[BLOUNT LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 25, 2006
TO THE STOCKHOLDERS OF BLOUNT INTERNATIONAL, INC.:
The Annual Meeting of Stockholders of Blount International, Inc. (the
"Corporation") will be held at 10:00 A.M. P.D.T. on Tuesday, April 25, 2006, in
the Dogwood Room of the Corporation's headquarters at 4909 SE International Way
in Portland, Oregon 97222 for the following purposes:
1. To elect a Board of Directors to serve until the next Annual Meeting of
Stockholders or until their successors have been elected and qualified;
2. To consider and act upon a proposal to approve the Blount International,
Inc. 2006 Executive Management Annual Incentive Plan;
3. To consider and act upon a proposal to approve the Blount International,
Inc. 2006 Equity Incentive Plan;
4. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the independent registered public
accounting firm for the Corporation for the year ending December 31,
2006; and
5. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on Friday,
February 24, 2006, as the record date for determining the stockholders entitled
to notice of and to vote at the Meeting or any adjournment thereof.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
By Order of the Board of Directors,
RICHARD H. IRVING, III
Senior Vice President, General Counsel
and Secretary
4909 SE International Way
Portland, OR 97222
March 21, 2006
TABLE OF CONTENTS
PAGE NO.
--------
ANNUAL MEETING OF STOCKHOLDERS.................................................3
PRINCIPAL STOCKHOLDERS.........................................................4
PROPOSAL 1 (Election of Directors).............................................6
DIRECTOR NOMINEE BIOGRAPHICAL INFORMATION......................................6
THE BOARD AND ITS COMMITTEES...................................................9
CRITERIA FOR NOMINATING DIRECTOR CANDIDATES...................................11
NOMINATION OF CANDIDATES BY STOCKHOLDERS......................................12
COMPENSATION OF DIRECTORS.....................................................12
AUDIT COMMITTEE DISCLOSURE....................................................13
AUDIT COMMITTEE REPORT........................................................14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................14
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.......................16
Overall Objectives of the Executive Compensation Program..................16
Description of the Executive Compensation Program.........................17
Calendar Year 2005 Pay for the Chairman and Chief Executive Officer.......19
EXECUTIVE OFFICERS............................................................21
EXECUTIVE COMPENSATION........................................................22
Summary Compensation Table................................................22
Option Grants.............................................................24
Equity Compensation Plan Information......................................25
Option Exercises and Year-End Values......................................27
Pension Plans.............................................................28
SUPPLEMENTAL RETIREMENT PLANS AND EMPLOYMENT CONTRACTS........................29
PERFORMANCE GRAPH OF FIVE YEAR CUMULATIVE TOTAL RETURN........................32
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS.....................33
SECTION 303A.12 CERTIFICATION TO THE NYSE.....................................33
SECTION 303A.14 WEBSITE AVAILABILITY OF CERTAIN DOCUMENTS.....................33
CERTAIN TRANSACTIONS AND OTHER MATTERS........................................33
PROPOSAL 2 (Approval of 2006 Executive Management Annual Incentive Plan)......34
PROPOSAL 3 (Approval of 2006 Equity Incentive Plan)...........................36
PROPOSAL 4 (Ratify the Appointment of Independent Registered Public
Accounting Firm)..........................................................41
STOCKHOLDERS' COMMUNICATIONS WITH BOARD OF DIRECTORS..........................42
STOCKHOLDERS' PROPOSALS FOR 2007 ANNUAL MEETING...............................42
EXHIBIT A (Blount International, Inc. 2006 Executive Management Annual
Incentive Plan)
EXHIBIT B (Blount International, Inc. 2006 Equity Incentive Plan)
2
BLOUNT INTERNATIONAL, INC.
4909 SE International Way
Portland, Oregon 97222
503-653-8881
-----------------------------------
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
APRIL 25, 2006
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors (the "Board") of Blount International, Inc., a
Delaware corporation, (the "Corporation") of your proxy for use at the Annual
Meeting of Stockholders to be held on April 25, 2006, or at any adjournment
thereof, (the "Meeting"). It is anticipated that this Proxy Statement and the
accompanying form of proxy will be mailed to stockholders on or about March 21,
2006.
Shares represented by each properly signed proxy on the accompanying
form received by the Corporation in time to permit its use at the Meeting will
be voted at the Meeting, but you may revoke your proxy at any time prior to the
actual voting thereof by giving notice in writing to the Secretary of the
Corporation or by voting a subsequently dated proxy. If a specification is made,
the shares will be voted in accordance with the specification. IF A PROXY IS
SIGNED BUT NO SPECIFICATION IS MADE ON THE PROXY, THE SHARES REPRESENTED BY THE
PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD WITH RESPECT TO PROPOSALS 1, 2,
3 AND 4. The presence of a stockholder at the Meeting does not revoke his or her
proxy; however, at the Meeting, there will be an opportunity for a stockholder
in attendance to revoke his or her proxy and vote in person if he or she so
requests.
Please note that, except where expressly stated otherwise, the
information provided in this Proxy Statement constitutes the aggregation of such
information as it related to Blount, Inc. prior to November 4, 1995 and to
Blount International, Inc. after November 3, 1995. As of the close of business
on November 3, 1995, as a result of reorganization, Blount, Inc. merged with a
wholly-owned subsidiary of Blount International, Inc. and became a wholly-owned
subsidiary of Blount International, Inc. The stock of Blount, Inc. prior to the
reorganization had been traded on the American Stock Exchange. The stock of
Blount International, Inc. has been traded on the New York Stock Exchange, Inc.
("NYSE") since the reorganization.
Please also note that as the result of a merger and recapitalization,
which involved the Corporation and a subsidiary of Lehman Brothers Merchant
Banking Partners II, L.P. ("LBMBP II") and was completed on August 19, 1999, the
Corporation issued cash and shares in a single class of common stock in exchange
for the delivery and cancellation of its former Class A and Class B common
shares. Throughout this document, this transaction is referred to as the "Merger
and Recapitalization."
Further, please note that on December 20, 2004, LBMBP II and its
affiliates completed a secondary offering of 11,225,492 shares of the
Corporation's common stock. As a result of this transaction, for the first time
since August 19, 1999, the closing date for the Merger and Recapitalization,
LBMBP II and its affiliates no longer controlled fifty percent (50%) or more of
the Corporation's common stock. "Control" includes shares owned by or attributed
to LBMBP II and its affiliates under applicable federal securities law.
Throughout this document, this transaction is referred to as the
"Change-in-Control."
VOTING SECURITIES
RECORD DATE AND VOTE REQUIRED
The Board has fixed the close of business on Friday, February 24, 2006,
as the record date for determining stockholders entitled to notice of and to
vote at the Meeting. Holders of shares of the Corporation's single class of
common stock as of the record date are entitled to vote at the Meeting by proxy
or in person. As of such date, the Corporation had issued and outstanding
47,092,131 shares. There are no cumulative voting or preemptive rights.
The holders of common stock are entitled to one vote per share to elect
the Directors and are entitled to one vote per share with respect to any other
matter properly presented at the Meeting.
Directors are elected by the affirmative vote of a majority of the
shares voted in the election, as distinct from a majority of shares outstanding.
Similarly, except for certain special proposals, such as one to amend the
Certificate of Incorporation, none of which is currently scheduled to come
before the Meeting, the affirmative vote of a majority of the shares cast in the
election is required to approve any other proposal properly presented at the
Meeting, including Proposals 2, 3 and 4, which are the only proposals currently
scheduled for the Meeting in addition to the election of Directors.
3
PRINCIPAL STOCKHOLDERS
To the best knowledge of the Corporation, the following table sets forth
as of February 24, 2006,* information concerning: (a) beneficial ownership of
more than 5% of the common stock of the Corporation by certain persons (other
than Director nominees) and (b) beneficial ownership of common stock of the
Corporation by (i) each Director nominee, (ii) each Executive Officer named in
the Summary Compensation Table other than Director nominees and (iii) all
Director nominees and Executive Officers of the Corporation as a group. Except
as otherwise indicated, all beneficial ownership stated in the table represents
sole voting and investment power.
Shares Percent
Name and Address of Beneficially of Total 60-Day Options
Beneficial Owners Owned Shares (# Shares) (1)
- ----------------- ----- ------ --------------
(a) Holders of more than 5% common
stock (other than Director nominees
and Executive Officers named in the
SUMMARY COMPENSATION TABLE)
Lehman Brothers Holdings Inc. 8,918,999 (2) 18.9%
399 Park Avenue
New York, NY 10022
Arnhold & S. Bleichroeder Advisers, LLC 7,355,633 15.6%
1345 Avenue of the Americas
New York, NY 10105
Ariel Capital Management, Inc. 5,406,663 11.5%
200 E. Randolph Dr., Suite 2900
Chicago, IL 60601
Select Equity Group, Inc. 3,524,396 7.5%
380 Lafayette Street, 6th Fl.
New York, NY 10003
(b)(i) DIRECTOR NOMINEES
R. Eugene Cartledge 38,000 **
Joshua L. Collins 8,918,999 (3) 18.9% (3)
Eliot M. Fried 65,000 **
Thomas J. Fruechtel 7,000 **
E. Daniel James 8,918,999 (3) 18.9% (3)
Robert D. Kennedy 30,000 **
Harold E. Layman 65 ** 314,175
James S. Osterman 48,800 ** 526,067
(ii) Executive Officers named in the
Summary Compensation Table
(OTHER THAN DIRECTOR NOMINEES)
Dennis E. Eagan 0 0 181,667
Richard H. Irving, III 54,689 ** 188,334
Calvin E. Jenness 0 0 82,334
Kenneth O. Saito 14,983 ** 193,989
(iii) All Director nominees and
Executive Officers as a group 9,177,491 (4) 19.5% (4)
4
- ---------------------------------
(*) To conform to valuation dates established by the Plan administrator,
December 31, 2005 has been used for allocating the shares held by the Blount
Retirement Savings Plan, a 401(k) plan, attributable to Messrs. Irving, Layman
and Saito. The difference between the number of shares so attributed on such
date and those that would be so attributed on February 24, 2006 is immaterial.
(**) Less than 1.0% of total shares.
(1) Under applicable rules of the United States Securities and Exchange
Commission ("SEC"), beneficial ownership by principal stockholders of certain
types of instruments that can be converted into shares of common stock within 60
days from the date of this Proxy Statement should be included in this table.
Numbers in this column represent granted and fully-vested options held
respectively by each of the individuals shown above that can be exercised within
such period for the number of shares indicated.
(2) Until June 6, 2005, LB Blount Investment SPV LLC ("LB Blount"), an
affiliate of Lehman Brothers Holdings Inc., held warrants for 1,000,000 shares
of common stock, which were immediately convertible at LB Blount's election to
common stock at $0.01 per share. As part of a secondary offering, which closed
on June 6, 2005, these warrants were exchanged for 1,000,000 shares of common
stock in consideration of the payment of $10,000 to the Corporation. The
combination of the exercise of warrants and secondary sale of shares resulted in
Lehman Brothers Holdings Inc. and its affiliates (collectively, "Lehman
Brothers," unless specified to the contrary) beneficially owning 8,918,999
shares. Immediately prior to these transactions, Lehman Brothers owned
15,036,619 shares of the Corporation's common stock.
(3) Mr. James and Mr. Collins are Managing Directors of Lehman Brothers Inc.
and may each be deemed to share beneficial ownership of the shares of common
stock shown as beneficially owned by Lehman Brothers Holdings Inc. Mr. James and
Mr. Collins each disclaims beneficial ownership of all such shares.
(4) See Footnote (3) with respect to 8,918,999 shares that may be
attributable to Mr. James and to Mr. Collins, and have been included in the
total. Mr. James and Mr. Collins each disclaims any beneficial ownership with
respect to these shares.
5
ELECTION OF DIRECTORS
PROPOSAL 1
DIRECTORS
The By-laws of the Corporation, which may be amended by the Board,
presently provide that the number of Directors that constitutes the whole Board
be fixed from time to time by a vote of a majority of the whole Board. In
connection with the relocation of the Corporation's headquarters from
Montgomery, Alabama to Portland, Oregon, and the election of James S. Osterman
as President and Chief Executive Officer and Director, the Board set the exact
number of Directors at seven effective June 11, 2002. On December 9, 2004, in
anticipation of the likelihood of the Change-in-Control, which occurred on
December 20, 2004, the Board set the exact number of Directors at eight
effective January 2, 2005, and this number continues to constitute the whole
Board.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD INTENDS TO NOMINATE AND TO VOTE ALL PROXIES RECEIVED BY THE
BOARD FOR THE ELECTION OF THE PERSONS NAMED BELOW AS DIRECTORS OF THE
CORPORATION EXCEPT TO THE EXTENT CONTRARY INSTRUCTIONS ARE SPECIFIED BY
STOCKHOLDERS IN PROXIES RECEIVED OR IN PERSON AT THE MEETING.
Each Director to be elected shall hold office until the next Annual
Meeting of Stockholders of the Corporation or until his successor is elected and
qualified or until his earlier resignation or removal. Should any nominee fail
to accept election, it is expected that the Board will cast all proxies received
by it, as appropriate, in favor of the election of such other person for the
office of Director as the Board may recommend. The Board has no reason to
believe that any of the persons named below will fail to accept election as a
Director. There were no arrangements or understandings between any Director and
any other person pursuant to which such Director was or is to be selected as
Director.
BIOGRAPHICAL INFORMATION
The following biographical information is furnished with respect to each
nominee for election as Director at the Meeting:
R. EUGENE CARTLEDGE, Age 76.
Director since April 2002; Chairman of the Audit Committee since April 2002;
Member of the Compensation Committee since February 2004; Member of the
Nominating & Corporate Governance Committee since February 2005. Formerly
Director of the Corporation from September 1994 through August 19, 1999;
formerly Chairman of the Compensation Committee and Member of the Acquisition,
Audit and Executive Committees during this prior term.
Chairman of GrafTech International Ltd. of Wilmington, Delaware, a leading
manufacturer of graphite and carbon products, since March 2005; previously,
Chairman of Savannah Foods & Industries, Inc. of Savannah, Georgia from 1996
until retirement in 1997; Chairman and Chief Executive Officer of Union Camp
Corporation of Wayne, New Jersey from 1986 to 1994.
Mr. Cartledge also serves on the Board of Directors of GrafTech International
Ltd. of Wilmington, Delaware. Mr. Cartledge formerly served on the Boards of
Directors of Delta Airlines, Inc. of Atlanta, Georgia, Sun Corporation, Inc. of
Philadelphia, Pennsylvania, Chase Industries, Inc. of New York, New York and
Formica Corp. of Warren, New Jersey until his retirement from the first two in
2002, from the third in 2003 and from the fourth in 2004. Mr. Cartledge serves
on the Compensation and Nomination Committees for GrafTech International Ltd.
MR. CARTLEDGE IS AN "INDEPENDENT" DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES
AND REGULATIONS. *
6
JOSHUA L. COLLINS, Age 41.
Director since January 2005; Member of Compensation Committee from January 2005
to December 2005.
Principal of Lehman Brothers Merchant Banking since 2000, and Managing Director
of Lehman Brothers Inc. since 2006; previously, senior vice president from 2003;
joined Lehman Brothers Merchant Banking in 1996.
Mr. Collins also serves on the Boards of Directors for Phoenix Brands LLC of
Stamford, Connecticut; Pacific Energy Partners, L.P. of Long Beach, California;
Enduring Resources, LLC of Denver, Colorado and Evergreen Copyright
Acquisitions, LLC of Nashville, Tennessee.
MR. COLLINS IS AN EMPLOYEE OF LEHMAN BROTHERS INC., THE FORMER CONTROLLING
SHAREHOLDER OF THE CORPORATION UNTIL THE CHANGE-IN-CONTROL THAT OCCURRED ON
DECEMBER 20, 2004. AS SUCH, THE THREE YEAR PERIOD OF NON-AFFILIATION REQUIRED
FOR "INDEPENDENCE" FROM THE CORPORATION IS MEASURED FROM THE DATE OF THE
CHANGE-IN-CONTROL. MR. COLLINS, THEREFORE, IS NOT CONSIDERED AN "INDEPENDENT"
DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES AND REGULATIONS. *
ELIOT M. FRIED, Age 73.
Director since August 1999; Lead Director of the Board since April 2005;
Chairman of the Executive Committee since June 2001; Chairman of the Board from
June 2001 to April 2005; member of the Audit Committee since 2002, Chairman from
1999 to 2002; member of the Compensation Committee since 1999, Chairman since
2001; member of the Nominating & Corporate Governance Committee since February
2005.
Retired as a consultant to Abner, Herrman & Brock Inc., a New York City asset
management firm, in November 2004. Retired in February 2000 as Managing Director
of Lehman Brothers Inc., New York, New York. Mr. Fried had been a member of the
Lehman Brothers Investment Committee for nine years and was also a member of the
Lehman Brothers Commitment Committee and Fairness Opinion Committee. Mr. Fried
joined Shearson Hayden Stone Inc., a predecessor firm to Lehman Brothers Inc.,
in 1976 and became a Managing Director in 1982.
Mr. Fried is also a Director of Axsys Technologies, Inc. of Rocky Hill,
Connecticut and of Grant Prideco, Inc. of Houston, Texas. Mr. Fried chairs the
Compensation Committee and is on the Audit Committee for Axsys Technologies,
Inc. and chairs the Nominating & Corporate Governance Committee and is on the
Compensation Committee for Grant Prideco, Inc.
MR. FRIED IS AN "INDEPENDENT" DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES AND
REGULATIONS.*
THOMAS J. FRUECHTEL, Age 55.
Director since December 2003; Member of Audit Committee since December 2003;
Member of the Nominating & Corporate Governance Committee since February 2005.
President and Chief Executive Officer and Director of Leupold & Stevens, Inc., a
sports optics company based in Portland, Oregon, since 1998. Previously,
President and Chief Operating Officer from 1996, and Executive Vice President
from 1995, for Simplicity Manufacturing, Inc., a manufacturer of lawnmowers and
other outdoor power equipment, and from 1974 to 1995, various positions with the
Corporation or a predecessor company, including President of the former Sporting
Equipment Division and General Manager of the Oregon Cutting Systems Division
Latin American Operations.
Mr. Fruechtel also serves on the Board of Directors of North Pacific Group,
Inc., an employee-owned forest products company in Portland, Oregon, and on
North Pacific's Audit and Oversight Committees.
MR. FRUECHTEL IS AN "INDEPENDENT" DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES
AND REGULATIONS.*
E. DANIEL JAMES, Age 41.
Director since August 1999; Member of the Executive Committee since August 1999;
Member of the Audit Committee from 1999 to February 2003; Member of the
Compensation Committee from 1999 to December 2005.
Managing Director of Lehman Brothers Inc., New York, New York from April 2000.
Previously, Senior Vice President from 1996. Mr. James has been with Lehman
Brothers Inc. since June 1988. Prior to joining the Merchant Banking Group in
1996, Mr. James served in the Mergers and Acquisitions Group from 1990 and the
Financial Institutions Group from 1988.
- ----------------------------
* A more fulsome description of the determination of "independence" is set forth
at pages 9-10 below.
7
Mr. James also serves on the Boards of Directors for Phoenix Brands LLC of
Stamford, Connecticut and Flagstone Reinsurance Holdings, Ltd. of Hamilton,
Bermuda.
MR. JAMES IS AN EMPLOYEE OF LEHMAN BROTHERS INC., THE FORMER CONTROLLING
SHAREHOLDER OF THE CORPORATION UNTIL THE CHANGE-IN-CONTROL THAT OCCURRED ON
DECEMBER 20, 2004. AS SUCH, THE THREE YEAR PERIOD OF NON-AFFILIATION REQUIRED
FOR "INDEPENDENCE" FROM THE CORPORATION IS MEASURED FROM THE DATE OF THE
CHANGE-IN-CONTROL. MR. JAMES, THEREFORE, IS NOT CONSIDERED AN "INDEPENDENT"
DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES AND REGULATIONS.*
ROBERT D. KENNEDY, Age 73.
Director since January 2005. Chairman of the Nominating & Corporate Governance
Committee since February 2005; Member of the Compensation Committee since
February 2005.
Former Chairman until September 1999 and Chief Executive Officer until June 1998
of UCAR International, Inc. of Wilmington, Delaware from 1998; previously
Chairman and Chief Executive Officer of Union Carbide Corporation of Danbury,
Connecticut until 1995 from 1986, President and Chief Operating Officer of Union
Carbide's Chemical and Plastics segment from 1985, Executive Vice President from
1982 and Senior Vice President from 1981, President of Union Carbide's Linde
Division from 1977.
Mr. Kennedy served as a Director for Union Carbide to 2001 from 1985; member of
the Boards of Directors for Hercules Corporation of Wilmington, Delaware and,
until he retired in May 2005, for Sunoco, Inc. of Philadelphia, Pennsylvania.
Member of the Nominating & Corporate Governance, Audit and Ethics Committees for
Hercules; formerly, until May 2005, Chairman of Nominating & Corporate
Governance Committee and member of the Compensation Committee for Sunoco. Mr.
Kennedy serves on the Advisory Boards of Sullivan Associates and RFE Investment
Partners. He served on the Advisory Board of Blackstone Group until December
2004. Mr. Kennedy formerly served on the Boards of Directors of Union Camp
Corporation of Wayne, New Jersey; General Signal Corporation of Stamford,
Connecticut; Kmart Corporation of Troy, Michigan; International Paper Company of
Stamford, Connecticut; Chase Industries, Inc. of New York City, New York and
Birmingham Steel Corporation of Birmingham, Alabama.
MR. KENNEDY IS AN "INDEPENDENT" DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES AND
REGULATIONS.*
HAROLD E. LAYMAN, Age 59.
Director since August 1999; Member of the Executive Committee from March 2001 to
August 2002.
President of River Bend Management Group of Florida, LLC, an operator of golf
courses, located in Ormond Beach, Florida. Former President and Chief Executive
Officer of the Corporation from March 2001 to August 16, 2002; President and
Chief Operating Officer from February 2000; Executive Vice President-Finance
Operations and Chief Financial Officer from February 1997 and Senior Vice
President and Chief Financial Officer of the Corporation from January 1993. Mr.
Layman served as Senior Vice President-Finance and Administration and was a
member of the Executive Committee of VME Group, N.V., The Hague, Netherlands, a
manufacturer of automotive components and industrial equipment, from September
1988.
Mr. Layman also serves on the Boards of Directors of GrafTech International Ltd.
of Wilmington, Delaware; Infinity Property & Casualty Corp. of Birmingham,
Alabama and Grant Prideco, Inc. of Houston, Texas. Mr. Layman chairs the Audit
Committee of Grant Prideco, sits on the Compensation Committee of GrafTech
International, and serves as Chairman of the Compensation Committee and as a
member of the Nominating & Corporate Governance Committee of Infinity Property
and Casualty. Mr. Layman served on the Board of Directors of Von Hoffman
Holdings, Inc. of St. Louis, Missouri until 2004 when it was sold.
MR. LAYMAN, FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE CORPORATION, IS
AN "INDEPENDENT" DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES AND REGULATIONS
SINCE AUGUST 15, 2005, THREE YEARS AFTER THE TERMINATION OF HIS EMPLOYMENT WITH
THE CORPORATION.*
JAMES S. OSTERMAN, Age 68.
Director since June 2002; Member of Executive Committee since August 2002.
Chairman and Chief Executive Officer of the Corporation since April 2005;
President and Chief Executive Officer of the Corporation from August 2002;
President of the Outdoor Products Group of the Corporation from January 1997 and
President of the Oregon Cutting Systems Division of the Corporation from January
1987.
- ----------------------------
* A more fulsome description of the determination of "independence" is set forth
at pages 9-10 below.
8
Mr. Osterman is also Chairman of Cascade Corporation of Portland, Oregon, an
international manufacturer of materials handling products used primarily on lift
trucks. He has served as a director of Cascade since 1994 and was elected
Chairman in May 2002.
MR. OSTERMAN, AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE CORPORATION, IS NOT
CONSIDERED AN "INDEPENDENT" DIRECTOR UNDER APPLICABLE NYSE AND SEC RULES AND
REGULATIONS. *
THE BOARD AND ITS COMMITTEES
The property, affairs and business of the Corporation are managed under
the direction of the Board. The Board has standing Executive, Audit,
Compensation and Nominating & Corporate Governance Committees, the principal
functions of each of which are described below. As a result of the
Change-in-Control that occurred on December 20, 2004, the Corporation no longer
qualifies as a "controlled company" for purposes of Section 303A.00 of the New
York Stock Exchange Listed Company Manual, and the Board and several of its
committees are required to meet certain enhanced membership requirements:
Following the Change-of-Control, the Corporation was required
immediately to form a Nominating & Corporate Governance Committee with
at least one independent member, assure that the Compensation Committee
had at least one independent member and adopt charters for both of the
Nominating & Corporate Governance and Compensation Committees. These
requirements were met or surpassed on a timely basis. The Nominating &
Corporate Governance Committee was formed in January 2005. Its
membership consists of four independent Directors. Its charter was
proposed and adopted in January 2005 and ratified by the full Board in
February 2005. The Compensation Committee membership was changed to
include three of five members who were independent and a new charter was
proposed and adopted. All of these actions were achieved on or before
January 25, 2005 by a special Steering Committee, and the actions
ratified by the full Board on February 9, 2005.
The Corporation was required within 90 days after the Change-in-Control
to assure that each of the Nominating & Corporate Governance and
Compensation Committees had a majority of members who were independent.
This was achieved by the previous actions discussed above.
