------------------- Earnings Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle 254.9 127.4 95.2 Extraordinary loss from early extinguishment of debt (net of income tax benefit of $2.6) (30.9) -- -- Cumulative effect to January 1, 1993, of change in accounting principle for postemployment benefits -- -- (29.2) - ---------------------------------------------------------------------------------------------------------------------------- Net Earnings $ 224.0 $ 127.4 $ 66.0 ============================================================================================================================ - ---------------------------------------------------------------------------------------------------------------------------- Net Earnings Applicable to Common Shares $ 212.4 $ 115.8 $ 54.4 ============================================================================================================================ Net Earnings Per Common and Common Equivalent Share: - ---------------------------------------------------------------------------------------------------------------------------- Primary: Earnings from continuing operations $ 2.33 $ .93 $ .63 Earnings from discontinued operations .44 .44 .37 Extraordinary loss from early extinguishment of debt (.35) -- -- Cumulative effect adjustment for postemployment benefits -- -- (.35) - ---------------------------------------------------------------------------------------------------------------------------- Primary Earnings Per Share $ 2.42 $ 1.37 $ .65 ============================================================================================================================ Shares Used in Computing Primary Earnings Per Share (in Millions) 87.9 84.3 83.6 ============================================================================================================================ Assuming Full Dilution: Earnings from continuing operations $ 2.29 $ .93 $ .63 Earnings from discontinued operations .41 .44 .37 Extraordinary loss from early extinguishment of debt (.33) -- -- Cumulative effect adjustment for postemployment benefits -- -- (.35) - ---------------------------------------------------------------------------------------------------------------------------- Fully Diluted Earnings Per Share $ 2.37 $ 1.37 $ .65 ============================================================================================================================ Shares Used in Computing Fully Diluted Earnings Per Share (in Millions) 94.7 84.3 83.6 ============================================================================================================================
See Notes to Consolidated Financial Statements CONSOLIDATED BALANCE SHEET The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
December 31, - ------------------------------------------------------------------------------------------------------------------- 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 131.6 $ 65.0 Trade receivables, less allowances of $43.1 for 1995 and $38.2 for 1994 651.3 635.1 Inventories 855.7 700.5 Net assets of discontinued operations 302.4 333.1 Other current assets 165.6 110.1 - ------------------------------------------------------------------------------------------------------------------- Total Current Assets 2,106.6 1,843.8 - ------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment 866.8 822.7 Goodwill 2,142.0 2,194.7 Other Assets 429.9 403.1 - ------------------------------------------------------------------------------------------------------------------- $ 5,545.3 $ 5,264.3 =================================================================================================================== Liabilities and Stockholders' Equity Short-term borrowings $ 599.2 $ 549.0 Current maturities of long-term debt 48.0 121.1 Trade accounts payable 396.7 284.1 Other accrued liabilities 743.0 757.5 - ------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,786.9 1,711.7 - ------------------------------------------------------------------------------------------------------------------- Long-Term Debt 1,704.5 1,723.2 Deferred Income Taxes 52.8 45.4 Postretirement Benefits 307.8 328.2 Other Long-Term Liabilities 270.1 286.4 Stockholders' Equity Convertible preferred stock (outstanding: December 31, 1995 and 1994--150,000 shares) 150.0 150.0 Common stock (outstanding: December 31, 1995--86,447,588 shares, December 31, 1994--84,688,803 shares) 43.2 42.3 Capital in excess of par value 1,084.5 1,049.1 Retained earnings 202.6 24.6 Equity adjustment from translation (57.1) (96.6) - ------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 1,423.2 1,169.4 - ------------------------------------------------------------------------------------------------------------------- $ 5,545.3 $ 5,264.3 ===================================================================================================================
See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
Year Ended December 31, - --------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Operating Activities Net earnings $ 224.0 $ 127.4 $ 66.0 Adjustments to reconcile net earnings to cash flow from operating activities of continuing operations: Non-cash charges and credits: Depreciation and amortization 206.7 195.4 182.4 Deferred income taxes (46.1) 8.9 18.8 Extraordinary item 26.5 -- -- Cumulative effect of change in accounting principle -- -- 29.2 Other 19.5 1.9 (6.7) Earnings of discontinued operations (38.4) (37.5) (31.1) Changes in selected working capital items: Trade receivables 14.8 (83.5) (42.0) Inventories (138.7) 31.9 (15.6) Trade accounts payable 108.1 58.3 9.5 Other assets and liabilities (59.5) 1.6 (113.3) Net (decrease) increase in receivables sold (14.0) 26.0 6.5 - --------------------------------------------------------------------------------------------------------------------- Cash flow from operating activities of continuing operations 302.9 330.4 103.7 Cash flow from operating activities of discontinued operations 1.5 79.3 32.3 - --------------------------------------------------------------------------------------------------------------------- Cash Flow From Operating Activities 304.4 409.7 136.0 - --------------------------------------------------------------------------------------------------------------------- Investing Activities Proceeds from partial sale of discontinued operations 95.5 -- -- Investing activities of discontinued operations (12.9) (15.5) (18.4) Proceeds from disposal of assets and businesses 12.3 12.0 113.4 Capital expenditures (203.1) (181.5) (190.3) Cash inflow from hedging activities 485.6 1,070.4 1,096.6 Cash outflow from hedging activities (490.3) (1,105.9) (1,085.1) - --------------------------------------------------------------------------------------------------------------------- Cash Flow From Investing Activities (112.9) (220.5) (83.8) - --------------------------------------------------------------------------------------------------------------------- Cash Flow Before Financing Activities 191.5 189.2 52.2 Financing Activities Net increase (decrease) in short-term borrowings 47.2 217.4 (14.1) Proceeds from long-term debt (including revolving credit facility) 274.0 1,226.7 2,008.3 Payments on long-term debt (including revolving credit facility) (425.2) (1,622.8) (1,989.4) Issuance of equity interest in a subsidiary -- 4.3 4.4 Issuance of common stock 23.0 8.8 6.4 Cash dividends (46.0) (45.3) (45.1) - --------------------------------------------------------------------------------------------------------------------- Cash Flow From Financing Activities (127.0) (210.9) (29.5) Effect of exchange rate changes on cash 2.1 5.4 (7.1) - --------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 66.6 (16.3) 15.6 Cash and cash equivalents at beginning of year 65.0 81.3 65.7 - --------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 131.6 $ 65.0 $ 81.3 =====================================================================================================================
See Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Black & Decker Corporation and Subsidiaries NOTE 1: SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the accounts of the Corporation and its subsidiaries. Intercompany transactions have been eliminated. RECLASSIFICATIONS: The accompanying Consolidated Financial Statements for 1994 and 1993 have been reclassified to identify separately the results of operations, net assets, and cash flows of the Corporation's discontinued information technology and services segment (see Note 2). In addition, certain prior year's amounts in the Consolidated Financial Statements have been reclassified to conform to the presentation used in 1995. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries outside the United States, except those subsidiaries located in highly inflationary economies, are generally measured using the local currency as the functional currency. Assets, including goodwill, and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. The resultant translation adjustments are included in equity adjustment from translation, a separate component of stockholders' equity. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings. For subsidiaries operating in highly inflationary economies, gains and losses from balance sheet translation adjustments are included in net earnings. CASH AND CASH EQUIVALENTS: Cash and cash equivalents includes cash on hand, demand deposits, and short-term investments with original maturities of three months or less. INVENTORIES: Inventories are stated at the lower of cost or market. The cost of United States inventories is based primarily on the last-in, first-out (LIFO) method; all other inventories are based on the first-in, first-out (FIFO) method. PROPERTY AND DEPRECIATION: Property, plant and equipment is stated at cost. Depreciation is computed generally on the straight-line method for financial reporting purposes and on accelerated and straight-line methods for tax reporting purposes. GOODWILL AND OTHER INTANGIBLES: Goodwill and other intangibles are amortized on the straight-line method over periods ranging up to 40 years. On a periodic basis, the Corporation estimates the future undiscounted cash flows of the businesses to which goodwill relates in order to ensure that the carrying value of goodwill has not been impaired. PRODUCT DEVELOPMENT COSTS: Costs associated with the development of new products and changes to existing products are charged to operations as incurred. Product development costs were $96.1 million in 1995, $89.2 million in 1994, and $90.6 million in 1993. ADVERTISING AND PROMOTION: All costs associated with advertising and promoting products are expensed in the year incurred. Advertising and promotion expense, including expense of consumer rebates, was $265.1 million in 1995, $249.9 million in 1994, and $209.3 million in 1993. POSTRETIREMENT BENEFITS: The Corporation and its subsidiaries have pension plans covering substantially all of their employees, who are primarily covered by non-contributory defined benefit plans. The plans are funded in conformity with the funding requirements of applicable government regulations. Generally, benefits are based on age, years of service, and the level of compensation during the final years of employment. Prior service costs for defined benefit plans are generally amortized over the estimated remaining service periods of employees. Certain employees are covered by defined contribution plans. The Corporation's contributions to the plans are based on a percentage of employee compensation or employee contributions. The plans are funded on a current basis. In addition to pension benefits, the Corporation provides certain postretirement medical, dental, and life insurance benefits, principally to certain United States employees. Retirees in other countries are generally covered by government-sponsored programs. The Corporation uses the corridor approach in the valuation of defined benefits plans and other postretirement benefits. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. For defined benefit pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. For other postretirement benefits, amortization occurs when the net gains and losses exceed 10% of the accumulated postretirement benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants or, for retired participants, the average remaining life expectancy. DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are used by the Corporation principally in the management of its interest rate and foreign currency exposures. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts payable to, or receivable from, the counterparties are included in other accrued liabilities. The fair value of the swap agreements is not recognized in the Consolidated Financial Statements, since they are accounted for as hedges. The costs of interest rate cap agreements are included in interest expense ratably over the lives of the agreements. Payments to be received as a result of the cap agreements are accrued as a reduction of interest expense. The unamortized costs of the cap agreements are included in other assets. In the case of an early termination of an interest rate swap or cap, gains or losses resulting from the early termination are deferred and amortized as an adjustment to the yield of the related debt instrument over the remaining period originally covered by the terminated swap or cap. Gains and losses on hedges of net investments are not included in the Consolidated Statement of Earnings, but are reflected in the Consolidated Balance Sheet in the equity adjustment from translation component of stockholders' equity, with the related amounts payable to or due from the counterparties included in other liabilities or other assets. Gains and losses on foreign currency transaction hedges are recognized in income and offset the foreign exchange gains and losses on the underlying transactions. Gains and losses of foreign currency firm commitment hedges are deferred and included in the basis of the transactions underlying the commitments. STOCK-BASED COMPENSATION: The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards (SFAS) No.123, "Accounting for Stock-Based Compensation." This new standard encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments based on a fair-value method of accounting. Companies that do not choose to adopt the new expense recognition rules of SFAS No. 123 will continue to apply the existing accounting rules contained in Accounting Principles Board Opinion (APBO) No. 25, but will be required to provide pro forma disclosures of the compensation expense determined under the fair-value provisions of SFAS No. 123, if material. APBO No. 25 requires no recognition of compensation expense for most of the stock-based compensation arrangements provided by the Corporation, namely, broad-based employee stock purchase plans and option grants where the exercise price is equal to the market price at the date of grant. The Corporation is required to adopt either the recognition or the disclosure provisions of SFAS No. 123 by no later than January 1, 1997. The Corporation expects to continue to follow the accounting provisions of APBO No. 25 for stock-based compensation and to furnish the pro forma disclosures required under SFAS No. 123, if material. IMPAIRMENT OF LONG-LIVED ASSETS: The FASB recently issued SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which the Corporation is required to adopt effective January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by a company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that long-lived assets and certain identifiable intangibles held for sale, other than those related to discontinued operations, be reported at the lower of carrying amount or fair value less cost to sell. The Corporation does not expect the effect of its adoption of SFAS No.121 to be material. NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary earnings per common and common equivalent share are computed by dividing net earnings, after deducting preferred stock dividends, by the weighted average number of common shares outstanding during each year plus, for 1995, the incremental shares that would have been outstanding under certain employee benefit plans and upon the assumed exercise of dilutive stock options. For 1994 and 1993, these incremental shares were immaterial and, accordingly, were not considered in the calculation of primary earnings per share. In 1995, fully diluted earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding during 1995 plus the incremental shares that would have been outstanding under certain employee benefit plans and upon the assumed exercise of dilutive stock options and conversion of the preferred shares. In 1994 and 1993, conversion of the preferred shares would have been anti-dilutive and, therefore, was not considered in the computation of fully diluted earnings per share. Also, in 1994 and 1993, the incremental shares that would have been outstanding under certain employee benefit plans and upon the assumed exercise of dilutive stock options were immaterial and, accordingly, were not considered in the calculation of fully diluted earnings per share. As a result, fully diluted earnings per share for 1994 and 1993 are not materially different from primary earnings per share. NOTE 2: DISCONTINUED OPERATIONS On December 13, 1995, the Corporation announced that it had signed a definitive agreement to sell PRC Inc. for $425.0 million. The sale of PRC Inc. to Litton Industries, Inc., is expected to be completed in the first quarter of 1996. A net gain on the sale of PRC Inc., estimated at $80.0 to $90.0 million, will be recognized upon completion of the sale. The Corporation sold PRC Realty Systems, Inc. ("RSI") on March 31, 1995, and sold PRC Environmental Management, Inc. ("EMI") on September 15, 1995, for proceeds of $60.0 million and $35.5 million, respectively. The aggregate gain on the sale of RSI and EMI of $2.5 million, net of applicable income taxes of $5.5 million, is included in earnings of discontinued operations for 1995. Together, PRC Inc., RSI, and EMI comprised the Corporation's information technology and services ("PRC") segment. Earnings from the discontinued PRC segment amounted to $38.4 million in 1995, $37.5 million in 1994, and $31.1 million in 1993, net of applicable income taxes of $8.7 million, $4.0 million, and $1.3 million, respectively, and are shown separately in the Consolidated Statement of Earnings. The results of the discontinued operations of PRC do not reflect any expense for interest allocated by or management fees charged by the Corporation. Revenues of the discontinued PRC segment were $800.1 million in 1995, $883.1 million in 1994, and $760.7 million in 1993. These revenues are not included in revenues as reported in the Consolidated Statement of Earnings. Net assets of the discontinued PRC segment at the end of each year, in millions of dollars, consisted of the following: 1995 1994 ------ ------ Cash and cash equivalents ............................... $ 2.8 $ .9 Accounts receivable, net of allowances ................... 251.9 275.8 Inventories .............................................. 13.5 22.5 Current deferred tax benefits ............................ 40.0 -- Other current assets ..................................... 22.6 23.3 Plant and equipment, net of accumulated depreciation ..... 20.0 35.4 Goodwill, net of accumulated amortization ................ 40.1 98.3 Other non-current assets ................................. 46.0 46.3 Accounts payable ......................................... (97.5) (121.1) Accrued expenses and other liabilities ................... (37.0) (48.3) ------ ------ $302.4 $333.1 ====== ====== NOTE 3: TRADE RECEIVABLES CONCENTRATION OF CREDIT: The Corporation sells products and services to customers in diversified industries and geographic regions, and, therefore, has no significant concentrations of credit risk. The Corporation continuously evaluates the creditworthiness of its customers and generally does not require collateral. SALE OF RECEIVABLES PROGRAM: The Corporation's sale of receivables program provides for a seasonal expansion of capacity from $200.0 million to $275.0 million during the period from October 1 through January 31. Receivables under this program are sold on a revolving basis and are not subject to any significant recourse provisions. At December 31, 1995, the Corporation had sold $230.0 million of receivables under this program compared to $244.0 million at December 31, 1994. The discount on the sale of receivables is included in other expense. NOTE 4: INVENTORIES The classification of inventories at the end of each year, in millions of dollars, was as follows: 1995 1994 ------- ------- FIFO Cost Raw materials and work-in-process ................. $231.6 $198.6 Finished products ................................. 665.0 543.1 ------- ------- 896.6 741.7 Excess of FIFO cost over LIFO inventory value ........ (40.9) (41.2) ------- ------- $855.7 $700.5 ======= ======= The cost of United States inventories stated under the LIFO method was approximately 44% and 50% of the value of total inventories at December 31, 1995 and 1994, respectively. NOTE 5: PROPERTY,PLANT AND EQUIPMENT Property, plant and equipment at the end of each year, in millions of dollars, consisted of the following: 1995 1994 -------- -------- Property, plant and equipment at cost: Land and improvements ............................ $ 69.4 $ 68.3 Buildings ........................................ 360.7 342.6 Machinery and equipment .......................... 1,342.1 1,257.9 -------- -------- 1,772.2 1,668.8 Less accumulated depreciation .................... 905.4 846.1 -------- -------- $ 866.8 $ 822.7 ======== ======== NOTE 6: GOODWILL Goodwill at the end of each year, in millions of dollars, was as follows: 1995 1994 -------- -------- Goodwill ..................................... $2,635.0 $2,619.3 Less accumulated amortization ................ 493.0 424.6 -------- -------- $2,142.0 $2,194.7 ======== ======== NOTE 7: OTHER ACCRUED LIABILITIES Other accrued liabilities at the end of each year, in millions of dollars, included the following: 1995 1994 ------- ------- Salaries and wages ....................... $ 91.8 $ 84.1 Employee benefits ........................ 66.2 53.5 All other ................................ 585.0 619.9 ------- ------- $743.0 $757.5 ======= ======= All other at December 31, 1995 and 1994, primarily consisted of accruals for trade discounts and allowances, insurance, warranty costs, advertising, interest, and income and other taxes. NOTE 8: SHORT-TERM BORROWINGS Short-term borrowings at December 31, 1995 and 1994, included unsecured money market loans in the amounts of $206.5 million and $293.3 million, respectively, at contracted interest rates based on a margin over the London Interbank Offered Rate (LIBOR). These loans are payable on demand with a one-to-five day notice period. Short-term borrowings at December 31, 1995 and 1994, also included $150.0 million and $75.0 million, respectively, of competitive bid rate loans under the Corporation's unsecured revolving credit facility, as more fully described in Note 9. Short-term borrowings in the amounts of $242.7 million and $180.7 million at December 31, 1995 and 1994, respectively, primarily consisted of borrowings of subsidiaries outside the United States under the terms of uncommitted lines of credit or other short-term borrowing arrangements. The weighted average interest rate on short-term borrowings outstanding at December 31, 1995 and 1994, was 6.2% and 7.0%, respectively. Under the terms of uncommitted lines of credit at December 31, 1995, certain subsidiaries outside the United States may borrow up to an additional $396.7 million on such terms as may be mutually agreed upon. These arrangements do not have termination dates and are reviewed periodically. No material compensating balances are required or maintained. NOTE 9: LONG-TERM DEBT The composition of long-term debt at the end of each year, in millions of dollars, was as follows: 1995 1994 -------- -------- Revolving credit facility expiring 1997 ............ $ 436.8 $ 426.2 7.50% notes due 2003 ............................... 500.0 500.0 6.625% notes due 2000 .............................. 250.0 250.0 7.0% notes due 2006 ................................ 250.0 250.0 Medium Term Notes due from 1996 through 2002 ....... 236.8 151.8 9.25% sinking fund debentures ...................... -- 150.0 6.75% deutsche mark bearer bonds ................... -- 111.4 Other loans due through 2009 ....................... 78.9 37.6 Less current maturities of long-term debt .......... (48.0) (121.1) Less debt discounts ................................ -- (32.7) -------- -------- $1,704.5 $1,723.2 ======== ======== In 1995, the Corporation recognized a $30.9 million extraordinary loss as a result of the early redemption of the 9.25% sinking fund debentures of its subsidiary, Emhart Corporation. The extraordinary loss consisted primarily of the write-off of the associated debt discount plus premiums and costs associated with the redemption, net of income tax benefits of $2.6 million. The Corporation financed Emhart's redemption of the sinking fund debentures through internally generated cash and proceeds from the sales of the RSI and EMI businesses during 1995. During 1994, the Corporation filed a shelf registration statement to issue up to $500.0 million of debt securities, which may consist of debentures, notes, or other unsecured evidences of indebtedness (the Medium Term Notes). As of December 31, 1995, $236.8 million aggregate principal amount of the Medium Term Notes had been issued under this shelf registration statement. Of that amount, $194.8 million bear interest at fixed rates ranging from 6.93% to 8.95%, while the remainder bears interest at variable rates. As a result of the issuance of public debt, the Corporation reduced the amount of credit available under its unsecured revolving credit facility (the Credit Facility) from $1.7 billion as of December 31, 1994, to $1.4 billion as of December 31, 1995. The amount available for borrowing under the Credit Facility at December 31, 1995, was $813.2 million. Borrowing options under the Credit Facility are at LIBOR plus a specified percentage, or at other variable rates set forth therein. The interest rate margin over LIBOR declines as the Corporation's leverage ratio improves. At December 31, 1994, borrowings under the Credit Facility were at LIBOR plus .4375% (borrowings were at LIBOR plus .50% prior to the renegotiation of pricing under the Credit Facility in October 1994). Due to improvements in the Corporation's leverage ratio, the borrowing rate under the Credit Facility declined by .1125%, effective January 1, 1995, to LIBOR plus .325% and declined by .075%, effective January 1, 1996, to LIBOR plus .25%. The Corporation also is able to borrow by means of competitive bid rate loans under the Credit Facility. Competitive bid rate loans are made through an auction process at then-current market rates and are classified as short-term borrowings in the Consolidated Balance Sheet. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Credit Facility, the Corporation is required to pay an annual facility fee to each bank equal to .175% (.25%, prior to October 1994) of the amount of the bank's commitment, whether used or unused. The Credit Facility includes various customary covenants, including covenants limiting the ability of the Corporation and its subsidiaries to pledge assets or incur liens on assets, and financial covenants requiring the Corporation to maintain a specified leverage ratio and to achieve certain levels of cash flow to fixed expense coverage. As of December 31, 1995, the Corporation was in compliance with all terms and conditions of the Credit Facility. The Corporation expects to continue to meet the covenants imposed by the Credit Facility over the next 12 months. Meeting the cash flow coverage ratio is dependent upon the level of future earnings and interest rates, each of which can have a significant impact on the ratio. Indebtedness of subsidiaries in the aggregate principal amounts of $759.1 million and $773.8 million were included in the Consolidated Balance Sheet at December 31, 1995 and 1994, respectively, in short-term borrowings, current maturities of long-term debt, and long-term debt. Principal payments on long-term debt obligations due over the next five years are as follows: $48.0 million in 1996, $488.4 million in 1997, $56.7 million in 1998, $57.0 million in 1999, and $250.0 million in 2000. Interest payments on all indebtedness were $209.0 million in 1995, $184.9 million in 1994, and $165.0 million in 1993. NOTE 10: DERIVATIVE FINANCIAL INSTRUMENTS The Corporation is exposed to market risks arising from changes in interest rates. With products and services marketed in over 100 countries and with manufacturing sites in 14 countries, the Corporation also is exposed to risks arising from changes in foreign exchange rates. As an end user of derivative financial instruments, the Corporation utilizes derivatives to manage these risks by creating offsetting market positions. The Corporation's use of derivatives with respect to interest rate and foreign currency exposures is discussed below. CREDIT EXPOSURE: The Corporation is exposed to credit-related losses in the event of non-performance by counterparties to certain derivative financial instruments. The Corporation monitors the creditworthiness of the counterparties and presently does not expect default by any of the counterparties. The Corporation does not obtain collateral in connection with its derivative financial instruments. The credit exposure that results from interest rate and foreign exchange contracts is represented by the fair value of contracts with a positive fair value as of the reporting date, as indicated below. Some derivatives are not subject to credit exposures. The fair value of all financial instruments is summarized in Note 11. INTEREST RATE RISK MANAGEMENT: The Corporation manages its interest rate risk, primarily through the use of interest rate swap and cap agreements, in order to achieve a cost effective mix of fixed to variable rate indebtedness. The Corporation seeks to issue debt opportunistically, whether fixed or variable, at the lowest possible cost and then, based upon its assessment of the future interest rate environment, may, through the use of interest rate derivatives, convert such debt from fixed to variable or from variable to fixed interest rates. Similarly, the Corporation may, at times, seek to limit the effects of rising interest rates on its variable rate debt through the use of interest rate caps. The amounts exchanged by the counterparties to interest rate swap and cap agreements normally are based upon notional amounts and other terms, generally related to interest rates, of the derivatives. While notional amounts of interest rate swaps and caps form part of the basis for the amounts exchanged by the counterparties, the notional amounts are not themselves exchanged and, therefore, do not represent a measure of the Corporation's exposure as an end user of derivative financial instruments. The notional amounts of the Corporation's interest rate derivatives at the end of each year, in millions of dollars, were as follows: 1995 1994 ------- ------- Interest rate swaps: Fixed to variable rates ..................... $700.0 $850.0 Variable to fixed rates ..................... 450.0 750.0 Rate basis swaps ............................ 150.0 200.0 U.S. rates to foreign rates ................. 175.0 175.0 Interest rate caps purchased ................... $150.0 $100.0 The Corporation's portfolio of interest rate swap instruments as of December 31, 1995, included $700.0 million notional amounts of fixed to variable rate swaps with a weighted average fixed rate receipt of 6.25%. The basis of the variable rate swaps paid is LIBOR. A number of the fixed to variable rate swaps contain provisions that permit, during a portion of the terms of the swap, the setting of the variable rates at either the beginning or the end of the reset periods, at the option of the counterparties. The reset periods generally occur every three to six months. The maturities of these swaps, by notional amounts, are as follows: $100.0 million in 1998, $150.0 million in 2000, and the balance in the years 2001 through 2004. A total of $300.0 million of these swaps, maturing in 2003, contains provisions that permit the counterparties to terminate the swap, without penalty, beginning in 1998. As of December 31, 1995, the portfolio also included $450.0 million notional amounts of variable to fixed rate swaps with a weighted average fixed rate payment of 6.52%. The basis of the variable rate received is LIBOR. Of these swaps to fixed rates, $200.0 million and $250.0 million mature in 1997 and 1998, respectively. As of December 31, 1995, the portfolio also contained $150.0 million notional amounts of rate basis swaps, which swap to the higher of a specified weighted average fixed rate payment of 6.85% or a weighted average variable rate payment of LIBOR minus 1.49%. The basis of the variable rates received is LIBOR. Rates received under these rate basis swaps are generally reset every three months. The maturities of these swaps, by notional amounts, are as follows: $50.0 million in 1996, $50.0 million in 1997, and $50.0 million in 1998. At December 31, 1995, payments under these swaps were based on the weighted average fixed rate payment provisions of the swap agreements. The remainder of the interest rate swap portfolio as of December 31, 1995, consisted of $175.0 million notional amounts of interest rates swaps that swap from United States dollars into foreign currencies. Of that amount, $150.0 million had been swapped from fixed rate United States dollars (with a weighted average fixed rate of 6.75%) into fixed rate Japanese yen (with a weighted average fixed rate of 4.68%). Of the $150.0 million notional amounts, $100.0 million mature in 1996, and the balance in 1997. A total of $25.0 million notional amounts of interest rate swaps, maturing in 1997, had been swapped from variable rate United States dollars (with the variable rate based on LIBOR) into fixed rate Swiss francs (with a weighted average fixed rate of 5.17%). As of December 31, 1995, the Corporation also had $150.0 million notional amounts of interest rate caps, which have the effect of limiting the Corporation's exposure to high interest rates. The interest rate caps mature in 1997 and have cap rates of 7.0%. For a total of $100.0 million notional amounts of the interest rate caps, the cap rates increase from 7.0% to 9.0% for any period in which LIBOR exceeds 9.0%. The Corporation's credit exposure on its interest rate derivatives as of December 31, 1995 and 1994, was $3.5 million and $22.2 million, respectively. Deferred gains and losses on the early termination of interest rate swaps as of December 31, 1995 and 1994, were not significant. FOREIGN CURRENCY MANAGEMENT: The Corporation enters into various foreign currency contracts in managing its foreign exchange risks. The contractual amounts of foreign currency derivative financial instruments (principally, forward exchange contracts and options) are generally exchanged by the counterparties. In order to limit the volatility of reported equity, the Corporation historically has hedged a portion of its net investment in subsidiaries located outside the United States, where practicable, except for those subsidiaries located in highly inflationary economies. This has been accomplished through the use of foreign currency forward contracts, foreign currency swaps, and purchased foreign currency options with little or no intrinsic value at the inception of the options. During 1995, the Corporation decided to limit the future hedging of its net investment in foreign subsidiaries. This action may increase the volatility of reported equity in the future but will result in more predictable cash flows from hedging activities. During 1994, the Corporation elected to hedge a portion, generally limited to tangible net worth, of its net investment in subsidiaries outside the United States. Prior to 1994, the Corporation generally operated under a full hedge policy, hedging the net assets, including goodwill, of its subsidiaries outside the United States. Through its foreign currency hedging activities, the Corporation seeks to minimize the risk that cash flows resulting from the sales of products outside the United States will be affected by changes in exchange rates. Foreign currency transaction and commitment exposures generally are the responsibility of the Corporation's individual operating units to manage as an integral part of their business. Management responds to foreign exchange movements through many alternative means, such as pricing actions, changes in cost structure, and changes in hedging strategies. The Corporation hedges its foreign currency transaction and firm purchase commitment exposures, including firm intercompany foreign currency purchases, based on management's judgment, generally through the use of forward exchange contracts and purchased options with little or no intrinsic value at the inception of the options. Some of the contracts involve the exchange of two foreign currencies, according to the local needs of the subsidiaries. The Corporation utilizes some natural hedges to mitigate its transaction and commitment exposures. Intercompany foreign currency purchase commitments are considered to be firm when performance under the commitments is probable because of sufficiently large disincentives to the Corporation for non-performance. Deferred gains and losses on hedged intercompany purchases are recognized in cost of sales when the related inventory is sold or when a hedged purchase is no longer expected to occur. The following table summarizes the contractual amounts of the Corporation's forward exchange contracts as of December 31, 1995 and 1994, in millions of dollars, including details by major currency as of December 31, 1995. Foreign currency amounts are translated at current rates as of the reporting date. The "Buy" amounts represent the United States dollar equivalent of commitments to purchase currencies, and the "Sell" amounts represent the United States dollar equivalent of commitments to sell currencies. As of December 31, 1995 Buy Sell -------- -------- United States dollar .................... $ 964.8 $ (754.0) Pound sterling .......................... 375.8 (168.5) Deutsche mark ........................... 162.4 (312.7) Swedish krona ........................... 129.7 (137.1) Japanese yen ............................ 24.2 (178.8) French franc ............................ 82.0 (131.8) Canadian dollar ......................... 290.8 (254.3) Italian lira ............................ 113.1 (107.3) Swiss franc ............................. 59.3 (54.8) Other ................................... 103.7 (222.9) -------- -------- Total ................................... $2,305.8 $(2,322.2) ======== ======== As of December 31, 1994 Total ..................................... $2,120.5 $(2,137.1) ======== ======== The contractual amounts of the Corporation's purchased currency options to buy currencies, predominantly the United States dollar, and to sell various currencies were $25.1 million and $25.6 million, respectively, at December 31, 1995, and $266.7 million and $262.3 million, respectively, at December 31, 1994. The Corporation's credit exposure on its foreign currency derivatives as of December 31, 1995 and 1994, was $28.9 million and $43.2 million, respectively. Gross deferred realized gains and losses on commitment hedges were not significant at December 31, 1995 and 1994. Substantially all of the amounts deferred at December 31, 1995, are expected to be recognized in earnings during 1996, when the gains or losses on the underlying transactions also will be recognized. NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts. The following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, CERTAIN OTHER CURRENT ASSETS, SHORT-TERM BORROWINGS, AND CURRENT MATURITIES OF LONG-TERM DEBT: The amounts reported in the Consolidated Balance Sheet approximate fair value. LONG-TERM DEBT: Publicly traded debt is valued based on quoted market values. The amount reported in the Consolidated Balance Sheet for the remaining long- term debt approximates fair value since such debt was either variable rate debt or fixed rate debt that had been recently issued as of the reporting date. INTEREST RATE HEDGES: The fair value of interest rate hedges, including interest rate swaps and caps, reflects the estimated amounts that the Corporation would receive or pay to terminate the contracts at the reporting date, thereby taking into account unrealized gains and losses of open contracts as of the reporting date. FOREIGN CURRENCY CONTRACTS: The fair values of forward exchange contracts and options are estimated using prices established by financial institutions for comparable instruments. The following table sets forth the carrying amounts and fair values of the Corporation's financial instruments, except for those noted above for which carrying values approximate fair values, in millions of dollars: Assets (Liabilities) Carrying Fair As of December 31, 1995 Amount Value -------- -------- Non-derivatives: Long-term debt .......................... $(1,704.5) $(1,779.9) -------- -------- Derivatives relating to: Debt Assets ................................ 2.6 3.5 Liabilities ........................... (.5) (16.4) Foreign Currency Assets ................................ 12.6 28.9 Liabilities ........................... (32.6) (46.3) -------- -------- Assets (Liabilities) Carrying Fair As of December 31, 1994 Amount Value -------- -------- Non-derivatives: Long-term debt .......................... $(1,723.2) $(1,637.3) -------- -------- Derivatives relating to: Debt Assets ................................ .6 22.2 Liabilities ........................... (1.4) (101.8) Foreign Currency Assets ................................ 38.0 43.2 Liabilities ........................... (43.9) (62.6) -------- -------- The carrying amounts of debt-related derivatives are included in the Consolidated Balance Sheet in other accrued liabilities. The carrying amounts of foreign currency-related derivatives related to net investment and commitment hedges are included in the Consolidated Balance Sheet in other current assets and other accrued liabilities. The carrying amounts of foreign currency-related derivatives related to transaction hedges are included in the same balance sheet line item as the hedged transaction. NOTE 12: INCOME TAXES Earnings (losses) from continuing operations before income taxes, extraordinary item, and cumulative effect of change in accounting principle, for each year, in millions of dollars, were as follows: 1995 1994 1993 ------- ------- ------- United States ................. $ 83.5 $(16.6) $ 19.9 Other countries ............... 142.0 165.2 103.6 ------- ------- ------- $225.5 $148.6 $123.5 ======= ======= ======= Significant components of income taxes (benefits) for each year, in millions of dollars, were as follows: 1995 1994 1993 ------- ------- ------- Current: United States ..................... $20.2 $ 4.7 $ 7.3 Other countries ................... 33.5 43.7 32.3 Withholding on remittances from other countries ............ 1.4 1.4 1.0 ------- ------- ------- 55.1 49.8 40.6 ------- ------- ------- Deferred: United States ..................... (50.2) 12.0 20.7 Other countries ................... 4.1 (3.1) (1.9) ------- ------- ------- (46.1) 8.9 18.8 ------- ------- ------- $ 9.0 $58.7 $59.4 ======= ======= ======= During 1995, 1994 and 1993, the Corporation utilized United States tax loss carryforwards and capital loss carryforwards obtained in a prior business combination. The effect of utilizing these carryforwards was to recognize deferred income tax expense and to reduce goodwill by $21.0 million in 1995, $15.5 million in 1994, and $21.7 million in 1993. In 1995, income tax benefits of $2.6 million were recorded on the extraordinary loss on extinguishment of debt. In 1993, no income tax benefits were recorded on the cumulative effect adjustment for postemployment benefits. The tax assets related to this adjustment were predominantly in the United States and were offset by a corresponding increase in the deferred tax asset valuation allowance. Income tax expense recorded directly as an adjustment to equity as a result of hedging activities in 1995, 1994, and 1993 was not significant. Income tax payments were $56.3 million in 1995, $44.5 million in 1994, and $92.2 million in 1993. Taxes paid during 1993 included $49.0 million of previously accrued tax payments relating to settlement of prior-year tax audit issues. Deferred tax assets (liabilities) at the end of each year, in millions of dollars, were composed of the following: 1995 1994 ------- ------- Deferred tax liabilities: Fixed assets ...................................... $ (45.8) $ (54.4) Postretirement benefits ........................... (32.5) (31.2) Other ............................................. (8.8) (28.1) ------- ------- Gross deferred tax liabilities ....................... (87.1) (113.7) ------- ------- Deferred tax assets: Bad debt allowance ................................ 6.0 4.1 Inventories ....................................... 16.3 17.2 Postretirement benefits ........................... 7.9 19.2 Fixed assets ...................................... -- 5.7 Net assets of discontinued operations ............. 40.0 -- Other accruals .................................... 97.8 131.5 Tax loss carryforwards ............................ 115.9 144.3 Tax credit and capital loss carryforwards ......... 58.0 55.1 ------- ------- Gross deferred tax assets ............................ 341.9 377.1 ------- ------- Deferred tax asset valuation allowance ............... (187.7) (301.2) ------- ------- Net deferred tax assets (liabilities) ................ $ 67.1 $ (37.8) ======= ======= Deferred income taxes are included in the Consolidated Balance Sheet in other current assets, net assets of discontinued operations, other accrued liabilities, and deferred income taxes. Net deferred tax assets (prior to the valuation allowance) of $41.0 million as of December 31, 1995, resulted from a prior business combination and, accordingly, will result in a reduction of goodwill if realized for financial reporting purposes. At December 31, 1994, a full valuation allowance was provided on net deferred tax assets in the United States based upon the Corporation's history of taxable earnings (losses) over the past several years and the volatility of comprehensive taxable earnings (losses) in the United States due to foreign exchange contracts. In addition, a full valuation allowance on net tax assets in certain foreign taxing jurisdictions was provided at December 31, 1994, based on the history of taxable earnings (losses), the tax carryforward periods, and projected earnings. During the year ended December 31, 1995, the deferred tax asset valuation allowance decreased by $113.5 million. Included in the decrease was $109.0 million, which resulted from the Corporation's reversal of a portion of the deferred tax asset valuation allowance based on the projection of estimable taxable earnings in the United States, including the effect of the pending sale of PRC Inc. The remaining decrease was due to the utilization of domestic tax loss carryforwards, offset by increased tax losses generated by foreign operations. During the year ended December 31, 1994, the deferred tax asset valuation allowance decreased by $45.3 million, primarily due to utilization of tax loss carryforwards and capital loss carryforwards. Tax basis carryforwards at December 31, 1995, consisted of net operating losses expiring from 1996 to 2011, capital loss carryforwards expiring in 1996, and other tax credits expiring from 1998 to 2008. At December 31, 1995, unremitted earnings of subsidiaries outside the United States were approximately $1.3 billion, on which no United States taxes have been provided. The Corporation's intention is to reinvest these earnings permanently or to repatriate the earnings only when tax effective to do so. It is not practicable to estimate the amount of additional tax that might be payable upon repatriation of foreign earnings; however, the Corporation believes that United States foreign tax credits would largely eliminate any United States tax and offset any foreign withholding tax. A reconciliation of income taxes at the federal statutory rate to the Corporation's income taxes for each year, in millions of dollars, is as follows: 1995 1994 1993 ------- ------- ------- Income taxes at federal statutory rate .............................. $78.9 $52.0 $43.2 Lower effective taxes on earnings of other countries ............................. (16.5) (18.7) (15.0) Effect of net operating loss carryforwards ..... (19.4) (2.7) (.7) Effect of reduction in deferred tax asset valuation allowance due to projection of estimable earnings in the United States, including the effect of the pending sale of PRC Inc. .................... (65.0) -- -- Withholding on remittances from other countries ................................... 1.4 1.4 1.0 Amortization and write-off of goodwill ......... 24.6 24.5 23.7 Other-net ...................................... 5.0 2.2 7.2 ------- ------- ------- Income taxes ................................... $ 9.0 $58.7 $59.4 ======= ======= ======= NOTE 13: POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS Net pension cost (credit) for all domestic defined benefit plans included the following components for each year, in millions of dollars: 1995 1994 1993 ------- ------- ------- Service cost ................................ $ 11.3 $14.0 $11.8 Interest cost on projected benefit obligation 47.9 45.6 44.0 Actual return on assets ..................... (108.2) (20.8) (98.6) Net amortization and deferral ............... 39.3 (38.2) 33.4 ------- ------- ------- Net pension cost (credit) ................ $ (9.7) $ .6 $(9.4) ======= ======= ======= The funded status of the domestic defined benefit plans at the end of each year, in millions of dollars, was as follows: 1995 1994 ------- ------- Actuarial present value of benefit obligations: Vested benefit ..................................... $585.2 $492.9 ======= ======= Accumulated benefit ................................ $611.5 $505.4 ======= ======= Projected benefit .................................. $653.0 $553.1 Plan assets at fair value ............................... 750.6 686.6 ------- ------- Plan assets in excess of projected benefit obligation ... 97.6 133.5 Unrecognized net loss ................................... 129.3 79.6 Unrecognized prior service cost ......................... 5.6 6.3 Unrecognized net asset at date of adoption net of amortization ........................................ (4.2) (5.3) ------- ------- Net pension asset recognized in the Consolidated Balance Sheet........................................... $228.3 $214.1 ======= ======= Discount rates .......................................... 7.75% 9.0% Salary scales ........................................... 5.0-6.0% 5.0-6.0% Expected return on plan assets .......................... 10.5% 10.5% The Corporation's net pension expense (credit) for defined benefit pension plans outside the United States was $.8 million in 1995, $(2.0) million in 1994, and $(.7) million in 1993. The net pension asset recognized in the Consolidated Balance Sheet for those plans outside the United States where assets exceeded accumulated benefits was $102.0 million and $96.6 million at December 31, 1995 and 1994, respectively. Liabilities of these plans were discounted at rates ranging from 8.0% to 9.0% in 1995 and from 5.0% to 9.0% in 1994, and expected rates of return on assets of these plans ranged from 10.0% to 10.5% in 1995 and from 5.5% to 12.0% in 1994. The net pension liability recognized in the Consolidated Balance Sheet for those plans outside the United States where accumulated benefits exceeded assets was $71.7 million and $66.9 million at December 31, 1995 and 1994, respectively. Liabilities of these predominantly unfunded plans were discounted at rates ranging from 4.5% to 9.0% in 1995 and from 7.0% to 10.0% in 1994. Assets of domestic plans and plans outside the United States consist principally of investments in equity securities, debt securities, and cash equivalents. The expected returns on plan assets during 1993 for defined benefit plans were 10.5% for plans in the United States and 5.5% to 12.0% for funded plans outside the United States. Expense for defined contribution plans amounted to $11.6 million, $8.3 million, and $7.1 million in 1995, 1994, and 1993, respectively. The Corporation has several unfunded health care plans that provide certain postretirement medical, dental, and life insurance benefits for most United States employees. The postretirement medical and dental plans are contributory and include certain cost-sharing features, such as deductibles and co-payments. Net periodic postretirement benefit expense included the following components, in millions of dollars: 1995 1994 1993 ------- ------- ------- Service expense ............................... $ 1.6 $ 1.8 $ 1.7 Interest expense .............................. 14.0 12.9 14.8 Net amortization .............................. (7.0) (8.0) (7.7) ------- ------- ------- Net periodic postretirement benefit expense ... $ 8.6 $ 6.7 $ 8.8 ======= ======= ======= The reconciliation of the accumulated postretirement benefit obligation to the liability recognized in the Consolidated Balance Sheet at the end of each year, in millions of dollars, was as follows: 1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees ............................................ $129.0 $133.1 Fully eligible active participants .................. 15.7 10.7 Other active participants ........................... 13.5 22.2 ------- ------- Total .................................................. 158.2 166.0 ------- ------- Unrecognized prior service cost ........................ 59.7 63.5 Unrecognized net loss .................................. 22.3 15.8 ------- ------- Net postretirement benefit liability recognized in the Consolidated Balance Sheet ...................... $240.2 $245.3 ======= ======= The health care cost trend rate used to determine the postretirement benefit obligation was 8.75% for 1995 and 1996, decreases gradually to an ultimate rate of 4.75% in 2001, and remains at that level thereafter. The trend rate is a significant factor in determining the amounts reported. The effect of a 1% annual increase in these assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by approximately $11.8 million. The effect of a 1% increase on the aggregate of the service and interest cost components of net periodic postretirement benefit cost is immaterial. An assumed discount rate of 7.75% was used to measure the accumulated postretirement benefit obligation for 1995 compared to 9.0% used in 1994. As of January 1, 1993, the Corporation adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which addresses the accounting for certain benefits provided to former employees prior to retirement. These benefits primarily relate to disability and workers' compensation. Prior to January 1, 1993, the Corporation recognized the cost of providing these benefits principally on the cash basis. Since that date, the Corporation's policy has been to accrue these benefits when payment of such benefits is probable and when sufficient information exists to make reasonable estimates of the amounts to be paid. As a result of the adoption of SFAS No. 112, a $29.2 million cumulative effect adjustment was recorded as a reduction of net income during 1993. NOTE 14: STOCKHOLDERS'EQUITY (Dollars in Millions Except Per Share Amounts)
Equity Outstanding Outstanding Capital in Retained Adjustment Preferred Common $.50 Excess of Earnings From Shares Amount Shares Par Value Par Value (Deficit) Translation - -------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 150,000 $150.0 83,428,106 $41.7 $1,028.6 $ (78.4) $(67.9) Net earnings -- -- -- -- -- 66.0 -- Cash dividends: Common ($.40 per share) -- -- -- -- -- (33.5) -- Preferred -- -- -- -- -- (11.6) -- Common stock issued under employee benefit plans -- -- 417,088 .2 6.2 -- -- Valuation changes, less net effect of hedging activities -- -- -- -- -- -- (52.4) - -------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 150,000 150.0 83,845,194 41.9 1,034.8 (57.5) (120.3) Net earnings -- -- -- -- -- 127.4 -- Cash dividends: Common ($.40 per share) -- -- -- -- -- (33.7) -- Preferred -- -- -- -- -- (11.6) -- Common stock issued under employee benefit plans -- -- 843,609 .4 14.3 -- -- Valuation changes, less net effect of hedging activities -- -- -- -- -- -- 23.7 - -------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 150,000 150.0 84,688,803 42.3 1,049.1 24.6 (96.6) Net earnings -- -- -- -- -- 224.0 -- Cash dividends: Common ($.40 per share) -- -- -- -- -- (34.4) -- Preferred -- -- -- -- -- (11.6) -- Common stock issued under employee benefit plans -- -- 1,758,785 .9 35.4 -- -- Valuation changes, less net effect of hedging activities -- -- -- -- -- -- 39.5 - -------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 150,000 $150.0 86,447,588 $43.2 $1,084.5 $202.6 $(57.1) ====================================================================================================================
The Corporation has one class of $.50 par value common stock with 150,000,000 authorized shares. The Corporation has authorized 5,000,000 shares of preferred stock without par value, of which 1,500,000 shares have been designated as Series A Junior Participating Preferred Stock (Series A) and 150,000 shares have been designated as Series B Cumulative Convertible Preferred Stock (Series B). Holders of Series B stock are entitled to dividends, payable quarterly, at an annual rate of $77.50 per share. In accordance with the terms of the Articles Supplementary that set forth the terms and conditions of the Series B stock, each share of Series B stock now is convertible into 42-1/3 shares of common stock and is entitled to 42-1/3 votes on matters submitted generally to the stockholders of the Corporation. The conversion rate and the number of votes per share are subject to adjustment under certain circumstances pursuant to anti-dilution provisions. The Corporation has reserved 6,350,000 shares of common stock for issuance upon conversion of the shares of Series B stock. The shares of Series B stock are not redeemable at the option of the Corporation until September 2001. For a 90-day period thereafter, the Corporation is entitled to redeem all, but not less than all, of the shares of Series B stock at a redemption price equal to the current market price of the shares of common stock into which the Series B stock is then convertible. The shares of Series B stock are not subject to redemption at the option of the holders of the shares under any circumstances. The Corporation also has the option, after September 1996, to require the conversion of the shares of Series B stock into shares of common stock if the current market price of the shares of common stock is at least equal to $39.45 per share (subject to adjustment) for a period of 20 trading days out of 30 consecutive trading days. In connection with the sale of the Series B stock, the Corporation and the purchaser of Series B stock entered into a standstill agreement that includes, among other things, provisions limiting the purchaser's ownership and voting of shares of the Corporation's capital stock, provisions limiting actions by the purchaser with respect to the Corporation, and provisions generally restricting the purchaser's equity interest to 15%. The standstill agreement expires in September 2001. The Corporation has a Stockholder Rights Plan pursuant to which, under certain conditions, each stockholder has share purchase rights for each outstanding share of common stock and Series B stock of the Corporation. The Corporation has reserved 1,500,000 shares of Series A stock for possible issuance upon exercise of the rights. NOTE 15: STOCK OPTION AND PURCHASE PLANS Under various stock option plans, options to purchase common stock may be granted until 2002. Options generally are granted at fair market value at the date of grant, are exercisable in installments beginning one year from the date of grant, and expire 10 years after the date of grant. The plans permit the issuance of either incentive stock options or non-qualified stock options, which, for certain of the plans, may be accompanied by stock or cash appreciation rights or limited stock appreciation rights issued simultaneously with the grant of the stock options. Additionally, certain plans allow for the granting of stock appreciation rights on a stand-alone basis. As of December 31, 1995, 14,500 incentive stock options, 5,387,434 non-qualified stock options without cash appreciation rights, and 150,000 non-qualified stock options with cash appreciation rights were outstanding under domestic plans. There were 236,754 stock options outstanding under the Corporation's United Kingdom plan. Under all plans, there were 358,564 shares of common stock reserved for future grants as of December 31, 1995. Transactions are summarized as follows: Stock Options Outstanding Price Range ------------- ------------ December 31, 1994 ....................... 6,452,282 $ 9.88-25.25 Granted ................................. 736,100 30.13-35.38 Exercised ............................... 1,165,152 9.88-25.25 Cancelled or expired .................... 234,542 9.88-25.25 ------------ ------------ December 31, 1995 ....................... 5,788,688 9.88-35.38 ------------ ------------ Stock Options Outstanding Price Range ------------- ------------ Shares exercisable at December 31, 1995 ..................... 3,910,292 $9.88-25.25 ------------ ------------ Shares exercised during the year ended December 31, 1994 ............... 343,702 9.88-21.63 ------------ ------------ Shares exercised during the year ended December 31, 1993 ............... 330,024 9.88-20.88 ------------ ------------ Under the 1991 Employees Stock Purchase Plan, employees may subscribe to purchase shares of the Corporation's common stock at the lower of 90% of market value on the date offered or on the date purchased. Transactions under this plan are summarized as follows: Common Shares Subscribed Prices ---------- ------ December 31, 1994 ......................... 152,880 $19.13 Subscriptions ............................. 193,120 25.50 Purchases ................................. 135,686 19.13 Cancellations ............................. 19,651 19.13-25.50 --------- ----------- December 31, 1995 ......................... 190,663 25.50 --------- ----------- Shares purchased during the year ended December 31, 1994 ................ 208,529 16.25 --------- ----------- Shares purchased during the year ended December 31, 1993 ................ 87,064 16.75 --------- ----------- NOTE 16: BUSINESS SEGMENTS AND GEOGRAPHIC AREAS The Corporation operates in two business segments: Consumer and Home Improvement Products, including consumer and professional power tools and accessories, household products, security hardware, outdoor products (composed of electric lawn and garden tools and recreational products), plumbing products, and product service; and Commercial and Industrial Products, including fastening systems and glass container-making equipment. Sales, operating income, capital expenditures, and depreciation set forth in the following table exclude the results of the discontinued PRC segment. Corporate assets included in corporate and eliminations were $688.1 million at December 31, 1995, $575.4 million at December 31, 1994, and $567.9 million at December 31, 1993, and consist principally of cash and cash equivalents, other current assets, property, other sundry assets, and net assets of the discontinued PRC segment. The remainder of corporate and eliminations includes certain pension credits and amounts to eliminate intercompany items, including accounts receivable and payable and intercompany profit in inventory. Business Segments (Millions of Dollars)
Consumer & Commercial & Home Improvement Industrial Corporate & 1995 Products Products Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $4,075.6 $ 690.5 $ -- $4,766.1 Operating income 348.5 74.8 2.8 426.1 Operating income excluding goodwill amortization 399.8 91.9 2.8 494.5 Identifiable assets 4,929.2 1,382.8 (766.7) 5,545.3 Capital expenditures 184.1 15.7 3.3 203.1 Depreciation 115.9 15.4 4.6 135.9 1994 - --------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $3,773.8 $ 591.4 $ -- $4,365.2 Operating income 293.7 52.6 5.6 351.9 Operating income excluding goodwill amortization 350.6 68.7 5.6 424.9 Identifiable assets 4,686.2 1,390.0 (811.9) 5,264.3 Capital expenditures 166.5 12.4 2.6 181.5 Depreciation 101.5 13.9 4.0 119.4 1993 - --------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $3,529.6 $ 591.9 $ -- $4,121.5 Operating income 215.8 76.5 10.4 302.7 Operating income excluding restructuring costs and credits and goodwill amortization 280.8 73.2 10.4 364.4 Identifiable assets 4,693.9 1,375.5 (902.6) 5,166.8 Capital expenditures 171.7 13.9 4.7 190.3 Depreciation 94.2 13.4 3.7 111.3 - ---------------------------------------------------------------------------------------------------------------------
Geographic Areas (Millions of Dollars) United Corporate & 1995 States Europe Other Eliminations Consolidated - --------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $2,551.2 $1,503.6 $711.3 $ -- $4,766.1 Sales and transfers between geographic areas 287.8 165.0 206.0 (658.8) -- - --------------------------------------------------------------------------------------------------------------------- Total sales $2,839.0 $1,668.6 $917.3 $(658.8) $4,766.1 ===================================================================================================================== Operating income $ 300.2 $ 96.0 $ 27.1 $ 2.8 $ 426.1 Identifiable assets $3,216.6 $2,488.4 $763.9 $(923.6) $5,545.3 - --------------------------------------------------------------------------------------------------------------------- 1994 - --------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $2,409.3 $1,279.3 $676.6 $ -- $4,365.2 Sales and transfers between geographic areas 234.9 147.6 213.7 (596.2) -- - --------------------------------------------------------------------------------------------------------------------- Total sales $2,644.2 $1,426.9 $890.3 $(596.2) $4,365.2 ===================================================================================================================== Operating income $ 217.0 $ 114.6 $ 14.7 $ 5.6 $ 351.9 Identifiable assets $3,200.0 $2,305.9 $670.8 $(912.4) $5,264.3 - --------------------------------------------------------------------------------------------------------------------- 1993 - --------------------------------------------------------------------------------------------------------------------- Sales to unaffiliated customers $2,308.6 $1,200.3 $612.6 $ -- $4,121.5 Sales and transfers between geographic areas 236.5 143.3 208.9 (588.7) -- - --------------------------------------------------------------------------------------------------------------------- Total sales $2,545.1 $1,343.6 $821.5 $(588.7) $4,121.5 ===================================================================================================================== Operating income $ 185.0 $ 101.5 $ 5.8 $ 10.4 $ 302.7 Identifiable assets $3,166.9 $2,255.0 $622.7 $(877.8) $5,166.8 - ---------------------------------------------------------------------------------------------------------------------
For 1993, the Consumer and Home Improvement Products segment included charges of $29.0 million for plant closures and reorganizations offset by a gain of $15.9 million for the sale of Corbin Russwin. The Commercial and Industrial Products segment included a gain of $19.4 million for the sale of Dynapert. In the Geographic Areas table, United States includes all domestic operations and several intercompany manufacturing facilities outside the United States, which manufacture products predominantly for sale in the United States. Other includes subsidiaries located in Canada, Latin America, Australia, and the Far East. For 1993, restructuring credits in the amount of $6.3 million were included in the United States geographic segment. Transfers between geographic areas are accounted for at cost plus a reasonable profit. Transfers between business segments are not significant. Identifiable assets are those assets identified with the operations in each area or segment, including goodwill. NOTE 17: OTHER EXPENSE Other expense for 1995, 1994, and 1993 primarily included the costs associated with the sale of receivables program. NOTE 18: LEASES The Corporation leases certain service centers, offices, warehouses, manufacturing facilities, and equipment. Generally, the leases carry renewal provisions and require the Corporation to pay maintenance costs. Rental payments may be adjusted for increases in taxes and insurance above specified amounts. Rental expense charged to earnings from continuing operations for 1995, 1994, and 1993 amounted to $68.0 million, $64.9 million, and $61.2 million, respectively. Capital leases are immaterial in amount and are generally treated as operating leases. Future minimum payments under non-cancellable operating leases with initial or remaining terms of more than one year as of December 31, 1995, in millions of dollars, were as follows: 1996......................... $ 42.4 1997......................... 33.3 1998......................... 24.2 1999......................... 16.9 2000......................... 12.1 Thereafter................... 37.6 ------ Total $166.5 ====== NOTE 19: LITIGATION AND CONTINGENT LIABILITIES The Corporation is involved in various lawsuits in the ordinary course of business. These lawsuits primarily involve claims for damages arising out of the use of the Corporation's products and allegations of patent and trademark infringement. The Corporation also is involved in litigation and administrative proceedings involving employment matters and commercial disputes. Some of these lawsuits include claims for punitive as well as compensatory damages. The Corporation, using current product sales data and historical trends, actuarially calculates the estimate of its current exposure for product liability. The Corporation is insured for product liability claims for amounts in excess of established deductibles and accrues for the estimated liability up to the limits of the deductibles. All other claims and lawsuits are accrued for on a case-by-case basis. The Corporation also is involved in lawsuits and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Certain of these claims assert damages and liability for remedial investigations and cleanup costs with respect to sites at which the Corporation has been identified as a potentially responsible party under federal and state environmental laws and regulations (off-site). Other matters involve sites that the Corporation currently owns and operates or has previously sold (on-site). For off-site claims, the Corporation makes an assessment of the costs involved based on environmental studies, prior experience at similar sites, and the experience of other named parties. The Corporation also considers the ability of other parties to share costs, the percentage of the Corporation's exposure relative to all other parties, and the effects of inflation on these estimated costs. For on-site matters associated with properties currently owned, an assessment is made as to whether an investigation and remediation would be required under applicable federal and state laws. For on-site matters associated with properties previously sold, the Corporation considers the terms of sale as well as applicable federal and state laws to determine if the Corporation has any remaining liability. If the Corporation is determined to have potential liability for properties currently owned or previously sold, an estimate is made of the total costs of investigation and remediation and other potential costs associated with the site. The Corporation's estimate of the costs associated with legal, product liability, and environmental exposures is accrued if, in management's judgment, the likelihood of a loss is probable. These accrued liabilities are not discounted. Insurance recoveries for environmental and certain general liability claims are not recognized until realized. In the opinion of management, amounts accrued for awards or assessments in connection with these matters are adequate and, accordingly, ultimate resolution of these matters will not have a material effect on the Corporation. As of December 31, 1995, the Corporation had no known probable but inestimable exposures that could have a material effect on the Corporation. NOTE 20: QUARTERLY RESULTS (UNAUDITED) (Millions of Dollars Except Per Share Data)
Year Ended December 31, 1995 First Quarter Second Quarter Third Quarter Fourth Quarter - -------------------------------------------------------------------------------------------------------------------- Revenues $1,021.4 $1,135.4 $1,168.9 $1,440.4 Cost of goods sold 642.5 716.2 744.8 913.2 Marketing and administrative expenses 298.2 325.7 320.7 378.7 - -------------------------------------------------------------------------------------------------------------------- Operating income 80.7 93.5 103.4 148.5 Interest expense (net of interest income) 46.8 47.5 47.7 42.4 Other expense 2.8 3.7 5.9 3.8 - -------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 31.1 42.3 49.8 102.3 Income taxes (benefit) 12.0 14.2 17.5 (34.7) - -------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 19.1 28.1 32.3 137.0 Earnings from discontinued operations 6.6 6.7 11.2 13.9 - -------------------------------------------------------------------------------------------------------------------- Earnings before extraordinary item 25.7 34.8 43.5 150.9 Extraordinary loss from extinguishment of debt -- -- -- (30.9) - -------------------------------------------------------------------------------------------------------------------- Net earnings $ 25.7 $ 34.8 $ 43.5 $ 120.0 - -------------------------------------------------------------------------------------------------------------------- Net earnings per common and common equivalent share: Primary: Earnings from continuing operations $ .19 $ .29 $ .33 $ 1.51 Earnings from discontinued operations .08 .08 .13 .16 Extraordinary loss -- -- -- (.35) - -------------------------------------------------------------------------------------------------------------------- Primary earnings per share $ .27 $ .37 $ .46 $ 1.32 - -------------------------------------------------------------------------------------------------------------------- Assuming full dilution: Earnings from continuing operations $ .19 $ .29 $ .34 $ 1.43 Earnings from discontinued operations .08 .08 .12 .15 Extraordinary loss -- -- -- (.32) - -------------------------------------------------------------------------------------------------------------------- Fully diluted earnings per share $ .27 $ .37 $ .46 $ 1.26 - -------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 - -------------------------------------------------------------------------------------------------------------------- Revenues $ 894.4 $1,015.8 $1,096.6 $1,358.4 Cost of goods sold 570.7 644.2 701.8 853.0 Marketing and administrative expenses 263.5 295.5 312.3 372.3 - -------------------------------------------------------------------------------------------------------------------- Operating income 60.2 76.1 82.5 133.1 Interest expense (net of interest income) 43.9 47.8 45.3 50.9 Other expense 2.1 2.3 2.9 8.1 - -------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 14.2 26.0 34.3 74.1 Income taxes 6.4 10.4 13.6 28.3 - -------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 7.8 15.6 20.7 45.8 Earnings from discontinued operations 6.8 7.4 8.6 14.7 - -------------------------------------------------------------------------------------------------------------------- Net earnings $ 14.6 $ 23.0 $ 29.3 $ 60.5 - -------------------------------------------------------------------------------------------------------------------- Net earnings per common and common equivalent share: Primary: Earnings from continuing operations $ .06 $ .15 $ .21 $ .51 Earnings from discontinued operations .08 .09 .10 .17 - -------------------------------------------------------------------------------------------------------------------- Primary earnings per share $ .14 $ .24 $ .31 $ .68 - -------------------------------------------------------------------------------------------------------------------- Assuming full dilution: Earnings from continuing operations $ .06 $ .15 $ .21 $ .49 Earnings from discontinued operations .08 .09 .10 .16 - -------------------------------------------------------------------------------------------------------------------- Fully diluted earnings per share $ .14 $ .24 $ .31 $ .65 - --------------------------------------------------------------------------------------------------------------------
As described in Note 2, during the fourth quarter of 1995, the Corporation agreed to sell the remainder of its PRC segment. Changes in previously reported results are due to the reclassification of amounts applicable to the discontinued operations of PRC. The results of the discontinued operations do not reflect any expense for interest allocated by or management fees charged by the Corporation. The extraordinary loss recognized in the fourth quarter of 1995 resulted from the early extinguishment of debt. The three-month period ended December 31, 1995, included a tax benefit of $65.0 million ($.73 per share on a primary basis and $.68 per share on a fully diluted basis) related to the reduction of the Corporation's deferred tax asset valuation allowance. Earnings per common and common equivalent share are computed independently for each of the quarters presented. Therefore, the sum of the quarters may not necessarily be equal to the full year earnings per share amounts due to stock transactions which occurred during 1995 and 1994 and, with respect to fully diluted earnings per share, whether the assumed conversion of preferred shares was dilutive or anti-dilutive during each quarter. REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of The Black & Decker Corporation: We have audited the accompanying consolidated balance sheets of The Black & Decker Corporation as of December 31, 1995 and 1994, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Black & Decker Corporation at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 13 to the financial statements, effective January 1, 1993, the Corporation changed its method of accounting for postemployment benefits. /s/ERNST & YOUNG LLP Baltimore, Maryland January 31, 1996 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Information required under this Item with respect to Directors is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 1996, under the captions Election of Directors and Board of Directors - Section 16 and is incorporated herein by reference. Information required under this Item with respect to Executive Officers of the Corporation is included in Item 1 of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 1996, under the captions Board of Directors and Executive Compensation and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 1996, under the captions Voting Securities and Security Ownership of Management and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is contained in the Corporation's Proxy Statement for the Annual Meeting of Stockholders to be held April 23, 1996, under the caption Executive Compensation and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) LIST OF FINANCIAL STATEMENTS,FINANCIAL STATEMENT SCHEDULES, AND EXHIBITS (1) List of Financial Statements The following consolidated financial statements of the Corporation and its subsidiaries are included in Item 8 of Part II: Consolidated Statement of Earnings - years ended December 31, 1995, 1994, and 1993. Consolidated Balance Sheet - December 31, 1995 and 1994. Consolidated Statement of Cash Flows - years ended December 31, 1995, 1994, and 1993. Notes to Consolidated Financial Statements. Report of Independent Auditors. (2) List of Financial Statement Schedules The following financial statement schedule of the Corporation and its subsidiaries is included herein. Schedule II - Valuation and Qualifying Accounts and Reserves. All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) List of Exhibits The following exhibits are either included in this report or incorporated herein by reference as indicated below: Exhibit No. Exhibit 3(a)(1) Charter of the Corporation, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended December 25, 1988, is incorporated herein by reference. 3(a)(2) Articles Supplementary of the Corporation, as filed with the State Department of Assessments and Taxation of the State of Maryland on September 5, 1991, included in the Corporation's Current Report on Form 8-K dated September 25, 1991, is incorporated herein by reference. 3(b) By-Laws of the Corporation, as amended. 4(a) Indenture dated as of March 24, 1993, by and between The Black & Decker Corporation and Security Trust Company, National Association, included in the Corporation's Current Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated herein by reference. 4(b) Form of 7-1/2% Notes due April 1, 2003, included in the Corporation's Current Report on Form 8-K filed with the Commission on March 26, 1993, is incorporated herein by reference. 4(c) Form of 6-5/8% Notes due November 15, 2000, included in the Corporation's Current Report on Form 8-K filed with the Commission on November 22, 1993, is incorporated herein by reference. 4(d) Form of 7% Notes due February 1, 2006, included in the Corporation's Current Report on Form 8-K filed with the Commission on January 20, 1994, is incorporated herein by reference. 4(e)(1) Credit Agreement dated as of November 18, 1992, among The Black & Decker Corporation, Black & Decker Holdings Inc., Black & Decker GmbH, DOM Sicherheitstechnik GmbH & Co. KG, Black & Decker(France) S.A.R.L., the banks listed on the signature pages thereto, Chemical Bank, Credit Suisse and The Bank of Nova Scotia, as Managing Agents, and Credit Suisse, as Administrative Agent, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 4(e)(2) Amendment No. 1 dated as of October 21, 1994, to Credit Agreement dated as of November 18, 1992, by and among The Black & Decker Corporation, Black & Decker Holdings Inc., Black & Decker GmbH, DOM Sicherheitstechnik GmbH & Co. KG, Black & Decker(France) S.A.R.L., the banks listed therein, Chemical Bank, Credit Suisse and The Bank of Nova Scotia, as Managing Agents, and Credit Suisse, as Administrative Agent, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 2, 1994, is incorporated herein by reference. 4(f) Indenture dated as of September 9, 1994, by and between The Black & Decker Corporation and Marine Midland Bank, as Trustee, included in the Corporation's Current Report on Form 8-K filed with the Commission on September 9, 1994, is incorporated herein by reference. The Corporation agrees to furnish a copy of any other documents with respect to long-term debt instruments of the Corporation and its subsidiaries upon request. 4(g)(1) Rights Agreement, dated as of April 17, 1986, by and between the Corporation and Morgan Guaranty Trust Company of New York, included in the Corporation's Current Report on Form 8-K dated April 29, 1986, is incorporated herein by reference. 4(g)(2) Amendment Agreement to the Rights Agreement dated as of March 31, 1988, between the Corporation and Morgan Guaranty Trust Company of New York as Rights Agent, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 27, 1988, is incorporated herein by reference. 4(g)(3) Second Amendment Agreement to the Rights Agreement dated as of September 6, 1991, by and between the Corporation and First Chicago Trust Company of New York as successor Rights Agent, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(a) The Black & Decker Corporation Deferred Compensation Plan For Non-Employee Directors, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 2, 1994, is incorporated herein by reference. 10(b) The Black & Decker 1982 Stock Option Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 29, 1991, is incorporated herein by reference. 10(c) The Black & Decker 1986 Stock Option Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 29, 1991, is incorporated herein by reference. 10(d) The Black & Decker 1986 U.K. Approved Option Scheme, as amended, included in the Corporation's Registration Statement on Form S-8 (Reg.No.33-47651), filed with the Commission on May 5, 1992, is incorporated herein by reference. 10(e) The Black & Decker 1989 Stock Option Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 29, 1991, is incorporated herein by reference. 10(f) The Black & Decker 1992 Stock Option Plan, included in the Corporation's Registration Statement on Form S-8 (Reg.No.33-47652), filed with the Commission on May 5, 1992, is incorporated herein by reference. 10(g) The Black & Decker 1995 Stock Option Plan for Non-Employee Directors, included in the definitive Proxy Statement for the 1995 Annual Meeting of Stockholders of the Corporation dated March 9, 1995, is incorporated herein by reference. 10(h)(1) The Black & Decker Performance Equity Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 29, 1992, is incorporated herein by reference. 10(h)(2) The Black & Decker Performance Equity Plan, as amended subject to approval of the stockholders of the Corporation at the 1996 Annual Meeting of Stockholders. 10(i) Annual Incentive Plan, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10(j) The Black & Decker Executive Annual Incentive Plan subject to the approval of the stockholders of the Corporation at the 1996 Annual Meeting of Stockholders. 10(k) Amended and Restated Employment Agreement, dated as of November 1, 1995, by and between the Corporation and Nolan D. Archibald. 10(l) Letter Agreement, dated May 31, 1989, by and between the Corporation and Raymond A. DeVita, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(m) Letter Agreement, dated February 1, 1975, by and between the Corporation and Alonzo G. Decker, Jr., included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. 10(n) The Black & Decker Supplemental Pension Plan, as amended, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(o) The Black & Decker Executive Deferred Compensation Plan, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended October 3, 1993, is incorporated herein by reference. 10(p) The Black & Decker Supplemental Retirement Savings Plan, included in the Corporation's Registration Statement on Form S-8 (Reg.No.33- 65013), filed with the Commission on December 14, 1995, is incorporated herein by reference. 10(q) The Black & Decker Supplemental Executive Retirement Plan, as amended. 10(r) The Black & Decker Executive Life Insurance Program, as amended, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended April 4, 1993, is incorporated herein by reference. 10(s) The Black & Decker Executive Salary Continuance Plan, included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended April 12, 1995, is incorporated herein by reference. 10(t) Description of the Corporation's policy and procedure for relocation of existing employees (individual transfers), included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(u) Description of the Corporation's policy and procedures for relocation of new employees, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference. 10(v) Form of Amendment and Restatement of Severance Benefits Agreement by and between the Corporation and approximately 17 of its key employees. 10(w) Amendment and Restatement of Severance Benefits Agreement, dated November 20, 1995, by and between the Corporation and Nolan D. Archibald. 10(x) Amendment and Restatement of Severance Benefits Agreement, dated November 21, 1995, by and between the Corporation and Raymond A. DeVita. 10(y) Amendment and Restatement of Severance Benefits Agreement, dated November 14, 1995, by and between the Corporation and Charles E. Fenton. 10(z) Amendment and Restatement of Severance Benefits Agreement, dated December 5, 1995, by and between the Corporation and Joseph Galli. 10(aa) Amendment and Restatement of Severance Benefits Agreement, dated November 18, 1995, by and between the Corporation and Don R. Graber. 10(bb)(1) Agreement and Plan of Merger dated as of March 19, 1989, included in the Corporation's Schedule 14D-1 in respect of Emhart Corporation filed on March 22, 1989, is incorporated herein by reference. 10(bb)(2) Amendment Agreement dated as of April 26, 1989, included in the Corporation's Amendment No. 5 to Schedule 14D-1 in respect of Emhart Corporation filed on April 28, 1989, is incorporated herein by reference. 10(cc) Letter Agreement dated as of August 13, 1991, by and between the Corporation and Newell Co., included in the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, is incorporated herein by reference. 10(dd) Standstill Agreement dated as of September 24, 1991, between the Corporation and Newell Co., included in the Corporation's Current Report on Form 8-K dated September 25, 1991, is incorporated herein by reference. 10(ee) Distribution Agreement dated September 9, 1994, by and between The Black & Decker Corporation, Lehman Brothers Inc., Citicorp Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, NationsBanc Capital Markets, Inc. and Salomon Brothers Inc., included in the Corporation's Current Report on Form 8-K filed with the Commission on September 9, 1994, is incorporated herein by reference. 10(ff) Stock Purchase Agreement dated as of December 13, 1995, by and among The Black & Decker Corporation, PRC Investments Inc., PRC Inc. and Litton Industries, Inc. 11 Computation of Earnings Per Share. 12 Computation of Ratios. 21 List of Subsidiaries. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule. All other items are "not applicable" or "none". (b) Reports on Form 8-K The Corporation filed a Current Report on Form 8-K with the Commission on December 21, 1995. This Current Report on Form 8-K was filed pursuant to Item 5 of Form 8-K and reported the Corporation's definitive agreement to sell PRC Inc. to Litton Industries, Inc., for $425.0 million. All other items are "not applicable" or "none". (c) Exhibits The exhibits required by Item 601 of Regulation S-K are filed herewith. (d) Financial Statement Schedules and Other Financial Statements (1) The Financial Statement Schedule required by Regulation S-X is filed herewith. (2) The following Unaudited Pro Forma Financial Information contemplated by Article 11 of Regulation S-X, reflecting the Corporation's sales of the businesses comprising its discontinued information technology and services segment, is filed herewith: Pro Forma Statement of Earnings (Unaudited) - for the year ended December 31, 1995 Pro Forma Balance Sheet (Unaudited) - as of December 31, 1995 The Unaudited Pro Forma Financial Information set forth below is being provided in this Annual Report on Form 10-K in lieu of the filing of a separate Current Report on Form 8-K pursuant to Item 2 thereof. As indicated above in Item 1 of Part I of this Annual Report on Form 10-K, during 1995 the Corporation sold PRC Realty Systems, Inc. and PRC Environmental Management, Inc. and entered into an agreement to sell PRC Inc. for $425 million to Litton Industries, Inc. On February 16, 1996, the Corporation completed the sale of PRC Inc. to Litton Industries, Inc. A copy of the Stock Purchase Agreement dated as of December 13, 1995, by and among the Corporation, PRC Investments Inc., PRC Inc., and Litton Industries, Inc. is being filed herewith as Exhibit 10(ff), and is incorporated herein by reference. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES THE BLACK & DECKER CORPORATION AND SUBSIDIARIES (Millions of Dollars)
Balance Additions Other At Charged Changes Balance Beginning to Costs Add At End Description of Period and Expenses Deductions (Deduct) of Period - ----------- --------- ------------ ---------- -------- --------- Year Ended December 31, 1995 Reserve for doubtful accounts and cash discounts $38.2 $56.6 $52.9(A) $1.2(B) $43.1 ===== ===== ===== ==== ===== Year Ended December 31, 1994 Reserve for doubtful accounts and cash discounts $36.6 $41.8 $41.7(A) $1.5(B) $38.2 ===== ===== ===== ==== ===== Year Ended December 31, 1993 Reserve for doubtful accounts and cash discounts $46.7 $30.8 $39.2(A) $(1.7)(B) $36.6 ===== ===== ===== ====== ===== (A) Accounts written off during the year and cash discounts taken by customers. (B) Primarily includes currency translation adjustments.
