<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number: 1-13600
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HUNTCO INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1643751
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14323 SOUTH OUTER FORTY, SUITE 600N, TOWN & COUNTRY, MISSOURI 63017
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(Address of principal executive offices) (Zip Code)
(314) 878-0155
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(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK,
$0.01 PAR VALUE NEW YORK STOCK EXCHANGE
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(Title of class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
----
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting common stock held by non-affiliates
of the Registrant at March 1, 2000 was $18,853,811 (computed by reference to
the closing price of the registrant's Class A common stock, as quoted by the
New York Stock Exchange, Inc. on such date). All of the Company's Class B
common stock, which is the only other voting common stock of the Company, is
held by affiliates of the Company.
As of March 1, 2000, the number of shares outstanding of each class of
the Registrant's common stock was as follows: 5,292,000 shares of Class A
common stock and 3,650,000 shares of Class B common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Notice of Annual Meeting and Proxy
Statement for the Annual Meeting of Shareholders to be held May 4, 2000 (the
"2000 Proxy Statement"), are incorporated by reference into Part III of this
Report on Form 10-K.
PART I
ITEM 1. BUSINESS
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BACKGROUND
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Huntco Inc. ("Huntco" or "the Company"), a Missouri corporation, indirectly
holds the common stock of Huntco Steel, Inc., a Delaware corporation ("Huntco
Steel") and Midwest Products, Inc., a Missouri corporation ("Midwest"). The
Company, through Huntco Steel, is a major intermediate steel processor,
specializing in the processing of flat rolled carbon steel to specified close
tolerances. Through Midwest, the Company is a leading manufacturer of (i)
portable compressed air vessels for sale through mass merchandisers and to
manufacturers of air compressors, and (ii) compressed air cylinders for use in
tractor-trailer brake systems.
The Company's products are delivered from facilities in Arkansas, Illinois,
Kentucky, Missouri, Oklahoma, Tennessee, and Texas to approximately 1,500
customers located primarily in the midwestern and southern regions of the
United States. The strategic location of the Company's steel processing
plants, with access to major suppliers via the inland waterway system, allows
the Company to take delivery of raw materials by barge, in addition to rail
and truck, thereby minimizing inbound transportation costs. The Company's
primary processed products include hot rolled, hot rolled pickled and oiled,
hot rolled tempered and cold rolled steel, which is cut-to-length into sheets,
plates, or custom blanks; slit; or in the case of pickled and oiled, tempered
and cold rolled products, sold as master coils.
INDUSTRY OVERVIEW
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Intermediate steel processors occupy a niche between the primary steel
producers and industrial customers who need processed steel for their end-
product manufacturing purposes. Intermediate steel processors are also
positioned between the primary steel mill producers and general steel service
centers and distributors who handle broad product lines of processed metal
products, and who tend to specialize more in distribution than in processing.
Intermediate steel processors specialize in value-added processing of steel
coils, such as cutting-to-length, slitting, blanking, shape correction and
surface improvement, pickling, cold reduction, annealing and tempering. These
processes produce steel to specified lengths, widths, shapes and surface
characteristics pursuant to specific customer orders. The processing
techniques typically require specialized equipment and require high volume
production in order to be performed economically. Intermediate steel
processors typically have lower cost structures and provide better service in
value-added processing than the primary producers. The intermediate steel
processors are able to perform many of these processes more efficiently than
steel service centers and distributors because the intermediate steel
processors specialize in a narrower range of products and therefore are able
to attract sufficient volume to justify the investment in specialized
processing equipment.
Primary steel producers historically have emphasized the sale of steel to
large volume purchasers, and generally have viewed intermediate steel
processors as an integral part of their customer base. Furthermore, end
product manufacturers, service centers and distributors seek to purchase steel
on shorter lead times and with more frequent and reliable deliveries than
normally can be provided by the primary producers. Most manufacturers are not
willing to commit to the investment in technology, equipment and inventory
required to process steel for use in their own operations. These industry
forces have created a market in which the success of an intermediate steel
processor is based upon its ability to purchase, process and deliver steel to
the end user in a more efficient and cost effective manner than the end user
could achieve in dealing directly with the primary producer of the steel or
with another intermediate steel processor.
PRODUCTS AND PROCESSING SERVICES
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The Company maintains a substantial inventory of steel coils purchased from
the primary producers. This steel is in the form of a continuous sheet,
typically 36 to 84 inches wide, between .015 and .500 inches thick, and rolled
into 10 to 30-ton coils. Because of the size and weight of these coils and
the equipment required to move and process them into smaller sizes, such coils
do not meet the requirements, without further processing, of a majority of the
Company's customers. By purchasing various kinds of steel in large quantities
and at predetermined intervals, the Company attempts to purchase its raw
materials at the lowest competitive price for the quality purchased.
Customer orders are entered in a computerized order entry system, and
appropriate inventory is then selected and scheduled for processing in
accordance with the customer's specified delivery date. The Company attempts
to maximize yield by combining customer orders for processing to use each
purchased coil to the fullest extent practicable.
The Company uses techniques such as cold rolling, annealing, tempering,
pickling, cutting-to-length, slitting, and blanking to process steel to
specified lengths, widths and shapes pursuant to specific customer orders.
Cold rolling and tempering reduce the thickness of the steel by passing the
steel through pressure reduction rolls, which also improves the surface
characteristics of the steel being processed. Annealing involves heating the
steel to soften it for further finishing after it has been cold reduced.
Pickling cleans the mill scale from the steel by subjecting the steel to a
series of hydrochloric acid baths. A portion of the steel that the Company
pickles serves as feed stock for the cold rolling mill. Cutting-to-length
involves cutting steel along the width of the coil. Slitting involves cutting
steel to specified widths along the length of the coil. Blanking cuts the
steel into close tolerance, specific shapes. Shape correction improves the
physical appearance of the steel by removing edge wave, center buckle, crown
or camber from the steel by a process known as elongation, which includes
equalizing and tension leveling, and which achieves shape correction by
stretching the fibers of the steel.
The Company also manufactures compressed air cylinders for tractor-trailer air
brake systems, for air compressors, and portable compressed air vessels to
inflate objects, such as automobile tires, which are sold to mass
merchandisers and automotive specialty stores. The air cylinders are
fabricated from components processed internally, including the stamped heads,
legs and handles and the blanked wraps. The components are welded, painted,
tested and packaged as required.
REVIEW OF OPERATIONS
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The Company conducts its steel processing business in three operating
divisions - the Flat Rolled Products Division, the Rolling Mill Division, and
the Custom Products Division. Each division is involved in the processing,
use and/or sale of flat rolled carbon steel. The Company segregates its
operations on this product orientation basis to concentrate attention on its
commercial organization. The Company is intent on maintaining and fine tuning
an efficient, responsive and low cost operating structure in order to service
its diverse customer base.
Flat Rolled Products Division:
-----------------------------
The Flat Rolled Products Division includes all of the Company's operations in
Catoosa, Oklahoma; Chattanooga, Tennessee; Gallatin County, Kentucky; Madison,
Illinois; and Pasadena, Texas; as well as the hot rolled steel cut-to-length
and slitting operation at the Company's Blytheville, Arkansas location. The
Company operates cut-to-length equipment at all of these locations. The
Blytheville, Chattanooga, and Madison facilities also operate coil slitting
equipment.
