-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pYo+VjPthQ96Zd35rtqedqb/NAPsQpRW9mDHocaa/rrylkjt9uugIT1Q4c1klWyS R0u1ClMqlugb7GbNqfTUAg== 0000012707-95-000006.txt : 19950504 0000012707-95-000006.hdr.sgml : 19950504 ACCESSION NUMBER: 0000012707-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950503 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLOUNT INC CENTRAL INDEX KEY: 0000012707 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL BUILDING CONTRACTORS - NONRESIDENTIAL BUILDINGS [1540] IRS NUMBER: 630593908 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07002 FILM NUMBER: 95534189 BUSINESS ADDRESS: STREET 1: 4520 EXECUTIVE PK DR CITY: MONTGOMERY STATE: AL ZIP: 36116 BUSINESS PHONE: 2052444000 MAIL ADDRESS: STREET 1: P O BOX 949 STREET 2: 4520 EXECUTIVE PARK DRIVE CITY: MONTGOMERY STATE: AL ZIP: 36109-0949 10-K 1 FORM 10-K FOR FYE 2/28/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended February 28, 1995 ----------------- OR { } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 1-7002 ------ BLOUNT, INC. - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 63-0593908 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4520 Executive Park Drive, Montgomery, Alabama 36116-1602 - ---------------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (334) 244-4000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Class A Common Stock, $1.00 par value American Stock Exchange Class B Common Stock, $1.00 par value American Stock Exchange - ------------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes No X ------- ------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 ------- ------- Page 1 State the aggregate market value of the voting stock held by nonaffiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value of voting stock held by nonaffiliates as of April 3, - --------------------------------------------------------------------------- 1995: $288,180,272 - -------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common Stock $1.00 par value, as of April 3, 1995: 8,570,789 shares --------- Class B Common Stock $1.00 par value, as of April 3, 1995: 4,027,724 shares --------- DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). Portions of proxy statement for the annual meeting of stockholders to be held June 26, 1995, are incorporated by reference in Part III. Page 2 PART I ITEM 1. BUSINESS The Company is an international manufacturing company with operations in three business segments: Outdoor Products, Industrial and Power Equipment and Sporting Equipment. The Company's current manufacturing operations date largely to the acquisition of Omark Industries, Inc. in 1985. The Company was founded in 1946 as a general construction company and, over the succeeding years, grew into one of the largest construction companies in the United States. In February 1994, the Company discontinued its construction business. See "Business - Acquisitions and Dispositions" on page 6. OUTDOOR PRODUCTS The Company's Outdoor Products segment is comprised of the Oregon Cutting Systems Division ("Oregon") and Dixon Industries, Inc. ("Dixon"). Oregon produces a wide variety of saw chain, chain saw guide bars, saw chain drive sprockets and maintenance tools for use primarily on portable gasoline and electric chainsaws. The Oregon trademark is well known to end-users and the Company believes that it is the world leader in the production of saw chain. Oregon's saw chain and related products are used primarily by professional loggers, construction workers, farmers and arborists. Recent new products from Oregon include the Woodzig power pruner and the Industrial Cutting System ("ICS") concrete cutter. Winner of an Industrial Design Excellence Award in 1991, the Woodzig is an electric power pruner designed primarily for use by homeowners. ICS, a diamond-segmented chain cutting system for concrete (including steel-reinforced concrete), is a faster and more flexible concrete cutting method than others currently employed in the construction and demolition industries. Oregon sells to distributors, dealers and mass merchandisers serving the retail replacement market. In addition, Oregon currently sells its products to more than 50 original equipment manufacturers ("OEMs"). Due to the high level of technical expertise and capital investment required to manufacture saw chain, the Company believes that it is able to produce durable, high-quality saw chain more efficiently than most of its competitors. The use of Oregon cutting chain as original equipment on chainsaws is also promoted through cooperation with OEMs in improving the design and specifications of chain and saws. Sales of saw chain for replacement use, which accounted for approximately three-quarters of the Company's saw chain sales in fiscal 1995, are generally more profitable than sales of saw chain to OEMs. The Company has Outdoor Products marketing personnel throughout the United States and in a number of foreign countries. Sales derived from operations outside the United States accounted for 35%, and export sales accounted for 19%, of Outdoor Products sales during fiscal 1995. Oregon manufactures saw chain and related products in Milwaukie, Oregon; Guelph, Ontario, Canada; and Curitiba, Parana, Brazil. Oregon's products compete on the basis of quality and price, primarily with the products of other saw chain manufacturers as well as a small number of international chainsaw manufacturers, some of whom are also customers. Segment operating income is subject to seasonality with over half of annual operating income generated during the last half of the fiscal year. Sales are seasonal to a much lesser extent, reflecting the effect of volume sales to several OEMs at lower margins typically than replacement sales. This segment's principal raw material, strip steel, is generally purchased from two vendors, although it is readily available from other sources. Page 3 Dixon, a manufacturer of ZTR (zero turning radius) riding lawn mowers and related attachments, was acquired in early fiscal 1991. The maneuverability of ZTR mowers significantly reduces mowing time and distinguishes them from competitors' products. These mowers accounted for $38.1 million or 14% of Outdoor Products sales. INDUSTRIAL AND POWER EQUIPMENT The Company's Industrial and Power Equipment segment manufactures equipment for timber harvesting and log loading, industrial tractors and loaders, rotation bearings and mechanical power transmission components. The Company believes that it is a world leader in the manufacture of hydraulic timber harvesting equipment, which includes a line of self-propelled and truck-mounted loaders and feller bunchers (tractors with hydraulic attachments for felling timber) under the Prentice brand name; a line of tractors, feller bunchers and related attachments under the Hydro-Ax brand name; and a line of delimbers, slashers and firewood processors under the CTR brand name. Major customers of the Industrial and Power Equipment segment include timber harvesters, land reclamation companies, contractors and scrap yard operators. The Company sells its products through a network of approximately 160 dealers in over 200 locations in the United States and currently has an additional 15 dealers overseas, primarily in South America and Southeast Asia. Over 85% of this segment's sales in fiscal 1995 were in the United States, primarily in the southeastern and south central states. The Company places a strong emphasis on the quality, safety, comfort, durability and productivity of its products and on the after-market service provided by its distribution and support network. The Company's Industrial and Power Equipment segment competes primarily on the basis of quality with a number of domestic and foreign manufacturers of log loaders and feller bunchers. The Company attempts to capitalize on its technological and manufacturing expertise as a means of increasing its participation in the market for replacement parts for products which it manufactures, as well as of developing new product applications both within and beyond the timber, scrap and construction industries. The Company is committed to continuing research and development in this segment to respond quickly to increasing mechanization and environmental awareness in the timber harvesting industry. The Company's Industrial and Power Equipment segment has manufacturing facili- ties in Owatonna, Minnesota; Prentice and Spencer, Wisconsin; Tulsa, Oklahoma; and Zebulon and Union Grove, North Carolina. A majority of the components used in the Company's products are obtained from a number of domestic manufacturers. Segment results include sales of $20.7 million from Gear Products, Inc. ("Gear"), acquired by the Company early in fiscal 1992, and $12.9 million from CTR Manufacturing, Inc. ("CTR") acquired by the Company in early fiscal 1995. Gear designs, manufactures and distributes rotation bearings and mechanical power transmission components for manufacturers of equipment that serve the utility, man-lift, construction, forestry and marine industries. CTR designs, manufactures and distributes a line of slashers, delimbers, firewood processors and self-propelled carriers that serve the forest products industry. SPORTING EQUIPMENT The Company's Sporting Equipment segment manufactures small arms ammunition, reloading equipment, primers, gun care products and accessories. Principal products include CCI and Speer ammunition sold for use by hunters, sportsmen and law enforcement and military personnel; RCBS reloading equipment for use by Page 4 hunters and sportsmen who prefer to reload their own ammunition; Outers gun-care and trap-shooting products; Ram-Line synthetic stocks, Polar Cap scope covers and other shooting sports accessories; and Weaver shooting mounts and scopes. The Company believes that it is a market leader in the domestic gun care and reloading markets with high levels of brand name recognition in each of these areas. The Sporting Equipment segment also produces industrial powerloads which are used in the construction industry to drive fastening pins into metal or concrete. The market for Sporting Equipment products is characterized by a high degree of customer loyalty to brand names and historically has not been affected by adverse economic conditions. A continuing focus on new and better technologies has enabled the Company to introduce a number of new and improved products in recent years. These products include Blazer aluminum-case ammunition. Up to 15% less expensive than traditional brass-case ammunition, Blazer aluminum-case ammunition is used as training ammunition by numerous law-enforcement agencies located throughout the world. The Company has been successful with the introduction of Gold Dot pistol ammunition, a high performance service round that is used by many major law enforcement agencies. The Company developed its Non-Toxic ammunition, that has a total copper bullet and utilizes a Clean-Fire lead-free primer, in response to concern in the shooting community about exposure to lead and other heavy metals, particularly in indoor ranges. Principal raw materials include brass, lead, aluminum and powder, which are purchased from several suppliers. The Company manufactures ammunition in Lewiston, Idaho; reloading equipment in Oroville, California; mounts, scopes and gun care equipment in Onalaska, Wisconsin; and shooting accessories in Grand Junction, Colorado. In the market for small arms ammunition and primers, the Company competes with several larger manufacturers with well established brand names and market share positions. In the segment's other product lines, the Company competes with a number of smaller competitors, none of whom has a dominant market share. CAPACITY UTILIZATION Based on an 80-hour work week, the Outdoor Products, Industrial and Power Equipment and Sporting Equipment segments utilized approximately 90%, 84% and 60%, respectively, of their production capacity in fiscal 1995. BACKLOG The backlog for each of the Company's business segments as of the end of each of its last four fiscal years was as follows: Last day of February -------------------------------------------- 1995 1994 1993 1992 -------- -------- -------- -------- (In thousands) Outdoor Products $ 44,421 $ 36,507 $ 31,369 $ 33,561 Industrial and Power Equipment 74,374 93,794 32,883 20,058 Sporting Equipment 15,555 16,750 3,048 5,437 -------- -------- -------- -------- $134,350 $147,051 $ 67,300 $ 59,056 ======== ======== ======== ======== The total backlog as of February 28, 1995, is expected to be completed and shipped within fiscal 1996. Page 5 ACQUISITIONS AND DISPOSITIONS In March 1990, the Company acquired all of the outstanding capital stock of Dixon Industries, Inc. for cash of approximately $25 million. Dixon manufactures specialty riding lawn mowers and related attachments. The transaction was accounted for as a purchase. In fiscal 1991, the Company acquired certain product line manufacturing and marketing rights for its Industrial and Power Equipment segment at a cost of $5.5 million. In fiscal 1991, the Company sold its rights to certain resource recovery technology for cash and notes of approximately $5 million. In March 1991, the Company acquired all the outstanding capital stock of Gear Products, Inc. for cash and notes of $17.4 million. Gear designs and manufactures rotation bearings and mechanical power transmission components for manufacturers of equipment that serve the utility, man-lift, construction, forestry and marine industries. The transaction was accounted for as a purchase. In May 1991, the Company sold its remaining resource recovery operations consisting principally of two resource recovery facilities. The sales price was approximately $14.5 million in cash. The Company has been released from its contingent liabilities under guarantees with respect to the two facilities. In fiscal 1993, the Company sold its remaining agri/industrial sites for cash of $.9 million. In February 1994, the Company adopted a plan to discontinue its construction business through the orderly completion and close-out of the Company's principal domestic and foreign construction projects and the sale of Pozzo Construction Co. ("Pozzo"), the Company's wholly owned subsidiary headquartered in Los Angeles, California. The Company has entered into a letter of intent for the sale of Pozzo and expects the sale to be concluded during the first quarter of fiscal 1996. In fiscal 1995, the Company acquired all the outstanding capital stock of CTR Manufacturing, Inc., a manufacturer of automated forestry harvesting equipment, and the operating assets of Ram-Line, Inc., a manufacturer of stocks, magazines, lens caps and other products for the shooting sports markets. The purchase price paid for the two businesses was approximately $18.2 million, including notes issued of $7.2 million. See Note 4 of Notes to Consolidated Financial Statements on pages 26 and 27. EMPLOYEES At February 28, 1995, the Company employed approximately 4,600 individuals. None of the Company's employees are unionized. The Company believes its relations with its employees are satisfactory. ENVIRONMENTAL MATTERS The United States Environmental Protection Agency ("EPA") has designated a predecessor of the Company as a potentially responsible party ("PRP") with respect to the Onalaska Municipal Landfill in Onalaska, Wisconsin (the "Site"). The waste complained of was placed in the landfill prior to 1981 by a corporation, some of whose assets were purchased in 1981 by a predecessor of the Company. It is the view of the Company that because its predecessor corporation Page 6 purchased assets rather than stock, the Company does not have successor liability and is not properly a PRP. However, the EPA has indicated it does not accept this position. The Company believes the EPA is wrong on the successor liability issue. However, with other PRP's, the Company made a good faith offer to the EPA to pay a portion of the clean-up costs. The offer was rejected and the EPA is proceeding with the clean-up. The estimated past and future clean-up costs are approximately $12 million. In 1989 the EPA named four PRP's. One of the PRP's, the Town of Onalaska (the "Town") and the EPA and State of Wisconsin negotiated a consent decree under which the Town would have been released from future liability in return for paying $110 thousand, granting access to the Site and adjacent properties and performing some future maintenance work. The United States District Court for the District of Wisconsin found, on December 21, 1994, that the settlement was not fair, reasonable or in the public interest, and refused to approve and confirm it as the order of the Court. The Company denies that it is a PRP and is unable to determine any other party's share of total remediation costs. The Company does not know the financial status of the other PRP's and other parties that, while not named by the EPA as PRP's, may have liability with respect to the Site. The Company does not expect the situation to have a material adverse effect on the Company's financial condition or operating results. The Company is closing a Resource Conservation and Recovery Act ("RCRA") Part B Storage Permit at its Sporting Equipment Division's CCI operations facility in Lewiston, Idaho. As part of the process, the Company is required by the State of Idaho to undertake RCRA corrective action at the facility. This will require the Company to investigate all areas at the facility where solid waste and hazardous waste have historically been managed. The facility has been operating since the 1950s. There are several areas where investigation and sampling are required. In order to effect the investigation, the Company and the State of Idaho entered into an Administrative Consent Order which governs the completion of the corrective action activities. As a result of initial testing, some contamination of the uppermost groundwater beneath the facility has been encountered. This uppermost groundwater is not the drinking water supply source and does not appear to be connected to the drinking water aquifer. Further investigation is ongoing. It is expected that the range of remediation costs is from $2.8 million to $6.2 million. The Company does not expect the situation to have a material adverse effect on its financial condition or operating results beyond amounts accrued. From time to time the Company may be identified as a potentially responsible party with respect to a Superfund site. EPA (or a state) can either (a) allow such a party to conduct and pay for a remedial investigation and feasibility study and remedial action or (b) conduct the remedial investigation and action and then seek reimbursement from the parties. Each party can be held jointly, severally and strictly liable for all costs, but the parties can then bring contribution actions against each other. As a result of the Superfund Act, the Company may be required to expend amounts on remedial investigations and actions which amounts cannot be determined at the present time but may ultimately prove to be significant. During fiscal 1995, the Company spent an aggregate of approximately $989 thousand on improvements in connection with environmental quality standards. The Company expects to spend approximately $1.6 million, $1.1 million and $874 thousand during fiscal 1996, 1997 and 1998, respectively, on compliance costs. Page 7 FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS For information about industry segments and foreign and domestic operations, see "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 11 through 14 and Note 10 of Notes to Consolidated Financial Statements on pages 33 and 34. ITEM 2. PROPERTIES The corporate headquarters of the Company occupies executive offices at 4520 Executive Park Drive, Montgomery, Alabama. The other principal properties of the Company and its subsidiaries are as follows: Cutting chain and accessories manufacturing plants are located in Milwaukie, Oregon; Guelph, Ontario, Canada; and Curitiba, Parana, Brazil and sales and distribution offices are located in Europe and Japan. Lawn mowers and related attachments are manufactured at a plant in Coffeyville, Kansas. Log loaders, feller-bunchers, and accessories for automated forestry equipment are manufactured at plants in Prentice and Spencer, Wisconsin; Zebulon and Union Grove, North Carolina; and Owatonna, Minnesota. Rotation bearings and mechanical power transmission components are manufactured at a plant in Tulsa, Oklahoma. Sporting ammunition, reloading equipment products, gun care equipment, industrial powerloads and shooting sports accessories are manufactured at plants in Lewiston, Idaho; Oroville, California; Onalaska, Wisconsin; and Grand Junction, Colorado. All of these plants are in good condition, are currently in normal operation and are generally suitable and adequate for the business activity conducted therein. Approximate square footage of principal properties is as follows: Area in Square Feet ------------------- Owned Leased ------- ------- Outdoor Products 894,000 204,000 Sporting Equipment 705,000 39,000 Industrial & Power Equipment 726,000 0 Corporate Office 192,000 13,000 --------- ------- Total 2,517,000 256,000 ========= ======= ITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings see Note 8 of Notes to Consolidated Financial Statements on pages 31 and 32. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Page 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table presents for the two years ended the last day of February 1995, the quarterly high and low prices on the American Stock Exchange and cash dividends declared for the Company's Common Stock. The Company had approximately 9,200 shareholders as of April 14, 1995. Class A Common Stock Class B Common Stock -------------------------- ---------------------------- High Low Dividend High Low Dividend - ------------------------------------------------------------------------------ 1995 First quarter $37 7/8 $28 1/8 $ .1250 $36 5/8 $29 $ .1125 Second quarter 41 7/8 35 .1250 41 1/2 36 1/8 .1125 Third quarter 45 3/4 39 3/4 .1250 45 40 3/8 .1125 Fourth quarter 49 1/8 42 5/8 .1425 48 7/8 42 3/4 .1300 1994 First quarter $16 1/2 $12 1/8 $ .1125 $16 5/8 $12 7/8 $ .1000 Second quarter 16 1/2 13 1/8 .1125 16 3/8 12 3/4 .1000 Third quarter 23 3/8 14 1/2 .1125 23 3/4 14 3/8 .1000 Fourth quarter 32 1/2 22 3/4 .1250 32 1/2 23 3/8 .1125 For information regarding restrictions on the Company's ability to pay cash dividends, see Note 3 of Notes to Consolidated Financial Statements on pages 24 through 26. For information regarding restrictions on the net assets of foreign subsidiaries, see Note 11 of Notes to Consolidated Financial Statements on pages 35 and 36. Page 9 ITEM 6. SELECTED FINANCIAL DATA
For the years ended the last day of February 1995 1994 1993 1992 1991 Dollar amounts in thousands, except share data - --------------------------------------------------------------------------------------------------------- Operating Results: Sales $ 588,419 $ 488,045 $ 426,492 $ 382,352 $ 355,012 Operating income from segments 101,887 73,631 43,404 25,372 28,384 Income (loss) from continuing operations before extraordinary gain and cumulative effect of accounting changes 40,090 24,396 11,888 (4,295) 644 Net income(1) 40,090 14,080 7,239 683 2,242 Per share: Income (loss) from continuing operations before extraordinary gain and cumulative effect of accounting changes 3.10 1.92 .97 (.35) .06 Net income(1) 3.10 1.11 .59 .06 .19 - ---------------------------------------------- ----------- ----------- ----------- ----------- ---------- Year-End Financial Position: Total assets $ 517,788 $ 492,901 $ 447,151 $ 466,243 $ 496,319 Working capital 122,105 104,346 58,340 63,671 86,911 Property, plant and equipment-gross 279,808 276,116 270,312 265,067 244,672 Property, plant and equipment-net 134,289 140,422 149,061 154,280 147,274 Long-term debt 99,754 107,651 82,046 105,654 124,052 Total debt 107,545 109,733 88,143 130,846 144,358 Net debt (total debt less cash, cash equivalents and unexpended industrial development revenue bond proceeds) to total capitalization 17.7% 20.8% 29.0% 44.1% 40.7% Shareholders' equity 203,067 166,853 155,071 151,129 155,409 Current ratio 1.7 to 1 1.6 to 1 1.4 to 1 1.4 to 1 1.5 to 1 - ---------------------------------------------- ----------- ----------- ----------- ----------- ---------- Other Data: Property, plant and equipment additions(2) $ 14,822 $ 14,711 $ 20,373 $ 32,983 $ 27,145 Depreciation and amortization 22,945 22,801 23,361 22,251 17,261 Interest expense, net of interest income 8,846 9,551 9,687 14,384 11,099 Stock price Class A high 49 1/8 32 1/2 17 12 7/8 13 3/4 Class A low 28 1/8 12 1/8 7 5 3/4 6 7/8 Stock price Class B high 48 7/8 32 1/2 16 7/8 14 3/4 14 5/8 Class B low 29 12 3/4 7 1/8 5 5/8 7 Per common share dividends Class A .5175 .4625 .45 .45 .45 Class B .4675 .4125 .40 .40 .40 Weighted average common shares outstanding 12,931,020 12,730,733 12,283,592 11,958,557 12,000,207 Employees (approximate) 4,600 4,700 4,800 4,700 4,600 - ---------------------------------------------- ----------- ----------- ----------- ----------- ---------- (1) Includes income of $6,014 ($.50 per share) representing the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 106 and SFAS No. 109 in 1992 and an extraordinary gain of $1,205 ($.10 per share) on repurchase of debt in 1991. (2) Includes property, plant and equipment of acquired companies at date of purchase of $5,020 in 1995, $6,034 in 1992 and $4,675 in 1991 and $11,300 resulting from the adoption of SFAS No. 109 in 1992.
Page 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes. OPERATING RESULTS TOTAL COMPANY FISCAL 1995 COMPARED TO FISCAL 1994 During fiscal 1995, the Company achieved record sales, operating income from segments and income from continuing operations. Each operating segment continued its trend of strong performance with improved sales and operating income in fiscal 1995 as compared to fiscal 1994. Fiscal 1995 operating income from segments of $101.9 million improved 38% from fiscal 1994 operating income from segments of $73.6 million. Sales in fiscal 1995 were $588.4 million compared to $488.0 million in fiscal 1994. Income from continuing operations improved to $40.1 million in fiscal 1995, a 64% increase over fiscal 1994. Net income was $40.1 million in fiscal 1995 compared to net income of $14.1 million in fiscal 1994. Fiscal 1994 net income included a loss of $10.3 million from discontinued operations. Selling, general and administrative expenses were 21% of sales in fiscal 1995 compared to 22% of sales in fiscal 1994. Selling, general and administrative expenses include corporate office expenses of $7.1 million in 1995 and $6.0 million in 1994 for anticipated litigation and settlement costs related to the sale of a former subsidiary. The Company's total backlog at February 28, 1995, was $134.4 million compared to $147.1 million at February 28, 1994. The backlog at February 28, 1994, was inordinately high as production lagged the market demand. FISCAL 1994 COMPARED TO FISCAL 1993 Sales in fiscal 1994 were $488.0 million compared to $426.5 million in fiscal 1993. Income from continuing operations improved to $24.4 million in fiscal 1994, more than twice the $11.9 million in fiscal 1993. The improved sales and operating results reflected continued strong performance by each of the Company's manufacturing segments. Net income of $14.1 million in fiscal 1994 compared to net income of $7.2 million in fiscal 1993. Fiscal 1994 and fiscal 1993 net income included losses of $10.3 million and $4.6 million, respectively, from discontinued operations. Selling, general and administrative expenses increased by $9.9 million in fiscal 1994, principally as a result of accruals for expected legal costs related to the sale of a former subsidiary and management incentive plans resulting from the Company's improved earnings and increased stock price. Net other expense in fiscal 1994 increased by $2.7 million over fiscal 1993 primarily due to losses resulting from disposals and reductions in carrying value of certain property, plant and equipment. In February 1994, the Company adopted a plan to discontinue its construction business (see Note 4 of Notes to Consolidated Financial Statements) through the orderly completion and close-out of the Company's principal domestic and foreign construction projects and the sale of Pozzo Construction Company ("Pozzo"), the Company's wholly owned subsidiary headquartered in Los Angeles, California. The Page 11 Company expects the sale of Pozzo to be concluded during the first quarter of fiscal 1996. In fiscal 1994, an after-tax loss of $650 thousand was provided for disposal of the construction segment. The results of construction operations are classified as discontinued operations in the Company's consolidated statements of income. SEGMENTS FISCAL 1995 COMPARED TO FISCAL 1994 The Company's Outdoor Products segment recorded an excellent performance with record levels of sales and operating income in fiscal 1995. Sales for the Outdoor Products segment were $268.1 million in fiscal 1995 compared to $234.5 million during fiscal 1994. Operating income increased to $49.6 million during fiscal 1995 from $34.0 million in fiscal 1994. The improved results for this segment were primarily due to an increase in sales and operating income of $25.4 million and $12.0 million, respectively, at the Company's Oregon Cutting Systems Division ("Oregon"). This reflects a 7% increase in the sales volume of saw chain and a 12% increase in the sales volume of saw bars, Oregon's two principal products, and higher average selling prices. A significant part of Oregon's operations are conducted in foreign countries, and as a result, fluctuations in exchange rates impact the amount of reported sales, operating margins and the amount of foreign exchange adjustments reflected in income. During fiscal 1995, exchange rates in Canada, Europe and Japan were favorable to Oregon's operating results. Oregon has manufacturing facilities in Brazil whose operations have historically been significantly affected by high inflation, currency devaluation and resulting governmental policies. Official currency exchange rates stabilized in Brazil during the last half of fiscal 1995. Operating income from Brazil was $2.4 million in fiscal 1995 compared to $749 thousand in fiscal 1994. Sales and operating income at other units of the Outdoor Products segment, principally Dixon Industries, Inc., were up by 24% to $42.0 million and 108% to $7.0 million, respectively, in fiscal 1995, principally as a result of higher average selling prices and a 26% increase in the sales volume of riding lawn mowers. The current demand for Oregon's products continues at high levels; therefore, the Company expects another good sales year in fiscal 1996. The Company also expects continued strong sales growth in fiscal 1996 for its riding lawn mower business. The upward trend of results by the Industrial and Power Equipment segment continued during fiscal 1995. Over a three year span, this segment's sales have more than doubled and operating income has improved to a record $33.0 million from an approximate break-even level in fiscal 1992. Sales for the Industrial and Power Equipment segment were $207.6 million in fiscal 1995 compared to $162.0 million during the prior fiscal year. Operating income was up 35% from $24.5 million in fiscal 1994. The fiscal 1995 improvement in sales and operating income resulted principally from an increase in the volume of forestry and industrial loaders sold, improved operations at Gear Products, Inc., increased average selling prices and the contribution from CTR Manufacturing, Inc. acquired on April 28, 1994 (see Note 4 of Notes to Consolidated Financial Statements), partially offset by higher warranty expenses. Additionally, export sales for this segment continued to grow in fiscal 1995, increasing to $26.6 million from $15.2 million for fiscal 1994. The Company's continued emphasis on expanding international opportunities coupled with the expected strong demand for this segment's products by its principal market, the forest products industry, point to another successful year in fiscal 1996. For the second consecutive year, the Sporting Equipment segment experienced strong growth in both sales and operating income, with each increasing to record levels in fiscal 1995. Operating income increased by 27% in fiscal 1995 as compared to fiscal 1994 and has almost doubled since fiscal 1993. For fiscal Page 12 1995, sales were $112.8 million compared to $91.5 million in fiscal 1994. Operating income was $19.3 million in fiscal 1995 compared to $15.2 million during the prior fiscal year. These improved results reflect increases in volume, principally higher sales of ammunition, reloading equipment, primers and percussion caps, partially offset by a charge of approximately $4.3 million for an environmental matter at this segment's Lewiston, Idaho facility (see Note 8 of Notes to Consolidated Financial Statements). In November 1994, the Company expanded this segment's product line through the acquisition of the operating assets of Ram-Line, Inc. (see Note 4 of Notes to Consolidated Financial Statements). The inclusion of this acquisition's operating results for a full fiscal year plus continued demand for the Company's existing products should lead to another good year in fiscal 1996 for the Sporting Equipment segment, however, this segment is currently encountering a softening of the exceptionally strong demand experienced in fiscal 1995. FISCAL 1994 COMPARED TO FISCAL 1993 Sales for the Outdoor Products segment in fiscal 1994 were $234.5 million compared to $213.2 million during fiscal 1993. Operating income increased to $34.0 million during fiscal 1994 from $20.6 million in fiscal 1993. The improved results for this segment were primarily due to increased sales and operating income of $15.3 million and $11.6 million, respectively, at Oregon, reflecting an 11% increase in the sales volume of saw chain, Oregon's principal product, and reduced unit costs. Operating income from operations in Brazil was $749 thousand in fiscal 1994 compared to $384 thousand in fiscal 1993. Sales and operating income at other units of the Outdoor Products segment were up by 20% to $33.8 million and 115% to $3.3 million, respectively, in fiscal 1994, principally as a result of higher average selling prices and a 20% increase in the sales volume of riding lawn mowers. Sales for the Industrial and Power Equipment segment were $162.0 million during fiscal 1994 compared to $128.9 million during fiscal 1993. Operating income increased to $24.5 million during fiscal 1994 from $12.8 million during fiscal 1993. Demand for this segment's products remained high as the aggregate volume of timber harvesting and industrial tractor and loader units sold during fiscal 1994 increased by 20% over the prior fiscal year. The improvement in operating income was principally due to this increase in volume, improved parts sales and increased average selling prices. Sales for the Sporting Equipment segment were $91.5 million during fiscal 1994 compared to $84.4 million in fiscal 1993. Operating income increased to $15.2 million from $10.0 million during fiscal 1993. The increases in sales and operating income were principally due to improved margins on higher volume and income recognized in fiscal 1994 upon finalizing a license and technical assistance agreement with a foreign company. This agreement is expected to lead to future product sales as well as royalties. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company continues to be in a strong financial position. Growth has been funded entirely through cash generated by operations, and recent acquisitions have been made through use of the Company's cash reserves. In fiscal 1994, the Company issued 9% senior subordinated notes ("the 9% notes") due in 2003 in the principal amount of $100 million and retired $73.6 million 12% subordinated notes. In fiscal 1995, approximately $20 million of the 9% notes were repurchased and retired. Since issuing the 9% notes, the Company discontinued the sale of receivables under a receivable sale agreement with a major bank under which the Company can sell up to $25 million of eligible receivables. In fiscal 1995, the Company (i) replaced its $60 million revolving credit agreement with a new $100 million revolving credit agreement; (ii) extended the term of Page 13 the $25 million receivable sale agreement until May 1995 and plans to negotiate a replacement agreement; and (iii) has entered into $11.8 million of industrial development revenue bond arrangements. At February 28, 1995, no amounts were outstanding under the $100 million revolving credit agreement. See Note 3 of Notes to Consolidated Financial Statements for a description of the terms and conditions of the 9% notes, the $100 million revolving credit agreement, the receivable sale agreement and the industrial development revenue bonds. Working capital was $122.1 million at February 28, 1995, compared to $104.3 million at February 28, 1994. The principal reason for this increase was the Company's improved earnings in fiscal 1995. The Company's operating cash flows for fiscal 1995 were $31.6 million compared to $29.2 million in fiscal 1994 and $68.1 million in fiscal 1993. The increased cash flows from operating activities for fiscal 1995 resulted principally from the net income increase of $26.0 million partially offset by cash used for residual construction operations, the settlement of litigation initiated in a prior year and an increase in inventories, primarily due to higher demand. The reduction in operating cash flows in fiscal 1994 as compared to fiscal 1993 was primarily due to the reduced sales of receivables under the receivable sale agreement, higher income tax payments and an increase in inventories in the fourth quarter of fiscal 1994 to meet expected demand early in fiscal 1995. Cash and cash equivalent balances were $42.6 million at February 28, 1995, compared to $52.2 million at February 28, 1994, as the Company's operating cash flows were exceeded by cash expenditures to acquire CTR Manufacturing, Inc. and the operating assets of Ram-Line, Inc., repurchase approximately $20 million of the 9% notes and pay dividends (see Notes 3 and 4 of Notes to Consolidated Financial Statements). The Company believes that its operating cash flows, working capital and unused credit facilities will provide both short-term and long-term liquidity. Additionally, the Company has approximately $10.1 million in unexpended proceeds from industrial development revenue bonds to fund future capital expenditures of certain operations. The Company and its operations are subject to various environmental laws and regulations. See "Business - Environmental Matters" and Note 8 of Notes to Consolidated Financial Statements for a description of certain environmental matters. Management believes that the impact of domestic inflation on the Company has not been material in recent years as inflation rates have remained low. Page 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS We have audited the consolidated financial statements and the financial statement schedules of Blount, Inc. and subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Blount, Inc. and subsidiaries as of the last day of February 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Atlanta, Georgia April 10, 1995 Page 15 MANAGEMENT RESPONSIBILITY All information contained in the consolidated financial statements of Blount, Inc., has been prepared by management, which is responsible for the accuracy and internal consistency of the information. Generally accepted accounting principles have been followed. Reasonable judgments and estimates have been made where necessary. Management is responsible for establishing and maintaining a system of internal accounting controls designed to provide reasonable assurance as to the integrity and reliability of financial reporting. The system of internal accounting controls is tested by the internal audit department as part of its normal responsibilities and by Coopers & Lybrand to the extent deemed necessary in accordance with generally accepted auditing standards. Management believes the system of internal controls has been effective during the Company's most recent fiscal year and that no matters have arisen which indicate a material weakness in the system. Management follows the policy of responding to the recommendations concerning the system of internal controls made both by Coopers & Lybrand and by the internal audit department. Management implements those recommendations that it believes would improve the system of internal controls and be cost justified. Seven directors of the Company, not members of management, serve as the Audit Committee of the Board and are the principal means through which the Board discharges its financial reporting responsibility. The Audit Committee meets with management personnel, the internal auditors and the Company's independent auditors, Coopers & Lybrand, several times each year to consider the results of internal and external audits of the Company and to discuss internal accounting control, auditing and financial reporting matters. At these meetings, the Audit Committee also meets privately with Coopers & Lybrand and the General Auditor of the Company to ensure free access by the independent auditors and internal auditors to the committee. The Company's independent auditors, Coopers & Lybrand, audited the financial statements prepared by the Company. Their opinion on these statements is presented on page 15. JOHN M. PANETTIERE HAROLD E. LAYMAN President and Senior Vice President and Chief Executive Officer Chief Financial Officer Page 16 CONSOLIDATED STATEMENTS OF INCOME Blount, Inc. and Subsidiaries
For the years ended the last day of February 1995 1994 1993 - --------------------------------------------------------------------------------------------------- In thousands, except share data Sales $ 588,419 $ 488,045 $ 426,492 Cost of sales 390,818 330,059 299,399 - ------------------------------------------------------------- ------------ ------------ ----------- Gross profit 197,601 157,986 127,093 Selling, general and administrative expenses 120,681 107,401 97,544 - ------------------------------------------------------------- ------------ ------------ ----------- Income from operations 76,920 50,585 29,549 Interest expense (11,186) (11,052) (10,358) Interest income 2,340 1,501 671 Other expense, net (2,179) (4,619) (1,922) - ------------------------------------------------------------- ------------ ------------ ----------- Income before income taxes 65,895 36,415 17,940 Provision for income taxes 25,805 12,019 6,052 - ------------------------------------------------------------- ------------ ------------ ----------- Income from continuing operations 40,090 24,396 11,888 - ------------------------------------------------------------- ------------ ------------ ----------- Discontinued operations: Loss from operations, net (9,666) (4,649) Loss on disposal, net (650) - ------------------------------------------------------------- ------------ ------------ ----------- Total loss from discontinued operations (10,316) (4,649) - ------------------------------------------------------------- ------------ ------------ ----------- Net income $ 40,090 $ 14,080 $ 7,239 - ------------------------------------------------------------- ------------ ------------ ----------- Income (loss) per share of common stock: Income from continuing operations $ 3.10 $ 1.92 $ .97 Discontinued operations (.81) (.38) - ------------------------------------------------------------- ------------ ------------ ----------- Net income $ 3.10 $ 1.11 $ .59 - ------------------------------------------------------------- ------------ ------------ ----------- Weighted average number of common shares outstanding 12,931,020 12,730,733 12,283,592 - ------------------------------------------------------------- ------------ ------------ ----------- The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Blount, Inc. and Subsidiaries
For the years ended the last day of February 1995 1994 1993 - --------------------------------------------------------------------------------------------------- In thousands, except share data Balance at beginning of period $ 137,440 $ 128,833 $ 126,813 Net income 40,090 14,080 7,239 - ------------------------------------------------------------- ------------ ------------ ----------- 177,530 142,913 134,052 Less cash dividends declared: Class A Common stock - $.5175 per share in 1995, $.4625 per share in 1994 and $.45 per share in 1993 4,356 3,695 3,470 Class B Common stock - $.4675 per share in 1995, $.4125 per share in 1994 and $.40 per share in 1993 1,914 1,778 1,749 - ------------------------------------------------------------- ------------ ------------ ----------- Balance at end of period $ 171,260 $ 137,440 $ 128,833 - ------------------------------------------------------------- ------------ ------------ ----------- The accompanying notes are an integral part of these statements.