UNAUDITED PRO FORMA FINANCIAL INFORMATION The Black & Decker Corporation and Subsidiaries The Corporation completed the sale of PRC Inc. on February 16, 1996. The Corporation sold Realty Systems, Inc. (RSI) on March 31, 1995, and PRC Environmental Management, Inc. (EMI) on September 15, 1995. Together, PRC Inc., RSI, and EMI comprised the Corporation's discontinued information technology and services (PRC) segment. The following unaudited Pro Forma Consolidated Statement of Earnings and Pro Forma Consolidated Balance Sheet are based on the historical Consolidated Statement of Earnings and Consolidated Balance Sheet of the Corporation, adjusted to reflect the sales of PRC Inc. and, for purposes of the Pro Forma Consolidated Statement of Earnings, RSI and EMI. The unaudited Pro Forma Consolidated Statement of Earnings for the year ended December 31, 1995, presents the Corporation's results from continuing operations prior to the extraordinary loss on extinguishment of debt, adjusted to give effect to the sale of the discontinued PRC segment, assuming that the sales of PRC Inc., RSI, and EMI, and the reduction of the Corporation's debt with the proceeds therefrom, had taken place on January 1, 1995. The unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1995, presents the Corporation's financial position, adjusted to give effect to the sale of PRC Inc., assuming that the sale of PRC Inc., and the reduction of the Corporation's debt with the proceeds therefrom, had taken place on December 31, 1995. The proceeds received from the sales of RSI and EMI, and the associated debt reductions therefrom, are reflected in the Corporation's historical Consolidated Balance Sheet as of December 31, 1995. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable under the circumstances. The following unaudited pro forma financial information should be read in conjunction with the Corporation's historical Consolidated Financial Statements and notes thereto, included in Item 8 of Part II of this report. In addition, the following unaudited pro forma financial information is provided for informational purposes only, and is not necessarily indicative of what the actual results from continuing operations of the Corporation would have been had the sales of PRC Inc., RSI, and EMI and the associated debt reductions taken place on January 1, 1995, or what the actual financial position of the Corporation would have been had the sale of PRC Inc. and the associated debt reduction taken place on December 31, 1995. Further, the unaudited pro forma financial information does not purport to indicate the future results of operations or financial position of the Corporation. PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) FOR THE YEAR ENDED DECEMBER 31, 1995 The Black & Decker Corporation and Subsidiaries (Dollars in Millions Except Per Share Data)
- ------------------------------------------------------------------------------------------------------------------------------- Actual (a) Adjustments Pro Forma - ------------------------------------------------------------------------------------------------------------------------------- Revenues $4,766.1 $ -- $ 4,766.1 Cost of goods sold 3,016.7 -- 3,016.7 Marketing and administrative expenses 1,323.3 -- 1,323.3 - ------------------------------------------------------------------------------------------------------------------------------- Operating Income 426.1 -- 426.1 Interest expense (net of interest income of $8.6) 184.4 (27.8) (b) 156.6 Other expense 16.2 -- 16.2 - ------------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations Before Income Taxes 225.5 27.8 253.3 Income taxes 9.0 2.2 (c) 11.2 - ------------------------------------------------------------------------------------------------------------------------------- Earnings From Continuing Operations $216.5 $25.6 $242.1 =============================================================================================================================== Earnings from Continuing Operations Applicable to Common Shares $204.9 $25.6 $230.5 =============================================================================================================================== Earnings from Continuing Operations Per Common and Common Equivalent Share: - ------------------------------------------------------------------------------------------------------------------------------- Primary: Earnings from continuing operations $2.33 $2.62 =============================================================================================================================== Shares Used in Computing Primary Earnings from Continuing Operations Per Share (in Millions) 87.9 87.9 =============================================================================================================================== Fully Diluted: Earnings from continuing operations $2.29 $2.56 =============================================================================================================================== Shares Used in Computing Fully Diluted Earnings From Continuing Operations Per Share (in Millions) 94.7 94.7 ===============================================================================================================================
(a) The actual results shown herein reflect only those of the Corporation's continuing operations and exclude the extraordinary loss on extinguishment of debt that occurred during 1995. The operating results of PRC Inc., RSI, and EMI (collectively, the discontinued PRC segment) are reflected in earnings from discontinued operations in the Corporation's historical Consolidated Statement of Earnings included in Item 8 of Part II of this report. As a result, no adjustment to earnings from continuing operations is necessary to eliminate the operating results of the discontinued PRC segment. (b) To reflect the reduction of interest expense due to the following: (i) the Corporation's assumed repayment of $405.0 million of variable rate short- term borrowings with the proceeds from the sale of PRC Inc.; (ii) the Corporation's assumed repayment of $60.0 million of variable rate short-term borrowings with the proceeds from the sale of RSI; and (iii) the Corporation's assumed repayment of $35.5 million of variable rate short-term borrowings with the proceeds from the sale of EMI. In all cases, an assumed interest rate of 6.25% was used, which approximates the Corporation's weighted average interest rate on its domestic variable rate short-term borrowings during 1995. The effect on pro forma earnings from continuing operations of a 1/8% variance in the assumed interest rate would be approximately $.5 million. (c) To reflect the income tax effect of adjustment (b) above at the Corporation's marginal tax rate for the tax jurisdictions affected. That marginal tax rate differs from the statutory tax rate as a result of the Corporation's net operating loss carryforwards. The Corporation's historical income tax expense of $9.0 million for the year ended December 31, 1995, includes a $65.0 million tax benefit ($.74 per share on a primary basis and $.69 per share on a fully diluted basis) due to the reduction of its deferred tax asset valuation allowance, a portion of which related to the anticipated gain on the sale of PRC Inc. For purposes of the Pro Forma Statement of Earnings, no pro forma adjustment was made to that $65.0 million tax benefit, since any such adjustment will not have a continuing impact on the Corporation. PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) DECEMBER 31, 1995 The Black & Decker Corporation and Subsidiaries (Millions of Dollars)
- -------------------------------------------------------------------------------------------------------------------------- Actual Adjustments Pro Forma - -------------------------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 131.6 $425.0 (a) (405.0) (b) $ 151.6 Trade receivables less allowances of $43.1 651.3 -- 651.3 Inventories 855.7 -- 855.7 Net assets of discontinued operations 302.4 (302.4) (c) -- Other current assets 165.6 (20.0) (d) 145.6 - --------------------------------------------------------------------------------------------------------------------------- Total Current Assets 2,106.6 (302.4) 1,804.2 - --------------------------------------------------------------------------------------------------------------------------- Property, Plant & Equipment 866.8 -- 866.8 Goodwill 2,142.0 -- 2,142.0 Other Assets 429.9 -- 429.9 - --------------------------------------------------------------------------------------------------------------------------- $5,545.3 $(302.4) $5,242.9 =========================================================================================================================== Liabilities and Stockholders' Equity Short-term borrowings $ 599.2 $(405.0)(b) $ 194.2 Current maturities of long-term debt 48.0 -- 48.0 Trade accounts payable 396.7 -- 396.7 Other accrued liabilities 743.0 17.6 (e) 760.6 - --------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 1,786.9 (387.4) 1,399.5 - --------------------------------------------------------------------------------------------------------------------------- Long-Term Debt 1,704.5 -- 1,704.5 Deferred Income Taxes 52.8 -- 52.8 Postretirement Benefits 307.8 -- 307.8 Other Long-Term Liabilities 270.1 -- 270.1 Stockholders' Equity Convertible preferred stock (outstanding: 150,000 shares) 150.0 -- 150.0 Common stock (outstanding: 86,447,588 shares) 43.2 -- 43.2 Capital in excess of par value 1,084.5 -- 1,084.5 Retained earnings 202.6 85.0 (f) 287.6 Equity adjustment from translation (57.1) -- (57.1) - --------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 1,423.2 85.0 1,508.2 - --------------------------------------------------------------------------------------------------------------------------- $5,545.3 $(302.4) $5,242.9 ===========================================================================================================================
(a) To reflect the Corporation's receipt of cash proceeds from the sale of PRC Inc. (b) To reflect the Corporation's reduction of short-term borrowings upon receipt of the cash proceeds from the sale of PRC Inc. (c) To eliminate the net assets of discontinued operations. (d) To reverse the Corporation's deferred tax asset related to the gain on the sale of PRC Inc. (e) To reflect the accrual of expenses related to the sale of PRC Inc. (f) To reflect an estimated gain on the sale of PRC Inc., net of income taxes, in the amount of $85.0 million. The Corporation estimates that its net gain on the sale of PRC Inc. will be in the range of $80.0 to $90.0 million. Pursuant to the requirements of Section 13 or 15(d) 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. THE BLACK & DECKER CORPORATION Date: February 29, 1996 By /s/ NOLAN D. ARCHIBALD ----------------- ---------------------- Nolan D. Archibald Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 29, 1996, by the following persons on behalf of the registrant and in the capacities indicated. Signature Title Date Principal Executive Officer /s/ NOLAN D. ARCHIBALD February 29, 1996 - ---------------------- ----------------- Nolan D. Archibald Chairman, President, and Chief Executive Officer Principal Financial Officer /s/ THOMAS M. SCHOEWE February 29, 1996 - --------------------- ----------------- Thomas M. Schoewe Vice President and Chief Financial Officer Principal Accounting Officer /s/ STEPHEN F. REEVES February 29, 1996 - --------------------- ----------------- Stephen F. Reeves Corporate Controller This report has been signed by the following directors, constituting a majority of the Board of Directors, by Nolan D. Archibald, Attorney-in-Fact. Nolan D. Archibald J. Dean Muncaster Barbara L. Bowles Lawrence R. Pugh Malcolm Candlish Mark H. Willes Alonzo G. Decker, Jr. M. Cabell Woodward, Jr. Anthony Luiso /s/ NOLAN D. ARCHIBALD Date: February 29, 1996 - ---------------------- Nolan D. Archibald Attorney-in-Fact EX-3 2 Exhibit 3(b) Adopted 08/13/91 Amended 04/26/94 Amended 12/08/94 Amended 12/14/95 BYLAWS OF THE BLACK & DECKER CORPORATION ARTICLE I Stockholders SECTION 1. Annual Meeting. The annual meeting of stockholders shall be held on the last Tuesday in April of each year or on such day within 15 days thereof and at such time and at such place as the Board of Directors may by resolution provide for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these Bylaws. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business (other than the election of directors by holders of shares of Series B Cumulative Convertible Preferred Stock (the "Series B Stock") in accordance with the provisions of the Articles Supplementary in respect of the Series B Stock) to be properly brought before an annual meeting by a stockholder, the stockholder must have given written notice thereof that is received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received not later than the close of business on the 15th day following the day on which the notice of the date of the annual meeting was mailed or the public disclosure was made, whichever first occurred. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this section, provided, however, that nothing in this section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article, and if the Chairman should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 2. Special Meetings. Special meetings of the stockholders may be called at any time for any purpose or purposes by the Chief Executive Officer, by a majority of the Board of Directors, or by a majority of the Executive Committee. Special meetings of the stockholders shall be called forthwith by the Chairman of the Board, by the President, or by the Secretary of the Corporation upon the written request of stockholders entitled to cast at least 25% of all votes entitled to be cast at the special meeting. Special meetings of holders of Series B Stock for the purpose of electing directors in accordance with the provisions of the Articles Supplementary in respect of the Series B Stock shall be called forthwith by the Chairman of the Board, by the President or by the Secretary of the Corporation upon the written request of stockholders owning in the aggregate at least 10% of the outstanding shares of Series B Stock. Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted on at the meeting. However called, notice of the meeting shall be given to each stockholder and shall state the purpose or purposes of the meeting. No business other than that stated in the notice shall be transacted at any special meeting. SECTION 3. Place of Meetings. All meetings of stockholders shall be held at the principal offices of the Corporation at Towson, Baltimore County, Maryland, or at such other location in the State of Maryland as the Board of Directors may provide in the notice of the meeting. SECTION 4. Notice of Meetings. Written or printed notice of each meeting of the stockholders shall be delivered to each stockholder by leaving the notice with the stockholder at the stockholder's residence or usual place of business, or by mailing it, postage prepaid and addressed to the stockholder at the stockholder's address as it appears upon the records of the Corporation. The notice shall be delivered or mailed not more than 90 nor less than 20 days before the meeting, and shall state the place, day, and hour at which the meeting is to be held. No notice of any meeting of the stockholders need be given to any stockholder who attends the meeting in person or by proxy, or to any stockholder who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives notice. SECTION 5. Quorum. Except as otherwise provided in the charter of the Corporation in respect of the Series B Stock, at any meeting of stockholders the presence in person or by proxy of the holders of record of a majority of the shares of stock entitled to vote at the meeting shall constitute a quorum. In the absence of a quorum, the stockholders entitled to vote who shall be present in person or by proxy at any meeting (or adjournment thereof) may, by a majority vote and without further notice, adjourn the meeting from time to time, but not for a period of over thirty days at any one time, until a quorum shall attend. At any adjourned meeting at which a quorum shall be present, any business may be transacted that could have been transacted if the meeting had been held as originally scheduled. SECTION 6. Conduct of Meetings. Meetings of stockholders shall be presided over by the Chairman of the Board of Directors of the Corporation or, in the Chairman's absence, by the Vice Chairman of the Board, or if both of such officers are absent, by the President of the Corporation. The Secretary of the Corporation shall act as secretary of meetings of the stockholders and in the Secretary's absence, the records of the proceedings shall be kept and authenticated by such other person as may be appointed for that purpose at the meeting by the presiding officer. The rules contained in the current edition of Robert's Rules of Order Newly Revised shall govern in all cases to which they are applicable and in which they are not inconsistent with these Bylaws and any special rules of order the meeting may adopt. SECTION 7. Approval of Minutes. The minutes of all meetings of stockholders shall be corrected and approved by a committee of directors designated by the Board and if none is designated, by the Organization Committee. At a subsequent meeting of stockholders, a relevant excerpt from the minutes may be read for information at the request of a stockholder. SECTION 8. Proxies. Stockholders may vote either in person or by proxy, but no proxy that is dated more than 11 months before the meeting at which it is offered shall be accepted unless the proxy shall on its face name a longer period for which it is to remain in force. Every proxy shall be in writing and signed by the stockholder, or by the stockholder's duly authorized agent, and shall be dated. The proxy need not be sealed, witnessed or acknowledged. Proxies shall be filed with the Secretary of the Corporation at or before the meeting. SECTION 9. Voting. Except as otherwise provided in the charter of the Corporation, at all meetings of stockholders, each holder of shares of Common Stock shall be entitled to one vote and each holder of shares of Series B Stock shall be entitled to the number of votes provided for in the charter of the Corporation for each share of stock of the Corporation registered in the stockholder's name upon the books of the Corporation on the date fixed by the Board of Directors as the record date for the determination of stockholders entitled to vote at the meeting. Except as otherwise provided in the charter of the Corporation, all elections and matters submitted to a vote at meetings of stockholders shall be decided by a majority of all votes cast in person or by proxy, unless more than a majority of the votes cast is required by statute, by charter, or by these Bylaws. If the officer of the Corporation presiding over the meeting shall so determine, a vote by ballot may be taken upon any election or matter, and the vote shall be so taken upon the request of the holders of ten percent of the stock present and entitled to vote on the election or matter. If the presiding officer shall so determine, the votes on all matters to be voted upon by ballot may be postponed to be voted on at the same time or on a single ballot. SECTION 10. Inspectors of Elections. Two or more inspectors may be appointed by the presiding officer at any meeting. If so appointed, the inspectors shall open and close the polls, receive and take charge of the proxies and ballots, decide all questions as to the qualifications of voters and the validity of proxies, determine and report the results of elections and votes on matters before the meeting, and do such other acts as may be proper to conduct the election and the vote with fairness to all stockholders. SECTION 11. List of Stockholders. Prior to each meeting of the stockholders, the Secretary of the Corporation shall prepare, as of the record date fixed by the Board of Directors with respect to the meeting, a full and accurate list of all stockholders entitled to vote at the meeting, indicating the number of shares and class of stock held by each. The Secretary shall be responsible for the production of that list at the meeting. ARTICLE II Board of Directors SECTION 1. Powers. The property, business, and affairs of the Corporation shall be managed by the Board of Directors of the Corporation. The Board of Directors may exercise all the powers of the Corporation, except those conferred upon or reserved to the stockholders by statute, by charter or by these Bylaws. The Board of Directors shall keep minutes of each of its meetings and a full account of all of its transactions. SECTION 2. Number of Directors. Except as the holders of Series B Stock may exercise their right as a class to elect a director or directors in certain events, the number of directors of the Corporation shall be 14 or such other number not less than nine as may from time to time be determined by the vote of three-fourths of the entire Board of Directors. However, the number of directors may not be decreased to less than nine, nor the tenure of office of a director be affected by any change in number. SECTION 3. Nomination of Directors. Except as provided in the charter of the Corporation in respect of the Series B Stock voting as a class, only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors at a meeting of stockholders. Nominations of persons for election as Directors may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this section. Nominations, other than those made by or at the direction of the Board, shall be made pursuant to written notice delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 50 days nor more than 75 days prior to the meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder must be so received not later than the close of business on the 15th day following the day on which notice of the date of the meeting was mailed or public disclosure was made, whichever first occurred. The notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of Directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice (i) the name and record address of stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of the proposed nominee to serve as Director of the Corporation. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if the Chairman should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 4. Election. Except as hereinafter provided, the members of the Board of Directors shall be elected each year at the annual meeting of stockholders by the vote of the holders of record of a majority of the shares of stock present in person or by proxy and entitled to vote at the meeting. Each director shall hold office until the next annual meeting of stockholders held after his or her election and until his or her successor shall have been duly elected and qualified, or until death, or until he or she shall have resigned, or shall have been removed as hereinafter provided. Each person elected as director of the Corporation shall qualify as such by written acceptance or by attendance at and participation as a director in a duly called meeting of the Board of Directors. SECTION 5. Removal. At a duly called meeting of the stockholders at which a quorum is present, the stockholders may, by vote of the holders of a majority of the votes entitled to be cast at the meeting, remove with or without cause any director or directors from office, and may elect a successor or successors to fill any resulting vacancy for the remainder of the term of the director so removed. SECTION 6. Vacancies. Except as provided in the charter of the Corporation in respect of directors elected by holders of the Series B Stock voting as a class, (a) if any director shall die or resign, or if the stockholders shall remove any director without electing a successor to fill the remaining term, that vacancy may be filled by the vote of a majority of the remaining members of the Board of Directors, although a majority may be less than a quorum, and (b) vacancies in the Board created by an increase in the number of directors may be filled by the vote of a majority of the entire Board as constituted prior to the increase. A director elected by the Board of Directors to fill any vacancy, however created, shall hold office until the next annual meeting of stockholders and until his or her successor shall have been duly elected and qualified. SECTION 7. Meetings. Immediately after each annual meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors shall meet, without notice, for the election of an Executive Committee of the Board of Directors, for the election of officers of the Corporation, and for the transaction of other business. Other regular meetings of the Board of Directors shall be held in the months of February, July, October and December on the day and at the time designated by the Chief Executive Officer. Special meetings of the Board of Directors may be called at any time by the Chief Executive Officer or by any two directors. Regular and special meetings of the Board of Directors may be held at such place, in or out of the State of Maryland, as the Board may from time to time determine. SECTION 8. Notice of Meetings. Except for the meeting immediately following the annual meeting of stockholders, notice of the place, day and hour of a regular meeting of the Board of Directors shall be given in writing to each director not less than three days prior to the meeting and delivered to the director or to the director's residence or usual place of business, or by mailing it, postage prepaid and addressed to the director at his or her address as it appears upon the records of the Corporation. Notice of special meetings may be given in the same way, or may be given personally, by telephone, or by telegraph or facsimile message sent to the director's home or business address as it appears upon the records of the Corporation, not less than one day prior to the meeting. Unless required by these Bylaws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted at the meeting. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives notice. SECTION 9. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business at meetings of the Board of Directors. Except as otherwise provided by statute, by charter, or by these Bylaws, the vote of a majority of the directors present at a duly constituted meeting shall be sufficient to pass any measure, and such decision shall be the decision of the Board of Directors. In the absence of a quorum, the directors present, by majority vote and without further notice, may adjourn the meeting from time to time until a quorum shall be present. The Board of Directors may also take action or make decisions by any other method which may be permitted by statute, by charter, or by these Bylaws. SECTION 10. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless the director announces his or her dissent at the meeting, and (a) the dissent is entered in the minutes of the meeting, (b) before the meeting adjourns the director files with the person acting as the secretary of the meeting a written dissent to the action, or (c) the director forwards a written dissent within 24 hours after the meeting is adjourned by registered or certified mail to the Secretary of the Corporation. The right to dissent does not apply to a director who voted in favor of the action or who failed to announce his or her dissent at the meeting. A director may abstain from voting on any matter before the meeting by so stating at the time the vote is taken and by causing the abstention to be recorded or stated in writing in the same manner as provided above for a dissent. SECTION 11. Compensation. Each director shall be entitled to receive such remuneration as may be fixed from time to time by the Board of Directors. However, no director who receives a salary as an officer or employee of the Corporation or of any subsidiary thereof shall receive any remuneration as a director or as a member of any committee of the Board of Directors. Each director may also receive reimbursement for the reasonable expenses incurred in attending the meetings of the Board of Directors, the meetings of any committee thereof, or otherwise in connection with attending to the affairs of the Corporation. SECTION 12. Director Emeritus. Any retired member of the Board of Directors may be designated by the Board as a Director Emeritus for a period of one year for each of the three years next succeeding retirement as a Director. Each Director Emeritus shall receive notices of meetings, remuneration, and reimbursement for expenses in attending meetings as may be fixed by the Board of Directors from time to time. A Director Emeritus shall be entitled to attend all meetings of the Board of Directors and of any committee to which he or she may be appointed and may participate in the discussion of (but not in the voting on) any matter properly before the meeting. A Director Emeritus shall not be counted for the purpose of determining the number of appointments to be made to a committee or for determining a quorum of the committee. ARTICLE III Committees SECTION 1. Executive Committee. At its first meeting after the annual meeting of the stockholders, the Board of Directors shall elect an Executive Committee consisting of at least five members of the Board, of whom the Chairman of the Board, if any, shall be one. The Board shall designate a Chairman of the Committee who shall serve as Chairman of the Committee at the pleasure of the Board. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all powers in the management and direction of the business and affairs of the Corporation except as limited by the Maryland General Corporation Law or by resolution of the Board of Directors. All action taken by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action, and shall be subject to revision and alteration by the Board, provided that no rights of third parties may be adversely affected by any revision or alteration. Delegation of authority to the Executive Committee shall not relieve the Board of Directors or any director of any responsibility imposed by law or statute or by charter. SECTION 2. Other Committees. From time to time the Board of Directors by resolution adopted by the affirmative vote of a majority of the members of the entire Board may provide for and appoint other committees to have the powers and perform the duties assigned to them by the Board of Directors. These committees may include, but are not limited to, an Organization Committee, a Finance Committee, and an Audit Committee. SECTION 3. Meetings of Committees. Each Committee of the Board of Directors shall fix its own rules of procedure, and shall meet as provided by those rules or by resolution of the Board, or at the call of the chairman or any two members of the committee. A majority of each committee shall constitute a quorum thereof, and in every case the affirmative vote of a majority of the entire committee shall be necessary to take any action. Each committee may also take action by any other method that may be permitted by statute, by charter, or by these Bylaws. In the event a member of a committee fails to attend any meeting of the committee, the other members of the committee present at the meeting, whether or not they constitute a quorum, may appoint a member of the Board of Directors to act in the place of the absent member. Regular minutes of the proceedings of each committee and a full account of all its transactions shall be kept in a book provided for the purpose, except that the Organization Committee shall not be required to keep minutes. Vacancies in any committee of the Board of Directors shall be filled by the Board of Directors. ARTICLE IV Officers SECTION 1. Election and Tenure. The Board of Directors may elect a Chairman and a Vice Chairman from among the directors. The Board of Directors shall elect a President, a Treasurer and a Secretary, and one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers with such powers and duties as the Board may designate, none of whom need be a director. Each officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election and until a successor shall have been duly chosen and qualified or until he or she shall have resigned or been removed. All elections to office shall be by a majority vote of the entire Board of Directors. SECTION 2. Chairman of the Board. The Chairman of the Board shall preside at all meetings of stockholders and of the Board of Directors at which he or she shall be present. The Chairman shall have such other powers and perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 3. Vice Chairman of the Board. The Vice Chairman of the Board, in the absence of the Chairman of the Board, shall preside at all meetings of stockholders and the Board of Directors. (In the absence of the Chairman and the Vice Chairman, the Board of Directors shall elect a chairman of the meeting.) The Vice Chairman shall have such other powers and perform such other duties as from time to time may be assigned by the Board of Directors or by the Chairman of the Board. SECTION 4. President. The President shall be the Chief Executive Officer of the Corporation and, subject to the control of the Board of Directors and the Executive Committee, shall have general charge and supervision of the Corporation's business, affairs, and properties. The President shall have authority to sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments. The President may sign, with the Secretary or the Treasurer, stock certificates of the Corporation. In the absence of the Chairman and the Vice Chairman of the Board, the President shall preside at meetings of stockholders. In general, the President shall perform all the duties ordinarily incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors or by the Executive Committee. SECTION 5. Vice Presidents. Each Vice President, which term shall include any Executive Vice President or Group Vice President, shall have the power to sign and execute, unless otherwise provided by resolution of the Board of Directors, all contracts or other obligations in the name of the Corporation in the ordinary course of business, and with the Secretary, or with the Treasurer, or with an Assistant Secretary, or with an Assistant Treasurer, may sign stock certificates of the Corporation. At the request of the President or in the President's absence or during the President's inability to act, the Vice President or Vice Presidents shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there is more than one Vice President, the Board of Directors may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions, or if the determination is not made by the Board, the President may make the determination. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned by the Board of Directors or by the President. For purposes of this Article IV, Section 5, the term Vice President does not include a Vice President appointed pursuant to Article IV, Section 9. SECTION 6. Secretary. The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors, and of the Executive Committee, including all the votes taken at the meetings, and record them in books provided for that purpose. The Secretary shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by statute. The Secretary shall be the custodian of the records and of the corporate seal of the Corporation. The Secretary may affix the corporate seal to any document executed on behalf of the Corporation, and may attest the same. The Secretary may sign, with the President or a Vice President, stock certificates of the Corporation. In general, the Secretary shall perform all duties ordinarily incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors or by the President. SECTION 7. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies, or depositories as may be designated by the Board of Directors. The Treasurer shall maintain full and accurate accounts of all assets, liabilities and transactions of the Corporation, and shall render to the President and the Board of Directors, whenever they may require it, an account of all transactions as Treasurer and of the financial condition of the Corporation. In general, the Treasurer shall perform all the duties ordinarily incident to the office of a treasurer of a corporation, and such other duties as, from time to time, may be assigned to him or her by the Board of Directors or by the President. The Treasurer shall give the Corporation a bond, if required by the Board of Directors, in a sum, and with one or more sureties, satisfactory to the Board of Directors, for the faithful performance of the duties of the office and for the restoration to the Corporation in case of death, resignation, retirement or removal from office of all corporate books, papers, vouchers, moneys, and other properties of whatever kind in his or her possession or under his or her control. SECTION 8. Subordinate Officers. The subordinate officers shall consist of such assistant officers and agents as may be deemed desirable and as may be elected by a majority of the members of the Board of Directors. Each such subordinate officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. SECTION 9. Appointed Vice Presidents. The Chief Executive Officer may from time to time appoint one or more Vice Presidents with such administrative powers and duties as may be designated or approved by the Chief Executive Officer. An appointed Vice President shall not be a corporate officer and may be removed by the Chief Executive Officer. SECTION 10. Officers Holding Two or More Offices. Any two or more of the above named offices, except those of Chairman and Vice Chairman of the Board and those of President and Vice President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if the instrument is required by statute, by charter, by these Bylaws, or by resolution of the Board of Directors to be executed, acknowledged, or verified by two or more officers. SECTION 11. Compensation. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. It may authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of the subordinate officers. SECTION 12. Removal. Any officer of the Corporation may be removed, with or without cause, by a vote of a majority of the entire Board of Directors, and any officer of the Corporation appointed by another officer may also be removed, with or without cause, by the appointing officer, by the Executive Committee, or by the Board of Directors. SECTION 13. Vacancies. A vacancy in any office because of death, resignation, removal, or any other cause shall be filled for the unexpired portion of the term by election of the Board of Directors at any regular or special meeting. ARTICLE V Stock SECTION 1. Certificates. Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind of shares of the Corporation's stock owned by the stockholder for which full payment has been made, or for which payment is being made by installments in conjunction with a stockholder-approved option plan. Each stock certificate shall be signed by the Chairman, the President or a Vice President and countersigned by the Secretary or Treasurer or Assistant Treasurer of the Corporation. A stock certificate shall be deemed to be so signed and sealed whether the required signatures are manual or facsimile signatures and whether the seal is a facsimile seal or any other form of seal. In case any officer of the Corporation who has signed a stock certificate ceases to be an officer of the Corporation, whether because of death, resignation or otherwise, before the stock certificate is issued, the certificate may nevertheless be issued and delivered by the Corporation as if the officer had not ceased to be such officer on the date of issue. SECTION 2. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof, in person or by duly authorized agent, upon the surrender of the stock certificate representing the shares to be transferred, properly endorsed. The Board of Directors shall have power and authority to make other rules and regulations concerning the issue, transfer and registration of stock certificates as it may deem expedient. SECTION 3. Transfer Agents and Registrars. The Corporation may have one or more transfer agents and one or more registrars of its stock, whose respective duties the Board of Directors may, from time to time, define. No stock certificate shall be valid until countersigned by a transfer agent, if the Corporation has a transfer agent in respect of that class or series of capital stock, or until registered by a registrar, if the Corporation has a registrar in respect of that class or series of capital stock. The duties of transfer agent and registrar may be combined. SECTION 4. New Certificates. In case any stock certificate is alleged to have been lost, stolen, mutilated, or destroyed, the Board of Directors may authorize the issue of a new certificate in place thereof upon such terms and conditions as it may deem advisable. The Board of Directors may, in its discretion, further require the owner of the stock certificate or the owner's duly authorized agent to give bond with sufficient surety to the Corporation to indemnify it against any loss or claim which may arise by reason of the issue of a stock certificate in the place of one reportedly lost, stolen, or destroyed. SECTION 5. Record Dates. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining those stockholders who shall be entitled to notice of, or to vote at, any meeting of stockholders, or for the purpose of determining those stockholders who shall be entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of making any other proper determination with respect to stockholders. Except as provided in the charter of the Corporation in respect of the Series B Stock, the date shall be not more than 90 days, and in the case of a meeting of stockholders, not less than 10 days, prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period, not to exceed in any case 20 days. When the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, the closing of the transfer books shall be at least 10 days before the date of the meeting. SECTION 6. Annual Report. The President of the Corporation shall annually prepare a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year. These statements shall be sent to the extent possible to each beneficial owner of the stock of the Corporation prior to or with the proxy statement and notice to stockholders of the annual meeting of stockholders. It will be submitted at the annual meeting, and within 20 days thereafter be placed on file at the Corporation's principal offices in Maryland. ARTICLE VI Dividends and Finance SECTION 1. Dividends. Subject to any statutory or charter conditions and limitations, the Board of Directors may in its discretion declare what, if any, dividends shall be paid from the surplus or from the net profits of the Corporation, the date when the dividends shall be payable, and the date for the determination of holders of record to whom the dividends shall be paid. SECTION 2. Depositories. The Board of Directors from time to time shall designate one or more banks or trust companies as depositories of the Corporation and shall designate those officers and agents who shall have authority to deposit corporate funds in such depositories. It shall also designate those officers and agents who shall have authority to withdraw from time to time any or all of the funds of the Corporation so deposited upon checks, drafts, or orders for the payment of money, notes and other evidences of indebtedness, drawn against the account and issued in the name of the Corporation. The signatures of the officers or agents may be made manually or by facsimile. No check or order for the payment of money shall be invalidated because a person whose signature appears thereon has ceased to be an officer or agent of the Corporation prior to the time of payment of the check or order by any depository. SECTION 3. Corporate Obligations. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness or guaranties of the obligations of others shall be issued in the name of the Corporation unless authorized by a resolution of the Board of Directors. Such authority may be either general or specific. When duly authorized, all loans, promissory notes, acceptances, other evidences of indebtedness and guaranties shall be signed by the President, a Vice President, the Treasurer, or an Assistant Treasurer. SECTION 4. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January and end on the last day of December of each year. ARTICLE VII Books and Records SECTION 1. Books and Records. The Corporation shall maintain a stock ledger which shall contain the name and address of each stockholder and the number of shares of stock of the Corporation which the stockholder holds. The ledger shall be kept at the principal offices of the Corporation in Towson, Baltimore County, Maryland, or at the offices of the Corporation's stock transfer agent. All other books, accounts, and records of the Corporation, including the original or a certified copy of these Bylaws, the minutes of all stockholders meetings, a copy of the annual statement, and any voting trust agreements on file with the Corporation, shall be kept and maintained by the Secretary at the principal offices of the Corporation in Towson. SECTION 2. Inspection Rights. Except as otherwise provided by statute or by charter, the Board of Directors shall determine whether and to what extent the books, accounts, and records of the Corporation, or any of them, shall be open to the inspection of stockholders. No stockholder shall have any right to inspect any book, account, document or record of the Corporation except as conferred by statute, by charter, or by resolution of the stockholders or the Board of Directors. ARTICLE VIII Seal SECTION 1. Seal. The seal of the Corporation shall consist of a circular impression bearing the name of the Corporation and the word "Maryland" around the rim and in the center the word "Incorporated" and the year "1910." ARTICLE IX Indemnification SECTION 1. Indemnification. The Corporation to the full extent permitted by, and in the manner permissible under, the laws of the State of Maryland and other applicable laws and regulations may indemnify any person who is or was an officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or entity and shall indemnify any director of the Corporation or any director who is or was serving at the request of the Corporation as a director of another corporation or entity, who by reason of his or her position was, is, or is threatened to be made a party to an action or proceeding, whether civil, criminal, administrative, or investigative, against any and all expenses (including, but not limited to, attorneys' fees, judgments, fines, penalties, and amounts paid in settlement) actually and reasonably incurred by the director, officer, employee, or agent in connection with the proceeding. Repeal or modification of this Section or the relevant law shall not affect adversely any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. ARTICLE X Amendments SECTION 1. Amendment of Bylaws. These Bylaws may be amended at any meeting of the stockholders by a majority of all the votes cast, provided the text of the amendment is submitted with the notice of the meeting. The Board of Directors may also amend these Bylaws by a vote of a majority of the directors present at a meeting, provided that the Board of Directors shall not consider or act on any amendment to these Bylaws that, directly or indirectly, modifies the meaning or effect of any amendment to these Bylaws adopted by the stockholders within the preceding 12- month period, or any amendment to these Bylaws that, directly or indirectly, contains substantially similar provisions to those of an amendment rejected by the stockholders within the preceding 12-month period. EX-10 3 Exhibit 10(h)(2) THE BLACK & DECKER PERFORMANCE EQUITY PLAN Section 1. Purpose The purpose of The Black & Decker Performance Equity Plan (the "Plan") is to attract and retain key employees of The Black & Decker Corporation (the "Corporation") and its Subsidiaries, to motivate those employees to put forth maximum efforts for the long-term success of the business, and to encourage ownership of the Corporation's Stock by them. Section 2. Definitions The following definitions are applicable to the Plan: (a) "Committee" shall mean the Organization Committee of the Corporation's Board of Directors or such other committee of the Board comprised of not less than three members as the Board of Directors shall from time to time appoint to administer the Plan. All members of the Committee shall be members of the Board of Directors of the Corporation who are not eligible to participate in the Plan and who are (i) disinterested persons as defined in Rule 16b-3 adopted pursuant to the Exchange Act, and (ii) outside directors as defined in the Section 162(m) Regulations. (b) "Designated Beneficiary" shall mean the beneficiary designated by the Participant, in a manner determined by the Committee, to receive shares of Stock or other payments due the Participant in the event of the Participant's death, or in the absence of an effective designation by the Participant, the Participant's surviving spouse, or, if there is no surviving spouse, the Participant's estate. (c) "Employee" shall mean a regular full-time salaried employee of the Corporation or of a Subsidiary. (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (e) "Executive Officer" shall mean an executive officer of the Corporation within the meaning of Rule 3b-7 promulgated under the Exchange Act and a "covered employee" as defined by the Section 162(m) Regulations. (f) "Fiscal Year" shall mean the fiscal year of the Corporation. (g) "Participant" shall mean an Employee who is selected by the Committee to participate in the Plan pursuant to Section 5. (h) "Performance Goals" shall mean the performance objective or objectives relating to, in whole or in part, the performance of the Corporation or any Subsidiary, group, division, or operating unit of the Corporation or any Subsidiary during a Performance Period. With respect to a Participant who is an Executive Officer, the performance objective or objectives shall be based on one of, or a combination of, the following factors: the market price of the Stock at the close of business on the last business day of the Performance Period, increases in the market price of the Stock during the Performance Period, the earnings for the Performance Period or any year or years in the Performance Period (either before taxes, before interest and taxes, before depreciation, amortization, interest and taxes, or after all of the foregoing), the earnings per share for the Performance Period or any year or years in the Performance Period, or, as to the Corporation or any Subsidiary, group, division or operating unit thereof, the average annual return on equity or net assets for the Performance Period or the return on equity or net assets for a specified year or years in the Performance Period, the average annual gross margin or cost of goods sold for the Performance Period or the gross margin or cost of goods sold for a specified year or years in the Performance Period, or the average annual cash flow from operations or free cash flow for the Performance Period or the cash flow from operations or free cash flow for a specified year or years in the Performance Period. (i) "Performance Period" shall mean with respect to each grant of Performance Shares a period of three to five Fiscal Years. (j) "Performance Shares" shall mean a grant pursuant to Sections 5 and 7 of an award in the form of shares of Common Stock or units equivalent thereto. (k) "Section 162(m) Regulations" shall mean the regulations adopted pursuant to Section 162(m) of the Internal Revenue Code of 1986 (as amended), as such regulations may be amended from time to time. (l) "Stock" shall mean the common stock, $.50 par value, of the Corporation. (m) "Subsidiary" shall mean any business entity in which the Corporation, directly or indirectly, owns 50 percent or more of the total combined voting power of all classes of stock or other equity interests. Section 3. Administration The Plan shall be administered by the Committee. The Committee shall have full power to establish the form and terms and conditions (including, without limitation, noncompete, confidentiality or similar provisions) of the Performance Share Agreement that shall represent the grant of Performance Shares to a Participant hereunder, to construe and interpret the Plan and to establish and amend rules and regulations for its administration. All actions taken and decisions made by the Committee pursuant to the provisions of the Plan shall be binding and conclusive on all persons for all purposes, including but not limited to Participants and their legal representatives and beneficiaries. The rights of a Participant shall at all times be subject to the terms and conditions set forth in the respective Performance Share Agreement. Section 4. Maximum Amount Available for Grants (a) The maximum number of Performance Shares that may be granted and the maximum number of shares of Stock that may be issued under the Plan is 1,500,000, subject to adjustment as provided in Section 11. If Performance Shares are forfeited under the Plan, they and any related shares of Stock shall again be available for grant and issuance under the Plan. Subject to Section 10, if Performance Shares are paid in cash rather than in shares of Stock, they and any related shares of Stock shall not be available for grant and issuance. (b) Shares of Stock delivered under the Plan shall be made available from authorized but unissued shares. (c) With respect to each Performance Period beginning on or after January 1, 1996, the maximum number of Performance Shares that may be granted, and the maximum number of shares of Stock that may be issued, to any Participant shall be 75,000. Section 5. Participation; Grants The Committee shall from time to time make grants of Performance Shares to Participants selected from among those Employees who, in the opinion of the Committee, have the capacity to contribute in substantial measure to the successful performance of the Corporation and its Subsidiaries. In making grants, the Committee may take into account a Participant's level of responsibility, rate of compensation, individual performance and contribution, and such other criteria as it deems appropriate. If an Employee becomes a Participant after the commencement of a Performance Period, the number of Performance Shares granted, if any, may be prorated for the length of time remaining in the Performance Period. With respect to any Employee who is or becomes an Executive Officer, the Committee may not designate the Employee a Participant more than 90 days after the commencement of a Performance Period. The Committee may not grant Performance Shares to any member of the Committee. Section 6. Performance Goals The Committee shall establish Performance Goals for each Performance Period on the basis of such criteria, and to accomplish such objectives, as the Committee may from time to time determine. The Committee shall also establish a schedule or schedules for the Performance Period setting forth the percentage of the Performance Shares granted that will be earned or forfeited based on the percentages of the Performance Goals for the period that are actually achieved or exceeded. To provide Participants with additional motivation, the Committee, in its discretion, may provide for the issuance to individual Participants, where Performance Goals in excess of a target are achieved or exceeded, of additional, fully vested and unrestricted Performance Shares not to exceed 50% of the Performance Shares granted for the Performance Period; provided, however, that with respect to Performance Periods beginning on or after January 1, 1996, if such an additional grant is made to an Executive Officer, the number of additional Performance Shares to be granted to the Executive Officer shall be fixed by the Committee within 90 days of the commencement of the Performance Period, and the grant of additional Performance Shares to the Executive Officer shall be contingent upon the attainment of the Performance