Blytheville, Arkansas:
The Company's Blytheville, Arkansas facility, which has access to the
Mississippi River, is located adjacent to Nucor Steel's Hickman, Arkansas flat
rolled mini-mill. The Company began operation at this location in October 1992
with a new, heavy gauge, cut-to-length line. The Company followed this
investment in June 1993 with the opening of a new, heavy gauge, slitting line.
These two processing lines comprise the nucleus of the Flat Rolled Products
Division's operation in Blytheville, which services customers such as service
centers, pipe and tube manufacturers, and metal building companies.
Chattanooga, Tennessee:
Located in an industrial park on the Tennessee River, the Chattanooga,
Tennessee facility opened in July 1994 with a heavy gauge, cut-to-length line.
In April 1995 a new slitting line was added, and in June 1995 a new cut-to-
length line was installed, both of which were designed to process lighter
gauge cold rolled and pickled and oiled steel. The Chattanooga facility
provides the Company access to markets in the southeastern United States,
servicing customers such as service centers, appliance and furniture
manufacturers, tube mills, and other end users of both hot rolled and cold
rolled steel.
Madison, Illinois:
Located in the St. Louis metropolitan area with access to the Mississippi
River, the Madison, Illinois facility commenced operations in 1983. The
facility operates a cut-to-length line, acquired early in calendar 1996, to
primarily process lighter gauge flat rolled steel products. The facility is
also equipped with a coil slitting line primarily used to process cold rolled
and pickled and oiled steel. During 1996, the Company expanded this location
by constructing inside rail access to better facilitate the handling of cold
rolled products. The facility provides processed steel products to a diverse
group of customers, including metal fabricators, service centers and tube,
consumer durable and transportation equipment manufacturers.
Catoosa, Oklahoma:
Located at the Port of Catoosa, near Tulsa, Oklahoma, the Catoosa facility is
situated on the western edge of the inland waterway system on the Arkansas
River. This facility opened in 1978 and is equipped with a heavy gauge, cut-
to-length line that was purchased new in 1985. An early 1996 expansion
included the addition of a cut-to-length line to process cold rolled and
pickled and oiled steel, as well as a doubling of the physical plant to allow
for inside coil storage. The facility processes coils into sheets and plates,
primarily for heavy equipment manufacturers, manufacturers of tanks for
petroleum products and for wet and dry bulk storage, construction and metal
building companies.
Pasadena, Texas:
Located on a 20-acre tract of land on the shipping channel in Pasadena, Texas,
near Houston, this facility commenced operations in 1982. The facility is
equipped with two heavy gauge cut-to-length lines. One of these lines was
acquired in December 1994 and the second was added during 1998 to replace a
lower capacity line that had been in place since 1982. The facility operates
its own unloading facility and is capable of directly discharging barges. The
physical plant was also expanded in 1996, with the addition of a new climate
controlled warehouse used to store cold rolled steel master coils prior to
final sale in this facility's market territory. The facility produces
processed hot rolled sheets and plates for manufacturers of heavy farm and
construction equipment, storage tanks, metal building companies, and various
energy related concerns and distributes unprocessed master coils of cold
rolled steel, primarily to manufacturers of metal drums.
Gallatin County, Kentucky:
This facility is situated in Gallatin County, Kentucky, on a 20-acre tract of
land immediately adjacent to the Gallatin Steel mill, and with access to the
Ohio River. The Company opened this location in May 1996 with a new, heavy
gauge, sheet and plate cut-to-length line. The facility sells processed
sheets and plates to manufacturers servicing the transportation and heavy
machinery industries.
Berkeley County, South Carolina:
The Company sold this Charleston-area facility, which operated a heavy gauge
cut-to-length line and a light gauge slitting line, on December 15, 1999. The
following factors contributed to the Company's decision to dispose of this
facility. This location was the Company's only steel processing facility not
located on the inland waterway system. As such, it was the least integrated
of the Company's locations with the rest of its operations. This relative
isolation to the remainder of the Company's facilities contributed to
difficulties in competitively supplying this location from many of the
Company's domestic suppliers and from import sources. All of the Company's
other steel processing facilities have their import supply delivered into the
United States at ports along the Gulf of Mexico (i.e., either New Orleans,
Louisiana or Houston, Texas). Further, the Company desired to improve its
liquidity and reduce debt obligations, which were additional factors in the
decision to sell this facility.
Rolling Mill Division:
---------------------
This Division is primarily focused on the production and processing of cold
rolled master coils from hot rolled steel coil substrate acquired from the
Company's various vendors. The Company is also actively pursuing the
conversion of as much as one-half of its cold rolling capacity to toll
conversion business on an ongoing basis. The Division intends to emphasize
the use of its incremental available capacity to produce full hard cold rolled
coils, which serve as feedstock for producers of galvanized steel.
Emphasizing the sale of its cold reducing services on a toll conversion basis
should reduce the working capital needs of the Rolling Mill Division, simplify
material procurement and result in more consistent financial performance.
Mill and pickling operations:
The Rolling Mill Division includes the Company's cold rolling, tempering and
pickling operations located in Blytheville, Arkansas. The Rolling Mill
Division produces: (1) pickled and oiled coils, (2) full hard cold rolled
coils, (3) fully annealed and tempered cold rolled coils, and (4) hot rolled
tempered coils. Both cold rolling and tempering are processes whereby the
thickness of the steel coil is reduced by passing it through pressure
reduction rolls. Pickling removes mill scale from hot rolled steel by
subjecting the coils to hydrochloric acid cleansing. The Rolling Mill
Division sells its master coil production to both end users or to sister
divisions of the Company, where such coils may be converted into cut-to-length
sheets or blanks, slit coils or stamped and fabricated parts prior to final
sale.
The Rolling Mill Division operates a four-high reversing mill, annealing
furnaces, and a temper mill for processing of cold rolled coils up to 60
inches wide. This division has the capacity to produce up to 360,000 tons of
fully annealed cold rolled master coils on an annual basis, with additional
capacity available to produce full hard cold rolled coils. Great emphasis has
been placed on enhancing the quality of cold rolled products produced since
the cold rolling mill was opened in 1995. Shape meter rolls and a new
filtration system were added to the reversing mill and an electrostatic oiler
was added to the temper mill during 1997 and 1998.
The Company has operated a push-pull coil pickling line in Blytheville since
June 1994. A new coil pickling line with greater agitation and tension
recoiling capabilities became operational during 1998 at this division's
Blytheville location. The new pickling line provides a higher quality
feedstock for use on the reversing mill or for sale to customers. With this
addition, the Rolling Mill Division has the capacity to pickle and oil
approximately 900,000 tons of steel annually.
Since January 30, 1997, the Division has also operated a two-high hot rolled
steel tempering mill, and is looking to expand the use of this value-added
processing service through sale to end users or via tolling arrangements.
Custom blanking and slitting:
As of January 1, 2000, the custom blanking and slitting business, formerly a
part of the Custom Products Division, was reassigned to the Rolling Mill
Division. As a result, the Rolling Mill Division now operates the light
gauge, close tolerance slitting and blanking equipment that the Company
acquired new in 1996. This equipment is designed to process galvanized, cold
rolled and pickled and oiled steel, all of which are readily available from
the Company or nearby from Nucor's new galvanizing mill in Hickman, Arkansas.
Custom Products Division:
------------------------
The Company's cylinder manufacturing and assembly operation located in
Strafford, Missouri comprises the Custom Products Division. As of January 1,
2000, the Company's custom blanking and slitting business located in
Blytheville, Arkansas, formerly a part of the Custom Products Division, was
reassigned to the Rolling Mill Division.