Page 17 CONSOLIDATED BALANCE SHEETS Blount, Inc. and Subsidiaries
As of the last day of February 1995 1994 - --------------------------------------------------------------------------------------------------- In thousands, except share data Assets - --------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents, including short-term investments of $39,458 and $48,810 $ 42,576 $ 52,213 Accounts receivable, net of allowances for doubtful accounts of $2,611 and $2,238 130,665 134,458 Inventories 77,075 60,180 Deferred income taxes 25,068 17,742 Other current assets 16,153 12,812 - -------------------------------------------------------------------------- ------------ ----------- Total current assets 291,537 277,405 Property, plant and equipment, net of accumulated depreciation of $145,519 and $135,694 134,289 140,422 Cost in excess of net assets of acquired businesses, net 68,762 60,171 Other assets 23,200 14,903 - -------------------------------------------------------------------------- ------------ ----------- Total Assets $ 517,788 $ 492,901 - -------------------------------------------------------------------------- ------------ ----------- Liabilities and Shareholders' Equity - -------------------------------------------------------------------------- ------------ ----------- Current liabilities: Notes payable and current maturities of long-term debt $ 7,791 $ 2,082 Accounts payable 64,793 74,267 Accrued expenses 92,190 83,757 Billings in excess of costs and recognized profits on uncompleted contracts 4,658 12,953 - -------------------------------------------------------------------------- ------------ ----------- Total current liabilities 169,432 173,059 Long-term debt, exclusive of current maturities 99,754 107,651 Deferred income taxes, exclusive of current portion 19,214 13,499 Other liabilities 26,321 31,839 - -------------------------------------------------------------------------- ------------ ----------- Total liabilities 314,721 326,048 - -------------------------------------------------------------------------- ------------ ----------- Commitments and Contingent Liabilities - -------------------------------------------------------------------------- ------------ ----------- Shareholders' equity: Common stock: par value $1.00 per share (see Note 5 for voting rights by class); Class A: 8,562,786 and 8,273,035 shares issued 8,563 8,273 Class B, convertible: 4,030,424 and 4,178,197 shares issued 4,030 4,178 Capital in excess of par value of stock 10,964 9,515 Retained earnings 171,260 137,440 Accumulated translation adjustment 8,250 7,447 - -------------------------------------------------------------------------- ------------ ----------- Total shareholders' equity 203,067 166,853 - -------------------------------------------------------------------------- ------------ ----------- Total Liabilities and Shareholders' Equity $ 517,788 $ 492,901 - -------------------------------------------------------------------------- ------------ ----------- The accompanying notes are an integral part of these statements.
Page 18 CONSOLIDATED STATEMENTS OF CASH FLOWS Blount, Inc. and Subsidiaries
For the years ended the last day of February 1995 1994 1993 - --------------------------------------------------------------------------------------------------- In thousands Cash flows from operating activities: Net income $ 40,090 $ 14,080 $ 7,239 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other noncash charges 23,539 23,435 24,537 Deferred income taxes (1,251) (15,031) (8,558) Loss on disposals of property, plant and equipment 441 3,349 1,482 Changes in assets and liabilities, net of effects of acquisitions of businesses: Increase (decrease) in aggregate balance of accounts receivable sold (17,637) 3,637 Decrease in accounts receivable 5,517 1,135 2,684 (Increase) decrease in inventories (12,991) (4,280) 9,569 (Increase) decrease in other assets (2,599) 12,337 140 Increase (decrease) in accounts payable (9,906) 7,975 2,929 Increase in accrued expenses 1,829 12,750 8,074 Increase (decrease) in other liabilities (13,100) (8,946) 16,402 - ------------------------------------------------------------- ------------ ------------ ----------- Net cash provided by operating activities 31,569 29,167 68,135 - ------------------------------------------------------------- ------------ ------------ ----------- Cash flows from investing activities: Proceeds from sales of businesses and property, plant and equipment 2,930 3,916 11,129 Purchases of property, plant and equipment (9,769) (14,605) (17,965) Acquisitions of businesses (10,150) - ------------------------------------------------------------- ------------ ------------ ----------- Net cash used in investing activities (16,989) (10,689) (6,836) - ------------------------------------------------------------- ------------ ------------ ----------- Cash flows from financing activities: Net reduction in short-term borrowings (478) (2,246) (15,903) Issuance of long-term debt 11,800 97,327 Reduction of long-term debt (20,508) (75,325) (29,615) Increase in restricted funds (10,095) Dividends paid (6,270) (5,473) (5,219) Issuance of stock under stock option and dividend reinvestment plans 1,334 1,729 529 - ------------------------------------------------------------- ------------ ------------ ----------- Net cash provided by (used in) financing activities (24,217) 16,012 (50,208) - ------------------------------------------------------------- ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents (9,637) 34,490 11,091 - ------------------------------------------------------------- ------------ ------------ ----------- Cash and cash equivalents at beginning of period 52,213 17,723 6,632 - ------------------------------------------------------------- ------------ ------------ ----------- Cash and cash equivalents at end of period $ 42,576 $ 52,213 $ 17,723 - ------------------------------------------------------------- ------------ ------------ ----------- The accompanying notes are an integral part of these statements.
Page 19 CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL STOCK ACCOUNTS Blount, Inc. and Subsidiaries
Common Stock Capital Accumulated ----------------- In Excess Translation Treasury In thousands Class A Class B of Par Adjustment Stock - --------------------------------------------------------------------------------------------------- Balance, February 29, 1992 $ 7,651 $ 4,376 $ 5,072 $ 7,642 $ (425) Conversion of Class B Common Stock into Class A Common Stock 35 (35) Exercise of employee stock options 51 5 416 Issuance of shares under dividend reinvestment plan 6 51 Aggregate adjustment resulting from translation of foreign currency statements (407) Issuance of shares to employee benefit plan 141 1,234 425 - --------------------------------------------- -------- ----------- ------------- ----------- ------ Balance, February 28, 1993 7,884 4,346 6,773 7,235 0 Conversion of Class B Common Stock into Class A Common Stock 168 (168) Exercise of employee stock options 142 1,511 Issuance of shares under dividend reinvestment plan 5 71 Aggregate adjustment resulting from translation of foreign currency statements 212 Issuance of shares to employee benefit plan 74 1,160 - --------------------------------------------- -------- ----------- ------------- ----------- ------ Balance, February 28, 1994 8,273 4,178 9,515 7,447 0 Conversion of Class B Common Stock into Class A Common Stock 148 (148) Exercise of employee stock options 133 1,110 Issuance of shares under dividend reinvestment plan 3 88 Aggregate adjustment resulting from translation of foreign currency statements 803 Issuance of shares to employee benefit plan 6 251 - --------------------------------------------- -------- ----------- ------------- ----------- ------ Balance, February 28, 1995 $ 8,563 $ 4,030 $10,964 $ 8,250 $ 0 - --------------------------------------------- -------- ----------- ------------- ----------- ------ The accompanying notes are an integral part of these statements.
Page 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Blount, Inc. and Subsidiaries NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of Blount, Inc. and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. Reclassifications: Certain amounts in the 1994 and 1993 financial statements and notes to consolidated financial statements have been reclassified to conform with the 1995 presentation. Cash and cash equivalents: The Company considers all highly liquid temporary cash investments that are readily convertible to known amounts of cash and present minimal risk of changes in value because of changes in interest rates to be cash equivalents. Checks in transit are classified as accounts payable to the extent the aggregate of such checks exceeds available cash balances not temporarily invested. Checks classified as accounts payable were $6.2 million and $5.5 million as of the last day of February 1995 and 1994. All other checks in transit are recorded as reductions of cash. Inventories: Inventories are stated at the lower of first-in, first-out cost or market. Property, plant and equipment: These assets are stated at cost and are depreciated principally on the straight- line method over the estimated useful lives of the individual assets. Gains or losses on disposal are reflected in income. Property, plant and equipment held under leases which are essentially installment purchases are capitalized, with the related obligations stated at the principal portion of future lease payments. Depreciation charged to costs and expenses was $19.8 million, $19.9 million and $20.5 million in 1995, 1994 and 1993. Interest cost incurred during the period of construction of plant and equipment is capitalized. The interest cost capitalized on plant and equipment was minimal in 1995 and 1994 and $620 thousand in 1993. Cost in excess of net assets of acquired businesses: The excess cost is being amortized by the straight-line method over periods ranging from 30 to 40 years. Accumulated amortization was $17.4 million and $15.3 million as of the last day of February 1995 and 1994. The excess cost is evaluated for impairment based on the historic and estimated future profitability of the business units to which it relates. Adjustments to carrying value are made if required. Insurance accruals: It is the Company's policy to retain a portion of expected losses related to workers' compensation and general, product and vehicle liability through large deductibles under its insurance programs. Provisions for losses expected under these programs are recorded based on estimates of the undiscounted aggregate liabilities for claims incurred. Page 21 Foreign currency: For foreign subsidiaries which have a majority of transactions denominated in U.S. dollars or conduct operations in a highly inflationary economy, monetary assets and liabilities are translated into U.S. dollars at the current exchange rate, while other assets (principally property, plant and equipment and inventories) and related costs and expenses are generally translated at historic exchange rates. Revenues and other costs and expenses are translated at the average exchange rate for the period and the resulting foreign exchange adjustments are recognized in income. Assets and liabilities of the remaining foreign operations are translated into U.S. dollars at the current exchange rate and their statements of income are translated at the average exchange rate for the period. Gains and losses resulting from translation of the financial statements of these operations are accumulated in a separate component of shareholders' equity. The amount of income taxes allocated to this translation adjustment is not significant. Foreign exchange forward contracts are recorded in the Company's balance sheet at fair value as other current assets or accrued expenses. Changes in fair values are recognized as other expense or income in the period in which the changes occur (see Note 9 of Notes to Consolidated Financial Statements). Foreign exchange adjustments, including gains or losses on foreign exchange forward contracts, reduced pretax income by $662 thousand, $484 thousand and $340 thousand in 1995, 1994 and 1993. Revenue recognition: The Company's policy is to record sales as orders are shipped. Research and development: Expenditures for research and development are expensed as incurred. These costs were $7.7 million, $7.0 million and $6.9 million for 1995, 1994 and 1993. Net income per common share: Net income per common share is based on the weighted average number of common and common equivalent shares (stock options and performance shares) outstanding in each period. Page 22 NOTE 2: INCOME TAXES The provision for income taxes attributable to continuing operations is as follows: For the years ended the last day of February 1995 1994 1993 - ----------------------------------------------------------------------------- In thousands Current provision: Federal $ 18,739 $ 17,657 $ 3,385 State 3,518 400 114 Foreign 5,159 8,993 9,851 Deferred provision (benefit): Federal (1,048) (13,234) (6,314) State (1,000) Foreign (563) (1,797) 16 - ----------------------------------------------------------------------------- $ 25,805 $ 12,019 $ 6,052 - ----------------------------------------------------------------------------- A reconciliation of the provision for income taxes attributable to continuing operations to the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes is as follows: For the years ended the last day of February 1995 1994 1993 - ----------------------------------------------------------------------------- In thousands Income before income taxes: Domestic $ 55,973 $ 16,518 $ 673 Foreign 9,922 19,897 17,267 - ----------------------------------------------------------------------------- $ 65,895 $ 36,415 $ 17,940 - ----------------------------------------------------------------------------- % % % Statutory tax rate 35.0 35.0 34.0 Impact of earnings of foreign operations (1.0) (.1) 10.7 State income taxes, net of federal tax benefit 3.5 1.1 (4.9) Adjustments to prior year estimates (4.3) (5.5) Permanent differences between book bases and tax bases 1.7 1.3 (1.8) Other items, net 1.2 - ----------------------------------------------------------------------------- Effective income tax rate 39.2 33.0 33.7 - ----------------------------------------------------------------------------- All years reflect the allocation of substantially all corporate office expenses and interest expense to domestic operations. Page 23 As of the last day of February 1995 and 1994, deferred income tax assets were $37.7 million and $30.8 million and deferred income tax liabilities were $31.8 million and $26.5 million. Deferred income taxes applicable to principal temporary differences are as follows: For the years ended the last day of February 1995 1994 - ----------------------------------------------------------------------------- In thousands Property, plant and equipment basis differences $ 18,584 $ 20,611 Employee benefits (11,999) (14,288) Other accrued expenses (19,716) (15,832) Other - net 7,277 5,266 - ----------------------------------------------------------------------------- $ (5,854) $ (4,243) - ----------------------------------------------------------------------------- Deferred income taxes of approximately $1.9 million have not been provided on undistributed earnings of foreign subsidiaries in the amount of $23.1 million as the earnings are considered to be permanently reinvested. The Company has settled its issues with the Internal Revenue Service through the 1990 fiscal year with no material adverse effect on the Company. The years 1991 through 1995 are still open for review. NOTE 3: DEBT AND FINANCING AGREEMENTS Long-term debt consists of the following: As of the last day of February 1995 1994 - ----------------------------------------------------------------------------- In thousands 9% subordinated notes $ 80,050 $ 100,000 Industrial Development Revenue Bonds payable, maturing between 1996 and 2014, interest at varying rates (approximately 4.3% at February 28, 1995) 16,741 5,288 Other long-term debt, interest from 8% to 10%, payable in installments to 1997 8,953 1,582 Lease purchase obligations, interest at varying rates, payable in installments to 2000 1,143 1,727 - ----------------------------------------------------------------------------- 106,887 108,597 Less current maturities (7,133) (946) - ----------------------------------------------------------------------------- $ 99,754 $ 107,651 - ----------------------------------------------------------------------------- Page 24 Maturities of long-term debt and the principal and interest payments on capital leases are as follows: Fiscal Year Capital Leases --------------------- Total In thousands Debt Principal Interest Payments - ----------------------------------------------------------------------------- 1996 $ 7,133 $ 332 $ 88 $ 7,553 1997 3,194 347 65 3,606 1998 781 433 20 1,234 1999 372 24 2 398 2000 345 7 352 2001 and beyond 95,062 95,062 - ----------------------------------------------------------------------------- $ 106,887 $ 1,143 $ 175 $ 108,205 - ----------------------------------------------------------------------------- In December 1994, the Company replaced its three-year $60 million revolving credit agreement expiring in December 1995 with a new five-year $100 million revolving credit agreement expiring December 1999 with a group of five banks. At February 28, 1995, no amounts were outstanding under the $100 million agreement. The $100 million agreement provides for interest rates to be determined at the time of borrowings based on a choice of formulas as specified in the agreement. The interest rates may vary based on cash flow and leverage ratios or, at the Company's irrevocable option, the debt rating for senior unsecured long-term debt of the Company. In addition, a commitment fee which varies to a maximum of 1/2% is charged on the total commitment. The new agreement contains covenants relating to liens, subsidiary debt, transactions with affiliates, acquisitions, consolidations, mergers and sales of assets, and requires the Company to maintain certain specified debt-to-equity and fixed charge coverage ratios. During fiscal 1995, the Company entered into four industrial development revenue bond arrangements to finance future capital expenditures. The related variable rate bonds of $11.8 million issued by the governmental units are due in fiscal 2005 and are recorded as long-term debt. The proceeds from the bonds are held in trust and released as qualified capital expenditures are made. At February 28, 1995, $10.1 million was held in trust and is included in "Other assets" in the Company's consolidated balance sheet. In July 1993, the Company issued 9% senior subordinated notes ("the 9% notes") in the principal amount of $100 million maturing on June 15, 2003. During fiscal 1995, the Company repurchased approximately $20 million of its 9% subordinated notes with no material gain or loss. The 9% notes are redeemable at the election of the Company, in whole or in part, at any time on or after June 15, 1998, initially at 103 3/8% of the principal amount and thereafter at prices declining to par on June 15, 2001. The 9% notes were issued under an indenture ("the indenture") between the Company and a major bank as trustee. The indenture restricts the Company's ability to incur additional debt, pay dividends, make certain investments, dispose of assets, create liens on assets and merge or consolidate with another entity. The majority of the net proceeds from the 9% notes was used to retire the Company's 12% subordinated notes in the principal amount of $73.6 million with no material gain or loss. During fiscal 1993, the Company repurchased $4.6 million of the 12% subordinated notes with no material gain or loss. Page 25 In November 1991, the Company entered into an agreement with a major bank under which it has the right to sell, on a limited recourse basis, up to $25 million of undivided interests in a pool of eligible accounts receivable. The purchaser's level of investment is subject to change based on the level of eligible receivables. This agreement expired in December 1994 and was extended until May 1995. The Company plans to negotiate a replacement agreement. During fiscal 1994, the Company discontinued the sale of receivables under this agreement and, since that time, there have been no sales of receivables under this agreement. Other expense, net includes expenses of approximately $170 thousand, $405 thousand and $878 thousand in 1995, 1994 and 1993 related to this agreement. Under the most restrictive debt requirement, retained earnings of approximately $40.0 million were available for the payment of dividends at February 28, 1995. At February 28, 1995 and 1994, the Company had borrowings of $658 thousand and $1.1 million outstanding under uncommitted short-term foreign lines of credit with a weighted average interest rate of 10.3% and 5.1%, respectively. NOTE 4: ACQUISITIONS AND DISPOSALS In April 1994, the Company acquired all the outstanding capital stock of CTR Manufacturing, Inc. ("CTR"). CTR manufactures automated forestry harvesting equipment. In November 1994, the Company acquired the operating assets of Ram- Line, Inc. ("Ram-Line"), a manufacturer of stocks, magazines, lens caps and other products for the shooting sports market. The purchase price paid for the two businesses was approximately $18.2 million, including notes issued of $7.2 million. Both transactions have been accounted for by the purchase method and, accordingly, the net assets and results of operations of the acquired businesses have been included in the Company's consolidated financial statements since the dates of acquisition. The excess of the purchase price over the fair value of the net assets acquired is being amortized on a straight-line basis over 40 years. The Company's consolidated results of operations for 1995 and 1994 would not have been materially different from reported amounts if the acquisitions had occurred at the beginning of either year. The combined sales and pretax income of CTR and Ram-Line for their most recent fiscal years prior to acquisition were approximately $17.1 million and $1.6 million, respectively. In February 1994, the Company adopted a plan to discontinue its construction business through the orderly completion and close-out of the Company's principal domestic and foreign construction projects ("the projects") and the sale of Pozzo Construction Co. ("Pozzo"), the Company's wholly owned subsidiary headquartered in Los Angeles, California. In March 1994, the Company entered into an agreement with Caddell Construction Co., Inc. ("Caddell") under which Caddell provides the consulting and construction management services necessary to complete the projects and acquired the Company's right to use the name "Blount" in the construction business for a period of years. As of February 28, 1995, the remaining projects encompassed by the agreement with Caddell have a remaining contract value of approximately $23.7 million and are expected to be completed within one year. Although Caddell actively manages the projects, the Company remains subject to the inherent risks associated with a general construction contractor. The Company generally participates in future profits of the projects and remains responsible for substantially all losses, if any, in excess of agreed upon estimates of final project profit or loss. The Company has entered into a letter of intent for the sale of Pozzo and expects the sale to be concluded during the first quarter of fiscal 1996. Page 26 In fiscal 1994, a provision for loss of $650 thousand (after tax benefits of $350 thousand) was recorded for disposal of the construction segment, which is reflected as discontinued operations in the accompanying consolidated statements of income. Results of the discontinued operations are summarized as follows (in thousands): For the years ended the last day of February 1995 1994 1993 - ------------------------------------------------------------------------------ Revenues $ 125,208 $ 210,090 $ 265,177 Cost of revenues 117,898 216,935 261,066 - ------------------------------------------------------------------------------ Gross profit (loss) 7,310 (6,845) 4,111 Selling, general and administrative expenses (4,070) (8,093) (11,454) Other income - net 320 67 299 - ------------------------------------------------------------------------------ Income (loss) before income taxes 3,560 (14,871) (7,044) Provision (benefit) for income taxes 1,246 (5,205) (2,395) - ------------------------------------------------------------------------------- Net income (loss) $ 2,314 $ (9,666) $ (4,649) - ------------------------------------------------------------------------------ As the provision for loss on disposal of the construction segment recorded in fiscal 1994 includes estimates of that segment's operating results until its final termination, the above 1995 net income of $2.3 million has no impact on the Company's fiscal 1995 statement of income. The 1994 loss before taxes of $14.9 million is net of income of approximately $7.3 million from a less than majority-owned foreign joint venture. Distributions to the Company from this joint venture were approximately $21.2 million during fiscal 1994. In early fiscal 1996, the final distribution of $4.9 million was received from this joint venture. The principal assets and liabilities of the discontinued operations included in the Company's consolidated balance sheets are as follows (in thousands): As of the last day of February 1995 1994 - ----------------------------------------------------------------------------- Accounts receivable $ 45,706 $ 59,265 Other current assets 11,911 7,922 Other assets 5,203 6,013 Accounts payable (24,588) (38,503) Accrued expenses (12,578) (11,106) Other current liabilities (4,659) (13,015) Other liabilities (2,849) (7,312) NOTE 5: CAPITAL STRUCTURE The Company has authorized 40 million shares of Class A Common Stock, 12 million shares of Class B Common Stock and 4,456,855 shares of Preference Stock. The Class A Common Stock is entitled to elect 25% of the Company's Board of Directors, is entitled to one-tenth of one vote per share on all other matters and will receive an additional dividend of $.0125 in any quarter that a cash dividend is declared on the Class B Common Stock. The Class B Common Stock is entitled to elect 75% of the Company's Board of Directors and is entitled to one vote per share on all other matters. Each share of Class B Common Stock is convertible at any time at the option of the shareholder into one share of Class A Common Stock. Page 27 The Company has granted options to purchase its Class A Common Stock to certain officers and key employees under a non-qualified plan approved in 1994 and a qualified Incentive Stock Option Plan ("ISOP") approved in 1992. The non- qualified plan terminates in January 2004 and provides for granting of options for up to 400,000 shares with an option price not less than fair market value at the time of grant. The ISOP terminates in January 2002 and provides for the granting of options for up to 750,000 shares with an option price not less than fair market value at the time of grant. The options granted are exercisable for a period of up to ten years under both plans. As of the last day of February 1995 and 1994, there were options for 1,667 shares and 41,667 shares available for grant under the non-qualified plan and 23,600 shares and 38,700 shares available for grant under the ISOP. At February 28, 1995, options for 207,303 shares were exercisable. Changes with respect to options for each of the last three years are as follows (in thousands, except per share prices):
1995 1994 1993 ---------------------- ---------------------- ---------------------- Average Total Average Total Average Total Per Option Per Option Per Option Shares Share Price Shares Share Price Shares Share Price ---------------------- ---------------------- ---------------------- Outstanding, beginning of period 948 $16.68 $15,812 729 $ 8.46 $ 6,160 649 $ 8.23 $ 5,346 Options granted 149 45.26 6,740 393 28.46 11,193 188 9.37 1,761 Options exercised (132) 8.43 (1,115) (142) 9.14 (1,294) (54) 8.56 (469) Options cancelled (94) 7.63 (716) (32) 7.67 (247) (54) 8.84 (478) ------ ------- ------- ------ ------- ------- ------ ------- ------- Outstanding, end of period 871 $23.79 $20,721 948 $16.68 $15,812 729 $ 8.46 $ 6,160 ------ ------- ------- ------ ------- ------- ------ ------- -------
NOTE 6: PENSION PLANS The Company maintains funded, non-contributory, trusteed, defined benefit pension plans covering the majority of the domestic employees of the Company and certain subsidiaries. In addition, the Company sponsors certain supplemental defined benefit plans and employees of certain foreign operations participate in local plans. The formulas of defined benefit plans generally base pension benefits paid to retired employees upon their length of service and a percentage of average compensation during the years of employment. The plans' assets are invested principally in equity funds, bond funds, and temporary cash investments. The actuarial method used for financial reporting purposes is the projected unit credit method. The components of pension expense for Company-sponsored defined benefit plans for each of the last three years were (in thousands): 1995 1994 1993 - ---------------------------------------------------------------------------- Service cost-benefits earned $ 3,830 $ 3,814 $ 3,743 Interest cost 5,086 4,649 4,211 Actual return on plan assets (691) (2,462) (2,404) Net amortization and deferral (2,418) 345 817 - ---------------------------------------------------------------------------- $ 5,807 $ 6,346 $ 6,367 - ---------------------------------------------------------------------------- Page 28 The Company's general funding policy for qualified plans is to fund amounts deductible for income tax purposes. Supplemental non-qualified plans are not funded and benefit payments are made as they become due. The funded status of qualified and non-qualified defined benefit plans as of the last day of February 1995 and 1994 was as follows (in thousands):