The Corporation was required within one year after the Change-in-Control
to assure that the membership of each of its Nominating & Corporate
Governance and Compensation Committees was wholly-independent, and that
the membership of the Board as a whole was made up of a majority of
independent Directors. The membership of the Nominating & Corporate
Governance Committee was wholly-independent upon formation in January
2005. The membership of the Compensation Committee became
wholly-independent upon the expiration on December 20, 2005 of the terms
of Messrs. Collins and James, employees of an affiliate of the former
controlling shareholder, Lehman Brothers Holdings Inc. Mr. Collins' and
Mr. James' terms were set to expire on the first anniversary of the
Change-in-Control at the time they were reappointed to the Compensation
Committee on April 19, 2005, the date of the Annual Meeting of
Stockholders. The Board became a majority independent board on August
16, 2005, which was three years after the date that Mr. Layman ceased to
be an employee of the Corporation, the requisite period of
non-affiliation necessary to qualify as an independent Director. At that
time, Mr. Layman joined Messrs. Cartledge, Fried, Fruechtel and Kennedy
as independent Directors on the eight person Board. (Mr. Layman was
determined to be independent for reasons in addition to the passage of
the requisite three-year period of non-affiliation. This determination
is discussed below.)
BASIS FOR DETERMINATION OF "INDEPENDENCE" - In addition to meeting the
requisite three year period of non-affiliation referred to above, where
applicable, the Board has determined that Messrs. Cartledge, Fried, Fruechtel,
Kennedy and Layman have no "material relationship," as that term is defined
under applicable NYSE standards, with the Corporation, either directly or
indirectly as a partner, shareholder or officer of another entity. The basis for
this determination is the review of the applicable criteria by the Board and the
review of questionnaires each Director-nominee submitted to the Secretary of the
Corporation and the Nominating & Corporate Governance Committee.
The only relationships that these five Directors have with the
Corporation are based upon (i) the receipt of customary Director compensation
for their service on the Board, which applies to all five; (ii) the ownership of
stock in the Corporation, which applies to all but Mr. Layman; or (iii) in the
case of Mr. Layman, the receipt of retirement benefits in the ordinary course
from the Corporation's qualified pension plan and the ownership of certain stock
options received previously and of allocated units of common stock in the
Corporation as part of his participation in the Blount Retirement Savings Plan,
a 401(k) plan. The nature of all of these types of relationships are deemed not
to be "material" under applicable rules and regulations.
- ----------------------------
* A more fulsome description of the determination of "independence" is set forth
at pages 9-10 below.
9
LEAD DIRECTOR - On April 19, 2005, the Board elected Mr. Osterman to the
position of Chairman and Chief Executive Officer. He had served as President and
Chief Executive Officer since August 2002. The Board also voted to create the
position of Lead Director and to elect Mr. Fried to fill the new post. Mr. Fried
had served as Chairman of the Board since June 2001. The Board passed guidelines
that include the following description of the rights and responsibilities of the
Lead Director:
"LEAD DIRECTOR
The Lead Director is elected by the Board. The Lead Director shall be an
"independent Director," as that term is used for applicable NYSE and SEC
rules or regulations. The Lead Director shall act as a liaison between
the Chairman and the independent Directors, and shall preside at all
meetings at which the Chairman is not present. The Lead Director has the
authority to convene and chair meetings of the independent Directors
without management's participation and to raise matters with management
or individual senior officers on behalf of the Board as he or she deems
appropriate. In addition, the Lead Director, on behalf of the
independent Directors, shall have the power and authority to engage the
services of special counsel or other experts as he or she determines
appropriate."
During 2005, Mr. Fried conducted two meetings of the independent
Directors outside the presence of management or the other Directors. During
2006, it is anticipated that there will be such a meeting after each regularly
scheduled Board meeting.
During the year ended December 31, 2005, the Board held five regular
meetings and took action twice by written consent in lieu of a meeting. Average
attendance by Directors at Board and Committee Meetings was 100%, and no
director attended less than 100% of Board and applicable Committee meetings.
EXECUTIVE COMMITTEE - The Executive Committee consists of three members,
two of whom are non-employee Directors, but one of whom, Mr. James, is not
deemed to be independent because he is an employee of Lehman Brothers Inc., the
Corporation's controlling shareholder until the Change-in-Control that occurred
on December 20, 2004, and three years have not passed since the
Change-in-Control, the period of non-affiliation required by the NYSE to
establish independence. The Committee may exercise all of the authority and
powers of the Board to the extent permitted by law during the intervals between
Board meetings. The Committee held no regular meetings, held no telephonic
meetings and took no action by written consent in lieu of a meeting during 2005.
The present members of the Committee are Eliot M. Fried, E. Daniel James and
James S. Osterman, EX OFFICIO as Chairman of the Board and Chief Executive
Officer. Mr. Fried serves as chairman of the Committee and is deemed to be an
independent member.
AUDIT COMMITTEE - The Audit Committee consists of three members, all of
whom are independent Directors. (The Corporation's prior status as a "controlled
company" did not exempt it from the requirement to maintain a wholly-independent
Audit Committee, and it has done so since February 2003. Therefore, the
Change-in-Control did not affect the membership status of this Committee.) The
functions of the Committee include (i) approving annually the appointment of the
Corporation's independent registered public accounting firm, (ii) reviewing the
professional services, proposed fees and independence of such independent
registered public accounting firm, (iii) reviewing the annual audit plans of
such independent registered public accounting firm, (iv) reviewing the annual
audit plans for the internal audit function, whether performed by an in-house
staff, outsourcing arrangement or combination of both, (v) monitoring the
activities of the independent registered public accounting firm and the internal
audit function and (vi) reporting on such activities to the Board. The Committee
held four regular meetings during 2005. The present members of the Committee are
R. Eugene Cartledge, Eliot M. Fried and Thomas J. Fruechtel. Mr. Cartledge is
chairman of the Committee.
COMPENSATION COMMITTEE - The Compensation Committee consists of three
members, all of whom are independent Directors. The functions of the Committee
include (i) approving compensation philosophy and guidelines for the
Corporation's executive employees, (ii) establishing a total compensation range
for the Chairman and Chief Executive Officer and appraising the performance of
that Officer on a timely basis, (iii) approving salaries and changes in salaries
for the other Executive Officers of the Corporation and such other executives as
the Committee may deem appropriate, (iv) approving the participants, annual
financial or other targets and amounts to be paid under the Corporation's
Executive Management Annual Incentive Plan, (v) reviewing and recommending to
the Board any new executive incentive or stock option (or other equity
instrument) plans, or additions to or revisions in existing plans, and approving
any awards or options granted under any such plans, (vi) reviewing from time to
time the Corporation's management resources and executive personnel planning,
development and selection processes and (vii) reporting on all such activities
to the Board. The Committee held one regular meeting during 2005. The present
members of the Committee are R. Eugene Cartledge, Eliot M. Fried, and Robert D.
Kennedy. During 2005, Joshua L. Collins and E. Daniel James also served on the
Compensation Committee until December 20, 2005, the date on which their terms
were set to expire under the resolution appointing them. December 20, 2005 was
the first anniversary of the Change-in-Control, and constituted the end of the
one-year period within which the Corporation was required, under applicable
rules, to have a Compensation Committee composed entirely of independent
Directors. Messrs. Collins and James are both employees of Lehman Brothers Inc.,
an affiliate of the former controlling shareholder of the Corporation. As such,
three years of non-affiliation, measured from the date that their employer was
no longer the Corporation's controlling shareholder, must pass before they can
be deemed "independent" for these
10
purposes. Messrs. Cartledge, Fried and Kennedy are deemed to be independent
Directors. Mr. Fried is chairman of the Committee.
NOMINATING & CORPORATE GOVERNANCE COMMITTEE - The Nominating & Corporate
Governance Committee consists of four members, all of whom are non-employees and
independent Directors. This Committee was formed following the Change-in-Control
on December 20, 2004, upon the loss of the Corporation's "controlled company"
exemption from certain requirements of the New York Stock Exchange Listed
Company Manual, including the requirement to have such a Committee. This
Committee serves as the principal corporate governance, strategic planning and
succession planning arm of the full Board. The Committee identifies individuals
qualified as a matter of background, achievement and leadership to become Board
members and recommends candidates for election. R. Eugene Cartledge, Eliot M.
Fried, Thomas J. Fruechtel and Robert D. Kennedy are members of this Committee;
Mr. Kennedy serves as chairman.
CRITERIA FOR NOMINATING DIRECTOR CANDIDATES
Prospective nominees are considered based primarily on the need for
additional Board members to fill vacancies or expand the size of the Board and
the likelihood that the prospective nominee can satisfy the qualifications and
standards established by the Committee. In identifying and recommending Board
nominees, the Committee uses guidelines that it has developed with respect to
qualifications for nominations to the Board and for continued membership on the
Board.
If the Committee determines, in consultation with the Board as
appropriate, that additional consideration is warranted, it may gather
additional information about the prospective nominee's background and
experience. The Committee evaluates the prospective nominee against the
qualifications and standards adopted by the Committee, including the following
(the order is not necessarily meant to represent relative importance):
o ability to meet regulatory requirements, including standard of
"independence," in accordance with NYSE, SEC and Internal
Revenue regulations, as applicable, and as set forth in the
Blount Corporate Governance Guidelines;
o experience in relevant industries;
o ability to represent the interests of the stockholders of the
Corporation;
o leadership and judgment acumen;
o high personal and professional ethics, integrity and values;
o contribution to the level of diversity of skills, backgrounds,
geography and experience on the Board;
o relevant education, age and professional experience, including
accounting and financial knowledge;
o effectiveness of working with others;
o ability to make necessary time commitment and ability to make
constructive contribution to Board; and
o if nominee is incumbent, record of past performance (E.G.,
regularly attended Board and Committee meetings, kept informed
about the Corporation and its businesses, participated in
discussions at Board and Committee meetings and provided sound
advice and counsel).
The Committee, in its judgment, also considers such other factors as it
deems relevant, including the current composition of the Board, the need for
specific functional expertise and the evaluations of other prospective nominees.
Further, the Committee may, but is not required to, utilize third party firms to
assist in the identification or screening of prospective candidates. The
Committee believes it is not appropriate to fix any specific minimum
qualifications or minimum number of qualifications, that a candidate must meet
before such candidate may be recommended by the Committee. It believes that each
individual candidacy should be evaluated as a whole, taking into account all of
the circumstances.
In connection with this evaluation, the Committee determines whether one
or more members of the Committee, and others as appropriate, will interview
prospective nominees. After completing this evaluation and interview process,
the Committee recommends to the full Board the person or persons to be nominated
by the Board, and the Board determines the nominees for election after
considering the recommendation and report of the Committee.
11
Other factors considered relevant for membership on the Board are listed
in the Charter for the Nominating & Corporate Governance Committee and in the
Corporation's Corporate Governance Guidelines, both of which are posted at the
Corporation's website at WWW.BLOUNT.COM.
NOMINATION OF CANDIDATES BY STOCKHOLDERS
A stockholder who wishes to recommend a candidate for consideration by
the Committee should submit his or her nomination to the Committee in accordance
with the procedure set out at page 42 for shareholder communications with the
Board, its Committees or specific Director. Any such proposal should be
addressed to the attention of the Chairman of the Nominating & Corporate
Governance Committee, and must be submitted between 90 days and 120 days prior
to the scheduled date for the next Annual Meeting of Stockholders. The 2007
Annual Meeting will be within 30 days after April 25. The actual date will be
determined at the Board meeting scheduled for October 25, 2006. Inquiries may be
made of the Secretary as provided herein after that time as to the date
selected. All relevant information concerning such candidate, including name,
address, current principal occupation, professional background and such other
information as is required to be disclosed in solicitations for proxies for the
election of directors under Regulation 14A of the Securities Exchange Act of
1934, as amended. The process for identifying and evaluating candidates
recommended by stockholders is the same as the process for identifying and
evaluating candidates recommended by the Committee except that the current
makeup of the Board and the existence or lack of a vacancy will be given greater
weight, and the use of a third party service to assist in any review of the
candidate is more likely, unless members of the Board have knowledge, personal
or otherwise, of the individual nominated.
COMPENSATION OF DIRECTORS
CURRENT DIRECTORS: From August 1999 until December 20, 2004, the date of
the Change-in-Control, Directors affiliated with Lehman Brothers, as well as
Directors who are employees of the Corporation (or former employees receiving
termination benefits), received no compensation for their services as Directors.
Employee Directors, of course, receive compensation in their respective
capacities as employees of the Corporation, and all Directors receive
reimbursement of travel and lodging expenses incurred in connection with their
attendance at Board functions. From July 24, 2000, the date of the adoption of
the Corporation's Non-Employee Directors' Compensation Program ("Program"), to
December 20, 2004, Directors who were neither employees of the Corporation nor
affiliated with Lehman Brothers received quarterly stipends of $6,250, plus
$1,000 per quarter if they were Chairman of the Board, $1,000 per quarter for
each Board Committee they chaired and $1,000 for each Board or Committee meeting
they attended. Since December 9, 2004, the date of the adoption of an amendment
to the Program, Directors who are not employees of the Corporation, including,
from and after the Change-of-Control that occurred on December 20, 2004,
employees of Lehman Brothers, are eligible to receive an increase in quarterly
stipends to $12,500, plus $1,000 per quarter if they are Chairman of the Board
(if not an employee of the Corporation, as is currently the case) or Lead
Director, $1,000 per quarter for each Board Committee they chair and $1,000 for
each Board or Committee meeting they attend. In addition, a qualifying director
under the Program may choose to participate in certain health, dental and life
insurance plans of the Corporation.
In lieu of such cash stipend, from February 6, 2003, when the Board
approved an previous amendment to the Program, through the end of calendar year
2005, any director who qualified for the cash payment under the Program could
elect to receive compensation in the form of stock options for the Corporation's
common stock. These options were granted under the Corporation's 2000 Stock
Incentive Plan or 1999 Stock Incentive Plan, each of which was approved by the
stockholders in 2000 and expressly authorizes option grants to Directors. For
any given year after 2004, the options for each director so electing consisted
of that number of shares of the Corporation's common stock that equals the
quotient resulting from dividing $50,000 by the average of the closing prices of
the Corporation's common stock for the ten trading days immediately preceding
the date of grant, vested immediately upon grant and were priced at the same
average of the closing prices of the Corporation's common stock for the ten
consecutive trading days immediately prior to the date of grant. The election
for any calendar year was customarily made on or as of December 31 of the
preceding year. Several Directors elected to receive their annual Director
stipends in this form, and by May 27, 2005, all had exercised these options,
such that none is outstanding.
On October 25, 2005, the Board amended the Program, effective December
13, 2005, to replace this stock option alternative with a deferred stock unit
plan. This plan, titled the Blount International, Inc. Non-Employee Director
Deferred Stock Unit Plan (the "Director Deferred Plan"), permits Directors
eligible to participate in the Program to elect to receive all or a portion of
their quarterly stipends, as well as chairman and meeting fees, in deferred
stock units. This election must be made prior to the end of the previous
calendar year, and the deferred stock units must be received in stock upon the
termination of service by the Director. The deferred stock units attributable to
any one Director are determined by dividing the total of the stipend and fees
for one quarter selected by the Director for deferral under the Director
Deferred Plan by the closing price per share for the Corporation's common stock
on the NYSE on the last trading day immediately on or prior to the end of a
calendar quarter. The resulting number represents the number of shares that the
Corporation will buy, or transfer from treasury shares, and then credit to an
account maintained in the Director's name, which is maintained pursuant to the
terms of a rabbi trust created for this purpose. At the end of his or her term
of service as a Director, the Director receives the shares that have been
credited to his or her account, the value of which may or may not have
appreciated from the respective dates of purchase.
12
Messrs. Cartledge, Fried, Fruechtel and Kennedy qualified for benefits
under the Program during 2005. Mr. Cartledge received $65,000 in Director fees
and $1,500 in benefits, Mr. Fried $65,000 in fees and $1,500 in benefits, Mr.
Fruechtel $59,000 in fees and $1,500 in benefits and Mr. Kennedy $60,000 in
fees. Although eligible to participate in the Program since December 20, 2004,
the date of the Change-in-Control, Messrs. Collins and James have chosen not to
receive fees or benefits under the Program, and Mr. Layman, eligible since
August 15, 2005, the date of the termination of his post-employment contract
with the Corporation, recently elected to participate, and received $20,750 for
service from August 15 through December 31, 2005.
In addition, on February 14, 2005, the Compensation Committee awarded
Messrs. Fried and Cartledge each a $50,000 special bonus for "extraordinary
services" in connection with the Corporation's more than two-year long process
of revising the Corporation's capital structure, reducing long-term indebtedness
and emerging as a corporation no longer owned by a 50% or more controlling
shareholder for the first time in its history. Mr. Osterman ($200,000) and two
other Named Executive Officers, Senior Vice Presidents Richard H. Irving and
Calvin E. Jenness ($150,000 each), also received special bonuses for this same
reason. These bonuses are referenced in the section on Executive Compensation on
pages 20 and 23. Messrs. Fried and Cartledge did not participate in the
Compensation Committee's decision to grant these special bonuses.
ADVISORY DIRECTORS: In May 1991, the Board approved, and in April 1994
amended, the Advisory Directors' Recognition Plan. Each member of the Board who
had served as a Director for at least five consecutive years, who had not been
an employee vested in any employee benefits sponsored by the Corporation during
his or her service on the Board and who either (a) was serving upon attainment
of age 72 or (b) had become permanently and totally disabled at any time prior
to age 72 became an Advisory Director. No Advisory Director and no other
Director, except the co-founders of the Corporation, were eligible to stand for
re-election to the Board after reaching age 72. Under this Plan, a Director who
was or became eligible for Advisory Director status after July 1, 1991, was, at
the end of his or her then current term, paid a quarterly benefit for life equal
to the quarterly cash retainer, exclusive of Committee chairman fees, then being
paid to that Director. A Director who had been an employee vested in employee
benefits sponsored by the Corporation was eligible to become an Advisory
Director, but was not entitled to the retainer paid to other Advisory Directors.
When their views on a matter are sought, Advisory Directors are expected to
consult with the management or Directors of the Corporation. The standing of an
Advisory Director may be terminated upon request by the Advisory Director or by
the Board if it determines that an Advisory Director has become a director,
officer, employee or consultant of or to another company that competes with the
Corporation or any of its subsidiaries. The Advisory Directors' Recognition Plan
did not apply to Winton M. Blount, a co-founder of the Corporation. It also did
not apply to W. Houston Blount, a co-founder of the Corporation, until he ceased
to be a member of the Board of Directors regardless of his age at such time. As
a result of the Merger and Recapitalization, Mr. W. Houston Blount resigned as a
Director effective August 19, 1999 at the age of 77, and thereupon became an
Advisory Director. The Advisory Directors' Recognition Plan is unfunded and
amounts due the participants covered thereby are general obligations of the
Corporation. There was one participant under this plan during 2005. W. Houston
Blount received $25,000 in 2005. In February 2000, this plan was terminated,
including the prohibition on standing for election after the attainment of age
72, and subject to the fulfillment of obligations to the surviving Advisory
Director, there will be no additional Advisory Directors or payments in the
future.
AUDIT COMMITTEE DISCLOSURE
The Corporation has a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee Charter was amended in February
2004 and is incorporated in the 2004 Proxy Statement as Exhibit A. With respect
to the independence of the Corporation's Directors who serve on the Audit
Committee, Mr. R. Eugene Cartledge, chairman, and members Eliot M. Fried and
Thomas J. Fruechtel, are all "independent" Directors, as defined by applicable
rules and regulations of the SEC and NYSE.
The Board has determined that each of Messrs. Cartledge, Fried and
Fruechtel qualifies as a "financial expert," as defined by recently adopted
final rules of the SEC pursuant to Section 407 of the Sarbanes-Oxley Act. Two of
these members have served as chairmen and chief executive officers of
publicly-traded or private companies in which capacity they supervised the chief
financial officer function, one has been a member of the Investment Committee of
a major investment banking firm, and all three possess (i) an understanding of
generally accepted accounting principles and financial statements; (ii) the
ability to assess the general application of such accounting principles in
connection with the accounting for estimates, accruals and reserves; (iii)
experience actively supervising one or more persons engaged in preparing,
auditing, analyzing or evaluating financial statements that present a breadth
and level of complexity of accounting issues that are generally comparable to
the breadth and complexity of issues that can reasonably be expected to be
raised by the Corporation's financial statements; (iv) an understanding of
internal controls and procedures for financial reporting and (v) an
understanding of Audit Committee functions.
No member of the Audit Committee serves on the Audit Committee of more
than two other public companies. Mr. Fried serves on the Audit Committee of
Axsys Technologies, Inc. and Mr. Fruechtel serves on the Audit Committee of
North Pacific Group, Inc., an employee-owned private corporation.
13
At its February 2004 meeting, the Audit Committee approved and adopted
the Corporation's Code of Ethics for the Chief Executive Officer, Chief
Financial Officer, principal accounting officer, controller and those persons
performing similar functions involving financial reporting and financial
controls. A copy of this policy was incorporated in the 2004 Proxy Statement as
Exhibit B. The Corporation finalized a revision to its Code of Business Conduct
applicable to all Directors, Officers and employees in April 2004. Charters for
the Corporation's Compensation and Nominating & Corporate Governance Committees
were not required until the Corporation lost its exemption as a "controlled
company" upon the Change-in-Control on December 20, 2004. Charters for these two
Committees were enacted in January 2005 and ratified by the Board or relevant
Committee in February 2005. The Corporation's Corporate Governance Guidelines
were approved in 2004, and revised in April 2005 to reflect the changes in
governance required as a result of the Corporation's loss of the "controlled
company" exemption. These policies and guidelines, as revised, and the
applicable Charters are posted on the Corporation's website at WWW.BLOUNT.COM.
AUDIT COMMITTEE REPORT
The Audit Committee (1) reviewed and discussed the Corporation's audited
financial statements as of December 31, 2005 with management, (2) reviewed and
discussed with the Independent Registered Public Accounting Firm matters
required by the Statement on Auditing Standards No. 61, as amended, and (3)
received the written disclosures and the letter from the Independent Registered
Public Accounting Firm required by Independence Standards Board Standard No. 1
relating, among other things, to the Independent Registered Public Accounting
Firm's independence from management and the compatibility of the Independent
Registered Public Accounting Firm performing non-audit services with their
independence. Based upon these reviews and discussions, and recognizing (i) that
management is primarily responsible for the Corporation's systems of internal
controls and financial reporting processes, and (ii) that the Independent
Registered Public Accounting Firm is responsible for the performance of an
independent audit of the Corporation's consolidated financial statements and of
management's report and the effectiveness of internal controls over financial
reporting in accordance with applicable Public Company Accounting Oversight
Board ("PCAOB") standards and the issuance of a report thereon, the Audit
Committee has approved the inclusion of the Corporation's audited financial
statements and management's report on internal controls in the SEC Annual Report
on Form 10-K for the fiscal year ended December 31, 2005, and the appointment of
PricewaterhouseCoopers LLP as the Corporation's Independent Registered Public
Accounting Firm for the fiscal year ending December 31, 2006, subject to
ratification of that appointment by the stockholders at the Annual Meeting.
In addition, on February 14, 2006, the Audit Committee, pursuant to the
policy for pre-approval of non-audit services adopted on May 12, 2003, a copy of
which was incorporated in the 2004 Proxy Statement as Exhibit C, approved the
provision by PricewaterhouseCoopers LLC of certain tax services, including
certain executives' and expatriate employees' personal taxes, each a non-audit
function, for the Corporation for the year ending December 31, 2006; provided,
however, the personal tax services for certain Executive Officers were only
approved with respect to the preparation and filing of tax returns on or before
April 15, 2006 for the tax year ended December 31, 2005. This limitation
conforms to recent rules adopted by the PCAOB. With the approval of the Audit
Committee, the internal audit function is performed by Moss Adams LLP through an
outsourcing arrangement. In fulfilling the internal audit function, the
engagement partner for Moss Adams reports directly to the Audit Committee and
meets with the Committee at each Committee meeting, as do the representatives
from the Independent Registered Public Accounting Firm, without management in
attendance.
R. EUGENE CARTLEDGE, CHAIRMAN
ELIOT M. FRIED, MEMBER
THOMAS J. FRUECHTEL, MEMBER
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following members of the Board served as members of the Compensation
Committee during 2005:
Eliot M. Fried, former consultant with Abner, Herrman & Brock Inc., a
New York City asset management firm, until 2004; Managing Director of Lehman
Brothers Inc. until 2000; elected to the Board effective August 19, 1999 at the
time of the Merger and Recapitalization, elected Chairman of the Board in June
2001, in which capacity he served until April 2005, and elected Lead Director of
the Board April 2005. Mr. Fried is an "independent" member;
E. Daniel James, Managing Director of Lehman Brothers Inc.; elected to
the Board effective August 19, 1999 at the time of the Merger and
Recapitalization; and
Mr. R. Eugene Cartledge, Chairman of GrafTech International Ltd. of
Wilmington, Delaware, who formerly sat by special designation as a member of the
Compensation Committee whenever "independent" or "outside" director
participation was required, as defined in the United States Internal Revenue
Code ("Code") as it relates to Section 162(m), was named a full member of the
Committee in January of 2005. Mr. Cartledge, who is also chairman of the Audit
Committee, is an "independent" member;
14
Following the Change-in-Control on December 20, 2004, the By-law
concerning the number of members that constitute a full Board was amended from
seven to eight, and Mr. Joshua L. Collins and Mr. Robert D. Kennedy were elected
Directors as of January 2, 2005. Both were named to the Compensation Committee
at that time.
Mr. Joshua L. Collins is a Principal of LBMBP II and a Managing Director
of Lehman Brothers Inc., an affiliate of the Corporation's former controlling
shareholder until the Change-in-Control that occurred on December 20, 2004; and
Mr. Robert D. Kennedy is a former President and Chief Executive Officer
and member of the Board of Directors for Union Carbide Corporation and for UCAR
International, Inc. He qualifies as an "independent" member of the Committee
under applicable standards.