Strafford Facility:
Located in Strafford, Missouri, this facility is home for the Company's
cylinder operation, which produces approximately 1.0 million units annually.
These products include air cylinders used in tractor-trailer brake systems and
portable compressed air vessels used to fill inflatable objects such as
automobile tires, and for construction compressors. The air cylinders are
fabricated from pickled steel components, including stamped heads, legs,
handles and blanked wraps, which have been processed at the Division's
Blytheville location prior to delivery to Strafford for final assembly,
welding and painting. The Company installed an electrostatic, powder coating
paint system at this facility during fiscal 1996, resulting in higher product
quality and lower costs, as well as opening new markets for the Company.
Blytheville, Arkansas:
During the 1999 second quarter, the Company elected to dispose of its third-
party metal stamping business. The Company's stamping operation had not
performed up to management's expectations since its relocation to Blytheville
from Springfield, Missouri in 1996. The Company incurred operating losses of
approximately $1.0 million in its stamping operations during 1999. Certain
equipment related to this operation was sold during the third quarter of 1999
for approximately $.5 million. However, the Custom Products Division
continues to utilize certain stamping equipment that produces components for
its air cylinder operations.
QUALITY CONTROL
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The procurement of high quality steel from suppliers on a consistent basis is
critical to the Company's business. Historically, about 2% of raw materials
have failed to conform to order specifications, with most of the nonconforming
raw material being diverted to less critical applications. The Company has
instituted quality control measures to attempt to assure that the quality of
purchased raw material will allow the Company to meet the specifications of
its customers and to reduce the costs and inefficiencies of production
interruptions. Physical and chemical analyses are performed on selected raw
materials to verify that their mechanical and dimensional properties,
cleanliness and surface characteristics meet the Company's requirements. The
Company believes that maintenance of high standards for accepting raw
materials ultimately results in reduced return rates from its customers.
Similar analyses are conducted on processed steel on a selected basis before
delivery to the customer. The Company also uses statistical process control
techniques to monitor its slitting process so management can document to
customers that required tolerances have been continuously maintained
throughout processing. The Company also maintains a test laboratory at its
Blytheville facility to provide timely and economical testing and quality
certifications.
Certain of the Company's processing locations are also ISO certified. The
Chattanooga, Tennessee and Madison, Illinois flat rolled products facilities
are ISO 9002 certified, as is the Strafford, Missouri air cylinder
manufacturing operation of the Custom Products Division. The Rolling Mill
Division's cold rolling operation is presently in the pre-assessment phase,
with ISO certification expected sometime during the summer of 2000. The
custom blanking and slitting facility located in Blytheville, Arkansas has
been recommended for ISO certification, and the Company expects to receive
this certification and approval sometime during the second quarter of 2000.
SUPPLIERS
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The Company purchases steel coils for processing at regular intervals from a
number of primary steel producers including AK Steel Corporation, Gallatin
Steel, National Steel Corporation, Nucor Corporation, Trico, and various
foreign suppliers (generally through trading companies). The Company orders
steel to specified physical qualities and alloy content. By purchasing in
large quantities at consistent predetermined intervals, the Company attempts
to purchase its raw materials at the lowest competitive prices for the quality
purchased. The Company believes that it is not dependent on any one of its
suppliers for raw materials and that it has good relationships with its
suppliers.
MARKETING
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The Company's products and services are primarily sold by the Company's
network of inside and outside sales personnel. The Company generally produces
its processed steel products to specific customer orders rather than for
inventory. The Company generally does not enter into fixed-price sales
contracts with its steel processing customers with terms longer than three
months. Many of the Company's customers commit to purchase on a quarterly
basis with the customer notifying the Company of specific release dates, as
they require the processed products. Customers typically notify the Company of
release dates anywhere from a just-in-time basis up to approximately three
weeks before the release date. The Company is therefore required to carry
sufficient inventory of raw materials to meet the short lead-time and just-in-
time delivery requirements of its customers. Because the Company ships most
steel processing orders on short lead-times, the amount of backlog at any
point is not significant.
The Company is also actively pursuing the conversion of as much as one-half of
its cold rolling capacity to toll conversion business on an ongoing basis.
Servicing these customer relationships is the responsibility of Rolling Mill
Division management, with support from the sales staff of this division.
CUSTOMERS AND DISTRIBUTION
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Huntco sells its processed steel products to approximately 1,500 customers in
market areas reaching from the upper midwest, south to the Gulf of Mexico and
from the southeastern coastline, west to the Rocky Mountains. The Company's
customer base is diverse and includes service centers and metal fabricators as
well as various storage tank, consumer durable, energy and transportation
related manufacturers. The Company did not have any customers representing
more than 10% of net sales for 1999. Steel service centers and distributors,
which represent the Company's largest single customer group, accounted for
over one-third of the Company's net sales for 1999. The large geographic area
the Company services helps to minimize the adverse impact of regional economic
changes.
While the Company ships products throughout the United States, its customers
are primarily located in the midwestern and southern regions of the United
States. Most of its steel processing customers are located within a 250-mile
radius of each of the Company's steel processing plants, facilitating an
efficient delivery system capable of handling a high frequency of short lead-
time orders. The Company transports a major portion of its products directly
to customers via independent trucking firms, supplemented by rail and barge.
The Company believes that its long-term relationships with many of its
customers are a significant factor in its business and that pricing and
service capabilities are the most critical factors in maintaining these
relationships.
COMPETITION
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Intermediate steel processing is a highly competitive industry in which
companies compete based on price, service and their ability to process and
deliver steel products based on short lead-time customer orders. The Company
competes primarily with other intermediate steel processors. Geographic
proximity to a customer is a significant factor. Specific, reliable data
concerning the size of the market in products that the Company processes, by
region, generally is not available. The Company believes that it is a
significant competitor in all of the market areas it serves, and that it is
one of the larger companies specializing in the processing of flat rolled
carbon steel. The Company's largest competitors currently include Cargill,
Inc., Feralloy Corp., Heidtman Steel Products Inc., and Metals USA, Inc. The
primary competitors of the Company's Cold Mill are various foreign suppliers,
USX Corporation, Gulf States Steel, Worthington Industries and Nucor.
SEASONALITY
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Shipping volumes are lowest during the November and December holiday periods,
and also tend to be slow during mid-summer as many of the Company's customers
schedule plant shutdowns for vacations. These factors tend to result in lower
net sales and net income during these periods. Quarterly results can also be
affected, either negatively or positively, by changing steel prices. Reference
should be made to the topic "Impact of changing steel prices on the Company's
results of operations" located within the "Risk Factors-2000 Outlook" portion
of "Management's Discussion and Analysis of Financial Condition and Results of
Operations" found under Item 7 of this Form 10-K.
GOVERNMENTAL REGULATION
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The Company's processing centers and manufacturing facilities are subject to
many federal, state and local requirements relating to the protection of the
environment. The Company continually examines ways to reduce emissions and
waste and to effect cost savings relating to environmental compliance.
Management believes that it is in material compliance with all laws, does not
anticipate any material expense to meet environmental requirements and
generally believes that its processes and products do not present any unusual
environmental concerns. Expenditures incurred in connection with compliance
with federal, state and local environmental laws have not had, and are not
expected to have during the current calendar year, a material adverse effect
upon the capital expenditures, cash flows, earnings or competitive position of
the Company or any of its subsidiaries.