1995 1994 --------------------------- --------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets - ---------------------------------------------------------------------------------------------------- Actuarial present value of projected benefit obligation: Vested $ 41,824 $ 3,014 $ 41,465 $ 3,501 Nonvested 1,737 138 2,061 41 - ------------------------------------------------- ------------ -------------- ------------ --------- Accumulated benefit obligation 43,561 3,152 43,526 3,542 Effect of projected compensation increases 19,987 762 18,698 618 - ------------------------------------------------- ------------ -------------- ------------ --------- Projected benefit obligation 63,548 3,914 62,224 4,160 Plan assets at fair value 57,499 85 49,424 85 - ------------------------------------------------- ------------ -------------- ------------ --------- Projected benefit obligation greater (less) than plan assets 6,049 3,829 12,800 4,075 Unrecognized transition asset (obligation) 838 (575) 1,065 (655) Unrecognized prior service liability (3,335) (376) (4,596) (573) Unrecognized net gain (loss) (6,568) 399 (6,005) 200 - ------------------------------------------------- ------------ -------------- ------------ --------- Net accrued (prepaid) pension cost $ (3,016) $ 3,277 $ 3,264 $ 3,047 - ------------------------------------------------- ------------ -------------- ------------ ---------
The weighted average rate assumptions used in 1995, 1994 and 1993 to determine pension expense and related pension obligations for domestic and foreign defined benefit plans were as follows: 1995 1994 1993 - ----------------------------------------------------------------------------- Discount rate 8.5% 7.6% 8.6% Rate of increase in compensation levels 4.3% 4.4% 5.3% Expected long-term rate of return on plan assets 8.7% 8.6% 9.0% - ----------------------------------------------------------------------------- The Company's share of unfunded liability, if any, related to multi-employer pension plans is not determinable. The Company provides a defined contribution 401(k) plan to the majority of domestic employees and matches a portion of employee contributions. The expense was $2.1 million, $1.9 million and $1.8 million in 1995, 1994 and 1993. NOTE 7: POSTRETIREMENT INSURANCE BENEFITS The Company sponsors plans which provide postretirement health care and life insurance benefits ("postretirement benefits") to eligible domestic retirees. The Company has funded the estimated liability for retirees of certain operations sold in a prior year. Other postretirement benefit plans are not funded and benefit payments are made as they become due. Page 29 Net periodic postretirement benefit expense for 1995, 1994 and 1993 consisted of the following components (in thousands): 1995 1994 1993 - ---------------------------------------------------------------------------- Service cost-benefits earned $ 299 $ 284 $ 275 Interest cost 1,223 1,406 1,200 Actual return on plan assets (33) (125) (215) Net amortization and deferral (49) 47 (31) - ---------------------------------------------------------------------------- $ 1,440 $ 1,612 $ 1,229 - ---------------------------------------------------------------------------- The accumulated postretirement benefit obligation for the funded plan was $2.5 million and $2.4 million as of the last day of February 1995 and 1994. A reconciliation of the accumulated postretirement benefit obligation to the accrued liability included in the Company's balance sheets as of the last day of February 1995 and 1994 follows (in thousands): 1995 1994 - ---------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 11,234 $ 10,640 Fully eligible active plan participants 1,788 2,740 Other active plan participants 2,369 3,641 - ---------------------------------------------------------------------------- 15,391 17,021 Plan assets at fair value 2,171 2,650 - ---------------------------------------------------------------------------- Postretirement benefits in excess of assets 13,220 14,371 Unrecognized net gain (loss) (1,263) (3,086) - ---------------------------------------------------------------------------- Accrued postretirement benefit cost $ 11,957 $ 11,285 - ---------------------------------------------------------------------------- The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8 1/2% in 1995 and 1993 and 7 1/2% in 1994. The expected long-term rate of return on plan assets was 8 3/4% in 1995 and 1994 and 9 1/4% in 1993. An 11% annual rate of increase in the cost of health care benefits was assumed for 1995; the rate was assumed to decrease 1% per year until 5% is reached and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rate by 1% in each year would increase the accumulated postretirement benefit obligation as of February 28, 1995, by 9.3% and the aggregate of the service and interest cost components of net periodic expense for 1995 by 10.7%. Page 30 NOTE 8: COMMITMENTS AND CONTINGENT LIABILITIES The Company leases office space and equipment under operating leases expiring in one to seven years. Most leases include renewal options and some contain purchase options and escalation clauses. Future minimum rental commitments required under operating leases having initial or remaining noncancelable lease terms in excess of one year as of February 28, 1995, are as follows (in thousands): 1996--$4,692; 1997--$3,342; 1998--$1,626; 1999--$1,161; 2000--$554 and 2001 and beyond--$861. Rentals charged to costs and expenses under cancelable and noncancelable lease arrangements were $5.2 million, $5.7 million and $5.1 million for 1995, 1994 and 1993. The United States Environmental Protection Agency ("EPA") has designated a predecessor of the Company as a potentially responsible party ("PRP") with respect to the Onalaska Municipal Landfill in Onalaska, Wisconsin (the "Site"). The waste complained of was placed in the landfill prior to 1981 by a corporation, some of whose assets were purchased in 1981 by a predecessor of the Company. It is the view of the Company that because its predecessor corporation purchased assets rather than stock, the Company does not have successor liability and is not properly a PRP. However, the EPA has indicated it does not accept this position. The Company believes the EPA is wrong on the successor liability issue. However, with other PRP's, the Company made a good faith offer to the EPA to pay a portion of the clean-up costs. The offer was rejected and the EPA is proceeding with the clean-up. The estimated past and future clean-up costs are approximately $12 million. In 1989 the EPA named four PRP's. One of the PRP's, the Town of Onalaska (the "Town") and the EPA and State of Wisconsin negotiated a consent decree under which the Town would have been released from future liability in return for paying $110 thousand, granting access to the Site and adjacent properties and performing some future maintenance work. The United States District Court for the District of Wisconsin found, on December 21, 1994, that the settlement was not fair, reasonable or in the public interest, and refused to approve and confirm it as the order of the Court. The Company denies that it is a PRP and is unable to determine any other party's share of total remediation costs. The Company does not know the financial status of the other PRP's and other parties that, while not named by the EPA as PRP's, may have liability with respect to the Site. The Company does not expect the situation to have a material adverse effect on the Company's financial condition or operating results. The Company is closing a Resource Conservation and Recovery Act ("RCRA") Part B Storage Permit at its Sporting Equipment Division's CCI operations facility in Lewiston, Idaho. As part of the process, the Company is required by the State of Idaho to undertake RCRA corrective action at the facility. This will require the Company to investigate all areas at the facility where solid waste and hazardous waste have historically been managed. The facility has been operating since the 1950s. There are several areas where investigation and sampling are required. In order to effect the investigation, the Company and the State of Idaho entered into an Administrative Consent Order which governs the completion of the corrective action activities. As a result of initial testing, some contamination of the uppermost groundwater beneath the facility has been encountered. This uppermost groundwater is not the drinking water supply source and does not appear to be connected to the drinking water aquifer. Further investigation is ongoing. It is expected that the range of remediation costs is from $2.8 million to $6.2 million. The Company does not expect the situation to have a material adverse effect on its financial condition or operating results beyond amounts accrued. The Company is a defendant in a number of product liability lawsuits, some of which seek significant or unspecified damages, involving serious personal Page 31 injuries for which there are large deductible amounts under the Company's insurance programs. In addition, the Company is a party to a number of other suits arising out of the conduct of its business. While there can be no assurance as to their ultimate outcome, the Company does not believe these lawsuits will have a material adverse effect on its financial condition or operating results. The Company's contingencies include normal liabilities for performance and completion of its remaining construction contracts. At February 28, 1995, the Company had outstanding bank letters of credit in the approximate amount of $20.2 million issued principally in connection with various foreign construction contracts for which the Company is contingently liable to the issuing banks in the event payment is demanded by the holder. NOTE 9: FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION At February 28, 1995, approximately 66% of the Company's accounts receivable arose from manufacturing operations with the remainder resulting principally from the Company's discontinued construction operations. The Company has manufacturing or distribution operations in Brazil, Canada, Europe, Japan and the United States. The Company sells to customers in these locations, primarily in the United States, and other countries throughout the world. Accounts receivable from manufacturing customers are principally from service and dealer groups, distributors and chainsaw manufacturers, and are generally not collateralized. The Company's remaining construction receivables are primarily from customers within the United States and Kuwait. At February 28, 1995, approximately 58% of accounts receivable from construction activities was from governmental entities with the balance principally from customers in private industry. Construction related accounts receivable are generally larger and from a smaller base of customers than those from manufacturing operations. From February 1994 until March 1995, the Company entered into foreign exchange forward contracts to reduce the effect of exchange rate fluctuations on anticipated future foreign currency cash flows. As these contracts did not qualify for hedge accounting treatment, gains or losses on the contracts were recorded in income as exchange rates fluctuated. In March 1995, the Company entered into contracts which offset its exposure under all outstanding foreign exchange forward contracts. At February 28, 1995 and 1994, foreign exchange forward contracts of $51.0 million and $23.4 million were outstanding. The estimated fair values of certain of the Company's financial instruments are as follows (in thousands):
As of the last day of February 1995 1994 - ------------------------------------------------------------------------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- Cash and short-term investments $ 42,576 $ 42,576 $ 52,213 $ 52,213 Other current assets (foreign exchange forward contracts) 119 119 5 5 Other assets (principally notes receivable) 1,675 1,675 3,012 3,301 Notes payable and long-term debt (see Note 3) (107,545) (106,957) (109,733) (113,295) Accrued expenses (foreign exchange forward contracts) (932) (932) (139) (139)
Page 32 The carrying amount of cash and short-term investments approximates fair value because of the short maturity of those instruments. The fair value of notes receivable is estimated based on the discounted value of estimated future cash flows. The fair value of long-term debt is estimated based on recent market transaction prices or on current rates available to the Company for debt with similar terms and maturities. The fair value of foreign exchange forward contracts is estimated by obtaining market quotes. NOTE 10: SEGMENT INFORMATION The Company's business consists of three segments: outdoor products, industrial and power equipment and sporting equipment. Identifiable assets consist of those assets used by the segments; corporate assets consist principally of cash and temporary investments, deferred income taxes and property, plant and equipment used by the corporate office. In 1995, 1994 and 1993, no customer accounted for more than 10% of consolidated sales. Information on Geographic Areas For the years ended the last day of February 1995 1994 1993 - ----------------------------------------------------------------------------- In thousands Sales: United States $ 493,293 $ 383,329 $ 318,380 Outside United States 95,126 104,716 108,112 - ----------------------------------------------------------------------------- $ 588,419 $ 488,045 $ 426,492 - ----------------------------------------------------------------------------- Operating income: United States $ 91,950 $ 52,750 $ 24,568 Outside United States 9,937 20,881 18,836 - ----------------------------------------------------------------------------- Operating income from segments $ 101,887 $ 73,631 $ 43,404 - ----------------------------------------------------------------------------- Identifiable assets: United States $ 422,017 $ 391,260 $ 328,450 Outside United States 95,771 101,641 118,701 - ----------------------------------------------------------------------------- $ 517,788 $ 492,901 $ 447,151 - ----------------------------------------------------------------------------- Included in United States sales were export sales of $94.3 million, $54.5 million and $39.9 million in 1995, 1994 and 1993. As a result of a contract manufacturing agreement with a subsidiary, sales of approximately $35 million, recorded as foreign sales in prior years, are classified as export sales in fiscal 1995. Page 33 Information on Segments For the years ended the last day of February 1995 1994 1993 - ----------------------------------------------------------------------------- In thousands Sales: Outdoor products $ 268,110 $ 234,502 $ 213,196 Industrial and power equipment 207,556 162,026 128,912 Sporting equipment 112,753 91,517 84,384 - ----------------------------------------------------------------------------- $ 588,419 $ 488,045 $ 426,492 - ----------------------------------------------------------------------------- Operating income: Outdoor products $ 49,583 $ 33,974 $ 20,611 Industrial and power equipment 32,987 24,503 12,843 Sporting equipment 19,317 15,154 9,950 - ----------------------------------------------------------------------------- Operating income from segments 101,887 73,631 43,404 Corporate office expenses (24,967) (23,046) (13,855) - ----------------------------------------------------------------------------- Income from operations 76,920 50,585 29,549 Interest expense (11,186) (11,052) (10,358) Interest income 2,340 1,501 671 Other expense, net (2,179) (4,619) (1,922) - ----------------------------------------------------------------------------- Income before income taxes $ 65,895 $ 36,415 $ 17,940 - ----------------------------------------------------------------------------- Identifiable assets: Outdoor products $ 199,489 $ 202,671 $ 201,824 Industrial and power equipment 82,959 69,230 67,799 Sporting equipment 71,777 59,152 48,621 Corporate office 100,743 88,648 38,865 Discontinued operations 62,820 73,200 90,042 - ----------------------------------------------------------------------------- $ 517,788 $ 492,901 $ 447,151 - ----------------------------------------------------------------------------- Depreciation and amortization: Outdoor products $ 13,771 $ 14,511 $ 14,653 Industrial and power equipment 3,820 3,616 3,770 Sporting equipment 3,774 3,594 3,685 Corporate office 1,580 1,080 1,253 - ----------------------------------------------------------------------------- $ 22,945 $ 22,801 $ 23,361 - ----------------------------------------------------------------------------- Capital expenditures: Outdoor products $ 4,939 $ 5,335 $ 15,743 Industrial and power equipment 4,917 698 2,123 Sporting equipment 4,578 1,377 1,425 Corporate office 254 7,029 420 - ----------------------------------------------------------------------------- $ 14,688 $ 14,439 $ 19,711 - ----------------------------------------------------------------------------- Page 34 NOTE 11: SUPPLEMENTAL INFORMATION The following balance sheet captions are comprised of the items specified below: As of the last day of February 1995 1994 - ------------------------------------------------------------------------------- In thousands Accounts receivable: Trade accounts and other $ 89,790 $ 84,635 Billings on construction contracts: Current 32,029 37,527 Retainage estimated to be collected within one year 11,457 14,534 Allowance for doubtful accounts (2,611) (2,238) - ------------------------------------------------------------------------------- $ 130,665 $ 134,458 - ------------------------------------------------------------------------------- Inventories: Finished goods $ 35,769 $ 27,169 Work in process 14,075 13,329 Raw materials and supplies 27,231 19,682 - ------------------------------------------------------------------------------- $ 77,075 $ 60,180 - ------------------------------------------------------------------------------- Property, plant and equipment: Land $ 6,575 $ 6,506 Buildings and improvements 82,948 80,948 Machinery and equipment 153,617 146,449 Furniture, fixtures and office equipment 21,892 28,036 Transportation equipment 11,083 11,582 Construction in progress 3,693 2,595 Accumulated depreciation (145,519) (135,694) - ------------------------------------------------------------------------------- $ 134,289 $ 140,422 - ------------------------------------------------------------------------------- Accounts payable: Trade accounts and other $ 58,301 $ 62,196 Retainage estimated to be paid within one year 6,492 12,071 - ------------------------------------------------------------------------------- $ 64,793 $ 74,267 - ------------------------------------------------------------------------------- Accrued expenses: Salaries, wages and related withholdings $ 25,033 $ 19,777 Employee benefits 5,707 15,049 Casualty insurance costs 15,240 12,453 Income taxes payable 6,327 8,232 Other 39,883 28,246 - ------------------------------------------------------------------------------- $ 92,190 $ 83,757 - ------------------------------------------------------------------------------- Other liabilities: Employee benefits $ 21,215 $ 20,534 Casualty insurance costs 3,749 8,276 Other 1,357 3,029 - -------------------------------------------------------------------------------- $ 26,321 $ 31,839 - -------------------------------------------------------------------------------- Page 35 At February 28, 1995, the Company's manufacturing operation in Canada had net assets of $10.7 million which were subject to withdrawal restrictions resulting from a financing agreement. The majority of this amount was invested in property, plant and equipment. Advertising costs were $10.6 million, $8.9 million and $7.0 million for 1995, 1994 and 1993. Supplemental cash flow information is as follows (in thousands): 1995 1994 1993 - ------------------------------------------------------------------------------- Interest paid $ 10,328 $ 12,121 $ 11,203 Income taxes paid 27,968 18,572 7,193 Capital lease obligations incurred 34 106 2,408 Issuance of Company stock to employee benefits plan 257 1,234 1,800 Acquisitions of businesses (see Note 4): Fair value of assets acquired 22,556 Liabilities assumed and incurred (12,406) Cash paid 10,150 - ------------------------------------------------------------------------------- Page 36 SUPPLEMENTARY DATA QUARTERLY RESULTS OF OPERATIONS (unaudited) The following table sets forth a summary of the quarterly results of operations for the two years ended the last day of February 1995. In thousands, First Second Third Fourth Fiscal except share data Quarter Quarter Quarter Quarter Year Total - -------------------------------------------------------------------------------- 1995 Sales $ 145,684 $ 138,781 $ 157,459 $ 146,495 $ 588,419 Gross profit 48,519 47,094 52,963 49,025 197,601 Net income 9,008 9,699 12,336 9,047 40,090 Net income per share .70 .75 .95 .70 3.10 The first and third quarters include after-tax charges of $2.4 million ($.18 per share) and $2.3 million ($.18 per share), respectively, for anticipated litigation and settlement costs related to the sale of a former subsidiary. The third and fourth quarters include after-tax charges of $1.3 million ($.10 per share) each for an environmental matter at the Company's Sporting Equipment segment's Lewiston, Idaho facility. In thousands, First Second Third Fourth Fiscal except share data Quarter Quarter Quarter Quarter Year Total - -------------------------------------------------------------------------------- 1994 Sales $ 117,386 $ 118,454 $ 128,030 $ 124,175 $ 488,045 Gross profit 35,432 37,963 42,800 41,791 157,986 Net income 1,207 2,534 6,671 3,668 14,080 Net income per share .10 .20 .52 .29 1.11 The first quarter includes net income of $.9 million ($.07 per share) resulting from finalizing a license and technical agreement for a Company product. The third and fourth quarters include after-tax charges of $1.3 million ($.10 per share) and $2.6 million ($.21 per share), respectively, resulting from accruals for expected legal costs related to the sale of a former subsidiary. The fourth quarter includes a net loss of $650 thousand ($.05 per share) for disposal of the Company's construction business, an after-tax charge of $1.1 million ($.08 per share) for accruals for a management incentive plan and net income of $1.6 million ($.12 per share) resulting from the resolution of a prior year tax issue. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the "Directors", "Executive Officers" and "Filing Disclosure" sections of the proxy statement for the June 26, 1995, Annual Meeting of Stockholders of Blount, Inc., which sections are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the "Executive Compensation and Other Information" section of the proxy statement for the June 26, 1995, Annual Meeting of Stockholders of Blount, Inc., which section is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the "Principal Stockholders" section of the proxy statement for the June 26, 1995, Annual Meeting of Stockholders of Blount, Inc., which section is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the "Certain Transactions and Other Matters" section of the proxy statement for the June 26, 1995, Annual Meeting of Stockholders of Blount, Inc., which section is incorporated herein by reference. Page 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page Reference --------- (a) Certain documents filed as part of Form 10-K (1) Financial Statements and Supplementary Data Report of Independent Accountants 15 Consolidated Statements of Income for the years ended the last day of February 1995, 1994 and 1993 17 Consolidated Statements of Retained Earnings for the years ended the last day of February 1995, 1994 and 1993 17 Consolidated Balance Sheets as of the last day of February 1995 and 1994 18 Consolidated Statements of Cash Flows for the years ended the last day of February 1995, 1994 and 1993 19 Consolidated Statements of Changes in Capital Stock Accounts for the years ended the last day of February 1995, 1994 and 1993 20 Notes to Consolidated Financial Statements 21 - 36 Supplementary Data 37 (2) Schedules for the years ended the last day of February 1995, 1994 and 1993 * II. Valuation and qualifying accounts 43 * All other schedules have been omitted because they are not required or because the information is presented in the Notes to Consolidated Financial Statements. (b) Reports on Form 8-K in the Fourth Quarter None. (c) Exhibits required to be filed by Item 601 of Regulation S-K: 3(a) The Restated Certificate of Incorporation which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-90 is incorporated herein by reference. 3(b) The Amended Bylaws which were filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92 is incorporated herein by reference. 4(a) The registration of 9% subordinated notes due June 2003 filed on Form S-2, registration number 33-62728 including amendments and exhibits which became effective June 30, 1993, is incorporated herein by reference. Page 39 10(a) The Insurance Agreements with the following individuals which were filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2- 28-83, are incorporated herein by reference: (i) Winton M. Blount (ii) Frank H. McFadden 10(b) The Supplemental Retirement and Disability Plan which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(c) A written description of the Management Incentive Plan which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2- 28-83, is incorporated herein by reference. 10(d) The Supplemental Retirement Savings Plan which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(e) Stock Purchase Agreement between BI Holdings Corp. ("Seller") and Mercury Stainless Corp. ("Buyer"), Amendments No. 1 and No. 2 to the Stock Purchase Agreement, and Guaranty dated August 17, 1988, made by Blount, Inc., which were filed as exhibits to the Blount, Inc. Form 8-K dated November 1, 1988, are incorporated herein by reference. 10(f) The Insurance Agreements with the following individual which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2- 28-91, is incorporated herein by reference: (i) Duncan J. McInnes 10(g) The Supplemental Executive Retirement Plans with the following individuals which were filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-91, are incorporated herein by reference: (i) Winton M. Blount (ii) Frank H. McFadden 10(h) The 1992 Blount Incentive Stock Option Plan which was filed as Exhibit A to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders held June 22, 1992, is incorporated herein by reference. 10(i) The $25,000,000 Receivable Purchase Agreement which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(j) Stock Purchase Agreement between Blount, Inc. ("Buyer") and Simon United States Holding, Inc. ("Seller") which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(k) The Supplemental Executive Retirement Plan with John M. Panettiere which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-28-93, is incorporated herein by reference. 10(l) The 1994 Blount Executive Stock Option Plan filed as Exhibit A to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders held June 27, 1994, is incorporated herein by reference. Page 40 10(m) The Blount, Inc. Executive Management Target Incentive Plan filed as Exhibit B to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders held June 27, 1994, is incorporated herein by reference. 10(n) Amendments number 1 and 2 to the $25,000,000 Receivable Credit Agreement which were filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-28-94, is incorporated herein by reference. 10(o) The 1995 Blount Long-Term Stock Option Plan filed as Exhibit A to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held June 26, 1995, is incorporated herein by reference. 10(p) The employment agreement with John M. Panettiere. * 10(q) The employment agreement with Harold E. Layman. * 10(r) The employment agreement with Duncan J. McInnes. * 10(s) The employment agreement with James S. Osterman. * 10(t) The employment agreement with Donald B. Zorn. * 10(u) The employment agreement with Thomas J. Fruechtel. * 10(v) The Supplemental Executive Retirement Plan with Donald B. Zorn. * 10(w) The Blount, Inc. $100 Million Revolving Credit Agreement. * 11. Computation of net income per common share included herein on page 44. 13. The 1995 Annual Report to Stockholders of Blount, Inc. and the Proxy Statement have not been sent to the stockholders of Blount, Inc., and are to be furnished subsequent to the filing of this Form 10-K. 21. A list of the significant subsidiaries of Blount, Inc. included herein on page 45. 23. Consent of Independent Accountants included herein on page 46. 27. Financial Data Schedule. * Filed electronically herewith. Copies of such exhibits may be obtained upon written request from: Corporate Communications Blount, Inc. P.O. Box 949 Montgomery, AL 36101-0949 Page 41 SIGNATURES 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. BLOUNT, INC. By: /s/ Harold E. Layman Harold E. Layman Senior Vice President and Chief Financial Officer Dated: May 3, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: May 3, 1995 /s/ Winton M. Blount /s/ James W. Hargrove Winton M. Blount James W. Hargrove Chairman of the Board Director and Director /s/ W. Houston Blount /s/ Mary D. Nelson W. Houston Blount Mary D. Nelson Director Director /s/ R. Eugene Cartledge /s/ John M. Panettiere R. Eugene Cartledge John M. Panettiere Director President and Chief Executive Officer and Director /s/ C. Todd Conover /s/ Arthur P. Ronan C. Todd Conover Arthur P. Ronan Director Director /s/ H. Corbin Day /s/ Joab L. Thomas H. Corbin Day Joab L. Thomas Director Director /s/ Herbert J. Dickson /s/ Rodney W. Blankenship Herbert J. Dickson Rodney W. Blankenship Director Chief Accounting Officer /s/ Alfred M. Gleason Alfred M. Gleason Director Page 42 EX-99 2 SCHEDULE II TO FORM 10-K FOR FYE 2/28/95 BLOUNT, INC. & SUBSIDIARIES SCHEDULE II CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
For the years ended the last day of February 1993, 1994 and 1995 In thousands - ------------ Column A Column B Column C Column D Column E -------- ------------ ------------------------- ----------- ---------- Additions ------------------------- Balance at Charged to Charged to Balance at Beginning of Cost and Other End of Description Period Expenses Accounts Decuctions Period ----------- ------------ ---------- ---------- ------------ ---------- 1993 - ---- Allowance for doubtful accounts receivable $ 2,478 $ 992 $ 907 (1) $ 2,563 ======= ======= ======= ======= 1994 - ---- Allowance for doubtful accounts receivable $ 2,563 $ 967 $ 1,292 (1) $ 2,238 ======= ======= ======= ======= 1995 - ---- Allowance for doubtful accounts receivable $ 2,238 $ 801 $ 97 $ 525 (1) $ 2,611 ======= ======= ======= ======= ======= (1) Principally amounts written-off less recoveries of amounts previously written-off.