Goals established, in writing, by the Committee within 90 days of the commencement of the Performance Period. In setting Performance Goals, the Committee may use return on equity, earnings growth, revenue growth, peer comparisons or such other measures of performance in such manner as it deems appropriate; provided, however, that for Performance Periods beginning on or after January 1, 1996, Performance Goals established with respect to a Participant who is an Executive Officer shall be based on one of, or a combination of, the factors set forth in the definition of Performance Goals. The Committee shall establish Performance Goals before, or as soon as practicable after, the commencement of the Performance Period; provided that with respect to a Participant who is an Executive Officer the Performance Goals shall be established in writing by the Committee not later than 90 days after the commencement of the Performance Period. During the Performance Period and until such time thereafter as payment is made in accordance with Section 8(b), the Committee shall have the authority to adjust upward or downward the Performance Goals or the measure or measures of performance in such manner as it deems appropriate to reflect unusual, extraordinary or nonrecurring events, changes in applicable accounting rules or principles or in the Corporation's methods of accounting, changes in applicable tax law or regulations, changes in Fiscal Year or such other factors as the Committee may determine, including authority to determine that all or any portion of any Performance Shares otherwise earned for the Performance Period have not been earned (even if applicable Performance Goals originally established have been met). Notwithstanding the preceding sentence, with respect to a Performance Period beginning on or after January 1, 1996, the Committee shall have no such authority to the extent that the existence or exercise of the authority would result in any awards made to such Participants for the Performance Period not being excluded from covered compensation under the Section 162(m) Regulations as a result of the qualified performance based compensation exclusion in the Section 162(m) Regulations. Section 7. During Performance Period (a) Performance Shares may be granted in the form of either shares of Stock or units equivalent thereto as described in the following paragraphs of this Section 7. (b) If Performance Shares are granted in the form of shares of Stock, certificates representing the Performance Shares shall be issued in the name of the Participant, but shall be retained in the custody of the Corporation until the expiration of the Performance Period and the determination of the number of shares, if any, that are to be forfeited pursuant to the terms of the grant. During the Performance Period (and until such time thereafter as payment is made in accordance with Section 8(b)), the Performance Shares shall not be transferable, except to the extent rights may pass upon the death of the Participant to a Designated Beneficiary pursuant to the terms of this Plan. The Participant shall have the right during the Performance Period to receive all cash dividends and other cash distributions with respect to the Performance Shares granted to the Participant that have not previously been forfeited and to vote such shares. Any distribution of shares of stock or other securities or property made with respect to Performance Shares held in the name of a Participant shall be treated as part of the Performance Shares of the Participant and shall be subject to forfeiture and all the other limitations and restrictions imposed upon such Performance Shares. Upon the expiration of the Performance Period or the occurrence of any other event that may give rise to forfeiture under the Plan, the Corporation may defer payment of dividends on Performance Shares until a determination is made as to the number of such shares, if any, to be forfeited, and no further dividends shall be paid with respect to forfeited shares after the date of the forfeiture (regardless of whether the record date of the dividend is before or after the date of the forfeiture). The Participant shall retain the right to vote all Performance Shares until a determination has been made by the Committee as to whether such shares, or a part thereof, have been forfeited. In the event of the death of the Participant, his Designated Beneficiary shall have the same right to receive cash dividends and other cash distributions with respect to the Performance Shares that are not forfeited and to vote such shares as the Participant would have had if he had survived. (c) If Performance Shares are granted in the form of units equivalent to shares of Stock, no certificates shall be issued with respect to the units, but the Corporation shall maintain a bookkeeping account in the name of the Participant to which the units shall relate and the units shall otherwise be treated in a comparable manner as if the Participant had been awarded shares of Stock (except that no voting rights or other stock ownership rights shall apply to the units). Each such unit shall represent the right to receive one share of Stock or a cash payment of equivalent value at the time, in the manner and subject to the restrictions set forth in the Plan. If, during the Performance Period, cash dividends or other cash distributions are paid with respect to shares of Stock, the Corporation shall pay to the Participant in cash an amount equal to the cash dividends or cash distributions that he would have received if the Performance Shares had been granted in the form of shares of Stock rather than units equivalent thereto. If, during the Performance Period, shares of stock or other securities or property are distributed with respect to the Stock, additional units equivalent to such shares, securities or property shall be added to the Participant's bookkeeping account as additional units and shall be subject to forfeiture and all other limitations and restrictions imposed upon the related units. Upon the expiration of the Performance Period or the occurrence of any other event that may give rise to forfeiture under the Plan, the Corporation may defer payment of dividend equivalents on units of Performance Shares until a determination is made as to the number of such units, if any, to be forfeited, and no further dividend equivalents shall be paid with respect to forfeited units after the date of the forfeiture (regardless of whether the record date of the dividend is before or after the date of the forfeiture). In the event of the death of the Participant, his Designated Beneficiary shall have the same right to receive cash payments equivalent to cash dividends and other cash distributions with respect to the units of Performance Shares which are not forfeited as the Participant would have had if he had survived. A Participant (or Designated Beneficiary) shall have no right to or interest in any specific assets of the Corporation or any of its Subsidiaries by reason of the establishment of the bookkeeping account described in this paragraph (c), and shall have only the right of an unsecured creditor of the Corporation with respect to amounts payable from such account under this Plan. Section 8. Payment (a) As soon as practicable after the end of a Performance Period, except as permitted in paragraph (c) of this Section 8, the Committee shall determine the extent to which the Performance Goals have been achieved or exceeded and, on this basis, shall certify and declare in writing what percentages, if any, of the granted Performance Shares have been earned with respect to the Performance Period. (b) In accordance with the procedures specified by the Committee from time to time, payment of Performance Shares that have been earned shall be made in Stock, cash equivalent in value to the corresponding shares of Stock, or a combination thereof as determined by the Committee. (c) For the first Performance Period established under the Plan (but not for any subsequent Performance Periods), the Committee may in its discretion establish interim Performance Goals applicable to a Fiscal Year or Years ending prior to the end of the Performance Period, and provide for a portion of the Performance Shares granted for the Performance Period to be earned and paid out as soon as practicable following the end of each such Fiscal Year or Years to the extent such interim Performance Goals are satisfied. Section 9. Termination of Employment and Forfeitures Subject to the provisions of Section 10: (a) Except as otherwise provided in paragraph (c) below, Performance Shares which are granted but not earned by a Participant with respect to the Performance Period shall be forfeited. (b) Except as otherwise provided in paragraph (c) below or in Section 8 (c), if a Participant ceases to be an Employee prior to the end of the Performance Period, all of such Participant's Performance Shares for the Performance Period shall be forfeited. (c) If prior to the end of a Performance Period, a Participant dies or ceases to be an Employee by reason of (i) retirement from active employment with a right to receive an immediate pension benefit under the applicable pension plan of the Corporation or any of its Subsidiaries, (ii) extended disability (such as entitles the Participant to long-term disability payments under the applicable pension plan or long-term disability plan of the Corporation or any of its Subsidiaries), or (iii) for any other reason specified in each case by the Committee, there shall be forfeited as of the cessation of employment a number of Performance Shares equal to the number initially granted to the Participant for that Performance Period multiplied by a fraction, (i) the numerator of which shall be the number of full calendar months from the date of the Participant's cessation of employment to the end of the Performance Period, and (ii) the denominator of which shall be the number of months representing the entire Performance Period; provided, that with respect to Performance Periods beginning before January 1, 1996, the Committee is authorized to declare (before or as soon as practicable after such cessation of employment) that a lesser number of Performance Shares shall be forfeited as of the date of such cessation of employment. With respect to the Performance Shares that are not so forfeited as of the date of such cessation of employment, the Performance Period shall continue and the percentage of such remaining Performance Shares that are earned or forfeited shall be determined based upon the extent to which the applicable Performance Goals for such Performance Period have been achieved or exceeded (subject to the last two sentences of Section 6). (d) Transfer from the Corporation to a Subsidiary, from a Subsidiary to the Corporation, or from one Subsidiary to another Subsidiary shall not be considered a termination of employment. Nor shall it be considered a termination of employment if an Employee is placed on military or sick leave or on other leave of absence that is considered by the Committee as continuing intact the employment relationship. In those cases, the employment relationship shall be continued until the later of the date when the leave equals 90 days or the date when an Employee's right to reemployment shall no longer be guaranteed either by law or by contract, except that in the event active employment is not renewed at the end of the leave of absence, the employment relationship shall be deemed to have been terminated at the beginning of the leave of absence. Section 10. Mergers, Sales and Change of Control (a) In the case of (i) any merger, consolidation, share exchange or combination of the corporation with or into another corporation (other than a merger, consolidation, share exchange or combination in which the Corporation is the surviving corporation and which does not result in the outstanding Stock being converted into or exchanged for different securities, cash or other property, or any combination thereof) or a sale of all or substantially all of the business or assets of the Corporation or (ii) a Change of Control of the Corporation, all Performance Periods shall be deemed to have ended as of the end of the most recent quarterly accounting period prior to the date of the merger, consolidation, share exchange, combination, sale of assets, or Change of Control and the maximum percentage of Performance Shares (150% of the number granted or, with respect to Performance Periods beginning on or after January 1, 1996, 100% of the number granted) shall be deemed to have been earned. In the event that application of the foregoing provisions results in more than 1,500,000 Performance Shares being deemed to have been earned, then notwithstanding any other provision of the Plan (including but not limited to the provisions of Section 4) any Performance Shares in excess of 1,500,000 deemed to have been earned shall be paid in cash equivalent in value to the corresponding shares of Stock. (b) "Change of Control" of the Corporation shall mean a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is in fact required to do so, provided that, without limitation, such a change of control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of Stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years (not including any period prior to the adoption of the Plan), individuals who at the beginning of the period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this definition) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, consolidation or share exchange between the Corporation and any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, consolidation or share exchange, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. Section 11. Adjustment of and Changes in Stock In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, share exchange, rights offering, distribution of assets, or any other change in the corporate structure or capital stock of the Corporation, the Committee shall make such adjustments, if any, as it deems appropriate in the number of Performance Shares that have been or may be granted under the Plan, the number of shares of Stock available for issuance under the Plan, and the Performance Goals and the number of Performance Shares that may be earned, to reflect the change, and any adjustments so made shall be conclusive for all purposes of the Plan. Section 12. Miscellaneous Provisions (a) The rights or interest of a Participant or Designated Beneficiary under the Plan may not be assigned, encumbered or transferred until such time as payment is made in accordance with Section 8(b), except to the extent rights may pass upon the death of the Participant to a Designated Beneficiary pursuant to the terms of this Plan. (b) No Employee or other person shall have any claim or right to be granted Performance Shares under the Plan. Neither the Plan nor any action taken thereunder shall be construed as giving any Employee or other person any right to be retained in the employ of the Corporation or any of its Subsidiaries. (c) Performance Shares granted or earned and cash dividends or other cash distribution paid under the Plan shall not be deemed compensation in determining the amount of any entitlement under any retirement or other employee benefit plan of the Corporation or any of its Subsidiaries. (d) The Committee may adopt and apply rules that will ensure that the Corporation and its Subsidiaries will be able to comply with applicable provisions of any Federal, state or local law relating to the withholding of tax, including but not limited to the withholding of tax on dividends paid on Performance Shares and on the amount, if any, includable in income of a Participant after the expiration of the Performance Period. The Committee shall have the right in its discretion to satisfy withholding tax liability by retaining or purchasing Performance Shares. (e) The Plan shall be construed in accordance with and governed by the laws of the State of Maryland. (f) In this Plan, whenever the context so requires, the masculine gender includes the feminine and a singular number includes the plural. Section 13. Amendment or Termination The Board of Directors of the Corporation may amend, suspend or terminate the Plan at any time and in such manner and to such extent as it deems advisable, but no amendment shall be made without the approval of a majority of the shares represented and entitled to vote at a duly called meeting of stockholders at which a quorum is present that would (i) increase the number of Performance Shares that may be granted under the Plan (except as provided in Section 11), (ii) increase the maximum number of shares of Stock available for issuance under the Plan (except as provided in Section 11), (iii) materially increase the 50% limitation set forth in Section 6, or (iv) change the Plan's eligibility requirements. No amendment, suspension or termination shall impair any right theretofore granted to any Participant, without the consent of the Participant. Section 14. Effective Date and Term of Plan This Plan shall become effective only if approved by the affirmative vote of the holders of a majority of the shares represented and entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held on January 29, 1990, or any adjournment thereof, and, if so approved, shall be effective as of January 1, 1990. Performance Shares may be granted under the Plan after December 31, 1995, only if the amendments to the Plan approved by the Board of Directors of the Corporation on February 14, 1996, are approved by the affirmative vote of the holders of a majority of the shares present and entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held on April 23, 1996, or any adjournment thereof. No Performance Shares shall be granted under the Plan after December 31, 2000. Section 15. Indemnification of Committee In addition to such other rights of indemnification as they may have as members of the Corporation's Board of Directors or as members of the Committee, each member of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorney's fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which he may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Performance Shares granted thereunder, and against all amounts paid by him in settlement thereof, provided such settlement is approved by independent legal counsel selected by the Corporation, or paid by him in satisfaction of a judgment in any such action, suit or proceeding except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for gross negligence or misconduct in his duties; provided that within 60 days after the institution of such action, suit or proceeding, the Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same. EX-10 4 Exhibit 10(j) THE BLACK & DECKER EXECUTIVE ANNUAL INCENTIVE PLAN 1. Purpose The purpose of The Black & Decker Corporation Executive Annual Incentive Plan is to make a part of the annual compensation of the Corporation's officers dependent on the Corporation's performance and to provide rewards for performance as a competitive incentive to their efforts on the Corporation's behalf, and thus to enhance and reinforce the Corporation's ability to achieve its business goals. It is the intention of the Board of Directors of the Corporation in adopting the Plan that amounts paid to Participants under the Plan be "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and the Section 162(m) Regulations. 2. Definitions Whenever used for purposes of the Plan, the following terms have the meanings defined below, and when the defined meaning is intended, the term is capitalized: (a) "Award" means a grant to a Participant of incentive compensation under the Plan. (b) "CEO" means the Chief Executive Officer of the Corporation. (c) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (d) "Committee" means the Organization Committee of the Board of Directors of the Corporation, or any other committee consisting solely of two or more "outside directors" (within the meaning of the Section 162(m) Regulations) designated as such by the Board of Directors of the Corporation. (e) "Corporation" means The Black & Decker Corporation. (f) "Maximum Participant Award" means, with respect to a particular Participant, the maximum Award payable to such Participant as determined in accordance with Section 6(c) under the Plan. (g) "Participant" means an employee who is an officer of the Corporation who has been designated to participate in the Plan. (h) "Performance Period" means the fiscal year in respect of which an Award is to be paid under the Plan. (i) "Plan" means The Black & Decker Executive Annual Incentive Plan, as amended from time to time. (j) "Section 162(m) Regulations" mean the regulations adopted pursuant to Section 162(m) of the Code, as amended from time to time. (k) "Subsidiary" means any domestic or foreign corporation, at least 50% of the outstanding voting stock or voting power of which is beneficially owned, directly or indirectly, by the Corporation. 3. Administration (a) The Committee shall determine who shall be a Participant, the applicable performance goals for each Performance Period and the amount of any Awards paid under the Plan, shall construe, interpret and administer the Plan, and shall adopt such rules and regulations and take such other action as it deems appropriate. All decisions by the Committee shall be final, conclusive and binding on the Corporation and each Participant, former Participant, beneficiary and every other interested person. The Committee may condition participation in the Plan by an employee upon the employee agreeing to certain terms and conditions of employment (including, without limitation, noncompete, confidentiality or similar provisions). Prior to the payment of any Awards under the Plan the Committee shall certify, in accordance with the Section 162(m) Regulations, that the performance goals in respect of the applicable Performance Period have been satisfied. The Committee will report annually to the Board of Directors of the Corporation all action taken under the Plan, including Awards paid. (b) Within 90 days of the beginning of each Performance Period (or, if earlier, before 25% of the period of service to which the performance goals relate has elapsed), the Committee shall establish or approve performance goals for the Performance Period. The performance goals established by the Committee shall be stated in terms of an objective formula or standard and shall be based on one of, or a combination of, the following factors: the market price of the Corporation's Common Stock at the close of business on the last business day of the Performance Period, increases in the market price of the Corporation's Common Stock during the Performance Period, the earnings for the Performance Period (either before taxes, before interest and taxes, before depreciation, amortization, interest and taxes, or after all of the foregoing), the earnings per share for the Performance Period, or, as to the Corporation or any business unit thereof, the return on equity or net assets for the Performance Period, the gross margin or cost of goods sold for the Performance Period, or the cash flow from operations or free cash flow for the Performance Period. (c) The Committee shall administer the Plan in a manner consistent with the terms and conditions of the Section 162(m) Regulations to enable Awards paid under the Plan to be "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and the Section 162(m) Regulations. 4. Participation (a) Participation in the Plan shall be limited to selected officers of the Corporation who the Committee has determined have a significant influence on the Corporation's annual corporate performance. The selection of Participants shall be made by the Committee within 90 days of the beginning of a Performance Period (or, if earlier, before 25% of the period of service to which the performance goals relate has elapsed) and communicated to the Participants as soon thereafter as practicable. (b) At any time during a Performance Period the Committee may designate new Participants or remove officers from participation, in its sole discretion. An officer's participation in the Plan in any prior year or years shall not give the officer the right to be a Participant in any subsequent year. 5. Awards (a) At the end of each Performance Period, the CEO shall submit a written report to the Committee describing the performance of the Corporation (or, if applicable, a business unit) relative to those performance goals previously established by the Committee for the Performance Period. (b) Awards shall be made annually in accordance with the respective performance against the performance goals established by the Committee for the respective Performance Period. (c) The decision to pay or not to pay an Award and the amount of the Award to be paid shall be made by the Committee based on the performance goals established in respect of the applicable Performance Period and in accordance with the Section 162(m) Regulations. Under no circumstances may the Committee make an Award to a Participant that exceeds the applicable Maximum Participant Award for the respective Performance Period. The Committee in its sole discretion may reduce the amount of any Award paid to a Participant below the amount of the Award that otherwise would be payable to the Participant upon application of the performance goals for the applicable Performance Period or may decide not to pay an Award when performance goals for the applicable Performance Periods have been satisfied, but under no circumstances may the Committee increase the amount of any Award that otherwise would be payable to the Participant upon application of the performance goals for the applicable Performance Period. (d) With respect to each Participant, the Maximum Participant Award for a Performance Period shall be equal to 200% of his or her annual base salary on the date the Committee establishes the performance goals for the applicable Performance Period. Notwithstanding the foregoing, under no circumstances may the Maximum Participant Award for any Performance Period exceed $4 million. 6. Payment of Awards (a) Awards shall be paid as soon as practicable after the end of a Performance Period, after audited results for the Performance Period are available, and after the Committee has certified that the applicable performance goals have been satisfied. (b) Awards shall be paid in cash and shall be paid in the currency in which each Participant's base salary is paid. 7. Termination of Employment If before an Award is actually paid to a Participant with respect to a Performance Period the Participant ceases to be a regular, full-time employee of the Corporation or any of its Subsidiaries for a reason other than retirement with a right to an immediate retirement benefit, the Participant's eligibility under the Plan shall terminate and no Award will be made. If a Participant's employment terminates at a time when the Participant has a right to receive an immediate retirement benefit from the Corporation or any of its Subsidiaries, the Committee may make such Award as it deems appropriate under the circumstances; provided, however, that the Award shall not exceed the Award the Participant would have been entitled to receive upon application of the performance goals for the applicable Performance Period if the Participant had been employed for the entire Performance Period times a fraction the numerator of which shall equal the number of days the Participant was employed by the Corporation and its Subsidiaries during the Performance Period and the denominator of which shall equal the number of days in the Performance Period. 8. Claim to Awards and Employment Rights No officer or other person shall have any claim or right to be granted an Award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any person any right to be retained in the employ of the Corporation or a Subsidiary or affecting the right of the Corporation and its Subsidiaries to terminate the employment of any person at any time, for any reason and with or without notice. 9. Tax Withholding The Corporation or a Subsidiary, as appropriate, shall have the right to deduct from all Award payments for any Federal, State or local taxes or other similar payments required by law to be withheld with respect to such payments. 10. Expenses of Plan The expenses of administering the Plan shall be borne by the Corporation and its Subsidiaries. 11. Amendment and Termination The Corporation may, in its discretion, terminate, amend or modify this Plan at any time and from time to time. 12. Effective Date of the Plan The Plan shall be effective as of January 1, 1996, provided that the Plan is approved by the stockholders of the Corporation at the 1996 Annual Meeting of Stockholders or any adjournment thereof. In the event the Plan is not approved by the stockholders of the Corporation at the 1996 Annual Meeting of Stockholders or any adjournment thereof, the Plan shall terminate and be of no force and effect and no benefits shall be payable hereunder. EX-10 5 Exhibit 10(k) THE BLACK & DECKER CORPORATION Amended and Restated EMPLOYMENT AGREEMENT This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made as of this 1st day of November, 1995, between The Black & Decker Corporation, a Maryland corporation (the "Corporation"), and Nolan D. Archibald (the "Executive"). The Corporation desires to continue to have the benefits of the Executive's knowledge and experience as a full-time employee, and the Executive desires to continue in full-time employment with the Corporation. Accordingly, in consideration of the mutual covenants and representations contained herein, the parties agree as follows: 1. Full-Time Employment of Executive. a. Duties and Status. (1) The Corporation hereby engages the Executive as Chairman and Chief Executive Officer for the employment period as defined in paragraph 3.a. and the Executive accepts such employment on the terms and conditions set forth in this Agreement. During the employment period, the Executive shall be assigned to corporate headquarters located at Towson, Maryland. The Executive shall exercise such authority and perform such duties as are commensurate with the By-Laws of the Corporation and the normal duties of a Chairman and Chief Executive Officer of a publicly traded corporation, and shall perform such other reasonably related managerial duties and responsibilities for the Corporation as may be assigned to him by the Board of Directors of the Corporation. (2) During the employment period, the Executive shall (a) devote his full time and efforts to the business of the Corporation and, unless approved by the Board of Directors of the Corporation, will not engage in consulting work or any trade or business for his own account or for or on behalf of any other person, firm or corporation which competes, conflicts or interferes with the performance of his duties hereunder in any way, and (b) accept such additional office or offices to which he may be elected by the Board of Directors of the Corporation, provided that the performance of the duties of such office or offices shall be consistent with the scope of the duties provided for in subparagraph (1) of this paragraph a. b. Compensation and General Benefits. (1) The Corporation shall pay the Executive an annual salary which is not less than the greater of (i) his annual base salary from the Corporation on the date hereof or (ii) any subsequently established higher annual base salary. Such salary shall be payable in periodic equal installments which are not less frequent than the periodic installments relating to his salary immediately prior to the date hereof. Such salary shall be subject to normal periodic review for increases based on the policies of the Corporation and contributions to the enterprise. (2) In addition to the salary provided by sub- paragraph (1) of this paragraph b, the Corporation shall provide thrift, stock option, retirement, group life, supplemental life, long-term disability, accident, dental and health insurance programs and other perquisites and benefits available to the Corporation's principal executive officers. The Executive shall also be entitled to participate in any other employee benefit programs that may be established by the Corporation and in which other executives of the Corporation are entitled to participate, including, without limitation, any annual incentive plan, performance equity plan, and supplemental executive retirement plan as in effect from time to time. 2. Competition; Confidential Information. The Executive and the Corporation recognize that, due to the nature of his engagements hereunder and the relationship of the Executive to the Corporation, the Executive will have access to, and may assist in developing, confidential and proprietary information relating to the business and operations of the Corporation and its affiliates. The Executive acknowledges that such information will be of central importance to the business of the Corporation and its affiliates and that disclosure of it to or its use by others could cause substantial loss to the Corporation. The Executive and the Corporation also recognize that an important part of the Executive's duties will be to develop good will for the Corporation through his personal contact with others having business relationships with the Corporation and its affiliates, and that there is a danger that this good will, a proprietary asset of the Corporation and its affiliates, may follow the Executive if and when his relationship with the Corporation is terminated. The Executive accordingly agrees as follows: a. Non-Competition. During the employment period, as defined in Section 3.a., the Executive will not, directly or indirectly, either individually or as owner, partner, agent, employee, consultant or otherwise, except for the account of and on behalf of the Corporation or its affiliates, engage in any activity competitive with the business of the Corporation or its affiliates, nor will he, in competition with the Corporation or its affiliates, solicit or otherwise attempt to establish any business relationships with any person, firm or corporation which was, at any time during the employment period, a customer or supplier of the Corporation. However, nothing in this Section 2 shall be construed to prevent the Executive from owning, as an investment, not more than 5% of a class of equity securities issued by any competitor of the Corporation and publicly traded and registered under Section 12 of the Securities Exchange Act of 1934. b. Confidential Information. During and at all times after the expiration of the employment period, the Executive (1) will not disclose any trade secrets, customer lists, production processes, business plans, or other proprietary information which is treated as confidential by the Corporation or its affiliates which is now known to him or which hereafter may become known to him as a result of his employment or association with the Corporation and (2) will not at any time, directly or indirectly, disclose any such information to any person, firm or corporation, or use the same in any way other than in connection with the business of the Corporation or its affiliates. c. Corporation's Remedies for Breach. It is recognized that damages in the event of breach of this Section 2 by the Executive would be difficult, if not impossible, to ascertain, and it is, therefore, agreed that the Corporation, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. The existence of this right shall not preclude any other rights and remedies at law or in equity which the Corporation may have. 3. Employment Period. a. Duration. The employment period, which commenced prior to the date of this Agreement, shall continue until this Agreement is terminated by (1) the death or substantially total disability of the Executive, (2) mutual agreement, (3) action of the Corporation for justifiable cause as provided in paragraph 3.b., (4) action of the Corporation or notice by the Executive as provided in paragraph 3.c., or (5) the voluntary resignation of the Executive upon 30 days prior written notice. b. Performance and Termination - Employment Period. Subject to the performance of the covenants and agreements made by the Corporation herein, the Executive will perform his duties during the employment period in good faith and will observe faithfully the covenants and agreements made by him herein. The Corporation shall not terminate the employment of the Executive during the employment period except for substantial and serious cause involving dishonesty, gross negligence, material and persistent failure of the Executive to perform his duties hereunder, or material breach of express obligations of this Agreement within the control of the Executive. The termination of the Executive's employment for reasons other than those specified in the preceding sentence shall be deemed to be a termination of employment without justifiable cause and shall be an immediate termination of this Agreement. After such termination, the Executive shall be immediately entitled to the severance pay and benefits provided in Section 3.c. of this Agreement. No breach or default by the Executive shall be deemed to have occurred hereunder unless written notice thereof shall have been given by the Corporation to the Executive and the Executive shall have failed to cure such breach or default within 30 days after he receives the notice. c. Executive's Remedies for Breach. (1) This Agreement shall be immediately terminat- ed without further notice if the Corporation terminates the employment of the Executive without justifiable cause. This Agreement may also be terminated upon written notice from the Executive to the Board of Directors if: (i) the Corporation shall fail to observe or perform any covenant to be observed or performed by the Corporation, or (ii) the Corporation shall materially change the Executive's duties so that he is no longer performing the functions of the Chairman and Chief Executive Officer, or (iii) the Corporation shall otherwise materially breach this Agreement. (2) If this Agreement is terminated for any reason identified in paragraph 3.c.(1), all rights, duties and obligations shall cease except that the provisions of paragraph 2.b. of this Agreement shall remain in force and except that the Corporation shall be obligated to provide the following benefits: (A) The Corporation shall pay the Executive his full base salary through the date of termination at the rate in effect at the time of his termination, plus all other amounts to which he is entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to the Executive for periods subsequent to his termination, the Corporation shall pay as severance pay to the Executive a lump sum severance payment (together with the payments provided in paragraph C, below, the "Severance Payments") equal to his Performance Equity Plan ("PEP") Maximum Payment plus three times the sum of his (x) annual base salary in effect immediately prior to the Executive's termination and (y) Annual Incentive Plan ("AIP") Maximum Payment for the year in which the date of termination occurs. PEP Maximum Payment shall mean an amount equal to the value of 150% of the Performance Shares that are forfeited by the Executive pursuant to the PEP as a result of the Executive's termination. For purposes of calculating the PEP Maximum Payment, the per share value of the shares of common stock of the Corporation (the "Corporation's Shares") shall be the closing price per share of the Corporation's Shares as reported on the New York Stock Exchange (the "NYSE") on or nearest to the date of termination (or, if not listed on the NYSE, on a nationally recognized exchange or quotation system on which volume in the Corporation's Shares is highest). The provisions of this paragraph 3.c.(2)(B) shall not in any way affect the Executive's rights under the PEP. AIP Maximum Payment shall mean the maximum payment that the Executive could have received under the AIP. (C) The Corporation shall pay to the Execu- tive any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to the Executive or his account as of the date of termination. (D) The Corporation shall also pay to the Executive all legal fees and expenses incurred by him as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under para- graphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to the Executive at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a change in control of the Corporation or his termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to the Executive the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above) and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the date of termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, he shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C), and (E) above shall be made not later than the fifth day following the date of the Executive's termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to the Executive on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the date of the Executive's termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to the Executive payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by the Executive. (G) For a 36-month period after the termina- tion of the Executive, the Corporation shall provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which he is receiving immediately prior to termination. Benefits otherwise receivable by the Executive pursuant to this subparagraph (G) shall be reduced to the extent comparable benefits are actually received by the Executive during the 36-month period following his termination, and any such benefits actually received by the Executive shall be reported to the Corporation. (H) If upon the Executive's termination he is not eligible because of age or lack of credited service to receive benefits under the provisions of the Corporation's Supplemental Executive Retirement Plan (the "SERP"), then upon his attaining at least age 55, the Corporation will pay the Executive the same benefits that he would have been entitled to receive under the SERP as if he had remained an employee of the Corporation until the greater of age 55 or his actual age on the date of his termination plus the Additional Age Credit defined below. If upon the Executive's termination he is eligible to receive benefits under the provisions of the SERP, then the Corporation will pay him the benefits that he would have been entitled to receive under the provisions of the SERP as if he had accumulated the Additional Age Credit defined below. Additional Age Credit shall mean 36 additional months of age. For the purpose of this paragraph in determining "Final Average Pay" under the SERP, the greater of "Final Average Pay" (as defined in the SERP) or the Executive's "Pay" (as defined in the SERP) for the 12-month period prior to his termination of employment will be used. (I) The Executive shall not be required to mitigate the amount of any payment provided for in this Paragraph 3.c.(2) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Paragraph 3.c.(2) be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Corporation, or otherwise except as specifically provided in this Paragraph 3.c.(2). (J) In addition to all other amounts payable to the Executive under this Paragraph 3.c.(2), the Executive shall be entitled to receive all benefits payable to him under the Black & Decker Retirement Plan, Thrift Plan and any other plan or agreement relating to retirement benefits. d. If termination of the Executive's employment occurs under circumstances to which both this Agreement and a change of control agreement between the Corporation and the Executive apply, the Executive will be entitled to the benefits of the more favorable agreement, but not to both. e. No payments made under the provisions of paragraph 3.c.(2) of this Agreement shall be offset against payments to which the Executive may be entitled under the SERP and vice versa. 4. Waivers. The waiver by the Corporation of a breach by the Executive of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by him. 5. Binding Effect. The rights and obligations of the Corporation under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Corporation. 6. Entire Agreement. Except as otherwise herein provided, this Agreement and attachments hereto constitute the entire understanding of the Executive and the Corporation with respect to the subject matter hereof and supersedes any and all prior understandings, written or oral. This Agreement may not be changed or canceled orally, but only by an instrument in writing signed by the parties. This Agreement shall be governed by the laws of the State of Maryland and the invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. ATTEST: THE BLACK & DECKER CORPORATION /S/ BARBARA B. LUCAS By /S/ LAWRENCE R. PUGH Lawrence R. Pugh, Chairman, Organization Committee WITNESS: /S/ LOWELL R. BOWEN /S/ NOLAN D. ARCHIBALD (SEAL) Nolan D. Archibald EX-10 6 Exhibit 10(q) THE BLACK & DECKER SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN INTRODUCTION The Black & Decker Supplemental Executive Retirement Plan provides certain supplemental retirement benefits for selected executive employees of The Black & Decker Corporation and its subsidiaries and affiliates. This document amends The Black & Decker Supplemental Executive Retirement Plan, originally effective on January 1, 1984 and as amended and restated effective January 1, 1993, by restating the Plan in its entirety. The Plan is intended to provide supplemental retirement benefits primarily for a select group of management or highly paid executive employees. The employees eligible for the Plan are only those executive employees selected by the Organization Committee of the Corporation. SECTION 1 - Definitions Each of the following terms, when used in this Plan, has the meaning indicated below, unless a different meaning is plainly implied by the context: "Actual Retirement Date" means the date that a Participant's employment by Black & Decker terminates on or after the Participant's Early Retirement Date or Normal Retirement Date, as the case may be, whether due to retirement, death, resignation or dismissal or, in the case of a Protected Participant, the Protected Participant's 55th birthday, if later than the date of termination of his or her employment with Black & Decker. If, however, a Participant's active employment with Black & Decker ceases prior to the Participant's Normal Retirement Date due to Disability, the Participant's Actual Retirement Date shall mean the Participant's Normal Retirement Date, unless the Participant elects, with the Committee's approval, to receive benefits under this Plan at a date preceding the Participant's Normal Retirement Date (but not earlier than the Participant's Early Retirement Date), in which case the date benefit payments under this Plan begin will be the Participant's Actual Retirement Date. "Actuarial Adjustment" means a reduction to the Participant's benefits under this Plan that is the Actuarial Equivalent of any portion of the Participant's Social Security Benefits and Other Retirement Benefits that the Participant could have received as retirement or disability income at the same time the Participant was receiving benefits under this Plan (and which, therefore, would have reduced the Participant's benefits under this Plan) if, solely because of the Participant's election of an alternative form of payment under the plan, program, arrangement or agreement providing those Social Security Benefits or Other Retirement Benefits, no reduction would otherwise be made to the Participant's benefits under this Plan with respect to the portion of those Social Security Benefits or Other Retirement Benefits that was subject to that election by the Participant. However, no Actuarial Adjustment is to be made by reason of the Participant's election to provide benefits after the Participant's death for the Participant's spouse under the plan, program, arrangement or agreement providing Social Security Benefits or Other Retirement Benefits. Whether an Actuarial Adjustment is appropriate and the amount of that Adjustment to the Participant's benefit is to be determined by the Committee, in its sole discretion, but based on the Actuarial Assumptions in effect when that Actuarial Adjustment first applies. "Actuarial Assumptions" means generally, the actuarial assumptions used in calculating benefits under the Black & Decker Pension Plan, or such other interest and mortality rates and other pertinent actuarial assumptions and methods as may be adopted by the Committee from time to time, in its sole discretion, for use in determining benefits under this Plan. "Actuarial Equivalent" means a benefit having the same actuarial value, based on the Actuarial Assumptions applicable at the time actuarial equivalency is to be determined. "Black & Decker" means the Corporation, Black & Decker (U.S) Inc., Black & Decker Inc. and all of their subsidiaries and affiliates, both collectively and individually. "Board" means the Corporation's Board of Directors. "Change in Control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this definition) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. "Committee" means The Black & Decker Corporation Pension Management Committee. "Committee Secretary" means the Secretary of the Committee. "Corporation" means The Black & Decker Corporation, a Maryland corporation. "Credited Service" means all periods during which an Employee qualifies as an employee of Black & Decker, including all periods during which the Employee is absent on leave authorized by Black & Decker, and including all periods for which the Employee receives Benefit Service Credit under the Black & Decker Pension Plan. Subject to the foregoing, unless otherwise determined by the Committee in its sole discretion, Credited Service under this Plan shall not include any period of employment with any company during any period when that company was not a subsidiary or affiliate of the Corporation. Credited Service also includes all periods of Disability beginning while the Employee is employed by Black & Decker and continuing as long as the Disability continues. Credited Service is to be measured on the basis of one month's credit for each full calendar month in any Credited Service period; no partial credit is to be given for partial calendar months of Credited Service. Twelve months of Credited Service is equivalent to one year of Credited Service, whether or not those months were consecutive. No loss of Credited Service will occur by reason of an interruption in an Employee's period of Credited Service, regardless of the length of that interruption. "Disability" means an illness or injury which would cause the Employee to be disabled under the terms of The Black & Decker Disability Plan or that totally prevents the Employee from satisfactorily performing the Employee's usual duties with Black & Decker, as determined by the Committee based on professional medical advice. The Committee may require the Employee to submit from time to time to medical examinations by physicians selected or approved by the Committee to establish the Disability or its continuation, provided that those examinations may not be required more frequently than once each year. The Employee's refusal to submit to any examination reasonably requested by the Committee under this Section is grounds for the Committee to find that the Employee's Disability no longer exists. "Early Retirement Date" means the first day of the calendar month coincident with or next following the date upon which the Participant has both attained age 55 and completed 5 years of Credited Service; provided, however, that, in the case of a Protected Participant, the Early Retirement Date shall be the first day of the calendar month coincident with or next following the Protected Participant's 55th birthday. "Effective Date" means August 1, 1995, the effective date of this amended and restated Plan. The Prior Plan was originally effective as of January 1, 1984 and amended and restated effective as of January 1, 1993. "Employee" means any person rendering personal services to Black & Decker as an employee. "Final Average Pay" means the average monthly amount of the Participant's Pay for the 3 consecutive years in which the Participant's Pay was the highest out of the 5-year period ending on the date the Participant's employment with Black & Decker terminates; provided, however, that, in the case of a Protected Participant, the Protected Participant's "Final Average Pay" shall be based on the 3 consecutive years in which the Protected Participant's Pay was the highest out of the 5-year period ending on the date that the Change in Control of the Corporation occurred, if this produces a higher Final Average Pay. "Normal Retirement Date" means the first day of the calendar month coincident with or next following the date upon which the Participant has both attained age 60 and completed 5 years of Credited Service; provided, however, that, in the case of a Protected Participant, the Normal Retirement Date shall be the first day of the calendar month coincident with or next following the Participant's 60th birthday. "Other Retirement Benefits" means any retirement or any disability income benefits, and any severance pay, salary continuance, notice pay, termination indemnity, unemployment compensation, or the like, that the Participant is entitled to receive under any plan, program, arrangement or agreement provided, maintained or funded, in part or in whole, by any of the Participant's employers (whether or not affiliated with Black & Decker) except: (a) any Social Security Benefit; (b) any portion of that retirement or disability income which is attributable to the Participant's contributions, including contributions made by the Participant's employer pursuant to a salary reduction agreement with the Participant (such as under The Black & Decker Executive Deferred Compensation Plan or The Black & Decker Supplemental Retirement Savings Plan); (c) any death benefits under a life insurance contract with a life insurance company; (d) any defined contribution pension, profit sharing or stock bonus plan, unless that plan is intended to provide the primary source of retirement income (in addition to Social Security Benefits) funded by Black & Decker for the employees at any location covered by that plan; (e) any "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986 made by reason of a Change in Control of the Corporation pursuant to an individual golden parachute agreement in writing between the Participant and the Corporation; and (f) any amounts paid under an individual written agreement between the Participant and the Corporation which agreement expressly refers to this Plan and provides that those amounts shall not reduce the benefits under this Plan. In determining the Death Benefit payable to the Participant's spouse under Section 6(b), the term "Other Retirement Benefits" means any benefit payable to the spouse under any plan, program, arrangement or agreement that provided or would have provided to the Participant severance, retirement or disability benefits that constituted "Other Retirement Benefits" as described in the preceding sentence, but excluding the following payments to the spouse: (a) any Social Security Benefit; (b) any benefit attributable to the Participant's contributions (including contributions made by the Participant's employer pursuant to a salary reduction agreement with the Participant); (c) any death benefits (including accelerated death benefits) under a life insurance contract with a life insurance company; and (d) any defined contribution pension, profit sharing or stock bonus plan, unless that plan is intended to provide the primary source of retirement income (in addition to Social Security Benefits) funded by Black & Decker for the employees at any location covered by that plan. Without limiting the generality of the foregoing, the term "Other Retirement Benefits" includes benefits payable to a Participant under any plan, program, arrangement or agreement provided or maintained at any time by any employer of the Participant (whether or not affiliated with Black & Decker) which provides benefits in excess of any of the limitations imposed by the Internal Revenue Code of 