The Company's operations are also governed by laws and regulations relating to
workplace safety and worker health, principally the Occupational Safety and
Health Act and regulations thereunder which, among other requirements,
establish noise and dust standards. Management believes that it is in
material compliance with these laws and regulations and does not believe that
future compliance with such laws and regulations will have a material adverse
effect on its results of operations, cash flows, or financial condition.
EMPLOYEES
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As of December 31, 1999, the Company employed 604 people. None of the
Company's employees are covered by collective bargaining agreements. The
Company has never experienced a significant work stoppage and considers its
employee relations to be good.
ITEM 2. PROPERTIES
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Reference should be made to the "REVIEW OF OPERATIONS" information found
within ITEM 1 (which is incorporated into this ITEM 2 by reference) for a
further discussion of the Company's operating plant facilities. The following
sets forth certain additional information with respect to each of these
facilities:
<TABLE>
<CAPTION>
Square
Utilization Footage Owned or leased
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FLAT ROLLED PRODUCTS DIVISION:
Blytheville:
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<S> <C> <C>
Cutting-to-length 80,000 Capital lease ($100 purchase option).
Slitting Owned equipment.
Tension leveling, shape
correction or elongation
Gauge verification and testing
Coil storage
Chattanooga:
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Cutting-to-length 126,000 Owned.
Slitting
Tension leveling
Coil storage
Gauge verification and testing
Gallatin County:
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Cutting-to-length 65,000 Owned.
Tension leveling
Coil storage
Gauge verification and testing
Pasadena:
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Cutting-to-length 45,000 Owned.
Gauge verification and testing
Humidity controlled coil storage 21,000 Owned.
Barge unloading equipment
Madison:
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Cutting-to-length 128,000 Owned.
Slitting
Tension leveling
Coil storage
Gauge verification and testing
Catoosa:
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Cutting-to-length 80,000 Owned improvements on leased land.
Tension leveling
Coil storage
Gauge verification and testing
ROLLING MILL DIVISION:
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Blytheville:
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Push-pull coil pickling 30,000 Owned improvements on capital
Coil warehouse and storage 32,000 lease of land.
Second coil pickling line 96,000 Leased equipment with fair value
purchase option; other owned
improvements on capital lease of
land.
Cold rolling, annealing 194,000 Lease with $100 purchase option (1).
and tempering Certain annealing furnaces leased
with fair value purchase options.
Heavy gauge tempering 130,000 Leased facility and equipment, with
Gauge verification and testing certain fair value purchase options.
Cutting-to-length, blanking 152,000 Leased facility with $100 purchase
and slitting option (1).
CUSTOM PRODUCTS DIVISION:
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Strafford:
---------
Gauge verification and testing 100,000 Owned.
Cylinder Assembly
Welding
Painting
Blytheville:
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Stamping for cylinder assembly (located within 152,000 square foot building
listed above under the Rolling Mill Division)
(1) These leases represent arrangements under which title is held by the municipality
involved for tax abatement purposes and are considered capital leases, whereby the
underlying lease obligation of the operating subsidiary (i.e., Huntco Steel) is owed
to the Company's Huntco Nevada, Inc. finance subsidiary. As such, these amounts are
eliminated in consolidation, and such property is reflected as owned property on the
Company's consolidated balance sheet.
</TABLE>
The above facilities are well maintained and in good operating condition.
With respect to capacity and utilization, most of the Company's facilities
operate an average of approximately 2 shifts per day on a five-day per week
basis. However, the Rolling Mill Division's cold rolling, annealing and light
gauge tempering equipment is expected to operate on a continuous seven-day per
week basis later in calendar year 2000.
ITEM 3. LEGAL PROCEEDINGS
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From time to time, the Company is named as a defendant in legal actions
arising out of the normal course of business. The Company is not currently a
party to any pending legal proceedings other than routine litigation
incidental to the business. Management believes the resolution of such
matters will not have a material adverse effect on the Company's results of
operations, cash flows or financial condition. The Company maintains
liability insurance against risks arising out of the normal course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to the security holders of the Company during the
three months ended December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
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Name Age Office
------------ --- -------------------------------------------------
B. D. Hunter 70 Chairman of the Board and Chief Executive Officer
Robert J. Marischen 47 Vice Chairman & President
Anthony J. Verkruyse 41 Vice President, Chief Financial Officer,
Secretary and Treasurer
B. D. Hunter is the Chairman of the Board and Chief Executive Officer of the
Company, a position he has held since May 1993.
Robert J. Marischen has held the office of President of the Company since
January 1999, and has been Vice Chairman of the Board since May 1993. From May
1993 until October 1999, Mr. Marischen also served as the Company's Chief
Financial Officer.
Anthony J. Verkruyse has been Chief Financial Officer of the Company since
October 1999. Mr. Verkruyse continues to serve as Vice President, Secretary
and Treasurer of the Company, positions he has held since May 1993.
The individuals identified above as executive officers of the Company have
been appointed to serve as such until their respective successors are duly
elected and have qualified, or until their earlier death, resignation or
removal.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Class A common stock of the Company is traded on the New York Stock Exchange,
under the symbol "HCO". As of December 31, 1999, there were approximately 71
holders of record of the Company's Class A common stock.
The only other class of common equity authorized for issuance under the
Company's Restated Articles of Incorporation (the "Articles") is Class B
common stock (the "Class B Shares"). All of the Company's outstanding
3,650,000 Class B Shares are held by Huntco Acquisitions Holding, Inc. and
Huntco Farms, Inc., corporations controlled by Mr. B. D. Hunter, the Company's
Chairman of the Board and Chief Executive Officer.
There is no established public trading market for the Class B Shares. The
Articles provide that the Class B Shares are not transferable except: (i)
upon conversion into Class A Shares; (ii) to the Company for cancellation; or
(iii) to any "Hunter Affiliate" or any member of the "Hunter Group", as those
terms are defined in the Articles.
The table below shows the Company's quarterly high and low Class A common
stock sales prices as reported by the New York Stock Exchange, and quarterly
per share dividend amounts paid on the Class A common stock and the Class B
common stock for the periods presented.