Page 43 EX-11 3 EXHIBIT 11 TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 11 BLOUNT, INC. COMPUTATION OF NET INCOME PER COMMON SHARE (DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
1995 1994 1993 ---------------------- ---------------------- ---------------------- Primary Diluted Primary Diluted Primary Diluted ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common shares outstanding 12,590,284 12,590,284 12,421,167 12,421,167 12,149,905 12,149,905 Incremental shares for stock options 340,736 374,840 309,566 413,001 125,236 291,293 Incremental shares for performance awards 8,451 8,451 ---------- ---------- ---------- ---------- ---------- ---------- Total number of shares used in per share calculations 12,931,020 12,965,124 12,730,733 12,834,168 12,283,592 12,449,649 ========== ========== ========== ========== ========== ========== Income from continuing operations $ 40,090 $ 40,090 $ 24,396 $ 24,396 $ 11,888 $ 11,888 ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations: Loss from operations, net (9,666) (9,666) (4,649) (4,649) Loss on disposal, net (650) (650) ---------- ---------- ---------- ---------- ---------- ---------- Total from discontinued operations (10,316) (10,316) (4,649) (4,649) ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 40,090 $ 40,090 $ 14,080 $ 14,080 $ 7,239 $ 7,239 ========== ========== ========== ========== ========== ========== Income (loss) per common share: Continuing operations $ 3.10 $ 3.09 $ 1.92 $ 1.90 $ .97 $ .95 Discontinued operations (.81) (.80) (.38) (.37) ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 3.10 $ 3.09 $ 1.11 $ 1.10 $ .59 $ .58 ========== ========== ========== ========== ========== ==========
Page 44 EX-21 4 EXHIBIT 21 TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 21 SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT At February 28, 1995, consolidated, directly or indirectly, significant wholly- owned subsidiaries of Blount, Inc. were as follows: NAME OF PLACE OF SUBSIDIARY INCORPORATION - ---------- ------------- BI Holdings Corp. Delaware Blount Holdings, Ltd. Canada Blount Canada, Ltd. Canada Blount Europe, SA Belgium Blount Japan, Inc. Japan Blount Industrial de Correntes LTDA Brazil Omark Properties, Inc. Oregon Dixon Industries, Inc. Kansas Gear Products, Inc. Oklahoma The names of particular subsidiaries have been omitted because when considered in the aggregate or as a single subsidiary they would not constitute a significant subsidiary as of February 28, 1995. Page 45 EX-23 5 EXHIBIT 23 TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Blount, Inc. on Form S-3 (File No. 33-46543), Form S-8 (File No. 33-51580), and Form S-8 (File No. 33-56801) of our report dated April 10, 1995, on our audits of the consolidated financial statements and financial statement schedules of Blount, Inc. and subsidiaries as of the last day of February 1995 and 1994, and for each of the three years in the period ended February 28, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Atlanta, Georgia April 30, 1995 Page 46 EX-27 6 EXHIBIT 27 TO FORM 10-K FOR FYE 2/28/95
5 1000 12-MOS 12-MOS FEB-28-1995 FEB-28-1994 FEB-28-1995 FEB-28-1994 42,576 52,213 0 0 133,276 136,696 2,611 2,238 77,075 60,180 291,537 277,405 279,808 276,116 145,519 135,694 517,788 492,901 169,432 173,059 99,754 107,651 12,593 12,451 0 0 0 0 190,474 154,402 517,788 492,901 588,419 488,045 588,419 488,045 390,818 330,059 390,818 330,059 0 0 0 0 11,186 11,052 65,895 36,415 25,805 12,019 40,090 24,396 0 (10,316) 0 0 0 0 40,090 14,080 3.10 1.11 3.09 1.10
EX-99 7 EXHIBIT 10(P) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (p) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 28th day of July, 1994, by and between BLOUNT, INC., a Delaware corporation (the "Company"), and JOHN M. PANETTIERE ("Executive"). W I T N E S S E T H: WHEREAS, effective May 1, 1992, the Company and Executive entered into an agreement ("Initial Agreement") providing for Executive's employment by Company and specifying the terms and conditions of such employment; and WHEREAS, Executive has diligently performed his duties under the Initial Agreement and has contributed significantly to the financial performance and success of the Company; and WHEREAS, the Company desires to recognize Executive's superior performance and value to the Company and its shareholders by amending certain provisions of the Initial Agreement and restating such agreement in a single document as hereinafter provided; and WHEREAS, Executive desires to continue his employment with the Company on the terms and conditions provided herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Purpose. The purpose of this Agreement is to amend the Initial Agreement to recognize Executive's significant contributions to the overall financial performance and success of the Company. In order to provide a single, integrated document, the Initial Agreement and the amendments are hereby incorporated into this restated Employment Agreement, which shall provide the basis for Executive's continued employment by the Company. 2. Employment and Term. (a) Subject to the terms and conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment, as President and Chief Executive Officer of the Company and shall have such responsibilities, duties and authority that are consistent with such position as may from time to time be assigned to Executive by the Board. Executive shall also serve as a Director of the Company and the Company agrees to continue to nominate Executive for election as a Director during the Term of this Agreement. Executive hereby agrees that during the Term of this Agreement he will devote substantially all his working time, attention and energies to the diligent performance of his duties as President and Chief Executive Officer of the Company, provided that the Executive may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder and is with the prior approval of the Chairman of the Board of the Company. (b) Unless earlier terminated as provided herein, Executive's employment under this Agreement shall be for a rolling, five year term (the "Term") commencing on July 28th, 1994, and shall be deemed to automatically, without further action by either the Company or Executive, extend each day for an additional day, such that the remaining term of the Agreement shall continue to be five years; provided, however, that (i) either party may, by written notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the five years following the date of such notice and this Agreement shall terminate upon the expiration of such Term, and (ii) the Term of this Agreement shall not extend beyond the date Executive attains age 65, unless the parties otherwise agree in writing. If no such notice to cease to extend has been given and this Agreement is terminated pursuant to Section 5.1 or Section 5.2 hereof, for the purposes of calculating and assessing the damages to Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be five years from the date of such termination (or, if earlier, the date Executive attains age 65). 3. Compensation and Benefits. As compensation for his services during the Term of this Agreement, Executive shall be paid and receive the amounts and benefits set forth in subsections (a) through (h) below: (a) An annual base salary ("Base Salary") of Five Hundred Fifty Thousand and No/100 Dollars ($550,000.00), prorated for any partial year of employment. Executive's Base Salary shall be subject to annual review for increases at such time as the Company conducts salary reviews for its executive officers generally. Executive's salary shall be payable bi-monthly, or in accordance with the Company's regular payroll practices in effect from time to time for executive officers of the Company. (b) Executive shall be eligible to participate in the Executive Management Target Incentive Plan and such other annual incentive plans as may be established by the Company from time to time for its executive officers. The Board or a committee of the Board will establish performance goals each year under the incentive plans, and Executive's annual Target Bonus shall be 65% of Base Salary; the maximum award for exceeding the performance goals shall be 130% of Base Salary. The annual incentive bonus payable under this subsection (b) shall be payable as a lump sum no later than fifteen (15) business days after approval of the bonus by the Compensation Committee of the Board, unless Executive elects to defer all or a portion of such amount to any deferral plan established by the Company for such purpose. (c) Executive will be eligible to participate in the 1992 Blount Incentive Stock Option Plan ("1992 Plan"), the 1994 Blount Executive Stock Option Plan ("1994 Plan") and such other stock option programs as may be established from time to time by the Company for its executive officers. Executive will participate in any long-term incentive plans established by the Company for executive officers at his level. (d) Executive shall be covered by a Supplemental Executive Retirement Plan ("SERP"), providing for the following: (i) The SERP will pay Executive a benefit at age 65 in the form of a single life annuity equal to fifty percent (50%) of his final average earnings (as defined in the Blount Retirement Plan, but without the Code compensation limitations) less the amount of any benefit he is entitled to receive at age 65 under the Blount Retirement Plan and the Blount and Subsidiaries Supplemental Retirement Plan, and the amount actually payable to Executive at age 65 under any pension plan of his former employer. The benefit under the SERP shall be calculated in accordance with the formula in the Blount Retirement Plan (but without the Code compensation limitations) and shall assume the Executive will have 25 years of benefit service at age 65. The SERP shall also provide pre-retirement death benefits calculated in the same manner as under the Blount Retirement Plan. (ii) Executive shall be credited with years of benefit service under the SERP equal to his years of benefit service under the Blount Retirement Plan, plus additional years of benefit service so that at age 65 he will be credited with a total of 25 years of benefit service. (iii) The benefit payable under the SERP may, in the discretion of the Board and upon prior notice to Executive, be forfeited, suspended, reduced or terminated, but only in accordance with the provisions and procedures set forth in the SERP Agreement. The Company's obligations under this subsection (d) shall be as set forth in the separate SERP Agreement with Executive as attached as Exhibit A. (e) Executive shall be entitled to participate in, or receive benefits under, any "employee benefit plan" (as defined in Section 3(3) of ERISA) or employee benefit arrangement made available by the Company to its executive officers, including plans providing retirement, 401(k) benefits, deferred compensation, health care, life insurance, disability and similar benefits. (f) The Company will provide membership initiation fees and dues at the Montgomery Country Club, the Capital City Club and a hunting club (such as the Turtle Lake Club) for Executive and his family. Executive will be provided the automobile of his choice, and the Company will pay all insurance, maintenance, fuel, oil and related operational expenses for such automobile. Executive will receive four weeks vacation until such time as he is eligible for additional weeks of vacation under the Company's standard vacation policy. Executive will be provided an annual physical examination and a financial/tax consultant for personal financial and tax planning. (g) Executive shall participate in the Company's Executive Life Insurance Program, which will provide a benefit equal to 2 l/2 times Executive's total compensation (as determined from time to time), subject to a maximum benefit of $2.5 million. This insurance will be paid-up on the date Executive attains 65 (assuming his employment continues until that date) and will be delivered to Executive as a paid-up insurance policy upon his retirement from the Company at or after age 65. The life insurance provided to Executive under the Executive Life Insurance Program shall be in addition to any life insurance he receives under the Company's group term policy under subsection (e) above. (h) Executive will be paid a tax gross-up amount by the Company to cover any additional federal or state income taxes he incurs as a result of being required to include in taxable income the amount of the premiums or costs for, or personal usage of, the items described in subsections (f) and (g) above. 4. Confidentiality and Noncompetition. (a) Executive acknowledges that, prior to and during the Term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. Moreover, the parties recognize that Executive during the course of his employment with the Company may develop important relationships with customers and others having valuable business relationships with the Company. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and good will. (b) Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any Person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information; provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Executive's obligations under this Section 4(b) shall survive any expiration or termination of this Agreement, provided that Executive may after such expiration or termination disclose Confidential Information with the prior written consent of the Chairman of the Board. (c) Upon the termination or expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control, and all of the Company's equipment and other materials in his possession or control. Executive's obligations under this Section 4(c) shall survive any expiration or termination of this Agreement. (d) Upon the termination or expiration of his employment under this Agreement, Executive agrees that he shall not enter into or engage in the design, manufacture, marketing or sale of any products similar to those produced or offered by the Company or its affiliates in the area of North America, either as an individual, partner or joint venturer, or as an employee, agent or salesman, or as an officer, director, or shareholder of a corporation for a period of three (3) years from the date of his termination of employment. (e) Executive acknowledges that if he breaches or threatens to breach this Section 4, his actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Section 4, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies of the Company. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of Executive's agreement under this Section 4(d). 5. Termination. 5.1 By Executive. Executive shall have the right to terminate his employment hereunder by Notice of Termination (as described in Section 7) if (i) the Company materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice of such breach is given by Executive to the Company; or (ii) Executive determines that his termination is for Good Reason (as defined in Section 6.7). If Executive terminates his employment hereunder pursuant to clauses (i) or (ii) of this Section 5.1, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits set forth in subsections (a) through (j) below. The time periods in (a) through (j) below shall be the lesser of the 36-month or 3-year periods stated therein or the time period remaining from the date of Executive's termination to the end of the Term of this Agreement. If Executive terminates his employment other than pursuant to clauses (i) or (ii) of this Section 5.1, the Company's obligations under this Agreement shall cease as of the date of such termination. Except as provided in Section 5.4(c), the Company agrees that if Executive terminates employment and is entitled to benefits under this Section 5.1, he shall not be required to mitigate damages by seeking other employment, nor shall any amount he earns reduce the amount payable by the Company hereunder. (a) Base Salary - Executive will continue to receive his Base Salary as then in effect (subject to withholding of all applicable taxes) for a period of thirty-six (36) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than 30 days after his termination of employment; provided, further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value (as defined in Section 5.4(d)) on the date Executive's employment under this Agreement is terminated. (b) Bonuses and Incentives - Executive shall receive bonus payments from the Company for the thirty-six (36) months following the month in which his employment under this Employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses earned by him for the two fiscal years in which bonuses were paid immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. Executive shall also receive a prorated bonus for any uncompleted fiscal year at the date of termination (assuming the Target Award level has been achieved), based upon the number of days that he was employed during such fiscal year. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than 30 days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value (as defined in Section 5.4(d)) on the date Executive's employment under this Agreement is terminated. (c) Health and Life Insurance Coverage - The health and group term life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date thirty-six (36) months from the date of such termination. Any additional coverages Executive had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. (d) Employee Retirement Plans - To the extent permitted by the applicable plan, Executive will be entitled to continue to participate, consistent with past practices, in all employee retirement plans maintained by the Company in effect as of his date of termination, including, to the extent such plans are still maintained by the Company, the Blount Retirement Plan, the Blount 401(k) Plan, and the Blount, Inc. and Subsidiary Supplemental Retirement Plan. Executive's participation in such retirement plans shall continue for a period of thirty-six (36) months from the date of termination of his employment under this Agreement (at which point he will be considered to have terminated employment within the meaning of the plans) and the compensation payable to Executive under (a) and (b) above shall be treated (unless otherwise excluded) as compensation under the plan. For purposes of the Blount 401(k) Plan, he will receive an amount equal to the Company's contributions to the plan, assuming Executive had participated in such plan at the maximum permissible contributions level. If continued participation in any plan is not permitted by the plan or by applicable law, the Company shall pay to Executive and, if applicable, his beneficiary, a supplemental benefit equal to the present value on the date of termination of employment under this Agreement (calculated as provided in the plan) of the excess of (i) the benefit Executive would have been paid under such plan if he had continued to be covered for the 36- month period (less any amounts Executive would have been required to contribute), over (ii) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum. (e) Effect of Lump Sum Payment. The lump sum payment under (a) or (b) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in this section. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of thirty-six (36) months. (f) Effect of Death or Retirement. The benefits payable or to be provided under subsections (c) or (d) above shall cease or be modified in the event of the Executive's death or election to commence retirement benefits under the Company's retirement plan, provided that nothing in this subsection (f) shall limit Executive's rights to receive Company benefits as a retiree. (g) SERP. On his date of termination, Executive shall be treated for purposes of determining his benefit under the SERP as if he had earned an additional three (3) years of benefit service under the Blount Retirement Plan (and received the corresponding additional years of benefit service under the SERP), and shall be deemed to be three (3) years older than his actual age. (h) Executive Life Insurance Program. On Executive's date of termination, the Company will pay an amount into the policy as if Executive had continued in employment for three (3) additional years at the same total compensation and was three (3) years older. At Executive's option, the policy shall be delivered to Executive or he shall be paid the cash value thereof (after the payment referred to in the preceding sentence). (i) Stock Options. For purposes of the 1992 Plan, the 1994 Plan and other stock option programs of the Company, Executive shall be deemed to have completed three (3) additional years of service with the Company. (j) Office Space; Secretarial. Executive will be provided appropriate office space, his current administrative assistant (such assistant shall be paid or provided similar compensation and benefits to that being provided at the time Executive terminates employment), and related expenses for a period of thirty-six (36) months from his date of termination. 5.2 By Company. The Company shall have the right to terminate Executive's employment under this Agreement at any time during the Term by Notice of Termination (as described in Section 7), (i) for Cause, as defined herein, (ii) if Executive becomes Disabled, or (iii) upon Executive's death. If the Company terminates Executive's employment under this Agreement pursuant to clauses (i) through (iii) of this Section 5.2, the Company's obligations under this Agreement shall cease as of the date of termination; provided, however, that if Executive's employment terminates as a result of death or Disability, the benefits payable under this Agreement and the other benefit plans of the Company upon Executive's death or Disability shall be provided by the Company. If the Company terminates Executive during the Term of this Agreement other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits provided in subsections (a) through (j) of Section 5.1 above for the time periods, and subject to the provisions (including the nonmitigation provision) and limitations therein. 5.3 Additional Agreements Upon Termination. In the event Executive's employment is terminated by Executive under clause (ii) of Section 5.1, or by the Company other than under clauses (i) through (iii) of Section 5.2 within twenty-four (24) months following the date of a Change in Control or the death of Winton M. Blount, Jr., the provisions set forth below shall apply, provided that such provisions shall only apply in each case to the extent that the damages payable to Executive for termination of his employment under Sections 5.1 or 5.2 do not already provide such benefits under the plan or program. (a) SERP. As of his date of termination, Executive shall be treated for purposes of the SERP as if he had remained actively employed by the Company until the date he attained age 65 and had continued to receive compensation at the level in effect on his date of termination to his 65th birthday. The benefit payable to Executive shall be calculated to the date he would attain age 65 and shall be reduced as provided in the SERP agreement if Executive elects to commence payments prior to age 65. (b) Stock Options. As of his date of termination, all outstanding stock options granted to Executive under the 1992 Plan, the 1994 Plan or any similar stock option programs shall become 100% vested and immediately exercisable. (c) Executive Life Insurance Program. The life insurance policy described in Section 3(h) shall be delivered to Executive as a fully paid-up policy within thirty (30) days after his date of termination, regardless of Executive's age at such time. 5.4 Tax Equilization Payment. (a) If all or any portion of the compensation or benefits provided to Executive under this Agreement are treated as Excess Severance Payments (whether by action of the Internal Revenue Service or otherwise), the Company shall protect Executive from depletion of the amount of such compensation and benefits by payment of a tax equalization payment in accordance with this subsection (a). In connection with any Internal Revenue Service examination, audit or other inquiry, the Company and Executive agree to take actions to provide and to cooperate in providing evidence to the Internal Revenue Service (and, if applicable, the State of Alabama) that the compensation and benefits provided under this Agreement do not result in the payment of Excess Severance Payments. The tax equalization payment shall be an amount which when added to the other amounts payable, or to be provided, to Executive under this Agreement will place Executive in the same position as if the excise tax penalty of Code Section 4999 (and any state tax statute), or any successor statute of similar import, did not apply to any of the compensation or benefits provided under this Agreement. The amount of this tax equalization payment shall be determined by the Company's independent accountants and shall be paid to Executive not later than ten (10) days prior to the date any excise tax under Code Section 4999 is due to be paid by Executive. (b) In addition to the limits otherwise provided in this Section 5.4, to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments or benefits he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (c) If Executive becomes entitled to compensation and benefits under Section 5.1 or Section 5.2 and such payments are considered to be Severance Payments contingent upon a Change in Control, Executive shall be required to mitigate damages (but only with respect to amounts that would be treated as Severance Payments) by reducing the amount of Severance Payments he is entitled to receive by any compensation and benefits he earns from subsequent employment (but shall not be required to seek such employment) during the 36-month period after termination (or such lesser period as he is entitled to extended benefits). (d) For purposes of this Section 5.4, the following definitions shall apply: (i) "Excess Severance Payment" - The term "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(1) of the Code. (ii) "Severance Payment" - The term "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280G(b)(2) of the Code. (iii) "Reasonable Compensation" - The term "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. The parties acknowledge and agree that, in the absence of a change in existing legal authorities or the issuance of contrary authorities, amounts received by Executive as damages under or as a result of a breach of this Agreement shall be considered Reasonable Compensation. (iv) "Present Value" - The term "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. 6. Definitions. For purposes of this Agreement the following terms shall have the meanings specified below: 6.1 "Board" or "Board of Directors" - The Board of Directors of the Company. 6.2 "Cause" - Either (a) Any act that constitutes, on the part of Executive, (i) fraud, a felony or gross malfeasance of duty and (ii) that results in material injury to the Company; or (b) Executive's willful and continued failure to devote his full business time and efforts to the performance of duties for the Company; provided, however, that in the case of (b) above, such conduct shall not constitute Cause unless the notice delivered to Executive by the Board pursuant to Section 7 sets forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. 6.3 "Change in Control" - Either (i) the acquisition, directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) within any twelve (12) month period of securities of the Company representing an aggregate of fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (excluding the acquisition by persons who own such amount of securities on the date hereof, or acquisitions by persons who acquire such amount through inheritance), provided, however, that the threshold percentage in this subparagraph (i) shall be automatically reduced to an aggregate of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities at such time that either of the following events occurs: (a) Winton M. Blount's ownership of the combined voting power of HBC, Incorporated's then outstanding securities is less than 50.1%, or (B) HBC, Incorporated's ownership of the combined voting power of the Company's then outstanding securities is less than 50.1%.; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (a) a merger, consolidation or other business combination of the Company with any other "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (b) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement. 6.4 "Code" - The Internal Revenue Code of 1986, as it may be amended from time to time. 6.5 "Confidential Information" - All technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 6.6 "Disability" or "Disabled". Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. 6.7 "Good Reason" A "Good Reason" for termination by Executive of Executive's employment shall mean the occurrence (without the Executive's express written consent) within the twenty-four (24) month period following the date of (a) a Change in Control, or (b) the death of Winton M. Blount, Jr., of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i) the assignment to Executive of any duties inconsistent with Executive's status as the Chief Executive Officer of the Company, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control or death of Mr. Blount (other than any such alteration primarily attributable to the fact that the Company may no longer be a public company); (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of Company's principal executive offices to a location more than fifty (50) miles from the location of such offices immediately prior to the Change in Control or death of Mr. Blount, or the Company's requiring Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Executive's present business travel obligations; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's current compensation (including Base Salary and bonus), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (v) the failure by the Company to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control or death of Mr. Blount, which is material to Executive's total compensation, including but not limited to the Company's Executive Management Target Incentive Plan, long-term incentive plan, and Supplemental Executive Retirement Plan, or any substitute plans adopted prior to the Change in Control or death of Mr. Blount, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation in such plan (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 Executive's participation relative to other participants, as existed at the time of the Change in Control or death of Mr. Blount; (vi) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of the Company's pension, life insurance (including the Executive Life Insurance Program), medical, health and accident or disability plans in which Executive was participating at the time of the Change in Control or death of Mr. Blount, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control or death of Mr. Blount, or the failure by the Company to provide Executive with the number of paid vacation days to which the Executive is entitled under this Agreement; or (vii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 6.8 "Person". Any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. 7. Termination Procedures. 7.1 Notice of Termination. During the Term of this Agreement, any purported termination of Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11. 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 Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth in clause (a) or (b) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of Executive's employment during the Term of this Agreement, shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive's duties during such thirty (30) day period), and (iii) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided, however, that the "Date of Termination" for purposes of this Agreement shall not be the last day of the Company's fiscal year and, in the event the last day of the fiscal year is designated as the "Date of Termination", the "Date of Termination" for purposes hereof shall automatically be the first day of the next following fiscal year. 8. Contract Non-Assignable. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts which, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive's estate. 10. Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Blount, Inc. 4520 Executive Park Drive Montgomery, Alabama 36116-1602 Attention: D. Joseph McInnes To the Executive: John M. Panettiere 2519 Wildwood Drive Montgomery, Alabama 36111 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 14. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto. 15. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama. 16. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Montgomery, Alabama, 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. In the event the Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator. Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE: _____________________________ JOHN M. PANETTIERE President & Chief Executive Officer COMPANY: BLOUNT, INC. By: ___________________________ WINTON M. BLOUNT Chairman of the Board Witness:______________________ ______________________________ Notary Public EX-99 8 EXHIBIT 10(Q) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10(q) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 22nd day of August, 1994, by and between BLOUNT, INC., a Delaware corporation (the "Company"), and Harold E. Layman ("Executive"). W I T N E S S E T H: WHEREAS, effective January 1, 1994, the Company and Executive entered into an agreement ("Initial Agreement") providing for Executive's employment by Company and specifying the terms and conditions of such employment; and WHEREAS, Executive has diligently performed his duties under the Initial Agreement and has contributed to the success of the Company; and WHEREAS, the Company desires to recognize Executive's value to the Company and its shareholders by amending certain provisions of the Initial Agreement and restating such agreement in a single document as hereinafter provided; and WHEREAS, Executive desires to continue his employment with the Company on the terms and conditions provided herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Purpose. The purpose of this Agreement is to amend the Initial Agreement to recognize Executive's contributions to the overall success of the Company. In order to provide a single, integrated document, the Initial Agreement and the amendments are hereby incorporated into this restated Employment Agreement, which shall provide the basis for Executive's continued employment by the Company. 2. Employment and Term. (a) Subject to the terms and conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment, as Senior Vice President and Chief Financial Officer of the Company or other similar positions to which, with his consent, he may be assigned and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to Executive. Executive hereby agrees that during the Term of this Agreement he will devote substantially all his working time, attention and energies to the diligent performance of his duties, provided that the Executive may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder and is with the prior approval of the President and Chief Executive Officer. (b) Unless earlier terminated as provided herein, Executive's employment under this Agreement shall be for a rolling, three year term (the "Term") commencing on August 22, 1994, and shall be deemed to automatically, without further action by either the Company or Executive, extend each day for an additional day, such that the remaining term of the Agreement shall continue to be three years; provided, however, that (i) either party may, by written notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the three years following the date of such notice and this Agreement shall terminate upon the expiration of such Term, and (ii) the Term of this Agreement shall not extend beyond the date Executive attains age 65, unless the parties otherwise agree in writing. If no such notice to cease to extend has been given and this Agreement is terminated pursuant to Section 5.1 or Section 5.2 hereof, for the purposes of calculating and assessing the damages to Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be three years from the date of such termination (or, if earlier, the date Executive attains age 65). 3. Compensation and Benefits. As compensation for his services during the Term of this Agreement, Executive shall be paid and receive the amounts and benefits set forth in subsections (a) through (f) below: (a) An annual base salary ("Base Salary") of Two Hundred Thirty-Seven Thousand and Six Hundred Dollars ($237,600.00), prorated for any partial year of employment. Executive's Base Salary shall be subject to annual review for increases at such time as the Company conducts salary reviews for its executive officers generally. Executive's salary shall be payable bi-monthly, or in accordance with the Company's regular payroll practices in effect from time to time for executive officers of the Company. (b) Executive shall be eligible to participate in the Target Incentive Plan and such other annual incentive plans as may be established by the Company from time to time for its executive officers. The President and Chief Executive Officer will establish individual performance goals each year under the incentive plans, and Executive's annual Target Bonus shall be 45% of Base Salary; the maximum award for exceeding the performance goals shall be 90% of Base Salary. The annual incentive bonus payable under this subsection (b) shall be payable as a lump sum no later than fifteen (15) business days after approval of the bonus by the Compensation Committee of the Board, unless Executive elects to defer all or a portion of such amount to any deferral plan established by the Company for such purpose. (c) Executive shall be entitled to participate in, or receive benefits under, any "employee benefit plan" (as defined in Section 3(3) of ERISA) or employee benefit arrangement made available by the Company to its executive officers, including plans providing retirement, 401(k) benefits, deferred compensation, health care, life insurance, disability and similar benefits. (d) The Company will provide membership initiation fees and dues at the Montgomery Country Club and the Capital City Club for Executive and his family. Executive will be provided an automobile per company policy, and the Company will pay all insurance, maintenance, fuel, oil and related operational expenses for such automobile. Executive is eligible for vacation under the Company's standard vacation policy. Executive will be provided an annual physical examination and a financial/tax consultant for personal financial and tax planning. (e) Executive shall participate in the Company's Executive Life Insurance Program, which will provide a $250,000 death benefit. This insurance policy will be paid-up on the date Executive attains 65 (assuming his employment continues until that date) and will be delivered to Executive as a paid-up insurance policy upon his retirement from the Company at or after age 65. The life insurance provided to Executive under the Executive Life Insurance Program shall be in addition to any life insurance he receives under the Company's group term policy under subsection (c) above. (f) Executive will be paid a tax gross-up amount by the Company to cover any additional federal or state income taxes he incurs as a result of being required to include in taxable income the amount of the premiums or costs for, or personal usage of, the items described in subsections (d) and (e) above. 4. Confidentiality and Noncompetition. (a) Executive acknowledges that, prior to and during the Term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. Moreover, the parties recognize that Executive during the course of his employment with the Company may develop important relationships with customers and others having valuable business relationships with the Company. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and good will. (b) Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any Person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information; provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Executive's obligations under this Section 4(b) shall survive any expiration or termination of this Agreement, provided that Executive may after such expiration or termination disclose Confidential Information with the prior written consent of the Chairman of the Board. (c) Upon the termination or expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control, and all of the Company's equipment and other materials in his possession or control. Executive's obligations under this Section 4(c) shall survive any expiration or termination of this Agreement. (d) Upon the termination or expiration of his employment under this Agreement, Executive agrees that he shall not enter into or engage in the design, manufacture, marketing or sale of any products similar to those produced or offered by the Company or its affiliates in the area of North America, either as an individual, partner or joint venturer, or as an employee, agent or salesman, or as an officer, director, or shareholder of a corporation for a period of two (2) years from the date of his termination of employment. (e) Executive acknowledges that if he breaches or threatens to breach this Section 4, his actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Section 4, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies of the Company. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of Executive's agreement under this Section 4(d). 5. Termination. 5.1 By Executive. Executive shall have the right to terminate his employment hereunder by Notice of Termination (as described in Section 7) if (i) the Company materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice of such breach is given by Executive to the Company; or (ii) Executive determines that his termination is for Good Reason (as defined in Section 6.7). If Executive terminates his employment hereunder pursuant to clauses (i) or (ii) of this Section 5.1, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits set forth in subsections (a) through (i) below. The time periods in (a) through (i) below shall be the lesser of the 24-month or 2-year periods stated therein or the time period remaining from the date of Executive's termination to the end of the Term of this Agreement. If Executive terminates his employment other than pursuant to clauses (i) or (ii) of this Section 5.1, the Company's obligations under this Agreement shall cease as of the date of such termination. Except as provided in Section 5.4(a), the Company agrees that if Executive terminates employment and is entitled to benefits under this Section 5.1, he shall not be required to mitigate damages by seeking other employment, nor shall any amount he earns reduce the amount payable by the Company hereunder. (a) Base Salary - Executive will continue to receive his Base Salary as then in effect (subject to withholding of all applicable taxes) for a period of twenty-four (24) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than 30 days after his termination of employment; provided, further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (b) Bonuses and Incentives - Executive shall receive bonus payments from the Company for the twenty-four (24) months following the month in which his employment under this Employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses earned by him for the two fiscal years in which bonuses were paid immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. Executive shall also receive a prorated bonus for any uncompleted fiscal year at the date of termination (assuming the Target Award level has been achieved), based upon the number of days that he was employed during such fiscal year. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than 30 days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (c) Health and Life Insurance Coverage - The health and group term life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date twenty-four (24) months from the date of such termination. Any additional coverages Executive had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. (d) Employee Retirement Plans - To the extent permitted by the applicable plan, Executive will be entitled to continue to participate, consistent with past practices, in all employee retirement plans maintained by the Company in effect as of his date of termination, including, to the extent such plans are still maintained by the Company, the Blount Retirement Plan, the Blount 401(k) Plan, and, if applicable, the Blount, Inc. and Subsidiary Supplemental Retirement Plan. Executive's participation in such retirement plans shall continue for a period of twenty-four (24) months from the date of termination of his employment under this Agreement (at which point he will be considered to have terminated employment within the meaning of the plans) and the compensation payable to Executive under (a) and (b) above shall be treated (unless otherwise excluded) as compensation under the plan. For purposes of the Blount 401(k) Plan, he will receive an amount equal to the Company's contributions to the plan, assuming Executive had participated in such plan at the maximum permissible contributions level. If continued participation in any plan is not permitted by the plan or by applicable law, the Company shall pay to Executive and, if applicable, his beneficiary, a supplemental benefit equal to the present value on the date of termination of employment under this Agreement (calculated as provided in the plan) of the excess of (i) the benefit Executive would have been paid under such plan if he had continued to be covered for the 24-month period (less any amounts Executive would have been required to contribute), over (ii) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum. (e) Effect of Lump Sum Payment. The lump sum payment under (a) or (b) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in this section. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of twenty-four (24) months. (f) Effect of Death or Retirement. The benefits payable or to be provided under subsections (c) or (d) above shall cease or be modified in the event of the Executive's death or election to commence retirement benefits under the Company's retirement plan, provided that nothing in this subsection (f) shall limit Executive's rights to receive Company benefits as a retiree. (g) Executive Life Insurance Program. On Executive's date of termination, the Company will pay an amount into the policy as if Executive had continued in employment for two (2) additional years at the same total compensation and was two (2) years older. At Executive's option, the policy shall be delivered to Executive or he shall be paid the cash value thereof (after the payment referred to in the preceding sentence). (h) Stock Options. For purposes of the 1994 Plan and other stock option programs of the Company in which the Executive may participate, Executive shall be deemed to have completed two (2) additional years of service with the Company. (i) Office Space; Secretarial. Executive will be provided appropriate office space, secretarial assistance and related expenses for a period of twelve (12) months from his date of termination. 5.2 By Company. The Company shall have the right to terminate Executive's employment under this Agreement at any time during the Term by Notice of Termination (as described in Section 7), (i) for Cause, as defined herein, (ii) if Executive becomes Disabled, or (iii) upon Executive's death. If the Company terminates Executive's employment under this Agreement pursuant to clauses (i) through (iii) of this Section 5.2, the Company's obligations under this Agreement shall cease as of the date of termination; provided, however, that if Executive's employment terminates as a result of death or Disability, the benefits payable under this Agreement and the other benefit plans of the Company upon Executive's death or Disability shall be provided by the Company. If the Company terminates Executive during the Term of this Agreement other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits provided in subsections (a) through (i) of Section 5.1 above for the time periods, and subject to the provisions (including the nonmitigation provision) and limitations therein. 5.3 Additional Agreements Upon Termination. In the event Executive's employment is terminated by Executive under clause (ii) of Section 5.1, or by the Company other than under clauses (i) through (iii) of Section 5.2 within twenty-four (24) months following the date of a Change in Control or the death of Winton M. Blount, Jr., the provisions set forth below shall apply, provided that such provisions shall only apply in each case to the extent that the damages payable to Executive for termination of his employment under Sections 5.1 or 5.2 do not already provide such benefits under the plan or program. (a) Stock Options. As of his date of termination, all outstanding stock options granted to Executive under the 1994 Plan or any other stock option program in which Executive participates shall become 100% vested and immediately exercisable. Notwithstanding the other provisions of Executive's stock options, Executive shall have a period of not less than 3 months from his date of termination to exercise such options. (b) Executive Life Insurance Program. The life insurance policy described in Section 3(h) shall be delivered to Executive as a fully paid-up policy within thirty (30) days after his date of termination, regardless of Executive's age at such time. 5.4 Limitation on Benefits Upon Termination. (a) Notwithstanding anything in this Agreement to the contrary, any benefits payable or to be provided to Executive by the Company or its affiliates, whether pursuant to this Agreement or otherwise, which are treated as Severance Payments shall be modified or reduced in the manner provided in (b) below to the extent necessary so that the benefits payable or to be provided to Executive under this Agreement that are treated as Severance Payments, as well as any payments or benefits provided outside of this Agreement that are so treated, shall not cause the Company to have paid an Excess Severance Payment. In computing such amount, the parties shall take into account all provisions of Code Section 280G, and the regulations thereunder, including making appropriate adjustments to such calculation for amounts established to be Reasonable Compensation. If Executive becomes entitled to compensation and benefits under Section 5.1 or Section 5.2 and such payments are considered to be Severance Payments contingent upon a Change in Control, Executive shall be required to mitigate damages (but only with respect to amounts that would be treated as Severance Payments) by reducing the amount of Severance Payments he is entitled to receive by any compensation and benefits he earns from subsequent employment (but shall not be required to seek such employment) during the 24-month period after termination (or such lesser period as he is entitled to extended benefits). (b) In the event that the amount of any Severance Payments which would be payable to or for the benefit of Executive under this Agreement must be modified or reduced to comply with this Section 5.4, Executive shall direct which Severance Payments are to be modified or reduced; provided, however, that no increase in the amount of any payment or change in the timing of the payment shall be made without the consent of the Company. (c) This Section 5.4 shall be interpreted so as to avoid the imposition of excise taxes on Executive under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G(a) of the Code with respect to amounts payable under this Agreement or otherwise. Notwithstanding the foregoing, in no event will any of the provisions of this Section 5.4 create, without the consent of Executive, an obligation on the part of Executive to refund any amount to the Company following payment of such amount. (d) In addition to the limits otherwise provided in this Section 5.4, to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (e) For purposes of this Section 5.4, the following definitions shall apply: (i) "Excess Severance Payment" - The term "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(1) of the Code. (ii) "Severance Payment" - The term "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280G(b)(2) of the Code. (iii) "Reasonable Compensation" - The term "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. The parties acknowledge and agree that, in the absence of a change in existing legal authorities or the issuance of contrary authorities, amounts received by Executive as damages under or as a result of a breach of this Agreement shall be considered Reasonable Compensation. (iv) "Present Value" - The term "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. 6. Definitions. For purposes of this Agreement the following terms shall have the meanings specified below: 6.1 "Board" or "Board of Directors" - The Board of Directors of the Company. 6.2 "Cause" - Either (a) Any act that constitutes, on the part of Executive, (i) fraud, a felony or gross malfeasance of duty and (ii) that results in material injury to the Company; or (b) Executive's willful and continued failure to devote his full business time and efforts to the performance of duties for the Company; provided, however, that in the case of (b) above, such conduct shall not constitute Cause unless the notice delivered to Executive pursuant to Section 7 sets forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. 6.3 "Change in Control" - Either (i) the acquisition, directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) within any twelve (12) month period of securities of the Company representing an aggregate of fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (excluding the acquisition by persons who own such amount of securities on the date hereof, or acquisitions by persons who acquire such amount through inheritance), provided, however, that the threshold percentage in this subparagraph (i) shall be automatically reduced to an aggregate of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities at such time that either of the following events occurs: (a) Winton M. Blount's ownership of the combined voting power of HBC, Incorporated's then outstanding securities is less than 50.1%, or (B) HBC, Incorporated's ownership of the combined voting power of the Company's then outstanding securities is less than 50.1%.; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (a) a merger, consolidation or other business combination of the Company with any other "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (b) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement. 6.4 "Code" - The Internal Revenue Code of 1986, as it may be amended from time to time. 6.5 "Confidential Information" - All technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 6.6 "Disability" or "Disabled". Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. 6.7 "Good Reason" A "Good Reason" for termination by Executive of Executive's employment shall mean the occurrence (without the Executive's express written consent) within the twenty-four (24) month period following the date of (a) a Change in Control, or (b) the death of Winton M. Blount, Jr., of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i) the assignment to Executive without his consent of any duties inconsistent with Executive's status as the Senior Vice President and Chief Financial Officer of the Company, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control or death of Mr. Blount (other than any such alteration primarily attributable to the fact that the Company may no longer be a public company); (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of Executive without his consent to a location more than fifty (50) miles from the work location immediately prior to the Change in Control or death of Mr. Blount, or the Company's requiring Executive without his consent to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Executive's present business travel obligations; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's current compensation (including Base Salary and bonus), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (v) the failure by the Company to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control or death of Mr. Blount, which is material to Executive's total compensation, including but not limited to the Company's Target Incentive Plan, stock option plan, or any substitute plans adopted prior to the Change in Control or death of Mr. Blount, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation in such plan (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 Executive's participation relative to other participants, as existed at the time of the Change in Control or death of Mr. Blount; (vi) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of the Company's pension, life insurance (including the Executive Life Insurance Program), medical, health and accident or disability plans in which Executive was participating at the time of the Change in Control or death of Mr. Blount, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control or death of Mr. Blount, or the failure by the Company to provide Executive with the number of paid vacation days to which the Executive is entitled under this Agreement; or (vii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 6.8 "Person". Any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. 7. Termination Procedures. 7.1 Notice of Termination. During the Term of this Agreement, any purported termination of Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11. 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 Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of the written reasons for such termination (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard) finding that, in good faith opinion, Executive was guilty of conduct set forth in clause (a) or (b) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of Executive's employment during the Term of this Agreement, shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive's duties during such thirty (30) day period), and (iii) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8. Contract Non-Assignable. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts which, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive's estate. 10. Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Blount, Inc. 4520 Executive Park Drive Montgomery, Alabama 36116-1602 Attention: D. Joseph McInnes To the Executive: Harold E. Layman 6465 Wynwood Place Montgomery, Alabama 36117 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 14. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto. 15. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama. 16. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be in writing. Any denial of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Company shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal a decision within sixty (60) days after notification that Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Montgomery, Alabama, 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. In the event the Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator. Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE: _____________________________ HAROLD E. LAYMAN Senior Vice President & Chief Financial Officer COMPANY: BLOUNT, INC. By: ___________________________ JOHN M. PANETTIERE President & Chief Executive Officer Witness:_____________________ _____________________________ Notary Public EX-99 9 EXHIBIT 10(R) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (r) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 22nd day of August, 1994, by and between BLOUNT, INC., a Delaware corporation (the "Company"), and D. Joseph McInnes ("Executive"). W I T N E S S E T H: WHEREAS, effective March 31, 1992, the Company and Executive entered into an agreement ("Initial Agreement") providing for Executive's employment by Company and specifying the terms and conditions of such employment; and WHEREAS, Executive has diligently performed his duties under the Initial Agreement and has contributed to the success of the Company; and WHEREAS, the Company desires to recognize Executive's value to the Company and its shareholders by amending certain provisions of the Initial Agreement and restating such agreement in a single document as hereinafter provided; and WHEREAS, Executive desires to continue his employment with the Company on the terms and conditions provided herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Purpose. The purpose of this Agreement is to amend the Initial Agreement to recognize Executive's contributions to the overall success of the Company. In order to provide a single, integrated document, the Initial Agreement and the amendments are hereby incorporated into this restated Employment Agreement, which shall provide the basis for Executive's continued employment by the Company. 2. Employment and Term. (a) Subject to the terms and conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment, as Senior Vice President - Administration and Corporate Secretary of the Company or other similar positions to which, with his consent, he may be assigned and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to Executive. Executive hereby agrees that during the Term of this Agreement he will devote substantially all his working time, attention and energies to the diligent performance of his duties, provided that the Executive may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder and is with the prior approval of the President and Chief Executive Officer. (b) Unless earlier terminated as provided herein, Executive's employment under this Agreement shall be for a rolling, five year term (the "Term") commencing on August 22, 1994, and shall be deemed to automatically, without further action by either the Company or Executive, extend each day for an additional day, such that the remaining term of the Agreement shall continue to be five years; provided, however, that (i) either party may, by written notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the five years following the date of such notice and this Agreement shall terminate upon the expiration of such Term, and (ii) the Term of this Agreement shall not extend beyond the date Executive attains age 65, unless the parties otherwise agree in writing. If no such notice to cease to extend has been given and this Agreement is terminated pursuant to Section 5.1 or Section 5.2 hereof, for the purposes of calculating and assessing the damages to Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be five years from the date of such termination (or, if earlier, the date Executive attains age 65). 3. Compensation and Benefits. As compensation for his services during the Term of this Agreement, Executive shall be paid and receive the amounts and benefits set forth in subsections (a) through (f) below: (a) An annual base salary ("Base Salary") of Two Hundred Thirty-Six Thousand and No/100 Dollars ($236,000.00), prorated for any partial year of employment. Executive's Base Salary shall be subject to annual review for increases at such time as the Company conducts salary reviews for its executive officers generally. Executive's salary shall be payable bi- monthly, or in accordance with the Company's regular payroll practices in effect from time to time for executive officers of the Company. (b) Executive shall be eligible to participate in the Target Incentive Plan and such other annual incentive plans as may be established by the Company from time to time for its executive officers. The President and Chief Executive Officer will establish performance goals each year under the incentive plans, and Executive's annual Target Bonus shall be 45% of Base Salary; the maximum award for exceeding the performance goals shall be 90% of Base Salary. The annual incentive bonus payable under this subsection (b) shall be payable as a lump sum no later than fifteen (15) business days after approval of the bonus by the Compensation Committee of the Board, unless Executive elects to defer all or a portion of such amount to any deferral plan established by the Company for such purpose. (c) Executive shall be entitled to participate in, or receive benefits under, any "employee benefit plan" (as defined in Section 3(3) of ERISA) or employee benefit arrangement made available by the Company to its executive officers, including plans providing retirement, 401(k) benefits, deferred compensation, health care, life insurance, disability and similar benefits. (d) The Company will provide membership initiation fees and dues at the Montgomery Country Club and the Capital City Club for Executive and his family. Executive will be provided an automobile per company policy, and the Company will pay all insurance, maintenance, fuel, oil and related operational expenses for such automobile. Executive is eligible for vacation under the Company's standard vacation policy. Executive will be provided an annual physical examination and a financial/tax consultant for personal financial and tax planning. (e) Executive shall participate in the Company's Key Man Life Insurance Program, detailed in Exhibit A, which will provide a death benefit equal to 2 l/2 times Executive's total compensation (as determined each August 1), subject to a maximum benefit of $2.5 million. A supplemental pension benefit, as described in Exhibit A, may be taken at retirement in lieu of paid-up insurance. The life insurance provided to Executive under the Key Man Life Insurance Program shall be in addition to any life insurance he receives under the Company's group term policy under subsection (c) above. (f) Executive will be paid a tax gross-up amount by the Company to cover any additional federal or state income taxes he incurs as a result of being required to include in taxable income the amount of the premiums or costs for, or personal usage of, the items described in subsections (d) and (e) above. 4. Confidentiality and Noncompetition. (a) Executive acknowledges that, prior to and during the Term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. Moreover, the parties recognize that Executive during the course of his employment with the Company may develop important relationships with customers and others having valuable business relationships with the Company. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and good will. (b) Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any Person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information; provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Executive's obligations under this Section 4(b) shall survive any expiration or termination of this Agreement, provided that Executive may after such expiration or termination disclose Confidential Information with the prior written consent of the President and Chief Executive Officer. (c) Upon the termination or expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control, and all of the Company's equipment and other materials in his possession or control. Executive's obligations under this Section 4(c) shall survive any expiration or termination of this Agreement. (d) Upon the termination or expiration of his employment under this Agreement, Executive agrees that he shall not enter into or engage in the design, manufacture, marketing or sale of any products similar to those produced or offered by the Company or its affiliates in the area of North America, either as an individual, partner or joint venturer, or as an employee, agent or salesman, or as an officer, director, or shareholder of a corporation for a period of three (3) years from the date of his termination of employment. (e) Executive acknowledges that if he breaches or threatens to breach this Section 4, his actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Section 4, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies of the Company. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of Executive's agreement under this Section 4(d). 5. Termination. 5.1 By Executive. Executive shall have the right to terminate his employment hereunder by Notice of Termination (as described in Section 7) if (i) the Company materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice of such breach is given by Executive to the Company; or (ii) Executive determines that his termination is for Good Reason (as defined in Section 6.7). If Executive terminates his employment hereunder pursuant to clauses (i) or (ii) of this Section 5.1, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits set forth in subsections (a) through (i) below. The time periods in (a) through (i) below shall be the lesser of the 36-month or 3-year periods stated therein or the time period remaining from the date of Executive's termination to the end of the Term of this Agreement. If Executive terminates his employment other than pursuant to clauses (i) or (ii) of this Section 5.1, the Company's obligations under this Agreement shall cease as of the date of such termination. Except as provided in Section 5.4(c), the Company agrees that if Executive terminates employment and is entitled to benefits under this Section 5.1, he shall not be required to mitigate damages by seeking other employment, nor shall any amount he earns reduce the amount payable by the Company hereunder. (a) Base Salary - Executive will continue to receive his Base Salary as then in effect (subject to withholding of all applicable taxes) for a period of thirty-six (36) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than 30 days after his termination of employment; provided, further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value (as defined in Section 5.4(d)) on the date Executive's employment under this Agreement is terminated. (b) Bonuses and Incentives - Executive shall receive bonus payments from the Company for the thirty-six (36) months following the month in which his employment under this Employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses earned by him for the two fiscal years in which bonuses were paid immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. Executive shall also receive a prorated bonus for any uncompleted fiscal year at the date of termination (assuming the Target Award level has been achieved), based upon the number of days that he was employed during such fiscal year. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than 30 days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value (as defined in Section 5.4(d)) on the date Executive's employment under this Agreement is terminated. (c) Health and Life Insurance Coverage - The health and group term life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date thirty-six (36) months from the date of such termination. Any additional coverages Executive had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. (d) Employee Retirement Plans - To the extent permitted by the applicable plan, Executive will be entitled to continue to participate, consistent with past practices, in all employee retirement plans maintained by the Company in effect as of his date of termination, including, to the extent such plans are still maintained by the Company, the Blount Retirement Plan, the Blount 401(k) Plan, and, if applicable, the Blount, Inc. and Subsidiary Supplemental Retirement Plan. Executive's participation in such retirement plans shall continue for a period of thirty-six (36) months from the date of termination of his employment under this Agreement (at which point he will be considered to have terminated employment within the meaning of the plans) and the compensation payable to Executive under (a) and (b) above shall be treated (unless otherwise excluded) as compensation under the plan. For purposes of the Blount 401(k) Plan, he will receive an amount equal to the Company's contributions to the plan, assuming Executive had participated in such plan at the maximum permissible contributions level. If continued participation in any plan is not permitted by the plan or by applicable law, the Company shall pay to Executive and, if applicable, his beneficiary, a supplemental benefit equal to the present value on the date of termination of employment under this Agreement (calculated as provided in the plan) of the excess of (i) the benefit Executive would have been paid under such plan if he had continued to be covered for the 36-month period (less any amounts Executive would have been required to contribute), over (ii) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum. (e) Effect of Lump Sum Payment. The lump sum payment under (a) or (b) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in this section. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of thirty-six (36) months. (f) Effect of Death or Retirement. The benefits payable or to be provided under subsections (c) or (d) above shall cease or be modified in the event of the Executive's death or election to commence retirement benefits under the Company's retirement plan, provided that nothing in this subsection (f) shall limit Executive's rights to receive Company benefits as a retiree. (g) Key Man Life Insurance Program. On Executive's date of termination, the Company will pay an amount into the policy as if Executive had continued in employment for three (3) additional years at the same total compensation and was three (3) years older. At Executive's option, the policy shall be delivered to Executive or he shall be paid the supplemental pension as described in Exhibit A. (h) Stock Options. For purposes of the 1992 Plan, the 1994 Plan and other stock option programs of the Company, Executive shall be deemed to have completed three (3) additional years of service with the Company. (i) Office Space; Secretarial. Executive will be provided appropriate office space, secretarial assistance and related expenses for a period of eighteen (18) months from his date of termination. 5.2 By Company. The Company shall have the right to terminate Executive's employment under this Agreement at any time during the Term by Notice of Termination (as described in Section 7), (i) for Cause, as defined herein, (ii) if Executive becomes Disabled, or (iii) upon Executive's death. If the Company terminates Executive's employment under this Agreement pursuant to clauses (i) through (iii) of this Section 5.2, the Company's obligations under this Agreement shall cease as of the date of termination; provided, however, that if Executive's employment terminates as a result of death or Disability, the benefits payable under this Agreement and the other benefit plans of the Company upon Executive's death or Disability shall be provided by the Company. If the Company terminates Executive during the Term of this Agreement other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits provided in subsections (a) through (i) of Section 5.1 above for the time periods, and subject to the provisions (including the nonmitigation provision) and limitations therein. 5.3 Additional Agreements Upon Termination. In the event Executive's employment is terminated by Executive under clause (ii) of Section 5.1, or by the Company other than under clauses (i) through (iii) of Section 5.2 within twenty-four (24) months following the date of a Change in Control or the death of Winton M. Blount, Jr., the provisions set forth below shall apply, provided that such provisions shall only apply in each case to the extent that the damages payable to Executive for termination of his employment under Sections 5.1 or 5.2 do not already provide such benefits under the plan or program. (a) Stock Options. As of his date of termination, all outstanding stock options granted to Executive under the 1992 Plan, the 1994 Plan or any similar stock option programs shall become 100% vested and immediately exercisable. (b) Key Man Life Insurance Program. The life insurance policy and the retirement benefit option described in Section 3(e) shall become fully funded within thirty (30) days after his date of termination, regardless of Executive's age at such time. 5.4 Tax Equilization Payment. (a) If all or any portion of the compensation or benefits provided to Executive under this Agreement are treated as Excess Severance Payments (whether by action of the Internal Revenue Service or otherwise), the Company shall protect Executive from depletion of the amount of such compensation and benefits by payment of a tax equalization payment in accordance with this subsection (a). In connection with any Internal Revenue Service examination, audit or other inquiry, the Company and Executive agree to take actions to provide, and to cooperate in providing, evidence to the Internal Revenue Service (and, if applicable, the State of Alabama) that the compensation and benefits provided under this Agreement do not result in the payment of Excess Severance Payments. The tax equalization payment shall be an amount which when added to the other amounts payable, or to be provided, to Executive under this Agreement will place Executive in the same position as if the excise tax penalty of Code Section 4999 (and any state tax statute), or any successor statute of similar import, did not apply to any of the compensation or benefits provided under this Agreement. The amount of this tax equalization payment shall be determined by the Company's independent accountants and shall be paid to Executive not later than ten (10) days prior to the date any excise tax under Code Section 4999 is due to be paid by Executive. (b) In addition to the limits otherwise provided in this Section 5.4, to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments or benefits he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (c) If Executive becomes entitled to compensation and benefits under Section 5.1 or Section 5.2 and such payments are considered to be Severance Payments contingent upon a Change in Control, Executive shall be required to mitigate damages (but only with respect to amounts that would be treated as Severance Payments) by reducing the amount of Severance Payments he is entitled to receive by any compensation and benefits he earns from subsequent employment (but shall not be required to seek such employment) during the 36-month period after termination (or such lesser period as he is entitled to extended benefits). (d) For purposes of this Section 5.4, the following definitions shall apply: (i) "Excess Severance Payment" - The term "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(1) of the Code. (ii) "Severance Payment" - The term "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280G(b)(2) of the Code. (iii) "Reasonable Compensation" - The term "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. The parties acknowledge and agree that, in the absence of a change in existing legal authorities or the issuance of contrary authorities, amounts received by Executive as damages under or as a result of a breach of this Agreement shall be considered Reasonable Compensation. (iv) "Present Value" - The term "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. 6. Definitions. For purposes of this Agreement the following terms shall have the meanings specified below: 6.1 "Board" or "Board of Directors" - The Board of Directors of the Company. 6.2 "Cause" - Either (a) Any act that constitutes, on the part of Executive, (i) fraud, a felony or gross malfeasance of duty and (ii) that results in material injury to the Company; or (b) Executive's willful and continued failure to devote his full business time and efforts to the performance of duties for the Company; provided, however, that in the case of (b) above, such conduct shall not constitute Cause unless the notice delivered to Executive by the Board pursuant to Section 7 sets forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. 6.3 "Change in Control" - Either (i) the acquisition, directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) within any twelve (12) month period of securities of the Company representing an aggregate of fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (excluding the acquisition by persons who own such amount of securities on the date hereof, or acquisitions by persons who acquire such amount through inheritance), provided, however, that the threshold percentage in this subparagraph (i) shall be automatically reduced to an aggregate of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities at such time that either of the following events occurs: (a) Winton M. Blount's ownership of the combined voting power of HBC, Incorporated's then outstanding securities is less than 50.1%, or (B) HBC, Incorporated's ownership of the combined voting power of the Company's then outstanding securities is less than 50.1%.; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (a) a merger, consolidation or other business combination of the Company with any other "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (b) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement. 6.4 "Code" - The Internal Revenue Code of 1986, as it may be amended from time to time. 6.5 "Confidential Information" - All technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 6.6 "Disability" or "Disabled". Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. 6.7 "Good Reason" A "Good Reason" for termination by Executive of Executive's employment shall mean the occurrence (without the Executive's express written consent) within the twenty-four (24) month period following the date of (a) a Change in Control, or (b) the death of Winton M. Blount, Jr., of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i) the assignment to Executive of any duties inconsistent with Executive's status as the Senior Vice President - - Administration and Corporate Secretary of the Company, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control or death of Mr. Blount (other than any such alteration primarily attributable to the fact that the Company may no longer be a public company); (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of Company's principal executive offices to a location more than fifty (50) miles from the location of such offices immediately prior to the Change in Control or death of Mr. Blount, or the Company's requiring Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Executive's present business travel obligations; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's current compensation (including Base Salary and bonus), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (v) the failure by the Company to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control or death of Mr. Blount, which is material to Executive's total compensation, including but not limited to the Company's Target Incentive Plan, stock option plan, or any substitute plans adopted prior to the Change in Control or death of Mr. Blount, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation in such plan (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 Executive's participation relative to other participants, as existed at the time of the Change in Control or death of Mr. Blount; (vi) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of the Company's pension, life insurance (including the Key Man Life Insurance Program), medical, health and accident or disability plans in which Executive was participating at the time of the Change in Control or death of Mr. Blount, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control or death of Mr. Blount, or the failure by the Company to provide Executive with the number of paid vacation days to which the Executive is entitled under this Agreement; or (vii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 6.8 "Person". Any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. 7. Termination Procedures. 7.1 Notice of Termination. During the Term of this Agreement, any purported termination of Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11. 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 Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of the written reasons for such termination (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard) finding that, in good faith opinion, Executive was guilty of conduct set forth in clause (a) or (b) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of Executive's employment during the Term of this Agreement, shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive's duties during such thirty (30) day period), and (iii) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8. Contract Non-Assignable. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts which, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive's estate. 10. Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Blount, Inc. 4520 Executive Park Drive Montgomery, Alabama 36116-1602 To the Executive: D. Joseph McInnes 2408 Midfield Drive Montgomery, Alabama 36111 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 14. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto. 15. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama. 16. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Montgomery, Alabama, 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. In the event the Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator. Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE: _____________________________ D. JOSEPH MCINNES Senior Vice President - Administration & Corporate Secretary COMPANY: BLOUNT, INC. By: ___________________________ JOHN M. PANETTIERE President & Chief Executive Officer Witness:______________________ ______________________________ Notary Public EX-99 10 EXHIBIT 10(S) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (s) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 12th day of September, 1994, by and between BLOUNT, INC., a Delaware corporation (the "Company"), and James S. Osterman ("Executive"). W I T N E S S E T H: WHEREAS, the Company and Executive desire to enter into an agreement providing for Executive's employment by Company and specifying the terms and conditions of such employment; and WHEREAS, Executive has diligently performed his duties and has contributed to the success of the Company; and WHEREAS, Executive desires to continue his employment with the Company on the terms and conditions provided herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Purpose. The purpose of this Agreement is to create an understanding which shall provide the basis for Executive's continued employment by the Company. 2. Employment and Term. (a) Subject to the terms and conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment, as President of its Oregon Cutting Systems Division or such other positions to which, with his consent, he may be assigned and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to Executive by the President and Chief Executive Officer. Executive hereby agrees that during the Term of this Agreement he will devote substantially all his working time, attention and energies to the diligent performance of his duties as President of the Oregon Cutting Systems Division, provided that the Executive may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder and is with the prior approval of the President and Chief Executive Officer of the Company. (b) Unless earlier terminated as provided herein, Executive's employment under this Agreement shall be for a rolling, three year term (the "Term") commencing on September ___, 1994, and shall be deemed to automatically, without further action by either the Company or Executive, extend each day for an additional day, such that the remaining term of the Agreement shall continue to be three years; provided, however, that (i) either party may, by written notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the three years following the date of such notice and this Agreement shall terminate upon the expiration of such Term, and (ii) the Term of this Agreement shall not extend beyond the date Executive attains age 65, unless the parties otherwise agree in writing. If no such notice to cease to extend has been given and this Agreement is terminated pursuant to Section 5.1 or Section 5.2 hereof, for the purposes of calculating and assessing the damages to Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be three years from the date of such termination (or, if earlier, the date Executive attains age 65). 3. Compensation and Benefits. As compensation for his services during the Term of this Agreement, Executive shall be paid and receive the amounts and benefits set forth in subsections (a) through (f) below: (a) An annual base salary ("Base Salary") of Two Hundred Seventeen Thousand and Nine Hundred and No/100 Dollars ($217,000.00), prorated for any partial year of employment. Executive's Base Salary shall be subject to annual review for increases at such time as the Company conducts salary reviews for its executive officers generally. Executive's salary shall be payable bi-monthly, or in accordance with the Company's regular payroll practices in effect from time to time for executive officers of the Company. (b) Executive shall be eligible to participate in the Target Incentive Plan and such other annual incentive plans as may be established by the Company from time to time for its executive officers. The President and Chief Executive Officer will establish individual performance goals each year under the incentive plans, and Executive's annual Target Bonus shall be 45% of Base Salary; the maximum award for exceeding the performance goals shall be 90% of Base Salary. The annual incentive bonus payable under this subsection (b) shall be payable as a lump sum no later than fifteen (15) business days after approval of the bonus by the Compensation Committee of the Board, unless Executive elects to defer all or a portion of such amount to any deferral plan established by the Company for such purpose. (c) Executive will be eligible to participate in the 1992 Blount Incentive Stock Option Plan ("1992 Plan"), the 1994 Blount Executive Stock Option Plan ("1994 Plan") and such other stock option programs as may be established from time to time by the Company for its executive officers. Executive will participate in any long-term incentive plans established by the Company for executive officers at his level. (d) Executive shall be entitled to participate in, or receive benefits under, any "employee benefit plan" (as defined in Section 3(3) of ERISA) or employee benefit arrangement made available by the Company to its executive officers, including plans providing retirement, 401(k) benefits, deferred compensation, health care, life insurance, disability and similar benefits. (e) The Company will provide membership initiation fees and dues at The Waverly Country Club for Executive and his family. Executive will be provided an automobile per company policy, and the Company will pay all insurance, maintenance, fuel, oil and related operational expenses for such automobile. Executive will be eligible for vacation under the Company's standard vacation policy. Executive will be provided an annual physical examination and a financial/tax consultant for personal financial and tax planning. (f) Executive will be paid a tax gross-up amount by the Company to cover any additional federal or state income taxes he incurs as a result of being required to include in taxable income the amount of the premiums or costs for, or personal usage of, the items described in subsections (d) and (e) above. 