1986, as amended, on benefits payable from a tax-advantaged or tax-qualified pension plan on compensation covered under a tax-advantaged or tax-qualified pension plan (such as The Black & Decker Supplemental Pension Plan). "Participant" means any Employee who qualifies for participation in this Plan, as more particularly described in Section 2. "Pay" means the actual compensation paid during the relevant period by Black & Decker to the Participant for services as an Employee, including basic salary, bonuses, annual incentive awards, any amounts contributed to any employee benefit plan pursuant to a salary or other compensation reduction agreement with the Participant, and including, for the year of deferral, amounts deferred by the Participant under any non-qualified deferred compensation plan (such as The Black & Decker Executive Deferred Compensation Plan); and salary continuation payments during sick leave (other than long-term disability benefits). The term "Pay" does not include any incentive awards or other amounts paid pursuant to any long-range performance compensation plan, amounts paid pursuant to The Black & Decker Performance Equity Plan or any "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986 made pursuant to a golden parachute agreement by reason of a Change in Control of the Corporation or any non-cash remuneration, imputed income (including income imputed under any group life insurance program), perquisites and other cash or non-cash fringe benefits, such as (but not limited to) reimbursements or allowances for expenses (such as automobile, moving or relocation, country club, tax preparation, overseas housing, educational and similar expense allowances); contributions to or benefits under any employee pension or welfare benefit plan or payments received by a Participant under any non-qualified deferred compensation plan (such as The Black & Decker Executive Deferred Compensation Plan or The Black & Decker Supplemental Retirement Savings Plan); special recognition awards; stock bonuses, income attributable to discount stock purchases, stock options or stock appreciation rights; income attributable to the vesting of restricted property; benefits received under any severance plan or program; and allowances for or the provision of counseling or other personal services (such as financial and tax counseling). For any period during which the Participant is entitled to Credited Service by reason of a Disability, the Participant's Pay is deemed to continue during that Disability period at a monthly rate equal to 1/12th of the Participant's basic salary (before any salary reduction for contributions to any employee benefit plan pursuant to a salary reduction agreement with the Participant) at the Participant's annual salary rate in effect at the date that the Disability began plus all items other than basic salary and such salary reduction contributions) included in the Participant's actual Pay during the 12-month period ending on the date that the Disability began. "Plan" means this document entitled "The Black & Decker Supplemental Executive Retirement Plan", effective as of August 1, 1995, as it may be amended from time to time. This document completely amends and restates the Black & Decker Supplemental Executive Retirement Plan as effective January 1, 1993 and which is referred to in this Plan as the "Prior Plan." To the extent any person is receiving benefits hereunder prior to the Effective Date, such benefits and the payment thereof shall be determined under the terms of the Prior Plan. "Protected Participant" means a Participant who is an Employee when a Change in Control of the Corporation occurs. "Social Security Benefit" means the retirement or disability income payments under any plan, program or arrangement which is sponsored, mandated or administered by any government and which provides or would provide retirement or disability income to the Participant and to which any of the Participant's employers (whether or not affiliated with Black & Decker) has made contributions on the Participant's behalf. In determining the Death Benefit payable to the Participant's spouse under Section 6, the term "Social Security Benefit" means any payment to the spouse under a governmental program described in the preceding sentence and attributable to the Participant's employment. SECTION 2 - Eligibility Any executive employee may be selected for participation in this Plan by the Organization Committee of the Corporation and will automatically become a Participant on the date designated by that committee in its written notice to the Employee of selection for participation under this Plan. Any Employee who was a Participant in the Prior Plan immediately prior to the Effective Date shall continue as a Participant hereunder without further action by the Organization Committee of the Corporation. SECTION 3 - Normal Retirement Benefit Subject to Section 5, any Participant whose employment with Black & Decker terminates at or after the Participant's Normal Retirement Date is entitled to receive under this Plan a monthly benefit, beginning at the Participant's Actual Retirement Date and continuing for the Participant's life. The amount of each monthly benefit payment under this Section 3 is to be equal to 50% of his or her Final Average Pay less the sum of: (i) all Social Security Benefits and all Other Retirement Benefits payable to the Participant during that month and (ii) the Actuarial Adjustments for that month. In the event that any offsets to the Participant's benefit under this Plan exceed the monthly benefit payment under this Plan, such excess shall be carried over and applied against subsequent monthly benefit payments under this Plan until such excess is exhausted. The offsets to the Participant's benefits under this Plan (as described in the preceding sentence) are not to be increased to reflect any increase in the Participant's Social Security Benefits or Other Retirement Benefits attributable to increases in the cost-of-living after his or her Actual Retirement Date and no benefit is payable to the Participant in any month when those offsets exceed 50% of the Participant's Final Average Pay. SECTION 4 - Early Retirement Benefit Subject to Section 5, any Participant whose employment with Black & Decker terminates at or after the Participant's Early Retirement Date or, in the case of a Protected Participant, whose employment with Black & Decker terminates at any time before his or her Normal Retirement Date (whether or not after his or her Early Retirement Date) is entitled to receive under this Plan a monthly benefit beginning on the first day of the calendar month after the Participant's Actual Retirement Date and continuing for the Participant's life. The amount of each monthly benefit payment under this Section 4 is to be equal to: (a) 50% of the Participant's Final Average Pay, reduced by 1/3 of 1% for each full calendar month by which the Participant's Actual Retirement Date precedes the Participant's Normal Retirement Date, less (b) the sum of: (i) the Participant's Social Security Benefit and all Other Retirement Benefits payable to the Participant during that month and (ii) the Actuarial Adjustment for that month. In the event that any offsets to the Participant's benefit under this Plan exceed the monthly benefit payment under this Plan, such excess shall be carried over and applied against subsequent monthly benefit payments under this Plan until such excess is exhausted. The offsets to the Participant's benefits under this Plan (as described in the preceding sentence) are not to be increased to reflect any increase in the Participant's Social Security Benefits or Other Retirement Benefits attributable to increases in the cost-of-living after the Participant's Actual Retirement Date and no benefit is payable to the Participant in any month when those offsets exceed 50% of the Participant's Final Average Pay, reduced by 1/3 of 1% for each full calendar month by which the Participant's Actual Retirement Date precedes the Participant's Normal Retirement Date. SECTION 5 - Benefit Reduction for Less than 10 Years' Service Notwithstanding anything to the contrary in this Plan, if a Participant (other than a Protected Participant) has less than 10 years of Credited Service at the Participant's Actual Retirement Date, the monthly benefit described in Section 3 or 4, as appropriate, is to be multiplied by a fraction, the numerator of which equals the Participant's years of Credited Service (including fractional years) and the denominator of which equals 10 years. For this purpose, months of Credited Service equal 1/12th of a year's credit for each full calendar month of Credited Service. This Section 5 shall not apply in the case of a Protected Participant. SECTION 6 - Death Benefits No benefits under this Plan are payable after the Participant's death except as otherwise provided in this Section 6. (a) Pre-Retirement Death Benefit. No benefits under this Plan are payable after the Participant's death if the Participant dies before the Participant's Actual Retirement Date. (b) Post-Retirement Death Benefit. If the Participant dies after the Participant's Actual Retirement Date, the Participant's surviving spouse, if any, is entitled to receive a monthly benefit beginning on the first day of the calendar month coincident with or following the Participant's death and continuing for the spouse's life in the monthly amount equal to one-half of the monthly benefit that the Participant was receiving or would have been entitled to receive at the Participant's death under Section 3 or 4 of this Plan (determined before the stated offsets of the Participant's Social Security Benefits, Other Retirement Benefits and Actuarial Adjustments are applied but subject to Section 5) less the Social Security Benefits and Other Retirement Benefits payable to the Participant's spouse during that month. SECTION 7 - Vesting (a) Except in the case of a Protected Participant, upon termination of a Participant's employment with Black & Decker at any time for any reason before the Participant's Early Retirement Date, or if the Participant dies before the Participant's Actual Retirement Date, the Participant's (and the surviving spouse's) right to benefits under this Plan will be completely forfeited. In the case of a Protected Participant, the Protected Participant's and his or her spouse's right to benefits under this Plan will be completely forfeited if the Protected Participant dies before his or her Actual Retirement Date. Except in the case of a Protected Participant, if this Plan is terminated by the Corporation on or after a Participant's Early Retirement Date but before the Participant's Actual Retirement Date, the Participant will be entitled to receive a monthly benefit under this Plan commencing at the Participant's Actual Retirement Date and continuing for the Participant's life in the amount the Participant would have received under this Plan based on the Participant's Credited Service and Final Average Pay determined at the Plan's termination date, and the Participant's surviving spouse shall be entitled to receive the corresponding post-retirement death benefit pursuant to Section 6(b). If this Plan is terminated or amended after a Change in Control of the Corporation, each Protected Participant who has not consented in writing to that termination or amendment shall be entitled to receive a monthly benefit, commencing at his or her Actual Retirement Date, that is not less than the monthly benefit the Protected Participant would have received if the Plan termination or amendment had not occurred and the Protected Participant's surviving spouse shall be entitled to receive the corresponding post-retirement death benefit pursuant to Section 6(b). (b) Notwithstanding anything to the contrary, all of the Participant's (and surviving spouse's) rights and benefits under this Plan will be forfeited: (i) if the Participant's employment with Black & Decker is terminated by reason of fraud, misappropriation or intentional material damage to the property or business of Black & Decker; commission of a felony; or the continuance of willful and repeated failure by the Participant to perform his or her duties after written notice to the Participant specifying such failure; or (ii) if before the Participant's Actual Retirement Date and for a period of 24 months following the Participant's termination of employment, the Participant, without the Corporation's written consent, enters into competition with Black & Decker or the Participant discloses confidential information. (c) For purposes of this Section 7, the Participant will be deemed to be in competition with Black & Decker if the Participant, directly or indirectly, solicits as a customer any company which is or was a customer of Black & Decker during the Participant's employment, or which is or was a potential customer of Black & Decker with which Black & Decker has made or will make business contacts during the Participant's employment; provided, however, that solicitation of a company as a customer of any business which is not in direct or indirect competition with any of the types of business conducted by Black & Decker within any of the same territories as Black & Decker shall not be prohibited hereby. In addition, a Participant will be deemed to be in competition with Black & Decker if the Participant directly or indirectly becomes an owner, officer, director, operator, sole proprietor, partner, joint venturer, contractor or consultant, or participates in or is connected with the ownership, operation, management or control of any company in direct or indirect competition with any of the types of businesses conducted by Black & Decker within any of the same territories as Black & Decker; provided, however, that the ownership for investment of less than 5% of the outstanding stock of any of the classes of stock issued by a publicly-held company shall not be prohibited hereby. The Participant shall be deemed to have disclosed "confidential information" if the Participant fails to preserve as confidential and uses, communicates, or discloses to any person, to the actual or potential detriment of Black & Decker, orally, in writing or by publication, any information, regardless of when, where or how acquired relating to or concerning the affairs of Black & Decker; provided, however, that the foregoing obligations shall not apply to information which is or becomes public through no fault of the Participant. (d) The Committee shall have the absolute right to determine in its sole discretion (i) whether or not a Participant's employment was terminated as a result of a wrongful act, and (ii) whether or not a Participant has entered into competition with Black & Decker or has disclosed confidential information so as to cause a forfeiture of the Participant's benefits hereunder. SECTION 8 - Additional Provisions Concerning Benefits (a) The offsets described in Sections 3, 4 and 6 for Social Security Benefits, Other Retirement Benefits and Actuarial Adjustments are to be applied separately to each monthly payment under this Plan when that payment becomes due, ignoring increases in those Social Security Benefits and Other Retirement Benefits attributable to increases in the cost-of-living after the Participant's Actual Retirement Date. The Committee will decide, in its sole discretion, the manner in which these offsets are to be applied. The payments under this Plan are conditioned on the agreement of the Participant and the Participant's spouse (i) to inform the Committee of all retirement, severance, disability and death benefit payments received or receivable by them that may reduce the Corporation's obligations to pay benefits under this Plan and (ii) to provide all information about those payments that the Committee may reasonably request from time to time in order to administer this Plan. (b) The benefit payments under this Plan will be calculated in U.S. dollars using the appropriate currency exchange rate selected by the Committee in its sole discretion at the Participant's Actual Retirement Date. The benefits under this Plan will be paid to the Participant and the Participant's spouse in any currency designated by the Participant at the Participant's Actual Retirement Date (or, if the Participant dies before benefits commence, the currency designated by the spouse), based on the appropriate currency exchange rate (selected by the Committee in its sole discretion) in effect at the Participant's Actual Retirement Date. Once benefit payments under this Plan have begun, the currency selected by the Participant (or the Participant's spouse) and the applicable exchange rate may not be changed except to the extent that the Committee, in its sole discretion, may approve a change in order to prevent extreme financial hardship to the Participant or the Participant's spouse. SECTION 9 - Corporation's Obligations are Unfunded and Unsecured Except as otherwise required by applicable law, the Corporation's obligations under this Plan are not required to be funded or secured in any manner; no assets need be placed in trust or in escrow or otherwise physically or legally segregated for the benefit of any Participant; and the eventual payment of the benefits described in this Plan to a Participant or the Participant's spouse is not required to be secured to the Participant or them by the issuance of any negotiable instrument or other evidence of the Corporation's indebtedness. Neither a Participant nor the Participant's spouse is entitled to any property interest, legal or equitable, in any specific asset of the Corporation, and, to the extent that any person acquires any right to receive payments under the provisions of this Plan, that right is intended to be no greater than or to have any preference or priority over, the rights of any other unsecured general creditor of the Corporation. However, the Corporation reserves the right, in its sole discretion, to accumulate assets to offset its eventual liabilities under this Plan and physically or legally to segregate assets for the benefit of any Participant or Participant's spouse (whether by escrow, by trust, by the purchase of an annuity contract or by any other method of funding selected by the Corporation) without liability for any adverse tax consequences resulting to that Participant or Participant's spouse from the Corporation's action. Any such segregation of assets may be made with respect to the Corporation's obligations under this Plan for benefits attributable to an individual Participant, a selected group of Participants or all Participants, as the Corporation may determine from time to time, in its absolute discretion. Benefits under this Plan shall be payable by the Corporation from the Corporation's general assets and no other company shall have any responsibility or liability under this Plan. The Corporation's liabilities under this Plan shall, however, be discharged to the extent of any payment received by the Participant (or the Participant's surviving spouse) from any other company made for that purpose and on the Corporation's behalf or for its benefit. SECTION 10 - Alienation or Encumbrance No payments, benefits or rights under this Plan shall be subject in any manner to anticipation, sale, transfer, assignment, mortgage, pledge, encumbrance, charge or alienation by a Participant, the Participant's spouse or any other person who could or might possibly receive benefit payments that were due to the Participant or the Participant's spouse, but were not paid. If the Corporation determines that any person entitled to payments under this Plan has become insolvent, bankrupt, or has attempted to anticipate, sell, transfer, assign, mortgage, pledge, encumber, charge or otherwise in any manner alienate any amount payable to that person under this Plan or that there is any danger of any levy, attachment, or other court process or encumbrance on the part of any creditor of that person, against any benefit or other amounts payable to that person, the Corporation may, in its sole discretion and to the extent permitted by law, at any time, withhold any or all such payments or benefits and apply the same for the benefit of that person, in such manner and in such proportion as the Corporation may deem proper. SECTION 11 - Other Benefits The provisions of this Plan relate only to the specific benefits described in this Plan and are not intended to affect any other benefits to which a Participant may be entitled as a retiree and former employee of Black & Decker. Nothing contained in this Plan shall in any manner modify, impair or affect the existing rights or interests of a Participant under any other benefit plan provided by Black & Decker, and the rights and interests of a Participant to any benefits or as a participant or beneficiary in or under any or all such plans shall continue in full force and effect unimpaired, subject nonetheless to the eligibility requirements and other terms of each such plan. This Section shall not be interpreted as modifying in any way the effect that the Participant's termination of employment and retirement at the Participant's Actual Retirement Date has upon the Participant's rights under such other plans The benefits provided under this Plan are not to be applied as an offset against any other retirement or deferred compensation benefits or payments that are otherwise to be provided by Black & Decker to the Participant or the Participant's beneficiaries; and those benefits or payments are to be calculated first, ignoring this Plan's existence. In no event shall any benefits payable under this Plan be treated as salary or other compensation to a Participant for the purpose of computing benefits to which the Participant may be entitled under any other benefit plan of Black & Decker. SECTION 12 - No Guarantee of Employment The Plan shall not be construed as conferring any legal rights upon any Participant for continuation of employment, nor shall it interfere with the rights of Black & Decker to discharge a Participant and to treat the Participant without regard to the effect which such treatment might have upon the Participant under the Plan. SECTION 13 - Cooperation of Parties Each Participant (and surviving spouse) shall perform any and all reasonable acts and execute any and all reasonable documents and papers that are necessary or desirable for carrying out this Plan or any of its provisions. SECTION 14 - Claims Procedure Any claim by a Participant, a Participant's spouse or beneficiary that benefits under the Plan have not been paid in accordance with the terms and conditions of the Plan shall be made in writing and delivered to the Committee at the Corporation's principal office in the State of Maryland. The Committee shall notify the claimant if any additional information is needed to process the claim. All claims shall be approved or denied by the Committee within 90 days of receipt of the claim by the Committee. If the claim is denied, the Committee shall furnish the claimant with a written notice containing: (a) an explanation of the reason for the denial; (b) a specific reference to the applicable provisions of the Plan; and (c) a description of any additional material or information necessary for the claimant to pursue the claim. Within 90 days of receipt of the notice described above, the claimant shall, if further review is desired, file a written request for consideration with the Committee. A request for reconsideration must include an explanation of the grounds for the request and the facts supporting the claim. So long as the claimant's request for review is pending, including such 90 day period, the claimant or the claimant's duly authorized representative may review pertinent documents and may submit issues and comments in writing to the Committee. A final and binding decision shall be made by the Committee within 60 days of the filing of the request for reconsideration; provided, however, that the Committee, in its discretion, may extend this period up to an additional 60 days. The decision by the Committee shall be conveyed to the claimant in writing and shall include specific reasons for the decision, with specific references to the applicable provisions of the Plan on which the decision is based. SECTION 15 - Incapacity If a Participant or the Participant's spouse has become legally incompetent, then the legal guardian, or other legal representative of such Participant's or spouse's estate shall be entitled to act for and represent such incompetent Participant or spouse in all matters and to the same extent as the Participant or spouse could have done but for such incompetency, including but not limited to the receipt of Plan benefits. SECTION 16 - Administration (a) The Plan shall be administered by the Committee, which shall be responsible for all matters affecting the administration of the Plan and shall have the following duties and responsibilities in connection with the administration of the Plan: (i) To prepare and enforce such rules, regulations and procedures as shall be proper for the efficient administration of the Plan, such rules, regulations and procedures to apply uniformly to all Participants; (ii) To determine all questions arising in the administration, interpretation and application of the Plan, including questions of the status and rights of Participants and any other persons hereunder; (iii) To decide any dispute arising hereunder; (iv) To correct defects, supply omissions, and reconcile inconsistencies to the extent necessary to effectuate the Plan; (v) To compute the amount of benefits which shall be payable to any Participant or spouse in accordance with the provisions of the Plan and to determine the person or persons to whom such benefits shall be paid; (vi) To select the currency conversion or exchange rates to be applied in determining a Participant's or spouse's benefits under this Plan, where foreign currencies are involved; (vii) To authorize all payments that shall be made pursuant to the provisions of this Plan; (viii) To make recommendations to the Corporation's Board of Directors with respect to proposed amendments to the Plan; (ix) To file all reports with government agencies, employees, and other parties as may be required by law, whether such reports are initially the obligation of the Corporation or the Plan; (x) To have all such other powers as may be necessary to discharge its duties hereunder. (b) The Committee shall have the authority to interpret the Plan in its sole and absolute discretion. The Committee's interpretation of the Plan and actions in respect of the Plan shall be binding and conclusive on all persons for all purposes. (c) Neither the Committee nor any person acting on its behalf shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to gross negligence or willful misconduct. In addition to such other rights of indemnification they may have as directors, officers or employees of the Corporation, each member of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which such member may be a party by reason of any action taken or omitted under or in connection with the Plan, and against all amounts paid in settlement thereof, provided such settlement is approved by independent legal counsel selected by the Corporation, or paid by such member in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such member is liable for gross negligence or willful misconduct in such member's duties; provided that within 60 days after the institution of such action, suit or proceeding the member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same. (d) If a Participant is also a member of the Committee, the Participant may not vote or act upon matters relating specifically to such member's participation in the Plan. SECTION 17 - Amendments and Termination The Board of Directors of the Corporation reserves the right at any time and from time to time to the extent permissible under law, to amend or terminate this Plan, prospectively or retroactively, in whole or in part; provided, however, that no such amendment or termination shall, without the Participant's written agreement, reduce or impair (a) the benefits or rights of any Participant (or spouse) whose Actual Retirement Date occurred before the date the amendment is adopted or the Plan is terminated, (b) the vested benefits and rights of any Participant who is then employed by Black & Decker or (c) the right of any Protected Participant and/or his or her surviving spouse to receive benefits under this Plan determined as if that Plan termination or amendment had not occurred. Any amendment or termination shall be adopted by resolution of the Corporation's Board of Directors. SECTION 18 - Severability If any provision of this Plan shall be held void or unenforceable, the remaining provisions of the Plan shall remain in full force and effect; provided, however, that in interpreting this Plan, such void or unenforceable provision shall be replaced with an effective and legally permissible provision, the effect of which shall be identical to, or as close as reasonably possible to, the effect of the original provision. SECTION 19 - Construction Any use of the singular shall include the plural, and vice versa, as may be appropriate. Titles, captions or paragraph headings contained in this Plan are for purposes of convenience and reference only, and shall not operate to define or modify the text to which they relate. SECTION 20 - Choice of Law This Plan, and the respective rights and duties of the Corporation and all persons thereunder, shall in all respect be governed by and construed under the laws of the State of Maryland, except to the extent, if any, that those laws may have been pre-empted by federal law. This Plan is intended to be a "pension plan" within the meaning of Section 3(2)(A) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), which is exempt from Parts 2, 3 and 4 of ERISA by virtue of Sections 201(2), 301(a)(3) and 401(a)(1) thereof, respectively, and is not designed to meet the requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended. SECTION 21 - Parties to be Bound The provisions of this Plan shall be binding upon, and shall inure to the benefit of the Corporation, its successors and assigns, and each Participant and the Participant's spouse. Originally Adopted January 30, 1984 Amendment and Restatement adopted February 18, 1993. Amendment and Restatement adopted July 20, 1995. Amendment and Restatement adopted February 14, 1996. EX-10 7 Exhibit 10(v) ________ __, 1995 [NAME AND ADDRESS] Dear __________: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment ________ __, 1995 Page 2 with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. ________ __, 1995 Page 3 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Corporation or you of your employment based on "Retirement" shall mean retirement from active employment with the right to receive an immediate pension benefit under the applicable pension plan of the Corporation in accordance with the Corporation's retirement policy in effect at the time of the change in control of the Corporation. (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the ________ __, 1995 Page 4 Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Annual Incentive Plan ("AIP") or other annual incentive compensation plan; (ii) Performance Equity Plan ("PEP") or other long-term incentive compensation plan; ________ __, 1995 Page 5 (iii) stock option plans; (iv) retirement plans; (v) Supplemental Executive Retirement Plan ("SERP"); and (vi) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. ________ __, 1995 Page 6 Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than l5 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within l5 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts ________ __, 1995 Page 7 paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Corporation or by you for Retirement, or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability, death or Retirement, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability, death or Retirement or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in ________ __, 1995 Page 8 paragraph (C) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (D) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under paragraphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other ________ __, 1995 Page 9 plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate ________ __, 1995 Page 10 provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability, death or Retirement or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36- month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by ________ __, 1995 Page 11 another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the ________ __, 1995 Page 12 Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. This Agreement amends and restates the agreement between the parties dated _____________. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. ________ __, 1995 Page 13 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By_________________________________ Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to this ____ day of __________ 1995 - --------------------------- [NAME] EX-10 8 Exhibit 10(w) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 BLACK & DECKER LOGO October 25, 1995 Mr. Nolan D. Archibald 9017 Brickyard Road Potomac, Maryland 20854 Dear Nolan: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the Mr. Nolan D. Archibald October 25, 1995 Page 2 foregoing, and provided no change in control of the Corporation shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Mr. Nolan D. Archibald October 25, 1995 Page 3 Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Corporation or you of your employment based on "Retirement" shall mean retirement from active employment with the right to receive an immediate pension benefit under the applicable pension plan of the Corporation in accordance with the Corporation's retirement policy in effect at the time of the change in control of the Corporation. (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an Mr. Nolan D. Archibald October 25, 1995 Page 4 opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your status as Chairman, President and Chief Executive Officer of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation, it being understood that for the purpose of this Agreement, "Chairman, President and Chief Executive Officer of the Corporation" shall mean that after a change in control of the Corporation has occurred, you are the Chairman, President and Chief Executive Officer of (1) the Corporation, if it is the surviving entity in any merger, share exchange, acquisition or other business combination with the Corporation, (2) the successor entity to the Corporation in any merger, share exchange, consolidation, acquisition or other business combination with the Corporation, or (3) any entity that beneficially owns a majority of the voting stock of the Corporation, provided that in all of the foregoing cases such entity is a publicly held corporation that (a) on a consolidated basis has a net worth equal to or greater than the Corporation immediately before the change in control of the Corporation, (b) has an independent board of directors, and (c) no person or business organization, or affiliated group of persons or business organizations, owns or controls 20% or more of the voting stock of such corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; Mr. Nolan D. Archibald October 25, 1995 Page 5 (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Corporation's (i) Annual Incentive Plan ("AIP") or other annual incentive compensation plan; (ii) Performance Equity Plan ("PEP") or other long-term incentive compensation plan; (iii) stock option plans; (iv) retirement plans; (v) Supplemental Executive Retirement Plan ("SERP"); and (vi) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any Mr. Nolan D. Archibald October 25, 1995 Page 6 material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than l5 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within l5 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), Mr. Nolan D. Archibald October 25, 1995 Page 7 the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Corporation or by you for Retirement, or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability, death or Retirement, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation at the time such payments are due, and the Mr. Nolan D. Archibald October 25, 1995 Page 8 Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability, death or Retirement or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraph (C) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (D) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under paragraphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to Mr. Nolan D. Archibald October 25, 1995 Page 9 the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently Mr. Nolan D. Archibald October 25, 1995 Page 10 determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability, death or Retirement or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36- Mr. Nolan D. Archibald October 25, 1995 Page 11 month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context Mr. Nolan D. Archibald October 25, 1995 Page 12 otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. This Agreement amends and restates the agreement between the parties dated October 18, 1990. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Mr. Nolan D. Archibald October 25, 1995 Page 13 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /s/ LAWRENCE R. pUGH Lawrence R. Pugh Chairman Organization Committee Agreed to this 20TH day of November 1995 /s/ NOLAN D. ARCHIBALD Nolan D. Archibald EX-10 9 Exhibit 10(x) The Black & Decker Corporation 701 East Joppa Road Towson, MD 21268 410-716-3900 BLACK & DECKER LOGO October 25, 1995 Mr. Raymond A. DeVita 9546 Ednam Cove Germantown, Tennessee 38139 Dear Ray: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Raymond A. DeVita October 25, 1995 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Mr. Raymond A. DeVita October 25, 1995 Page 3 Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Corporation or you of your employment based on "Retirement" shall mean retirement from active employment with the right to receive an immediate pension benefit under the applicable pension plan of the Corporation in accordance with the Corporation's retirement policy in effect at the time of the change in control of the Corporation. (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held Mr. Raymond A. DeVita October 25, 1995 Page 4 for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Mr. Raymond A. DeVita October 25, 1995 Page 5 Corporation's (i) Annual Incentive Plan ("AIP") or other annual incentive compensation plan; (ii) Performance Equity Plan ("PEP") or other long-term incentive compensation plan; (iii) stock option plans; (iv) retirement plans; (v) Supplemental Executive Retirement Plan ("SERP"); and (vi) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); Mr. Raymond A. DeVita October 25, 1995 Page 6 for purposes of this Agreement, no such purported termina- tion shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than l5 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within l5 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and Mr. Raymond A. DeVita October 25, 1995 Page 7 insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Corporation or by you for Retirement, or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability, death or Retirement, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability, death or Retirement or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you Mr. Raymond A. DeVita October 25, 1995 Page 8 for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraph (C) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (D) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under paragraphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other Mr. Raymond A. DeVita October 25, 1995 Page 9 plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your Mr. Raymond A. DeVita October 25, 1995 Page 10 employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A)by the Corporation other than for Cause, Disability, death or Retirement or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36- month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all Mr. Raymond A. DeVita October 25, 1995 Page 11 benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. Mr. Raymond A. DeVita October 25, 1995 Page 12 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. This Agreement amends and restates the agreement between the parties dated October 18, 1990. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid Mr. Raymond A. DeVita October 25, 1995 Page 13 until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /s/NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to this 21st day of November 1995 /S/ RAYMOND A DEVITA Raymond A. DeVita EX-10 10 Exhibit 10(y) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 BLACK & DECKER LOGO October 25, 1995 Mr. Charles E. Fenton 215 Upnor Road Baltimore, Maryland 21212 Dear Charlie: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Charles E. Fenton October 25, 1995 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Mr. Charles E. Fenton October 25, 1995 Page 3 Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Corporation or you of your employment based on "Retirement" shall mean retirement from active employment with the right to receive an immediate pension benefit under the applicable pension plan of the Corporation in accordance with the Corporation's retirement policy in effect at the time of the change in control of the Corporation. (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held Mr. Charles E. Fenton October 25, 1995 Page 4 for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Mr. Charles E. Fenton October 25, 1995 Page 5 Corporation's (i) Annual Incentive Plan ("AIP") or other annual incentive compensation plan; (ii) Performance Equity Plan ("PEP") or other long-term incentive compensation plan; (iii) stock option plans; (iv) retirement plans; (v) Supplemental Executive Retirement Plan ("SERP"); and (vi) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); Mr. Charles E. Fenton October 25, 1995 Page 6 for purposes of this Agreement, no such purported termina- tion shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than l5 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within l5 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and Mr. Charles E. Fenton October 25, 1995 Page 7 insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Corporation or by you for Retirement, or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability, death or Retirement, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability, death or Retirement or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you Mr. Charles E. Fenton October 25, 1995 Page 8 for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraph (C) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (D) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under paragraphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other Mr. Charles E. Fenton October 25, 1995 Page 9 plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your Mr. Charles E. Fenton October 25, 1995 Page 10 employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability, death or Retirement or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36- month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all Mr. Charles E. Fenton October 25, 1995 Page 11 benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. Mr. Charles E. Fenton October 25, 1995 Page 12 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. This Agreement amends and restates the agreement between the parties dated October 18, 1990. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid Mr. Charles E. Fenton October 25, 1995 Page 13 until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /s/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to this 14th day of November 1995 /S/ CHARLES E. FENTON Charles E. Fenton EX-10 11 Exhibit 10(z) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 BLACK & DECKER LOGO October 25, 1995 Mr. Joseph Galli 13 Jackson Manor Court Phoenix, Maryland 21131 Dear Joe: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Joseph Galli October 25, 1995 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Mr. Joseph Galli October 25, 1995 Page 3 Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Corporation or you of your employment based on "Retirement" shall mean retirement from active employment with the right to receive an immediate pension benefit under the applicable pension plan of the Corporation in accordance with the Corporation's retirement policy in effect at the time of the change in control of the Corporation. (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held Mr. Joseph Galli October 25, 1995 Page 4 for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Mr. Joseph Galli October 25, 1995 Page 5 Corporation's (i) Annual Incentive Plan ("AIP") or other annual incentive compensation plan; (ii) Performance Equity Plan ("PEP") or other long-term incentive compensation plan; (iii) stock option plans; (iv) retirement plans; (v) Supplemental Executive Retirement Plan ("SERP"); and (vi) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); Mr. Joseph Galli October 25, 1995 Page 6 for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than l5 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within l5 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and Mr. Joseph Galli October 25, 1995 Page 7 insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Corporation or by you for Retirement, or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability, death or Retirement, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability, death or Retirement or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you Mr. Joseph Galli October 25, 1995 Page 8 for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraph (C) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (D) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under paragraphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other Mr. Joseph Galli October 25, 1995 Page 9 plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your Mr. Joseph Galli October 25, 1995 Page 10 employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability, death or Retirement or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36- month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all Mr. Joseph Galli October 25, 1995 Page 11 benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. Mr. Joseph Galli October 25, 1995 Page 12 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. This Agreement amends and restates the agreement between the parties dated June 1, 1993. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid Mr. Joseph Galli October 25, 1995 Page 13 until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /s/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to this 5th day of December 1995 /S/ JOSEPH GALLI Joseph Galli EX-10 12 Exhibit 10(aa) The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 410-716-3900 BLACK & DECKER LOGO October 25, 1995 Mr. Don R. Graber 14 Soundview Farm Road Weston, Connecticut 06883 Dear Don: The Black & Decker Corporation (the "Corporation") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Corporation (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control of the Corporation may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Corporation, although no such change is now contemplated. In order to induce you to remain in the employ of the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Corporation is terminated subsequent to a "change in control of the Corporation" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 2000; provided, however, that if a change in control of the Corporation shall have occurred prior to December 31, 2000, this Agreement shall continue in effect for a period of 36 months beyond the month in which such change in control occurred, at which time this Agreement shall terminate. Notwithstanding the foregoing, and provided no change in control of the Corporation Mr. Don R. Graber October 25, 1995 Page 2 shall have occurred, this Agreement shall automatically terminate upon the earlier to occur of (i) your termination of employment with the Corporation, or (ii) the Corporation's furnishing you with notice of termination, irrespective of the effective date of such termination. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Corporation, as set forth below. For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation l4A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith, provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clauses (A) or (D) of this Section) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (C) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Corporation; or (D) the stockholders of the Corporation approve a merger, share exchange or consolidation of the Corporation with any other corporation, other than a merger, share exchange or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger, share exchange or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Mr. Don R. Graber October 25, 1995 Page 3 Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. 3. Termination Following Change in Control of the Corporation. If any of the events described in Section 2 hereof constituting a change in control of the Corporation shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Disability or Retirement, (B) by the Corporation for Cause, or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Corporation for six consecutive months, and within 30 days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability." Termination by the Corporation or you of your employment based on "Retirement" shall mean retirement from active employment with the right to receive an immediate pension benefit under the applicable pension plan of the Corporation in accordance with the Corporation's retirement policy in effect at the time of the change in control of the Corporation. (ii) Cause. Termination by the Corporation of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Corporation, other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance by you of a Notice of Termination (as defined in Subsection 3(iv) hereof) for Good Reason (as defined in Subsection 3(iii) hereof), after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Corporation, monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held Mr. Don R. Graber October 25, 1995 Page 4 for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (A), (E), (F), (G) or (H), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(v) and 3(iv) hereof, respectively, given in respect thereof: (A) the assignment to you of any duties inconsistent with your current status as an executive of the Corporation or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the change in control of the Corporation; (B) a reduction by the Corporation in your annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Corporation and all senior executives of any person in control of the Corporation; (C) your relocation to a location not within 25 miles of your present office or job location, except for required travel on the Corporation's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Corporation, without your consent, to pay to you any portion of your current compensation, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Corporation, within seven days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any bonus to which you were entitled, or any compensation plan in which you participated immediately prior to the change in control of the Corporation which is material to your total compensation, including but not limited to the Mr. Don R. Graber October 25, 1995 Page 5 Corporation's (i) Annual Incentive Plan ("AIP") or other annual incentive compensation plan; (ii) Performance Equity Plan ("PEP") or other long-term incentive compensation plan; (iii) stock option plans; (iv) retirement plans; (v) Supplemental Executive Retirement Plan ("SERP"); and (vi) Executive Deferred Compensation Plan; or any substitute plan or plans adopted prior to the change in control of the Corporation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan and such equitable arrangement provides substantially equivalent benefits not materially less favorable to you (both in terms of the amount of benefits provided and the level of your participation relative to other participants), or the failure by the Corporation to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable (both in terms of the amount of benefits provided and the level of your participation relative to other participants) as existed at the time of the change in control of the Corporation; (F) the failure by the Corporation to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Corporation's life insurance, medical, dental, health and accident, or disability plans in which you were participating at the time of the change in control of the Corporation, the failure to continue to provide you with a Corporation automobile or allowance in lieu thereof, if you were provided with such an automobile or allowance in lieu thereof at the time of the change in control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Corporation, or the failure by the Corporation to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control of the Corporation; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(iv) hereof (and, if applicable, the requirements of Subsection 3(ii) hereof); Mr. Don R. Graber October 25, 1995 Page 6 for purposes of this Agreement, no such purported termination shall be effective. Your rights to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. (iv) Notice of Termination. Any purported termination of your employment by the Corporation or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such 30-day period), and (B) if your employment is terminated pursuant to Subsections 3(ii) or 3(iii) hereof or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection 3(ii) hereof shall not be less than 30 days, and in the case of a termination pursuant to Subsection 3(iii) hereof shall not be less than l5 nor more than 60 days, respectively, from the date such Notice of Termination is given); provided that if within l5 days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this proviso), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Corporation will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and Mr. Don R. Graber October 25, 1995 Page 7 insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination or During Disability. Following a change in control of the Corporation, as defined by Section 2 hereof, upon termination of your employment or during a period of Disability you shall be entitled to the following benefits: (i) During any period that you fail to perform your full-time duties with the Corporation as a result of incapacity due to physical or mental illness, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all amounts payable to you under any compensation plan of the Corporation during such period, until this Agreement is terminated pursuant to Subsection 3(i) hereof. Thereafter, or in the event your employment shall be terminated by the Corporation or by you for Retirement, or by reason of your death, your benefits shall be determined under the Corporation's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (ii) If your employment shall be terminated by the Corporation for Cause, Disability, death or Retirement, or by you other than for Good Reason, the Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation at the time such payments are due, and the Corporation shall have no further obligations to you under this Agreement. (iii) If your employment by the Corporation shall be terminated (a) by the Corporation other than for Cause, Disability, death or Retirement or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Corporation shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Corporation, at the time such payments are due, except as otherwise provided below. (B) In lieu of any further salary payments to you Mr. Don R. Graber October 25, 1995 Page 8 for periods subsequent to the Date of Termination, the Corporation shall pay as severance pay to you a lump sum severance payment (together with the payments provided in paragraph (C) of this Subsection 4(iii), the "Severance Payments") equal to three times the sum of your (a) annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination given in respect thereof, and (b) AIP Maximum Payment for the year in which the Date of Termination occurs. AIP Maximum Payment shall mean the higher of (1) the award you would be entitled to receive for 1995 based on the maximum payout factor for the AIP or (2) any greater award you would be entitled to receive for any subsequent year (including the year in which your employment is terminated) based on the maximum payout factor for the AIP for such subsequent year. The provisions of this Section 4(iii)(B) shall not in any way affect your rights under the Corporation's stock option plans or the PEP. (C) The Corporation shall pay to you any deferred compensation, including but not limited to deferred bonuses and amounts deferred under the Executive Deferred Compensation Plan, allocated or credited to you or your account as of the Date of Termination. (D) The Corporation shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). (E) If the payments provided under paragraphs (B) and (C) above (the "Contract Payments") or any other portion of the Total Payments (as defined below) will be subject to the tax imposed by Section 4999 of the Code (the "Excise Tax"), the Corporation shall pay to you at the time specified in paragraph (F) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Contract Payment and such other Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Contract Payments and such other Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether payable pursuant to the terms of this Agreement or any other Mr. Don R. Graber October 25, 1995 Page 9 plan, arrangement or agreement with the Corporation, its successors, any person whose actions result in a change in control of the Corporation or any corporation affiliated (or which, as a result of the completion of a transaction causing a change in control of the Corporation, will become affiliated) with the Corporation within the meaning of Section 1504 of the Code) (together with the Contract Payments, the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to you the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code either to the extent such reasonable compensation is in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit as determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(d) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your Mr. Don R. Graber October 25, 1995 Page 10 employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (F) The payments provided for in paragraphs (B), (C) and (E) above, shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Corporation shall pay to you on such day an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to you payable on the fifth day after demand by the Corporation (together with interest at a rate equal to 120% of the rate provided in Section 1274(d) of the Code). The payments provided for in paragraph (D) above shall be made from time to time, in each instance not later than the fifth day following a written request for payment by you. (iv) If your employment shall be terminated (A) by the Corporation other than for Cause, Disability, death or Retirement or (B) by you for Good Reason, then for a 36-month period after such termination, the Corporation shall arrange to provide you with life, disability, accident, medical, dental and health insurance benefits substantially similar to those that you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(iv) shall be reduced to the extent comparable benefits are actually received by you from another employer during the 36- month period following your termination, and any such benefits actually received by you shall be reported to the Corporation. (v) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Corporation, or otherwise except as specifically provided in this Section 4. (vi) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all Mr. Don R. Graber October 25, 1995 Page 11 benefits payable to you under The Black & Decker Executive Salary Continuance Plan, the SERP, or any plan or agreement sponsored by the Corporation or any of its subsidiaries relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, share exchange, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Corporation in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment for Good Reason following a change in control of the Corporation, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, heirs, distributees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your legatee or other designee or, if there is no such designee, to your estate. (iii) In the event that you are employed by a subsidiary of the Corporation, wherever in this Agreement reference is made to the "Corporation," unless the context otherwise requires, such reference shall also include such subsidiary. The Corporation shall cause such subsidiary to carry out the terms of this Agreement insofar as they relate to the employment relationship between you and such subsidiary, and the Corporation shall indemnify you and save you harmless from and against all liability and damage you may suffer as a consequence of such subsidiary's failure to perform and carry out such terms. Wherever reference is made to any benefit program of the Corporation, such reference shall include, where appropriate, the corresponding benefit program of such subsidiary if you were a participant in such benefit program on the date a change in control of the Corporation has occurred. Mr. Don R. Graber October 25, 1995 Page 12 6. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. This Agreement amends and restates the agreement between the parties dated October 18, 1990. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Maryland. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation under Section 4 hereof shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in the State of Maryland, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid Mr. Don R. Graber October 25, 1995 Page 13 until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, THE BLACK & DECKER CORPORATION By /s/ NOLAN D. ARCHIBALD Nolan D. Archibald Chairman, President and Chief Executive Officer Agreed to this 18th day of November 1995 /S/ DON R. GRABER Don R. Graber EX-10 13 Exhibit 10(ff) STOCK PURCHASE AGREEMENT Dated as of December 13, 1995 By and Among THE BLACK & DECKER CORPORATION ("Seller's Parent") PRC INVESTMENTS INC. ("Seller") PRC INC. ("PRC") and LITTON INDUSTRIES, INC. ("Buyer") STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (together with the Schedules and Exhibits hereto, this "Agreement") is made as of this 13th day of December, 1995, by and among PRC Investments Inc., a Delaware corporation with its principal office at Drummond Plaza Office Park, 1423 Kirkwood Highway, Newark, Delaware 19711 ("Seller"), The Black & Decker Corporation, a Maryland corporation with its principal office at 701 East Joppa Road, Towson, Maryland 21286 ("Seller's Parent"), PRC Inc., a Delaware corporation with its principal office at 1500 PRC Drive, McLean, Virginia 22102 ("PRC"), and Litton Industries, Inc., a Delaware corporation with its principal office at 21240 Burbank Boulevard, Woodland Hills, California 91367 ("Buyer"). W I T N E S S E T H: WHEREAS, Seller owns all of the issued and outstanding shares of capital stock of PRC; WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, in accordance with the terms and conditions of this Agreement, all of the issued and outstanding shares of capital stock of PRC; and WHEREAS, Seller's Parent and PRC desire to join in this Agreement for the purpose of making certain representations, warranties, covenants and agreements; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: Section 1.1. Action. "Action" means any action, complaint, petition, investigation, suit or other proceeding, whether civil or criminal, in law or in equity, or before any arbitrator or Governmental Entity. Section 1.2. Affiliate. "Affiliate" shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question. For purposes of determining whether a Person is an Affiliate, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, contract or otherwise. Section 1.3. Affiliated Groups. "Affiliated Groups" shall have the meaning set forth in Section 3.16. Section 1.4. Allocation. "Allocation" shall have the meaning set forth in Section 11.2. Section 1.5. Benefit Arrangements. "Benefit Arrangements" shall mean all life and health insurance, hospitalization, savings, bonus, deferred compensation, incentive compensation, severance pay, disability, and fringe benefit plans, individual employment and severance contracts and other policies and practices providing employee or executive compensation or benefits to Employees or their dependents, maintained or contributed to by any of the PRC Companies, other than Employee Benefit Plans. Section 1.6. Bid. "Bid" shall mean any quotation, bid or proposal made by Seller, Seller's Parent or any PRC Company that, if accepted or awarded, would lead to a contract with the U.S. Government for the design, manufacture and sale of products or the provision of services by any PRC Company. Section 1.7. Bridge Period. "Bridge Period" shall have the meaning set forth in Section 11.1. Section 1.8. Buyer. "Buyer" shall have the meaning set forth above. Section 1.9. Buyer Group. "Buyer Group" shall have the meaning set forth in Section 11.1. Section 1.10. Buyer Period. "Buyer Period" shall have the meaning set forth in Section 11.1. Section 1.11. Carpal Tunnel Litigation. "Carpal Tunnel Litigation" means any pending or threatened action against any of the PRC Companies arising out of or relating to (i) carpal tunnel syndrome, or (ii) cumulative trauma disorder, tendinitis, nerve entrapment, repetitive motion or stress injury or any similar illness or ailment causing injury or damage to an individual's hand, wrist or arm. Section 1.12. Closing. "Closing" shall mean the consummation of the events described in ARTICLE IX. Section 1.13. Closing Date. "Closing Date" shall mean the date on which the Closing shall occur. Section 1.14. Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.15 Competing Business. "Competing Business" shall have the meaning set forth in Section 5.10. Section 1.16. Confidentiality Agreement. "Confidentiality Agreement" shall mean the agreement dated October 24, 1995, between PRC and Buyer relating to, among other things, the confidential nature of certain information in respect of PRC shared by PRC with Buyer. Section 1.17. Consolidated Returns. "Consolidated Returns" shall have the meaning set forth in Section 3.16. Section 1.18. Consolidated Taxes. "Consolidated Taxes" shall have the meaning set forth in Section 3.16. Section 1.19. Contest. "Contest" shall mean any administrative or judicial Tax or foreign Tax audit, examination, proceeding or litigation involving any Tax Authority. Section 1.20. Contract Loss. "Contract Loss" shall exist with respect to a contract or Bid (i) if in the case of a Government Contract, after consideration of existing reserves, the sales price therefor is more than $100,000 less than the sum of the cost incurred to date and the estimated cost to complete, with all costs determined in accordance with GAAP on a basis consistent with prior periods, or (ii) if in the case of a contract involving the business of PRC Public Sector, Inc., the expected gross margin for the contract for the year ending December 31, 1995 is less than 20%. Section 1.21. DOL. "DOL" shall mean the United States Department of Labor. Section 1.22. ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. Section 1.23. ERISA Affiliate."ERISA Affiliate," as applied to any Person, shall mean (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of a Person shall continue to be considered an ERISA Affiliate within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of such Person and with respect to liabilities arising after such period for which such Person could be liable under the Code or ERISA. Section 1.24. Emhart. "Emhart" shall mean Emhart Corporation, a Virginia corporation with its principal office at 701 East Joppa Road, Towson, Maryland 21286. Section 1.25. Employee Benefit Plan. "Employee Benefit Plan" shall mean each "employee benefit plan," as defined in Section 3(3) of ERISA, maintained or contributed to by any of the PRC Companies, which provides or may provide benefits to Employees or their dependents but excluding Multiemployer Plans. Section 1.26. Employees. "Employees" shall mean all current employees, former employees and retired employees of the PRC Companies. Section 1.27. Environmental Laws. "Environmental Laws" shall mean all Laws relating to the protection of human health, safety or the environment including: (i) all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature; and (ii) all requirements pertaining to the protection of the health and safety of employees or the public. Section 1.28. Final Net Asset Amount. "Final Net Asset Amount" shall have the meaning set forth in Section 2.3. Section 1.29. Financial Statements. "Financial Statements" shall mean the unaudited Special Purpose Statements of Net Assets of PRC, exclusive of PRC Environmental Management, Inc. and PRC Realty Systems, Inc., formerly wholly owned subsidiaries of PRC, as of September 30, 1995 and December 31, 1994, and the Special Purpose Statements of Operating Income for the years ended December 31, 1994, 1993 and 1992, and for the nine months ended September 30, 1995 and 1994, together with all notes thereto, copies of which is attached hereto as Exhibit A. Section 1.30. GAAP. "GAAP" shall mean generally accepted accounting principles. Section 1.31. Government Contract. "Government Contract" means any prime contract, subcontract, teaming agreement or arrangement, joint venture, basic ordering agreement, letter contract, purchase order, delivery order, Bid, change order or other legally binding commitment of any kind relating to any business between any PRC Company and (i) the U.S. Government, (ii) any prime contractor of the U.S. Government to the extent it relates to such prime contract, or (iii) any subcontractor with respect to any contract described in clauses (i) or (ii). Section 1.32. Government Contract Novation. "Government Contract Novation" shall mean, with respect to a Prime Government Contract, an instrument reasonably satisfactory in form and substance to Buyer and Seller pursuant to which all of PRC's rights, claims, benefits and liabilities thereunder shall have been validly conveyed, transferred, assigned, assumed and novated to Buyer by all parties thereto. Section 1.33. Governmental Entity. "Governmental Entity" means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign. Section 1.34. Guarantees. "Guarantees" shall mean any obligations, contingent or otherwise, of a Person in respect of any indebtedness, obligation or liability (including assumed indebtedness, obligations or liabilities) of another Person, including but not limited to direct or indirect guarantees, endorsements (except for collection or deposit in the ordinary course of business), notes co-made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such indebtedness, obligation or liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income, or other financial condition, agreements to make payment other than for value received and any other financial accommodations. Section 1.35. Hazardous Substances. "Hazardous Substances" shall mean substances that are defined or listed in, or otherwise classified pursuant to, any applicable Laws as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances," or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitibility, corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity or "EP toxicity," and petroleum and drilling fluids, produced waters and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy. Section 1.36. H-S-R Act. "H-S-R Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Section 1.37. IRS. "IRS" shall mean the Internal Revenue Service. Section 1.38. Incentive Compensation Plans. "Incentive Compensation Plans" shall mean any cash bonus or other incentive compensation plan or arrangement maintained or contributed to by any of the PRC Companies or Seller's Parent, and any successor plan or arrangement covering Employees for 1995 or thereafter. Section 1.39. Income Taxes. "Income Taxes" shall mean any income, gross receipts, gains, net worth, surplus, franchise or with respect to any interest, dividends or royalties, withholding taxes (including interest, penalties or other additions to Tax) imposed by a Tax Authority, payable by any PRC Company for federal, state, local or foreign income Tax purposes (as the context requires) with respect to any Pre-Closing Period or any Post-Closing Period. Section 1.40. Indemnified Party. "Indemnified Party" shall have the meaning set forth in Section 11.5. Section 1.41. Indemnifying Party. "Indemnifying Party" shall have the meaning set forth in Section 11.5 Section 1.42. Individual Returns. "Individual Returns" shall have the meaning set forth in Section 3.16. Section 1.43. Individual Taxes. "Individual Taxes" shall have the meaning set forth in Section 3.16. Section 1.44. Intellectual Property. "Intellectual Property" shall mean all brand names, corporate names, copyrights, patents, service marks, trademarks, trade names, know-how, trade secrets, and all registrations or applications for registration of any of the foregoing, that are (a) owned by or licensed to a PRC Company (other than generally available software licensed from third parties) and (b) used in the operation of the business of a PRC Company. Section 1.45. Law. "Law" or "Laws" means any valid constitutional provision, statute, ordinance or other law (including common law), rule, regulation or interpretation of any Governmental Entity and any Order, as any of these may be in effect from time to time. Section 1.46. Loss. "Loss" means any action, claim, cost, damage, disbursement, expense, liability, loss, deficiency, obligation, sanction or penalty of any kind or nature, whether foreseeable or unforeseeable, including but not limited to interest, judgments, reasonable legal, accounting and other professional fees and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by the specified Person. Section 1.47. Material Adverse Effect. "Material Adverse Effect" when used with reference to a Person or Persons shall mean a material adverse effect on the business, operations or financial condition of the Person or Persons. Section 1.48. Material Contract. "Material Contract" shall mean (i) any contract, agreement, commitment or other arrangement (oral or written) to which a PRC Company is party and which reasonably could be expected to result in revenues to the PRC Companies over the expected term of such contract, agreement, commitment or arrangement in excess of $2,000,000 and (ii) those contracts defined to be material in Section 3.13. Section 1.49. Multiemployer Plan. "Multiemployer Plan" shall mean a plan described in Sections 3(37) and 4001(a)(3) of ERISA to which any of the PRC Companies has an obligation to contribute or had an obligation to contribute within the past five years. Section 1.50. Net Assets. "Net Assets" shall mean total assets minus total liabilities, calculated in accordance with Section 2.3. Section 1.51. OCI Clause. "OCI Clause" means any clause or provision of any agreement providing for compliance with the Organizational Conflict of Interest ("OCI") rules of Subpart 9.5 of the Federal Acquisition Regulations, as they may be amended or modified from time to time, whether or not the agreement makes explicit reference to Subpart 9.5 of the Federal Acquisition Regulations. Section 1.52. Order. "Order" means any decree, injunction, judgment, order, ruling, assessment or writ. Section 1.53. PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation. Section 1.54. PRC. "PRC" shall have the meaning set forth above. Section 1.55. PRC Companies. "PRC Companies" shall mean PRC and the PRC Subsidiaries. Section 1.56. PRC Shares. "PRC Shares" shall mean all of the issued and outstanding shares of common stock, par value $.01 per share, of PRC. Section 1.57. PRC Subsidiaries. "PRC Subsidiaries" shall mean the Subsidiaries of PRC listed in Schedule 3.4 and PRC Aviation LLC, a Virginia limited liability company. Section 1.58. Pension Plan. "Pension Plan shall mean any Employee Benefit Plan that is an "employee pension benefit plan" as defined in Section 3(2) of ERISA. Section 1.59. Person. "Person" shall mean any individual, corporation, unincorporated association, business trust, estate, partnership, limited liability company, limited liability partnership, trust, state, the United States or any other entity. Section 1.60. Post-Closing Claims. "Post-Closing Claims" means any Action or Order, or any third party claim which would reasonably be expected to lead to an Action by such third party if not otherwise resolved or settled with such party, relating to the PRC Companies to the extent arising from facts or circumstances that occurred after the Closing. Section 1.61. Pre-Closing Claims. "Pre-Closing Claims" means any pending or threatened Action or Order, or any third party claim which would reasonably be expected to lead to an Action by such third party if not otherwise resolved or settled with such party, relating to the PRC Companies to the extent arising from facts or circumstances that occurred on or prior to the Closing, whether pending or threatened at the Closing or thereafter. Section 1.62. Post-Closing Period. "Post-Closing Period" shall have the meaning set forth in Section 11.1. Section 1.63. Pre-Closing Period. "Pre-Closing Period" shall have the meaning set forth in Section 11.1. Section 1.64. Prime Government Contract. "Prime Government Contract" shall mean any Government Contract the parties to which include (i) any PRC Company and (ii) the U.S. Government. Section 1.65. Proposed Final Net Asset Amount. "Proposed Final Net Asset Amount" shall have the meaning set forth in Section 2.3. Section 1.66. Purchase Price. "Purchase Price" shall have the meaning set forth in Section 2.2. Section 1.67. Section 338(h)(10) Election. "Section 338(h)(10) Election" shall have the meaning set forth in Section 11.2. Section 1.68. Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.69. Seller. "Seller" shall have the meaning set forth above. Section 1.70. Seller Group. "Seller Group" shall have the meaning set forth in Section 11.3. Section 1.71. Seller Period. "Seller Period" shall have the meaning set forth in Section 11.1. Section 1.72. Seller's Parent. "Seller's Parent" shall have the meaning set forth above. Section 1.73. Special Severance Plans. "Special Severance Plans" shall mean the PRC Inc. Special Severance Plan and the PRC Inc. Senior Management Severance Plan, copies of which are attached hereto as Exhibit B. Section 1.74. Subsidiary. "Subsidiary," as it relates to any Person, shall mean any other corporation, unincorporated association, business trust, partnership, limited liability company or limited liability partnership (other than any such entity formed as part of a teaming arrangement or other venture for the purpose of pursuing or performing a contract in the ordinary course of business) more than 50% of whose outstanding securities such Person has the right, other than as affected by events of default, directly or indirectly, to vote generally. Section 1.75. Tax Authority. "Tax Authority" shall mean a foreign or United States federal, state, or local Governmental Entity having jurisdiction over the assessment, determination, collection or imposition of any Tax, as the context requires. Section 1.76. Tax Returns. "Tax Returns" shall mean all returns (including information returns), declarations, reports, estimates and statements regarding Taxes, required to be filed with any Tax Authority. Section 1.77. Taxes. "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, customs, duties, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any Tax Authority. Section 1.78. U.S. Government. "U.S. Government" shall mean the United States Government, including any agencies, commissions, branches, instrumentalities and departments thereof. ARTICLE II PURCHASE AND SALE OF PRC SHARES Section 2.1. Sale of PRC Shares. On the terms and subject to the conditions set forth in this Agreement, Seller hereby agrees to sell, transfer, assign and deliver to Buyer, and Buyer hereby agrees to purchase from Seller, the PRC Shares on the Closing Date. Section 2.2. Purchase Price and Payment for PRC Shares. The consideration to be paid by Buyer to Seller in exchange for the sale, transfer, assignment and delivery to Buyer of the PRC Shares shall be $425,000,000 (the "Purchase Price"), which shall be paid by Buyer to Seller at the time of Closing by wire transfer of immediately available funds into an account designated in writing by Seller to Buyer at least two days prior to the Closing Date. The Purchase Price shall be subject to adjustment as provided in Section 2.3. Section 2.3. Adjustment of Purchase Price. (a) As promptly as practicable following the Closing Date, but in no event later than 90 days after the Closing Date, Seller shall prepare and submit to Buyer an audited schedule setting forth, in reasonable detail, Seller's calculation of the Net Assets of PRC immediately prior to the Closing (the "Proposed Final Net Asset Amount") certified by Ernst & Young LLP. Buyer shall cause personnel of the PRC Companies to be reasonably available to assist Ernst & Young LLP in its preparation of the Proposed Final Net Asset Amount. In the event Buyer disputes the correctness of the Proposed Final Net Asset Amount, Buyer shall notify Seller of its objections within six months of the Closing Date and shall set forth, in reasonable detail, the reasons for Buyer's objections. If Buyer fails to deliver such notice within such time, Buyer shall be deemed to have accepted Seller's calculation. Buyer and Seller shall endeavor in good faith to resolve any disputed items within 20 days after Seller's receipt of Buyer's notice of objections. If they are unable to do so, Seller's Parent and Buyer shall select a nationally known independent accounting firm to resolve the dispute, and the determination of such firm in respect of the correctness of each item remaining in dispute shall be conclusive and binding on Buyer and Seller. The amount of Net Assets immediately prior to the Closing, as finally determined pursuant to this Section 2.3(a) (whether by failure of Buyer to deliver notice of objection, by agreement of the parties or by determination of the accountants selected as set forth above), is referred to herein as the "Final Net Asset Amount." (b) The Proposed Final Net Asset Amount and the Final Net Asset Amount shall be determined in accordance with GAAP (except as otherwise set forth in the Financial Statements), in a manner consistent with the Special Purpose Statement of Net Assets as of September 30, 1995, and as provided in the Financial Statements. The accounting firm selected to resolve any disputes will be instructed to determine the Final Net Asset Amount in the same manner. (c) If the Final Net Asset Amount is greater than $205,333,000, the difference shall be paid to Seller by Buyer with interest thereon from the Closing Date to the date of payment at a rate per annum equal to the per annum interest rate announced from time to time by Citibank, N.A. as its prime rate in effect. If the Final Net Asset Amount is less than $205,333,000, the difference shall be paid to Buyer by Seller with interest thereon from the Closing Date to the date of payment at a rate per annum equal to the per annum interest rate announced from time to time by Citibank, N.A. as its prime rate in effect. Such payment shall be made in immediately available funds not later than two business days after the determination of the Final Net Asset Amount by wire transfer to a bank account designated by the party entitled to receive the payment. (d) The fees and expenses, if any, of the accounting firm selected to resolve any disputes between Buyer and Seller in accordance with Section 2.3(a) shall be paid one-half by Seller and one-half by Buyer. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER'S PARENT Seller and Seller's Parent jointly and severally represent and warrant to and for the benefit of Buyer as follows: Section 3.1.Organization and Good Standing. Each of Seller and Seller's Parent, and each of the PRC Companies, is a corporation or other entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and has full corporate power and authority to carry on its business as it is now being conducted. Schedule 3.1 sets forth the jurisdiction in which each PRC Company was organized and each jurisdiction in which each PRC Company is qualified or licensed to do business as a foreign Person. Each of the PRC Companies is qualified as a foreign corporation or other entity and is in good standing under the laws of each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification, except as set forth in Schedule 3.1 and except where the failure to be so qualified would not have a Material Adverse Effect on the PRC Companies taken as a whole. Schedule 3.1 correctly lists the current directors and executive officers of each PRC Company as of the date hereof. True, correct and complete copies of the respective charter documents of each of the PRC Companies as in effect on the date hereof have been delivered or otherwise made available to Buyer. Section 3.2. Capitalization. The authorized capital stock of PRC consists of 1,000 shares of common stock, par value $.01 per share, all of which are outstanding. Each of the PRC Shares has been validly issued, is fully paid and nonassessable and was issued in conformity with applicable Laws. No shares of capital stock of PRC are held in treasury, and there are no other issued or outstanding equity securities of PRC and no other issued or outstanding securities of PRC convertible or exercisable at any time into equity securities of PRC. PRC is subject to no commitment or obligation that would require the issuance or sale of additional shares of capital stock of PRC at any time under options, subscriptions, warrants, rights or any other obligations. Section 3.3. Ownership of PRC Shares. Seller is the record and beneficial owner of the PRC Shares, which are free of any lien, security interest, charge, encumbrance or claim whatsoever. At the Closing, Buyer will acquire good and marketable title to and complete ownership of the PRC Shares, free of any lien, security interest, charge, encumbrance or claim whatsoever. Section 3.4. PRC Subsidiaries. Schedule 3.4 sets forth the authorized capital stock and the record ownership of the outstanding shares of capital stock of each of the PRC Subsidiaries, and a brief summary of each PRC Subsidiary's business. PRC's ownership of shares of the capital stock of the PRC Subsidiaries as shown on Schedule 3.4 is free of any lien, security interest, charge, encumbrance or claim whatsoever. PRC does not have any Subsidiaries other than the PRC Subsidiaries. All of the outstanding shares of capital stock of each of the PRC Subsidiaries have been validly issued and are fully paid and nonassessable and were issued in conformity with applicable Laws. Other than as set forth in Schedule 3.4, there are no other issued or outstanding equity securities of any of the PRC Subsidiaries and there are no other issued or outstanding securities of any of the PRC Subsidiaries convertible or exercisable at any time into equity securities of any of the PRC Subsidiaries. None of the PRC Subsidiaries is subject to any commitment or obligation that would require the issuance or sale of additional shares of its capital stock at any time under options, subscriptions, warrants, rights or any other obligations. Except as described in Schedule 3.4, PRC does not own any equity securities of any Person that is not a Subsidiary. Section 3.5.Execution and Effect of Agreement. Each of Seller and Seller's Parent has all necessary corporate power and authority to execute, deliver and perform this Agreement and any related agreements to which it is a party. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Boards of Directors of Seller and Seller's Parent and by all other necessary corporate action of Seller and Seller's Parent. This Agreement has been duly executed and delivered by Seller and Seller's Parent and constitutes a legal, valid and binding obligation of Seller and Seller's Parent, enforceable against Seller and Seller's Parent in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other Laws affecting the rights of creditors generally. Section 3.6. Restrictions. Except as set forth in Schedule 3.6, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) violate any of the provisions of the charter or by-laws of Seller, Seller's Parent or any PRC Company, (b) violate any Law, (c) result in the imposition of any lien, security interest, charge, encumbrance or claim whatsoever against any asset or property of any PRC Company, or (d) conflict with or result in a breach of, or give rise to a right of termination of, or accelerate the performance required by the terms of any judgment, court order or consent decree, or any agreement, indenture, mortgage or instrument to which Seller, Seller's Parent or any PRC Company is a party or to which it or its property is subject, or constitute a default thereunder (whether or not any such conflict, breach, right of termination, acceleration or default will occur only upon lapse of time and/or the occurrence of any act or event or otherwise), except where such conflict, breach, right of termination, acceleration or default (i) arises out of any OCI Clauses as a result of the consummation of the transactions contemplated by this Agreement and the business of the Buyer and its Affiliates on the one hand and the PRC Companies on the other hand or (ii) except with respect to clause (a) above, would not have a Material Adverse Effect on Seller's Parent and its Subsidiaries taken as a whole or the PRC Companies taken as a whole, as the case may be. Section 3.7. Consents. Except (a) for filings, consents, approvals and authorizations that the failure to obtain or make would not have a Material Adverse Effect on the PRC Companies taken as a whole, (b) as set forth in Schedule 3.6 or Schedule 3.7 or referred to in Section 3.6, or (c) for filings, consents, waivers, approvals or authorizations pursuant to the H-S-R Act, no filing, consent, waiver, approval or authorization of any Governmental Entity or of any third party on the part of Seller, Seller's Parent or any of the PRC Companies is required in connection with the execution and delivery by Seller, Seller's Parent and PRC of this Agreement or any instrument contemplated hereby or the consummation of any of the transactions contemplated hereby. Section 3.8. Financial Statements. Except as set forth in the Notes to the Financial Statements, the Financial Statements have been prepared in conformity with GAAP applied on a consistent basis and present fairly the financial position of the PRC Companies at the dates and for the periods set forth therein. The Financial Statements have been certified by the chief financial officer of PRC. Seller has made available to Buyer copies of each management letter or other letter delivered to Seller, Seller's Parent or any PRC Company by such accountants in connection with the Financial Statements or relating to any review by such accountants of the internal controls of any PRC Company for the periods covered by the Financial Statements, and has made available for inspection, or will make available for inspection upon request, all reports and working papers produced or developed by Ernst & Young LLP or management in connection with their review of such Financial Statements, as well as all such reports and working papers for prior periods for which any tax liability of any PRC Company has not been finally determined or barred by applicable statutes of limitation. Since January 1, 1992, there has been no change in any of the significant accounting policies, practices or procedures of any PRC Company that would be required by GAAP to be disclosed in the Financial Statements. Section 3.9. No Undisclosed Liabilities. Except as (a) set forth or reserved against in the Financial Statements, (b) set forth in Schedule 3.9, (c) incurred since September 30, 1995 in compliance with Section 5.2 hereof (as if such Section was in effect since September 30, 1995), or (d) arising under this Agreement, the PRC Companies do not have as of the date hereof, and will not have as of the Closing Date, any liabilities whatsoever of a type required to be accrued for in accordance with GAAP. Section 3.10. Litigation. Except as set forth in Schedule 3.10, there is no Order or Action pending, or to the knowledge of Seller, Seller's Parent or any of the PRC Companies threatened, against Seller, Seller's Parent or any of the PRC Companies in respect of this Agreement or any of the transactions contemplated hereby that could reasonably be expected to prevent the consummation of any of the transactions contemplated hereby. Except as set forth in Schedule 3.10, there is no Order or Action pending, or to the knowledge of Seller, Seller's Parent or any of the PRC Companies threatened, against or involving any of the businesses, properties, rights or assets of any of the PRC Companies which (i) reasonably could be expected to have a Material Adverse Effect on the PRC Companies taken as a whole or (ii) as of the date of this Agreement, involves a claim or potential claim that reasonably could be expected to have aggregate liability to the PRC Companies in excess of $100,000, or that enjoins or compels or seeks to enjoin or to compel any activity by any PRC Company. Except as set forth in Schedule 3.10, there is no matter as to which any PRC Company has received any notice, claim or assertion, or, to the knowledge of Seller, Seller's Parent and the PRC Companies, which otherwise has been threatened against or affecting any director, officer, employee, agent or representative of any PRC Company or any other Person, nor to the knowledge of Seller, Seller's Parent and the PRC Companies is there any reasonable basis therefor, in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by any PRC Company, except as could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. Section 3.11. Real and Personal Property. (a) None of the PRC Companies owns any real property. Schedule 3.11 sets forth a complete list of all real property leased by the PRC Companies as of the date of this Agreement. All leasehold properties listed on Schedule 3.11 are held by PRC Companies under valid, binding and enforceable leases. None of the PRC Companies is in default, or has received written notice of default, under any lease of real property, which default reasonably could be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. There is no Action pending or, to the knowledge of Seller, Seller's Parent and the PRC Companies, threatened that could reasonably be expected to materially interfere with the quiet enjoyment of any of the leasehold properties listed on Schedule 3.11. (b) Except as could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole, the PRC Companies have good and marketable title to all owned assets and properties used in their business, including but not limited to all assets that they respectively purport to own as of September 30, 1995, as reflected in the Financial Statements. All owned assets and property as are material to the business of the PRC Companies, including but not limited to all assets that they respectively purport to own as of September 30, 1995 as reflected in the Financial Statements, are held free of any liens, security interests, charges, encumbrances or claims, except for liens for Taxes not yet due and except for liens, security interests, charges, encumbrances or claims that could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. All material tangible properties of the PRC Companies are in a good state of maintenance and repair (except for ordinary wear and tear). (c) The assets of the PRC Companies are sufficient for the conduct of their business and operations. Section 3.12. Intellectual Property. Schedule 3.12 sets forth, as of the date of this Agreement, a complete list of all Intellectual Property (except for brand names, know-how, unregistered copyrights, unregistered service marks, unregistered trademarks, unregistered tradenames and trade secrets and except for licensed Intellectual Property). Except as otherwise indicated in Schedule 3.12 and except as could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole, (x) the PRC Companies own or license the Intellectual Property free and clear of any royalty, lien, encumbrance or charge, subject in the case of licensed Intellectual Property to the terms of the respective license agreements, and (y) all such Intellectual Property is valid and enforceable. Except as set forth in Schedule 3.12 and except as could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole, none of the PRC Companies has received any notice or claim that any Intellectual Property is not valid or enforceable, or of any infringement upon or conflict with any patent, trademark, service mark, copyright, trade name, trade secret or other proprietary right of any third party by the PRC Companies or of any claim by any third party alleging any such infringement or conflict. Except as set forth in Schedule 3.12 and except as could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole, no PRC Company has any knowledge of any infringement by any third party upon any of the Intellectual Property listed in Schedule 3.12. Except as set forth in Schedule 3.12 and except as could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole, as of the Closing Date the PRC Companies will not be infringing any third party's patent, copyright, trademark, service mark, trade name, know-how, trade secret or other intellectual property rights. Section 3.13. Material Contracts. Schedule 3.13 sets forth, as of the date of this Agreement, a list of or brief description of all Material Contracts (other than Material Contracts that the PRC Companies are limited by applicable Laws or Orders or by contract from disclosing to Buyer and other than leases of real property). Each contract, agreement, commitment or other arrangement (oral or written) to which any of the PRC Companies is a party or by which any of the PRC Companies is obligated, embodying or evidencing any of the following transactions shall be deemed to be a Material Contract and is identified on Schedule 3.13: (a) guarantees by any of the PRC Companies of any obligations other than guarantees of obligations of other PRC Companies; (b) indentures, notes, mortgages, installment obligations, capital leases or other instruments relating to the borrowing of money in excess of $250,000; (c) agreements or contracts that involved the receipt of monies by any of the PRC Companies and constituted the (i) 20 largest contracts or agreements by revenue of the PRC Companies as a whole for the year ended December 31, 1994, and for the nine months ended September 30, 1995, (ii) 10 largest contracts or agreements by revenue of the Information Technologies Group of the PRC Companies for the year ended December 31, 1994, and for the nine months ended September 30, 1995, (iii) 10 largest contracts or agreements by revenue of the Information Systems Group of the PRC Companies for the year ended December 31, 1994, and for the nine months ended September 30, 1995, (iv) 10 largest contracts or agreements by revenue of the Systems Integration Group of the PRC Companies for the year ended December 31, 1994, and for the nine months ended September 30, 1995 and (v) 10 largest contracts or agreements by revenue of the Applied Engineering Group of the PRC Companies for the year ending December 31, 1994 and for the nine months ended September 30, 1995; (d) contracts or agreements (including subcontracts) that involved the payment of at least $250,000 by any of the PRC Companies during the nine months ended September 30, 1995; (e) contracts or agreements limiting or restricting the ability of any PRC Company to compete or otherwise to conduct any business in any manner or place other than those relating to OCI Clauses and provisions of teaming and other similar agreements relating to the pursuit or performance of a contract; (f) grants of power of attorney, agency or similar authority to another Person (other than to a PRC Company or any director, officer or employee of a PRC Company); (g) contracts or agreements containing a right of first refusal; (h) any contract or agreement to which any Affiliate, officer or director of Seller, Seller's Parent, or any PRC Company is party (other than those constituting an Employee Benefit Plan or Benefit Arrangement); (i) any sales, marketing or international consulting or similar contract or agreement and any lobbying agreement; (j) any material distributor or sales representative contract or agreement (other than those where the PRC Company is the distributor or sales representative); and (k) any contract or agreement not made in the ordinary course of business that was entered into by a PRC Company in 1995 or that involves an executory obligation on the part of a PRC Company on the date of this Agreement or hereafter. Except as set forth on Schedule 3.13, to the knowledge of Seller, Seller's Parent and the PRC Companies, each Material Contract is valid and subsisting, and none of the PRC Companies is in default under any Material Contract, has waived any material rights under any Material Contract (other than releases executed in the ordinary course of business in connection with closing contracts or task orders) or has knowledge or notice that any party with whom it has a Material Contract is in default in a material respect under the Material Contract. Unless otherwise so noted on Schedule 3.13, each Material Contract was entered into in the ordinary course of business. True copies of the Material Contracts, including all amendments and supplements, have been delivered or otherwise will be made available to Buyer. Section 3.14. Employee Benefit Matters. (a) Schedule 3.14 sets forth, as of the date of this Agreement, a list of all Employee Benefit Plans, all Multiemployer Plans and all collective bargaining agreements of the PRC Companies, and all material Benefit Arrangements. Except as set forth in Schedule 3.14, with respect to each of such Employee Benefit Plans, Multiemployer Plans, collective bargaining agreements and Benefit Arrangements, Seller has delivered or made available to Buyer, as applicable, copies of (i) the text of the formal plan document or other agreements, written policies or guidelines actually maintained by Seller's Parent, Seller, PRC or any of their Affiliates evidencing the terms of such Employee Benefit Plans and Benefit Arrangements, including amendments and, if applicable, the summary plan description, (ii) in the case of a collective bargaining agreement, the text of the collective bargaining agreement, (iii) in the case of a Pension Plan that is intended to qualify under Section 401 of the Code, the most recent IRS determination letter relating to the Pension Plan's qualification under Section 401 of the Code and the related trust's qualification under Section 501 of the Code, (iv) the trust agreements, insurance contracts or other documents that constitute all or a part of the funding vehicle, and (v) the most recent annual reports (IRS Form 5500s), including the schedules thereto. (b) Except as set forth in Schedule 3.14, all Employee Benefit Plans comply in all material respects with ERISA, the Code and any other applicable Law, each Benefit Arrangement has been maintained in material compliance with its terms and all applicable Laws, and the PRC Companies have performed in all material respects their obligations under each Employee Benefit Plan and Benefit Arrangement. (c) Except as set forth in Schedule 3.14, there are no Actions or Orders pending, or to the knowledge of Seller, Seller's Parent or PRC, threatened, including proceedings before the IRS, the DOL or the PBGC, against any Employee Benefit Plan, Benefit Arrangement or any administrator or fiduciary thereof, and, to the best knowledge of Seller and Seller's Parent, no facts exist which could give rise to any such Actions or Orders, other than benefit claims arising in the normal course of operation of such Employee Benefit Plans or Benefit Arrangements. (d) Except as set forth in Schedule 3.14, no PRC Company has any current or projected liability for any unfunded post-retirement medical or life insurance benefits in connection with any Employee of any of the PRC Companies. (e) Except as set forth in Schedule 3.14, none of the PRC Companies and, to the knowledge of Seller, Seller's Parent and the PRC Companies, no other Person has engaged in any non-exempt "Prohibited Transaction," as defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any Employee Benefit Plan. (f) Except as set forth in Schedule 3.14, none of the PRC Companies has incurred an outstanding "Accumulated Funding Deficiency," as defined in Section 302(a) of ERISA or Section 412(a) of the Code, with respect to any Pension Plan, nor is any Pension Plan subject to Title IV of ERISA. (g) Except as set forth in Schedule 3.14, none of the PRC Companies nor their ERISA Affiliates has incurred a "withdrawal" or "partial withdrawal," as defined in Section 4203 and 4205 of ERISA, from any Multiemployer Plan, which has resulted in an unpaid liability or could reasonably be expected to result in a liability of any of the PRC Companies. Section 3.15. Guarantees by Others. Schedule 3.15 sets forth a complete list of all Guarantees of Seller's Parent (or any of its Affiliates (other than a PRC Company)) for the benefit of Persons doing business with any of the PRC Companies. Section 3.16. Tax Matters. (a) Each of the affiliated groups (as that term is defined in Section 1504(a) of the Code) of corporations of which the PRC Companies were members prior to and subsequent to April 28, 1989 (the "Affiliated Groups"), has filed consolidated federal Income Tax Returns and state Income Tax Returns filed on a consolidated or combined basis (the "Consolidated Returns") for all taxable years (other than years beginning on or after January 1, 1995) during which the PRC Companies were members of the Affiliated Groups. The Affiliated Groups have paid or adequately provided for (or will adequately provide for) all federal Income Taxes, state Income Taxes with respect to Tax Returns filed on a consolidated or combined basis, additions to tax, penalties and interest (collectively, the "Consolidated Taxes") applicable to the Affiliated Groups or to any members thereof, and the affiliated group of corporations of which the PRC Companies are members as of the date of this Agreement has adequately provided (or will adequately provide for) for all Consolidated Taxes that would be due if the current tax period ended at the close of business on the Closing Date. Other than the PRC Companies' membership in the Affiliated Groups, the PRC Companies have not been members of any affiliated group for any period not barred by the statute of limitations. (b) Except as set forth in Schedule 3.16, each of the PRC Companies has filed all federal, state, local and other Tax Returns (other than Consolidated Returns) (the "Individual Returns") required to be filed by it under applicable Laws, including estimated tax returns and reports, and each of the PRC Companies has paid all required federal, state and local income (other than Consolidated Taxes) and other taxes, additions to taxes, penalties and interest (the "Individual Taxes") due and payable on or before the date hereof (and will duly and timely pay all such amounts required to be paid between he date hereof and the Closing Date), except where such failure to file the Individual Returns or pay the Individual taxes would not have a Material Adverse Effect on the PRC Companies taken as a whole. Each of the PRC Companies has paid, withheld or adequately provided for (or will adequately provide for) any and all Individual Taxes in respect of the conduct of its business or the ownership of its property and in respect of any transaction for which such taxes are due or would be due if the current tax period ended at the close of business on the Closing Date. (c) The federal Income Tax Returns of Seller, Seller's Parent and the PRC Companies have been audited by the IRS (or the time for the IRS to make an assessment for additional federal Income Taxes has expired) for the taxable years ended on or before September 30, 1990, but no taxable years ending thereafter. Except as set forth in Schedule 3.16, all deficiencies asserted as a result of such examinations have been paid or finally settled and no issue has been raised by the IRS on audit or otherwise that, by application of the same or similar principles, might result in a proposed deficiency affecting any of the PRC Companies for any other period not so examined. (d) Except as set forth in Schedule 3.16, no material proposed Taxes, addition to tax, interest, or penalties have been asserted against the Affiliated Groups or any member of the Affiliated Groups including any of the PRC Companies, except those that have been paid in full and those that would not have a Material Adverse Effect on the PRC Companies taken as a whole. Except as set forth in Schedule 3.16, there are no material agreements, waivers, or other arrangements providing for extensions of time in respect of the assessment or collection of any material unpaid Tax against the Affiliated Groups or any member of the Affiliated Groups affecting any of the PRC Companies, except those that would not have a Material Adverse Effect on the PRC Companies taken as a whole. (e) No election or consent under Section 341(f) of the Code has been made or shall be made on or prior to the Closing Date by or on behalf of any of the PRC Companies. None of the PRC Companies has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G of the Code. None of the PRC Companies has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Each of the PRC Companies has disclosed on its federal Income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal Income Tax within the meaning of Section 6662 of the Code. Except as set forth on Schedule 3.16, none of the PRC Companies is a party to any Tax allocation or sharing agreement. None of the PRC Companies has any liability for the Taxes of any Person (other than any of the PRC Companies or the Affiliated Groups) under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign Law), as a transferee or successor, by contract, or otherwise. Section 3.17. Environmental Matters. (a) Except as set forth in Schedule 3.17 and except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, each of the PRC Companies is in compliance with all applicable environmental Laws. Except as set forth in Schedule 3.17, the PRC Companies have obtained all permits, licenses and other authorizations that are required under applicable Laws relating to the protection of the environment, except where the failure to obtain such permits, licenses and other authorizations could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. Except as set forth in Schedule 3.17, the PRC Companies are in compliance with the terms and conditions under which the permits, licenses and other authorizations referenced in the preceding sentence were issued or granted, except where the failure to be in compliance could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. (b) Except as set forth on Schedule 3.17 and except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, (i) none of the PRC Companies has generated, used, transported, treated, stored, released or disposed of, or has suffered or permitted anyone else to generate, use, transport, treat, store, release or dispose of any Hazardous Substance in violation of any Laws; (ii) there has not been any generation, use, transportation, treatment, storage, release or disposal of any Hazardous Substance in connection with the conduct of the business of any PRC Company or in connection with the conduct of the business of any PRC Company or in connection with the use of any current or former property or facility of any PRC Company, which has created or might reasonably be expected to create any condition or liability under any Laws or which would require investigation by, reporting to or notification of any Governmental Entity; (iii) no asbestos or polychlorinated biphenyl or underground storage tank is or has been contained in or located at any facility of any PRC Company; and (iv) any Hazardous Substance handled or dealt with in any way in connection with the businesses of the PRC Companies, whether before or during Seller's ownership thereof, has been and is being handled or dealt with in all respects in compliance with applicable Laws. Section 3.18. Insurance. The PRC Companies are, and at all times during the past five years have been, insured with reputable insurers against all risks normally insured against by companies in similar lines of business of a similar size, except for professional liability insurance. Schedule 3.18 sets forth a list of the material insurance coverage in effect as of the date of this Agreement. None of the insurance carriers listed on Schedule 3.18 are related to or affiliated with Seller, Seller's Parent or the PRC Companies (other than Shenandoah Insurance, Inc.). None of the PRC Companies is in default under any of its insurance policies. None of Seller, Seller's Parent or any PRC Company has received notice or other indication from any insurer or agent of any intent to cancel or not so renew any of such insurance policies, except for cancellations deemed to occur as a result of the Closing of the transactions contemplated by this Agreement. Each of the PRC Companies has complied with and implemented all outstanding (i) requirements of and recommendations of any insurance company that has issued a policy to it and (ii) requirements and recommendations of the Board of Fire Underwriters or any other body exercising similar functions or any Governmental Entity with respect to any such insurance policy. Section 3.19. Banks. Schedule 3.19 sets forth, as of the date of this Agreement, the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which the PRC Companies maintain safe deposit boxes or accounts of any nature, and the names of all Persons authorized to draw thereon, make withdrawals therefrom or have access thereto. Section 3.20. Extraordinary Transactions and Material Adverse Effects. Except as set forth in Schedule 3.20, since September 30, 1995, (x) none of the PRC Companies has taken any action which would have required the consent of Buyer under Section 5.2 had such Section been in effect since September 30, 1995, (y) whether or not in the ordinary course of business, there has not been, occurred or arisen any change in or event affecting any of the PRC Companies that has had or could reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole, and (z) none of the PRC Companies has made any management decisions involving any material change in its policies with regard to the provision of services, sales, purchasing or other business, financial, accounting (including reserves and amounts thereof, but excluding those required by GAAP) or Tax policies or practices. Section 3.21. Licenses; Permits. Except as set forth in Schedule 3.21, the PRC Companies have all licenses and permits (except as may be required under federal or state Tax Laws) of all Governmental Entities necessary to the conduct of the business of the PRC Companies on the date hereof, except where the failure to obtain such licenses or permits could not reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. Except as set forth in Schedule 3.21, all such licenses and permits are valid and in full force and effect and will remain so upon consummation of the transactions contemplated by this Agreement. To the best knowledge of Seller, Seller's Parent and the PRC Companies, no suspension, cancellation or termination of any of such licenses or permits is threatened or imminent that could reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. Section 3.22. Brokerage Fees. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon any agreements, written or oral, made by or on behalf of Seller or Seller's Parent, or by or on behalf of any director, officer, employee, agent or Affiliate of Seller or Seller's Parent. Section 3.23. Government Contracts. (a) During the past five (5) years no payment has been made by PRC or by any Person authorized to act on its behalf, to any Person in connection with any Government Contracts, in violation of applicable procurement Laws or in violation of (or requiring disclosure pursuant to) the Foreign Corrupt Practices Act or other Laws. (b) Except as set forth in Schedule 3.23, PRC's cost accounting and procurement systems with respect to Government Contracts are in compliance in all material respects with all applicable Laws. (c) Except as set forth on Schedule 3.23 and except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, with respect to each and every Government Contract or Bid (including any exception taken therein), of the PRC Companies: (i) the PRC Companies have complied in all respects with all terms and conditions of each Government Contract and Bid, including all clauses, provisions and requirements incorporated expressly, by reference or by operation of Law therein; (ii) the PRC Companies have complied in all respects with all requirements of all applicable Law or agreements pertaining to each Government Contract or Bid; (iii) all statements representations and certifications executed, acknowledged or set forth in, or pertaining to each Government Contract or Bid were, when given, complete and correct in all respects as of their effective date, and the PRC Companies have complied in all respects with all such statements, representations and certifications; (iv) neither the U.S. Government nor any prime contractor, subcontractor or other Person has notified the PRC Companies, either orally or in writing, that the PRC Companies have breached or violated any applicable Law, certification, representation or requirement pertaining to any Government Contract or Bid; (v) no termination for convenience, termination for default, cure notice or show cause notice is currently in effect pertaining to any Government Contract; (vi) no Governmental Entity has provided the PRC Companies with written notice of any cost incurred by the PRC Companies pertaining to such Government Contract which has been questioned, challenged or disallowed or has been the subject of any investigation; and (vii) no money due to the PRC Companies under any Government Contract has been (or has been attempted to be) withheld or set off, except for amounts withheld under contracts in the ordinary course of business. (d) Except as set forth in Schedule 3.23, neither the PRC Companies nor, to the best knowledge of Seller and Seller's Parent, any of their directors, officers, employees, consultants or agents engaged in the business of the PRC Companies is (or during the last three years has been) under administrative, civil or criminal investigation, indictment or information or equivalent official governmental charge or allegation by any Governmental Entity with respect to any alleged irregularity, misstatement or omission or other matter arising under or relating to any Government Contract. Except as previously disclosed to Buyer in a writing by the PRC Companies specifically referencing this Section, (i) during the last two years, the PRC Companies have not conducted or initiated any internal investigation or made a voluntary disclosure to the U.S. Government, with respect to any alleged irregularity, misstatement, omission or other matter arising under or relating to any Government Contract or Bid (other than those relating to employment and other similar Laws), and (ii) there is no irregularity, misstatement or omission or other matter arising under or relating to any Government Contract or Bid that has led or could reasonably be expected to lead, either before or after the Closing Date, to any of the consequences set forth in clause (i) of this sentence or the immediately preceding sentence or any other damage, penalty, assessment recoupment of payment or disallowance of cost that would have a Material Adverse Effect on the PRC Companies taken as a whole. (e) Except as set forth on Schedule 3.23 and except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, there exist (i) no outstanding claims, requests for equitable adjustment or other contractual action for relief against the PRC Companies, either by the U.S. Government or by any prime contractor, subcontractor, vendor or other Person, arising under or relating to any Government Contract or Bid and (ii) no disputes between the PRC Companies and the U.S. Government under the Contract Disputes Act or any other federal statute or between any PRC Company and any prime contractor, subcontractor, vendor or other Person arising under or relating to any Government Contract or Bid. To the best knowledge of Seller and Seller's Parent, except as set forth in Schedule 3.23 and except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, no PRC Company has any interest in any pending or potential claim under the Contract Disputes Act against the U.S. Government or any prime contractor, subcontractor or vendor arising under or relating to any Government Contract or Bid. (f) Except as set forth on Schedule 3.23, no PRC Company nor, to the best knowledge of Seller and Seller's Parent, any of their directors, officers, employees, consultants or agents is (or during the last three years has been) suspended or debarred from doing business with any Governmental Entity or is (or during such period was) the subject of a finding of nonresponsibility or ineligibility for contracting with any Governmental Entity. (g) The Government Contracts that contain OCI Clauses or other similar provisions that might restrict or preclude Buyer or any of its Affiliates from supplying products or services to any Governmental Entity or supplier thereto are set forth on Schedule 3.23. Section 3.24. Certain Labor Matters. Except as set forth on Schedule 3.24, there is no organized labor strike, dispute, slowdown or stoppage, or collective bargaining or unfair labor practice claim pending or to the best knowledge of Seller, Seller's Parent and the PRC Companies, threatened against or affecting any PRC Company. Section 3.25. Minute Books. The minute books of the PRC Companies accurately reflect all actions and proceedings taken to date by the respective shareholders, boards of directors and committees of the PRC Companies. The stock record books of the PRC Companies reflect accurately all transactions in their respective capital stock of all classes. Section 3.26. Compliance with Law. Except as disclosed in the Schedules to this Agreement and except as would not have a Material Adverse Effect, the PRC Companies have conducted their respective businesses in accordance with applicable Laws in all respects, the forms, procedures and practices of the PRC Companies are in compliance with applicable Laws in all respects, and the use and operation of the assets of the PRC Companies are in compliance with applicable Laws in all respects. Section 3.27. Certain Interests. Except as set forth on Schedule 3.14 or 3.27 or disclosed in the Financial Statements, no Affiliate of Seller, Seller's Parent or any PRC Company, nor any officer or director of any thereof, has any material interest in any property used in or pertaining to the PRC Companies; no such Person is indebted or otherwise obligated to any PRC Company; and no PRC Company is indebted or otherwise obligated to any such Person, except for amounts due under normal arrangements applicable to all employees generally as to salary or reimbursement of ordinary business expenses not unusual in amount or significance. Except as set forth on Schedule 3.27, the consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any benefit or payment (severance or other) arising or becoming due from any PRC Company or the successor or assign of any thereof to any Person. Section 3.28. Intercompany Transactions. Except as set forth on Schedule 3.28 or disclosed in the Financial Statements, (x) no PRC Company has engaged in any transaction with Seller or Seller's Parent, (y) no PRC Company has any liabilities or obligations to Seller or Seller's Parent and (z) neither Seller or Seller's Parent has any obligations to any PRC Company. Except as set forth on Schedule 3.27 or as otherwise expressly provided for in this Agreement, the consummation of the transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, or with the lapse of time, or both) result in any payment arising or becoming due from any PRC Company or the successor or assign of any thereof to Seller or Seller's Parent. Section 3.29. Accuracy of Information. None of the information supplied or to be supplied by or on behalf of Seller, Seller's Parent or any PRC Company to any Person for inclusion in any document or application filed with any Governmental Entity having jurisdiction over or in connection with the transactions contemplated by this Agreement did contain, or at the respective times such information is or was delivered, will contain any untrue statement of a material fact, or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of the Closing Date, Seller shall have notified Buyer of any such information that shall have become untrue or misleading in any material respect subsequent to delivery, and shall have notified Buyer in writing of the reason for such change. All documents required to be filed by Seller, Seller's Parent, or any PRC Company with any Governmental Entity in connection with this Agreement or the transactions contemplated by this Agreement will comply in all material respects with the provisions of applicable Law. Section 3.30. Inventories; Receivables; Loss Contracts. (a) Except as set forth or reserved against in the Financial Statements, all inventories of the PRC Companies are of good merchantable quality and salable or currently usable in the ordinary course of business. (b) All receivables of the PRC Companies arose from bona fide transactions in the normal and ordinary course of business consistent with past practice and, except as set forth or reserved against in the Financial Statements, are the valid and legally binding obligations of the Persons obligated to pay such accounts receivable. (c) Except as set forth on Schedule 3.30 or as set forth or reserved against in the Financial Statements, no Contract Loss exists with respect to any Government Contracts or other contracts to which any PRC Company is a party or with respect to any Bids. Those Government Contracts, contracts or Bids for which a Contract Loss is not deemed to exist because, after consideration of existing reserves, the sales price therefor is equal to or less than $100,000 less than the sum of the cost incurred to date and the expected cost to complete, with all costs determined in accordance with GAAP on a basis consistent with prior periods, could not, in the aggregate, reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole. Section 3.31. Bids. Except as disclosed in Schedule 3.31, no PRC Company has submitted any Bid relating to its business which is currently outstanding and which, if accepted or awarded, would result in a Government Contract where the volume of purchases of materials, supplies, goods, services, equipment or other assets from such PRC Company in connection with its business under any such resulting Government Contract could be reasonably expected to exceed $2,000,000. Schedule 3.31 identifies each such Bid. All cost or pricing data submitted or certified in connection with Bids are current, accurate and complete in accordance with the Truth in Negotiations Act, as amended, and the rules and regulations thereunder. Section 3.32. Customer-Furnished Property or Equipment. Except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, all personal property, equipment and fixtures loaned, bailed or otherwise furnished to a PRC Company by or on behalf of the U.S. Government that are or should be in the possession of a PRC Company ("Customer-Furnished Items") are in a good state of maintenance and repair (except for ordinary wear and tear), have been regularly and appropriately maintained and repaired in accordance with all contractual, legal and regulatory requirements and, unless returned to the U.S. Government, shall be in the possession of a PRC Company on the Closing Date. Except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, each PRC Company has complied in all respects with all of its obligations relating to the Customer-Furnished Items, and upon the return thereof to the U.S. Government in the condition thereof on the date hereof, would have no liability to the U.S. Government with respect thereto. Except as would not have a Material Adverse Effect on the PRC Companies taken as a whole, Buyer will incur no liability to the U.S. Government as a result of any PRC Company's failure to keep records, maintain or possess property furnished to a PRC Company by or on behalf of the U.S. Government. Section 3.33. Product Warranty; Product Liability. Except as set forth on Schedule 3.33 or provided for in the Financial Statements, no PRC Company has committed any act, and there has been no omission by any PRC Company, which may reasonably be expected to result in, and there has been no occurrence relating to any product or service of any PRC Company which may reasonably be expected to result in product liability or liability for breach of warranty (whether covered by insurance or not) on the part of any PRC Company, with respect to products designed, manufactured, assembled, repaired, maintained, delivered or installed or services rendered prior to or on the Closing Date, except where such act, omission or occurrence would not have a Material Adverse Effect on the PRC Companies taken as a whole. Section 3.34. Backlog. PRC has provided to Buyer a copy of its written policies and procedures concerning backlog. Schedule 3.34 sets forth the backlog of the PRC Companies as of September 30, 1995, together with the dollar amount of the backlog that is characterized as "funded" in accordance with PRC's policies and procedures. Section 3.35. Clearances. Each PRC Company and each officer, director, employee, consultant or agent (to the extent such agent or consultant is material to the performance by a PRC Company of any contract) has all facility clearances or personnel clearances, as the case may be, that, if transferred to Buyer, are sufficient to allow Buyer to conduct each PRC Company's business as now conducted by such PRC Company. Except as disclosed in Schedule 3.35, Seller has no knowledge of any proposed or threatened termination of any material personnel or facility security clearance relating to the business of any PRC Company (whether or not such clearance is collateral or special access). Section 3.36. Government Contracting Audits. Schedule 3.36 sets forth a list and description of each open audit or investigation report, or in the absence thereof, a draft thereof, received by any PRC Company by any Governmental Entity (other than routine audits by resident auditors, none of which is material to the business or prospects of the business of the PRC Companies), which pertains to any Government Contract and which has resulted in an allegation or a notice of violation of any applicable Law or Government Contract or of any violation of or deficiency in company policies or procedures by any PRC Company, and which has not been closed or otherwise resolved. Section 3.37. Government Contracting Audits Settlement Agreements. Schedule 3.37 sets forth a list and description of each settlement agreement between any PRC Company and the U.S. Government which will have a binding effect on any PRC Company after the Closing Date, and under which any PRC Company has material unperformed obligations. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to and for the benefit of Seller and Seller's Parent as follows: Section 4.1.Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of its state of incorporation, and has full corporate power and authority to carry on its businesses as it is now being conducted. Buyer is qualified as a foreign corporation and is in good standing under the laws of each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect on Buyer and its Subsidiaries taken as a whole. Section 4.2. Investment Representation. Buyer is aware that the PRC Shares are not registered under the Securities Act. Buyer possesses such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investments hereunder. Buyer is acquiring the PRC shares for its own account, for investment purposes only and not with a view to the distribution thereof. Buyer agrees that the PRC Shares will not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to a valid exemption from registration under the Securities Act. Section 4.3. Execution and Effect of Agreement. Buyer has the corporate power and authority to enter into this Agreement, and the execution and delivery of this Agreement and the consummation of the transactions and contemplated hereby have been duly authorized by all necessary corporate action of Buyer and constitutes a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other Laws affecting the rights of creditors generally. Section 4.4. Restrictions. Except as set forth in Schedule 4.4, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) violate any of the provisions of the charter or by-laws of Buyer, or (b) conflict with or result in a beach of, or give rise to a right of termination of, or accelerate the performance required by the terms of any judgment, court order or consent decree, or any agreement, indenture, mortgage or instrument to which Buyer is a party or to which it or its property is subject, or constitute a default thereunder, except where such conflict, breach, right of termination or default would not have a Material Adverse Effect on Buyer. Section 4.5. Consents. Except (a) for filing, consents, approvals and authorizations the failure to obtain or make would not have a Material Adverse Effect on Buyer and its Subsidiaries taken as a whole, (b) as set forth in Schedule 4.4 or Schedule 4.5, and (c) for filings, consents, approvals and authorizations pursuant to the H-S-R Act, no filing, consent, approval or authorization of any Governmental Entity or of any third party on the part of Buyer is required in connection with the execution and delivery of this Agreement or any instrument contemplated hereby or the consummation of any of the transactions contemplated hereby. Section 4.6. Litigation. Except as set forth in Schedule 4.6, there is no action at law or in equity, arbitration proceeding or a governmental investigation pending, or to the knowledge of Buyer threatened, against Buyer in respect of this Agreement or any of the Transactions contemplated hereby that would prevent the consummation of any of the transactions contemplated hereby. Section 4.7. Financing. Buyer has available to it sufficient financing to enable it to consummate the transaction contemplated by this Agreement. Section 4.8. Brokerage Fees. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon any agreements, written or oral, made by or on behalf of Buyer or by or on behalf of any director, officer, employee, agent or Affiliate of Buyer. ARTICLE V COVENANTS AND AGREEMENTS OF SELLER AND SELLER'S PARENT Seller and Seller's Parent jointly and severally covenant and agree for the benefit of Buyer as follows: Section 5.1. Access to Information. Except as prohibited or limited by Law, Seller and Seller's Parent shall cause the PRC Companies, from and after the date of this Agreement and until the Closing Date, to give Buyer and its employees, counsel and advisors, full and complete access upon reasonable notice during normal business hours, to all properties, agreements, books, records and all other information (including any routinely prepared reports and financial information) with respect to the business of the PRC Companies as Buyer may from time to time request, and to make copies of such books, records and other documents and to discuss their respective businesses with such other Persons as Buyer considers necessary or appropriate for the purposes of familiarizing itself with the business of the PRC Companies, obtaining any necessary approvals of or permits for the transactions contemplated by this Agreement and conducting an evaluation of the organization and business of the PRC Companies. Section 5.2. Conduct and Preservation of Business Prior to Closing. (a) Except as contemplated by this Agreement, Seller and Seller's Parent shall use their best efforts to preserve the business of each of the PRC Companies and to preserve the goodwill of customers, suppliers and others having business relations with the PRC Companies. Seller will consult with Buyer concerning, and Seller will cooperate to keep available to Buyer, the services of the officers and employees of the PRC Companies that Buyer may wish to have the PRC Companies retain. Nothing in this Section shall obligate Buyer or the PRC Companies after the Closing to retain or offer employment to any officer or employee of the PRC Companies. (b) Seller agrees that the business of the PRC Companies will be conducted in the ordinary course and, except as required by this Agreement or pursuant to the written consent of Buyer (which consent shall not be unreasonably withheld), the PRC Companies shall not: (i) amend their charters or by-laws (or other similar organizational document); (ii) except (x) as required by applicable Laws or existing collective bargaining agreements, Employee Benefit Plans, Multiemployer Plans or Benefit Arrangements or (y) as otherwise required by this Agreement or the Schedules hereto, enter into or amend any collective bargaining agreement, Employee Benefit Plan, Multiemployer Plan or Benefit Arrangements; (iii) sell, mortgage, pledge, or otherwise dispose of any substantial portion of their assets or properties; (iv) merge or consolidate with, or agree to merge or consolidate with, or purchase or agree to purchase all or substantially all of the assets of, or otherwise acquire, any other business entity; (v) authorize for issuance, issue or sell any additional shares of their capital stock or any securities or obligations convertible into shares of their capital stock or issue or grant any option, warrant or other right to purchase any shares of its capital stock; (vi) except for any indebtedness or obligations that will be eliminated or cancelled in accordance with Section 5.6, incur or agree to incur any obligation for borrowed money; (vii) except as required by their terms, amend in any material respect, terminate, renew/fail to renew or renegotiate in any material respect any Material Contract, or default (or take or omit to take any action that, with or without the giving of notice or passage of time, would constitute a default) in any of its obligations under any Material Contract or enter into any new Material Contract other than pursuant to a Bid outstanding as the date of this Agreement, or take any action that would jeopardize the continuance of its material supplier or customer relationships; (viii) terminate, amend or fail to renew any existing insurance coverage; (ix) terminate or fail to renew or preserve any material permits, except to the extent such permit is no longer required; (x) except pursuant to an Employee Benefit Plan or Benefit Arrangement in effect on the date of this Agreement and except for any indebtedness or obligations that will be eliminated or cancelled in accordance with Section 5.6, make any loan, guaranty or other extension of credit, or enter into any commitment to make any loan, guaranty or other extension of credit, to or for the benefit of any director, officer, employee, stockholder or any of their respective associates or Affiliates; (xi) except for cash dividends or distributions, declare, issue, make or pay any dividend or other distribution of assets to its shareholders, or split, combine, dividend, distribute or reclassify any shares of its equity securities; (xii) make any capital expenditures or commitments with respect thereto aggregating more than $7,000,000; (xiii) except in the ordinary course of business in connection with the performance of a contract, dispose of, license or permit to lapse any rights to the use of any Intellectual Property or dispose of, license or disclose any Intellectual Property not a matter of public knowledge; (xiv) make any Tax election or make any change in any method or period of accounting or in any accounting policy, practice or significant procedure; or (xv) agree to or make any commitment to take any actions prohibited by this Section 5.2. Section 5.3. Public Statements. Neither Seller nor Seller's Parent, nor any of their Affiliates, shall release any information concerning this Agreement or the transactions contemplated hereby that is intended for or may result in general public dissemination thereof without the prior consent of Buyer, unless (a) in the opinion of counsel to Seller and Seller's Parent, the release of such information is required by Law, and (b) prior to the release of such information Seller's Parent shall provide Buyer with a copy of such counsel's opinion. Section 5.4. H-S-R Act. Seller and Seller's Parent shall promptly make any and all filings that are or may be required under the H-S-R Act. Seller shall cooperate and use reasonable efforts to ensure that any pre-acquisition waiting period required by the H-S-R Act expires or is otherwise terminated, and shall cause the PRC Companies to comply promptly with any requests made pursuant to such act or the regulations thereunder. Section 5.5. Consents. Seller and Seller's Parent each shall use reasonable efforts to obtain all consents, waivers and authorizations and make all filings with and give all notices that may be necessary or reasonably required to consummate the transactions contemplated hereby. If as a condition to receiving any such consents, waivers or authorizations money must be paid to any third party, Seller and Seller's Parent shall be responsible for one-half of all such amounts. Section 5.6. Certain Indebtedness and Intercompany Accounts. On or before the Closing Date, Seller's Parent shall cause Seller and each of Seller's Parent's Subsidiaries to contribute to the equity of PRC all net intercompany amounts due between Seller's Parent and its Subsidiaries (other than the PRC Companies) on the one hand, and the PRC Companies on the other hand (including but not limited to amounts relating to intercompany accounts receivable and promissory notes but excluding amounts relating to intercompany accounts that are of a type included in the Financial Statements as Corporate Pass Through Charges and contemplated by Note 2 to the Financial Statements), and shall cause such intercompany amounts to be eliminated or cancelled on or prior to the Closing Date. The transactions contemplated by this Section will have no Material Adverse Effect on any PRC Company. Section 5.7. Delivery of Information After Closing. Within 30 days of the Closing Date, Seller and Seller's Parent shall deliver to Buyer all books and records of PRC in Seller's and Seller's Parent's possession. Section 5.8. Use of Certain Words, Trademarks and Tradenames. Within 30 calendar days after the Closing Date, Seller and Seller's Parent shall cause Seller, Seller's Parent and their Affiliates not to use the letters PRC. In addition, neither Seller nor Seller's Parent, or any of their Affiliates, shall use any trademark, logo or tradename of PRC or any Affiliate of PRC, or any trademarks, logos or tradenames that are confusingly similar thereto or that are a translation or transliteration thereof into any language or alphabet on any of its signs, products, correspondence, forms, manuals, shipping cartons, buildings or vehicles, or any other manner whatsoever. Within 60 calendar days after the Closing, Seller shall take and cause to be taken all action necessary to change Seller's corporate name to delete "PRC" therefrom. Section 5.9. Notification of Certain Matters. Seller will promptly notify Buyer of any event of which Seller obtains knowledge which has had or could reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole or which if known as of the date hereof would have been required to be disclosed to Buyer. Seller will promptly notify Buyer of (i) the occurrence, or failure to occur, of any event that would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date and (ii) any failure of Seller to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. No such notification shall affect the representations or warranties of Seller or the conditions to Buyer's obligations hereunder. Section 5.10. Noncompetition. (a) Restrictions on Competitive Activities. Seller agrees that after the Closing Buyer and PRC shall be entitled to the goodwill and going concern value of the business of the PRC Companies and to protect and preserve the same to the maximum extent permitted by Law. Seller also acknowledges that its management contributions to the business of the PRC Companies have been uniquely valuable and involve proprietary information that would be competitively unfair to make available to any competitor of the PRC Companies. For these and other reasons and as an inducement to Buyer to enter into this Agreement, Seller agrees that for a period of three years after the date hereof neither Seller nor any of Seller's Affiliates will, directly or indirectly, for its own benefit or as agent for another carry on or participate in the ownership, management or control of, or the financing of, or allow its name or reputation to be used in or by any other present or future business enterprise that competes with Buyer or the PRC Companies in activities in which any of the PRC Companies is engaged as of the Closing Date (a "Competing Business"). (b) Exceptions. Nothing contained herein shall limit the right of Seller as an investor to hold and make investments in securities of any corporation or limited partnership that is registered on a national securities exchange or admitted to trading privileges thereon or actively traded in a generally recognized over-the-counter market, provided Seller's equity interest therein does not exceed 5% of the outstanding shares or interests in such corporation or partnership. Notwithstanding any provisions of this Section 5.10 to the contrary, if Seller's Parent or any of its Affiliates acquires any Person that is engaged in a Competing Business, Seller's Parent and its Affiliates shall not be deemed to be in violation of this Section 5.10 provided that (i) the Competing Business represents less than one-third of the gross revenues of the acquired Person for the acquired Person's most recent completed fiscal year and (ii) Seller's Parent or its Affiliates use reasonable and diligent efforts to divest the operations of such Competing Business subsequent to such acquisition. (c) Restrictions on Soliciting Employees. In addition, to protect Buyer against any efforts by Seller or any of Seller's Affiliates to cause employees of the PRC Companies as of the date of this Agreement to terminate their employment, Seller agrees that for a period of three years following the Closing Date, neither Seller nor any of its Affiliates will, directly or indirectly (i) induce any employee of the PRC Companies as of the date of this Agreement with a then current compensation of more than $50,000 annually to leave any of the PRC Companies or to accept any other employment or position, or (ii) assist (other than normal employment recommendations) any other Person in hiring any such employee. (d) Special Remedies and Enforcement. Seller recognizes and agrees that a breach by Seller or any of its Affiliates of any of the covenants set forth in this Section 5.10 could cause irreparable harm to Buyer, that Buyer's remedies at law in the event of such breach would be inadequate, and that, accordingly, in the event of such breach a restraining order or injunction or both may be issued against Seller and its Affiliates, in addition to any other rights and remedies which are available to Buyer. If this Section 5.10 is more restrictive than permitted by the Laws of the jurisdiction in which Buyer seeks enforcement hereof, this Section 5.10 shall be limited to the extent required to permit enforcement under such Laws. Section 5.11. Nondisclosure of Proprietary Data. Neither Seller nor any of its Affiliates or representatives shall, at any time, make use of, divulge or otherwise disclose, directly or indirectly, any trade secret or other proprietary data (including, but not limited to, any customer list, record or financial information) concerning the business or policies of the PRC Companies that Seller or any Affiliate or representative of Seller may have learned as a shareholder, employee, officer or director of the PRC Companies. In addition, except as required by Law or legal process neither Seller nor any of its Affiliates or representatives shall make use of, divulge or otherwise disclose, directly or indirectly, to persons other than Buyer, any confidential information concerning the business or policies of the PRC Companies which may have been learned in any such capacity. Section 5.12. No Solicitation. From the date of this Agreement to the Closing Date or earlier termination of this Agreement, Seller and its Affiliates and representatives will not directly or indirectly make, entertain, solicit or encourage inquiries or proposals, enter into or conduct discussions, or negotiate or enter into an agreement with any party other than Buyer for the divestiture of any or all of the PRC Companies or their respective assets, whether by way of an asset or stock sale, partnership, joint venture, merger, consolidation or other transaction. Section 5.13. Novations. In the event any Governmental Entity requires Government Contract Novations, Seller and Seller's Parent shall cooperate with the PRC Companies to promptly obtain such Government Contract Novations and shall execute the novation agreements required by any Governmental Entity. ARTICLE VI COVENANTS AND AGREEMENTS OF BUYER Buyer covenants and agrees for the benefit of Seller and Seller's Parent as follows: Section 6.1. Public Statements. Buyer shall not release any information concerning this Agreement or the transactions contemplated hereby that is intended for or may result in general public dissemination thereof without the prior consent of Seller's Parent, unless (a) in the opinion of counsel to Buyer, the release of such information is required by Law, and (b) prior to the release of such information Buyer shall provide Seller's Parent with a copy of such counsel's opinion. Section 6.2. H-S-R Act. Buyer shall promptly make any and all filings that are or may be required under the H-S-R Act. Buyer shall cooperate and use reasonable efforts to ensure that any pre-acquisition waiting period required by the H-S-R Act expires or is otherwise terminated, and shall comply promptly with any requests made pursuant to the H-S-R Act or the regulations thereunder. Section 6.3. Consents. Buyer shall use reasonable efforts to obtain all consents, waivers and authorizations and make all filings with and give all notices that may be necessary or reasonably required to consummate the transactions contemplated hereby. If as a condition to receiving any such consents, waivers or authorizations money must be paid to any third party, Buyer shall be responsible for one-half of all such amounts. Section 6.4. Guarantees. Buyer shall take all steps reasonably necessary to provide Guarantees for or on all contracts, documents, instruments and other agreements or obligations for which Seller's Parent or any of its Subsidiaries (other than Subsidiaries that are PRC Companies) has issued Guarantees for the benefit of Persons doing business with any of the PRC Companies that are listed in Schedule 3.15 and any such Guarantees executed by Seller's Parent or any of its Subsidiaries (other than Subsidiaries that are PRC Companies) subsequent to the date of this Agreement and prior to Closing in compliance with Section 5.2. Buyer will endeavor to provide all such Guarantees within 60 days of the Closing Date. Buyer shall use reasonable efforts to assist Seller's Parent and its Subsidiaries (other than Subsidiaries that are PRC Companies) to obtain full and complete releases on each of the Guarantees referenced in the preceding sentence, which reasonable efforts shall include but not be limited to providing any financial information about Buyer reasonably requested by the Persons for whose benefit the respective Guarantees were made. The provisions of this Section 6.4 shall not apply to any Guarantees relating to payments under the "PRC Supplemental Executive Retirement Plan." Section 6.5. Certain Employee Benefit Matters. (a) Buyer shall take all action required or appropriate to cause each of the PRC Companies to fulfill its obligations under all Benefit Arrangements, Employee Benefit Plans and Multiemployer Plans listed in Schedule 3.14 that are sponsored or maintained by any of the PRC Companies for so long as any such Arrangements and Plans are sponsored or maintained by any of the PRC Companies. (b) Buyer acknowledges that certain Employees of the PRC Companies may be entitled to benefits under the Incentive Compensation Plans, the Special Severance Plans or other Benefit Arrangements involving severance or termination benefits. Buyer assumes the obligations of Seller's Parent and the PRC Companies under the Incentive Compensation Plans, the Special Severance Plans and such other Benefit Arrangements in respect of the Employees and agree to pay any benefits to the Employees that the Employees may be entitled to receive under the Incentive Compensation Plans, the Special Severance Plans and such other Benefit Arrangements. Buyer shall not assume or have any obligations with respect to (x) the "Black & Decker -- PRC Inc. Change in Control Agreements" and (y) the "PRC Supplemental Executive Retirement Plan." (c) For at least 12 months following the Closing Date, Buyer will ensure that the PRC Companies continue to provide benefits that are, in the aggregate, substantially comparable to those provided under the Employee Benefit Plans and Benefit Arrangements as in effect immediately prior to the Closing Date for the benefit of all eligible Employees and their dependents. Nothing in this Section 6.5 shall obligate Buyer or any PRC Company to sponsor or maintain any specific Employee Benefit Plan or Benefit Arrangement for any period of time after the Closing Date. Section 6.6. Preservation of and Access to Certain Information After Closing. Except as prohibited or limited by Law, Buyer shall cause the PRC Companies, until three years after the Closing Date or, with respect to Tax matters, until the expiration of the applicable statute of limitations (including any extensions thereof), to give Seller and Seller's Parent, and Seller's and Seller's Parent's employees, counsel and advisors, full and complete access upon reasonable notice during normal business hours, to all properties, agreements, records and affairs of the PRC Companies, and will provide copies of such information concerning the PRC Companies (with respect to periods prior to the Closing) as Seller and Seller's Parent may reasonably request, including but not limited to full and complete access in connection with the preparation and determination of the Proposed Net Asset Amount and the Final Net Asset Amount (and the resolution of any disputes in respect thereof), or the preparation of any Tax Returns for the Affiliated Groups, or in connection with or in anticipation of any audit by any federal, state or local Tax Authorities of the Affiliated Groups. From and after the Closing Date, Buyer shall preserve all books and records of PRC in Buyer or any of the PRC Companies' possession for a period of eight years, provided, however, that Buyer shall not destroy or dispose of such books and records without giving notice to Seller and Seller's Parent of such pending destruction or disposal and offering Seller and Seller's Parent the right and opportunity to copy such books and records. Section 6.7. Use of Certain Words, Trademarks and Tradenames. Whether or not Buyer or any of the PRC Companies has obtained, directly or indirectly, any right, title or interest in or to the use of the words "The Black & Decker Corporation" or "Emhart Corporation," or any derivatives thereof, or the letters B&D, by virtue of Buyer's purchase of the PRC Shares or otherwise, neither Buyer nor any of the PRC Companies shall use, and Buyer and each of the PRC Companies shall cause after the Closing Date the PRC Companies not to use, the words "The Black & Decker Corporation" or "Emhart Corporation," or any derivative thereof, or the letters B&D. In addition, neither Buyer nor any of the PRC Companies shall use, and Buyer and each of the PRC Companies shall cause within 90 calendar days after the Closing Date the PRC Companies not to use, any trademark, logo or tradename of Seller's Parent or Emhart, or any Affiliate of Seller's Parent or Emhart (other than those relating exclusively to the business of the PRC Companies and transferred to Buyer or the PRC Companies under the terms of this Agreement), or any trademarks, logos or tradenames that are confusingly similar thereto or that are a translation or transliteration thereof into any language or alphabet on any of its signs, products, correspondence, forms, manuals, shipping cartons, buildings or vehicles, or in any other manner whatsoever. Section 6.8. Intercompany Accounts. Buyer shall take, and shall cause PRC and its successors and Subsidiaries to take, all actions and to do, or cause to be done, all things necessary, proper and appropriate to give effect to the contribution to the equity of PRC all net intercompany amounts contemplated to be contributed, eliminated or cancelled on or prior to the Closing Date by Section 5.6. Section 6.9. Notification of Certain Matters. Buyer shall give prompt notice to Seller of (i) the occurrence, or failure to occur, of any event that would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date and (ii) any failure of Buyer to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. No such notification shall affect the representations or warranties of Buyer or the conditions to Buyer's obligations hereunder. ARTICLE VII CONDITIONS OF OBLIGATIONS OF BUYER The obligations of Buyer to consummate the purchase of the PRC Shares on the Closing Date and to perform their other covenants and agreements in accordance with the terms and conditions of this Agreement are subject to each of the conditions set forth below: Section 7.1. Representations and Warranties True. Except as otherwise permitted or contemplated by this Agreement and except for representations and warranties that by their terms speak only as of a specified date, each of the representations and warranties of Seller and Seller's Parent contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date. Section 7.2. Covenants and Agreements -- No Default. Neither Seller nor Seller's Parent shall be in material default in respect of any obligation under this Agreement and Seller and Seller's Parent shall have performed or complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Seller or Seller's Parent prior to or as of the Closing Date. Section 7.3. No Material Adverse Change. Since the date of this Agreement, none of the PRC Companies shall have suffered a change in its business or financial condition that has had or could reasonably be expected to have a Material Adverse Effect on the PRC Companies taken as a whole Section 7.4. H-S-R Act. All applicable waiting periods in respect of the transactions contemplated by this Agreement under the H-S-R Act shall have expired or otherwise terminated. Section 7.5. Consents. Seller and Seller's Parent shall have obtained all third-party and governmental consents required for the consummation of the transactions contemplated by this Agreement that are set forth in Schedule 7.5. Section 7.6. Closing Documents. Seller and Seller's Parent shall have provided Buyer with all of the documents required by Section 9.2 to be delivered at Closing by Seller. Section 7.7. No Orders; Legal Proceedings. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity which prohibits or restricts the transfer of the PRC Shares. No Action shall be pending or threatened by any Governmental Entity (i) challenging or seeking to make illegal or otherwise directly or indirectly restrain or prohibit or make materially more costly the consummation of the transactions contemplated hereby, or seeking to obtain material damages in connection with such transactions or (ii) which has had or would be reasonably likely to have a Material Adverse Effect on the PRC Companies taken as a whole, and no Order shall have been issued which would have the effect of or require anything set forth in clause (i) or clause (ii) above. Section 7.8. Resignation of Directors. Any directors of the PRC Companies who are also employees or officers of Seller's Parent or any of its Affiliates (other than the PRC Companies) shall have submitted their resignations in writing to such PRC Companies. Such resignations of directors (in such capacity) shall be effective as of the Closing. Section 7.9. Resignation of Officers. Any officers or employees of the PRC Companies who are also employees or officers of Seller's Parent or any of its Affiliates (other than the PRC Companies) shall have submitted their resignations in writing to such PRC Companies. Such resignations of officers and employees (in such capacity) shall be effective as of the Closing. Section 7.10 OCI Clauses. The OCI Clauses contained in contracts or agreements to which any of the PRC Companies is a party or by which any of the PRC Companies is obligated could not reasonably be expected in the aggregate to have a Material Adverse Effect on either the PRC Companies taken as a whole or any significant business division or line of business of Buyer and its Subsidiaries. ARTICLE VIII CONDITIONS OF OBLIGATIONS OF SELLER AND SELLER'S PARENT The obligation of Seller and Seller's Parent to consummate the sale of the PRC Shares on the Closing Date and to perform its other covenants and agreements in accordance with the terms and conditions of this Agreement are subject to each of the conditions set forth below. Section 8.1. Representations and Warranties True. Except as otherwise permitted or contemplated by this Agreement and except for representations and warranties that by their terms speak only as of a specified date, each of the representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date. Section 8.2. Covenants and Agreements -- No Default. Buyer shall not be in material default in respect of any obligation under this Agreement and Buyer shall have performed or complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Buyer prior to or as of the Closing Date. Section 8.3. H-S-R Act. All applicable waiting periods in respect of the transactions contemplated by this Agreement under the H-S-R Act shall have expired or otherwise terminated. Section 8.4. Consents. Buyer shall have obtained all third-party and governmental consents required for the consummation of the transactions contemplated by this Agreement that are set forth in Schedule 8.4. Section 8.5. Closing Documents. Buyer shall have provided Seller with all of the documents required by Section 9.3 to be delivered at Closing by Buyer. Section 8.6. No Orders; Legal Proceedings. No Law or Order shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity which prohibits or restricts the transfer of the PRC Shares. No Action shall be pending or threatened by any Governmental Entity challenging or seeking to make illegal or otherwise directly or indirectly restrain or prohibit or make materially more costly the consummation of the transactions contemplated hereby, or seeking to obtain material damages in connection with such transactions and no Order shall have been issued which would have the effect of or require anything set forth above. ARTICLE IX CLOSING Section 9.1. Closing. The Closing shall take place at the offices of O'Melveny & Myers, 555 13th Street, N.W., Washington, D.C. 20004, at 10:00 a.m., on January 31, 1996, or at such other place and at such other time and date as may be mutually agreed upon by Buyer and Seller, upon fulfillment of (a) all the conditions set forth in ARTICLE VII that have not been waived by Buyer, and (b) all the conditions set forth in ARTICLE VIII that have not been waived by Seller. If such conditions have not been fulfilled or waived by such date, the Closing shall take place within five business days after fulfillment or waiver of all such conditions but in no event later than March 31, 1996, unless otherwise mutually agreed to in writing by Buyer and Seller. All proceedings to be taken and all documents to be executed and delivered by Seller and Seller's Parent in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Buyer and its counsel. All proceedings to be taken and all documents to be executed and delivered by Buyer in connection with the consummation of the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Seller and its counsel. All proceedings to be taken and all documents to be executed and delivered at the Closing shall be deemed to have been taken and executed simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed or delivered. Section 9.2. Documents to be Delivered by Seller and Seller's Parent. At the Closing, Seller and Seller's Parent shall deliver, or shall cause to be delivered, to Buyer the following: (a) Certificates representing the PRC Shares, which certificates shall be duly endorsed in blank or, in lieu thereof, shall have affixed thereto stock powers executed in blank and in proper form for transfer on the books of PRC; (b) A certificate of the Secretary or an Assistant Secretary of each of Seller and Seller's Parent, dated the Closing Date, setting forth the resolutions of the Boards of Directors of Seller and Seller's Parent, respectively, authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and certifying that such resolutions have not been amended or rescinded and are in full force and effect; (c) A certificate of a senior executive officer of each of Seller and Seller's Parent certifying that (i) except as otherwise permitted or contemplated by this Agreement and except for representations and warranties that by their terms speak as of a specified date other than the Closing Date each of the representations and warranties of Seller and Seller's Parent contained in this Agreement are true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date and (ii) neither Seller nor Seller's Parent is in material default in respect of any obligation under this Agreement and Seller and Seller's Parent have performed or complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Seller or Seller's Parent prior to or as of the Closing Date; (d) A good standing certificate and certified charter documents, dated as of a date reasonably close to the Closing Date, in respect of PRC; (e) Modifications to Schedules 3.10, 3.12 and 3.13 reflecting events occurring subsequent to the date hereof, provided that (i) no item may be added to Schedule 3.10 unless (x) Seller confirms in writing that such item is a Pre-Closing Claim subject to Section 11.4 hereof and (y) Seller acknowledges in writing that Buyer may assert such item, alone or together with other matters, as the basis of a material adverse change as contemplated by Section 7.3 (it being understood that such acknowledgement is not a concession by Seller that such item constitutes a material adverse change as contemplated by Section 7.3), (ii) no item may be deleted from Schedule 3.12, and (iii) no Material Contract shall be added to or deleted from Schedule 3.13 unless a PRC Company entered into or terminated such Material Contract, or permitted such Material Contract to expire, in compliance with Section 5.2; and (f) Such other documents, instruments or agreements as may be reasonably requested by Buyer to effectuate the transactions contemplated by this Agreement. Section 9.3. Documents to be Delivered by Buyer. At the Closing, Buyer shall deliver, or cause to be delivered, to Seller and Seller's Parent the following: (a) A wire transfer of funds to the account designated by Seller in an amount equal to the Purchase Price, as provided in Section 2.2; (b) A certificate of the Secretary or an Assistant Secretary of Buyer, dated the Closing Date, setting forth copies of the resolutions of the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and the Consummation of the transactions contemplated hereby, and certifying that such resolutions have not been amended or rescinded and are in full force and effect; (c) A certificate of a senior executive officer of each of Buyer certifying that (i) except as otherwise permitted or contemplated by this Agreement and except for representations and warranties that by their terms speak as of a specified date other than the Closing Date, each of the representations and warranties of Buyer contained in this Agreement are true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date and (ii) Buyer is not in material default in respect of any obligation under this Agreement and Buyer has performed or complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Buyer prior to or as of the Closing Date; and (d) Such other documents, instruments or agreements as may be reasonably requested by Seller and Seller's Parent to effectuate the transactions contemplated by this Agreement. ARTICLE X TERMINATION Section 10.1. Right to Terminate Agreement. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to Closing only as follows: (a) by mutual written consent of Buyer and Seller and Seller's Parent; and (b) by any of the parties to this Agreement, upon written notice to the other parties, at any time after March 31, 1996, except that the right to terminate this Agreement pursuant to this Section 10.1(b) shall not be available to (i) Seller and Seller's Parent if the failure to consummate the Closing on or before such date was caused by or resulted from Seller's or Seller's Parent's failure to fulfill any of its obligations under this Agreement or (ii) Buyer if the failure to consummate the Closing on or before such date was caused by or resulted from Buyer's failure to fulfill any of their obligations under this Agreement. Section 10.2.Effect of Termination. (a) In the event this Agreement is terminated pursuant to Section 10.1(a), then all further obligations of the parties hereto shall become null and void and no party shall have any liability to any other party. (b) In the event this Agreement is terminated by Buyer pursuant to Section 10.1(b) at a time when any of the conditions to its obligations set forth in ARTICLE VII shall not have been satisfied or waived in writing, then Buyer shall be entitled to pursue all legal and equitable remedies for breach of contract and damages, including but not limited to any out-of-pocket expenses actually incurred by Buyer. (c) In the event this Agreement is terminated by Seller and Seller's Parent pursuant to Section 10.1(b) at a time when any of the conditions to their obligations set forth in ARTICLE VIII shall not have been satisfied or waived in writing, then Seller and Seller's Parent shall be entitled to pursue all legal and equitable remedies for breach of contract and damages, including but not limited to any out-of-pocket expenses actually incurred by Seller and Seller's Parent. (d) Notwithstanding the provisions of this Section 10.2, the obligations of the parties hereto under the Confidentiality Agreement shall survive any termination of this Agreement by either party to this Agreement. ARTICLE XI ADDITIONAL COVENANTS AND AGREEMENTS; INDEMNIFICATION Section 11.1. Taxes. (a) Seller's Parent or Seller (on behalf of the PRC Companies) shall timely and accurately file or cause to be filed all Tax Returns for Income Taxes and all foreign Taxes (including the filing of any state or local Tax Returns that include the result of the Section 338(h)(10) Election) of the PRC Companies due after the date hereof for any taxable year or taxable period ending on or before the Closing Date, including any taxable period that ends at the end of the Closing Date as a result of the Section 338(h)(10) Election (a "Pre-Closing Period"). (b) Subject to the provisions of Section 11.1(c), Seller's Parent and Seller shall pay and be responsible for, shall indemnify and hold harmless Buyer and the PRC Companies (the "Buyer Group") against, and shall be entitled to all refunds and credits of, (i) Income Taxes and all foreign Taxes (together with reasonable attorneys' fees and any legal or other expenses for investigating or defending any actions with respect to such Taxes) with respect to the PRC Companies for any Pre-Closing Period, including any liability for Income Taxes and all foreign Taxes arising out of the inclusion of any of the PRC Companies in any Consolidated Returns, and further including any liability for Income Taxes arising as a result of the Section 338(h)(10) Election, and (ii) all Taxes (together with reasonable attorneys' fees and any legal or other expenses for investigating or defending any actions with respect to Taxes) with respect to Seller's Parent and any member of the Affiliated Groups (other than the PRC Companies) for all taxable periods whatsoever. Buyer shall, promptly after the receipt thereof, remit to Seller's Parent any Income Tax or foreign Tax refund received by Buyer, Buyer's Parent or any of the PRC Companies to the extent such refund relates to a Pre-Closing Period. Seller's Parent or Seller shall promptly, after the receipt thereof, remit to Buyer any Tax refund received by Seller's Parent or Seller to the extent such refund relates to any Tax paid by or on behalf of the PRC Companies, other than an Income Tax or foreign Tax refund related to a Pre-Closing Period. Notwithstanding the provision of this Section 11.1(b), neither Seller nor Seller's Parent shall be responsible for or shall be required to indemnify or hold harmless Buyer or any of the PRC Companies for any Taxes that are reimbursed under any contracts of any of the PRC Companies; provided, however, that Buyer shall cause the appropriate PRC Company to use its reasonable best efforts to seek reimbursement for such Taxes under the applicable contract. (c) No member of the Buyer Group shall be entitled to indemnification under Section 11.1(b) for any Taxes for which a reserve with respect to such Taxes is included in or taken into account in the calculation or determination of the Final Net Asset Amount, except for the Taxes exceeding the amount of such reserve. (d) Buyer shall be responsible for, and shall indemnify and hold harmless Seller and Seller's Parent against, (i) the Taxes described in Section 12.3, (ii) the timely preparation and filing of all Tax Returns of the PRC Companies for any taxable year or taxable period beginning after the Closing Date (the "Post-Closing Period"), and (iii) the preparation and filing of all Tax Returns required to be filed by any of the PRC Companies after the Closing Date other than those Tax Returns for Income Taxes and all foreign Taxes described in Section 11.1(a). (e) Buyer shall pay and be responsible for, shall indemnify and hold harmless Seller and Seller's Parent against, and shall be entitled to all refunds and credits of, all Taxes (together with reasonable attorneys' fees and any legal or other expenses for investigating or defending any actions with respect to Taxes) with respect to the PRC Companies for any Post-Closing Period. (f) Subject to the provisions of Section 11.2, if, for any federal, State or local Income Tax or foreign Tax purpose, a taxable year or taxable period of any of the PRC Companies which begins before the Closing Date and ends after the Closing Date (a "Bridge Period") does not terminate on the Closing Date, and Buyer has the responsibility to pay Taxes for all or a portion of the Bridge Period, the parties hereto will, to the extent permitted by applicable Law, elect with the relevant Tax Authority to treat the portion of the Bridge Period on or before the Closing Date (a "Seller Period") for all purposes as a short taxable period ending as of the close of the Closing Date and such short taxable period shall be treated as a Pre-Closing Period for purposes of this Agreement and the portion of the Bridge Period after the Closing Date (the "Buyer Period") shall be treated as a Post-Closing Period for purposes of this Agreement. In any case where applicable Law does not permit such an election to be made, then, for purposes of this Agreement, Income Taxes and all foreign Taxes for the Bridge Period shall be allocated between the Seller Period and the Buyer Period using an interim-closing-of-the-books method assuming that such taxable period ended at the close of business on the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis (such as the deduction for depreciation) shall be apportioned on a per diem basis. (g) Buyer shall cause the PRC Companies to prepare and file all Tax Returns and pay all Taxes due, if any, with respect to the PRC Companies for any Bridge Period that does not terminate on the Closing Date, for which it is responsible to pay Taxes in whole or in part, provided that Seller satisfies its obligations as set forth in this Section 11.1(g). Seller shall promptly deliver to Buyer work papers relating to Taxes due for the Seller Period, certified by a duly authorized officer of Seller, setting forth in detail all information required to complete the applicable Tax Returns. Upon notice from Buyer, Seller shall pay to Buyer the Income Taxes and all foreign Taxes for the Seller Period on or before the second business day prior to the due date for the payment of such Income Taxes and all foreign Taxes, by wire transfer of immediately available funds to the account designated by Buyer. In the event that Seller fails to make the payments required by this Section 11.1(g) to Buyer prior to the date any payment for Income Taxes and all foreign Taxes as described in this Section 11.1(g) is due, such required payment shall bear interest from such due date until paid, at the underpayment rate of interest determined under Section 6621 of the Code. (h) Buyer shall have exclusive control over and responsibility to conduct any Contest for a Post-Closing Period and for a Bridge Period if the Contest for a Bridge Period relates solely to the Buyer; provided, however, that Buyer shall not enter into any agreement in compromise or settlement of such Contest which could affect a Pre-Closing Period or a Seller Period without the written consent of Seller. (i) Unless Buyer agrees in writing to waive any claim for indemnification under Section 11.1(b) with respect thereto, Seller and Seller's Parent shall have exclusive control over and responsibility to conduct any Contest for a Pre-Closing Period and for a Bridge Period if the Contest for a Bridge Period relates solely to the Seller Period; provided, however, that neither Seller not Seller's Parent shall enter into any agreement in compromise or settlement of such Contest which could affect a Post-Closing Period or a Buyer Period without the written consent of Buyer. (j) Buyer shall notify Seller's Parent in writing promptly upon receipt by any PRC Company of notice of any Contest or assessment relating thereto for Pre-Closing Period or a Bridge Period. Failure of Buyer to so notify Seller's Parent shall not relieve Seller's Parent or Seller from any liability under this Section 11.1, except to the extent it is proven that Seller's Parent or Seller suffered actual prejudice in connection with or in defending against a Contest. Seller or Seller's Parent shall notify Buyer in writing promptly upon receipt by Seller or Seller's Parent of notice of any Contest or assessment relating to a Post-Closing Period or a Bridge Period. (k) Buyer and Seller agree to jointly control and conduct any Contest for a Bridge Period that relates to both the Seller Period and the Buyer Period. Seller, Seller's Parent and Buyer agree to cooperate fully with each other with respect to defending or answering any such Contest and to provide each other with all materials, information and documents as reasonably requested by the other. Neither Buyer, Seller, nor Seller's Parent shall be liable for any portion of any settlement of any Contest for a Bridge Period that relates to both the Seller Period and the Buyer Period effected without its written consent, provided such consent was not unreasonably withheld. (l) Except as otherwise provided in this Agreement and subject to the allocation of liabilities for Taxes, Seller, Seller's Parent and Buyer agree to cooperate fully with each other with respect to the preparation of all Tax Returns and with respect to all matters relating to Taxes, and to keep each other advised as to any issue relating to Taxes which could have a bearing on such other party's responsibilities hereunder. (m) In any Contest controlled by Seller, Buyer will take, and will cause each PRC Company to take, such action as Seller may by written notice reasonably request in connection with such Contest (including the payment of a Tax preparatory to filing a claim for refund of such Tax; provided that Seller shall first pay the amount of such Tax to Buyer). Section 11.2. Section 338(h)(10) Election. (a) Seller, Seller's Parent, and each of the PRC Companies agree, if so directed by the Buyer, to join with Buyer in making an election under Section 338(h)(10) of the Code (and any corresponding elections under state, local or foreign tax law) (collectively, a "Section 338(h)(10) Election") with respect to the purchase and sale of the stock of the PRC Companies hereunder. Seller will pay any Income Tax, including any liability of the PRC Companies for Income Tax resulting from the application to it of Treas. Reg. ss. 1.338(h)(10)-1(f)(5), attributable to the making of the Section 338(h)(10) Election (but only to the extent that application causes an increase in taxable gain resulting from the deemed purchase of assets pursuant to Section 338 of the Code) and will indemnify the Buyer and the PRC Companies against any Material Adverse Effect arising out of any failure to pay such Income Tax. If the Section 338(h)(10) Election is made, Seller and Seller's Parent will also pay any state, local or foreign Income Tax (and indemnify Buyer and the PRC Companies against any Material Adverse Effect arising out of any failure to pay such Income Tax) attributable to an election under state, local, or foreign law similar to the election available under Section 338(g) of the Code (or which results from the making of an election under Section 338(g) of the Code) with respect to the purchase and sale of the stock of the PRC Companies hereunder. (b) Except as provided below, on or before the date that is 60 days after the Closing Date, Buyer shall prepare a schedule, in the form of Exhibit C, which reflects an allocation (the "Allocation") of Buyer's "adjusted grossed-up basis" and Seller's "deemed sale price" among the Class I, Class II, Class III and Class IV Assets (as such terms are defined in Section 338 of the Code and the Department of Treasury regulations thereunder). Provided the Allocation is reasonable, Seller's Parent agrees to accept the Allocation. Buyer shall be under no obligation to have the Allocation prepared or approved by an independent appraiser. Buyer shall be responsible for the preparation of all forms and filings required to be filed with any Tax Authority to claim the Section 338(h)(10) Election and Buyer and Seller's Parent shall reflect the Allocation in all Income Tax returns in which the Section 338(h)(10) Election is relevant, the effect of which is to treat the purchase of the shares of PRC by Buyer as the purchase of the assets of PRC by Buyer. If the Final Net Asset Amount is not determined within 60 days of the Closing Date, then Exhibit C shall be prepared promptly after the Final Net Asset Amount is determined. Section 11.3. Indemnification by Buyer. Buyer agrees to indemnify, defend and hold harmless Seller, Seller's Parent and their respective directors, officers, employees, Affiliates, agents, successors and assigns from and against any and all Losses suffered or incurred by an Indemnified Party resulting from, related to or arising out of: (a) any inaccuracy in any of the representations and warranties made by Buyer in this Agreement or in any agreement or certificate delivered pursuant hereto or in connection herewith; (b) any breach or nonperformance of any of the covenants of Buyer or its Affiliates contained in this Agreement (including those in Sections 8.1 and 8.2) or in any agreement or document delivered pursuant hereto or in connection herewith; (c) any Post-Closing Claim, but only to the extent that the Losses suffered or incurred result from facts and circumstances that occurred after the Closing Date (excluding Losses suffered or incurred resulting from facts or circumstances that occur after the Closing Date but which relate to Hazardous Substances present at properties or facilities of the PRC Companies on the Closing Date); and (d) any Guarantees (other than those relating to payments under the "PRC Supplemental Executive Retirement Plan") of Seller's Parent (or any of its Affiliates) to the extent they were issued for the benefit of Persons doing business with any of the PRC Companies. To the extent, but only to the extent, that any Loss for which Buyer has indemnification obligations under Section 11.3(c) arises as a result of any fact, circumstance or condition that also causes the inaccuracy of any representation or warranty of Seller, Seller's Parent or PRC contained in this Agreement or in any agreement or certificate delivered pursuant hereto or in connection herewith, or otherwise is the basis for an indemnification claim by Buyer under Section 11.4, Buyer shall not have liability under Section 11.3(c). Section 11.4. Indemnification by Seller and Seller's Parent. Seller and Seller's Parent agree, jointly and severally, to indemnify, defend and hold harmless Buyer, the PRC Companies and their respective directors, officers, employees, Affiliates, agents, successors and assigns from and against any and all Losses suffered or incurred by an Indemnified Party resulting from, relating to, or arising out of: (a) any inaccuracy in any of the representations and warranties made by Seller, Seller's Parent or the PRC Companies in this Agreement or in any agreement or certificate delivered pursuant hereto or in connection herewith; (b) any breach or nonperformance of any of the covenants of Seller, Seller's Parent or the PRC Companies or their Affiliates contained in this Agreement (including those in Sections 8.1 and 8.2) or in any agreement or document delivered pursuant hereto or in connection herewith; (c) any Pre-Closing Claim (including Pre-Closing Claims listed on, or arising from matters listed on, Schedules to this Agreement), but only to the extent that the Losses suffered or incurred result from facts and circumstances that occurred on or prior to the Closing Date; (d) any divestitures, sales or other dispositions by any PRC Company of divisions, product lines, businesses, real property or intellectual property (other than dispositions of Intellectual Property in the ordinary course of business in connection with the provision of products or services to customers of the PRC Companies), Subsidiaries and interests in other Persons effected prior to the Closing Date, whether as a result of breaches of purchase or sales agreements, under indemnification provisions, under guarantees by a PRC Company not yet assumed by the purchaser in such divestitures, sales or dispositions, or otherwise; (e) actions taken by Buyer and the PRC Companies after the Closing Date to bring into compliance with Environmental Laws as in effect at the Closing Date any violation or noncompliance existing as of the Closing Date, and from Losses arising from the operations of any PRC Company subsequent to the Closing Date and prior to the correction of such items of noncompliance as a result of such violation or noncompliance; provided that, as to Losses arising from the operations of any PRC Company subsequent to the Closing Date action is taken to correct such noncompliance reasonably promptly upon discovery of such noncompliance by Buyer or any of the PRC Companies; (f) the following employee benefit matters: (x) the maintenance of or contribution to a Pension Plan subject to Title IV of ERISA, or obligation to contribute to a Multiemployer Plan, by an ERISA Affiliate of any of the PRC Companies (which ERISA Affiliate is not itself one of the PRC Companies), (y) any post-retirement medical or life insurance benefits and (z) any "change of control" or similar payments to be made to Employees of PRC Companies as a result of the transactions contemplated hereby (other than any such payments made under plans or Benefit Arrangements assumed by Buyer pursuant to Section 6.5); (g) the "PRC Supplemental Executive Retirement Plan" referred to in Schedule 3.14 and the Financial Statements; and (h) the conduct of the business of Seller, Seller's Parent and any of its Affiliates other than the PRC Companies. For purposes of Section 11.4(a), all such representations and warranties shall be read as if references therein to the materiality to the PRC Companies or any of them of any condition, fact, statement, event or act (including without limitation all references to "Material Adverse Effects" and "in all material respects") were deleted and the effect of any such references were eliminated altogether. Thus, for example: (i) any representation that a statement is true and correct in all material respects shall be read as a representation that the statement is true and correct; (ii) any representation that a condition exists except to the extent that its failure to exist would not have a Material Adverse Effect on the PRC Companies shall be read as a representation that such condition exists; and (iii) any representation that no incidents of a specific nature have occurred that would have a Material Adverse Effect on the PRC Companies shall be read as a representation that no incidents of such nature have occurred. Section 11.5. Procedure. (a) Promptly after acquiring knowledge of any claim in respect of which a party (the "Indemnified Party") may seek indemnification from the other party (the "Indemnifying Party") hereunder, the Indemnified Party shall give written notice thereof to the Indemnifying Party describing such claim and demanding indemnification hereunder. Notwithstanding the foregoing, failure to provide the aforementioned notice will not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party under this Agreement, except to the extent that (i) such failure to provide notice causes the amounts paid by the Indemnifying Party to be greater than they would have been had such notice been given on a reasonably timely basis or (ii) such notice is not delivered to the Indemnifying Party prior to the expiration of any applicable survival period under Section 11.6. The Indemnifying Party will be entitled to assume control of the defense of any claim, and to settle or compromise such claim in its discretion, subject to the provisions of Sections 11.5(b) and 11.5(c). After written notice by the Indemnifying Party to the Indemnified Party of its election to assume control of the defense of any such action, the Indemnifying Party shall not be liable to such Indemnified Party hereunder for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof. Notwithstanding anything in this Section 11.5 to the contrary, if the Indemnifying Party does not promptly assume control of the defense of such action as provided in this Section 11.5, the Indemnified Party shall have the right to defend such action in such manner as it may deem appropriate at the cost and expense of the Indemnifying Party and the Indemnifying Party will promptly reimburse the Indemnified Party therefor (subject, if applicable, to the limitations contained in Section 11.7). An Indemnifying Party may, at its option and expense, participate in the defense of any indemnifiable claim. (b) To the extent that any of the Losses by any of the Persons entitled to indemnification under Section 11.3 or Section 11.4 relate to facts and circumstances that occur both prior to and after the Closing, or relate to both a Pre-Closing Claim and a Post-Closing Claim, then the Indemnifying Party and the Indemnified Party shall jointly determine at all times thereafter the actions to be taken with respect to such claims and the control, investigation, prosecution, defense and settlement thereof. (c) Neither the Indemnifying Party nor the Indemnified Party shall, without the written consent of the other party, settle or compromise any indemnifiable claim or permit a default or consent to entry of any judgment. If a settlement offer solely for money damages is made by the applicable third party claimant, and the Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying Party's willingness to accept the settlement offer and pay the amount called for by such offer without reservation of any rights or defenses against the Indemnified Party, the Indemnified Party may withhold its consent and continue to contest such claim, free of any participation by the Indemnifying Party, and the amount of any ultimate liability with respect to such indemnifiable claim that the Indemnifying Party shall have an obligation to pay thereunder (regardless of the ultimate Loss sustained by the Indemnified Party) shall be equal to the amount of the settlement offer that the Indemnified Party declined to accept plus the previously unpaid Losses of the Indemnified Party relating to such indemnifiable claim through the date of its rejection of the settlement offer. If the Indemnifying Party makes any payment on any indemnifiable claim, the Indemnifying Party shall be subrogated, to the extent of such payment, to all rights and remedies of the Indemnified Party to any insurance benefits or other claims of the Indemnified Party with respect to such claim. (d) With respect to any claim for which Seller or Seller's Parent is the Indemnifying Party and for which the Indemnifying Party has assumed control of the defense, Buyer shall make employees of the PRC Companies reasonably available to assist the Indemnifying Party in defending such claim, provided that the costs of providing such assistance are paid by the Indemnifying Party or, if paid by Buyer or any PRC Company, reimbursed to Buyer or the PRC Company, as appropriate, by the Indemnifying Party. (e) Any amounts to which an Indemnified Party is entitled under this Article shall be paid by the Indemnifying Party promptly upon request. Section 11.6. Survival. (a) The representations and warranties contained in or made pursuant to this Agreement (other than those set forth in Section 3.30) shall survive the Closing as provided in this Section 11.6(a). The representations and warranties contained in or made pursuant to Section 3.30 shall expire on the Closing Date. The representations and warranties contained (w) in Sections 3.1, 3.2 and 3.3, shall survive indefinitely, (x) in Sections 3.12 and 3.26 shall expire on the third anniversary of the Closing Date, (y) in Section 3.16 shall expire at the end of the applicable statute of limitations period (including extensions) for the Tax matters referenced therein, and (z) in Section 3.17 shall expire on the fifth anniversary of the Closing Date. Except as otherwise provided in this Section 11.6, all other representations and warranties set forth in this Agreement or in any agreement or certificate delivered pursuant hereto or in connection herewith shall expire on the second anniversary of the Closing Date. The indemnifications set forth in Sections 11.1 and 11.2 shall survive until the end of the applicable statute of limitations period (including extensions) for the Tax matters referenced therein. The indemnification set forth in Sections 11.3(a) and 11.4(a) shall survive for as long as the pertinent representation and warranty survives. The indemnification set forth in Sections 11.3(c), 11.4(c) and 11.4(f) shall survive until the third anniversary of the Closing Date. The indemnification set forth in Section 11.4(e) shall survive until the fifth anniversary of the Closing Date. The indemnification set forth in Sections 11.3(b), 11.3(d), 11.4(b), 11.4(d), 11.4(g) and 11.4(h) shall survive indefinitely. (b) Except as set forth in this Section 11.6(b), any matter as to which a claim has been asserted by notice to the other party that is pending or unresolved at the end of any applicable limitation or survival period, including any matter disclosed in this Agreement, shall continue to be covered by this Article XI notwithstanding any applicable statute of limitations or the expiration of any survival period until such matter is finally terminated or resolved. Notwithstanding the previous sentence, the indemnification obligations of Seller and Seller's Parent under Section 11.4(c) shall not survive beyond the third anniversary of the Closing Date unless an Action shall have been commenced as of the third anniversary of the Closing Date. Notice demanding indemnification for the items set forth on Schedule 3.10 (as modified under Section 9.2(e)) is acknowledged by the parties to have been given as of the Closing Date. Section 11.7. Limitations on Indemnification. (a) Buyer shall not be required to indemnify Seller, Seller's Parent or any of their Affiliates under Section 11.3(a) unless the aggregate of all amounts for which indemnity would otherwise be payable thereunder exceeds $1,500,000, and, in such event, Buyer shall be responsible for only the amount in excess of such $1,500,000. The total indemnification that Buyer may be required to pay under Section 11.3(a) shall not exceed $100,000,000. (b) Seller and Seller's Parent shall not be required to indemnify Buyer or any of its Affiliates under Sections 11.4(a) and 11.4(e) unless the aggregate of all amounts for which indemnity would otherwise be payable thereunder exceeds $1,500,000 (for both such Sections in the aggregate), and, in such event, Seller and Seller's Parent shall be responsible for only the amount in excess of such $1,500,000. The total indemnification that Seller and Seller's Parent may be required to pay under Sections 11.4(a) and 11.4(e) (in the aggregate) shall not exceed $100,000,000. (c) Seller and Seller's Parent shall not be required to indemnify Buyer or any of its Affiliates under Section 11.4(c) (other than those items set forth on Schedule 3.10 (or which otherwise were pending as of the Closing Date) and any Carpal Tunnel Litigation) unless the aggregate of all amounts for which indemnity would otherwise be payable thereunder exceeds $1,500,000, and, in such event, Seller and Seller's Parent shall be responsible for only the amount in excess of such $1,500,000. No credit will be given to Seller and Seller's Parent for any reserves for litigation set forth on the Financial Statements or included in the calculation of the Final Net Asset Amount. Those items set forth on Schedule 3.10 and all Carpal Tunnel Litigation are indemnifiable from the first dollar of Loss by Buyer or any of its Affiliates. (d) For purposes of Section 11.4(g), no credit will be given to Seller and Seller's Parent for any reserves for the "PRC Supplemental Executive Retirement Plan" set forth on the Financial Statements or included in the calculation of the Final Net Asset Amount. (e) For purposes of Section 11.3, any claim for indemnification that might be brought under more than one provision of Section 11.3 may be brought under any applicable provision at Seller's discretion. For purposes of Section 11.4, any claim for indemnification that might be brought under more than one provision of Section 11.4 may be brought under any applicable provision at Buyer's discretion. (f) Losses for which an Indemnified Party shall be indemnified hereunder shall be net of any insurance proceeds received by the Indemnified Party from insurance companies, including affiliated insurance companies. ARTICLE XII MISCELLANEOUS Section 12.1. Limitation of Representations and Warranties. (a) The parties hereto acknowledge and agree that neither Seller nor Seller's Parent makes, and neither Seller nor Seller's Parent has made, any representations or warranties relating to Seller, Seller's Parent or any of the PRC Companies, or any of the transactions contemplated by this Agreement, other than the representations and warranties expressly set forth in this Agreement or in any agreement or certificate delivered pursuant hereto or in connection herewith. Without limiting the generality of the disclaimer set forth in the preceding sentence, other than the representations and warranties expressly set forth in this Agreement or in any agreement or certificate delivered pursuant hereto or in connection herewith, neither Seller nor Seller's Parent makes, has made or shall be deemed to have made any representations or warranties, in any presentation or written information relating to the business of any of the PRC Companies given or to be given in connection with the transactions contemplated by this Agreement, in any filing made or to be made by or on behalf of any of the PRC Companies with any Governmental Entity, and no statement, made in any such presentation or written materials, made in any such filing or contained in any such other information shall be deemed a representation or warranty hereunder or otherwise. No Person has been authorized by Seller, Seller's Parent or any of the PRC Companies to make any representation or warranty in respect of Seller, Seller's Parent or any of the PRC Companies, or in connection with the transactions contemplated by this Agreement, unless contained in this Agreement. (b) Whenever any statement herein or in any schedule, exhibit, certificate or other document delivered to any party pursuant to this Agreement is made "to [its] knowledge" or "to [its] best knowledge" or words of similar intent or effect of any party or its representative, such statement shall be deemed to be made to the best knowledge of (x) with respect to the PRC Companies, Senior Vice Presidents or higher ranking officials of PRC, (y) with respect to Seller and Seller's Parent, the President, Vice President and Chief Financial Officer and Vice President and General Counsel of Seller's Parent, and shall be deemed to include a representation that a reasonable investigation of the subject matter thereof has been conducted, and (z) with respect to Buyer, Senior Vice Presidents or higher ranking officials of Buyer. With respect to Seller and Seller's Parent, a reasonable investigation shall mean that senior management of the pertinent corporation have shown the Employees set forth on Schedule 12.1(b) hereto the relevant statement and have consulted with such individuals as to whether they have knowledge of any fact or circumstance that would make such statement untrue. Section 12.2. Disclosure. Certain information set forth in the Schedules has been included and disclosed solely for informational purposes and may not be required to be disclosed pursuant to the terms and conditions of this Agreement. The disclosure of any such information shall not be deemed to constitute an acknowledgement or agreement that the information is required to be disclosed in connection with the representations and warranties made in this Agreement or that the information is material, nor shall any information so included and disclosed be deemed to establish a standard of materiality or otherwise used to determine whether any other information is material. Section 12.3. Expenses; Certain Taxes. Except as otherwise contemplated by Section 10.2, all legal, accounting and other costs and fees incurred by Seller or Seller's Parent in connection with the transactions contemplated by this Agreement shall be borne and paid for by Seller or Seller's Parent. Except as otherwise contemplated by Section 10.2, all legal, accounting and other costs and fees incurred by Buyer in connection with the transactions contemplated by this Agreement shall be borne and paid for by Buyer. All Taxes (other than taxes on, relating to or measured by income or gains), stamp duties, notarial, registration and recording fees and similar Taxes resulting from or relating to the transfer of the PRC Shares to Buyer shall be borne one-half by Buyer and one-half by Seller (including any Taxes (other than Income Taxes) on the deemed sale of assets under the Section 338(h)(10) Election). Buyer and Seller agree to treat the transactions contemplated by this Agreement as a sale of the PRC Shares for purposes of such Taxes. Section 12.4. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto in respect of the matters set forth herein, and all prior negotiations, writings and understandings relating to the subject matter of this Agreement, other than the Confidentiality Agreement, are merged herein and are superseded and cancelled by this Agreement. Other than as set forth in this Agreement, no representations, warranties, covenants, agreements or conditions, express or implied, whether by statute or otherwise, have been made by the parties hereto. Section 12.5. Amendment and Waiver. This Agreement may be amended, modified, supplemented or changed in whole or in part only by an agreement in writing making specific reference to this Agreement and executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in whole or in part, but only by an agreement in writing making specific reference to this Agreement and executed by the party that is entitled to the benefit thereof. Section 12.6. Binding Agreement and Successors. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that this Agreement and the rights of the parties hereunder may not be assigned, and the obligations of the parties hereunder may not be delegated, in whole or in part, without the prior written consent of the other party hereto, except that Buyer may assign its rights hereunder to any wholly-owned Subsidiary of Buyer so long as Buyer is not released from its obligations hereunder. If Seller's Parent in one or a series of transactions sells, disposes of or otherwise transfers all or substantially all of its assets, prior to any such sales, dispositions or transfers, Seller's Parent shall, without being released from its obligations hereunder, cause the transferee to assume the obligations of Seller's Parent under this Agreement. Section 12.7. No Third Party Beneficiaries. Other than as specifically provided in Sections 11.3 and 11.4, nothing in this Agreement is intended or shall be construed to confer upon any Person other than the parties hereto and their Subsidiaries and Affiliates any rights or remedies. Section 12.8. Notices. Any notice, request, instruction or other document or communication required or permitted to be given under this Agreement shall be in writing and shall be deemed to be given upon delivery in person or by telecopier, three business days after being deposited in the mail, postage prepaid, for mailing by certified or registered mail, or one business day after being deposited with an overnight courier, charges prepaid, as follows: If to Seller or Seller's Parent, delivered or mailed to: c/o The Black & Decker Corporation 701 East Joppa Road Towson, Maryland 21286 Attention: Charles E. Fenton, Esquire Vice President and General Counsel Telecopier No.: (410) 716-2660 with a copy delivered or mailed to: Glenn C. Campbell, Esquire Miles & Stockbridge, a Professional Corporation 10 Light Street Baltimore, Maryland 21202 Telecopier No.: (410) 385-3700 If to Buyer (or, after the Closing, any of the PRC Companies), delivered or mailed to: Litton Industries, Inc. 21240 Burbank Boulevard Woodland Hills, California 91367 Attention: John E. Preston, Esquire Senior Vice President and General Counsel Telecopier No.: (818) 598-2025 With a copy delivered or mailed to: David G. Pommerening, Esquire O'Melveny & Myers 555 13th Street, N.W. Washington, D.C 20004 Telecopier No.: (202) 383-5414 or to such other address or addresses as may be specified in writing at any time or from time to time by either party to the other party hereto. Section 12.9. Further Assurances. The parties hereto each agree to execute, make, acknowledge, and deliver such instruments, agreements and other documents as may be reasonably required to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Section 12.10. Article and Section Headings. The Article and Section headings contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement or any of its terms and conditions. Section 12.11. Governing Law. This Agreement shall be construed and enforced in accordance with and shall be governed by the Laws of the State of Delaware, without regard to the conflict of laws and principles thereof. Section 12.12. Construction. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders, the plural shall include the singular, and the singular shall include the plural. With regard to each and every term and condition of this Agreement and any and all agreements and instruments subject to the terms hereof, the parties hereto understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto. Section 12.13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Section 12.14. Reference of Disputes to Senior Officers. Any dispute between Seller and Seller's Parent, on the one hand, and Buyer, on the other hand, arising out of or in connection with this Agreement or any alleged breach hereof may, at the option of either Seller or Buyer, be submitted for discussion and possible resolution by senior officers of Seller's Parent and Buyer, as designated by their respective chief executive officers, for a period of 30 days (or such longer period as the parties may in particular cases so decide) before initiating any arbitration pursuant to Section 12.15. Section 12.15. Arbitration. Except as specifically provided for elsewhere in this Agreement, all claims and controversies arising out of or in connection with this Agreement shall be subject to binding arbitration in Virginia by a single arbitrator in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA") or the existing Rules of Practice and Procedures of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The party filing the arbitration shall have the right to select either AAA or JAMS. The parties shall be entitled to discovery in accordance with the provisions of Virginia law. The prevailing party in any arbitration proceeding hereunder as determined by the arbitrator or in any legal proceedings or actions arising from or in connection with this Agreement shall be entitled to recover reasonable attorneys' fees and costs. Nothing herein shall prohibit a party from seeking equitable relief in a court of law to maintain the status quo while an arbitration is pending hereunder. The parties agree that the arbitrator shall not have the right to award punitive damages. IN WITNESS WHEREOF, Seller, Seller's Parent, PRC and Buyer have executed this Agreement as of the day and year first above written. THE BLACK & DECKER CORPORATION By: /s/ Charles E. Fenton Title: Vice President and General Counsel PRC INVESTMENTS INC. By: /s/ Charles E. Fenton Title: Vice President PRC INC. By: /s/ Charles E. Fenton Title: Vice President LITTON INDUSTRIES, INC. By: /s/ H. Thomas Hicks Title: Vice President Schedules and Exhibits omitted. EX-11 14 Exhibit 11(a) THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE --------------------------------- (Millions of Dollars Except Per Share Data)
For The Year Ended ----------------------------------------------------------------------- December 31,1995 December 31,1994 December 31,1993 ---------------- ---------------- ----------------- Per Per Per Amount Share Amount Share Amount Share ------ ----- ------ ----- ------ ------ Primary: - ------- Average shares outstanding 85.7 84.3 83.6 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the average market price 2.2 (Note 1) (Note 1) ---- ------ ------ Adjusted shares outstanding 87.9 84.3 83.6 ==== ==== ==== Earnings from continuing operations $216.5 $ 89.9 $ 64.1 Less preferred stock dividend 11.6 11.6 11.6 ------ ------ ------ Earnings from continuing operations attributable to common stock $204.9 $2.33 $ 78.3 $ .93 $ 52.5 $ .63 ====== ===== ====== ===== ====== ===== Fully Diluted: - ------------- Average shares outstanding 85.7 84.3 83.6 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the higher of the average market price or ending market price 2.6 (Note 1) (Note 1) ---- ------ ------ Adjusted shares outstanding 88.3 84.3 83.6 Average shares assumed to be converted through convertible preferred stock (Note 3) 6.4 6.3 (Note 2) 6.4 (Note 2) ---- ---- ---- Fully diluted average shares outstanding 94.7 90.6 90.0 ==== ==== ==== Earnings from continuing operations $216.5 $2.29 $ 89.9 $ .99 $ 64.1 $ .71 ====== ===== ====== ===== ====== ===== Notes: 1. Dilutive effect of common stock equivalents is less than 3% for the years ended December 31, 1994 and 1993 and has not been shown. 2. The assumed conversion of convertible preferred stock is anti-dilutive and, therefore, is not used in the calculation of fully diluted earnings per share included in the financial statements. 3. Difference from prior year is due to rounding.
Exhibit 11(b) THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE --------------------------------- (Millions of Dollars Except Per Share Data)
For The Year Ended ----------------------------------------------------- December 31,1995 December 31,1994 December 31,1993 ---------------- ---------------- ----------------- Per Per Per Amount Share Amount Share Amount Share ------ ----- ------ ----- ------ ------ Primary: - ------- Average shares outstanding 85.7 84.3 83.6 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the average market price 2.2 (Note 1) (Note 1) ---- ------ ------ Adjusted shares outstanding 87.9 84.3 83.6 ==== ==== ==== Net earnings $224.0 $127.4 $ 66.0 Less preferred stock dividend 11.6 11.6 11.6 ------ ------ ------ Net earnings attributable to common stock $212.4 $2.42 $115.8 $1.37 $ 54.4 $ .65 ====== ===== ====== ===== ====== ===== Fully Diluted: - ------------- Average shares outstanding 85.7 84.3 83.6 Dilutive stock options and stock issuable under employee benefit plans--based on the Treasury stock method using the higher of the average market price or ending market price 2.6 (Note 1) (Note 1) ---- ------ ------ Adjusted shares outstanding 88.3 84.3 83.6 Average shares assumed to be converted through convertible preferred stock (Note 3) 6.4 6.3 (Note 2) 6.4 (Note 2) ---- ---- ---- Fully diluted average shares outstanding 94.7 90.6 90.0 ==== ==== ==== Net earnings $224.0 $2.37 $127.4 $1.41 $ 66.0 $ .73 ====== ===== ====== ===== ====== ===== Notes: 1. Dilutive effect of common stock equivalents is less than 3% for the years ended December 31, 1994 and 1993 and has not been shown. 2. The assumed conversion of convertible preferred stock is anti-dilutive and, therefore, is not used in the calculation of fully diluted earnings per share included in the financial statements. 3. Difference from prior year is due to rounding.
EX-12 15 EXHIBIT 12 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ------------------------------------------------- (Millions of Dollars Except Ratios)
Three Months Ended Twelve Months Ended ------------------ ------------------- December 31, 1995 December 31, 1995 ----------------- ----------------- EARNINGS: Earnings from continuing operations before income taxes (Note 1) $102.3 $225.5 Interest expense 45.4 193.0 Portion of rent expense representative of an interest factor 5.6 22.4 ------ ------ Adjusted earnings from continuing operations before taxes and fixed charges (Note 1) $153.3 $440.9 ====== ====== FIXED CHARGES: Interest expense $ 45.4 $193.0 Portion of rent expense representative of an interest factor 5.6 22.4 ------ ------ Total fixed charges $ 51.0 $215.4 ====== ====== RATIO OF EARNINGS TO FIXED CHARGES 3.01 2.05 ==== ==== Note 1. Amounts exclude earnings from discontinued operations and extraordinary loss from early extinguishment of debt.
EX-21 16 EXHIBIT 21 THE BLACK & DECKER CORPORATION AND SUBSIDIARIES LIST OF SUBSIDIARIES -------------------- Listed below are the subsidiaries of The Black & Decker Corporation, all of which are either directly or indirectly 100% owned as of December 31, 1995, except as otherwise noted. Names of certain inactive, liquidated, or minor subsidiaries have been omitted. Black & Decker Inc. UNITED STATES Black & Decker (U.S.) Inc. UNITED STATES Black & Decker Funding Corporation UNITED STATES Black & Decker Group Inc. UNITED STATES Black & Decker Holdings Inc. UNITED STATES Black & Decker Investment Company UNITED STATES Black & Decker (Ireland) Inc. UNITED STATES Black & Decker India Inc. UNITED STATES Black & Decker Investments (Australia) Limited UNITED STATES Black & Decker (Puerto Rico) Inc. UNITED STATES Corbin Co. UNITED STATES Emhart Corporation UNITED STATES Emhart Credit Corporation UNITED STATES Emhart Far East Corporation UNITED STATES Emhart Glass Machinery Investments Inc. UNITED STATES Emhart Glass Machinery (U.S.) Inc. UNITED STATES Emhart Glass Research, Inc. UNITED STATES Emhart Inc. UNITED STATES Emhart Industries, Inc. UNITED STATES Kwikset Corporation UNITED STATES Openware, Inc. UNITED STATES Price Pfister, Inc. UNITED STATES Advanced Information Systems, Inc. UNITED STATES PRC Inc. UNITED STATES PRC Investments Inc. UNITED STATES PRC Public Sector, Inc. UNITED STATES PRC Technology Services 1 of Virginia, Inc. UNITED STATES PRC Technology Services 2, Inc. UNITED STATES PRC Commercial Systems, Inc. UNITED STATES PRC Engineering Systems, Inc. UNITED STATES Planning Research Corporation International, Ltd. UNITED STATES Shenandoah Insurance, Inc. UNITED STATES True Temper Sports, Inc. UNITED STATES Black & Decker Argentina S.A. ARGENTINA Black & Decker (Australasia) Pty. Ltd. AUSTRALIA Black & Decker Distribution Pty. Ltd. AUSTRALIA Black & Decker Finance (Australia) Ltd. AUSTRALIA Black & Decker Holdings (Australia) Pty. Ltd. AUSTRALIA Dereham Pty. Ltd. AUSTRALIA Emhart Australia Pty. Ltd. AUSTRALIA PRC International Pty. Ltd. AUSTRALIA Black & Decker Werkzeuge Vertriebs-Gesellschaft m.b.H AUSTRIA DOM Sicherheitstechnik G.m.b.H. AUSTRIA Black & Decker (Belgium) N.V. BELGIUM B&D Eletrodomesticos Ltda. BRAZIL Black & Decker Canada Inc. CANADA Black & Decker Holdings (Canada) Inc. CANADA Black & Decker Cono Sur, S.A. CHILE Maquinas y Herramientas Black & Decker de Chile S.A. CHILE Black & Decker de Colombia S.A. COLOMBIA B&D de Costa Rica, S.A. COSTA RICA Harttung Fasteners A/S DENMARK Black & Decker de El Salvador, S.A. de C.V. EL SALVADOR Black & Decker Oy FINLAND Black & Decker Finance S.A.R.L. FRANCE Black & Decker (France) S.A.S. FRANCE DOM S.A.R.L. FRANCE Emhart S.A.R.L. FRANCE BAND Aussenhandel G.m.b.H. GERMANY B. B. W. Bayrische Bohrerwerke G.m.b.H. GERMANY Black & Decker G.m.b.H. GERMANY DOM Sicherheitstechnik G.m.b.H. GERMANY DOM Sicherheitstechnik G.m.b.H. & Co. KG GERMANY Emhart Deutschland G.m.b.H. GERMANY Tucker G.m.b.H. GERMANY Black & Decker (HELLAS) S.A. GREECE Black & Decker Hong Kong Limited HONG KONG Emhart Asia Limited HONG KONG Far East Power Equipment Ltd. HONG KONG Baltimore Financial Services Company * IRELAND Baltimore Insurance Limited IRELAND Belco Investments Company IRELAND Black & Decker Capital (Denmark) Company IRELAND Black & Decker (Ireland) IRELAND Gamrie Limited IRELAND Black & Decker Italia S.P.A. ITALY Emhart S.r.l. ITALY Tatry Officina Meccanica S.r.l. ITALY Fasteners & Tools, Ltd. JAPAN Nippon Pop Rivets & Fasteners Ltd. JAPAN Black & Decker (Overseas) A.G. LIECHTENSTEIN Black & Decker Luxembourg S.A. LUXEMBOURG Black & Decker Asia Pacific (Malaysia) Sdn. Bhd. MALAYSIA Black & Decker (Malaysia) Sdn. Bhd. MALAYSIA Black & Decker, S.A. de C.V. MEXICO Price-Pfister de Mexico, S.A. de C.V. MEXICO BD Power Tools Mexicana S.A. de C.V. MEXICO Nemef B.V. NETHERLANDS Black & Decker (Nederland) B.V. NETHERLANDS Black & Decker International Holdings B.V. NETHERLANDS Black & Decker (New Zealand) Limited NEW ZEALAND Black & Decker (Norge) A/S NORWAY Sjong Fasteners A/S NORWAY Black & Decker de Panama, S.A. PANAMA Black & Decker International Corporation PANAMA Black & Decker (Panama) Investments S.A. PANAMA Black & Decker Asia Pacific Pte. Ltd. SINGAPORE Black & Decker Iberica S.C.A. SPAIN Aktiebolaget Sundsvalls Verkstader SWEDEN Black & Decker Aktiebolag SWEDEN Emhart Sweden Aktiebolag SWEDEN Emhart Sweden Holdings Aktiebolag SWEDEN Emhart Teknik Akteibolag SWEDEN DOM AG Sicherheitstechnik SWITZERLAND Black & Decker (Switzerland) S.A. SWITZERLAND Emhart Glass SA SWITZERLAND Black & Decker (Thailand) Limited THAILAND Aven Tools Limited UNITED KINGDOM Bandhart UNITED KINGDOM Bandhart Overseas UNITED KINGDOM Black & Decker Finance UNITED KINGDOM Black & Decker International UNITED KINGDOM Black & Decker UNITED KINGDOM Black & Decker Europe UNITED KINGDOM Emhart (Colchester) Limited UNITED KINGDOM Emhart International Limited UNITED KINGDOM Emhart (U.K.) Limited UNITED KINGDOM Tucker Fasteners Limited UNITED KINGDOM United Marketing (Leicester) UNITED KINGDOM Black & Decker de Venezuela, C.A. VENEZUELA Black & Decker Holdings de Venezuela VENEZUELA Emhart Foreign Sales Corporation VIRGIN ISLANDS (US) * 14.3% of the voting stock is owned by The Black & Decker Corporation through its wholly owned subsidiaries. EX-23 17 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the following Registration Statements of our report dated January 31, 1996 with respect to the consolidated financial statements and schedule of The Black & Decker Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1995. Registration Statement Number Description - ----------------------------- ----------- 2-75916 Form S-8 33-6610 Form S-8 33-6612 Form S-8 33-26917 Form S-8 33-26918 Form S-8 33-33251 Form S-8 33-39607 Form S-8 33-39608 Form S-3 33-47651 Form S-8 33-47652 Form S-8 33-53807 Form S-3 33-58795 Form S-8 33-65013 Form S-8 /s/ ERNST & YOUNG LLP Baltimore, Maryland February 26, 1996 EX-24 18 POWER OF ATTORNEY Exhibit 24 We, the undersigned Directors and Officers of The Black & Decker Corporation (the "Corporation"), hereby constitute and appoint Nolan D. Archibald, Thomas M. Schoewe and Charles E. Fenton, and each of them, with power of substitution, our true and lawful attorneys-in-fact with full power to sign for us, in our names and in the capacities indicated below, the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, and any and all amendments thereto. /s/ NOLAN D. ARCHIBALD Director, Chairman, February 29, 1996 Nolan D. Archibald President, and Chief Executive Officer (Principal Executive Officer) /s/ BARBARA L. BOWLES Director February 29, 1996 Barbara L. Bowles /s/ MALCOLM CANDLISH Director February 29, 1996 Malcolm Candlish /s/ ALONZO G. DECKER, JR. Director February 29, 1996 Alonzo G. Decker, Jr. /s/ ANTHONY LUISO Director February 29, 1996 Anthony Luiso /s/ J. DEAN MUNCASTER Director February 29, 1996 J. Dean Muncaster /s/ LAWRENCE R. PUGH Director February 29, 1996 Lawrence R. Pugh /s/ MARK H. WILLES Director February 29, 1996 Mark H. Willes /s/ M. CABELL WOODWARD, JR. Director February 29, 1996 M. Cabell Woodward, Jr. /s/ THOMAS M. SCHOEWE Vice President and February 29, 1996 Thomas M. Schoewe Chief Financial Officer (Principal Financial Officer) /s/ STEPHEN F. REEVES Corporate Controller February 29, 1996 Stephen F. Reeves (Principal Accounting Officer) EX-27 19 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains financial information extracted from the Corporation's audited financial statements as of and for the year ended December 31, 1995, and the accompanying footnotes and is qualified in its entirety by reference to such financial statements. 0000012355 THE BLACK & DECKER CORPORATION 1,000 12-MOS DEC-31-1995 DEC-31-1995 131,600 0 694,400 43,100 855,700 2,106,600 1,772,200 905,400 5,545,300 1,786,900 1,704,500 0 150,000 43,200 1,230,000 5,545,300 4,766,100 4,766,100 3,016,700 4,340,000 0 0 193,000 225,500 9,000 216,500 38,400 (30,900) 0 224,000 2.42 2.37
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