<TABLE>
<CAPTION>
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
Quarter ended March 31, 1998 16.6250 14.3125 -
Quarter ended June 30, 1998 14.5625 11.8125 .035
Quarter ended September 30, 1998 11.7500 6.7500 .035
Quarter ended December 31, 1998 6.8750 3.2500 .035
Quarter ended March 31, 1999 6.0000 2.5000 .035
Quarter ended June 30, 1999 4.4375 2.4375 -
Quarter ended September 30, 1999 4.4375 2.7500 -
Quarter ended December 31, 1999 3.5000 2.0625 -
</TABLE>
Future common dividends may or may not be declared, at the discretion of the
Board of Directors, depending on restrictions imposed by the Company's
revolving credit agreement, industry conditions, evaluation of the Company's
performance and current liquidity situation. The Company's new revolving
credit agreement executed on April 15, 1999 contains restrictions on the
Company's ability to declare and pay common dividends. Pursuant to the terms
of such revolving credit agreement, the Company was not in a position to
declare and pay common dividends during the second, third or fourth quarter of
1999.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA (in thousands, except per share amounts):
Eight months
Year ended ended Year Ended April 30,
December 31, December 31, ----------------------------
1999 1998 1997 (1) 1997 1996 1995
------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales $349,947 $391,181 $246,324 $326,563 $264,087 $197,195
Cost of sales 332,215 369,864 227,871 294,455 245,863 171,521
------- ------- ------- ------- ------- -------
Gross profit 17,732 21,317 18,453 32,108 18,224 25,674
Selling, general and
administrative expenses 19,062 19,939 11,757 15,383 13,147 9,638
Non-recurring loss on
sale of plant facility 1,720(2) - - - - -
------- ------- ------- ------- ------- -------
Income (loss) from operations (3,050) 1,378 6,696 16,725 5,077 16,036
Interest, net (10,140) (8,113) (5,194) (6,239) (3,268) 5
------- ------- ------- ------- ------- -------
Income (loss)
before income taxes (13,190) (6,735) 1,502 10,486 1,809 16,041
Provision (benefit)
for income taxes (4,687) (2,444) 486 3,997 701 6,037
------- ------- ------- ------- ------- -------
Net income (loss) before
extraordinary item (8,503) (4,291) 1,016 6,489 1,108 10,004
Extraordinary item, net of tax (2,644)(3) - - - - -
------- ------- ------- ------- ------- -------
Net income (loss) (11,147) (4,291) 1,016 6,489 1,108 10,004
Preferred dividends 200 200 133 50 - -
------- ------- ------- ------- ------- -------
Net income (loss) available
for common shareholders $(11,347) $(4,491) $ 883 $ 6,439 $ 1,108 $10,004
======== ======= ======= ======= ======= =======
Earnings (loss) per common share
(basic and diluted, except as noted):
Net loss before extraordinary item $ (.97) $(.50) $ .10 $ .72 $ .12 $1.12(4)
Extraordinary item, net of tax (.30)(3) - - - - -
------ ----- ----- ----- ----- -----
Net earnings (loss) per common share $(1.27) $(.50) $ .10 $ .72 $ .12 $1.12(4)
====== ===== ===== ===== ===== =====
Weighted average common shares outstanding:
Basic 8,942 8,942 8,942 8,942 8,942 8,940
Diluted 8,942 8,942 8,951 8,942 8,948 9,048
Common cash dividends per share $ .04 $ .11 $ .11 $ .14 $ .12 $ .10
(1) On October 23, 1997, the Company filed a Form 8-K announcing that it had determined to change its
fiscal year end from April 30 to a calendar year. As a result, the Company reported an eight-month
transition period ended December 31, 1997, in order to change to a calendar year end.
(2) On December 15, 1999, the Company sold its South Carolina steel processing facility and related
inventory, resulting in a non-recurring loss on sale of plant facility.
(3) Incurred in connection with the early retirement of the Company's previously outstanding long term
debt agreements on April 15, 1999.
(4) $1.11 diluted earnings per common share for the year ended April 30, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA (in thousands):
December 31, April 30,
--------------------------- ------------------------
1999 1998 1997 1997 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Working capital $ 76,277 $ 71,028 $ 84,182 $ 79,502 $ 62,305 $ 84,046
Total assets 256,734 293,231 285,265 307,318 222,437 209,898
Short-term debt
and current maturities 248 7,352 209 189 189 371
Long-term debt
(net of current portion) 105,470 102,555 110,730 100,877 73,066 68,505
Preferred stock 4,500 4,500 4,500 4,500 - -
Common shareholders' equity 99,414 111,074 116,505 116,561 111,366 111,252
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
2000 OUTLOOK:
- ------------
Early in the 2000 fiscal year the Company secured several commitments for toll
conversion at its cold rolling mill, and is negotiating and conducting trials
for additional commitments. The Company expects these commitments to commence
around the beginning of the second quarter, ramping up to a level of
approximately 15,000 tons per month by the middle of 2000. Included is an
anticipated 10,000 tons per month of full hard cold rolled steel, which
product utilizes previously unsold capacity on the Company's coil pickling
lines and on the cold rolling mill itself. This incremental business is
expected to increase the Company's cold rolled product sales to over 30,000
tons per month. The Company's objective is to convert up to one-half of its
cold rolling capacity to toll conversion business on an ongoing basis. This
is expected to reduce working capital needs for the Rolling Mill Division,
simplify material procurement and to result in more consistent financial
performance. The Company believes that its recent successes in this area
provide evidence of the significant improvements made in product quality and
service capabilities in its cold rolling operation.
The addition of a significant complement of full hard cold rolled business,
which utilizes previously unsold capacity, should further lower the Company's
conversion costs due to higher absorption of fixed costs and should increase
the Company's ability to compete at more acceptable levels of profitability
within its cold rolling operation. This change in the Company's sales mix
along with generally improving market conditions cause the Company to believe
that its Rolling Mill Division could achieve pretax profitability by the end
of the 2000 first quarter, with continuing improvement expected over the
balance of 2000.
The largest component of the Company's processing business, the Flat Rolled
Products Division, was solidly profitable during 1999, especially during the
second half of the year, and is expected to be so throughout 2000. The
Company's cylinder operations, which are included in its Custom Products
Division, achieved record sales and earnings in 1999, and are expected to
generate consistent earnings during 2000.
RISK FACTORS - 2000 OUTLOOK:
- ---------------------------
This Annual Report contains certain statements that are forward-looking and
involve risks and uncertainties. Words such as "expects," "anticipates,"
"projects," "estimates," "plans," "believes," and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are based on current expectations and projections concerning
the Company's plans for 2000 and about the steel processing industry in
general, as well as assumptions made by Company management and are not
guarantees of future performance. Therefore, actual events, outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. Achievement of these forward-looking results is
dependent upon numerous factors, circumstances and contingencies, certain of
which are beyond the control of the Company. Certain of the more important
factors that the Company believes could cause actual results to differ
materially from the forward-looking data presented include:
Changing steel prices:
Changing steel prices can cause the Company's results of operations and
financial position to fluctuate significantly. The Company's principal raw
material is flat rolled carbon steel coils. The steel industry is highly
cyclical in nature and prices for the Company's raw materials are influenced
by numerous factors beyond the control of the Company, including general
economic conditions, competition, labor costs, import duties and other trade
restrictions and currency exchange rates.
To respond promptly to customer orders for its products, the Company maintains
a substantial inventory of steel coils in stock and on order. The Company's
commitments for steel purchases are generally at prevailing market prices in
effect at the time the Company places its orders. The Company generally does
not enter into long-term, fixed-price steel purchase contracts, and does not
normally enter into fixed-price sales contracts with its steel processing
customers with terms longer than three months. With respect to the cold
rolled toll conversion business being pursued by the Company, these processing
commitments may be for as long as one year. However, the Company is not
exposed to inventory price fluctuations in such instances as it does not take
title to the hot rolled steel coil feedstock utilized in such toll conversion
business.
As steel producers change the effective selling price for the Company's raw
materials, competitive conditions may influence the amount of the change, if
any, in the Company's selling prices to its customers. Changing steel prices
could therefore affect the Company's net sales and results of operations,
particularly as it liquidates its inventory position. The Company believes
that a major portion of the effect of a steel price change on results of
operations is likely to be experienced within three months of the effective
date of the change. When a series of steel price changes occurs, or the
Company's inventories are at greater than normal levels at the time of such
steel price changes, the period in which operating results may be affected can
extend beyond a three-month period of time. Accordingly, the Company believes
that comparisons of its quarterly results of operations are not necessarily
meaningful in periods of changing steel prices.