4. Confidentiality and Noncompetition. (a) Executive acknowledges that, prior to and during the Term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. Moreover, the parties recognize that Executive during the course of his employment with the Company may develop important relationships with customers and others having valuable business relationships with the Company. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and good will. (b) Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any Person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information; provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Executive's obligations under this Section 4(b) shall survive any expiration or termination of this Agreement, provided that Executive may after such expiration or termination disclose Confidential Information with the prior written consent of the President and Chief Executive Officer. (c) Upon the termination or expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control, and all of the Company's equipment and other materials in his possession or control. Executive's obligations under this Section 4(c) shall survive any expiration or termination of this Agreement. (d) Upon the termination or expiration of his employment under this Agreement, Executive agrees that he shall not enter into or engage in the design, manufacture, marketing or sale of any products similar to those produced or offered by the Company or its affiliates in the area of North America, either as an individual, partner or joint venturer, or as an employee, agent or salesman, or as an officer, director, or shareholder of a corporation for a period of two (2) years from the date of his termination of employment. (e) Executive acknowledges that if he breaches or threatens to breach this Section 4, his actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Section 4, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies of the Company. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of Executive's agreement under this Section 4(d). 5. Termination. 5.1 By Executive. Executive shall have the right to terminate his employment hereunder by Notice of Termination (as described in Section 7) if (i) the Company materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice of such breach is given by Executive to the Company; or (ii) Executive determines that his termination is for Good Reason (as defined in Section 6.7). If Executive terminates his employment hereunder pursuant to clauses (i) or (ii) of this Section 5.1, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits set forth in subsections (a) through (h) below. The time periods in (a) through (h) below shall be the lesser of the 24-month or 2-year periods stated therein or the time period remaining from the date of Executive's termination to the end of the Term of this Agreement. If Executive terminates his employment other than pursuant to clauses (i) or (ii) of this Section 5.1, the Company's obligations under this Agreement shall cease as of the date of such termination. Except as provided in Section 5.4(a), the Company agrees that if Executive terminates employment and is entitled to benefits under this Section 5.1, he shall not be required to mitigate damages by seeking other employment, nor shall any amount he earns reduce the amount payable by the Company hereunder. (a) Base Salary - Executive will continue to receive his Base Salary as then in effect (subject to withholding of all applicable taxes) for a period of twenty-four (24) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than 30 days after his termination of employment; provided, further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (b) Bonuses and Incentives - Executive shall receive bonus payments from the Company for the twenty-four (24) months following the month in which his employment under this Employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses earned by him for the two fiscal years in which bonuses were paid immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. Executive shall also receive a prorated bonus for any uncompleted fiscal year at the date of termination (assuming the Target Award level has been achieved), based upon the number of days that he was employed during such fiscal year. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than 30 days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (c) Health and Life Insurance Coverage - The health and group term life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date twenty-four (24) months from the date of such termination. Any additional coverages Executive had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. (d) Employee Retirement Plans - To the extent permitted by the applicable plan, Executive will be entitled to continue to participate, consistent with past practices, in all employee retirement plans maintained by the Company in effect as of his date of termination, including, to the extent such plans are still maintained by the Company, the Blount Retirement Plan, and the Blount 401(k) Plan. Executive's participation in such retirement plans shall continue for a period of twenty-four (24) months from the date of termination of his employment under this Agreement (at which point he will be considered to have terminated employment within the meaning of the plans) and the compensation payable to Executive under (a) and (b) above shall be treated (unless otherwise excluded) as compensation under the plan. For purposes of the Blount 401(k) Plan, he will receive an amount equal to the Company's contributions to the plan, assuming Executive had participated in such plan at the maximum permissible contributions level. If continued participation in any plan is not permitted by the plan or by applicable law, the Company shall pay to Executive and, if applicable, his beneficiary, a supplemental benefit equal to the present value on the date of termination of employment under this Agreement (calculated as provided in the plan) of the excess of (i) the benefit Executive would have been paid under such plan if he had continued to be covered for the 24-month period (less any amounts Executive would have been required to contribute), over (ii) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum. (e) Effect of Lump Sum Payment. The lump sum payment under (a) or (b) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in this section. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of twenty-four (24) months. (f) Effect of Death or Retirement. The benefits payable or to be provided under subsections (c) or (d) above shall cease or be modified in the event of the Executive's death or election to commence retirement benefits under the Company's retirement plan, provided that nothing in this subsection (f) shall limit Executive's rights to receive Company benefits as a retiree. (g) Stock Options. For purposes of the 1992 Plan, the 1994 Plan and other stock option programs of the Company in which Executive participates, Executive shall be deemed to have completed two (2) additional years of service with the Company. (h) Office Space; Secretarial. Executive will be provided appropriate office space, secretarial assistance, and related expenses for a period of twelve (12) months from his date of termination. 5.2 By Company. The Company shall have the right to terminate Executive's employment under this Agreement at any time during the Term by Notice of Termination (as described in Section 7), (i) for Cause, as defined herein, (ii) if Executive becomes Disabled, or (iii) upon Executive's death. If the Company terminates Executive's employment under this Agreement pursuant to clauses (i) through (iii) of this Section 5.2, the Company's obligations under this Agreement shall cease as of the date of termination; provided, however, that if Executive's employment terminates as a result of death or Disability, the benefits payable under this Agreement and the other benefit plans of the Company upon Executive's death or Disability shall be provided by the Company. If the Company terminates Executive during the Term of this Agreement other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits provided in subsections (a) through (h) of Section 5.1 above for the time periods, and subject to the provisions (including the nonmitigation provision) and limitations therein. 5.3 Additional Agreements Upon Termination. In the event Executive's employment is terminated by Executive under clause (ii) of Section 5.1, or by the Company other than under clauses (i) through (iii) of Section 5.2 within twenty-four (24) months following the date of a Change in Control or the death of Winton M. Blount, Jr., the provisions set forth below shall apply, provided that such provisions shall only apply in each case to the extent that the damages payable to Executive for termination of his employment under Sections 5.1 or 5.2 do not already provide such benefits under the plan or program. (a) Stock Options. As of his date of termination, all outstanding stock options granted to Executive under the 1992 Plan, the 1994 Plan or any similar stock option programs shall become 100% vested and immediately exercisable. Notwithstanding the other provisions of Executive's stock options, Executive shall have a period of not less than 3 months from his date of termination to exercise such options. 5.4 Limitation on Benefits Upon Termination. (a) Notwithstanding anything in this Agreement to the contrary, any benefits payable or to be provided to Executive by the Company or its affiliates, whether pursuant to this Agreement or otherwise, which are treated as Severance Payments shall be modified or reduced in the manner provided in (b) below to the extent necessary so that the benefits payable or to be provided to Executive under this Agreement that are treated as Severance Payments, as well as any payments or benefits provided outside of this Agreement that are so treated, shall not cause the Company to have paid an Excess Severance Payment. In computing such amount, the parties shall take into account all provisions of Code Section 280G, and the regulations thereunder, including making appropriate adjustments to such calculation for amounts established to be Reasonable Compensation. If Executive becomes entitled to compensation and benefits under Section 5.1 or Section 5.2 and such payments are considered to be Severance Payments contingent upon a Change in Control, Executive shall be required to mitigate damages (but only with respect to amounts that would be treated as Severance Payments) by reducing the amount of Severance Payments he is entitled to receive by any compensation and benefits he earns from subsequent employment (but shall not be required to seek such employment) during the 24-month period after termination (or such lesser period as he is entitled to extended benefits). (b) In the event that the amount of any Severance Payments which would be payable to or for the benefit of Executive under this Agreement must be modified or reduced to comply with this Section 5.4, Executive shall direct which Severance Payments are to be modified or reduced; provided, however, that no increase in the amount of any payment or change in the timing of the payment shall be made without the consent of the Company. (c) This Section 5.4 shall be interpreted so as to avoid the imposition of excise taxes on Executive under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G(a) of the Code with respect to amounts payable under this Agreement or otherwise. Notwithstanding the foregoing, in no event will any of the provisions of this Section 5.4 create, without the consent of Executive, an obligation on the part of Executive to refund any amount to the Company following payment of such amount. (d) In addition to the limits otherwise provided in this Section 5.4, to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (e) For purposes of this Section 5.4, the following definitions shall apply: (i) "Excess Severance Payment" - The term "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(1) of the Code. (ii) "Severance Payment" - The term "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280G(b)(2) of the Code. (iii) "Reasonable Compensation" - The term "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. The parties acknowledge and agree that, in the absence of a change in existing legal authorities or the issuance of contrary authorities, amounts received by Executive as damages under or as a result of a breach of this Agreement shall be considered Reasonable Compensation. (iv) "Present Value" - The term "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. 6. Definitions. For purposes of this Agreement the following terms shall have the meanings specified below: 6.1 "Board" or "Board of Directors" - The Board of Directors of the Company. 6.2 "Cause" - Either (a) Any act that constitutes, on the part of Executive, (i) fraud, a felony or gross malfeasance of duty and (ii) that results in material injury to the Company; or (b) Executive's willful and continued failure to devote his full business time and efforts to the performance of duties for the Company; provided, however, that in the case of (b) above, such conduct shall not constitute Cause unless the notice delivered to Executive by the Board pursuant to Section 7 sets forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. 6.3 "Change in Control" - Either (i) the acquisition, directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) within any twelve (12) month period of securities of the Company representing an aggregate of fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (excluding the acquisition by persons who own such amount of securities on the date hereof, or acquisitions by persons who acquire such amount through inheritance), provided, however, that the threshold percentage in this subparagraph (i) shall be automatically reduced to an aggregate of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities at such time that either of the following events occurs: (a) Winton M. Blount's ownership of the combined voting power of HBC, Incorporated's then outstanding securities is less than 50.1%, or (B) HBC, Incorporated's ownership of the combined voting power of the Company's then outstanding securities is less than 50.1%.; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (a) a merger, consolidation or other business combination of the Company with any other "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (b) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement. 6.4 "Code" - The Internal Revenue Code of 1986, as it may be amended from time to time. 6.5 "Confidential Information" - All technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 6.6 "Disability" or "Disabled". Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. 6.7 "Good Reason" A "Good Reason" for termination by Executive of Executive's employment shall mean the occurrence (without the Executive's express written consent) within the twenty-four (24) month period following the date of (a) a Change in Control, or (b) the death of Winton M. Blount, Jr., of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i) the assignment to Executive of any duties inconsistent with Executive's status as the President of the Oregon Cutting Systems Division, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control or death of Mr. Blount (other than any such alteration primarily attributable to the fact that the Company may no longer be a public company); (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation without the consent of the Executive of the Division's principal executive offices to a location more than fifty (50) miles from the location of such offices immediately prior to the Change in Control or death of Mr. Blount, or the Company's requiring Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Executive's present business travel obligations; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's current compensation (including Base Salary and bonus), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (v) the failure by the Company to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control or death of Mr. Blount, which is material to Executive's total compensation, including but not limited to the Company's Target Incentive Plan, stock option plan, or any substitute plans adopted prior to the Change in Control or death of Mr. Blount, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation in such plan (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 Executive's participation relative to other participants, as existed at the time of the Change in Control or death of Mr. Blount; (vi) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of the Company's pension, life insurance, medical, health and accident or disability plans in which Executive was participating at the time of the Change in Control or death of Mr. Blount, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control or death of Mr. Blount, or the failure by the Company to provide Executive with the number of paid vacation days to which the Executive is entitled under this Agreement; or (vii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 6.8 "Person". Any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. 7. Termination Procedures. 7.1 Notice of Termination. During the Term of this Agreement, any purported termination of Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11. 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 Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to establish that the Executive was guilty of conduct set forth in clause (a) or (b) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of Executive's employment during the Term of this Agreement, shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive's duties during such thirty (30) day period), and (iii) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8. Contract Non-Assignable. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts which, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive's estate. 10. Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Blount, Inc. 4520 Executive Park Drive Montgomery, Alabama 36116-1602 Attention: D. Joseph McInnes To the Executive: James S. Osterman 19021 S. Central Point Road Oregon City, Oregon 97045 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 14. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto. 15. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama. 16. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be in writing. Any denial of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Company shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal a decision within sixty (60) days after notification that Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Montgomery, Alabama, 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. In the event the Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator. Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE: _____________________________ JAMES S. OSTERMAN President Oregon Cutting Systems Division COMPANY: BLOUNT, INC. By: ___________________________ JOHN M. PANETTIERE President & Chief Executive Officer Witness:___________________ ___________________________ Notary Public EX-99 11 EXHIBIT 10(T) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (t) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 14th day of September, 1994, by and between BLOUNT, INC., a Delaware corporation (the "Company"), and Donald B. Zorn ("Executive"). W I T N E S S E T H: WHEREAS, effective December 10, 1993, the Company and Executive entered into an agreement ("Initial Agreement") providing for Executive's employment by Company and specifying the terms and conditions of such employment; and WHEREAS, Executive has performed his duties under the Initial Agreement and has contributed to the financial performance and success of the Company; and WHEREAS, the Company desires to recognize Executive's performance and value to the Company and its shareholders by amending certain provisions of the Initial Agreement and restating such agreement in a single document as hereinafter provided; and WHEREAS, Executive desires to continue his employment with the Company on the terms and conditions provided herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Purpose. The purpose of this Agreement is to amend the Initial Agreement to recognize Executive's contributions to the overall financial performance and success of the Company. In order to provide a single, integrated document, the Initial Agreement and the amendments are hereby incorporated into this restated Employment Agreement, which shall provide the basis for Executive's continued employment by the Company. 2. Employment and Term. (a) Subject to the terms and conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment, as President of its Forestry and Industrial Equipment Division or other positions to which, with his consent, he may be assigned and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to Executive by the President and Chief Executive Officer. Executive hereby agrees that during the Term of this Agreement he will devote substantially all his working time, attention and energies to the diligent performance of his duties as President of the Forestry and Industrial Equipment Division, provided that the Executive may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder and is with the prior approval of the President and Chief Executive Officer of the Company. (b) Unless earlier terminated as provided herein, Executive's employment under this Agreement shall be for a rolling, three year term (the "Term") commencing on September ___, 1994, and shall be deemed to automatically, without further action by either the Company or Executive, extend each day for an additional day, such that the remaining term of the Agreement shall continue to be three years; provided, however, that (i) either party may, by written notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the three years following the date of such notice and this Agreement shall terminate upon the expiration of such Term, and (ii) the Term of this Agreement shall not extend beyond the date Executive attains age 65, unless the parties otherwise agree in writing. If no such notice to cease to extend has been given and this Agreement is terminated pursuant to Section 5.1 or Section 5.2 hereof, for the purposes of calculating and assessing the damages to Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be three years from the date of such termination (or, if earlier, the date Executive attains age 65). 3. Compensation and Benefits. As compensation for his services during the Term of this Agreement, Executive shall be paid and receive the amounts and benefits set forth in subsections (a) through (h) below: (a) An annual base salary ("Base Salary") of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), prorated for any partial year of employment. Executive's Base Salary shall be subject to annual review for increases at such time as the Company conducts salary reviews for its executive officers generally. Executive's salary shall be payable bi-monthly, or in accordance with the Company's regular payroll practices in effect from time to time for executive officers of the Company. (b) Executive shall be eligible to participate in the Target Incentive Plan and such other annual incentive plans as may be established by the Company from time to time for its executive officers. The President and Chief Executive Officer will establish individual performance goals each year under the incentive plans, and Executive's annual Target Bonus shall be 45% of Base Salary; the maximum award for exceeding the performance goals shall be 90% of Base Salary. The annual incentive bonus payable under this subsection (b) shall be payable as a lump sum no later than fifteen (15) business days after approval of the bonus by the Compensation Committee of the Board, unless Executive elects to defer all or a portion of such amount to any deferral plan established by the Company for such purpose. (c) Executive will be eligible to participate in the 1992 Blount Incentive Stock Option Plan ("1992 Plan"), the 1994 Blount Executive Stock Option Plan ("1994 Plan") and such other stock option programs as may be established from time to time by the Company for its executive officers. Executive will participate in any long-term incentive plans established by the Company for executive officers at his level. (d) Executive shall be covered by a Supplemental Executive Retirement Plan ("SERP"), providing for the following: (i) The SERP will pay Executive a benefit at age 65 in the form of a single life annuity less the amount of any benefit he is entitled to receive at age 65 under the Blount Retirement Plan and the Blount and Subsidiaries Supplemental Retirement Plan, and the amount actually payable to Executive at age 65 under any pension plan of his former employer. The benefit under the SERP shall be calculated in accordance with the formula in the Blount Retirement Plan (but without the Code compensation limitations) and shall assume the Executive will have 1 year of benefit service earned under the SERP for each corresponding year of service earned under the qualified plan at age 65. The SERP shall also provide pre-retirement death benefits calculated in the same manner as under the Blount Retirement Plan. (ii) Executive shall be credited with years of benefit service under the SERP equal to his years of benefit service under the Blount Retirement Plan. (iii) The benefit payable under the SERP may, in the discretion of the Company and upon prior notice to Executive, be forfeited, suspended, reduced or terminated, but only in accordance with the provisions and procedures set forth in the SERP Agreement. The Company's obligations under this subsection (d) shall be as set forth in the separate SERP Agreement with Executive as attached as Exhibit A. (e) Executive shall be entitled to participate in, or receive benefits under, any "employee benefit plan" (as defined in Section 3(3) of ERISA) or employee benefit arrangement made available by the Company to its executive officers, including plans providing retirement, 401(k) benefits, deferred compensation, health care, life insurance, disability and similar benefits. (f) The Company will provide membership initiation fees and dues at a Minnesota Country Club for Executive and his family. Executive will be provided an automobile per company policy, and the Company will pay all insurance, maintenance, fuel, oil and related operational expenses for such automobile. Executive will be eligible for vacation under the Company's standard vacation policy. Executive will be provided an annual physical examination and a financial/tax consultant for personal financial and tax planning. (g) Executive shall participate in the Company's Executive Life Insurance Program, which will provide a death benefit of $250,000. This insurance will be paid-up on the date Executive attains 65 (assuming his employment continues until that date) and will be delivered to Executive as a paid-up insurance policy upon his retirement from the Company at or after age 65. The life insurance provided to Executive under the Executive Life Insurance Program shall be in addition to any life insurance he receives under the Company's group term policy under subsection (e) above. (h) Executive will be paid a tax gross-up amount by the Company to cover any additional federal or state income taxes he incurs as a result of being required to include in taxable income the amount of the premiums or costs for, or personal usage of, the items described in subsections (e) and (f) above. 4. Confidentiality and Noncompetition. (a) Executive acknowledges that, prior to and during the Term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. Moreover, the parties recognize that Executive during the course of his employment with the Company may develop important relationships with customers and others having valuable business relationships with the Company. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and good will. (b) Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any Person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information; provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Executive's obligations under this Section 4(b) shall survive any expiration or termination of this Agreement, provided that Executive may after such expiration or termination disclose Confidential Information with the prior written consent of the President and Chief Executive Officer. (c) Upon the termination or expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control, and all of the Company's equipment and other materials in his possession or control. Executive's obligations under this Section 4(c) shall survive any expiration or termination of this Agreement. (d) Upon the termination or expiration of his employment under this Agreement, Executive agrees that he shall not enter into or engage in the design, manufacture, marketing or sale of any products similar to those produced or offered by the Company or its affiliates in the area of North America, either as an individual, partner or joint venturer, or as an employee, agent or salesman, or as an officer, director, or shareholder of a corporation for a period of three (3) years from the date of his termination of employment. (e) Executive acknowledges that if he breaches or threatens to breach this Section 4, his actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Section 4, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies of the Company. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of Executive's agreement under this Section 4(d). 5. Termination. 5.1 By Executive. Executive shall have the right to terminate his employment hereunder by Notice of Termination (as described in Section 7) if (i) the Company materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice of such breach is given by Executive to the Company; or (ii) Executive determines that his termination is for Good Reason (as defined in Section 6.7). If Executive terminates his employment hereunder pursuant to clauses (i) or (ii) of this Section 5.1, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits set forth in subsections (a) through (j) below. The time periods in (a) through (j) below shall be the lesser of the 24-month or 2-year periods stated therein or the time period remaining from the date of Executive's termination to the end of the Term of this Agreement. If Executive terminates his employment other than pursuant to clauses (i) or (ii) of this Section 5.1, the Company's obligations under this Agreement shall cease as of the date of such termination. Except as provided in Section 5.4(a), the Company agrees that if Executive terminates employment and is entitled to benefits under this Section 5.1, he shall not be required to mitigate damages by seeking other employment, nor shall any amount he earns reduce the amount payable by the Company hereunder. (a) Base Salary - Executive will continue to receive his Base Salary as then in effect (subject to withholding of all applicable taxes) for a period of twenty-four (24) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than 30 days after his termination of employment; provided, further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (b) Bonuses and Incentives - Executive shall receive bonus payments from the Company for the twenty-four (24) months following the month in which his employment under this Employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses earned by him for the two fiscal years in which bonuses were paid immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. Executive shall also receive a prorated bonus for any uncompleted fiscal year at the date of termination (assuming the Target Award level has been achieved), based upon the number of days that he was employed during such fiscal year. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than 30 days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (c) Health and Life Insurance Coverage - The health and group term life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date twenty-four (24) months from the date of such termination. Any additional coverages Executive had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. (d) Employee Retirement Plans - To the extent permitted by the applicable plan, Executive will be entitled to continue to participate, consistent with past practices, in all employee retirement plans maintained by the Company in effect as of his date of termination, including, to the extent such plans are still maintained by the Company, the Blount Retirement Plan, and the Blount 401(k) Plan. Executive's participation in such retirement plans shall continue for a period of twenty-four (24) months from the date of termination of his employment under this Agreement (at which point he will be considered to have terminated employment within the meaning of the plans) and the compensation payable to Executive under (a) and (b) above shall be treated (unless otherwise excluded) as compensation under the plan. For purposes of the Blount 401(k) Plan, he will receive an amount equal to the Company's contributions to the plan, assuming Executive had participated in such plan at the maximum permissible contributions level. If continued participation in any plan is not permitted by the plan or by applicable law, the Company shall pay to Executive and, if applicable, his beneficiary, a supplemental benefit equal to the present value on the date of termination of employment under this Agreement (calculated as provided in the plan) of the excess of (i) the benefit Executive would have been paid under such plan if he had continued to be covered for the 24 -month period (less any amounts Executive would have been required to contribute), over (ii) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum. (e) Effect of Lump Sum Payment. The lump sum payment under (a) or (b) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in this section. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of twenty-four (24) months. (f) Effect of Death or Retirement. The benefits payable or to be provided under subsections (c) or (d) above shall cease or be modified in the event of the Executive's death or election to commence retirement benefits under the Company's retirement plan, provided that nothing in this subsection (f) shall limit Executive's rights to receive Company benefits as a retiree. (g) SERP. On his date of termination, Executive shall be treated for purposes of determining his benefit under the SERP as if he had earned an additional two (2) years of benefit service under the Blount Retirement Plan (and received the corresponding additional years of benefit service under the SERP), and shall be deemed to be two (2) years older than his actual age. (h) Executive Life Insurance Program. On Executive's date of termination, the Company will pay an amount into the policy as if Executive had continued in employment for two (2) additional years at the same total compensation and was two (2) years older. At Executive's option, the policy shall be delivered to Executive or he shall be paid the cash value thereof (after the payment referred to in the preceding sentence). (i) Stock Options. For purposes of the 1992 Plan, the 1994 Plan and other stock option programs of the Company in which Executive participates, Executive shall be deemed to have completed two (2) additional years of service with the Company. (j) Office Space; Secretarial. Executive will be provided appropriate office space, secretarial assistance, and related expenses for a period of twelve (12) months from his date of termination. 5.2 By Company. The Company shall have the right to terminate Executive's employment under this Agreement at any time during the Term by Notice of Termination (as described in Section 7), (i) for Cause, as defined herein, (ii) if Executive becomes Disabled, or (iii) upon Executive's death. If the Company terminates Executive's employment under this Agreement pursuant to clauses (i) through (iii) of this Section 5.2, the Company's obligations under this Agreement shall cease as of the date of termination; provided, however, that if Executive's employment terminates as a result of death or Disability, the benefits payable under this Agreement and the other benefit plans of the Company upon Executive's death or Disability shall be provided by the Company. If the Company terminates Executive during the Term of this Agreement other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits provided in subsections (a) through (j) of Section 5.1 above for the time periods, and subject to the provisions (including the nonmitigation provision) and limitations therein. 5.3 Additional Agreements Upon Termination. In the event Executive's employment is terminated by Executive under clause (ii) of Section 5.1, or by the Company other than under clauses (i) through (iii) of Section 5.2 within twenty-four (24) months following the date of a Change in Control or the death of Winton M. Blount, Jr., the provisions set forth below shall apply, provided that such provisions shall only apply in each case to the extent that the damages payable to Executive for termination of his employment under Sections 5.1 or 5.2 do not already provide such benefits under the plan or program. (a) SERP. As of his date of termination, Executive shall be treated for purposes of the SERP as if he had remained actively employed by the Company until the date he attained age 65 and had continued to receive compensation at the level in effect on his date of termination to his 65th birthday. The benefit payable to Executive shall be calculated to the date he would attain age 65 and shall be reduced as provided in the SERP agreement if Executive elects to commence payments prior to age 65. (b) Stock Options. As of his date of termination, all outstanding stock options granted to Executive under the 1992 Plan, the 1994 Plan or any similar stock option programs shall become 100% vested and immediately exercisable. Notwithstanding the other provisions of Executive's stock options, Executive shall have a period of not less than 3 months from his date of termination to exercise such options. (c) Executive Life Insurance Program. The life insurance policy described in Section 3(g) shall be delivered to Executive as a fully paid-up policy within thirty (30) days after his date of termination, regardless of Executive's age at such time. 5.4 Limitation on Benefits Upon Termination. (a) Notwithstanding anything in this Agreement to the contrary, any benefits payable or to be provided to Executive by the Company or its affiliates, whether pursuant to this Agreement or otherwise, which are treated as Severance Payments shall be modified or reduced in the manner provided in (b) below to the extent necessary so that the benefits payable or to be provided to Executive under this Agreement that are treated as Severance Payments, as well as any payments or benefits provided outside of this Agreement that are so treated, shall not cause the Company to have paid an Excess Severance Payment. In computing such amount, the parties shall take into account all provisions of Code Section 280G, and the regulations thereunder, including making appropriate adjustments to such calculation for amounts established to be Reasonable Compensation. If Executive becomes entitled to compensation and benefits under Section 5.1 or Section 5.2 and such payments are considered to be Severance Payments contingent upon a Change in Control, Executive shall be required to mitigate damages (but only with respect to amounts that would be treated as Severance Payments) by reducing the amount of Severance Payments he is entitled to receive by any compensation and benefits he earns from subsequent employment (but shall not be required to seek such employment) during the 24-month period after termination (or such lesser period as he is entitled to extended benefits). (b) In the event that the amount of any Severance Payments which would be payable to or for the benefit of Executive under this Agreement must be modified or reduced to comply with this Section 5.4, Executive shall direct which Severance Payments are to be modified or reduced; provided, however, that no increase in the amount of any payment or change in the timing of the payment shall be made without the consent of the Company. (c) This Section 5.4 shall be interpreted so as to avoid the imposition of excise taxes on Executive under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G(a) of the Code with respect to amounts payable under this Agreement or otherwise. Notwithstanding the foregoing, in no event will any of the provisions of this Section 5.4 create, without the consent of Executive, an obligation on the part of Executive to refund any amount to the Company following payment of such amount. (d) In addition to the limits otherwise provided in this Section 5.4, to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (e) For purposes of this Section 5.4, the following definitions shall apply: (i) "Excess Severance Payment" - The term "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(1) of the Code. (ii) "Severance Payment" - The term "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280G(b)(2) of the Code. (iii) "Reasonable Compensation" - The term "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. The parties acknowledge and agree that, in the absence of a change in existing legal authorities or the issuance of contrary authorities, amounts received by Executive as damages under or as a result of a breach of this Agreement shall be considered Reasonable Compensation. (iv) "Present Value" - The term "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. 6. Definitions. For purposes of this Agreement the following terms shall have the meanings specified below: 6.1 "Board" or "Board of Directors" - The Board of Directors of the Company. 6.2 "Cause" - Either (a) Any act that constitutes, on the part of Executive, (i) fraud, a felony or gross malfeasance of duty and (ii) that results in material injury to the Company; or (b) Executive's willful and continued failure to devote his full business time and efforts to the performance of duties for the Company; provided, however, that in the case of (b) above, such conduct shall not constitute Cause unless the notice delivered to Executive by the Board pursuant to Section 7 sets forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. 6.3 "Change in Control" - Either (i) the acquisition, directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) within any twelve (12) month period of securities of the Company representing an aggregate of fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (excluding the acquisition by persons who own such amount of securities on the date hereof, or acquisitions by persons who acquire such amount through inheritance), provided, however, that the threshold percentage in this subparagraph (i) shall be automatically reduced to an aggregate of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities at such time that either of the following events occurs: (a) Winton M. Blount's ownership of the combined voting power of HBC, Incorporated's then outstanding securities is less than 50.1%, or (B) HBC, Incorporated's ownership of the combined voting power of the Company's then outstanding securities is less than 50.1%.; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (a) a merger, consolidation or other business combination of the Company with any other "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (b) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement. 6.4 "Code" - The Internal Revenue Code of 1986, as it may be amended from time to time. 6.5 "Confidential Information" - All technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 6.6 "Disability" or "Disabled". Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. 6.7 "Good Reason" A "Good Reason" for termination by Executive of Executive's employment shall mean the occurrence (without the Executive's express written consent) within the twenty-four (24) month period following the date of (a) a Change in Control, or (b) the death of Winton M. Blount, Jr., of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i) the assignment to Executive of any duties inconsistent with Executive's status as the President of the Forestry and Industrial Equipment Division, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control or death of Mr. Blount (other than any such alteration primarily attributable to the fact that the Company may no longer be a public company); (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation of Company's principal executive offices to a location more than fifty (50) miles from the location of such offices immediately prior to the Change in Control or death of Mr. Blount, or the Company's requiring Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Executive's present business travel obligations; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's current compensation (including Base Salary and bonus), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (v) the failure by the Company to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control or death of Mr. Blount, which is material to Executive's total compensation, including but not limited to the Company's Target Incentive Plan, stock option plan, or any substitute plans adopted prior to the Change in Control or death of Mr. Blount, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation in such plan (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 Executive's participation relative to other participants, as existed at the time of the Change in Control or death of Mr. Blount; (vi) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of the Company's pension, life insurance (including the Executive Life Insurance Program), medical, health and accident or disability plans in which Executive was participating at the time of the Change in Control or death of Mr. Blount, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control or death of Mr. Blount, or the failure by the Company to provide Executive with the number of paid vacation days to which the Executive is entitled under this Agreement; or (vii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 6.8 "Person". Any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. 