Mr. James and Mr. Collins each served on the Compensation Committee
until December 20, 2005, the expiration date of their appointed terms and the
first anniversary date of the Change-in-Control, the time by which the
Corporation was required to have a wholly-independent Committee as a result of
the loss of its "controlled company" exemption. As employees of Lehman Brothers
Inc., an affiliate of the Corporation's former controlling stockholder, Messrs.
Collins and James will not qualify as "independent" until three years from and
after the Change-in-Control, the period of non-affiliation required by the NYSE
to establish independence. (In the case of employees of a former controlling
stockholder, this period is measured from the date on which the former
controlling stockholder no longer held or otherwise controlled 50% or more of
stock of the former controlled company.)
Messrs. Cartledge, Fried and Kennedy each are "independent" under
applicable SEC and NYSE rules and regulations, as well as under the Code for
this purpose. Thus, the Corporation had (i) a majority of independent members on
its Compensation Committee within 90 days of the loss of the "controlled
company" exemption, which occurred with the Change-in-Control on December 20,
2004, and (ii) upon the expiration of the terms of Mr. James and Mr. Collins, a
wholly-independent membership by December 20, 2005, the first anniversary of the
Change-in-Control, all as required by applicable rules of the NYSE.
There were no relationships with respect to Compensation Committee
interlocks and insider participation in compensation decisions during 2005.
15
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERALL OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM
The Corporation's executive compensation program is designed to help the
Corporation attract, motivate and retain the executive resources that the
Corporation needs in order to maximize its return to stockholders.
Toward that end, the Corporation's executive compensation program
attempts to provide:
o levels of compensation that are competitive with those provided
in various markets in which the Corporation competes for its
executive resources;
o incentive compensation that varies in a manner consistent with
the financial performance of the Corporation; and
o incentive compensation that effectively rewards corporate and
individual performance.
In designing and administering its executive compensation program, the
Corporation attempts to maintain an appropriate balance among these various
objectives, each of which is discussed in greater detail below.
PROVIDING COMPETITIVE LEVELS OF COMPENSATION
The Corporation attempts to provide its executives with a total
compensation package that, at expected levels of performance, is competitive
with total compensation provided to executives who hold comparable positions or
have similar qualifications, or both, in other organizations of similar size and
scope as the Corporation and with which the Corporation competes.
The Corporation projects an executive's competitive level of
compensation based on information drawn from a variety of sources, including
proxy statements, special surveys and independent compensation consultants. This
information is used in creating the basic structure of the Corporation's
program. The market data used in establishing the Corporation's executive
compensation levels reflect a blending of general industry and manufacturing
companies comparable to the Corporation's size.
It should be noted that the value of an executive's compensation package
will vary significantly based on performance. Thus, although the expected value
of an executive's compensation package will be competitive, its actual value can
exceed or fall below competitive levels depending upon performance.
ENSURING THAT INCENTIVE COMPENSATION VARIES WITH FINANCIAL PERFORMANCE
The Corporation's incentive plans are designed to assure that the
incentive compensation varies in a manner consistent with the financial
performance of the Corporation and its various business units. The specific
corporate performance factors for calendar year 2005 are discussed in other
sections of this report.
REWARDING INDIVIDUAL PERFORMANCE
The Corporation believes that effectively rewarding individual
performance will ultimately serve to enhance the financial performance of the
Corporation and its various business units. While the Corporation's incentive
plans provide compensation that varies with financial performance, these plans
also provide for individual awards that are based on quantitative and
qualitative assessments of business unit and individual performance.
16
CONSIDERING CERTAIN TAX IMPLICATIONS
To the extent readily determinable and as one of the factors in its
consideration of compensation matters, the Committee also considers the
anticipated tax treatment to the Corporation and to the executives of various
payments and benefits. Based on compensation arrangements currently in place,
the Committee does not reasonably anticipate that, for fiscal years 2005 and
2006, the compensation of any Executive Officer, other than that of Mr. James S.
Osterman, the Chairman of the Board and Chief Executive Officer, (as discussed
below), will be subject to the $1 million deductibility limitation of Section
162(m) of the Code. It is probable that a portion of Mr. Osterman's
compensation, consisting of $600,000 salary on an annualized basis, a minimum
bonus of $550,000 (which was the amount of bonus actually paid in 2006 for 2005,
as discussed in detail in a later section of this report) and certain other
compensation features, such as the gross-up of certain items for tax purposes,
will exceed the deductibility limitation of Section 162(m) in fiscal years 2005
and 2006. The exact amount of such excess in 2006 is not known at this time, but
it could be between $250,000 and $300,000. The Committee generally attempts to
retain the deductibility of compensation for the Corporation pursuant to Section
162(m), but reserves the right to provide non-deductible compensation if it
determines that such action is in the best interests of the Corporation and its
stockholders and necessary to attract and retain highly competent key
executives, as was the case with respect to Mr. Osterman's 2005 and 2006 total
compensation. In each of 2005 and 2006, the Committee made specific
determinations that, in light of all the circumstances, it was in the best
interests of the Corporation and its stockholders to provide Mr. Osterman
potentially non-deductible compensation in exchange for his services.
DESCRIPTION OF THE EXECUTIVE COMPENSATION PROGRAM
This section describes each of the principal elements of the
Corporation's executive compensation program.
BASE SALARY PROGRAM
The objective of the Corporation's base salary program for senior
executive management positions is to provide base salaries that are
approximately between the 50th and 60th percentile of the competitive market
norms for companies in the Corporation's lines of business and similar in size
to the Corporation. The Committee believes it is crucial to provide competitive
salaries in order to attract and retain managers who are very talented. The
specific competitive markets considered depend on the nature and level of the
positions in question and the markets from which qualified individuals are
recruited.
Base salary levels are also dependent on the performance of each
individual employee. Thus, employees with higher levels of sustained performance
will be paid correspondingly higher salaries.
Annual salary reviews are based on three factors: general levels of
market salary increases, individual performance and the Corporation's overall
financial results. All base salary increases are premised on a philosophy of
pay-for-performance and perceptions of an individual's long-term value to the
Corporation.
THE EXECUTIVE MANAGEMENT ANNUAL INCENTIVE PLAN
The objectives of the Executive Management Annual Incentive Plan
("EMAIP") are to motivate and reward the accomplishment of annual corporate
objectives; reinforce a strong performance orientation with differentiation and
variability in individual awards based on contributions to business results; and
provide fully competitive compensation packages that will attract, reward and
retain individuals of the highest quality. As a pay-for-performance plan, cash
bonus awards were paid upon the achievement of specific business segment and
individual performance objectives established for calendar year 2005.
Targeted bonus award levels are intended to be determined for eligible
positions each year using data obtained from surveys and independent
compensation consultants. The target bonus levels reflect competitive market
norms for companies similar in size to the Corporation and having the
Corporation's philosophy of providing competitive total annual compensation
opportunities.
A target incentive bonus program is established each year based on the
Corporation's budgeted performance against measures approved by the Compensation
Committee. For calendar year 2005, the key performance measures considered were
earnings before interest, taxes, depreciation, amortization and non-recurring
costs ("EBITDA") and a specific cash flow formulation ("Cash Flow") for both
operating unit managers and the Corporate staff, as well as
individually-assigned key base objectives for each plan participant. The
weighting of the target objectives was 50% for EBITDA, 30% for Cash Flow and 20%
for attainment of individual performance objectives.
In 2005, target bonuses for EMAIP participants ranged from 15% to 65% of
base pay. Participants could have earned 25% (minimum threshold) or more of the
target bonus depending upon achievement against performance targets. The actual
bonus was determined by the extent to which performance objectives were
accomplished, together with an additional
17
discretionary bonus factor. In 2005, the Corporate staff met minimum threshold
but not target EBITDA and Cash Flow objectives; the Forestry and Industrial
Equipment Division met minimum threshold but not target EBITDA, and exceeded
target Cash Flow objectives; the Gear Products unit exceeded target EBITDA but
did not meet minimum threshold Cash Flow objectives; the ICS product line
exceeded target EBITDA and met minimum threshold but not target Cash Flow
objectives; and the Oregon Cutting Systems Group met minimum threshold but not
target EBITDA and did not meet minimum threshold Cash Flow objectives. The
Compensation Committee also awarded discretionary bonuses to 25 Plan
participants, including all five of the Executive Officers other than Mr.
Osterman, in amounts equal to the incremental amounts necessary in order to
enable them to reach but not exceed target in recognition of the record sales
and earnings achieved by several units in 2005.
AS DISCUSSED AT PAGES 34-36, REGARDING PROPOSAL 2, THE BOARD HAS
APPROVED A NEW 2006 EMAIP FOR A FIVE YEAR TERM AND SEEKS STOCKHOLDER APPROVAL OF
THIS PLAN AT THE MEETING.
LONG TERM INCENTIVES
The Corporation's approach to long-term incentives for employees
consists of the Corporation's stock option plans. The Corporation uses stock
options to align the interests of employees and stockholders by providing value
to the employee when the stock price increases. Generally, options are granted
at 100% or more of the fair market value of the stock on the date of grant. For
stock options granted after August 19, 1999, the fair market value has been
customarily determined by calculating the average of the closing sale prices of
the Corporation's common stock for the ten consecutive trading days ending on
the trading day immediately prior to the effective date of such grant. As a
result of recent revisions to the Code, it is likely that future grants will be
priced at the closing price on the NYSE on the single trading day immediately
preceding the date of grant. As discussed later in the section, on February 15,
2006, the Corporation added stock-settled stock appreciation rights as an
instrument available for long-term incentive awards, and proposes to add other
instruments, including restricted stock, restricted stock units and performance
shares, as part of the 2006 Equity Incentive Plan, which is being submitted for
stockholder approval at the Meeting and is discussed in greater detail at pages
36-41.
1999 STOCK INCENTIVE PLAN ("1999 PLAN") AND 2000 STOCK INCENTIVE PLAN
("2000 PLAN")
With the Change-in-Control, all previously granted but unvested options
in either the 1999 Plan or the 2000 Plan automatically vested by operation of a
contractual provision in the standard option agreements between the Corporation
and its employee option holders, except that: (1) the 1999 Plan Performance
Options were not subject to such a provision, and (2) on December 9, 2004, the
Board made it a condition that the new options granted in December 2004, as
discussed below, not be subject to any Change-in-Control provision for one year
after grant, so as not to permit an acceleration of such new grants in December
2004 to the extent the grants may have been made prior to the closing of the
Change-in-Control. (In fact, this did not happen. The date of the grant of
options occurred on December 21, 2004; the Change-in-Control occurred on
December 20, 2004.)
The Board also voted to amend the vesting schedule for the 1999 Plan
Performance Options and accelerate their vesting from August 19, 2005 for most
participants, and from August 15, 2006 or from September 11, 2006 for others, to
December 31, 2004 in order to make the treatment of these options consistent
with the other 1999 and 2000 Plan options and to reduce the net compensation
expense that would otherwise be recognized by the Corporation in 2006.
As mentioned above, on December 9, 2004, the Board authorized the grant
of an aggregate total of 532,000 options for the common stock of the
Corporation, 239,400 shares under the 2000 Plan and 292,600 shares under the
1999 Plan, subject to the Compensation Committee and President and Chief
Executive Officer determining the selection of the recipients, the amount to
each and the date of grant. On December 16, 2004, the Compensation Committee and
the President and Chief Executive Officer decided that 103 employees be granted
options on and as of December 21, 2004 at the price of $16.62 per share,
determined by calculating the "fair market value" as the average of the closing
sale prices of the Corporation's stock on the ten trading days immediately
preceding the grant date. The options have terms of ten years, and one-third
vest on each of the first-year, second-year and third-year anniversaries of the
date of grant. In addition, the Board authorized the President and Chief
Executive Officer to grant 75,000 options in the aggregate, 41,250 shares under
the 1999 Plan and 33,750 shares under the 2000 Plan, for future use by the
Corporation, for example, for recruitment of new employees or special awards.
During 2005, options for 7,150 shares under the 1999 Plan and for 5,850 shares
under the 2000 Plan were used for such purposes and involved four individuals.
18
Since the Merger and Recapitalization, all options granted under the
1999 Plan have terms of ten years. Shares received upon exercise of any options
that have been granted are subject to tag-along and drag-along rights, call and
put rights, registration rights and other rights and obligations specified in an
Employee Stockholder Agreement, which is described below at pages 30-31. (Prior
to August 19, 2004, such shares were also subject to restriction on transfer.)
Certain options are time options, and others are performance options. Time
options vest annually over time (generally three to five years) and performance
options vest based upon attainment of certain annual EBITDA performance levels,
but in any event within six years.
None of the shares received upon exercise of the options under the 2000
Plan is restricted or benefited by the provisions of the Employee Stockholder
Agreement. There were at February 14, 2006 1,296,050 shares available for grant
under the 1999 Plan and 52,869 shares under the 2000 Plan after giving effect to
the December 21, 2004 grant and the options for 7,150 shares and for 5,850
shares from the 1999 Plan and 2000 Plan, respectively, used in 2005 for
recruitment purposes, but without deduction for options for remaining shares
authorized but held in reserve for future use.
On February 15, 2006, the Board amended each of the 1999 Plan and 2000
Plan to permit the award of stock-settled Stock Appreciation Rights ("SARs") in
addition to stock options. (See below in this section as to the grant of SARs to
certain individuals on February 21, 2006.)
THE 1999 PLAN AND THE 2000 PLAN WERE EACH APPROVED BY THE STOCKHOLDERS
IN 2000. THE CORPORATION HAS NOT GRANTED ANY OPTIONS UNDER ANY PLAN OTHER THAN
THE 1999 OR 2000 PLANS.
The Corporation's stock option grant levels are established by
considering competitive market data on grant levels and the amount of shares
reserved for such Plans. Individual option grants are based on the duties of
each participant in the Corporation, his or her present and potential
contributions to the success of the Corporation and such other factors as the
Compensation Committee deems relevant.
The Executive Compensation Program is revised annually by the
Compensation Committee to provide an appropriate mix of base salary, annual
bonus and long-term awards within the philosophy of providing competitive direct
compensation opportunities. There were no grants of stock options during 2005
under either the 1999 Plan or the 2000 Plan except for options for 13,000 total
shares to four individuals, as mentioned above, for the purpose of recruiting
new employees and the like.
Following the amendment of the 1999 and 2000 Plans to permit the grant
of SARs, mentioned above, the Committee granted 93 employees stock-settled SARs
for a total of 612,000 shares under the 1999 Plan. This grant was effective on
February 21, 2006, and was priced at $16.76, which was the closing price on the
NYSE on the trading day immediately prior to the date of grant. The awards vest
in three equal installments, one-third each on the first-year, second-year and
third-year anniversaries of the date of grant. The term of each award is ten
years.
On February 15, 2006, the Board, on the recommendation of the
Compensation Committee and subject to stockholder approval, approved and adopted
the 2006 Equity Incentive Plan ("2006 Equity Plan"). This 2006 Equity Plan would
replace the 1999 and 2000 Plans, would make additional shares available for
incentive awards and would authorize the use of instruments in addition to
traditional qualified and non-qualified stock options, such as stock
appreciation rights, restricted stock, restricted stock units and performance
shares. THE APPROVAL OF THE 2006 EQUITY PLAN IS BEING SUBMITTED TO THE VOTE OF
THE STOCKHOLDERS AT THE MEETING AS PROPOSAL 3, AS DISCUSSED AT PAGES 36 - 41
BELOW.
CALENDAR YEAR 2005 PAY FOR THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
As described above, the Corporation determines its pay for all Executive
Officers of the Corporation, including the Chairman of the Board and Chief
Executive Officer, considering both a pay-for-performance philosophy and market
rates of compensation for the job. The performance component of Mr. Osterman's
compensation was reflected primarily in his contractual and discretionary
bonuses and long-term incentive compensation. On February 8, 2005, the
Compensation
19
Committee awarded Mr. Osterman a special bonus of $200,000 for "extraordinary
services" in connection with the Corporation's more than two-year long process
of revising the Corporation's capital structure, reducing long-term indebtedness
and emerging as a corporation no longer owned by a 50% or more controlling
stockholder for the first time in its history.((4)) Although no options were
granted to Mr. Osterman in 2005 under the Corporation's stock incentive plans,
the value of his previously granted options continues to track the value of the
Corporation's common stock, as will the grant that the Compensation Committee
has proposed be made to Mr. Osterman in the Second Quarter of 2006, subject to
the stockholders approving the 2006 Equity Plan, of a yet-to-be determined
incentive instrument of a type permitted by the 2006 Equity Plan comparable to
the SARs awarded on February 21, 2006 to the other Named Executive Officers
under the 1999 Plan, as amended. These awards are discussed at pages 19 and 24.
Mr. Osterman's grant will be priced at the then fair market value.
On April 19, 2005, the Board amended Mr. Osterman's Employment Agreement
in order to induce him to stay on for an additional two years and to serve as
Chairman and Chief Executive Officer in recognition of the growth and
performance of the Corporation during Mr. Osterman's three and one-half year
tenure, during which time sales grew from $479.5 million to $756.6 million,
operating income from $62.5 million to $120.9 million and total debt was reduced
from $627.5 million to $407.7 million.
Other specific actions taken by the Committee regarding the Chairman and
Chief Executive Officer's compensation are summarized below:
Base Salary - Mr. Osterman was elected Chairman of the Board on April
19, 2005. At that time, his Employment Agreement, which was
scheduled to terminate after December 31, 2005 with a two-year
consulting arrangement scheduled to begin on January 1, 2006,
was extended for two additional years through December 31, 2007
and his contractually guaranteed annual bonus was increased from
$500,000 to $550,000. His Agreement provided for a base pay
during 2005 of $550,000, which the Compensation Committee
increased to $600,000 in 2006. His Agreement is described on
page 30 of this document.
Annual Bonus - The Executive Management Annual Incentive Plan that
pertains to the Chairman and Chief Executive Officer was
approved by the stockholders in April 2000 and established
targeted EBITDA and Cash Flow objectives. In addition, Mr.
Osterman was guaranteed a minimum bonus of $550,000 as a result
of the abovementioned Amendment to his Employment Agreement,
which is described in more detail at page 30 of this document.
This Agreement, which was scheduled to expire on December 31,
2005, was extended for two additional years until December 31,
2007, and the guaranteed annual bonus was increased from
$500,000 to $550,000. Therefore, Mr. Osterman is guaranteed a
minimum bonus of $550,000 payable in February 2006 for FY 2005,
in February 2007 for FY 2006 and in February 2008 for FY 2007.
As a result, the Committee awarded Mr. Osterman a $550,000 bonus
on February 14, 2006. If the award had been made pursuant to the
EMAIP formula, and assuming a discretionary bonus level
comparable to that given other Executive Officers to enable them
to reach target, Mr. Osterman would have received a $351,249
bonus in 2006 for 2005.
As discussed earlier at page 18, regarding Proposal 2, the Board
has approved a new EMAIP for a five-year term and seeks
stockholder approval of this Plan at the Meeting. The proposed
Plan has the same performance criteria as the 2000 EMAIP that
pertained to bonuses earned in 2005 and paid in 2006.
ELIOT M. FRIED, CHAIRMAN
R. EUGENE CARTLEDGE, MEMBER
ROBERT D. KENNEDY, MEMBER
(4) In addition, as previously disclosed, the Compensation Committee also
awarded such special bonuses to Mr. Irving, Senior Vice President, General
Counsel and Secretary, and Mr. Jenness, Senior Vice President and Chief
Financial Officer, who each received $150,000, and Directors Eliot M. Fried and
R. Eugene Cartledge, who each received $50,000. Neither Mr. Fried nor Mr.
Cartledge participated in the decision to grant special bonuses.
20
EXECUTIVE OFFICERS
The Executive Officers of the Corporation, in addition to Mr. Osterman,
who is also a Director nominee, as of February 24, 2006 are:
YEAR FIRST
ELECTED TO
NAME OFFICE SUCH OFFICE AGE
- ---- ------ ----------- ---
Dennis E. Eagan President - Industrial and Power Equipment Group 2000 56
Richard H. Irving, III Senior Vice President, General Counsel 1995 62
and Secretary and 1999
Calvin E. Jenness Senior Vice President and Chief Financial Officer 2002 50
Dale C. Johnson, Jr. Vice President - Corporate Human Resources 2004 57
Kenneth O. Saito President - Oregon Cutting Systems Group 2002 58
Each of these Executive Officers serves at the pleasure of the Board;
however, the terms of any Executive Officer's employment agreement, where
applicable, which are discussed generally at pages 29 and 30, control the rights
and obligations attendant to any termination. There were no arrangements or
understandings with any other person pursuant to which any Officer was elected.
The Executive Officers of the Corporation may also be Directors or Officers of
subsidiaries of the Corporation.
DENNIS E. EAGAN was elected President of the Industrial and Power
Equipment Group in August 2000. Prior to that date, he served from 1998 as
President and Chief Executive Officer of Volvo Construction Equipment North
America, Inc.
RICHARD H. IRVING, III was elected Senior Vice President and General
Counsel in April 1995, and Secretary of the Corporation in August 1999 at the
time of the Merger and Recapitalization. Prior to April 1995, he served from
1986 as Vice President, General Counsel and Secretary of Duchossois Industries,
Inc., a diversified privately-held company.
CALVIN E. JENNESS was elected Senior Vice President, Chief Financial
Officer and Treasurer in August 2002. In February 2005, he relinquished the
Treasurer position. Prior to August 2002, he served as Vice President and
Corporate Controller and Treasurer from June 2001 and as Vice President and
Corporate Controller from September 2000. Previously, he served as Vice
President and Chief Financial Officer of Bryan Foods, a division of Sara Lee
Corporation, from 1998.
DALE C. JOHNSON, JR. was elected Vice President - Corporate Human
Resources in April 2004. Prior to that date, he served as Director of Human
Resources from July 2003. Mr. Johnson previously served as Corporate Manager of
Human Resources for CH2M HILL Industrial Design and Construction, Inc. from 1997
to 2002 and from 1991 to 1997 as Vice President -- Planning, Health Plans and
Human Resources for Southwest Washington Medical Center.
KENNETH O. SAITO was elected President of the Oregon Cutting Systems
Group in August 2002. Prior to that date, he served as Senior Vice President -
Finance & Administration of Oregon Cutting Systems Group from 1997. He joined
the Oregon Cutting Systems Division in March 1973.
21
EXECUTIVE COMPENSATION
The following table summarizes for the fiscal years 2005, 2004 and 2003,
all plan and non-plan compensation awarded to, earned by, or paid to the Chief
Executive Officer and the four most highly compensated Executive Officers other
than the CEO of the Corporation (collectively, the "Named Executive Officers")
who were serving in Executive Officer capacities on December 31, 2005.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------------- ------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($) * (#) ($)
- ----------- ---- --------- --------- ----- -------- ------------
James S. Osterman (1) 2005 540,383 550,000 37,755 0 100,492 (2)
Chairman and Chief 2004 486,965 834,833 (3) 27,647 100,000 78,468
Executive Officer 2003 427,167 550,000 74,266 0**
65,113
Dennis E. Eagan 2005 376,585 201,000 13,709 0 34,524 (4)
President - Industrial and 2004 368,615 310,000 5,966 20,000 31,049
Power Equipment Group 2003 360,269 312,770 8,003 45,000 24,605
Richard H. Irving, III 2005 310,848 139,000 12,276 0 36,229 (5)
Senior Vice President - 2004 304,934 455,000 (6) 16,850 25,000 27,853
General Counsel 2003 300,000 300,000 14,113 25,000 24,183
and Secretary
Kenneth O. Saito 2005 304,113 136,000 12,706 0 26,615 (7)
President - Oregon 2004 287,338 287,338 9,423 25,000 24,914
Cutting Systems Group 2003 266,300 266,300 10,038 45,000 19,836
Calvin E. Jenness (8) 2005 281,000 141,000 8,676 0 30,915 (9)
Senior Vice President and 2004 256,180 406,000 (10) 8,936 25,000 21,880
Chief Financial Officer 2003 230,833 230,833 8,417 25,000 14,844
- ----------------------------
* Tax gross-up for premiums on life insurance policies, club dues,
personal financial planning, personal use of the Corporation's property
and relocation expenses, as applicable.
** On February 2, 2004, Mr. Osterman was granted options representing
50,000 shares as part of an amendment to his Employment Agreement.
25,000 of these options were vested upon grant and 25,000 vested on
December 20, 2004, upon the Change-in-Control. In addition, Mr. Osterman
was granted 50,000 additional options on December 21, 2004 that vest
one-third on each of the one-year, two-year and three-year anniversaries
of the date of grant. (The options granted on February 2, 2004 were at a
price per share, $5.05, that was below the then fair market value of the
underlying shares; the options granted on December 21, 2004 were at
$16.62, which was the fair market value of the underlying shares.) *
Excluding Mr. Osterman, as stated above.
22
(1) Mr. Osterman was President and Chief Executive Officer of the
Corporation until April 2005, when he was elected Chairman of the Board
and Chief Executive Officer.
(2) Amount is comprised of $61,885 matching contributions to employee's
401(k) and supplemental retirement savings plan accounts and $38,607
accrued benefits pursuant to the Omark Salary Continuation Plan.
(3) Amount includes $200,000 for Mr. Osterman awarded on February 8, 2005 as
a special bonus for "extraordinary services." See discussion on pages 13
and 20.
(4) Amount is comprised of $30,896 matching contributions to employee's
401(k) and supplemental retirement savings plan accounts and $3,627
premiums on a life insurance policy under the Corporation's executive
life insurance plan.
(5) Amount is comprised of $34,463 matching contributions to employee's
401(k) and supplemental retirement savings plan accounts and $1,766
premiums on a life insurance policy under the Corporation's executive
life insurance plan.
(6) Amount includes $150,000 for Mr. Irving awarded on February 8, 2005 as a
special bonus for "extraordinary services." See discussion on pages 13
and 20.
(7) Amount is comprised of $26,615 matching contributions to employee's
401(k) and supplemental retirement savings plan accounts.