Steel prices charged by the primary producers of hot rolled steel coils, both
domestic and foreign, have been extremely volatile over the previous three
years. No assurance can be given that volatility in steel prices will not
again negatively impact the Company's results of operations.
Continued internal growth:
The Company may not succeed in further developing its pickling, cold rolling,
and hot roll tempering operations in Blytheville, Arkansas. Successful
development of these business units requires the Company to develop new
customers, in new market territories, and absolute assurance cannot be given
that this will occur on the timetable that the Company expects, if ever. The
Company is attempting to convert a significant portion of its cold rolling
capacity to toll conversion as opposed to direct steel sales. There is no
guarantee that the Company will be successful in these attempts or that the
toll conversion business will be more profitable or sustainable over the long-
term than direct steel sales.
Competition:
The principal markets served by the Company are highly competitive. The
Company has different competitors within each of its product lines.
Competition is based principally on price, service, production and delivery
scheduling.
Cyclical demand for Company products:
Many of the Company's steel processing products are sold to industries that
experience significant fluctuations in demand based on economic conditions,
energy prices or other matters beyond the control of the Company. Over the
past five years the Company has either increased or substantially maintained
the amount of steel it has sold and processed. However, no assurance can be
given that the Company will be able to increase or maintain its level of tons
shipped, especially in periods of economic stagnation or downturn.
Liquidity:
The Company's liquidity can be significantly impacted by domestic and global
competitive conditions surrounding raw material inventory supply and sourcing
issues for steel purchases. The Company's investment in raw material
inventories is substantially lower when it is able to obtain sufficient
quantities of hot rolled steel coils at competitive prices from domestic
sources. Greater lead times are typically required to place orders and
receive shipment from foreign concerns than from the Company's domestic
suppliers. However, the resulting need to invest greater amounts of the
Company's liquidity into raw material inventories is oftentimes necessary when
such import sources offer similar product at more competitive prices than are
available domestically. During such times of higher import requirements, the
Company is faced with committing a greater amount of its liquidity to its
inventory.
Interest rates:
Borrowings under the Company's revolving credit agreement are at interest
rates that float generally with the prime rate or with LIBOR. The level of
interest expense incurred by the Company under the revolving credit agreement
will therefore fluctuate in line with changes in these rates of interest and
based upon outstanding borrowings under the revolving credit agreement.
RESULTS OF OPERATIONS:
- ---------------------
The Company reported an eight-month transition period ending December 31,
1997, in order to change from an April 30 to a calendar year end. The
following table sets forth comparative consolidated statements of operations
for the years ended December 31, 1999 ("1999"), 1998 ("1998") and unaudited
1997 ("1997"), as well as for the eight month transition period ended December
31, 1997 ("TP97" or "transition period") and the corresponding unaudited
period in 1996 ("TP96"):
<TABLE>
<CAPTION>
Consolidated Statements of Operations for the
---------------------------------------------
Eight months
Year ended December 31, ended December 31,
1999 1998 1997 1997 1996
(audited) (audited) (unaudited) (audited) (unaudited)
------- ------- --------- ------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $349,947 $391,181 $366,553 $246,324 $206,334
Cost of sales 332,215 369,864 337,574 227,871 184,751
------- ------- ------- ------- -------
Gross profit 17,732 21,317 28,979 18,453 21,583
Selling, general and
administrative expenses 19,062 19,939 17,060 11,757 10,082
Non-recurring loss on
sale of plant facility 1,720 - - - -
------- ------- ------- ------- -------
Income (loss) from operations (3,050) 1,378 11,919 6,696 11,501
Interest, net (10,140) (8,113) (7,550) (5,194) (3,883)
------- ------- ------- ------- -------
Income (loss) before income taxes (13,190) (6,735) 4,369 1,502 7,618
Provision (benefit)
for income taxes (4,687) (2,444) 1,579 486 2,904
------- ------- ------- ------- -------
Net income (loss) before
extraordinary item (8,503) (4,291) 2,790 1,016 4,714
Extraordinary item, net of tax (2,644) - - - -
------- ------- ------- ------- -------
Net income (loss) (11,147) (4,291) 2,790 1,016 4,714
Preferred dividends 200 200 183 133 -
------- ------- ------- ------- -------
Net income (loss) available
for common shareholders $(11,347) $(4,491) $ 2,607 $ 883 $ 4,714
======= ======= ======= ======= =======
Earnings (loss) per common share
(basic and diluted):
Net income (loss) before
extraordinary item $ (.97) $(.50) $ .29 $ .10 $ .53
Extraordinary item, net of tax (.30) - - - -
----- ----- ----- ----- -----
Net income (loss) per common
share (basic and diluted) $(1.27) $(.50) $ .29 $ .10 $ .53
===== ===== ===== ===== =====
</TABLE>
1999 COMPARED TO 1998:
Net sales for the year ended December 31, 1999 were $349.9 million, a decrease
of 10.5% in comparison to net sales of $391.2 million for the year ended
December 31, 1998. The Company's lower net sales are primarily the result of
declining selling prices. The effect of historically high imports of steel
products into the United States during late 1998 and early 1999 resulted in
significant declines in selling values realized by the Company and the steel
processing industry in general. The Company's average per ton selling values
declined 9.2% for 1999 in comparison to 1998, although steel pricing slowly
recovered after the first half of 1999.
Also reflected in the lower net sales for 1999 were reduced direct sales
volumes. Direct (i.e., non-tolling) sales volume measured in tons shipped
decreased 2.1% for 1999. The Company processed and shipped 1,203,972 and
1,208,255 tons of steel in 1999 and 1998, respectively. Approximately 23.9%
and 22.5% of the tons processed in 1999 and 1998, respectively, represented
customer-owned material processed on a per ton, fee basis. Processing
customer-owned material generally results in lower revenues per ton, but
higher gross profit expressed as a percentage of net sales, in comparison to
when the Company processes and sells its own steel inventory. The Company
sold 257,780 and 261,914 tons of cold rolled products in 1999 and 1998,
respectively.
Gross profit, expressed as a percentage of net sales, was 5.1% and 5.5% for
1999 and 1998, respectively. The gross profit margin percentages realized by
the Company steadily increased after bottoming out in the fourth quarter of
1998 and the first quarter of 1999, as steel pricing and sales and production
volumes slowly recovered from the depressed levels of late 1998 and early
1999. The lower year-over-year gross profit percentage reflects the
devastating impact that steel selling price declines had on the Company in
early 1999, especially in cold rolled steel product pricing and volumes.
Selling, general and administrative ("SG&A") expenses of $19.1 million for
1999 reflect a decrease of $0.8 million from the prior year. This decrease is
the result of management's efforts to streamline its administrative efforts
between 1998 and 1999. During 1999, the Company centralized certain of its
management and administrative functions at its corporate office towards this
end. SG&A expenses expressed as a percentage of net sales increased year over
year from 5.1% during 1998 to 5.4% during 1999, primarily reflecting the
decline in net sales noted above. Certain of the Company's SG&A expenses are
fixed and do not decline with a drop in selling values or volumes.