7. Termination Procedures. 7.1 Notice of Termination. During the Term of this Agreement, any purported termination of Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11. 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 Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to establish that the Executive was guilty of conduct set forth in clause (a) or (b) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of Executive's employment during the Term of this Agreement, shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive's duties during such thirty (30) day period), and (iii) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8. Contract Non-Assignable. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts which, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive's estate. 10. Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Blount, Inc. 4520 Executive Park Drive Montgomery, Alabama 36116-1602 Attention: D. Joseph McInnes To the Executive: Donald B. Zorn 22110 Wagon Wheel Trail Lakeville, Minnesota 55044 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 14. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto. 15. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama. 16. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be in writing. Any denial of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Company shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal a decision within sixty (60) days after notification that Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Montgomery, Alabama, 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. In the event the Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator. Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE: _____________________________ DONALD B. ZORN President Forestry & Industrial Equipment Division COMPANY: BLOUNT, INC. By: ___________________________ JOHN M. PANETTIERE President & Chief Executive Officer Witness:___________________ ___________________________ Notary Public EX-99 12 EXHIBIT 10(U) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (u) EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 14th day of September, 1994, by and between BLOUNT, INC., a Delaware corporation (the "Company"), and Thomas J. Fruechtel ("Executive"). W I T N E S S E T H: WHEREAS, the Company and Executive desire to enter into an agreement providing for Executive's employment by Company and specifying the terms and conditions of such employment; and WHEREAS, Executive has diligently performed his duties and has contributed to the success of the Company; and WHEREAS, Executive desires to continue his employment with the Company on the terms and conditions provided herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereby agree as follows: 1. Purpose. The purpose of this Agreement is to create an understanding which shall provide the basis for Executive's continued employment by the Company. 2. Employment and Term. (a) Subject to the terms and conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment, as President of its Sporting Equipment Division or other positions to which, with his consent, he may be assigned and shall have such responsibilities, duties and authority that are consistent with such positions as may from time to time be assigned to Executive by the President and Chief Executive Officer. Executive hereby agrees that during the Term of this Agreement he will devote substantially all his working time, attention and energies to the diligent performance of his duties as President of the Sporting Equipment Division, provided that the Executive may also serve on boards of directors or trustees of other companies and organizations, as long as such service does not materially interfere with the performance of his duties hereunder and is with the prior approval of the President and Chief Executive Officer of the Company. (b) Unless earlier terminated as provided herein, Executive's employment under this Agreement shall be for a rolling, three year term (the "Term") commencing on September ___, 1994, and shall be deemed to automatically, without further action by either the Company or Executive, extend each day for an additional day, such that the remaining term of the Agreement shall continue to be three years; provided, however, that (i) either party may, by written notice to the other, cause this Agreement to cease to extend automatically and, upon such notice, the "Term" of this Agreement shall be the three years following the date of such notice and this Agreement shall terminate upon the expiration of such Term, and (ii) the Term of this Agreement shall not extend beyond the date Executive attains age 65, unless the parties otherwise agree in writing. If no such notice to cease to extend has been given and this Agreement is terminated pursuant to Section 5.1 or Section 5.2 hereof, for the purposes of calculating and assessing the damages to Executive as a result of such termination, the remaining Term of this Agreement shall be deemed to be three years from the date of such termination (or, if earlier, the date Executive attains age 65). 3. Compensation and Benefits. As compensation for his services during the Term of this Agreement, Executive shall be paid and receive the amounts and benefits set forth in subsections (a) through (f) below: (a) An annual base salary ("Base Salary") of One Hundred Forty-Five Thousand and Two Hundred Dollars ($145,200.00), prorated for any partial year of employment. Executive's Base Salary shall be subject to annual review for increases at such time as the Company conducts salary reviews for its executive officers generally. Executive's salary shall be payable bi-monthly, or in accordance with the Company's regular payroll practices in effect from time to time for executive officers of the Company. (b) Executive shall be eligible to participate in the Target Incentive Plan and such other annual incentive plans as may be established by the Company from time to time for its executive officers. The President and Chief Executive Officer will establish individual performance goals each year under the incentive plans, and Executive's annual Target Bonus shall be 45% of Base Salary; the maximum award for exceeding the performance goals shall be 90% of Base Salary. The annual incentive bonus payable under this subsection (b) shall be payable as a lump sum no later than fifteen (15) business days after approval of the bonus by the Compensation Committee of the Board, unless Executive elects to defer all or a portion of such amount to any deferral plan established by the Company for such purpose. (c) Executive will be eligible to participate in the 1992 Blount Incentive Stock Option Plan ("1992 Plan"), the 1994 Blount Executive Stock Option Plan ("1994 Plan") and such other stock option programs as may be established from time to time by the Company for its executive officers. Executive will participate in any long-term incentive plans established by the Company for executive officers at his level. (d) Executive shall be entitled to participate in, or receive benefits under, any "employee benefit plan" (as defined in Section 3(3) of ERISA) or employee benefit arrangement made available by the Company to its executive officers, including plans providing retirement, 401(k) benefits, deferred compensation, health care, life insurance, disability and similar benefits. (e) The Company will provide membership initiation fees and dues at The Clarkston Country Club for Executive and his family. Executive will be provided an automobile per company policy, and the Company will pay all insurance, maintenance, fuel, oil and related operational expenses for such automobile. Executive will be eligible for vacation under the Company's standard vacation policy. Executive will be provided an annual physical examination and a financial/tax consultant for personal financial and tax planning. (f) Executive will be paid a tax gross-up amount by the Company to cover any additional federal or state income taxes he incurs as a result of being required to include in taxable income the amount of the premiums or costs for, or personal usage of, the items described in subsections (d) and (e) above. 4. Confidentiality and Noncompetition. (a) Executive acknowledges that, prior to and during the Term of this Agreement, the Company has furnished and will furnish to Executive Confidential Information which could be used by Executive on behalf of a competitor of the Company to the Company's substantial detriment. Moreover, the parties recognize that Executive during the course of his employment with the Company may develop important relationships with customers and others having valuable business relationships with the Company. In view of the foregoing, Executive acknowledges and agrees that the restrictive covenants contained in this Section are reasonably necessary to protect the Company's legitimate business interests and good will. (b) Executive agrees that he shall protect the Company's Confidential Information and shall not disclose to any Person, or otherwise use, except in connection with his duties performed in accordance with this Agreement, any Confidential Information; provided, however, that Executive may make disclosures required by a valid order or subpoena issued by a court or administrative agency of competent jurisdiction, in which event Executive will promptly notify the Company of such order or subpoena to provide the Company an opportunity to protect its interests. Executive's obligations under this Section 4(b) shall survive any expiration or termination of this Agreement, provided that Executive may after such expiration or termination disclose Confidential Information with the prior written consent of the President and Chief Executive Officer. (c) Upon the termination or expiration of his employment hereunder, Executive agrees to deliver promptly to the Company all Company files, customer lists, management reports, memoranda, research, Company forms, financial data and reports and other documents supplied to or created by him in connection with his employment hereunder (including all copies of the foregoing) in his possession or control, and all of the Company's equipment and other materials in his possession or control. Executive's obligations under this Section 4(c) shall survive any expiration or termination of this Agreement. (d) Upon the termination or expiration of his employment under this Agreement, Executive agrees that he shall not enter into or engage in the design, manufacture, marketing or sale of any products similar to those produced or offered by the Company or its affiliates in the area of North America, either as an individual, partner or joint venturer, or as an employee, agent or salesman, or as an officer, director, or shareholder of a corporation for a period of two (2) years from the date of his termination of employment. (e) Executive acknowledges that if he breaches or threatens to breach this Section 4, his actions may cause irreparable harm and damage to the Company which could not be compensated in damages. Accordingly, if Executive breaches or threatens to breach this Section 4, the Company shall be entitled to seek injunctive relief, in addition to any other rights or remedies of the Company. The existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of Executive's agreement under this Section 4(d). 5. Termination. 5.1 By Executive. Executive shall have the right to terminate his employment hereunder by Notice of Termination (as described in Section 7) if (i) the Company materially breaches this Agreement and such breach is not cured within thirty (30) days after written notice of such breach is given by Executive to the Company; or (ii) Executive determines that his termination is for Good Reason (as defined in Section 6.7). If Executive terminates his employment hereunder pursuant to clauses (i) or (ii) of this Section 5.1, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits set forth in subsections (a) through (h) below. The time periods in (a) through (h) below shall be the lesser of the 24-month or 2-year periods stated therein or the time period remaining from the date of Executive's termination to the end of the Term of this Agreement. If Executive terminates his employment other than pursuant to clauses (i) or (ii) of this Section 5.1, the Company's obligations under this Agreement shall cease as of the date of such termination. Except as provided in Section 5.4(a), the Company agrees that if Executive terminates employment and is entitled to benefits under this Section 5.1, he shall not be required to mitigate damages by seeking other employment, nor shall any amount he earns reduce the amount payable by the Company hereunder. (a) Base Salary - Executive will continue to receive his Base Salary as then in effect (subject to withholding of all applicable taxes) for a period of twenty-four (24) months from his date of termination in the same manner as it was being paid as of the date of termination; provided, however, that the salary payments provided for hereunder shall be paid in a single lump sum payment, to be paid not later than 30 days after his termination of employment; provided, further, that the amount of such lump sum payment shall be determined by taking the salary payments to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (b) Bonuses and Incentives - Executive shall receive bonus payments from the Company for the twenty-four (24) months following the month in which his employment under this Employment is terminated in an amount for each such month equal to one-twelfth of the average of the bonuses earned by him for the two fiscal years in which bonuses were paid immediately preceding the year in which such termination occurs. Any bonus amounts that Executive had previously earned from the Company but which may not yet have been paid as of the date of termination shall not be affected by this provision. Executive shall also receive a prorated bonus for any uncompleted fiscal year at the date of termination (assuming the Target Award level has been achieved), based upon the number of days that he was employed during such fiscal year. The bonus amounts determined herein shall be paid in a single lump sum payment, to be paid not later than 30 days after termination of employment; provided, that the amount of such lump sum payment shall be determined by taking the bonus payments (as of the payment date) to be made and discounting them to their Present Value (as defined in Section 5.4(e)) on the date Executive's employment under this Agreement is terminated. (c) Health and Life Insurance Coverage - The health and group term life insurance benefits coverage provided to Executive at his date of termination shall be continued at the same level and in the same manner as if his employment under this Agreement had not terminated (subject to the customary changes in such coverages if Executive retires, reaches age 65 or similar events), beginning on the date of such termination and ending on the date twenty-four (24) months from the date of such termination. Any additional coverages Executive had at termination, including dependent coverage, will also be continued for such period on the same terms, to the extent permitted by the applicable policies or contracts. Any costs Executive was paying for such coverages at the time of termination shall be paid by Executive by separate check payable to the Company each month in advance. If the terms of any benefit plan referred to in this Section, or the laws applicable to such plan, do not permit continued participation by Executive, then the Company will arrange for other coverage at its expense providing substantially similar benefits. (d) Employee Retirement Plans - To the extent permitted by the applicable plan, Executive will be entitled to continue to participate, consistent with past practices, in all employee retirement plans maintained by the Company in effect as of his date of termination to the extent such plans are still maintained by the Company. Executive's participation in such retirement plans shall continue for a period of twenty-four (24) months from the date of termination of his employment under this Agreement (at which point he will be considered to have terminated employment within the meaning of the plans) and the compensation payable to Executive under (a) and (b) above shall be treated (unless otherwise excluded) as compensation under the plan. For purposes of the Blount 401(k) Plan, he will receive an amount equal to the Company's contributions to the plan, assuming Executive had participated in such plan at the maximum permissible contributions level. If continued participation in any plan is not permitted by the plan or by applicable law, the Company shall pay to Executive and, if applicable, his beneficiary, a supplemental benefit equal to the present value on the date of termination of employment under this Agreement (calculated as provided in the plan) of the excess of (i) the benefit Executive would have been paid under such plan if he had continued to be covered for the 24-month period (less any amounts Executive would have been required to contribute), over (ii) the benefit actually payable under such plan. The Company shall pay such additional benefits (if any) in a lump sum. (e) Effect of Lump Sum Payment. The lump sum payment under (a) or (b) above shall not alter the amounts Executive is entitled to receive under the benefit plans described in this section. Benefits under such plans shall be determined as if Executive had remained employed and received such payments over a period of twenty-four (24) months. (f) Effect of Death or Retirement. The benefits payable or to be provided under subsections (c) or (d) above shall cease or be modified in the event of the Executive's death or election to commence retirement benefits under the Company's retirement plan, provided that nothing in this subsection (f) shall limit Executive's rights to receive Company benefits as a retiree. (g) Stock Options. For purposes of the 1992 Plan, the 1994 Plan and other stock option programs of the Company in which Executive participates, Executive shall be deemed to have completed two (2) additional years of service with the Company. (h) Office Space; Secretarial. Executive will be provided appropriate office space, secretarial assistance, and related expenses for a period of twelve (12) months from his date of termination. 5.2 By Company. The Company shall have the right to terminate Executive's employment under this Agreement at any time during the Term by Notice of Termination (as described in Section 7), (i) for Cause, as defined herein, (ii) if Executive becomes Disabled, or (iii) upon Executive's death. If the Company terminates Executive's employment under this Agreement pursuant to clauses (i) through (iii) of this Section 5.2, the Company's obligations under this Agreement shall cease as of the date of termination; provided, however, that if Executive's employment terminates as a result of death or Disability, the benefits payable under this Agreement and the other benefit plans of the Company upon Executive's death or Disability shall be provided by the Company. If the Company terminates Executive during the Term of this Agreement other than pursuant to clauses (i) through (iii) of this Section 5.2, Executive shall be entitled to receive, as damages payable as a result of, and arising from, a breach of this Agreement, the compensation and benefits provided in subsections (a) through (h) of Section 5.1 above for the time periods, and subject to the provisions (including the nonmitigation provision) and limitations therein. 5.3 Additional Agreements Upon Termination. In the event Executive's employment is terminated by Executive under clause (ii) of Section 5.1, or by the Company other than under clauses (i) through (iii) of Section 5.2 within twenty-four (24) months following the date of a Change in Control or the death of Winton M. Blount, Jr., the provisions set forth below shall apply, provided that such provisions shall only apply in each case to the extent that the damages payable to Executive for termination of his employment under Sections 5.1 or 5.2 do not already provide such benefits under the plan or program. (a) Stock Options. As of his date of termination, all outstanding stock options granted to Executive under the 1992 Plan, the 1994 Plan or any similar stock option programs shall become 100% vested and immediately exercisable. Notwithstanding the other provisions of Executive's stock options, Executive shall have a period of not less than 3 months from his date of termination to exercise such options. 5.4 Limitation on Benefits Upon Termination. (a) Notwithstanding anything in this Agreement to the contrary, any benefits payable or to be provided to Executive by the Company or its affiliates, whether pursuant to this Agreement or otherwise, which are treated as Severance Payments shall be modified or reduced in the manner provided in (b) below to the extent necessary so that the benefits payable or to be provided to Executive under this Agreement that are treated as Severance Payments, as well as any payments or benefits provided outside of this Agreement that are so treated, shall not cause the Company to have paid an Excess Severance Payment. In computing such amount, the parties shall take into account all provisions of Code Section 280G, and the regulations thereunder, including making appropriate adjustments to such calculation for amounts established to be Reasonable Compensation. If Executive becomes entitled to compensation and benefits under Section 5.1 or Section 5.2 and such payments are considered to be Severance Payments contingent upon a Change in Control, Executive shall be required to mitigate damages (but only with respect to amounts that would be treated as Severance Payments) by reducing the amount of Severance Payments he is entitled to receive by any compensation and benefits he earns from subsequent employment (but shall not be required to seek such employment) during the 24-month period after termination (or such lesser period as he is entitled to extended benefits). (b) In the event that the amount of any Severance Payments which would be payable to or for the benefit of Executive under this Agreement must be modified or reduced to comply with this Section 5.4, Executive shall direct which Severance Payments are to be modified or reduced; provided, however, that no increase in the amount of any payment or change in the timing of the payment shall be made without the consent of the Company. (c) This Section 5.4 shall be interpreted so as to avoid the imposition of excise taxes on Executive under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G(a) of the Code with respect to amounts payable under this Agreement or otherwise. Notwithstanding the foregoing, in no event will any of the provisions of this Section 5.4 create, without the consent of Executive, an obligation on the part of Executive to refund any amount to the Company following payment of such amount. (d) In addition to the limits otherwise provided in this Section 5.4, to the extent permitted by law, Executive may in his sole discretion elect to reduce any payments he may be eligible to receive under this Agreement to prevent the imposition of excise taxes on Executive under Section 4999 of the Code. (e) For purposes of this Section 5.4, the following definitions shall apply: (i) "Excess Severance Payment" - The term "Excess Severance Payment" shall have the same meaning as the term "excess parachute payment" defined in Section 280G(b)(1) of the Code. (ii) "Severance Payment" - The term "Severance Payment" shall have the same meaning as the term "parachute payment" defined in Section 280G(b)(2) of the Code. (iii) "Reasonable Compensation" - The term "Reasonable Compensation" shall have the same meaning as provided in Section 280G(b)(4) of the Code. The parties acknowledge and agree that, in the absence of a change in existing legal authorities or the issuance of contrary authorities, amounts received by Executive as damages under or as a result of a breach of this Agreement shall be considered Reasonable Compensation. (iv) "Present Value" - The term "Present Value" shall have the same meaning as provided in Section 280G(d)(4) of the Code. 6. Definitions. For purposes of this Agreement the following terms shall have the meanings specified below: 6.1 "Board" or "Board of Directors" - The Board of Directors of the Company. 6.2 "Cause" - Either (a) Any act that constitutes, on the part of Executive, (i) fraud, a felony or gross malfeasance of duty and (ii) that results in material injury to the Company; or (b) Executive's willful and continued failure to devote his full business time and efforts to the performance of duties for the Company; provided, however, that in the case of (b) above, such conduct shall not constitute Cause unless the notice delivered to Executive by the Board pursuant to Section 7 sets forth with specificity (A) the conduct deemed to qualify as Cause, (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty days) within which Executive may take such remedial action, and Executive shall not have taken such specified remedial action within such specified reasonable time. 6.3 "Change in Control" - Either (i) the acquisition, directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) within any twelve (12) month period of securities of the Company representing an aggregate of fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities (excluding the acquisition by persons who own such amount of securities on the date hereof, or acquisitions by persons who acquire such amount through inheritance), provided, however, that the threshold percentage in this subparagraph (i) shall be automatically reduced to an aggregate of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities at such time that either of the following events occurs: (a) Winton M. Blount's ownership of the combined voting power of HBC, Incorporated's then outstanding securities is less than 50.1%, or (B) HBC, Incorporated's ownership of the combined voting power of the Company's then outstanding securities is less than 50.1%.; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, cease for any reason to constitute at least a majority thereof, unless the election of each new director was approved in advance by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period; or (iii) consummation of (a) a merger, consolidation or other business combination of the Company with any other "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) or affiliate thereof, other than a merger, consolidation or business combination which would result in the outstanding common stock of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into common stock of the surviving entity or a parent or affiliate thereof) at least fifty percent (50%) of the outstanding common stock of the Company or such surviving entity or parent or affiliate thereof outstanding immediately after such merger, consolidation or business combination, or (b) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) the occurrence of any other event or circumstance which is not covered by (i) through (iii) above which the Board determines affects control of the Company and adopts a resolution that such event or circumstance constitutes a Change in Control for the purposes of this Agreement. 6.4 "Code" - The Internal Revenue Code of 1986, as it may be amended from time to time. 6.5 "Confidential Information" - All technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other Persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be contractually subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. Confidential Information does not include confidential business information which does not constitute a trade secret under applicable law two years after any expiration or termination of this Agreement. 6.6 "Disability" or "Disabled". Executive's inability as a result of physical or mental incapacity to substantially perform his duties for the Company on a full-time basis for a period of six (6) months. 6.7 "Good Reason" A "Good Reason" for termination by Executive of Executive's employment shall mean the occurrence (without the Executive's express written consent) within the twenty-four (24) month period following the date of (a) a Change in Control, or (b) the death of Winton M. Blount, Jr., of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (i) the assignment to Executive of any duties inconsistent with Executive's status as the President of the Blount Sporting Equipment Division, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control or death of Mr. Blount (other than any such alteration primarily attributable to the fact that the Company may no longer be a public company); (ii) a reduction by the Company in Executive's Base Salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the relocation without the consent of the Executive of the Division's principal executive offices to a location more than fifty (50) miles from the location of such offices immediately prior to the Change in Control or death of Mr. Blount, or the Company's requiring Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Executive's present business travel obligations; (iv) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's current compensation (including Base Salary and bonus), or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (v) the failure by the Company to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control or death of Mr. Blount, which is material to Executive's total compensation, including but not limited to the Company's Target Incentive Plan, stock option plan, or any substitute plans adopted prior to the Change in Control or death of Mr. Blount, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation in such plan (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 Executive's participation relative to other participants, as existed at the time of the Change in Control or death of Mr. Blount; (vi) the failure by the Company to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of the Company's pension, life insurance, medical, health and accident or disability plans in which Executive was participating at the time of the Change in Control or death of Mr. Blount, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control or death of Mr. Blount, or the failure by the Company to provide Executive with the number of paid vacation days to which the Executive is entitled under this Agreement; or (vii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 6.8 "Person". Any individual, corporation, bank, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or other entity. 7. Termination Procedures. 7.1 Notice of Termination. During the Term of this Agreement, any purported termination of Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 11. 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 Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to establish that the Executive was guilty of conduct set forth in clause (a) or (b) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any purported termination of Executive's employment during the Term of this Agreement, shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive's duties during such thirty (30) day period), and (iii) if Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8. Contract Non-Assignable. The parties acknowledge that this Agreement has been entered into due to, among other things, the special skills of Executive, and agree that this Agreement may not be assigned or transferred by Executive, in whole or in part, without the prior written consent of the Company. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement, in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amount would still be payable to Executive hereunder (other than amounts which, by their terms, terminate upon the death of Executive) if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of Executive's estate. 10. Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to the Company. 11. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or seven days after mailing if mailed, first class, certified mail, postage prepaid: To the Company: Blount, Inc. 4520 Executive Park Drive Montgomery, Alabama 36116-1602 Attention: D. Joseph McInnes To the Executive: Thomas J. Fruechtel 1560 Hillcrest Court Clarkston, Washington 99403 Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein. 12. Provisions Severable. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect. 13. Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver. 14. Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto. 15. Governing Law. The validity and effect of this Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Alabama. 16. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be in writing. Any denial of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Company shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal a decision within sixty (60) days after notification that Executive's claim has been denied. To the extent permitted by applicable law, any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Montgomery, Alabama, 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. In the event the Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator. Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE: _____________________________ THOMAS J. FRUECHTEL President Sporting Equipment Division COMPANY: BLOUNT, INC. By: ___________________________ JOHN M. PANETTIERE President & Chief Executive Officer Witness:___________________ ___________________________ Notary Public EX-99 13 EXHIBIT 10(V) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (v) BLOUNT, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN FOR DONALD B. ZORN 1. Purpose - The purpose of this Supplemental Executive Retirement Plan (SERP) is to provide Donald B. Zorn with a retirement benefit payable as a supplement to his vested benefit under The Blount Retirement Plan. 2. Definitions a. Blount Plan is The Blount Retirement Plan, as in effect on January 19, 1994, including any future amendments or restatements adopted and effective while Donald B. Zorn is an employee of Blount, Inc. b. Disability shall mean periods of time during which (i) Donald B. Zorn is totally and permanent disabled, and (ii) Donald B. Zorn is receiving Social Security disability benefits. c. Effective Date of this SERP is January 19, 1994. d. Excess Benefit Plan is the Blount, Inc. and Subsidiaries Supplemental Retirement Benefit Plan, as in effect on January 19, 1994, including any future amendments or restatements adopted and effective while Donald B. Zorn is an employee of Blount, Inc. e. Internal Revenue Code shall mean the Internal Revenue Code of 1986, as amended and in effect at Donald B. Zorn's Termination Date. f. Normal Retirement Date is May 24, 2001. g. SERP is this Supplemental Executive Retirement Plan sponsored by Blount, Inc. for Donald B. Zorn. h. Termination Date is the date on which the employment relationship between Donald B. Zorn and Blount, Inc. (including any affiliated company as defined in the Blount Plan) ceases. 3. Years of Benefit Service shall mean the years of benefit service granted to Donald B. Zorn under this SERP and the years of "Benefit Service" (as that term is defined in the Blount Plan) granted to Donald B. Zorn under the Blount Plan. Years of Benefit Service shall be determined in accordance with the following schedule: Years of Benefit Years of Benefit Total Years Service under the Service under of Benefit Age Blount Plan the SERP Service 58 1 + 1 = 2 59 2 + 2 = 4 60 3 + 3 = 6 61 4 + 4 = 8 62 5 + 5 = 10 63 6 + 6 = 12 64 7 + 7 = 14 65 8 + 8 = 16 Years of Benefit Service under the SERP shall continue to accrue during any period of Disability provided that Years of Benefit Service continue to accrue under the Blount Plan. 4. Vested Retirement Benefits payable under this SERP shall equal (a) less (b) where: (a) is the monthly retirement income that would be payable to Donald B. Zorn under the provisions of the Blount Plan, assuming (i) that in determining the fraction for purposes of Section 6.1(a)(i) of the Blount Plan, the numerator shall be his total Years of Benefit Service determined in accordance with paragraph 3 at his age when his employment terminates and the denominator of which is 16; (ii) that for purposes of Section 6.1(a)(ii)(A) and (B) of the Blount Plan, the Years of Benefit Service he would accrue if he continued to accrue Benefit Service to his Normal Retirement Date would be 25; (iii) that the Blount Plan does not contain the $200,000 limitation on compensation imposed by Section 401(a)(17) of the Internal Revenue Code or the limitation on benefits imposed by Section 415 of the Internal Revenue Code; and (b) is the sum of (i), (ii), and (iii), where (i) is the monthly retirement income actually payable to Donald B. Zorn under the Blount Plan; (ii) is the monthly retirement income actually payable to Donald B. Zorn under the Excess Benefit Plan; and (iii) is the monthly retirement income actually paid to Donald B. Zorn under any pension plan maintained by a former employer of Donald B. Zorn. Vested retirement benefits are payable on or after Donald B. Zorn's Termination Date provided he has obtained a fully vested interest under the Blount Plan. No benefits shall be payable under this SERP until Donald B. Zorn has obtained a fully vested interest under the Blount Plan. No benefits are payable during continued employment. The above benefit is on a life annuity basis. If an optional form of benefit is desired, the benefit above will be adjusted by the actuarial factors used by the Blount Plan. In determining benefits under this paragraph, amounts described in paragraphs (b)(i), (b)(ii) and (b)(iii) above that are paid in a form other than a straight life annuity shall be valued as a straight life annuity using the actuarial factors used by the Blount Plan. 5. Donald B. Zorn shall receive the following benefits as defined in the Blount Plan, which benefits shall be calculated on the basis of the benefit formula set forth in paragraph 4 above: a. Benefits due to the pre-retirement death of Donald B. Zorn; b. Normal and optional forms of payment under the Blount Plan provided that the form of payment under this SERP shall be the same as the form of payment elected by Donald B. Zorn under the Blount Plan; c. If Donald B. Zorn elects for payment of his vested retirement benefits to commence prior to his Normal Retirement Date but after 10 Years of Benefit Service as determined under paragraph 3, his vested retirement benefits will be reduced by .3% for each full month by which the date his benefits begin precedes his Normal Retirement Date. 6. Non-Alienation of Benefits - To the maximum extent permitted by law, no benefit under this SERP shall be assignable or subject in any manner to alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind. 7. Administration - The Board of Directors of Blount, Inc. or at its discretion, the Compensation Committee of the Board of Directors, shall administer, construe, and interpret this Plan. No member of the Board of Directors or the Committee, as the case may be, shall be liable for any act done or determination made in good faith. The construction and interpretation by the Board of Directors or the Committee of any provision of this Plan shall be final and conclusive. The Board of Directors or the Committee may, in its discretion, delegate its duties to an officer or employee or committee composed of officers or employees of Blount, Inc. 8. Amendment or Termination - The Board of Directors and Donald B. Zorn may amend this SERP from time to time in any respect with the consent of the other party. This Plan may not be terminated without the consent of Blount, Inc. through its Board of Directors or its designated Committee or officer and Donald B. Zorn. 9. Construction of the Plan - This SERP is unfunded. This SERP shall be so construed that it will be maintained primarily for the purpose of providing certain retirement and death benefits for Donald B. Zorn. This SERP and the rights and obligations of the parties thereunder, shall be construed in accordance with the laws of the State of Alabama. 10. Forfeiture of Benefits - At the discretion of the Board of Directors and after a timely written notice to Donald B. Zorn (or his spouse or other beneficiary if Donald B. Zorn has no right or power to change such beneficiary, whether by reason of his death or otherwise), rights to receive any benefits under this SERP may be forfeited, suspended, reduced or terminated by the Board of Directors if it determines in good faith that good cause for the forfeiture, suspension, reduction or termination has been shown. For purposes of this Section 10, good cause shall mean (1) Donald B. Zorn's engaging in competition with Blount, Inc. without appropriate prior authorization from the Board of Directors, (2) any material breach or violation of Donald B. Zorn's duties as an employee including but not limited to violation of any ethics or business conduct policies adopted by the Board of Directors, or (3) any material misconduct, including misconduct in the performance of duties which is manifestly injurious to Blount, Inc. Written notice under this Section 10 shall be timely if sent to Donald B. Zorn's last known address within 12 months after the Board of Directors discovers the existence of facts which could give rise to a loss of benefits; provided, however, that said notice, to be effective, must be sent to Donald B. Zorn within 18 months following his termination of employment with Blount, Inc. 11. Denied Claims a. If any application for payment of a benefit under the SERP shall be denied, Blount, Inc. shall: (i) Notify Donald B. Zorn within a reasonable time of such denial setting forth the specific reasons therefor; and (ii) Afford Donald B. Zorn a reasonable opportunity for a full and fair review of the decision denying the claim. b. Notice of such denial shall set forth, in addition to the specific reasons for the denial, the following: (i) Reference to pertinent provisions of the SERP; (ii) Such additional information as may be relevant to denial of claim; (iii) An explanation of the claims review procedure; (iv) Advice that Donald B. Zorn may request the opportunity to review pertinent plan documents and submit a statement of issues and comments. c. Within 60 days following advice of denial of his claim, upon request made by Donald B. Zorn for a review of such denial, Blount, Inc. shall take appropriate steps to review its decision in light of any further information or comments submitted by Donald B. Zorn. Blount, Inc. shall be empowered to hold a hearing at which Donald B. Zorn shall be entitled to present the basis of his claim for review and at which he may be represented by counsel. d. Blount, Inc. shall render a decision within 60 days after Donald B. Zorn's request for review (which may be extended to 120 days if circumstances so require) and shall advice Donald B. Zorn in writing of its decision on such review, specifying its reasons and identifying appropriate provisions of the Plan. Signed and agreed to this 14th day of September, 1994. BLOUNT, INC. By: Its: Donald B. Zorn EX-99 14 EXHIBIT 10(W) TO FORM 10-K FOR FYE 2/28/95 EXHIBIT 10 (w) CONFORMED COPY $100,000,000 CREDIT AGREEMENT dated as of December 22, 1994 among Blount, Inc. The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Agent ARTICLE I DEFINITIONS SECTION 1.01. Definitions 1 SECTION 1.02. Accounting Terms and Determinations 12 ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend 13 SECTION 2.02. Method of Borrowing 13 SECTION 2.03. Notes 15 SECTION 2.04. Maturity of Loans 16 SECTION 2.05. Interest Rates 16 SECTION 2.06. Fees 19 SECTION 2.07. Optional Termination or Reduction of Commitments 20 SECTION 2.08. Scheduled Termination of Commitments 20 SECTION 2.09. Optional Prepayments 20 SECTION 2.10. General Provisions as to Payments 21 SECTION 2.11. Funding Losses 21 SECTION 2.12. Computation of Interest and Fees 22 SECTION 2.13. Maximum Interest Rate 22 ARTICLE III CONDITIONS SECTION 3.01. Effectiveness 23 SECTION 3.02. Borrowings 24 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power 25 SECTION 4.02. Corporate and Governmental Authorization; No Contravention 25 SECTION 4.03. Binding Effect 25 SECTION 4.04. Financial Information 25 SECTION 4.05. Litigation 26 SECTION 4.06. Compliance with ERISA 26 SECTION 4.07. Environmental Matters 27 SECTION 4.08. Taxes 27 SECTION 4.09. Subsidiaries 27 SECTION 4.10. Not an Investment Company 28 SECTION 4.11. Full Disclosure 28 ARTICLE V COVENANTS SECTION 5.01. Information 28 SECTION 5.02. Payment of Obligations 30 SECTION 5.03. Maintenance of Property; Insurance 31 SECTION 5.04. Conduct of Business and Maintenance of Existence 31 SECTION 5.05. Compliance with Laws 32 SECTION 5.06. Inspection of Property, Books and Records 32 SECTION 5.07. Ratio of Consolidated Debt to Consolidated Net Worth 32 SECTION 5.08. Acquisitions 33 SECTION 5.09. Negative Pledge 33 SECTION 5.10. Limitation on Subsidiary Debt 34 SECTION 5.11. Fixed Charge Coverage Ratio 34 SECTION 5.12. Consolidations, Mergers and Sales of Assets 34 SECTION 5.13. Use of Proceeds 34 SECTION 5.14.Transactions with Affiliates 35 ARTICLE VI DEFAULTS SECTION 6.01. Events of Default 35 SECTION 6.02. Notice of Default 38 ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization 38 SECTION 7.02. Agent and Affiliates 38 SECTION 7.03. Action by Agent 38 SECTION 7.04. Consultation with Experts 38 SECTION 7.05. Liability of Agent 39 SECTION 7.06. Indemnification 39 SECTION 7.07. Credit Decision 39 SECTION 7.08. Successor Agent 40 SECTION 7.09. Agent's Fee 40 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair 40 SECTION 8.02. Illegality 41 SECTION 8.03. Increased Cost and Reduced Return 42 SECTION 8.04. Taxes 43 SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans 45 SECTION 8.06. Substitution of Bank 45 ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices 46 SECTION 9.02. No Waivers 46 SECTION 9.03. Expenses; Indemnification 46 SECTION 9.04. Sharing of Set-Offs 47 SECTION 9.05. Amendments and Waivers 48 SECTION 9.06. Successors and Assigns 48 SECTION 9.07. Collateral 50 SECTION 9.08. Governing Law; Submission to Jurisdiction 50 SECTION 9.09. Counterparts; Integration 50 SECTION 9.10. WAIVER OF JURY TRIAL 50 Exhibit A - Note Exhibit B - Opinion of Counsel for the Borrower Exhibit C - Opinion of Special Counsel for the Agent Exhibit D - Assignment and Assumption Agreement Exhibit E - Material Subsidiaries of the Borrower CREDIT AGREEMENT AGREEMENT dated as of December 22, 1994 among BLOUNT, INC., the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Acquisition" means the acquisition by purchase or otherwise, other than with respect to the establishment in connection with specific construction projects of joint venture entities, of (x) all or substantially all of the business, property or assets, in one or a series of related transactions, of, or (y) any stock or other evidence of beneficial ownership of, in each case, any Person or division of any Person. "Adjusted CD Rate" has the meaning set forth in Section 2.05(b). "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Affiliate" means any Person (other than a Subsidiary) directly or indirectly controlling or controlled by or under direct or indirect common control with the Borrower. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "Allowed Sales of Receivables" means at any date (the "date of determination") (A) the Dixon Transaction and (B) all other sales of accounts receivable or interests therein made by the Borrower or any of its Subsidiaries for an aggregate net unrecovered purchase price paid by the purchaser of such accounts receivables or interests not to exceed $25,000,000 at the date of determination. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "Assessment Rate" has the meaning set forth in Section 2.05(b). "Assignee" has the meaning set forth in Section 9.06(c). "Bank" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Loan to be made by a Bank as a Base Rate Loan pursuant to the applicable Notice of Borrowing or Article VIII. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Blount Family" means Winton M. Blount, his direct descendants and his spouse, taken as a single Person. "Borrower" means Blount, Inc., a Delaware corporation, and its successors. "Borrower's 1994 Form 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ended February 28, 1994, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower at the same time by the Banks pursuant to Article II. A Borrowing is a "Domestic Borrowing" if such Loans are Domestic Loans or a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans. A Domestic Borrowing is a "CD Borrowing" if such Domestic Loans are CD Loans or a "Base Rate Borrowing" if such Domestic Loans are Base Rate Loans. "CD Base Rate" has the meaning set forth in Section 2.05(b). "CD Loan" means a Loan to be made by a Bank as a CD Loan pursuant to the applicable Notice of Borrowing. "CD Reference Banks" means Bank of America Illinois, NationsBank of Georgia, N.A. and Morgan Guaranty Trust Company of New York. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Sections 2.07 or 9.06(c) or increased from time to time pursuant to Section 9.06(c); and "Commitments" means, as of any date, the aggregate of all such amounts on such date. "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Earnings Available for Fixed Charges" means, for any period, the sum of (i) Consolidated Ordinary Income for such period plus (ii) to the extent deducted in determining Consolidated Ordinary Income for such period (A) the aggregate amount of Consolidated Fixed Charges, (B) depreciation, amortization and other similar noncash charges plus (iii) to the extent reflected in Consolidated Ordinary Income for such period, any increase (or minus any decrease) during such period in deferred tax liabilities of the Borrower and its Consolidated Subsidiaries, taken as a whole. "Consolidated Fixed Charges" means, with respect to any period, to the extent deducted in determining Consolidated Ordinary Income for such period, the sum of (i) interest expense less interest income and (ii) rental expense for leases with an initial term of at least one year less rental income from such leases, in each case incurred or accrued by the Borrower and its Consolidated Subsidiaries. "Consolidated Net Income" means, with respect to any period, the consolidated net income of the Borrower and its Consolidated Subsidiaries during such period, before the cumulative effect of accounting changes during such period. "Consolidated Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries determined as of such date. "Consolidated Operating Cash Flow" means, for a period, the sum of (i) Consolidated Net Income for such period plus (ii) to the extent deducted in determining Consolidated Net Income for such period, depreciation, amortization and other similar noncash charges plus (iii) to the extent reflected in Consolidated Net Income for such period, any increase (or minus any decrease) during such period in deferred tax liabilities of the Borrower and its Consolidated Subsidiaries, taken as a whole. "Consolidated Ordinary Income" means, for any period, the consolidated net income of the Borrower and its Consolidated Subsidiaries during such period, before extraordinary gains (or losses) and the cumulative effect of accounting changes during such period. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee that are capitalized in accordance with generally accepted accounting principles, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (vi) all Debt of others Guaranteed by such Person and (vii) all contingent or non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid or payable (currently or in the future, on a contingent or non-contingent basis) under a letter of credit or similar instrument; provided that Debt shall not be deemed to include (A) letters of credit or letters of guaranty or keepwells on comfort letters with respect to bids, payment or performance in connection with contracts for construction or related work entered into in the ordinary course of business of such Person, (B) contingent liabilities up to a maximum of $20,000,000 relating to the specialty steel operations previously owned by the Borrower or (C) letters of credit and notes payable in an aggregate amount (without duplication) at any time not to exceed $30,000,000 with respect to insurance so long as all related liabilities required by generally accepted accounting principles to have been accrued by the Borrower or a Consolidated Subsidiary have at the time been accrued as liabilities. Except as provided in Section 5.10, Debt shall be deemed to include an amount in respect of accounts receivable or interests therein sold by such Person equal to the greater of (1) the amount of any recourse obligation on account of uncollectibility of such accounts receivable or interests and (2) an amount equal to the unrecovered purchase price paid by the purchaser of such accounts receivable or interests. "Default" means any condition or event that constitutes an Event of Default or that with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all payment obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Dixon Transaction" means the sale with full recourse by the Borrower to a commercial finance company of outstanding floor plan receivables of Dixon Industries, Inc. in an aggregate face amount at any time outstanding not to exceed $25,000,000. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City or, with respect to any Borrowing pursuant to Section 2.02(a)(z), Chicago, Illinois are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.05(b). "Effective Date" means the date this Agreement becomes effective in accordance with Section 3.01. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means a Loan to be made by a Bank as a Euro-Dollar Loan pursuant to the applicable Notice of Borrowing. "Euro-Dollar Reference Banks" means the principal London offices of Bank of America Illinois, NationsBank of Georgia, N.A. and Morgan Guaranty Trust Company of New York. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.05(c). "Event of Default" has the meaning set forth in Section 6.01. "Existing Credit Agreement" means the Credit Agreement dated as of December 23, 1992 among the Borrower, the banks parties thereto and Morgan Guaranty Trust Company of New York, as agent, as amended to the Effective Date. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Agent. "Fixed Charge Coverage Ratio" means, at any date, the ratio of (i) Consolidated Earnings Available for Fixed Charges for the period of four consecutive fiscal quarters most recently ended on or prior to such date to (ii) the sum of (x) Consolidated Fixed Charges for such period and (y) scheduled reductions in the long-term portion of Consolidated Debt of the Borrower and its Consolidated Subsidiaries during such period. It is understood that a refunding of outstanding borrowings under a revolving credit facility with additional borrowings thereunder is not a reduction in long-term debt within the meaning of clause (y) above. "Fixed Rate Borrowing" means a CD Borrowing or a Euro-Dollar Borrowing. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or both. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Indemnitee" has the meaning set forth in Section 9.03(b). "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period that would otherwise end on a day that is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period that begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period that would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Borrowing, the period commencing on the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (a) any Interest Period that would otherwise end on a day that is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period that would otherwise end after the Termination Date shall end on the Termination Date. (3) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: (a) any Interest Period that would otherwise end on a day that is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period that would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Domestic Loan or a Euro-Dollar Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or both. "London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Material Commitment" means an outstanding commitment by a financial institution or a syndicate of financial institutions to provide financial accommodations to the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an amount exceeding in the aggregate $5,000,000. "Material Debt" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $5,000,000. "Material Financial Obligations" means a principal or face amount of Debt and/or (in the case of Section 6.01(e)) payment obligations in respect of, or (in the case of Section 6.01(f)) marked-to-market value of, Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $5,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $5,000,000. "Material Subsidiary" means any "significant subsidiary" as defined under Regulation S-X of the Securities Act of 1933, as amended, as in effect on the date hereof. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period but only with respect to the period during which such Person was a member of the ERISA Group. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" has the meaning set forth in Section 2.02. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) where Section 4069(a) of ERISA would be applicable, has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Schedule" means (i) Pricing Schedule A attached hereto, unless and until the Borrower shall have elected, by not less than five Domestic Business Days' notice to the Banks, that Pricing Schedule B attached hereto be the Pricing Schedule and (ii) on and after the effective date of such notice, Pricing Schedule B attached hereto. Such election, if made, shall be irrevocable. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Refunding Borrowing" means a Borrowing that, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Loans made by any Bank. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 66 2/3% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to but not including the Termination Date. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Termination Date" means December 22, 1999 (or if such date is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day). "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article V to eliminate a material variation in the operation of such covenant by virtue of a change in generally accepted accounting principles (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend.During the Revolving Credit Period each Bank severally agrees, on the terms and conditions set forth in this Agreement, to lend to the Borrower from time to time amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Commitments) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.09, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section. SECTION 2.02. Method of Borrowing. (a) The Borrower shall give the Agent notice (a "Notice of Borrowing") not later than 10:00 A.M. (New York City time) at least two Domestic Business Days before each CD Borrowing, (y) at least three Euro-Dollar Business Days before each Euro-Dollar Borrowing and (z) on the day of each Base Rate Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (iv) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such Borrowing and, except as provided in Section 8.01, such Notice of Borrowing shall not thereafter be revocable by the Borrower. Notwithstanding the foregoing, no more than five Fixed Rate Borrowings shall be outstanding at any one time, and any Borrowing that would exceed such limitation shall be made as a Base Rate Borrowing. (c) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank shall (except as provided in subsection (d) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (d) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (c) of this Section, or remitted by the Borrower to the Agent as provided in Section 2.10, as the case may be. (e) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (c) and (d) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.05 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.03. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.04. Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.05. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate forsuch day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate for such Interest Period; provided that if any CD Loan shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such CD Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Loan and (ii) the rate applicable to Base Rate Loans for such day. "CD Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate __________ * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. X 327.3(e) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) that is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii) the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated hereby. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.06. Fees. (a) Facility Fee. The Borrower shall pay to the Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. (b) Participation Fees. The Borrower shall pay to the Agent on the Effective Date for the account of the Banks in proportion to their respective Commitments, participation fees in an amount equal to 1/20 of 1% of the aggregate amount of the Commitments. (c) Payments. Accrued fees under subsection (a) shall be payable quarterly in arrears on each March 1, June 1, September 1 and December 1 during the Revolving Credit Period and on the Termination Date. SECTION 2.07. Optional Termination or Reduction of Commitments. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $5,000,000 or any larger multiple of $1,000,000 thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. If the Commitments are terminated in their entirety, all accrued facility fees shall be payable on the effective date of such termination. SECTION 2.08. Scheduled Termination of Commitments. The Commitments shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.09. Optional Prepayments. (a) The Borrower may, upon at least one Domestic Business Day's notice to the Agent delivered prior to 10:00 A.M. (New York City time) on the Domestic Business Day next preceding such prepayment, prepay any Base Rate Borrowing in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Except as provided in Section 8.02, the Borrower may not prepay all or any portion of the principal amount of any Fixed Rate Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.10. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 11:00 A.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day that is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day that is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.11. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan (pursuant to Article VI or VIII or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the end of an applicable period fixed pursuant to Section 2.05(d), or if the Borrower fails to borrow any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.02(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.12. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.13. Maximum Interest Rate. (a) Nothing contained in this Agreement or the Notes shall require the Borrower to pay interest at a rate exceeding the maximum rate permitted by applicable law. (b) If the amount of interest payable for the account of any Bank on any interest payment date in respect of the immediately preceding interest computation period, computed pursuant to Section 2.05, would exceed the maximum amount permitted by applicable law to be charged by such Bank, the amount of interest payable for its account on such interest payment date shall be automatically reduced to such maximum permissible amount. (c) If the amount of interest payable for the account of any Bank in respect of any interest computation period is reduced pursuant to clause (b) of this Section and the amount of interest payable for its account in respect of any subsequent interest computation period, computed pursuant to Section 2.05, would be less than the maximum amount permitted by applicable law to be charged by such Bank, then the amount of interest payable for its account in respect of such subsequent interest computation period shall be automatically increased to such maximum permissible amount; provided that at no time shall the aggregate amount by which interest paid for the account of any Bank has been increased pursuant to this clause (c) exceed the aggregate amount by which interest paid for its account has theretofore been reduced pursuant to clause (b) of this Section. ARTICLE III CONDITIONS SECTION 3.01. Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent for the account of each Bank of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.03; (c) receipt by the Agent of an opinion of the Vice President, Legal Services of the Borrower, substantially in the form of Exhibit B hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and of all other amounts payable under, the Existing Credit Agreement; (f) receipt by the Agent for the account of each Bank of payment of a participation fee in an amount equal to 1/20 of 1% of the Commitment of such Bank; and (g) receipt by the Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; provided that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than December 31, 1994. The Agent shall promptly notify the Borrower and the Banks of the Effective Date, and such notice shall be conclusive and binding upon all parties hereto. The Banks that are parties to the Existing Credit Agreement, comprising the "Required Banks" as defined therein, and the Borrower agree to waive notice of the termination of the commitments under such agreement, and that the commitments thereunder shall terminate in their entirety simultaneously with and subject to the effectiveness of this Agreement and that the Borrower shall be obligated to pay on the Effective Date accrued commitment fees under the Existing Credit Agreement to but excluding the Effective Date. SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the fact that the representations and warranties of the Borrower contained in this Agreement (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Sections 4.04(c) and 4.05 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Material Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Material Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of February 28, 1994 and the related consolidated statements of operations, retained earnings, cash flows and changes in capital stock accounts for the fiscal year then ended, reported on by Coopers & Lybrand and set forth in the Borrower's 1994 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of August 31, 1994 and the related unaudited consolidated statements of operations and cash flows for the six months then ended, set forth in the Borrower's quarterly report for the fiscal quarter ended August 31, 1994 as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six month period (subject to normal year-end adjustments). (c) Since August 31, 1994 there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.05. Litigation. Except as disclosed in the footnotes to the financial statements delivered to each of the Banks as described in Section 4.04 or as subsequently delivered pursuant to Section 5.01, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision that could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, that has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the creditworthiness of the Borrower. SECTION 4.08. Taxes. United States Federal income tax returns of the Borrower and its Subsidiaries have been examined and closed through the fiscal year ended February 28, 1990. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.09. Subsidiaries. Each of the Borrower's corporate Material Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Not an Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. Full Disclosure. All information heretofore furnished by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts that materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement. ARTICLE V COVENANTS The Borrower agrees that, as long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 105 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, retained earnings, cash flows and changes in capital stock accounts for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by Coopers & Lybrand or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statement of income for such quarter and the related consolidated statements of income and cash flows for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in comparative form in the case of such statements of income and cash flows the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and, subject to Section 1.02, consistency by the chief financial officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish (x) whether the Borrower was in compliance with the requirements of Sections 5.07 to 5.11, inclusive, on the date of such financial statements and (y) for so long as Pricing Schedule A is the Pricing Schedule, the Applicable Cash Flow Ratio and Applicable Leverage Ratio (as such terms are defined in Pricing Schedule A) derived from such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Payment of Obligations. The Borrower will pay and discharge, and will cause each Material Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Material Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will maintain and will cause each of its Subsidiaries to maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Agent, information presented in reasonable detail as to the insurance so carried. The Borrower will deliver to the Banks (i) on or before the date of the first Borrowing hereunder, a certificate dated such date showing the amount of coverage as of such date, (ii) within five days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of this Agreement and (iii) forthwith, notice of any cancellation or nonrenewal of coverage by the Borrower. SECTION 5.04. Conduct of Business and Maintenance of Existence. The Borrower will continue, and will cause each Material Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Material Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Material Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.04 shall prohibit (i) the merger of a Material Subsidiary into the Borrower or the merger or consolidation of a Material Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Material Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing or (ii) the termination of the corporate existence of any Material Subsidiary or the disposition, sale or other transfer of the assets or capital stock of any Material Subsidiary if the Borrower in good faith determines that such transaction is in the best interest of the Borrower and is not materially disadvantageous to the Banks. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Material Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.06. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which entries which are full, true and correct in all material respects shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. Ratio of Consolidated Debt to Consolidated Net Worth. At no time during any period set forth below will the ratio of Consolidated Debt to Consolidated Net Worth exceed the ratio set forth below opposite such period: Period Ratio Effective Date - 2/28/96 1.30:1 2/29/96 - 2/27/97 1.15:1 2/28/97 - 2/27/98 1.00:1 2/28/98 - 2/27/99 0.80:1 2/28/99 - Termination Date 0.75:1 For purposes of this Section any preferred stock of a Consolidated Subsidiary held by a Person other than the Borrower or a Wholly-Owned Consolidated Subsidiary shall be included, at the higher of its voluntary or involuntary liquidation value, in "Consolidated Debt". SECTION 5.08. Acquisitions. Neither the Borrower nor any Subsidiary will make any Acquisition if the aggregate consideration paid for Acquisitions (exclusive of (i) Debt assumed by the Borrower or any Subsidiary, and existing Debt of any Person which becomes a Subsidiary, in connection with an Acquisition which in either case was not created in contemplation thereof and (ii) consideration in the form of common stock of the Borrower) during the term of this Agreement would exceed $150,000,000. SECTION 5.09. Negative Pledge. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal amount not exceeding $3,000,000; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets; (g) any Lien arising out of Allowed Sales of Receivables; (h) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in an amount exceeding $20,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; and (i) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $5,000,000. SECTION 5.10. Limitation on Subsidiary Debt. The Borrower will not permit any Subsidiary to become or to be liable in respect of any Debt, other than (i) Debt of a corporation existing at the time such corporation becomes a Subsidiary and not created in contemplation of such event and (ii) other Debt of Subsidiaries in an aggregate principal amount at any time outstanding not exceeding $35,000,000; provided that for purposes of this Section 5.10, Allowed Sales of Receivables shall not be deemed to give rise to Debt. SECTION 5.11. Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter of the Borrower ending during each period set forth below, the Fixed Charge Coverage Ratio will not be less than the ratio set forth below opposite such period. Period Ratio Effective Date - 2/28/96 2.50 2/29/96 - 2/27/97 2.75 2/28/97 - 2/27/98 3.25 2/28/98 - Termination Date 3.50 SECTION 5.12. Consolidations, Mergers and Sales of Assets. Except as provided in Section 5.04 above, the Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person; provided that this clause (ii) shall not apply to Allowed Sales of Receivables. SECTION 5.13. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for its general corporate purposes. None of such proceeds will be used in violation of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. SECTION 5.14.Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate except on an arms-length basis on terms no less favorable to the Borrower or such Subsidiary than could have been obtained from a third party who was not an Affiliate; provided that this Section will not apply to the compensation of officers and directors in the ordinary course of business. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within three Domestic Business Days following the due date thereof any interest on any Loan or any fees or any other amount payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.07 to 5.14, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 15 Domestic Business Days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any of its Subsidiaries shall fail to make any payment in respect of any Material Financial Obligation when due or, if later, within any applicable grace period; (f) (i) any event or condition shall occur which results in the acceleration of the maturity, or requires the early redemption or prepayment, of any Material Financial Obligation or any event or condition shall occur which enables (or, which the giving of notice or lapse of time or both, would enable) the holder of any Material Financial Obligation or any Person acting on such holder's behalf to accelerate the maturity, or require the early redemption or prepayment, of such Material Financial Obligation or (ii) any event or condition constituting a default or event of default under the agreement, instrument or other document relating thereto shall occur which results in the termination of any Material Commitment or any such event or condition shall occur and be continuing which enables (or with the giving of notice or lapse of time or both, would enable) the provider of any Material Commitment or any Person acting on such provider's behalf to require the early termination of such Material Commitment; (g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (I) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $5,000,000; (j) a judgment or order against the Borrower for the payment of money in excess of $5,000,000 or against any Subsidiary for the payment of money in excess of $2,500,000 shall be rendered and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) the Blount Family shall at any time cease to be the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of capital stock of the Borrower having the right to elect at least a majority of the directors of the Borrower; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of New York shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted CD Rate or the Adjusted London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after the date hereof the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the following terms have the following meanings: "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b)Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c)The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Agent (as the case may be) makes demand therefor. (d)Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e)For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; providedthat if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f)If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid, all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.06. Substitution of Bank. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower shall have the right, with the assistance of the Agent, to seek a mutually satisfactory substitute bank or banks (which may be one or more of the Banks) to purchase the Note and assume the Commitments of such Bank. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or telex number or facsimile number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex number or facsimile number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex number or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article II or Article VIII shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent and each Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to a Commitment of not less than $5,000,000) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit D hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower, which shall not be unreasonably withheld, and the Agent; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.09. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BLOUNT, INC. By/s/ Harold E. Layman Title: Senior Vice President and Chief Financial Officer 4520 Executive Park Drive P.O. Box 949 Montgomery, Alabama 36102 Attention: Treasurer Telex number: 8107283252 Commitments $20,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By/s/ Stephen B. King Title: Vice President $20,000,000 ABN AMRO BANK N.V., ATLANTA AGENCY By/s/ Steven L. Hissman Title: Vice President By/s/ Bruce W. Swords Title: Vice President $20,000,000 BANK OF AMERICA ILLINOIS By/s/ Bruce A. Simons Title: Senior Vice President $20,000,000 NATIONSBANK OF GEORGIA, N.A. By/s/ James S. Scully Title: Vice President $20,000,000 SOUTHTRUST BANK OF ALABAMA, N.A. By/s/ Neel Elliott Title: Vice President _________________ Total Commitments $100,000,000 =========== MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By/s/ Stephen B. King Title: Vice President 60 Wall Street New York, New York 10260-0060 Telex number: 177615 PRICING SCHEDULE A The "Euro-Dollar Margin," "CD Margin, and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: Status Level I Level II Level III Level IV Level V Facility Fee Rate .1875 .2000 .2500 .3125 .5000 Eurodollar Margin Usage <50% .1875 .3000 .5000 .6875 .8750 Usage =>50% .2500 .4000 .6250 .8125 1.1250 CD Margin .3750 .5250 .7500 .9375 1.2500 For purposes of this Schedule, the following terms have the following meanings: "Level I Status" exists at any date if the Applicable Cash Flow Ratio is greater than 0.50 and the Applicable Leverage Ratio is less than 0.75. "Level II Status" exists at any date if (i) the Applicable Cash Flow Ratio is greater than 0.40 and the Applicable Leverage Ratio is less than 0.85 and (ii) Level I Status does not exist. "Level III Status" exists at any date if (i) the Applicable Cash Flow Ratio is greater than 0.30 and the Applicable Leverage Ratio is less than 1.00 and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if (i) the Applicable Cash Flow Ratio is greater than 0.25 and the Applicable Leverage Ratio is less than 1.15 and (ii) neither Level I Status, Level II Status nor Level III Status exists. "Level V Status" exists at any date if the Applicable Cash Flow Ratio is less than or equal to 0.25 or the Applicable Leverage Ratio is greater than or equal to 1.15. "Applicable Cash Flow Ratio" means, with respect to each day during any Quarter, the ratio of Consolidated Operating Cash Flow for the period of four consecutive Quarters ending with the immediately preceding Quarter to Consolidated Debt as at the last day of such immediately preceding Quarter. "Applicable Leverage Ratio" means, for each day during any Quarter, the ratio of Consolidated Debt to Consolidated Net Worth as at the last day of the immediately preceding Quarter. "Quarter" means each period of three consecutive calendar months consisting of (i) December, January and February; (ii) March, April and May; (iii) June, July and August and (iv) September, October and November. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists at any date. "Usage" means at any date the percentage equivalent of a fraction (i) the numerator of which is the aggregate outstanding principal amount of the Loans at such date, after giving effect to any borrowing or payment on such date, and (ii) the denominator of which is the aggregate amount of the Commitments at such date, after giving effect to any reduction of the Commitments on such date. For purposes of this Schedule, if for any reason any Loans remain outstanding after termination of the Commitments, the Usage for each date on or after the date of such termination shall be deemed to be greater than 50%. The Applicable Leverage Ratio and Applicable Cash Flow Ratio for each Quarter shall be determined initially on the basis of an estimate which shall be furnished by the Borrower to the Agent not later than the earlier of (i) the 60th day of such Quarter and (ii) the tenth day prior to the first day (if any) during such Quarter on which interest is payable in respect of Euro-Dollar Loans or CD Loans. If when finally determined the actual Applicable Leverage Ratio or Applicable Cash Flow Ratio differs from the estimate, appropriate adjustments shall be made as determined by the Agent. PRICING SCHEDULE B The "Euro-Dollar Margin," "CD Margin," and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: Status Level I Level II Level III Level IV Level V Level VI Facility Fee Rate .1250 .1500 .1750 .2500 .3750 .5000 Euro-Dollar Margin .2500 .3500 .4500 .5000 .6250 1.0000 CD Margin .3750 .4750 .5750 .6250 .7500 1.1250 For purposes of this Schedule, the following terms have the following meanings: "Level I Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated BBB+/Baa1 or higher. "Level II Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated BBB/Baa2. "Level III Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated BBB-/Baa3. "Level IV Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated BB+/Ba1. "Level V Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated BB/Ba2. "Level VI Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated below BB by S&P or below Ba2 by Moody's or (ii) neither S&P nor Moody's has an effective rating of the Borrower's senior unsecured long-term debt. "Moody's" means Moody's Investor Service, Inc. "S&P" means Standard & Poor's Ratings Group. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV, Status, Level V Status or Level VI Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned by S&P or Moody's to the senior unsecured long-term debt of the Borrower without third-party credit enhancement, and any rating assigned to any other debt of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. In the case of split ratings from S&P and Moody's, the rating to be used to determine Status is the higher of the two, provided that (i) in the event the split is more than one full category, the average (or the higher of two median ratings) shall be used (e.g., BBB+/Baa3 results in Level II Status, as does BBB+/Ba1) and (ii) the lower rating applies for purposes of determining Level VI Status. EXHIBIT A NOTE New York, New York December 22, 1994 For value received, Blount, Inc., a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any enforcement or transfer hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of December 22, 1994 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. BLOUNT, INC. By________________________ Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL _________________________________________________________________ Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ EXHIBIT B OPINION OF COUNSEL FOR THE BORROWER [Effective Date] To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: I am the Vice President, Legal Services of Blount, Inc. (the "Borrower") and I have acted as counsel for the Borrower in connection with the Credit Agreement (the "Credit Agreement") dated as of December 22, 1994 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of my client pursuant to Section 3.01(c) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary for purposes of this opinion. With respect to my opinion in paragraph (5) below, I have assumed that any action, suit or proceeding which could result in an adverse financial impact to the Borrower or its Subsidiaries of less than One Million Dollars would not materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Subsidiaries. My opinion in paragraph (6) below with respect to the Material Subsidiaries of the Borrower that are incorporated in states of the United States of America is based solely on certificates of public officials pertaining thereto, and such opinion with respect to the Subsidiaries that are incorporated in Belgium and Canada is based solely on the verbal opinions of local counsel. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower, or of any agreement, judgment, injunction, order, decree or other instrument known to me to which the Borrower is a party or otherwise bound or result in the creation or imposition of any direct Lien on any asset of the Borrower or any of its Subsidiaries under any of the foregoing. 3. The Credit Agreement and the Notes constitute valid and binding obligations of the Borrower, enforceable in accordance with their terms, except as such obligations may be (a) limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditor's rights generally or (b) subject to general principles of equity (whether considered in a proceeding in equity or at law). 4. Neither the Agent nor any of the Banks is required to be qualified to do business or file any designation for service of process or file any reports in the State of Alabama, or comply with any statutory or regulatory rule or requirement applicable only to financial institutions chartered or qualified to do business in the State of Alabama, solely by reason of its execution and delivery of the Credit Agreement or by reason of its participation in any of the transactions under or contemplated by the Credit Agreement, including, without limitation, the making of any loan contemplated thereby and the making and receipt of payments to be made by the Borrower pursuant to the Credit Agreement, and the validity and enforceability of the Credit Agreement will not be affected by the failure to so qualify or file. 5. Except as disclosed in the footnotes to the financial statements delivered to each of the Banks as described in Section 4.04 of the Credit Agreement, there is not to my knowledge after due inquiry, any action, suit or proceeding pending against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, or to the best of my knowledge threatened, in which there is a reasonable possibility of an adverse decision that could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Subsidiaries, considered as a whole, or which challenges the validity of the Credit Agreement or the Notes. 6. Each of the Borrower's Material Subsidiaries that are incorporated in states of the United States of America and each of the Borrower's Subsidiaries incorporated in Belgium, Brazil or Canada, is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation. 7. With respect to the choice of law provisions of the Notes and of Section 9.08 of the Credit Agreement, an Alabama court should conclude that the laws of the State of New York would govern the rights and duties of the parties thereto. This opinion is limited in all respects to the laws of the State of Alabama, the federal laws of the United States of America and the General Corporation Law of the State of Delaware, and no opinion is hereby expressed with respect to any matters which may arise under laws of any other jurisdiction or any effect which such laws might have on the opinions herein set forth. This opinion is furnished by me for your sole benefit and no other person or entity shall be entitled to rely on this opinion without my express prior written consent in each instance. This opinion is limited to the matters expressly stated herein as of the date hereof, and no other opinions are implied or may be inferred. Very truly yours, EXHIBIT C OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT [Effective Date] To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of December 22, 1994 among Blount, Inc., a Delaware corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT D ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), BLOUNT, INC. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of December 22, 1994 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Borrower and the Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds an amount equal to $_________. Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Borrower and the Agent. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________ Title: [ASSIGNEE] By__________________________ Title: BLOUNT, INC. By__________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By__________________________ Title: EXHIBIT E MATERIAL SUBSIDIARIES OF THE BORROWER BI Holdings, Corp. Dixon Industries, Inc. -----END PRIVACY-ENHANCED MESSAGE-----