(8) Mr. Jenness was Senior Vice President, Chief Financial Officer and
Treasurer until February 9, 2005, when he relinquished the position of
Treasurer.
(9) Amount is comprised of $30,915 matching contributions to employee's
401(k) and supplemental retirement savings plan accounts.
(10) Amount includes $150,000 for Mr. Jenness awarded on February 8, 2005 as
a special bonus for "extraordinary services." See discussion on pages 13
and 20.
23
OPTION GRANTS
The following table summarizes pertinent information regarding
individual grants of stock options, including the potential realizable dollar
value, made during 2005 to each of the Named Executive Officers, assuming that
the market value of the underlying security appreciates in value from the date
of grant to the end of the option term at the rates indicated in the following
table:
OPTION GRANTS IN CALENDAR YEAR 2005 (5)
INDIVIDUAL GRANTS
-----------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE EXPIRATION PRICE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES PRICE DATE ----------------------------------
NAME GRANTED (#) IN 2005 ($/SHARE) (MM/DD/YY) 0% ($) 5% ($) 10% ($)
- ---- ----------- --------- --------- ---------- ----------- --------- ----------
James S. Osterman 0 N/A N/A
Dennis E. Eagan 0 N/A N/A
Richard H. Irving, III 0 N/A N/A
Kenneth O. Saito 0 N/A N/A
Calvin E. Jenness 0 N/A N/A
- ----------------------------
(5) Options to employees, including the Named Executive Officers, have
traditionally been granted in the fourth quarter of each fiscal year since 2002.
In an attempt to have the granting of long-term incentive equity compensation
coincide with the award of salary increases and bonuses, which occur in March
and February, it was decided to move the option grants that would have been made
in November or December 2005 to February 2006. Therefore, although no option
grants were made to the Named Executive Officers in 2005, as a result of an
amendment to the 1999 and 2000 Plans to permit the use of SARs adopted by the
Board, the Compensation Committee on February 21, 2006 awarded SARs of 40,000
shares each to Messrs. Eagan, Irving, Saito and Jenness. The grants were priced
at $16.76, the closing price for the Corporation's stock on the NYSE on the
trading day immediately prior to the date of grant. The SARs have a term of 10
years, and vest in three equal installments, one-third on the first-year
anniversary of the date of grant, one-third on the second-year anniversary and
one-third on the third-year anniversary. There were a total of 612,000 SARs
granted to 93 employees at this time. The 40,000 SARs awarded to each of the
foregoing four Executive Officers constituted approximately 6.5% of the total
SARs granted to employees in 2006 to the date of this Proxy Statement.
The Committee also proposed that, subject to the stockholders approving
the 2006 Equity Plan at the Meeting, Mr. Osterman be made a comparable grant in
the Second Quarter of 2006 using an incentive instrument of a type authorized by
the Plan and the then fair market value as the price.
24
EQUITY COMPENSATION PLAN INFORMATION
EQUITY COMPENSATION PLANS APPROVED BY STOCKHOLDERS
1999 Stock Incentive Plan, see description at pages 18-19.
2000 Stock Incentive Plan, see description at pages 18-19.
As discussed at page 19, the Corporation is seeking stockholder approval
at this year's Annual Meeting for a new long-term incentive plan, titled the
2006 Equity Incentive Plan.
EQUITY COMPENSATION PLANS NOT APPROVED BY STOCKHOLDERS
2006 Non-Employee Director Deferred Stock Unit Plan, see description at
pages 12-13.
SUMMARY TABLE
The following table sets forth certain information as of December 31,
2005 with respect to compensation plans under which shares of the Corporation's
common stock may be issued.
NO. SHARES REMAINING
NO. SHARES TO BE WEIGHTED AVAILABLE FOR FUTURE
ISSUED UPON AVERAGE ISSUANCE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING SHARES IN
PLAN CATEGORY OPTIONS (1) OPTIONS COLUMN 1) (2)
- ------------- -------------------------------------------------------------------------
Equity compensation plans
approved by stockholders
1999 Stock Incentive Plan 1,162,650 $15,06 1,296,050
2000 Stock Incentive Plan 1,955,021 $ 5.74 52,869
----------
Total 3,117,671 $ 9.22 1,348,919
Equity compensation plans
not approved by stockholders
2006 Non-Employee Director
Deferred Stock Unit Plan 0 (3) Not Applicable (4) 0 (5)
(1) Represents shares of common stock issuable upon exercise of outstanding
options granted under the Corporation's 1999 Stock Incentive Plan and
2000 Stock Incentive Plan, excluding an aggregate of options for 62,000
shares remaining authorized for future use, but not granted, 34,100 of
which are from the 1999 Plan and 27,900 from the 2000 Plan. (The
original authorization was for options of 75,000 shares, 41,250 from the
1999 Plan and 33,750 from the 2000 Plan. During 2005, the Corporation
offered options for 13,000 shares, of which 7,150 were from the 1999
Plan and 5,850 from the 2000 Plan, to three newly hired and one
newly-promoted individuals.)
(2) Includes shares of common stock available for future option grants under
the Corporation's 1999 Stock Incentive Plan and 2000 Stock Incentive
Plan, including a remaining 34,100 from the 1999 Plan and 27,900 from
the 2000 Plan, that were authorized by the Board on December 9, 2004 for
future use, such as for recruitment of new employees. See above footnote
(1) regarding use during 2005 of some of the original 75,000 shares.
(3) No shares have been credited to any participating Director's account
under the 2006 Non-Employee Director Deferred Stock Unit Plan (the
"Director Deferred Plan") as of this writing. The Director Deferred Plan
was approved on October 25, 2005 for commencement in 2006. The first
pricing date, from which the number of shares is determined, is the last
trading day of the First Quarter, or March 31, 2006. At that time, the
number of deferred stock units to be credited to accounts maintained for
(1) Mr. Cartledge, who deferred $13,500 in Director and Committee
chairman retainers only; (2) Mr. Fruechtel, who deferred $17,500 in
Director retainer and fees and (3) Mr. Layman who deferred $6,250 as
one-half of his Director retainer only, will be determined by dividing
the participants' respective deferred amounts by the closing stock price
for the Corporation's common stock on the NYSE. Each quarter thereafter,
the shares to be credited to the account in the name of each
participating Director will be determined in the same manner. A Director
can change his or her participation and amount to be deferred
prospectively at the end of each calendar year.
(4) The awards under the Director Deferred Plan, the first of which will
occur on April 3, 2006, the first business day following the last
trading day of the First Quarter, do not have an exercise price, and
therefore, will not be taken into account in terms of "weighted average
exercise price." The credit to individual accounts maintained in the
names of each of the participating Directors is an automatic and direct
transfer of shares.
25
(5) There is no limit under the Director Deferred Plan that corresponds to
shares remaining available for future issuance under equity compensation
plans utilizing stock options. The shares credited to accounts
maintained in the names of the participating Directors will come from
the Corporation's treasury stock or will be purchased on the open market
on the relevant pricing dates.
NOTE:
As stated on page 19, the Compensation Committee issued SARs for an
aggregate of 612,000 shares to a total of 93 employees, including four
Named Executive Officers, on February 21, 2006 pursuant to the 1999
Plan, as amended to permit the grant of SARs in addition to stock
options. These have not been deducted from the above total since these
awards occurred in 2006. No shares from the 2000 Plan were used for this
grant; however, that Plan was also amended to permit grants of SARs in
addition to stock options.
26
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table summarizes pertinent information concerning the
exercise of stock options during 2005 by each of the Named Executive Officers
and the year-end value of unexercised options:
AGGREGATE OPTION EXERCISES IN 2005
AND YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options at Options at
Exercise (#) Realized ($) 12/31/05 12/31/05 ($)
------------ ------------ -------- ------------
Name Exercisable* Unexercisable* Exercisable Unexercisable
- ---- ------------ -------------- ----------- -------------
James S. Osterman 0 0 526,067 33,333 $4,765,439 $0
Dennis E. Eagan 20,000 $272,680 181,667 13,333 $1,776,080 $0
Richard H. Irving, III 0 0 188,334 16,666 $1,024,080 $0
Kenneth O. Saito 0 0 193,989 16,666 $1,804,467 $0
Calvin E. Jenness 0 0 82,334 16,666 $819,355 $0
The above totals do not include the SARs awarded to Messrs. Eagan,
Irving, Saito and Jenness on February 21, 2006. Please see discussion of these
grants at page 19.
* All unvested options outstanding on December 20, 2004 under the 2000 Plan and
1999 Plan (other than 1999 Performance Options) vested by operation of a
contractual provision, which is contained in each of the option agreements
between the Corporation and its employee option holders, upon the occurrence of
the Change-in-Control on December 20, 2004. All 1999 Performance Options, which
were scheduled to vest on August 19, 2005 for Messrs. Osterman, Irving and
Saito, on August 15, 2006 for Mr. Eagan and on September 11, 2006 for Mr.
Jenness, were vested as of December 31, 2004 by action of the Board. Options
granted on December 21, 2004 contain a three-year vesting schedule: one-third
vested in December 2005, and one-third will vest in each of December 2006 and
2007.
27
PENSION PLANS
Estimated annual benefits payable under the Blount Retirement Plan and
the Blount, Inc. and Subsidiaries Supplemental Retirement Benefit Plan
(collectively the "Blount Retirement Plan") to eligible employees (including the
Named Executive Officers) in specific classifications following retirement at
age 65 (normal retirement age) after years of credited service are shown below:
PENSION PLAN TABLE
FIVE-YEAR AVERAGE ESTIMATED ANNUAL BENEFITS FOR SPECIFIED YEARS OF CREDITED SERVICE (A), (B)
EARNINGS AT ----------------------------------------------------------------------------------------------------------
RETIREMENT (C) 10 15 20 25 30 35 40 OR MORE
- ---------------------------------------------------------------------------------------------------------------------------------
$100,000 $20,000 $30,000 $40,000 $50,000 $52,500 $55,000 $57,500
200,000 40,000 60,000 80,000 100,000 105,000 110,000 115,000
300,000 60,000 90,000 120,000 150,000 157,500 165,000 172,500
400,000 80,000 120,000 160,000 200,000 210,000 220,000 230,000
500,000 100,000 150,000 200,000 250,000 262,500 275,000 287,500
600,000 120,000 180,000 240,000 300,000 315,000 330,000 345,000
700,000 140,000 210,000 280,000 350,000 367,500 385,000 402,500
800,000 160,000 240,000 320,000 400,000 420,000 440,000 460,000
(a) The amounts set out above are based on the benefits under a straight
life annuity to a participant retiring at age 65 on January 1, 2006. The
amounts shown are to be reduced by offsetting amounts received as social
security benefits and benefits payable under master annuity contracts
(purchased upon termination of prior retirement plans).
(b) Under Section 415(b) of the Internal Revenue Code, the maximum benefit
payable under the master annuity contracts (purchased upon termination
of prior retirement plans) and the tax-qualified Blount Retirement Plan
to an employee retiring at age 65 in 2006 is $175,000, an amount that
may change each year in accordance with a determination made by the
Internal Revenue Service. In addition, Section 401(a)(17) of the
Internal Revenue Code limits the amount of an employee's compensation
that may be taken into account under any tax-qualified retirement plan
to $220,000 for 2006, an amount which also may change each year in
accordance with a similar determination. These limitations have been
disregarded for the purposes of this table since the amount of any
benefit payable in excess of these limitations is covered by the Blount,
Inc. and Subsidiaries Supplemental Retirement Benefit Plan ("Group
SERP"); provided, however, that as a result of lump sum payments for
certain supplemental retirement plan benefits to Mr. Osterman and Mr.
Irving in 2002, which are described on page 22 of the 2002 Proxy
Statement and page 30 of this document respectively, Mr. Osterman no
longer participates in the Group SERP, and Mr. Irving was not eligible
to participate from August 2002 until August 2004, at which time a
benefit was again accrued for his account, but any such benefit payable
to him under the Group SERP will take into account the effect of that
portion of the lump sum payment he received in 2002 that was
attributable to the Group SERP through July 31, 2004.
(c) Earnings covered by the Blount Retirement Plan are based on the
participant's base salary or wages. The calculation of a participant's
five-year average earnings thus would be based upon the "salary" column
of the Summary Compensation Table set forth on page 22 but extended to
the five years preceding the participant's retirement.
The years of benefit service used to determine benefits under the Blount
Retirement Plan and the master annuity contracts (purchased upon termination of
prior retirement plans) as of December 31, 2005 for the Named Executive Officers
are: Mr. Osterman, 36 years; Mr. Eagan, 5 years; Mr. Irving, 11 years; Mr.
Saito, 33 years and Mr. Jenness, 5 years.
28
SUPPLEMENTAL RETIREMENT PLANS AND EMPLOYMENT CONTRACTS
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Corporation maintains an individual Supplemental Executive
Retirement Plan ("Eagan Individual SERP") for Dennis E. Eagan. The Eagan
Individual SERP will pay Mr. Eagan upon his normal retirement date or earlier
termination of employment a benefit equal to the benefit calculated under the
benefit formula of the Blount Retirement Plan, but based upon a schedule of
years of service granted under the Eagan Individual SERP, reduced by any
retirement benefits payable to him under the Blount Retirement Plan and any
retirement income actually paid to him under any pension plan maintained by any
former employer. This plan is administered by the Board or, at the Board's
discretion, the Compensation Committee of the Board. The Eagan Individual SERP
is unfunded and any amount due Mr. Eagan is a general unsecured obligation of
the Corporation. This plan may be amended from time to time or terminated with
the consent of the Corporation and Mr. Eagan.
The projected annual benefit payable to Mr. Eagan under the Eagan
Individual SERP after reduction for the benefits payable under the Blount
Retirement Plan and the retirement income payable under any pension plan
maintained by any former employer of Mr. Eagan is $28,790.
OMARK PLAN
For certain employees of Blount's Outdoor Products Group, Industrial and
Power Equipment Group and the former Sporting Equipment Group, the Corporation
sponsors a salary continuation plan (the "Omark Salary Continuation Plan"). The
Omark Salary Continuation Plan provides the beneficiary of each participant with
a continuation of two years of annual salary upon the death of the participant.
The Omark Plan is unfunded and amounts due participants are general unsecured
obligations of the Corporation. The Omark Plan may be amended or terminated by
the Board, provided that rights vested to participants prior to such amendment
or termination may not be reduced.
Mr. Osterman participates in the Omark Salary Continuation Plan. Upon
the Change-in-Control that occurred on December 20, 2004, the Corporation
reconfirmed its contractual obligations to Mr. Osterman under the Omark Salary
Continuation Plan by letter dated February 8, 2005. This confirmation was
authorized by the Compensation Committee of the Board and was required by Mr.
Osterman's Amended and Restated Employment Agreement dated February 2, 2004,
discussed below at page 30. On April 19, 2005, when Mr. Osterman's Amended and
Restated Employment Agreement was extended for two additional years through
December 31, 2007, a new change-in-control provision was included that requires
the Corporation to fund this salary continuation benefit upon a
change-in-control, as defined in the Agreement, or to otherwise secure the
benefit in a manner acceptable to Mr. Osterman. This obligation related to a
change-in-control continues through the term of the Agreement, and thereafter
for Mr. Osterman's two-year consulting period.
EMPLOYMENT CONTRACTS
The Corporation has entered into Employment Agreements (the
"Agreements") with all of the Named Executive Officers. The terms of the
Agreements provide that each executive will be paid a base salary no less than
his then current base salary, be eligible to participate in the Corporation's
incentive plans with target bonuses ranging from 50% to 65% of base salary,
participate in the Corporation's stock option or other equity incentive programs
and all other benefit plans, arrangements and perquisites generally available to
Executive Officers.
The duration of the Agreements is a rolling two-year term for Messrs.
Irving and Saito, and a rolling one-year term for Messrs. Eagan and Jenness,
each of which is automatically extended one day for each day employed until such
time as either party gives notice to cease the automatic extension and, in such
event, the Agreement then continues for its remaining term (provided that
Messrs. Eagan's and Irving's Agreements each expire on the executive's 65th
birthday). As a result of a two-year extension in connection with his election
to Chairman on April 19, 2005, Mr. Osterman's Agreement expires on December 31,
2007, but may be renewed for successive one-year terms under certain
circumstances. Each Agreement has a clause that prohibits the executive, for up
to three years following the termination of employment, from competing directly
or indirectly with the Corporation or disclosing proprietary or confidential
information.
The Agreements also contain provisions for severance payments and
benefits if the Corporation terminates the executive's employment for reasons
other than death, disability or cause (as defined in the Agreements), or if the
executive terminates his employment for "good reason" (as defined in the
Agreements). In the event of death, disability or termination for cause or in
the event the employee terminates his employment for other than "good reason,"
the Corporation's obligations under the Employment Agreement cease and no
special severance benefits are required. The length of severance period formerly
ranged from 12 to 24 months, depending upon the executive; however, upon the
Change-in-Control that occurred on December 20, 2004, the period contained in
the two agreements that each had a 12-month period was automatically extended to
24 months,
29
the same period as contained in each of the other three agreements. The
severance payments applicable to each contract generally provide for a payment
of an amount equal to the sum of (1) two years base salary and (2) two times the
average bonus paid to the executive the immediately prior two years in which
bonuses were paid to him or her. Under certain circumstances, this payment can
be made in one lump sum installment discounted to its present value pursuant to
rates applicable to the Internal Revenue Code for this purpose. In addition,
generally, applicable retirement, health and life insurance benefits continue
through the severance period.
A separate Agreement with Mr. Eagan provides for the Eagan Individual
SERP described at page 29 above. Messrs. Eagan's and Saito's Agreements contain
certain provisions relating to the effect of any sale of their respective
business segments or divisions. Mr. Irving is covered by the Corporation's
Executive Life Insurance Program and Corporate Office Long-Term Disability Plan
dating back to his service at the former Montgomery, Alabama headquarters.
On April 19, 2005, when he was elected Chairman of the Board, Mr.
Osterman's Agreement was extended two additional years from December 31, 2005 to
December 31, 2007. As part of that extension, his guaranteed annual bonus was
increased from $500,000 to $550,000, and the Corporation is required to fund or
otherwise secure the salary continuation benefit discussed at page 29 in the
event of a change-in-control, as defined in the Agreement. Previously, his
Agreement was amended and restated as of February 2, 2004 to provide for a
16-1/2 month extension of his employment through December 31, 2005. As part of
this Amendment, Mr. Osterman received (i) an increase in base salary to $500,000
on an annualized basis, which increased to $550,000 during 2005, (ii) an
increase in annual target bonus to 65% of base salary with a minimum annual
bonus of $500,000 guaranteed for the Fiscal Years 2004 and 2005, which was
increased to $550,000 as a result of the abovementioned 2005 Amendment, and
(iii) the grant of options under the 2000 Stock Incentive Plan for 50,000
shares, 25,000 of which vested immediately on February 2, 2004 and 25,000 of
which vested on December 20, 2004 upon the Change-in-Control. Mr. Osterman was
scheduled to retire on August 19, 2004 prior to the execution of this February
2, 2004 Amendment. Mr. Osterman's two-year consulting arrangement, which would
have gone into effect on August 19, 2002, and then on August 19, 2004, under two
earlier amendments to his Agreement discussed in the 2002 Proxy Statement on
page 18, and the 2003 Proxy Statement on page 23, respectively, was amended to
begin on January 1, 2006, which was subsequently changed to January 1, 2008 as a
result of the abovementioned 2005 Amendment, but otherwise remains essentially
unchanged except that it now pertains to consulting services for the entire
Corporation, not only to the Outdoor Products segment; provides for business
trips to the Corporation's largest customers, international facilities, trade
shows and customer outings; and, subject to his nomination and election,
continues Mr. Osterman's service as a director on the Board during the two-year
consulting period.
Mr. Irving's Agreement was amended as of August 19, 2002 to provide for
his relocation in connection with the move of the Corporation's headquarters
from Montgomery, Alabama to Portland, Oregon. As part of this Amendment, Mr.
Irving received certain lump sum payments under his Individual Supplemental
Executive Retirement Plan ("Individual SERP") and under the Blount, Inc. and
Subsidiaries Supplemental Retirement Benefit Plan ("Group SERP"). The payout of
the Individual SERP benefits was in full satisfaction of the Corporation's
obligations under that Plan. With respect to the Group SERP, Mr. Irving was
again eligible to participate in that Plan commencing August 1, 2004, but any
benefit payable thereafter under that Plan will take into account that portion
of the 2002 lump sum payment that was attributable to benefits under the Group
SERP through July 31, 2004. Mr. Irving also received an increase in his annual
target bonus to 50% of base salary under the Executive Management Annual
Incentive Plan, which was part of an earlier amendment dated as of February 14,
2002, and a change in the financial performance measurements on which such bonus
is based under his August 19, 2002 amendment. In exchange, Mr. Irving agreed to
a reduction in salary, the relinquishment of certain perquisites formerly
provided him and a waiver of his contractual relocation provision.
Mr. Jenness' Agreement was amended effective March 1, 2004 by increasing
his salary to $260,000, his target bonus percentage to 50% and extending his
severance period to two years for a qualifying termination following a change of
control (as defined in the Agreement). The Change-in-Control that occurred on
December 20, 2004 had the effect of extending Mr. Jenness' severance period to
two years. Mr. Jenness' salary, target bonus percentage and severance period
were previously amended by an earlier amendment dated February 14, 2002 in
connection with his relocation as part of the move of the Corporation's
headquarters from Montgomery, Alabama to Portland, Oregon, in exchange for which
Mr. Jenness relinquished certain perquisites.
Mr. Saito's Agreement was likewise amended to reflect his promotion to
President of the Oregon Cutting Systems Group as of August 16, 2002 by
increasing his base salary, his target bonus percentage and the severance
period, as well as providing certain retirement and health benefits and
additional perquisites. The severance period applicable to Mr. Saito's agreement
was automatically extended from one year to two years as a result of the
Change-in-Control that occurred on December 20, 2004.
EMPLOYEE STOCKHOLDER AGREEMENT
Related to the Employment Agreements is an Employee Stockholder
Agreement (the "Stockholder Agreement"). This
30
Agreement is among the Corporation, LBMBP II and 24 current employees, including
all of the Named Executive Officers, as well as three new employees during 2005,
and 29 former management employees, some of whom were employees of the Sporting
Equipment segment that was divested in December 2001. The Stockholder Agreement
sets forth terms and restrictions relating to common stock either purchased by
the particular executive in the Merger and Recapitalization ("Purchased Shares")
or received through the exercise of stock options ("Option Shares") under the
1999 Stock Incentive Plan. The Stockholder Agreement generally restricted the
transfer of Purchased Shares, Option Shares and any underlying options owned by
these executives for a period of five years from the closing of the Merger and
Recapitalization on August 19, 1999. On August 19, 2004, the restrictions on
transfer of Purchased Shares and Option Shares expired. (Executive Officers and
Directors are subject to certain other restrictions or limitations on transfer
that arise pursuant to applicable federal securities law and are not based upon
the Stockholder Agreement.) All Time Options granted before December 20, 2004
under the 1999 Stock Incentive Plan that had not previously vested became vested
as of December 20, 2004 as a result of the Change-in-Control, and all then
existing Performance Options, which otherwise would have vested on August 19,
2005 for most option holders, but on August 15, 2006 and September 11, 2006 for
Mr. Eagan and Mr. Jenness, respectively, were vested as of December 31, 2004 by
action of the Board. Nonetheless, the other terms of the Stockholder Agreement
survive and apply to (i) Purchased Shares to the extent any have not been
registered, (ii) options granted under the 1999 Stock Incentive Plan, including
options for 244,350 shares granted on December 31, 2004, and (iii) Option Shares
resulting from the exercise of such options. For example, executives have rights
to sell their shares on a pro rata basis with LBMBP II whenever LBMBP II sells
its shares to third parties. Similarly, LBMBP II has the right to cause each of
the executives to sell his or her shares of common stock on a pro rata basis
with LBMBP II to a third party that has made an offer to purchase the
Corporation's shares owned by LBMBP II. In the event that the Corporation
registers shares under the Securities Act of 1933 (except for registrations
related to exchange offers or benefit plans) and LBMBP II sells its shares in
connection with this registration, the executives have the right to have their
shares concurrently registered and sold on a pro rata basis with LBMBP II. The
Purchased Shares and Option Shares owned by the executives are also subject to
"put" and "call" rights that entitle the Corporation to purchase from an
executive, and the executive to sell to the Corporation, his or her Purchased
Shares and Option Shares at fair market value if the executive's employment is
terminated under certain circumstances. (With respect to options and Option
Shares, the above terms of the Stockholder Agreement are incorporated by
reference as terms and conditions of the applicable option agreement each option
holder signs at the time of receiving a grant under the 1999 Plan, and without
regard to whether the holder has an Employment Agreement or is otherwise a party
to the Stockholder Agreement.)
31
PERFORMANCE GRAPH
Rules adopted by the SEC require that the Corporation include in the
Proxy Statement a line graph presentation comparing the cumulative five-year
stockholder return on the Corporation's common stock on an indexed basis with
the cumulative return of a broad equity market index that includes companies
whose equity securities are traded on the same exchange as the Corporation's and
either a published industry index or an index of peer companies selected by the
Corporation. Since the Corporation is not included in the Standard and Poor's
500 Stock Index and its equity securities are traded on the New York Stock
Exchange, the New York Stock Exchange Composite (US) Index was selected as the
broad equity market index. (As a result of a change in New York Stock Exchange
procedures, its Composite (US) Index has been manually recreated for years prior
to December 31, 2003.) The Corporation created a peer group index with which to
compare its own stock performance since a relevant published industry or
line-of-business index does not exist. A list of these follows the graph below.*
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG BLOUNT INTERNATIONAL, INC., THE NYSE COMPOSITE INDEX,
AND A PEER GROUP
[PERFORMANCE GRAPH]
*Assumes $100 invested on 12/31/00 in stock or index,
including reinvestment of dividends.
Fiscal years ending December 31.