Income (loss) from operations was also negatively impacted during 1999 by
losses incurred during the first six months of 1999 related to the operation
of the Company's third-party metal stamping business conducted in Blytheville,
Arkansas, as well as the the fourth quarter non-recurring loss on the sale of
the Company's South Carolina steel processing facility. The Company's third-
party stamping operation had not performed up to management's expectations
since its relocation to Blytheville in 1996. The Company incurred operating
losses of $1.0 million in its stamping operations prior to the disposition of
related equipment in mid-1999. However, the Company continues to utilize
certain stamping equipment in the production of components for its air
cylinder operations. On December 15, 1999, the Company sold its South
Carolina facility and related inventory to Feralloy Corporation. The Company
recognized a non-recurring loss of $1.7 million, before income tax benefits,
on the sale of its South Carolina facility, which loss included certain
liabilities and contractual obligations incurred by the Company.
The Company recognized a $3.1 million loss from operations in 1999, which
compares to 1998's income from operations of $1.4 million. This decrease
reflects the factors discussed in the preceding paragraphs.
Net interest expense of $10.1 million was incurred during 1999, an increase of
$2.0 million over the prior year. This increase was the result of generally
higher 1999 borrowings to support higher working capital levels, especially
early in 1999, as well as lower capitalized interest during 1999 versus 1998,
as substantially all of the Company's capital projects have been placed into
service. The Company capitalized $1.2 million of interest costs to
construction in progress in 1998, versus none for 1999.
The effective income tax (benefit) rates experienced by the Company were
(35.5)% and (36.3)% for 1999 and 1998, respectively. These rates reflect the
impact of non-deductible expenses, such as goodwill amortization, as well as
the recognition of certain state income tax benefits during both years.
The Company incurred an extraordinary charge of $2.6 million, net of income
tax benefits of approximately $1.4 million related to the early retirement of
its primary long-term debt obligations on April 15, 1999. See LIQUIDITY AND
CAPITAL RESOURCES below for a further discussion of this matter.
During 1999 the Company incurred a net loss for common shareholders of $11.3
million, or $1.27 per share both basic and diluted, which compares to a 1998
net loss for common shareholders of $4.5 million, or $.50 per share both basic
and diluted. Included in the 1999 net loss is an extraordinary charge of $2.6
million ($.30 per share both basic and diluted) incurred during the Company's
second quarter in connection with the early retirement of the Company's
previously outstanding long term debt agreements. The 1999 net loss also
includes the non-recurring loss on the sale of the South Carolina facility of
$.12 per share (both basic and diluted), net of related tax benefits,
recognized by the Company during the fourth quarter of 1999. The remaining
changes reflect the factors discussed in the preceding paragraphs.
1998 (AUDITED) COMPARED TO 1997 (UNAUDITED):
Net sales for 1998 were $391.2 million, an increase of 6.7% over the prior
year's net sales of $366.6 million. The improvement in net sales is
attributable to increased levels of tons processed. The Company processed
1,208,255 tons of steel during 1998, an increase of 10.7% in comparison to
1997. A substantial portion of this tonnage increase occurred at the
Company's new South Carolina facility.
Direct (i.e., non-tolling) sales volume measured in tons shipped increased
12.1% for 1998 versus 1997, the vast majority of which increase occurred in
the first half of 1998. Tolling volume increased 6.1% year over year, but
declined sharply in the last half of 1998. Approximately 22.5% and 23.5% of
the tons processed in the years ended December 31, 1998 and 1997, represented
customer-owned material processed on a per ton, fee basis. In addition, the
Company sold 261,914 and 216,028 tons of cold rolled products during 1998 and
1997, which rate of increase also slowed considerably in the last half of
1998.
The volume slowdown during the second half of 1998 reflected lower shipping
volumes, primarily at the Company's Blytheville, Arkansas facility, where the
Company experienced a slow-down in its tolling volume, and lower sales levels
for processed hot rolled steel products and cold rolled master coil sales.
Tons shipped from the Blytheville facility can represent up to 50% of the
Company's total shipments. The reduced level of tolling volume at Blytheville
reflected a move to off-shore purchasing by certain of the Company's tolling
customers, who traditionally bought from the Nucor mill at Hickman, Arkansas
and used the Company's Blytheville facility for toll slitting and pickling,
and increased competition for toll pickle business.
Also negatively impacting volume levels and the Company's total net sales was
the rapid deterioration in steel prices. An environment of steel price
declines typically encourages delays in purchases by the Company's customers,
as they wait for prices to find their lowest levels before reentering the
market for needed supply. This was especially acute in the markets served by
the Company's cold rolling mill located at its Blytheville facility. Weighted
average per ton selling values declined 6.3% for 1998 versus 1997, with
softness in selling values continuing into early 1999.
Gross profit, expressed as a percentage of net sales, declined from 7.9% in
1997 to 5.5% for 1998, primarily reflecting lower steel prices throughout the
year and lower sales and production volumes during the second half of 1998,
especially at the Company's Blytheville facility.
With respect to the Company's Blytheville facility, lower production volume at
the cold rolling operation, combined with an extremely weak pricing
environment for cold rolled products, resulted in a pretax loss of
approximately $2.8 million from cold rolling operations in the 1998 fourth
quarter. The poor market fundamentals for cold rolled products at the end of
1998 was the result of high levels of foreign cold rolled steel available in
the Company's market territories at extremely depressed prices. Further, the
Company's metal stamping and custom slitting and blanking operations caused
pretax losses of approximately $2.5 million in the balance of the Company's
Blytheville operations in the 1998 fourth quarter due to low pricing and low
utilization of equipment.
In addition to the negative results incurred during the fourth quarter at its
Blytheville facility, the Company's Madison facility incurred a pretax loss of
approximately $.7 million during the 1998 fourth quarter relating to the sale
of one of the slitters operated at this plant and liquidation of related
inventory.
Selling, general and administrative ("SG&A") expenses of $19.9 million for
1998 reflected an increase of $2.9 million over the prior year. This increase
was attributable to the higher level of business activity conducted throughout
the Company. SG&A expenses expressed as a percentage of net sales also
increased year over year from 4.7% during 1997 to 5.1% during 1998. Staffing
of the Company's operations for anticipated higher business activity levels,
versus the lower selling value and reduced volume levels experienced in the
latter half of 1998 contributed to this percentage increase.
Income from operations was $1.4 million in 1998, a decrease of $10.5 million
from 1997's income from operations of $11.9 million. This decrease reflects
the factors discussed in the preceding paragraphs.
Net interest expense of $8.1 million was incurred during 1998, an increase of
$.6 million over the prior year. This increase was the result of generally
higher 1998 borrowings to support higher working capital levels, as well as
lower capitalized interest during 1998 versus 1997, as substantially all of
the Company's capital projects have been placed into service. The Company
capitalized $1.2 million of interest costs to construction in progress in 1998
versus $1.4 million for 1997.
The effective income tax (benefit) rates experienced by the Company were
(36.3)% and 36.1% for 1998 and 1997, respectively. These rates reflect the
impact of non-deductible expenses, such as goodwill amortization, as well as
the recognition of certain state income tax benefits during both years.
The Company incurred a net loss for common shareholders of $4.5 million, or
$(.50) per share both basic and diluted, for 1998. During 1997, the Company
generated net income available for common shareholders of $2.6 million, or
$.29 per share both basic and diluted. These decreases reflect the factors
discussed in the preceding paragraphs.
TRANSITION PERIOD -- EIGHT MONTHS ENDED DECEMBER 31, 1997 (AUDITED)
COMPARED TO EIGHT MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED):
Net sales for TP97 were $246.3 million, an increase of 19.4% over the TP96's
net sales of $206.3 million. The improvement in net sales was primarily
attributable to increased levels of tons processed. The Company processed
744,468 tons of steel during TP97, an increase of 23.3% in comparison to the
eight months ended December 31, 1996. A substantial portion of this tonnage
increase occurred at the Company's Blytheville facility (both processing and
cold rolled sales), and at its new South Carolina facility.