- --------------------------------------------------------------------------------------------
12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05
==============================================================
The Corporation 100.00 40.85 49.56 102.37 226.60 207.22
NYSE Composite (US) Index 100.00 94.16 78.89 92.76 105.06 127.42
Peer Group 100.00 124.72 115.84 154.59 216.22 243.39
- --------------------------------------------------------------------------------------------
* The companies in the Peer Group are Kaydon Corp., Kennametal, Inc.,
Lincoln Electric Holdings Company, Regal Beloit Corp., Snap-on, Inc., Terex
Corp. and Toro Corp.
32
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require that the Corporation's Directors, Executive Officers and
persons who beneficially own more than 10% of any class of equity securities of
the Corporation file reports of ownership and changes in ownership with the SEC
and the New York Stock Exchange and furnish the Corporation with copies.
Based on the review of copies of such forms received by it, or written
representations from certain reporting persons, the Corporation believes that
during 2005 all filing requirements applicable to its Directors, Officers and
greater than 10% beneficial owners were complied with except that Dale C.
Johnson, Jr., Vice President Corporate Human Resources, due to clerical errors
did not indicate on his original Form 3 filed on June 2, 2004 that he held a
"right-to-buy" 4,000 shares of the Corporation's common stock at $5.05 per share
through stock options under the 2000 Stock Incentive Plan granted him on
November 5, 2003. This omission was carried over to the Form 5 filed by Mr.
Johnson on February 9, 2005 for the year-ending 2004. The error was detected and
corrected in the Form 5 filed by him on February 10, 2006 for the year-ending
2005.
SECTION 303A.12 CERTIFICATIONS TO THE NYSE
On August 19, 2005, Mr. James S. Osterman, Chairman and Chief Executive
Officer, signed and submitted to the NYSE the CEO Certification required by
Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. On
August 19, 2005, Mr. Richard H. Irving, III, Senior Vice President, General
Counsel and Secretary, signed and submitted to the NYSE the Annual Written
Affirmation, including Exhibit G, required by Section 303A.12(c) of the Manual.
In order to notify the NYSE of the scheduled expiration of the terms of
Messrs. James and Collins on the Compensation Committee on the first anniversary
of the Change-in-Control, an Interim Written Affirmation, with an accompanying
Exhibit H, was submitted to the NYSE on January 31, 2006.
These documents relate to corporate governance, and are separate and
distinct from the four certifications to the SEC, two each by the Chairman and
Chief Executive Officer and the Senior Vice President and Chief Financial
Officer, that relate to financial accounting, reporting and control and that
constitute exhibits to the Corporation's annual report for the fiscal year ended
December 31, 2005 filed on Form 10-K.
SECTION 303A.14 - WEBSITE AVAILABILITY OF CERTAIN DOCUMENTS
The Corporation has posted the following documents at its website,
WWW.BLOUNT.COM:
1. Nominating & Corporate Governance Committee Charter;
2. Compensation Committee Charter;
3. Audit Committee Charter (revised 2004);
4. Corporate Code of Ethics for the CEO, CFO and Financial Reporting
and Control Personnel;
5. Audit and Non-Audit Services Pre-Approval Policy of the Audit
Committee;
6. Code of Conduct (revised 2004); and
7. Corporate Governance Guidelines (revised 2005).
These can be accessed by clicking on the "Investor Relations" section,
and then on the "Corporate Governance" subsection.
These documents are also available in hard copy by sending a written
request to the attention of the Secretary, Blount International, Inc., 4909 SE
International Way, Portland, OR 97222.
CERTAIN TRANSACTIONS AND OTHER MATTERS
Messrs. Collins, Fried and James, who are Directors of the Corporation,
are investors in LBMBP II, an affiliate of Lehman Brothers Holdings Inc. Lehman
Brothers from the closing of the Merger and Recapitalization, August 19, 1999,
to the Change-in-Control, which occurred on December 20, 2004, beneficially
owned approximately 86% of the Corporation's authorized, issued and outstanding
common stock. Following the Change-in-Control until June 6, 2005, Lehman
Brothers beneficially owned approximately 35% of the Corporation's common stock.
On June 6, 2005, Lehman Brothers was involved in a second secondary offering,
whereby it exercised its warrants for 1,000,000 shares of common stock and sold
7,117,620 shares of common stock. (See also, the description of this transaction
at page 5.) As a result of this 2005 secondary offering, Lehman Brothers ended
up owning approximately 19% of the Corporation's stock.
From time to time, Lehman Brothers also receives customary fees for
services to the Corporation in connection with financings, divestitures,
acquisitions, equity offerings and certain other transactions. In 2003, as a
result of its assistance in the arrangement, negotiation and closing of the
Corporation's refinancing transaction with General Electric Capital Corporation
and other lenders, Lehman Brothers assessed the Corporation fees of $1 million,
which were approved on February 3, 2004 by the Board
33
members not affiliated with Lehman Brothers. In 2004, Lehman Brothers acted as
underwriter, book maker or advisor with respect to the Amended and Restated
Credit Agreement by and among, inter alios, the Corporation and General Electric
Capital Corporation, the sale of 8 7/8% Senior Subordinated Notes, the offering
of 13,800,000 shares of the Corporation's common stock and the redemption or
repayment of (i) the Corporation's outstanding 7% Senior Notes, (ii) the
Corporation's outstanding 13% Senior Subordinated Notes and (iii) the $20
million, together with payment-in-kind interest, preferred equivalent security.
In these various capacities, Lehman Brothers earned $6,199,500 in underwriting
fees; $3,200,000 in management or advisory fees, which were paid in 2005; and
$30,049,051 as repayment for the Preferred Equivalent Security, including a
$480,000 premium. In connection with the "road show" for the August 9, 2004
primary equity and senior subordinated note offerings, the Corporation
reimbursed Lehman Brothers in the amount of $213,865 for the advancement of
certain airplane fees. Pursuant to the Stockholder Agreement referred to on page
31 above, fees and expenses incurred in connection with the December 20, 2004
secondary equity offering were allocated as follows: The Corporation paid two
filing fees, which totaled $92,018. Certain third party fees, including
accounting fees, NYSE fees, NASD fees, newswire service charges and travel
expenses, totaling $133,309 in the aggregate, were paid by the Corporation but
reimbursed by Lehman Brothers in the First Quarter of 2005. Lehman Brothers also
reimbursed the Corporation during this period for $200,000 worth of management
time. Lehman Brothers paid all other expenses related to the December 20, 2004
secondary offering directly.
In addition, Lehman Brothers tendered $10,000 to the Corporation as the
exercise price for the 1,000,000 warrants exchanged for 1,000,000 shares of the
Corporation's common stock on June 6, 2005. (See earlier discussion of this
transaction at page 5.) Also in connection with the June 6, 2005 secondary
offering, Lehman Brothers paid $89,999.50 to the Corporation for certain NYSE,
legal, accounting, transfer agent and newswire service fees.
In total, during 2005, Lehman Brothers made payments totaling
$433,308.50 to the Corporation, and the Corporation paid Lehman Brothers the
abovementioned $3,200,000 fees related to the August 2004 transaction involving
the refinancing, equity offering, sale of certain notes and redemption of others
notes.
APPROVAL OF 2006 EXECUTIVE MANAGEMENT ANNUAL INCENTIVE PLAN
PROPOSAL 2
The Board of Directors adopted the amended and restated Executive
Management Annual Incentive Plan (the "2006 EMAIP") effective as of January 1,
2006, and is proposing the 2006 EMAIP for approval by the stockholders of the
Corporation. The following description of the material features of the 2006
EMAIP is a summary only and is qualified in its entirety by reference to the
2006 EMAIP, a copy of which is attached as Exhibit A to this Proxy Statement.
Stockholder approval of the 2006 EMAIP is sought in order to qualify the 2006
EMAIP under Section 162(m) of the Code and thereby to allow the Corporation to
deduct for federal income tax purposes most or all compensation paid under the
2006 EMAIP to Named Executive Officers (as defined above under "Executive
Compensation"). Among the material matters for consideration in approving the
2006 EMAIP are the following:
o The Board of Directors is proposing to replace the existing
Executive Management Annual Incentive Plan, which was effective
January 1, 2000 and approved by the stockholders of the
Corporation on April 17, 2000.
o The 2006 EMAIP is intended to modernize and update the terms and
conditions for incentive compensation, improve the performance
measures available for objective setting and allow for maximum
tax deductibility of executive compensation.
GENERAL
The purpose of the 2006 EMAIP is to advance the growth and financial
success of the Corporation by offering performance incentives to designated
executives who have significant responsibility for such success. The 2006 EMAIP
will be administered by the Compensation Committee or other committee designated
by the Board (the "Committee"), subject to the Committee's right to delegate to
the Chief Executive Officer, and others, responsibility for administration of
the 2006 EMAIP. To the extent such a delegation of authority has been made, the
term "Committee" in this Proposal 2 should be read as "Committee or its
delegate." Persons eligible to participate in the 2006 EMAIP are the Executive
Officers and other executives of the Corporation, its operating units or its
affiliates who are in management positions designated as eligible for
participation by the Committee.
The 2006 EMAIP is not subject to the provisions of the Employee
Retirement Security Act of 1974 ("ERISA"). The 2006 EMAIP may be amended,
suspended or terminated by the Committee at any time, subject to ratification by
the Board and to the consent of each participant whose rights would be adversely
affected with respect to an award that has been determined and approved. Unless
terminated, the 2006 EMAIP will remain in effect until awards thereunder are
paid for the Corporation's fiscal year ending in 2011. (Such awards may be paid
in the first quarter of 2012, but be based upon performance for Fiscal Year
2011.)
34
AWARDS UNDER THE 2006 EMAIP
Prior to, or as soon as practical after, the commencement of each fiscal
year, the Committee will establish plan rules for that year with respect to the
following matters: (a) employees who are eligible to participate; (b) the
performance objectives for each participant, which performance objectives will
include one or more of the performance measures set forth below; (c) the target
award, maximum award and threshold award that can be received by each
participant, and the method for determining such award; (d) the form of payment
of an incentive award; and (e) the terms and conditions subject to which any
incentive award may become payable. Performance measures for Named Executive
Officers will include one or more of the following (which may relate to the
Corporation as a whole or a business unit, division or subsidiary, as
appropriate): earnings before interest and taxes (EBIT); earnings before
interest, taxes, depreciation and amortization (EBITDA); return on capital
employed; operating income; SG&A as a percentage of sales; inventory turnover
ratio; cost reductions; leverage ratios; gross margin; product introduction;
sales; net income; earnings per share; return on equity; return on assets (or
net assets); after-tax or pre-tax profit; market value of the Corporation's
stock; total stockholder return; return on investment; economic profit;
capitalized economic profit; cash flow and cash flow return.
After the end of each fiscal year, the Committee will certify the extent
to which the performance objectives have been achieved for that year. In
measuring performance, the Committee may adjust the Corporation's financial
results to exclude the effect of unusual charges or income items that distort
year-to-year comparisons of results and other events, including acquisitions or
dispositions of businesses or assets, recapitalizations, reorganizations or
reductions-in-force. With respect to Named Executive Officers, the Committee
shall consider the provisions of Section 162(m) in making adjustments for awards
intended to comply with Section 162(m). The Committee may also make adjustments
to eliminate the effect of changes in tax or accounting rules and regulations.
The percentage of pay at risk under the 2006 Incentive Plan is increased by
position according to relative levels of responsibility and influence on
business unit and corporate objectives. The award percentage is discounted for
performance below target down to a minimum threshold at which no bonus is due,
and an enhanced payout percentage is provided to motivate performance above
target up to a maximum.
Incentive awards shall be approved by the Committee, subject to
ratification by the Board when required under the 2006 EMAIP or desired by the
Committee, based on the 2006 EMAIP rules then in effect and the achievement of
performance criteria as certified by the Committee. The Committee may in its
discretion grant awards to deserving participants, except certain Named
Executive Officers, notwithstanding levels of achievement of performance
criteria. The maximum award that may be paid to an individual participant for a
plan year shall be $2.5 million.
Awards will generally be made in lump sum cash payments or in such other
form as the Committee may specify at the beginning of the year. Payment will be
made as soon as practicable after the determination of awards.
A partial incentive award may be authorized by the Committee for a
participant who is terminated without cause, or who terminates for good reason,
or who retires, dies or becomes permanently and totally disabled during the
fiscal year. Otherwise, no award will be paid to a participant who is not an
active employee of the Corporation, an operating unit or an affiliate at the end
of the fiscal year to which the award relates. In general, unless the Committee
has established a different rule with respect to some or all participants, upon
the occurrence of a change in control, the participant's incentive award for
that year will be deemed to have been fully earned at the target award level,
will be prorated for the portion of the year that has elapsed, and will be paid
within thirty days after the effective date of the change in control. If a
participant is entitled to a pro rata award under the 2006 EMAIP upon a
change-in-control, and also to a similar pro rata award under an employment
agreement or severance agreement for the same fiscal year, the participant will
receive the larger pro rata award but not both awards.
FEDERAL INCOME TAX CONSEQUENCES
An award under the 2006 EMAIP will constitute compensation taxable as
ordinary income (and subject to income tax withholding) to the participant to
the extent it is paid in cash or immediately available equity-based awards.
Generally, the Corporation will be entitled to a corresponding deduction.
Section 162(m) of the Code limits to $1,000,000 the amount of
compensation that may be deducted by the Corporation in any tax year with
respect to a Named Executive Officer, with an exception for certain
performance-based compensation. The 2006 EMAIP is designed, and is to be
administered, in such a manner as to qualify payments to Named Executive
Officers for that performance-based exception, except to the extent the
Compensation Committee determines that such compliance is not required or not
advisable in the best interests of the Corporation.
35
2006 EMAIP AWARDS
For fiscal year 2006, each Named Executive Officer currently serving as
an employee and certain other executives have been granted an opportunity to
receive a cash incentive award under the 2006 EMAIP based upon performance
objectives established with respect to fiscal year 2006. Because the performance
periods have not yet been completed, the amount of annual incentive compensation
to be paid in the future to the Corporation's current or future Named Executive
Officers and other executives cannot be determined at this time. Actual amounts
will depend on actual performance measured against the attainment of the
pre-established performance goals.
As of February 14, 2006, approximately 48 individuals participated in
the predecessor 2000 Plan, and a similar number is expected to participate in
2006 in the 2006 EMAIP. As stated, it is not known what awards will be made
under the 2006 EMAIP for FY 2006 payable in 2007. However, had the 2006 EMAIP
been in effect and applicable to FY 2005 for bonuses paid in 2006, since the
proposed Plan is very similar to, and has the same criteria as, the prior 2000
EMAIP, it is likely that the same awards would have been made as were actually
made for 2005 under the predecessor Plan. If so, the following would apply:
BONUS
James S. Osterman $ 550,000*
Dennis E. Eagan $ 201,000
Richard H. Irving, III $ 139,000
Kenneth O. Saito $ 136,000
Calvin E. Jenness $ 141,000
All Executive Officers as a Group (6) $1,209,923
All Directors as a Group $ 0
All Other Employees (42) $2,063,521
----------
Total for FY 2005 $3,273,444
*Mr. Osterman's bonus was a contractually guaranteed minimum bonus in
connection with the extension of his Employment Agreement on April 19, 2005. See
discussion of his Agreement and this bonus at page 30.
VOTE REQUIRED
Assuming the presence of a quorum, the 2006 EMAIP will be approved if
more votes are cast in favor of approving it than against approving it.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR"
APPROVAL OF THE 2006 EXECUTIVE MANAGEMENT ANNUAL INCENTIVE PLAN, INCLUDING THE
MATERIAL TERMS OF THE PERFORMANCE MEASURES UNDER WHICH CERTAIN AWARDS MAY BE
GRANTED. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS
SPECIFY A CONTRARY CHOICE IN THEIR PROXIES.
APPROVAL OF 2006 EQUITY INCENTIVE PLAN
PROPOSAL 3
The Board is proposing for approval by the stockholders the 2006 Equity
Incentive Plan (the "2006 Equity Plan"). The following description of the
material features of the 2006 Equity Plan is a summary only and is qualified in
its entirety by reference to
36
the 2006 Equity Plan, a copy of which is attached to this Proxy Statement as
Exhibit B. Among the material matters for consideration in approving the 2006
Equity Plan are the following:
o The Board is proposing the 2006 Equity Plan to replace the
Corporation's current 1999 Stock Incentive Plan ("1999 Plan")
and 2000 Stock Incentive Plan ("2000 Plan") for future
equity-based awards to employees and other participants and,
assuming approval, to provide for a number of additional
authorized shares for future grants, as well as to reallocate
the number of authorized shares remaining for award under the
1999 Plan and 2000 Plan to the 2006 Equity Plan;
o Assuming stockholder approval, and retirement of the 1999 Plan
and 2000 Plan from making further grants, the total number of
shares available for award under the 2006 Equity Plan will be
4,236,919, comprised of 3,500,000 newly authorized shares and
736,919 unused shares allocated from the 1999 Plan and 2000
Plan, plus lapsed or cancelled awards or options from grants
outstanding under the 1999 Plan and 2000 Plan at the time of
stockholder approval; and
o The 2006 Equity Plan, as proposed, fulfills the Corporation's
needs for equity-based awards to employees and other
participants for the next several years, provides for express
limits or prohibitions on the use of certain types of awards or
practices (such as discounted options and option repricing
absent prior stockholder approval), and delivers incentives that
align long-term participant and stockholder interests and link
compensation to stockholder return.
The shares to be delivered under the 2006 Equity Plan will be made
available from authorized but unissued shares of common stock, from treasury
shares, from shares purchased in the open market or otherwise. Shares initially
awarded or granted under the 1999 Plan and 2000 Plan or the 2006 Equity Plan
that become subject to lapsed or cancelled awards or options will be available
for further awards and options under the 2006 Equity Plan.
The objectives of the 2006 Equity Plan are: (i) to attract, motivate and
retain employees, directors, consultants, advisors and other persons who perform
services for the Corporation by providing compensation opportunities that are
competitive with other companies; (ii) to provide incentives to those
individuals who contribute significantly to the long-term performance and growth
of the Corporation and its affiliates; and (iii) to align the long-term
financial interests of employees and other individuals who are eligible to
participate in the 2006 Equity Plan with those of stockholders. The Board
adopted the 2006 Equity Plan on February 15, 2006 at the recommendation of the
Compensation Committee, subject to the stockholder approval solicited by this
Proxy Statement.
DESCRIPTION OF THE 2006 EQUITY PLAN
GENERAL. The 2006 Equity Plan will be administered by the Compensation
Committee of the Board or such other committee (the "Committee") consisting of
two or more members as may be appointed by the Board to administer the 2006
Equity Plan. If any member of the Committee does not qualify as (i) a
"Non-Employee Director" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, and (ii) an "outside director" within the
meaning of Section 162(m) of the Code, a subcommittee of the Committee shall be
appointed to grant awards to Named Executive Officers and to other officers who
are subject to Section 16 of the Securities Exchange Act of 1934, and each
member of such subcommittee shall satisfy the requirements of (i) and (ii)
above. References to the Committee in this summary shall include and, as
appropriate, apply to any such subcommittee. Subject to the requirement that
stockholder approval be obtained for certain types of amendments, the 2006
Equity Plan may be amended by the Committee, in whole or in part, but no such
action shall adversely affect any rights or obligations with respect to any
awards previously granted under the 2006 Equity Plan, unless the participants
affected by such amendment provide their written consent.
Under the 2006 Equity Plan, participants may be granted stock options
(incentive and nonqualified), stock appreciation rights, restricted stock,
restricted stock units and performance shares, provided that non-employee
directors are not eligible for grants of incentive stock options or performance
shares. The number of shares that may be awarded under the 2006 Equity Plan is
4,236,919. The maximum number of incentive stock options that may be issued
under this Plan is 1,750,000. Other than awards of stock options or SARs or
awards that must be settled in cash, the number of shares that may be granted in
the form of such other awards ("Full Value Grants") will be counted against this
maximum number of shares such that the maximum is reduced 1.5 shares for each
share subject to the Full Value Grants. Except to the extent the Committee
determines that an award shall not comply with the performance-based
compensation provisions of Section 162(m) of the Code, the maximum number of
shares subject to options and SARs that, in the aggregate, may be granted
pursuant to awards in any one calendar year to any one participant shall be five
hundred thousand (500,000) shares, and the maximum number of shares of
restricted stock, restricted stock units and performance shares that may be
granted, in the aggregate, pursuant to awards in any one calendar year to any
one participant shall be two hundred thousand (200,000) shares.
Shares awarded or subject to purchase under the 2006 Equity Plan and
under the 1999 Plan and 2000 Plan that are not delivered or purchased, or are
reacquired by the Corporation as a result of forfeiture or termination,
expiration, or cancellation of an award, will again be available for issuance
under the 2006 Equity Plan.
37
The Committee will determine the individuals to whom awards will be
granted, the number of shares subject to an award and the other terms and
conditions of an award. To the extent provided by law, the Committee may
delegate to one or more persons the authority to grant awards to individuals who
are not Named Executive Officers. As applicable, when used in this description
of the 2006 Equity Plan, the term "Committee" also refers to any such individual
to whom the Committee has delegated some of its authority to grant awards. The
Committee may also provide in option or other agreements relating to awards
under the 2006 Equity Plan for automatic accelerated vesting and other rights
upon the occurrence of a change-in-control or upon the occurrence of other
events as may be specified in such agreements.
STOCK OPTIONS. The number of shares subject to a stock option, the type
of stock option (i.e., incentive stock option or nonqualified stock option), the
exercise price of a stock option (which shall be not less than the fair market
value of a share on the date of grant) and the period of exercise (including
upon termination of employment) will be determined by the Committee and set
forth in an option or other agreement, provided that no option will be
exercisable more than ten years after the date of grant.
Options granted under the 2006 Equity Plan shall be exercisable at such
times and be subject to such restrictions and conditions as the Committee shall
in each instance approve, including conditions related to the employment of, or
provision of services by, a participant. The option price upon exercise shall be
paid to the Corporation in full: (a) in cash, (b) by cash equivalent approved by
the Committee, (c) by tendering (or attesting to the ownership of) previously
acquired shares having an aggregate fair market value at the time of exercise
equal to the total exercise option price or (d) by a combination of (a), (b) and
(c). The Committee may also allow cashless exercises as permitted under the
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the 2006 Equity Plan's purpose and applicable law.
SARS. SARs granted under the 2006 Equity Plan entitle the grantee to
receive an amount payable in shares or cash, or both, as determined by the
Committee, equal to the excess of the fair market value of a share on the day
the SAR is exercised over the specified exercise price, which will not be less
than the fair market value of a share on the grant date of the SAR. The exercise
period of a SAR may not exceed 10 years. SARs may be granted in tandem with a
related stock option or independently. If a SAR is granted in tandem with a
stock option, the grantee may exercise the stock option or the SAR, but not
both. The Committee shall determine and set forth in an agreement relating to
the award or other agreement the extent to which SARs are exercisable after
termination of employment.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Restricted stock awards may
be made either alone, in addition to, or in tandem with other types of awards
permitted under the 2006 Equity Plan, and may be current grants of restricted
stock or deferred grants. The terms of restricted stock awards, including the
restriction period, performance targets applicable to the award, and the extent
to which the grantee will have the right to receive unvested restricted stock
following termination of employment or other events, will be determined by the
Committee and be set forth in an agreement relating to such award. The
restriction period for restricted stock and restricted stock units that are not
subject to performance conditions will not be less than three years (but graded
vesting may be provided), and for performance-based awards the restriction
period will not be less than one year. Unless otherwise set forth in an
agreement relating to a restricted stock award, the grantee of restricted stock
shall have all of the rights of a stockholder of the Corporation, including the
right to vote the shares and the right to receive dividends, provided that the
Committee may require that any dividends on such shares of restricted stock be
automatically deferred and reinvested in additional restricted stock or may
require that dividends on such shares be paid to the Corporation to be held for
the account of the grantee.
A restricted stock unit is an unsecured promise to transfer a share at a
specified future date, such as a fixed number of years, retirement, or other
termination of employment (which date may be later than the vesting date of the
award at which time the right to receive the share becomes nonforfeitable).
Restricted stock units represent the right to receive a specified number of
shares at such times, and subject to such restriction period and other
conditions, as the Committee determines. A participant to whom restricted stock
units are awarded has no rights as a stockholder with respect to the shares
represented by the restricted stock units, unless and until shares are actually
delivered to the participant in settlement of the award. However, restricted
stock units may have dividend-equivalent rights, if provided for by the
Committee.
PERFORMANCE SHARES. Performance shares are awards granted in terms of a
stated potential maximum number of shares, with the actual number and value
earned to be determined by reference to the satisfaction of performance targets
established by the Committee. Such awards may be granted subject to any
restrictions, in addition to performance conditions, deemed appropriate by the
Committee. Except as otherwise provided in an agreement relating to performance
shares, a grantee shall be entitled to receive any dividends declared with
respect to shares that have been earned but that have not yet been distributed
to the grantee and shall be entitled to exercise full voting rights with respect
to such shares.
PERFORMANCE MEASURES. If awards granted or issued under the 2006 Equity
Plan are intended to qualify under the performance-based compensation provisions
of Section 162(m) of the Code, the performance measure(s) to be used for
purposes of such awards shall be chosen by the Committee from among the
following (which may relate to the Corporation or a business unit,
38
division or subsidiary): earnings, earnings per share, consolidated pre-tax
earnings, net earnings, operating income, EBIT (earnings before interest and
taxes), EBITDA (earnings before interest, taxes, depreciation and amortization),
gross margin, revenues, revenue growth, market value-added, economic
value-added, return on equity, return on investment, return on assets, return on
net assets, return on capital employed, return on incremental equity, total
stockholder return, profit, economic profit, capitalized economic profit,
after-tax profit, pre-tax profit, cash flow measures, cash flow return, sales,
sales volume, revenues per employee, stock price, cost goals, budget goals,
growth expansion goals or goals related to acquisitions or divestitures. The
Committee can establish other performance measures for awards granted to
participants that are not Named Executive Officers, or for awards granted to
Named Executive Officers that are not intended to qualify under the
performance-based compensation provisions of Section 162(m) of the Code. In
measuring performance, the Committee may adjust the Corporation's financial
results to exclude the effect of unusual charges or income items that distort
year-to-year comparisons of results and other events, including acquisitions or
dispositions of businesses or assets, recapitalizations, reorganizations or
reductions-in-force. With respect to Named Executive Officers, the Committee
shall consider the provisions of Section 162(m) in making adjustments for awards
intended to comply with Section 162(m). The Committee may also make adjustments
to eliminate the effect of changes in tax or accounting rules and regulations.
REPRICING. The 2006 Equity Plan prohibits the Corporation from reducing
the exercise price of outstanding options without first receiving stockholder
approval.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the current United States federal
income tax consequences of awards made under the 2006 Equity Plan. This summary
is general in nature and is not intended to cover all tax consequences that may
apply to participants and the Corporation. Further, the provisions of the Code
and the regulations and rulings thereunder relating to these matters may change.
STOCK OPTIONS. A participant will not recognize any income upon the
grant or purchase of a stock option. A participant will recognize compensation
taxable as ordinary income (and subject to income tax withholding for
Corporation employees) upon exercise of a nonqualified stock option equal to the
excess of the fair market value of the shares purchased over the sum of the
exercise price and the amount, if any, paid for the option on an after-tax
basis, and the Corporation will be entitled to a corresponding deduction. A
participant will not recognize income (except for purposes of the alternative
minimum tax) upon exercise of an incentive stock option, provided that the
incentive stock option is exercised either while the participant is an employee
of the Corporation or within three months (one year if the participant is
disabled within the meaning of Section 22(e)(3) of the Code) following the
participant's termination of employment. If shares acquired by such exercise of
an incentive stock option are held for the longer of two years from the date the
option was granted and one year from the date it was exercised, any gain or loss
arising from a subsequent disposition of such shares will be taxed as long-term
capital gain or loss, and the Corporation will not be entitled to any deduction.
If, however, such shares are disposed of within the above-described period, then
in the year of such disposition, the participant will recognize income taxable
as ordinary income equal to the excess of (i) the lesser of the amount realized
upon such disposition and the fair market value of such shares on the date of
exercise over (ii) the exercise price, and the Corporation will be entitled to a
corresponding deduction.
SARS. A participant will not recognize any income upon the grant of a
SAR. A participant will recognize compensation taxable as ordinary income (and
subject to income tax withholding for Corporation employees) upon exercise of a
SAR equal to the fair market value of any shares delivered and the amount of any
cash paid to the participant upon such exercise, and the Corporation will be
entitled to a corresponding deduction.
RESTRICTED STOCK AWARDS. A participant will not recognize taxable income
at the time of the grant of a restricted stock award, and the Corporation will
not be entitled to a tax deduction at such time, unless the participant makes an
election under a special Code provision to be taxed at the time such restricted
stock award is granted. If such election is not made, the participant will
recognize compensation taxable as ordinary income (and subject to income tax
withholding for Corporation employees) at the time the restrictions on such
restricted stock award lapse in an amount equal to the excess of the fair market
value of the shares at such time over the amount, if any, paid for such shares.
The amount of ordinary income recognized by a participant making the
above-described special election or upon the lapse of the restrictions is
deductible by the Corporation as compensation expense, except to the extent the
limit of Section 162(m) of the Code applies. In addition, a participant
receiving dividends with respect to shares subject to a restricted stock award
for which the above-described election has not been made and prior to the time
the restrictions lapse will recognize taxable compensation (subject to income
tax withholding for Corporation employees), rather than dividend income, in an
amount equal to the dividends paid, and the Corporation will be entitled to a
corresponding deduction.
RESTRICTED STOCK UNITS. A participant will not recognize taxable income
at the time of the grant of a restricted stock unit, and the Corporation will
not be entitled to a tax deduction at such time. When the participant receives
shares pursuant to a restricted stock unit, the federal income tax consequences
applicable to restricted stock awards, described above, will apply.
39
PERFORMANCE SHARE AWARDS. A participant will not recognize taxable
income upon the grant of a performance share award, and the Corporation will not
be entitled to a tax deduction at such time. Upon the settlement of a
performance share award, the participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding for Corporation
employees) in an amount equal to the fair market value of any shares delivered
and the amount of any cash paid to the participant, and the Corporation will be
entitled to a corresponding deduction.
COMPLIANCE WITH SECTION 162(M) OF THE CODE. Section 162(m) of the Code
denies an income tax deduction to an employer for certain compensation in excess
of $1,000,000 per year paid by a publicly-traded corporation to a Named
Executive Officer. Compensation realized with respect to stock options awarded
under the 2006 Equity Plan, including upon exercise of a nonqualified stock
option or upon a disqualifying disposition of an incentive stock option, as
described above, will be excluded from this deductibility limit if it satisfies
certain requirements, including a requirement that the 2006 Equity Plan be
approved by the Corporation's stockholders at the Annual Meeting. In addition,
other types of awards under the 2006 Equity Plan may be excluded from this
deduction limit if they are conditioned on the achievement of one or more of the
performance measures described above, as required by Section 162(m) of the Code.
To satisfy the requirements that apply to "performance-based" compensation,
those performance measures must be approved by our current stockholders, and
approval of the Plan will also constitute approval of those measures.
2006 EQUITY PLAN AWARDS
The Committee has proposed that during the Second Quarter of 2006,
subject to the stockholders approving the 2006 Equity Plan, Mr. James S.
Osterman, Chairman and Chief Executive Officer of the Corporation, be awarded a
grant of a yet-to-be-determined incentive instrument of a type permitted by the
2006 Equity Plan comparable to the SARs awarded on February 21, 2006 to the
other Named Executive Officers under the 1999 Stock Incentive Plan, as amended
to permit the grant of SARs. (These awards are discussed at pages 19 and 24.)
Mr. Osterman's grant will be priced at the then fair market value. No awards
have been granted yet under the 2006 Equity Plan, and the Committee will make
any other future awards at its discretion, subject to the limits stated in the
2006 Equity Plan.
Other than Mr. Osterman, discussed above, it is not known what awards
would have been made for FY 2005 but granted in 2006 had the 2006 Equity Plan
been effective; however, it is assumed that such awards would have been similar
to those made on February 21, 2006 to 93 employees, including the Executive
Officers other than Mr. Osterman, under the 1999 Plan, as amended to permit the
grant of SARs. That grant included:
% OF TOTAL
NUMBER OF SARS EXERCISE
SARS GRANTED PRICE EXPIRATION
NAME GRANTED ON 2/21/06 ($/SHARE) DATE
- ---- ------- ---------- --------- ----
Dennis E. Eagan 40,000 6.5% $16.76 2/21/16
Richard H. Irving, III 40,000 6.5% $16.76 2/21/16
Kenneth O. Saito 40,000 6.5% $16.76 2/21/16
Calvin E. Jenness 40,000 6.5% $16.76 2/21/16
All Executive Officers as a Group (5) * 170,000 27.8% $16.76 2/21/16
Directors as a Group 0 0 N/A N/A
All Other Employees (88) 442,000 72.2% $16.76 2/21/16
- ----------------------------
* Excluding Mr. Osterman, as stated above.
40
VOTE REQUIRED
The affirmative vote of a majority of the shares present or represented
by proxy and entitled to vote at the Annual Meeting is required for approval of
the 2006 Equity Plan, provided that at least a majority of the outstanding
shares of common stock are voted for or against, or abstain from voting on, the
2006 Equity Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR"
APPROVAL OF THE 2006 EQUITY PLAN, INCLUDING THE MATERIAL TERMS OF THE
PERFORMANCE MEASURES UNDER WHICH CERTAIN AWARDS MAY BE GRANTED. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY A CONTRARY
CHOICE IN THEIR PROXIES.
RATIFY THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL 4
The Audit Committee has appointed the firm of PricewaterhouseCoopers LLP
as the Corporation's independent registered public accounting firm for the
calendar year ending December 31, 2006. Although stockholder ratification is not
required, the Board has determined that it would be desirable to request an
expression from the stockholders as to whether or not they concur with this
appointment.
PricewaterhouseCoopers LLP, including Coopers & Lybrand LLP prior to its
merger with Price Waterhouse LLP, has served as auditors of the consolidated
financial statements of the Corporation and its subsidiaries from year to year
since 1972 and auditors of management's report on, and the effectiveness of,
internal controls over financial reporting for the year ended December 31, 2005.
The Corporation has been advised by PricewaterhouseCoopers LLP that they do not
have any direct financial interest or any material indirect financial interest
in the Corporation or any of its subsidiaries, and that during the above time,
PricewaterhouseCoopers LLP has not had any connection with the Corporation or
its subsidiaries in a capacity of promoter, underwriter, voting trustee,
Director, Officer or employee.
PricewaterhouseCoopers LLP proposes to bill or has billed the
Corporation the following amounts for professional services during 2005 and
2004, all of which PricewaterhouseCoopers LLP has advised were provided at
customary rates and terms:
2005 (PROPOSED) 2004 (ACTUAL)
--------------- -------------
AUDIT FEES: $1,516,730 $ 685,000
AUDIT RELATED FEES: $ 51,600 $ 215,000
TAX COMPLIANCE AND PREPARATION FEES: $ 368,204 $ 238,000
---------- ----------
SUBTOTAL: $1,936,534 $1,138,000
ALL OTHER FEES AND EXPENSES: $ 672,211 $ 725,000
---------- ----------
TOTAL $2,608,745 $1,863,000
========== ==========
Audit fees for the years ended December 31, 2005 and 2004, respectively,
were for professional services rendered for the audits of the consolidated
financial statements and, in the case of 2005, of management's report and the
effectiveness of internal controls over financial reporting of the Corporation,
as well as for statutory audits.
Audit Related Fees as of the years ended December 31, 2005 and 2004,
respectively, were for assurance and related services, including consultations
concerning financial accounting and reporting standards, audits of certain of
the Corporation's qualified benefit plans in 2004 and assistance and consents
with respect to the review of documents filed with the SEC.
Tax Compliance and Preparation Fees for the years ended as of December
31, 2005 and 2004, respectively, were for services related to tax compliance,
including preparation of tax returns and claims for refund.
41
All Other Fees and Expenses for the years ended as of December 31, 2005
and 2004, respectively, represent services for tax planning, tax advice and
assistance with respect to requests for rulings for technical advice from tax
authorities.
The Audit Committee of the Board, pursuant to its pre-approval policies
and procedures for audit and non-audit services, approved in advance all
non-audit services rendered by PricewaterhouseCoopers LLP during 2005 and
concluded that such services did not affect the independence of the auditors.
Please also refer to the Audit Committee Report on page 14.
Representatives of PricewaterhouseCoopers LLP and of the Audit Committee
of the Board will be present at the Meeting and will have the opportunity to
make a statement if they desire to do so. Those representatives will also be
available to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS:
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE CORPORATION FOR THE CALENDAR YEAR ENDING DECEMBER 31, 2006. IF THE
STOCKHOLDERS DO NOT RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP BY A
MAJORITY OF VOTES CAST, THE BOARD WILL RECONSIDER THE APPOINTMENT.
STOCKHOLDERS' COMMUNICATIONS WITH BOARD OF DIRECTORS
Stockholders interested in communicating information or inquiries to the
Board, its Committees or any specific Director should do so by submitting a
written communication to:
Board of Directors
Blount International, Inc.
4909 SE International Way
Portland, Oregon 97222
To the Attention of: General Counsel
The General Counsel will open and read the written submission only to confirm
that it relates to the business of the Corporation, and, if so, will send the
communication in its entirety to the Chairman of the Board (or to the addressee
specified, if any) without comment. Any such communication should include the
stockholder's name, address, other contact information and number of shares of
the Corporation's common stock owned.
STOCKHOLDERS' PROPOSALS FOR 2007 ANNUAL MEETING
Stockholders may present proposals that are proper subjects for
inclusion in the Proxy Statement and for consideration at the Annual Meeting of
Stockholders in 2007. In order to be considered, proposals must be submitted on
a timely basis. Proposals for the 2007 Annual Meeting of Stockholders must be
received by the Corporation no later than November 15, 2006. Any such proposals,
as well as any questions related thereto, should be directed to the Secretary of
the Corporation.
42
GENERAL INFORMATION
The expenses of soliciting proxies will be paid by the Corporation.
Arrangements will be made with brokerage firms and other custodians, nominees
and fiduciaries for the forwarding of proxy soliciting materials to beneficial
owners of the Corporation's common stock, and the Corporation will reimburse
such brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection with this solicitation.
By Order of the Board of Directors,
Richard H. Irving, III
Senior Vice President, General Counsel
and Secretary
Portland, Oregon
March 21, 2006
43
BLOUNT INTERNATIONAL, INC.
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3
ADD 4
ADD 5
ADD 6
C 1234567890 J N T
[ ] Mark this box with an X if you have made
changes to your name or address details above.
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- ------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS NUMBERED 1 - 5. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSALS NUMBERED
1 - 5.
[A] ELECTION OF DIRECTORS
The Board of Directors recommends a vote "FOR" the listed nominees.
1. To elect a Board of Directors to serve until the next Annual Meeting of Stockholders or until their successors have been elected
and qualified;
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
1 - R. Eugene Cartledge [ ] [ ] 2 - Joshua L. Collins [ ] [ ] 3 - Eliot M. Fried [ ] [ ]
4 - Thomas J. Fruechtel [ ] [ ] 5 - E. Daniel James [ ] [ ] 6 - Robert D. Kennedy [ ] [ ]
7 - Harold E. Layman [ ] [ ] 8 - James S. Osterman [ ] [ ]
[B] PROPOSALS
The Board of Directors recommends a vote "FOR" the following proposals.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. To consider and act upon a proposal to [ ] [ ] [ ] 4. To consider and act upon a proposal [ ] [ ] [ ]
approve the Blount International, Inc. to ratify the appointment of
2006 Executive Management Annual PricewaterhouseCoopers LLP as the
Incentive Plan; independent registered public
accounting firm for the Corporation
FOR AGAINST ABSTAIN for the year ending December 31,
3. To consider and act upon a proposal to [ ] [ ] [ ] 2006; and
approve the Blount International, Inc.
2006 Equity Incentive Plan; 5. To transact such other business as
may properly come before the Meeting
Mark this box with an X if you plan to attend the meeting. [ ] or any adjournment thereof.
[C] AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
Please mark, sign exactly as your name is printed hereon and return in the enclosed envelope. If the stock is held jointly, each
joint owner must sign. When signing as Attorney, Executor, Administrator, Trustee, Guardian or in any other representative
capacity, please give full title.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (mm/dd/yyyy)
- -------------------------------------------------- -------------------------------------------------- --------------------------
[ ][ ]/[ ][ ]/[ ][ ][ ][ ]
- -------------------------------------------------- -------------------------------------------------- --------------------------
1UPX 0 0 8 2 5 6
- --------------------------------------------------------------------------------
PROXY - COMMON STOCK
- --------------------------------------------------------------------------------
BLOUNT INTERNATIONAL, INC.
4909 SE INTERNATIONAL WAY
PORTLAND, OREGON 97222
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 25, 2006
The undersigned, revoking previous proxies, if any, relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated March 21,
2006 in connection with the Annual Meeting of Stockholders to be held at 10:00
A.M., P.D.T., on Tuesday, April 25, 2006, in the Dogwood Room of the
Corporation's headquarters at 4909 SE International Way, Portland, Oregon 97222,
and hereby appoints KENNETH O. SAITO and DONNA WECKER, or either one of them
acting in the absence of the other, the proxies of the undersigned, with power
of substitution to each, to represent and vote, as designated on the reverse
side, all shares of Common Stock of Blount International, Inc. registered in the
name provided herein as of February 24, 2006 that the undersigned is entitled to
vote at the 2006 Annual Meeting of Stockholders, and at any adjournment thereof,
with all powers the undersigned would have if personally present.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
------------------------------------------------------------
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of the Corporation that require
your immediate attention. Your vote counts, and you are strongly encouraged to
exercise your right to vote your shares. Please mark the boxes on the proxy card
to indicate how your shares will be voted. Then sign the card, detach it and
return your proxy in the enclosed postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Blount International, Inc.
EXHIBIT A
BLOUNT INTERNATIONAL, INC.
EXECUTIVE MANAGEMENT ANNUAL INCENTIVE PLAN
Amended and Restated Effective as of January 1, 2006
1. ESTABLISHMENT AND EFFECTIVE DATE OF PLAN
Blount International, Inc. (the "Corporation") hereby adopts the amended
and restated Blount International, Inc. Executive Management Annual Incentive
Plan (the "Plan") for its executive officers and certain other executives and
employees of the Corporation, its Operating Units and affiliates who are in
management positions designated as eligible for participation by the
Compensation Committee (the "Committee") of the Board of Directors of the
Corporation or its designee. The amended and restated Plan shall be effective as
of January 1, 2006 and shall remain in effect, subject to the rights of
amendment and termination in Section 13, until the Incentive Awards are paid for
the Corporation's fiscal year ending in 2011. Unless the Committee determines
otherwise, payments under the Plan shall only be made to the Chief Executive
Officer (and such other Participants as the Committee may determine) after the
Plan is approved by the stockholders of the Corporation.
2. PURPOSE OF THE PLAN
The purpose of the Plan is to further the growth and financial success
of the Corporation by offering performance incentives to designated executives
who have significant responsibility for such success.
3. DEFINITIONS
(a) "Base Annual Salary" means the actual base salary paid to a
Participant during the applicable Plan Year, increased by the
amount of any pre-tax deferrals or other pre-tax payments made
by the Participant to the Corporation's deferred compensation or
welfare plans (whether qualified or non-qualified).
(b) "Board of Directors" means the Board of Directors of the
Corporation.
(c) "Change in Control" shall have the meaning ascribed to such term
in the Blount International, Inc. 2000 Stock Incentive Plan,
effective as of February 3, 2000, and as it may be amended.
(d) "Chief Executive Officer" means the chief executive officer of
the Corporation, unless otherwise specified.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the Compensation Committee of the Board of
Directors or any other committee designated by the Board of
Directors that is responsible for administering the Plan.
1
(g) "Corporation" means Blount International, Inc., a Delaware
corporation, and its successors.
(h) "Incentive Award" or "Award" means the bonus awarded to a
Participant under the terms of the Plan.
(i) "Maximum Award" means the maximum percentage of Base Annual
Salary that may be paid based upon the Relative Performance
during the Plan Year.
(j) "Operating Unit" means a separate business operating unit of the
Corporation with respect to which separate performance goals may
be established hereunder.
(k) "Participant" means an employee of the Corporation, an Operating
Unit or an affiliate who is designated by the Committee or its
designee to participate in the Plan.
(l) "Plan Rules" means the guidelines established annually by the
Committee pursuant to Section 4, subject, where applicable, to
ratification by the Board of Directors.
(m) "Plan Year" means the twelve month period which is the same as
the Corporation's fiscal year. The initial Plan Year for the
amended and restated Plan shall be January 1, 2006 through
December 31, 2006.
(n) "Relative Performance" means the extent to which the
Corporation, or designated Operating Unit, or both, as
applicable, achieves the performance measurement criteria set
forth in the Plan Rules.
(o) "Target Award" means the percentage (which may vary among
Participants and from Plan Year to Plan Year) of Base Annual
Salary which will be paid to a Participant as an Incentive Award
if the performance measurement criteria applicable to the
Participant for the Plan Year is achieved, as reflected in the
Plan Rules for such Plan Year.
(p) "Threshold Award" means the percentage of Base Annual Salary
which corresponds to the minimum acceptable Relative Performance
during the Plan Year.
2
4. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee, subject to its right to
delegate responsibility for administration of the Plan as it applies to
Participants other than the Chief Executive Officer pursuant to Section 7. The
Committee will have authority to establish Plan Rules with respect to the
following matters for the Plan Year, subject to the right of the Board of
Directors to ratify such Plan Rules as provided in this Section 4:
(a) the employees of the Corporation, its Operating Units and
affiliates who are Participants in the Plan;
(b) the Target Award, Maximum Award (if any) and Threshold Award
that can be granted to each Participant and the method for
determining such award, which the Committee may amend from time
to time;
(c) the performance targets and the measurement criteria to be used
in determining the Corporation's or an Operating Unit's Relative
Performance, which will include one or more of the following, as
determined by the Committee or its designee each year: earnings
before interest and taxes (EBIT); earnings before interest,
taxes, depreciation and amortization (EBITDA); return on capital
employed; operating income; SG&A as a percentage of sales;
inventory turnover ratio; cost reductions; leverage ratios;
gross margin; product introduction; sales; net income; earnings
per share; return on equity; return on assets (or net assets);
after-tax or pre-tax profit; market value of the Corporation's
stock; total stockholder return; return on investment; economic
profit; capitalized economic profit; cash flow and cash flow
return; and
(d) the time or times, the form of payment, and the conditions
subject to which any Incentive Award may become payable.
The Plan Rules will be adopted by the Committee prior to, or as soon as
practical after, the commencement of each Plan Year. Subject to the provisions
of the Plan and the Committee's right to delegate its responsibilities, the
Committee will also have the discretionary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, and to make
all other determinations deemed necessary or advisable in administering the
Plan. The determinations of the Committee on the matters referred to in
paragraphs (a) through (d) of this Section 4 with respect to the Chief Executive
Officer (and such other Participants as the Committee may determine) shall be
submitted at least annually to the Board of Directors for its consideration and
ratification. For Participants other than the Chief Executive Officer (and such
other Participants as the Committee may determine), the Committee may in its
discretion (i) establish performance measures and criteria not listed in this
Section 4 without obtaining stockholder approval; and (ii) during a Plan Year
revise the performance targets and measurement criteria to the extent the
Committee believes necessary to achieve the purposes of the Plan in light of any
unexpected or unusual circumstances.
3
5. PARTICIPATION
Eligibility for participation in the Plan is limited to executive
officers of the Corporation and certain other executives and employees of the
Corporation and its Operating Units or affiliates who hold key management and
staff positions. From among those eligible and based upon the recommendations of
the Chief Executive Officer and other designees, the Committee will designate by
name or position the Participants each Plan Year. Any employee who is a
Participant in one Plan Year may be excluded from participation in any other
Plan Year. If, during the Plan Year, a Participant other than the Chief
Executive Officer changes employment positions to a new position that
corresponds to a different award level, the Committee may, in its discretion,
adjust the Participant's award level for such Plan Year. The Committee may, in
its discretion, designate employees who are hired after the beginning of the
Plan Year as Participants for such Plan Year and as eligible to receive full or
partial Incentive Awards for such year.
6. INCENTIVE AWARDS
6.1 DETERMINATION OF THE AMOUNT OF INCENTIVE AWARDS
At the end of each Plan Year, the Committee or its designee shall
certify the extent to which the performance targets and measurement criteria
established pursuant to Section 4 have been achieved for such Plan Year based
upon financial information provided by the Corporation. A Participant's
Incentive Award shall be computed by the Committee based upon the achievement of
the established performance targets, measurement criteria and the requirements
of the Plan. In addition to any adjustments provided by the Incentive Award, the
Committee may in determining whether performance targets have been met adjust
the Corporation's financial results to exclude the effect of unusual charges or
income items or other events, including acquisitions or dispositions of
businesses or assets, recapitalizations, reorganizations, restructurings,
reductions in force, currency fluctuations or changes in accounting, that are
distortive of results for the year (either on a segment or consolidated basis);
provided, that for purposes of determining the Incentive Awards of the Chief
Executive Officer (and such other Participants as the Committee may determine),
that are intended to qualify as performance-based compensation under Code
Section 162(m), the Committee shall exclude unusual items whose exclusion has
the effect of increasing Relative Performance if such items constitute
"extraordinary items" under generally accepted accounting principles or are
unusual events or items. In addition, the Committee will adjust its calculations
to exclude the unanticipated effect on financial results of changes in the Code
or other tax laws, or the regulations relating thereto.
The Committee may, in its discretion, decrease the amount of a
Participant's Incentive Award for any reason, including the Committee's judgment
that the performance targets have become an inappropriate measure of
achievement, a change in the employment status, position or duties of the
Participant, unsatisfactory performance of the Participant, or for such other
reasons as the Committee deems appropriate.
4
In the event that the Corporation's or an Operating Unit's performance
is below the anticipated performance thresholds for the Plan Year and the
Incentive Awards are below expectations or not earned at all, the Committee may
in its discretion grant Incentive Awards (or increase the otherwise earned
Incentive Awards) to deserving Participants, except for Incentive Awards to the
Chief Executive Officer and other Participants that are intended to qualify as
performance-based compensation under Code Section 162(m).
The Plan Rules and Incentive Awards under the Plan shall be administered
in a manner to qualify payments under the Plan to the Chief Executive Officer
(and such other Participants as the Committee may determine) for the
performance-based exception under Code Section 162(m) and the regulations
thereunder, except where the Compensation Committee or the Board of Directors
determines such compliance is not necessary or advisable, under all of the
surrounding circumstances. The maximum Incentive Award that may be paid to an
individual Participant for a Plan Year shall be $ 2.5 million.
6.2 ELIGIBILItY FOR PAYMENT OF INCENTIVE AWARD
No Participant will have any vested right to receive any Incentive Award
until such date as the Board of Directors has ratified the Committee's
determination with respect to the payment of individual Incentive Awards, except
where the Committee determines such ratification is not necessary. No Incentive
Award will be paid to any Participant who is not an active employee of the
Corporation, an Operating Unit or an affiliate at the end of the Plan Year to
which the Incentive Award relates; provided, however, at the discretion of the
Committee or its designee (subject to ratification by the Board of Directors,
where required, and the limitations of Code Section 162(m)), partial Incentive
Awards may be paid to Participants (or their beneficiaries) who have been
terminated without cause (as determined by the Committee or its designee) or who
retire, die or become permanently and totally disabled during the Plan Year. No
Participant entitled to receive an Incentive Award shall have any interest in
any specific asset of the Corporation, and such Participant's rights shall be
equivalent to that of a general unsecured creditor of the Corporation.
5
6.3 PAYMENT OF AWARDS
Payment of the Incentive Awards will be made as soon as practicable
after their determination pursuant to Sections 6.1 and 6.2, subject to the
Committee's right to allow a Participant to defer payment pursuant to an
applicable deferred compensation plan of the Corporation, if applicable. Payment
will generally be made in a lump sum in cash, in options to purchase common
stock of the Corporation, or in a combination of cash and stock options, as
determined by the Committee either at the time Awards are established or when
they are paid (which may be different for different groups of Participants). In
addition, the Committee may provide some or all of the Participants the right to
elect, within the time frames provided by the Committee, to receive a portion or
all of an Incentive Award in options to purchase common stock of the
Corporation, rather than in cash.
7. DELEGATION OF AUTHORITY BY THE COMMITTEE
Notwithstanding the responsibilities of the Committee set forth herein,
the Committee may delegate to the Chief Executive Officer or others all or any
portion of its responsibility for administration of the Plan as it relates to
Participants other than the Chief Executive Officer. Such delegation may
include, without limitation, the authority to designate employees who can
participate in the Plan, to establish Plan Rules, to interpret the Plan, to
determine the extent to which performance criteria have been achieved, and to
adjust any Incentive Awards that are payable. In the case of each such
delegation, the administrative actions of the delegate shall be subject to the
approval of the person within the Corporation to whom the delegate reports (or,
in the case of a delegation to the Chief Executive Officer, to the approval of
the Committee).
8. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless the Participant
otherwise elects in writing in accordance with such rules as the Committee may
establish, the Participant's Incentive Award for the Plan Year shall be
determined as if the Target Award level of performance has been achieved
(without any reductions under Section 6.1) and shall be deemed to have been
fully earned for the Plan Year, provided that` the Participant shall only be
entitled to a pro rata portion of the Incentive Award based upon the number of
days within the Plan Year that had elapsed as of the effective date of the
Change in Control. The Incentive Award amount shall be paid only in cash within
thirty (30) days of the effective date of the Change in Control. The Incentive
Award payable upon a Change in Control to a Participant for the Plan Year during
which a Change in Control occurs shall be the greater of the amount provided for
under this Section 8 or the amount of the Incentive Award payable to such
Participant for the Plan Year under the terms of any employment agreement or
severance agreement with the Corporation, its Operating Units or affiliates,
provided that the Participant shall not receive a duplicate Incentive Award for
the same Plan Year (or portion of a Plan Year). Notwithstanding the above, the
Committee may provide in the Plan Rules for alternative consequences upon a
Change in Control, which may apply to some or all Participants and which may
vary among Participants.
9. BENEFICIARY
To the extent provided by the Committee or its designee each Participant
will designate a person or persons to receive, in the event of death, any
Incentive Award to which the Participant would then be entitled under Section
6.2. Such designation will be made in the manner determined by the Committee and
may be revoked by the Participant in writing. If the Committee does not provide
for a designation of a beneficiary or if a Participant fails effectively to
designate a beneficiary, then the estate of the Participant will be deemed to be
the beneficiary.
6
10. WITHHOLDING OF TAXES
The Corporation shall deduct from each Incentive Award the amount of any
taxes required to be withheld by any governmental authority.
11. EMPLOYMENT
Nothing in the Plan or in any Incentive Award shall confer (or be deemed
to confer) upon any Participant the right to continue in the employ of the
Corporation, an Operating Unit or an affiliate, or interfere with or restrict in
any way the rights of the Corporation, an Operating Unit or an affiliate to
discharge any Participant at any time for any reason whatsoever, with or without
cause.
12. SUCCESSORS
All obligations of the Corporation under the Plan with respect to
Incentive Awards granted hereunder shall be binding upon any successor to the
Corporation, whether such successor is the result of an acquisition of stock or
assets of the Corporation, a merger, a consolidation or otherwise.
13. TERMINATION AND AMENDMENT OF THE PLAN; GOVERNING LAW
The Committee, subject to the ratification rights of the Board of
Directors, has the right to suspend or terminate the Plan at any time, or to
amend the Plan in any respect, provided that no such action will, without the
consent of a Participant, adversely affect the Participant's rights under an
Incentive Award approved under Section 6.2. The Plan shall be interpreted and
construed under the laws of the State of Delaware.
AS APPROVED BY THE BOARD OF DIRECTORS OF THE CORPORATION ON THE 15TH DAY
OF FEBRUARY, 2006.
7
EXHIBIT B
BLOUNT INTERNATIONAL, INC.
2006 EQUITY INCENTIVE PLAN
(EFFECTIVE AS OF FEBRUARY 15, 2006)
Table of Contents
-----------------
Page
----
ARTICLE 1 - GENERAL PROVISIONS................................................1
1.1 Establishment and Purposes of Plan............................1
1.2 Types of Awards...............................................1
1.3 Effective Date................................................1
ARTICLE 2 - DEFINITIONS.......................................................1
ARTICLE 3 - ADMINISTRATION....................................................7
3.1 General.......................................................7
3.2 Authority of the Committee....................................7
3.3 Delegation of Authority.......................................8
3.4 Award Agreements..............................................8
3.5 Indemnification...............................................8
ARTICLE 4 - SHARES SUBJECT TO THE PLAN........................................8
4.1 Number of Shares..............................................8
4.2 Individual Limits.............................................9
4.3 Adjustment of Shares.........................................10
ARTICLE 5 - STOCK OPTIONS....................................................11
5.1 Grant of Options.............................................11
5.2 Agreement....................................................11
5.3 Option Price.................................................11
5.4 Duration of Options..........................................11
5.5 Exercise of Options..........................................11
5.6 Payment......................................................11
5.7 Nontransferability of Options................................12
5.8 Purchased Options............................................12
5.9 Special Rules for ISOs.......................................12
ARTICLE 6 - STOCK APPRECIATION RIGHTS........................................12
6.1 Grant of SARs................................................12
6.2 Tandem SARs..................................................13
6.3 Payment......................................................13
ARTICLE 7 - RESTRICTED STOCK AND RESTRICTED STOCK UNITS......................13
7.1 Grant of Restricted Stock....................................13
7.2 Restricted Stock Agreement...................................13
7.3 Nontransferability...........................................14
7.4 Certificates.................................................14
7.5 Dividends and Other Distributions............................14
7.6 Restricted Stock Units (or RSUs).............................15
-i-
Table of Contents
-----------------
(continued)
ARTICLE 8 - PERFORMANCE SHARES...............................................15
8.1 Grant of Performance Shares..................................15
8.2 Value of Performance Shares..................................16
8.3 Earning of Performance Shares................................16
8.4 Form and Timing of Payment of Performance Shares.............16
8.5 Nontransferability...........................................16
ARTICLE 9 - PERFORMANCE MEASURES.............................................17
ARTICLE 10 - BENEFICIARY DESIGNATION.........................................17
ARTICLE 11 - DEFERRALS.......................................................17
ARTICLE 12 - WITHHOLDING.....................................................18
12.1 Tax Withholding.............................................18
12.2 Share Withholding...........................................18
ARTICLE 13 - FOREIGN EMPLOYEES...............................................18
ARTICLE 14 - AMENDMENT AND TERMINATION.......................................18
14.1 Amendment of Plan...........................................18
14.2 Amendment of Award Agreement; Repricing.....................19
14.3 Termination of Plan.........................................19
14.4 Detrimental Activity........................................19
ARTICLE 15 - MISCELLANEOUS PROVISIONS........................................19
15.1 Restrictions on Shares......................................19
15.2 No Implied Rights...........................................20
15.3 Compliance with Laws........................................20
15.4 Successors..................................................20
15.5 Tax Elections...............................................20
15.6 Legal Construction..........................................21
-ii-
BLOUNT INTERNATIONAL, INC.
2006 EQUITY INCENTIVE PLAN
ARTICLE 1 - GENERAL PROVISIONS
1.1 ESTABLISHMENT AND PURPOSES OF PLAN. Blount International, Inc.,
a Delaware corporation, (the "Corporation") hereby establishes an equity
incentive plan to be known as the "Blount International, Inc. 2006 Equity
Incentive Plan" (the "Plan"), as set forth in this document. The objectives of
the Plan are (i) to provide incentives to those individuals who contribute
significantly to the long-term performance and growth of the Corporation and its
affiliates; (ii) to attract, motivate and retain employees, directors,
consultants and other persons who perform services for the Corporation by
providing compensation opportunities that are competitive with other companies;
and (iii) to align the long-term financial interests of employees and other
Eligible Participants with those of the Corporation's stockholders.
1.2 TYPES OF AWARDS. Awards under the Plan may be made to Eligible
Participants who are Employees in the form of (i) Incentive Stock Options, (ii)
Nonqualified Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted
Stock, (v) Restricted Stock Units; (vi) Performance Shares, or (vii) any
combination of the foregoing. Awards under the Plan may be made to Eligible
Participants who are not employees in the form of (i) Nonqualified Stock
Options, (ii) Stock Appreciation Rights; (iii) Restricted Stock; and (iv)
Restricted Stock Units, or (v) any combination of the foregoing.
1.3 EFFECTIVE DATE. The Plan shall be effective on the date it is
approved by the stockholders at the Annual Meeting or any special meeting, if
applicable, (the "Effective Date").
ARTICLE 2 - DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
2.1 "Agreement" means the written agreement evidencing an Award
granted to the Participant under the Plan.
2.2 "Award" means an award granted to a Participant under the Plan
that is an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock
Unit, Performance Share, or combination of these.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Cause" means "Cause", as defined in the Participant's
Employment Agreement, or if such agreement does not define Cause or the
Participant does not have an Employment Agreement, "Cause" means, unless
provided otherwise in the Agreement, the involuntary termination of a
Participant by the Corporation for any of the following reasons: (a) as a result
of an act or acts by the Participant which have been
1
found in an applicable court of law to constitute a felony (other than
traffic-related offenses); (b) as a result of one or more acts by a Participant
which in the good faith judgment of the Board are believed to be in violation of
law or of policies of the Corporation and which result in demonstrably material
injury to the Corporation; (c) as result of an act or acts of proven dishonesty
by the Participant resulting or intended to result directly or indirectly in
significant gain or personal enrichment to the Participant at the expense of the
Corporation or public stockholders of the Corporation; or (d) upon the willful
and continued failure by the Participant to perform his duties with the
Corporation (other than any such failure resulting from incapacity due to mental
or physical illness not constituting a Disability), after a demand in writing
for substantial performance is delivered by the Corporation, which demand
specifically identifies the manner in which the Corporation believes that the
Participant has not substantially performed his duties. For purposes of this
Plan, no act or failure to act by the Participant shall be deemed to be
"willful" unless done or omitted to be done by the Participant not in good faith
and without reasonable belief that the Participant's action or omission was in
the best interests of the Corporation. The determination of "Cause" shall be
made by the Committee based upon the information provided to it.
2.5 "Change in Control" means any of the following events:
(i) the acquisition, directly or indirectly, by any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
of securities of the Corporation representing an aggregate of more than
fifty percent (50%) of the combined voting power of the Corporation's
then outstanding securities (excluding the acquisition by persons who
own such amount of securities on the Effective Date, or acquisitions by
persons who acquire such amount through inheritance); 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 Corporation with any other "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) or
affiliate thereof, other than a merger, consolidation or business
combination which would result in the outstanding common stock of the
Corporation 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) more than fifty
percent (50%) of the outstanding common stock of the Corporation, or
such surviving entity or parent of affiliate thereof, outstanding
immediately after such merger, consolidation or business combination, or
(B) a plan of complete liquidation of the Corporation or an agreement
for the sale or disposition by the Corporation of all or substantially
all of the Corporation's assets;
(iv) a sale of more than 50% of the assets of the
Corporation.
2
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
2.7 "Committee" means the Compensation Committee of the Board or
such other committee consisting of two or more members of the Board as may be
appointed by the Board to administer this Plan pursuant to Article 3 of the
Plan. To the extent required by applicable law, if any member of the Committee
does not qualify as (i) a "Non-Employee Director" within the meaning of Rule
16b-3 under the Exchange Act, and (ii) an "outside director" within the meaning
of Code Section 162(m), a subcommittee of the Committee shall be appointed to
grant Awards to Named Executive Officers and to officers who are subject to
Section 16 of the Exchange Act, and each member of such subcommittee shall
satisfy the requirements of (i) and (ii) above. References to the Committee in
the Plan shall include and, as appropriate, apply to any such subcommittee.
2.8 "Corporation" means Blount International, Inc., a Delaware
corporation, and its successors and assigns.
2.9 "Director" means any individual who is a member of the Board of
Directors of the Corporation; provided, however, that any Director who is
employed by the Corporation or any Employer shall not be considered a Director,
but instead shall be considered an employee for purposes of the Plan.
2.10 "Disability" means, (i) with respect to a Participant who is
eligible to participate in the Employer's program of long-term disability
insurance, if any, a condition with respect to which the Participant is entitled
to commence benefits under such program, and (ii) with respect to any
Participant (including a Participant who is eligible to participate in the
Employer's program of long-term disability insurance, if any), the inability of
the Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of six (6) months or more. For a Director,
Disability shall mean the inability of the Director to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration of
six (6) months or more. The determination of Disability shall be made by the
Committee based upon the information provided to it.
2.11 "Effective Date" shall have the meaning ascribed to such term in
Section 1.3 hereof.
2.12 "Eligible Participant" means an employee of the Employer
(including an officer), as well as any other person, including a Director and a
consultant or other person who provides bona fide services to the Employer, as
shall be determined by the Committee.
3
2.13 "Employer" means the Corporation and any entity during any
period that it is a "parent corporation" or a "subsidiary corporation" with
respect to the Corporation within the meaning of Code Sections 424(e) and
424(f). With respect to all purposes of the Plan, including but not limited to,
the establishment, amendment, termination, operation and administration of the
Plan, the Corporation shall be authorized to act on behalf of all other entities
included within the definition of "Employer."
2.14 "Employment Agreement" means with respect to a Participant who
is an employee, the written agreement between the Corporation or a Subsidiary
and the employee providing for the terms of such employee's employment with the
Corporation or a Subsidiary, as it may be amended from time to time.
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended. All citations to sections of the Exchange Act
or rules thereunder are to such sections or rules as they may from time to time
be amended or renumbered.
2.16 "Fair Market Value" means the fair market value of a Share, as
determined in good faith by the Committee as follows:
(a) if the Shares are admitted to trading on a national
securities exchange, Fair Market Value on any date shall be the last
sale price reported for the Shares on such exchange on the last trading
date immediately preceding such date;
(b) if the Shares are admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
or other comparable quotation system and have been designated as a
National Market System ("NMS") security, Fair Market Value on any date
shall be the last sale price reported for the Shares on such system on
the last trading date immediately preceding such date;
(c) If the Shares are admitted to Quotation on the NASDAQ
and have not been designated a NMS Security, Fair Market Value on any
date shall be the average of the highest bid and lowest asked prices of
the Shares on such system on the last trading date immediately preceding
such date; or
(d) if (a), (b) and (c) do not apply, on the basis of the
good faith determination of the Committee.
For purposes of subsection (a) above, if Shares are traded on more than
one securities exchange then the following exchange shall be referenced to
determine Fair Market Value: (i) the New York Stock Exchange ("NYSE"), or (ii)
if shares are not traded on the NYSE, the NASDAQ, or (iii) if shares are not
traded on the NYSE or NASDAQ, the largest regional exchange on which Shares are
traded.
2.17 "Incentive Stock Option" or "ISO" means an Option granted to an
Eligible Participant under Article 5 of the Plan which is intended to meet the
requirements of Section 422 of the Code.
4
2.18 "Insider" shall mean, to the extent such provisions are
applicable, an individual who is, on the relevant date, subject to the reporting
requirements of Section 16(a) of the Exchange Act.
2.19 "Named Executive Officer" means, to the extent such provisions
are applicable, a Participant who is one of the group of "covered employees" as
defined in the regulations promulgated or other guidance issued under Code
Section 162(m), as determined by the Committee.
2.20 "Nonqualified Stock Option" or "NQSO" means an Option granted to
an Eligible Participant under Article 5 of the Plan which is not intended to
meet the requirements of Section 422 of the Code.
2.21 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option. An Option shall be designated as either an Incentive Stock Option or a
Nonqualified Stock Option, and in the absence of such designation, shall be
treated as a Nonqualified Stock Option.
2.22 "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.23 "Participant" means an Eligible Participant to whom an Award has
been granted.
2.24 "Performance Measures" means the performance measures set forth
in Article 9, which are used for performance-based Awards to Named Executive
Officers.
2.25 "Performance Share" means an Award under Article 8 of the Plan
that is valued by reference to a Share, which value may be paid to the
Participant by delivery of such property as the Committee shall determine,
including without limitation, cash or Shares, or any combination thereof, upon
achievement of such performance objectives during the relevant performance
period as the Committee shall establish at the time of such Award or thereafter,
but, if applicable, not later than the time permitted by Code section 162(m) in
the case of a Named Executive Officer, unless the Committee determines that
compliance with Code section 162(m) is not required or desirable.
2.26 "Permitted Transferee" means any members of the immediate family
of the Participant (I.E., spouse, children and grandchildren), any trusts for
the benefit of such family members or any partnerships whose only partners are
such family members. Appropriate evidence of any transfer to the Permitted
Transferees shall be delivered to the Corporation at its principal executive
office. If all or part of an Option is transferred to a Permitted Transferee,
the Permitted Transferee's rights thereunder shall be subject to the same
restrictions and limitations with respect to the Option as the Participant.
5
2.27 "Plan" means the Blount International, Inc. 2006 Equity
Incentive Plan, as set forth herein and as it may be amended from time to time.
2.28 "1999 Plan" means the Blount International, Inc. 1999 Stock
Incentive Plan, as amended.
2.29 "2000 Plan" means the Blount International, Inc. 2000 Stock
Incentive Plan, as amended.
2.30 "Restricted Stock" means an Award of Shares under Article 7 of
the Plan, which Shares are issued with such restrictions and conditions,
including performance conditions, as the Committee, in its sole discretion, may
impose, including without limitation, any restriction on the right to retain
such Shares, to sell, transfer, pledge or assign such Shares, to vote such
Shares, or to receive any dividends or distributions with respect to such
Shares, or any combination thereof, which restrictions may lapse separately or
in combination at such time or times, in installments or otherwise, as the
Committee may deem appropriate.
2.31 "Restricted Stock Units" or "RSUs" means a right granted under
Section 7 of the Plan, subject to such restrictions and conditions as determined
by the Committee, to receive a number of Shares or a cash payment for each such
Share equal to the Fair Market Value of a Share on a specified date.
2.32 "Restriction Period" means the period commencing on the date an
Award of Restricted Stock or Restricted Stock Units is granted and ending on
such date as the Committee shall determine.
2.34 "Retirement" means "Retirement" as defined in the Participant's
Employment Agreement or, if such agreement does not define such term or the
Participant does not have an Employment Agreement, "Retirement" means normal
retirement under the terms of any tax-qualified retirement plan of the
Corporation, or, if no such plan is in existence or does not define
"Retirement", "Retirement" means termination of employment (other than an
involuntary termination for Cause) at any time on or after attainment of age 65.
2.35 "Share" means one share of common stock, par value $0.01 per
share, of the Corporation, and as such Share may be adjusted pursuant to the
provisions of Section 4.3 of the Plan.
2.36 "Stock Appreciation Right" or "SAR" means an Award granted under
Article 6 of the Plan that provides for an amount payable in Shares or cash, or
both, as determined by the Committee, equal to the excess of the Fair Market
Value of a Share on the day the Stock Appreciation Right is exercised over the
specified purchase price.
6
ARTICLE 3 - ADMINISTRATION
3.1 GENERAL. This Plan shall be administered by the Committee. The
Committee, in its discretion, may delegate to one or more of its members, or to
officers of the Corporation, such of its powers as it deems appropriate.
3.2 AUTHORITY OF THE COMMITTEE.
(a) The Committee shall have the exclusive right to
interpret, construe and administer the Plan, to select the Eligible
Participants who are eligible to receive an Award, and to act in all
matters pertaining to the granting of an Award and the contents of the
Agreement evidencing the Award, including, without limitation, the
determination of the number of Options, Stock Appreciation Rights,
Restricted Stock, Restricted Stock Units or Performance Shares subject
to an Award and the form, terms, conditions and duration of each Award,
and any amendment thereof, consistent with the provisions of the Plan.
The Committee may adopt such rules, regulations and procedures of
general application for the administration of this Plan, as it deems
appropriate.
(b) The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Agreement in
the manner and to the extent it shall deem desirable to carry it into
effect.
(c) In the event the Corporation shall assume outstanding
employee benefit awards or the right or obligation to make future such
awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such
adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
(d) All acts, determinations and decisions of the Committee
made or taken pursuant to grants of authority under the Plan or with
respect to any questions arising in connection with the administration
and interpretation of the Plan, including the severability of any and
all of the provisions thereof, shall be conclusive, final and binding
upon all parties, including the Corporation, its stockholders,
Participants, Eligible Participants and their estates, beneficiaries and
successors.
(e) No Award to a Participant may be repriced, replaced,
regranted through cancellation or modified for such Participant without
stockholder approval (except for adjustments provided for in Section
4.3), if the effect would be to reduce the exercise price for such
Participant for the Shares underlying such Award. Further, the Committee
may not, without stockholder approval, cancel an outstanding Option at a
time when the Fair Market Value of the Shares covered by the Option is
less than the exercise price of the Option for the purpose of granting a
replacement Award of a different type.
7
3.3 DELEGATION OF AUTHORITY. Except with respect to Named Executive
Officers and Insiders (to the extent such rules are applicable), the Committee
may, at any time and from time to time, delegate to one or more persons any or
all of its authority under Section 3.2, to the full extent permitted by law.
3.4 AWARD AGREEMENTS. Each Award granted under the Plan shall be
evidenced by a written Agreement. Each Agreement shall be subject to and
incorporate, by reference or otherwise, the applicable terms and conditions of
the Plan, and any other terms and conditions, not inconsistent with the Plan, as
may be imposed by the Committee, including without limitation, provisions
related to the consequences of termination of employment. A copy of such
document shall be provided to the Participant, and the Committee may, but need
not, require that the Participant sign a copy of the Agreement.
3.5 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as directors, officers or as members of the
Committee, directors and officers of the Corporation and the members of the
Committee shall be indemnified by the Corporation against reasonable expenses,
including attorney's fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Award
granted thereunder, and against all amounts paid by them in settlement thereof,
provided such settlement is approved by independent legal counsel selected by
the Corporation, or paid by them in satisfaction of a judgment or settlement in
any such action, suit or proceeding, except as to matters as to which the
director, officer or Committee member has been grossly negligent or engaged in
willful misconduct in the performance of his or her duties; provided, that
within 60 days after institution of any such action, suit or proceeding, a
director, officer or Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
ARTICLE 4 - SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. (a) Subject to adjustment as provided in
Section 4.3, the aggregate number of Shares which are available for issuance
pursuant to Awards under the Plan is 3,500,000 Shares, plus 736,919 Shares
representing the aggregate number of unused, expired and forfeited Shares in the
1999 Plan and 2000 Plan as of March 7, 2006, for a total of 4,236,919 Shares,
plus that number of Shares representing any additional unused, expired or
forfeited Shares, if any, in the 1999 Plan and the 2000 Plan between March 7,
2006 and the Effective Date, in accordance with the terms of such grants. Other
than Awards of Stock Options or SARs or Awards that must be settled in cash, the
number of Shares reserved under the Plan that may be granted in the form of
other Awards ("Full Value Grants") will be counted against the Plan maximum so
that the maximum is reduced by one and one-half (1.5) Shares for each Share
subject to the Full Value Grants. The number of Incentive Stock Options that may
be issued under the Plan is up to 1,750,000 Shares. Shares to be issued under
the Plan shall be made available from Shares currently authorized but unissued
or Shares currently held (or subsequently
8
acquired) by the Corporation as treasury shares, including Shares purchased in
the open market or in private transactions. Upon approval of this Plan by the
stockholders of the Corporation, no further grants will be made under the 1999
Plan and the 2000 Plan. Awards made under the 1999 Plan and the 2000 Plan shall
remain outstanding in accordance with their terms. (b) The following rules shall
apply for purposes of the determination of the number of Shares available for
grant under the Plan:
(i) If, for any reason, any Shares awarded or subject to
purchase under the Plan are not delivered or purchased, or are
reacquired by the Corporation, for reasons including, but not limited
to, a forfeiture of Restricted Stock or termination, expiration or
cancellation of an Option, Stock Appreciation Right, Restricted Stock
Units, Performance Shares ("Returned Shares"), such Returned Shares
shall not be charged against the aggregate number of Shares available
for issuance pursuant to Awards under the Plan and shall again be
available for issuance pursuant to an Award under the Plan (with
Returned Shares relating to Full Value Grants counting as 1.5 shares).
(ii) Each Performance Share awarded that may be settled in
Shares shall be counted as one and one-half Shares subject to an Award.
Performance Shares that may not be settled in Shares (or that may be
settled in Shares but are not) shall not result in a charge against the
aggregate number of Shares available for issuance. Each Stock
Appreciation Right to be settled in Shares shall be counted as one Share
subject to an Award, regardless of the number of Shares that are
actually issued upon exercise and settlement of the Stock Appreciation
Right. Stock Appreciation Rights that may only be settled in cash and
may not be settled in Shares shall not result in a charge against the
aggregate number of Shares available for issuance. In addition, if a
Stock Appreciation Right is granted in connection with an Option and the
exercise of the Stock Appreciation Right results in the loss of the
Option right, the Shares that otherwise would have been issued upon the
exercise of such related Option shall not result in a charge against the
aggregate number of Shares available for issuance.
(iii) Each Restricted Stock Unit that may be settled in Shares
shall be counted as one and one-half Shares subject to an award.
Restricted Stock Units that may only be settled in cash and may not be
settled in Shares shall not result in a charge against the aggregate
number of Shares available for issuance.
4.2 INDIVIDUAL LIMITS. For purposes of Awards to an individual who
is a Named Executive Officer, the following rules shall apply to Awards under
the Plan:
(a) OPTIONS AND SARS. The maximum number of Options and
Stock Appreciation Rights that, in the aggregate, may be granted
pursuant to Awards in any one fiscal year to any one Participant shall
be five hundred thousand (500,000).
9
(b) RESTRICTED STOCK, RESTRICTED STOCK UNITS AND PERFORMANCE
SHARES. The maximum aggregate number of Shares of Restricted Stock,
number of Restricted Stock Units and Performance Shares that may be
granted pursuant to Awards in any one fiscal year to any one Participant
shall be two hundred thousand (200,000) Shares.
4.3 ADJUSTMENT OF SHARES. If any change in corporate capitalization,
such as a stock split, reverse stock split, stock dividend, or any corporate
transaction such as a reorganization, reclassification, merger or consolidation
or separation, including a spin-off, of the Corporation or sale or other
disposition by the Corporation of all or a portion of its assets, any other
change in the Corporation's corporate structure, or any distribution to
stockholders (other than a cash dividend) results in the outstanding Shares, or
any securities exchanged therefor or received in their place, being exchanged
for a different number or class of shares or other securities of the
Corporation, or for shares of stock or other securities of any other
corporation; or new, different or additional shares or other securities of the
Corporation or of any other corporation being received by the holders of
outstanding Shares; then equitable adjustments shall be made by the Committee,
as it determines are necessary and appropriate, in:
(a) the limitation on the aggregate number of Shares that
may be awarded as set forth in Section 4.1, including, without
limitation, with respect to Incentive Stock Options;
(b) the limitations on the aggregate number of Shares that
may be awarded to any one single Participant as set forth in Section
4.2;
(c) the number and class of Shares that may be subject to an
Award, and which have not been issued or transferred under an
outstanding Award;
(d) the Option Price under outstanding Options and the
number of Shares to be transferred in settlement of outstanding Stock
Appreciation Rights; and
(e) the terms, conditions or restrictions of any Award and
Agreement, including the price payable for the acquisition of Shares;
provided, however, that all such adjustments made in respect of each ISO
shall be accomplished so that such Option shall continue to be an
incentive stock option within the meaning of Code Section 422.
10
ARTICLE 5 - STOCK OPTIONS
5.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Eligible Participants at any time and from time
to time as shall be determined by the Committee. The Committee shall have sole
discretion in determining the number of Shares subject to Options granted to
each Participant. The Committee may grant a Participant ISOs, NQSOs or a
combination thereof, and may vary such Awards among Participants; provided that
only an Employee may be granted ISOs.
5.2 AGREEMENT. Each Option grant shall be evidenced by an Agreement
that shall specify the Option Price, the duration of the Option, the number of
Shares to which the Option pertains and such other provisions as the Committee
shall determine. The Option Agreement shall further specify whether the Award is
intended to be an ISO or an NQSO. Any portion of an Option that is not
designated as an ISO or otherwise fails or is not qualified as an ISO (even if
designated as an ISO) shall be an NQSO.
5.3 OPTION PRICE. The Option Price for each grant of an ISO or NQSO
shall not be less than one hundred percent (100%) of the Fair Market Value of a
Share, as defined by the Committee, on the date the Option is granted.
5.4 DURATION OF OPTIONS. Each Option shall expire at such time as
the Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary of its grant
date.
5.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, including conditions related to
the employment of or provision of services by the Participant with the
Corporation or any Employer, which need not be the same for each grant or for
each Participant. The Committee may provide in the Agreement for automatic
accelerated vesting and other rights upon the occurrence of a Change in Control
of the Corporation or upon the occurrence of other events as specified in the
Agreement. In addition, the Committee may provide in the Agreement for the right
of a Participant to defer option gains related to an exercise.
5.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Corporation, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares. The Option Price upon exercise of any Option shall be payable to the
Corporation in full, either: (a) in cash, (b) cash equivalent approved by the
Committee, (c) by tendering previously acquired Shares (or delivering a
certification or attestation of ownership of such Shares) having an aggregate
Fair Market Value at the time of exercise equal to the total Option Price
(provided that the tendered Shares must have been held by the Participant for
any period required by the Committee), or (d) by a combination of (a), (b) and
(c). The Committee also may allow cashless exercises as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
11
5.7 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such
Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided
in a Participant's Award Agreement with respect to transfers to
Permitted Transferees (any such transfers being subject to applicable
laws, rules and regulations), no NQSO granted under this Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article 5
shall be exercisable during his or her lifetime only by such
Participant.
5.8 PURCHASED OPTIONS. The Committee shall also have the authority
to grant Options to Participants in exchange for a stated purchase price for
such Option (which may be payable by the Participant directly or, at the
election of the Participant, may be offset from bonus or other amounts owed to
the Participant by the Corporation).
5.9 SPECIAL RULES FOR ISOS. In no event shall any Participant who
owns (within the meaning of Section 424(d) of the Code) stock of the Corporation
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation be eligible to receive an ISO at an Option
Price less than one hundred ten percent (110%) of the Fair Market Value of a
share on the date the ISO is granted or be eligible to receive an ISO that is
exercisable later than the fifth (5th) anniversary date of its grant. No
Participant may be granted ISOs (under the Plan and all other incentive stock
option plans of the Employer) which are first exercisable in any calendar year
for Shares having an aggregate Fair Market Value (determined as of the date an
Option is granted) that exceeds One Hundred Thousand Dollars ($100,000).
ARTICLE 6 - STOCK APPRECIATION RIGHTS
6.1 GRANT OF SARS. A Stock Appreciation Right (SAR)may be granted to
an eligible Participant in connection with an Option granted under Article 5 of
this Plan or may be granted independently of any Option. A SAR shall entitle the
holder, within the specified period (which may not exceed 10 years), to exercise
the SAR and receive in exchange therefor a payment having an aggregate value
equal to the amount by which the Fair Market Value of a Share exceeds the
exercise price, times the number of Shares with respect to which the SAR is
exercised. The exercise price for a SAR shall not be less than 100% of the Fair
Market Value of a Share on the date the SAR is granted. Except with respect to a
Tandem SAR, SARs granted under the Plan shall be exercisable at such times and
shall be subject to such restrictions and conditions as the Committee shall in
12
each instance approve, including conditions related to continuing employment,
which need not be the same for each grant or each Participant. A SAR granted in
connection with an Option (a "Tandem SAR") shall entitle the holder of the
related Option, within the period specified for the exercise of the Option, to
surrender the unexercised Option, or a portion thereof, and to receive in
exchange therefor a payment having an aggregate value equal to the amount by
which the Fair Market Value of a Share exceeds the Option price per Share, times
the number of Shares under the Option, or portion thereof, which is surrendered.
The Committee may provide in the Agreement for automatic accelerated vesting and
other rights upon the occurrence of a Change in Control or upon the occurrence
of other events specified in the Agreement. SARs shall not be transferable and
shall be subject to the same transferability restrictions as Incentive Stock
Options.
6.2 TANDEM SARS. Each Tandem SAR shall be subject to the same terms
and conditions as the related Option, including limitations on transferability,
and shall be exercisable only to the extent such Option is exercisable and shall
terminate or lapse and cease to be exercisable when the related Option
terminates or lapses. The grant of SARs related to ISOs must be concurrent with
the grant of the ISOs. With respect to NQSOs, the grant either may be concurrent
with the grant of the NQSOs, or in connection with NQSOs previously granted
under Article 5, which are unexercised and have not terminated or lapsed. Upon
exercise of a Tandem SAR, the number of Shares subject to exercise under any
related Option shall automatically be reduced by the number of Shares
represented by the Option or portion thereof which is surrendered.
6.3 PAYMENT. The Committee shall have sole discretion to determine
in each Agreement whether the payment with respect to the exercise of a SAR will
be in the form of all cash, all Shares or any combination thereof. If payment is
to be made in Shares, the number of Shares shall be determined based on the Fair
Market Value of a Share on the date of exercise. If the Committee elects to make
full payment in Shares, no fractional Shares shall be issued and cash payments
shall be made in lieu of fractional shares. The Committee shall have sole
discretion as to the timing of any payment made in cash or Shares, or a
combination thereof, upon exercise of SARs. Payment may be made in a lump sum,
in annual installments or may be otherwise deferred, at the election of the
Participant, in accordance with such rules as the Committee may establish.
ARTICLE 7 - RESTRICTED STOCK AND RESTRICTED STOCK UNITS
7.1 GRANT OF RESTRICTED STOCK. Restricted Stock Awards may be made
to Eligible Participants as a reward for past service or as an incentive for the
performance of future services that will contribute materially to the successful
operation of the Employer. Awards of Restricted Stock may be made either alone
or in addition to or in tandem with other Awards granted under the Plan and may
be current grants of Restricted Stock or deferred grants of Restricted Stock.
7.2 RESTRICTED STOCK AGREEMENT. The Restricted Stock Agreement shall
set forth the terms of the Award, as determined by the Committee, including,
without limitation, the purchase price, if any, to be paid for such Restricted
Stock, which may be
13
more than, equal to, or less than Fair Market Value and may be zero, subject to
such minimum consideration as may be required by applicable law; any
restrictions applicable to the Restricted Stock such as continued service or
achievement of Performance Measures, the length of the Restriction Period and
whether any circumstances, such as death, Disability, or a Change in Control,
will shorten or terminate the Restriction Period; and rights of the Participant
to vote or receive dividends or distributions with respect to the Shares during
the Restriction Period. Subject to shortening the length of the Restriction
Period upon the occurrence of certain circumstances, such as death, Disability,
or a Change in Control, or upon the achievement of Performance Measures, all
grants of Restricted Stock and Restricted Stock Units shall have a Restriction
Period of not less than three (3) years (but graded vesting may be provided),
provided that performance-based Restricted Stock and Restricted Stock Unit
Awards shall be subject to a restriction period of not less than one (1) year.
Notwithstanding Section 3.4 of the Plan, a Restricted Stock Award must
be accepted within a period of sixty (60) days, or such other period as the
Committee may specify, by executing a Restricted Stock Agreement and paying
whatever price, if any, is required. The prospective recipient of a Restricted
Stock Award shall not have any rights with respect to such Award, unless and
until such recipient has executed a Restricted Stock Agreement and has delivered
a fully executed copy thereof to the Committee, and has otherwise complied with
the applicable terms and conditions of such Award.
7.3 NONTRANSFERABILITY. Except as otherwise provided in this Article
7, no shares of Restricted Stock nor any Restricted Stock Units received by a
Participant shall be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of during the Restriction Period.
7.4 CERTIFICATES. Upon an Award of Restricted Stock to a
Participant, Shares of Restricted Stock shall be registered in the Participant's
name (or an appropriate book entry shall be made). Certificates, if issued, may
either be held in custody by the Corporation until the Restriction Period
expires or until restrictions thereon otherwise lapse or be issued to the
Participant and registered in the name of the Participant, bearing an
appropriate restrictive legend and remaining subject to appropriate
stop-transfer orders. If required by the Committee, the Participant shall
deliver to the Corporation one or more stock powers endorsed in blank relating
to the Restricted Stock. If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction Period,
unrestricted certificates for such shares shall be delivered to the Participant;
provided, however, that the Committee may cause such legend or legends to be
placed on any such certificates as it may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission and
any applicable federal or state law.
7.5 DIVIDENDS AND OTHER DISTRIBUTIONS. Except as provided in this
Article 7 or in the Award Agreement, a Participant receiving a Restricted Stock
Award shall have, with respect to such Restricted Stock Award, all of the rights
of a shareholder of the Corporation, including the right to vote the Shares to
the extent, if any, such Shares
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possess voting rights and the right to receive any dividends and distributions;
provided, however, the Committee may require that any dividends on such Shares
of Restricted Stock shall be automatically deferred and reinvested in additional
Restricted Stock subject to the same restrictions as the underlying Award, or
may require that dividends and other distributions on Restricted Stock shall be
paid to the Corporation for the account of the Participant. The Committee shall
determine whether interest shall be paid on such amounts, the rate of any such
interest and the other terms applicable to such amounts. In addition, with
respect to Named Executive Officers, the Committee may, to the extent
applicable, apply any restrictions it deems appropriate to the payment of
dividends declared with respect to Restricted Stock such that the dividends or
Restricted Stock or both maintain eligibility for the performance-based
compensation exception under Code Section 162(m).
7.6 RESTRICTED STOCK UNITS (OR RSUS). Awards of Restricted Stock
Units may be made to Eligible Participants in accordance with the following
terms and conditions:
(a) The Committee, in its discretion, shall determine the
number of RSUs to grant to a Participant, the Restriction Period and
other terms and conditions of the Award, including whether the Award
will be paid in cash, Shares or a combination of the two and the time
when the Award will be payable (I.E., at vesting, termination of
employment or another date).
(b) Unless the Agreement provides otherwise, RSUs shall not
be sold, transferred or otherwise disposed of and shall not be pledged
or otherwise hypothecated.
(c) Awards of RSUs shall be subject to the same terms as
applicable to Awards of Restricted Stock under Section 7.2 of the Plan;
provided, however, a Participant to whom RSUs are awarded has no rights
as a shareholder with respect to the Shares represented by the RSUs
unless and until the Shares are actually delivered to the Participant;
provided further, however, RSUs may have dividend equivalent rights if
provided for by the Committee that may be subject to the same terms and
conditions governing dividends and distributions applicable to
Restricted Stock Awards under Section 7.5 of this Plan, but with the
exception that in no event shall RSUs possess voting rights.
(d) The Agreement shall set forth the terms and conditions
that shall apply upon the termination of the Participant's employment
with the Employer (including a forfeiture of RSUs for which the
restrictions have not lapsed upon Participant's ceasing to be employed)
as the Committee may, in its discretion, determine at the time the Award
is granted.
ARTICLE 8 - PERFORMANCE SHARES
8.1 GRANT OF PERFORMANCE SHARES. Performance Shares may be granted
to Participants in such amounts and upon such terms, and at any time and from
time to time, as shall be determined by the Committee.
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8.2 VALUE OF PERFORMANCE SHARES. Each Performance Share shall have
an initial value equal to the Fair Market Value of a Share on the date of grant.
The Committee shall set the Performance Measures in its discretion that,
depending on the extent to which they are met, will determine the number of
Performance Shares that will be paid out to the Participant. For purposes of
this Article 8, the time period during which the Performance Measures must be
met shall be called a "Performance Period."
8.3 EARNING OF PERFORMANCE SHARES. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Shares shall be entitled to receive a payout of the number of
Performance Shares earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding Performance
Measures have been achieved. The Committee may provide in the Agreement for
automatic accelerated vesting and other rights upon the Change in Control or
upon the occurrence of other events specified in the Agreement.
8.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE SHARES. Subject to the
terms of this Plan, the Committee, in its sole discretion, may pay earned
Performance Shares in the form of cash or in Shares (or in a combination
thereof) which has an aggregate Fair Market Value equal to the value of the
earned Performance Shares at the close of the applicable Performance Period.
Such Shares may be granted subject to any restrictions deemed appropriate by the
Committee. The determination of the Committee with respect to the form and
timing of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award.
Except as otherwise provided in the Participant's Award Agreement, a
Participant shall be entitled to receive any dividends and distributions
declared with respect to Shares that have been earned in connection with grants
of Performance Shares but that have not yet been distributed to the Participant
(such dividends and distributions shall be subject to the same accrual,
forfeiture, and payout restrictions as apply to dividends and distributions
earned with respect to Restricted Stock, as set forth in Section 7.5 herein). In
addition, unless otherwise provided in the Participant's Award Agreement, a
Participant shall be entitled to exercise full voting rights with respect to
such Shares that have been earned in connection with grants of Performance
Shares but that have not yet been distributed to the Participant.
8.5 NONTRANSFERABILITY. Except as otherwise provided in a
Participant's Award Agreement, Performance Shares may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. Further, except as otherwise provided
in a Participant's Award Agreement, a Participant's rights under the Plan shall
be exercisable during the Participant's lifetime only by the Participant or the
Participant's legal representative.
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ARTICLE 9 - PERFORMANCE MEASURES
The Performance Measure(s) to be used for purposes of Awards under the
Plan shall be chosen from among the following (which may relate to the
Corporation or a business unit, division or subsidiary): earnings, earnings per
share, consolidated pre-tax earnings, net earnings, operating income, EBIT
(earnings before interest and taxes), EBITDA (earnings before interest, taxes,
depreciation and amortization), gross margin, revenues, revenue growth, market
value-added, economic value-added, return on equity, return on investment,
return on assets, return on net assets, return on capital employed, return on
incremental equity, total shareholder return, profit, economic profit,
capitalized economic profit, after-tax profit, pre-tax profit, cash flow
measures, cash flow return, sales, sales volume, revenues per employee, stock
price, cost goals, budget goals, growth expansion goals, or goals related to
acquisitions or divestitures. The Committee can establish other Performance
Measures for performance Awards granted to Eligible Participants. To the extent
required to comply with the requirements of Code Section 162(m), the Corporation
will submit the Performance Measures for shareholder approval.
The Committee shall be authorized to make adjustments in performance
based criteria or in the terms and conditions of other Awards in recognition of
unusual or nonrecurring events affecting the Corporation or its financial
statements or changes in applicable laws, regulations or accounting principles.
The Committee shall also have the discretion to adjust the determinations of the
degree of attainment of the pre-established Performance Measures. The Committee
shall retain the discretion to adjust Awards upward or downward.
ARTICLE 10 - BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 11 - DEFERRALS
The Committee may permit or require a Participant to defer under this
Plan or to a separate deferred compensation arrangement of the Corporation such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock or Restricted Stock Units, or the satisfaction of any requirements or
goals with respect to Performance Shares. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
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ARTICLE 12 - WITHHOLDING
12.1 TAX WITHHOLDING. The Corporation shall have the power and the
right to deduct or withhold, or require a Participant to remit to the
Corporation, an amount sufficient to satisfy Federal, state and local taxes,
domestic or foreign, required by law or regulation to be withheld with respect
to any taxable event arising as a result of this Plan.
12.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock
or upon any other taxable event arising as a result of Awards granted hereunder,
unless other arrangements are made with the consent of the Committee,
Participants shall satisfy the withholding requirement by having the Corporation
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to not more than the minimum amount of tax required to be
withheld with respect to the transaction. All such elections shall be subject to
any restrictions or limitations that the Committee, in its sole discretion,
deems appropriate.
ARTICLE 13 - FOREIGN EMPLOYEES
In order to facilitate the making of any grant of Awards under this
Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Corporation or
any Employer outside of the United States of America as the Committee may
consider necessary or appropriate to accommodate differences in local law, tax
policy or custom, which special terms may be contained in an Appendix attached
hereto. Moreover, the Committee may approve such supplements to or amendments,
restatements or alternative versions of this Plan as it may consider necessary
or appropriate for such purposes, without thereby affecting the terms of this
Plan as in effect for any other purpose, and the Secretary or other appropriate
officer of the Corporation may certify any such document as having been approved
and adopted in the same manner as this Plan. No such special terms, supplements,
amendments or restatements, however, shall include any provisions that are
inconsistent with the terms of this Plan as then in effect unless this Plan
could have been amended to eliminate such inconsistency without further approval
by the stockholders of the Corporation.
ARTICLE 14 - AMENDMENT AND TERMINATION
14.1 AMENDMENT OF PLAN. The Committee may at any time terminate or
from time to time amend the Plan in its discretion in whole or in part, but no
such action shall adversely affect any rights or obligations with respect to any
Awards previously granted under the Plan, unless the affected Participants
consent in writing. To the extent required by Code Section 162(m) or 422; or the
rules of the New York Stock Exchange or any exchange upon which the Corporation
lists the shares for trading; or other applicable law, rule or regulation; or
any combination thereof, no amendment shall be effective unless approved by the
stockholders of the Corporation at an annual or special meeting.
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14.2 AMENDMENT OF AWARD AGREEMENT; REPRICING. The Committee may, at
any time, in its discretion amend outstanding Agreements in a manner not
inconsistent with the terms of the Plan; provided, however, except as provided
in Section 14.4, if such amendment is adverse to the Participant, as determined
by the Committee, the amendment shall not be effective unless and until the
Participant consents, in writing, to such amendment. To the extent not
inconsistent with the terms of the Plan, the Committee may, at any time, in its
discretion amend an outstanding Agreement in a manner that is not unfavorable to
the Participant without the consent of such Participant. Notwithstanding the
above provision, the Committee shall not have the authority to decrease the
Option Price of any outstanding Option, except in accordance with Section 4.3 or
unless such an amendment is approved by the shareholders of the Corporation.
14.3 TERMINATION OF PLAN. No Awards shall be granted under the Plan
after the tenth (10th) anniversary of the date the Board adopts the Plan.
14.4 DETRIMENTAL ACTIVITY. The Committee may provide in the Award
Agreement that if a Participant engages in any "Detrimental Activity" (as
defined below), the Committee may, notwithstanding any other provision in this
Plan to the contrary, cancel, rescind, suspend, withhold or otherwise restrict
or limit any unexpired, unexercised, or unpaid Awards as of the first date the
Participant engages in the Detrimental Activity, unless sooner terminated by
operation of another term of this Plan or any other agreement. Without limiting
the generality of the foregoing, the Agreement may also provide that if the
Participant exercises an Option or SAR, receives a Performance Share or
Restricted Stock Unit payout, or receives Shares under an Award at any time
during the period beginning six months prior to the date the Participant first
engages in Detrimental Activity and ending six months after the date the
Participant ceases to engage in any Detrimental Activity, the Participant shall
be required to pay to the Corporation the excess of the then Fair Market Value
of the Shares subject to the Award over the total price paid by the Participant
for such Shares.
For purposes of this Section, "Detrimental Activity" means any of the
following activities as further defined by the Committee in the Award Agreement
and as determined by the Committee in good faith: (i) the violation of any
agreement between the Corporation and the Participant relating to the disclosure
of confidential information or trade secrets, the solicitation of employees,
customers, suppliers, licensees, licensors or contractors, or the performance of
competitive services (ii) conduct that constitutes Cause (as defined in Section
2.4 above), whether or not the Participant's employment is terminated for Cause.
ARTICLE 15 - MISCELLANEOUS PROVISIONS
15.1 RESTRICTIONS ON SHARES. All certificates for Shares delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable federal or state
laws, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel for the
Corporation or Committee.
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Notwithstanding any other provision of the Plan, the Corporation shall
have no liability to deliver any Shares under the Plan or make any other
distribution of the benefits under the Plan unless such delivery or distribution
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act of 1933), and the applicable requirements of
any securities exchange or similar entity.
15.2 NO IMPLIED RIGHTS. Nothing in the Plan or any Award granted
under the Plan shall confer upon any Participant any right to continue in the
service of the Employer, or to serve as a Director thereof, or interfere in any
way with the right of the Employer to terminate the Participant's employment or
other service relationship for any reason at any time. Unless agreed by the
Board, no Award granted under the Plan shall be deemed salary or compensation
for the purpose of computing benefits under any employee benefit plan, severance
program, or other arrangement of the Employer for the benefit of its employees.
No Participant shall have any claim to an Award until it is actually granted
under the Plan. To the extent that any person acquires a right to receive
payments from the Corporation under the Plan, such right shall, except as
otherwise provided by the Committee, be no greater than the right of an
unsecured general creditor of the Corporation.
15.3 Compliance with Laws.
(a) At all times when the Committee determines that
compliance with Code Section 162(m) is required or desirable, all Awards
granted under this Plan to Named Executive Officers shall comply with
the requirements of Code Section 162(m). In addition, in the event that
changes are made to Code Section 162(m) to permit greater flexibility
with respect to any Awards under the Plan, the Committee may, subject to
the requirements of Article 14, make any adjustments it deems
appropriate.
(b) The Plan and the grant of Awards shall be subject to all
applicable federal and state laws, rules, and regulations and to such
approvals by any United States government or regulatory agency as may be
required. Any provision herein relating to compliance with Rule 16b-3
under the Exchange Act shall not be applicable with respect to
participation in the Plan by Participants who are not Insiders.
15.4 SUCCESSORS. The terms of the Plan shall be binding upon the
Corporation, and its successors and assigns (whether by purchase, merger,
consolidation or otherwise).
15.5 TAX ELECTIONS. Each Participant agrees to give the Committee
prompt written notice of any election made by such Participant under Code
Section 83(b) or any similar provision thereof.
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15.6 LEGAL CONSTRUCTION.
(a) SEVERABILITY. If any provision of this Plan or an
Agreement is or becomes or is deemed invalid, illegal or unenforceable
in any jurisdiction, or would disqualify the Plan or any Agreement under
any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if it
cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the Plan or the
Agreement, it shall be stricken and the remainder of the Plan or the
Agreement shall remain in full force and effect.
(b) GENDER AND NUMBER. Where the context admits, words in
any gender shall include the other gender, words in the singular shall
include the plural and words in the plural shall include the singular.
(c) GOVERNING LAW. To the extent not preempted by federal
law, the Plan and all Agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Delaware.
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IN WITNESS WHEREOF, this Plan was duly approved and adopted by the Board of
Directors as of the 15th day of February, 2006, subject to ratification by the
stockholders at the next Annual Meeting of Stockholders on April 25, 2006 or any
adjournment thereof.
BLOUNT INTERNATIONAL, INC.
By: /s/ Calvin E. Jenness
Authorized Officer
ATTEST:
/s/ Richard H. Irving, III
Secretary
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