Approximately 24.5% of the tons processed during TP97 represented customer-
owned material processed on a per ton, fee basis. For the eight months ended
December 31, 1996, approximately 22.3% of the tons processed by the Company
represented customer-owned material.
Reflecting lower cost material available in the Company's markets, average per
ton selling values declined approximately 2.7% for TP97, as compared to TP96.
The Company's gross profit margins came under pressure late in TP96, and this
margin pressure extended into and throughout TP97. The narrowing of gross
profit margins was partially attributable to higher domestic prices incurred
by the Company for its primary raw material, hot rolled steel coils, as
significant quantities of lower priced imported material became available in
its market territories. Gross profit was also negatively impacted during TP97
due to production inefficiencies realized by the Company at its recently
relocated Blytheville stamping operation, as well as additional costs incurred
in conjunction with the ramp-up of the Company's newly expanded cold rolling
capacity. As a result of these gross margin pressures, gross profit expressed
as a percentage of net sales dropped to 7.5% for TP97, versus 10.5% for TP96.
SG&A expenses of $11.8 million for TP97 reflected an increase of $1.7 million
over TP96. However, the Company's SG&A expenses expressed as a percentage of
net sales remained relatively steady. During TP97, SG&A expenses expressed as
a percentage of net sales decreased only .1 percentage point from the 4.9% of
net sales figure realized for the eight months ended December 31, 1996. The
increase in SG&A expenses was attributable to the higher level of business
activity conducted throughout the Company, inclusive of the new Kentucky and
South Carolina facilities.
Income from operations was $6.7 million in TP97, a decrease of $4.8 million
from TP96's income from operations of $11.5 million. This decrease reflects
the factors discussed in the preceding paragraphs.
Net interest expense of $5.2 million was incurred during TP97, an increase of
$1.3 million over TP96. This increase was the result of higher transition
period borrowings on the Company's revolving credit facility to support higher
working capital levels, as well as lower amounts of capitalized interest. The
Company capitalized $.8 million of interest costs to construction in progress
during TP97, versus $.9 million for the eight months ended December 31, 1996.
The effective income tax rate experienced by the Company was 32.4% during
TP97, which is lower than the 38.1% rate recognized by the Company during
TP96, due to certain state income tax benefits recorded by the Company during
TP97.
Net income available for common shareholders for TP97 was $.9 million, or $.10
per share, which amounts decreased from net income available for common
shareholders for the eight months ended December 31, 1996 of $4.7 million, or
$.53 per share. These decreases reflect the factors discussed in the
preceding paragraphs, as well as the accrual of preferred dividends of $.1
million during TP97, related to preferred stock issued subsequent to the end
of TP96.
FISCAL YEAR ENDED APRIL 30, 1997 ("FY97") COMPARED TO FISCAL YEAR ENDED
APRIL 30, 1996 ("FY96"):
Net sales for FY97 were $326.6 million, an increase of 23.7% over the prior
year's net sales of $264.1 million. The improvement in net sales was
attributable to increased levels of tons processed. The Company processed a
record 941,545 tons of steel in FY97, an increase of 22.0% in comparison to
FY96. A substantial portion of this tonnage increase related to the sale of
cold rolled products, which sales volume increased 98.4% over the prior year
to 181,313 cold rolled tons for FY97. This increase was somewhat offset by
lower sales prices, as average per ton selling values declined approximately
0.7% when comparing FY97 to FY96.
Approximately 22.2% of the tons processed during FY97 represented customer-
owned material processed on a per ton, fee basis, versus approximately 23.9%
during FY96.
The Company's gross profit margins came under pressure late in the second
quarter of FY97, and this margin pressure extended through the balance of the
fiscal year. The narrowing of gross profit margins during the second half of
FY97 was primarily due to higher domestic prices incurred by the Company for
its primary raw material, hot rolled steel coils, as significant quantities of
lower priced imported material became available in its market territories.
Gross profit margins were negatively impacted during FY97 due to costs
stemming from the start-up of new plants, primarily the relocated Blytheville
stamping operation and the new Kentucky and South Carolina facilities. In
addition, shipments declined during the Company's third quarter of FY97 as
Coil-Tec, Inc. liquidated a substantial amount of hot-rolled steel inventory
in the Company's market territories prior to the sale of certain of its
operating assets to the Company on January 30, 1997. This volume decline
served to reduce the absorption of fixed manufacturing costs during the third
quarter of FY97, contributing to lower gross profit margins realized by the
Company.
Despite these gross margin pressures, gross profit expressed as a percentage
of net sales increased to 9.8% for FY97, versus 6.9% for FY96. However, the
improvement in the Company's gross profit percentage was attributable to a
very low gross profit percentage in FY96 caused primarily by declining steel
prices and start-up expenses related to the Company's cold rolling mill.
SG&A expenses of $15.4 million for FY97 reflect an increase of $2.2 million
over the prior year. However, SG&A expenses declined as a percentage of net
sales from 5.0% during FY96 to 4.7% of net sales during FY97. The increase in
SG&A expenses was attributable to the higher level of business activity
conducted throughout the Company, inclusive of its new facilities.
Income from operations was $16.7 million in FY97, an increase of $11.6 million
over FY96's income from operations of $5.1 million. This increase reflects
the factors discussed in the preceding paragraphs.
Net interest expense of $6.2 million was incurred during FY97, an increase of
$2.9 million over the prior year. This increase was the result of higher FY97
borrowings on the Company's revolving credit facility in order to support
higher working capital levels, as well as lower capitalized interest during
FY97 versus FY96, as the Company's largest capital projects (e.g., the cold
rolling operation) were placed into service during FY96. As a result, the
Company capitalized $1.2 million of interest costs to construction in progress
in FY97, versus $2.1 million for FY96.
The effective income tax rate experienced by the Company was 38.1% during
FY97, which compared to a rate of 38.8% during the prior year. The decrease
in the effective rate reflects the impact of non-deductible expenses, such as
goodwill amortization, which have a lesser percentage impact upon the
Company's effective income tax rate at higher levels of taxable income.
Net income available for common shareholders for FY97 was $6.4 million, or
$.72 per share, which amounts increased over net income available for common
shareholders for FY96 of $1.1 million, or $.12 per share. These increases
reflect the factors discussed in the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Investment in steel coil inventories and the associated payment terms offered
by vendors materially influence the Company's liquidity. Inventory levels can
be heavily influenced by the source of the Company's raw material supply. Use
of imported steel typically requires the Company to maintain higher levels of
inventory. Receipt of imported steel is normally by large ocean-going vessel,
with longer lead times required and less predictable delivery schedules for
such bulk import orders, as compared to the procurement process faced when
purchasing steel coils from domestic producing mills. In addition, the timing
of receipt of imported steel coils can significantly impact the balance of the
Company's inventories on any given day.
It is the Company's experience that steel coil price offerings are based
primarily on the level of supplier backlog. A supplier's offered price can be
significantly influenced by outside economic pressures, such as those faced by
the economic slowdown in the Far East during 1998. During the latter half of
1998, these external pressures resulted in greater steel offerings to
purchasers in the United States; including the Company, its competitors, and
to a lesser extent certain of its steel service center customers. Late in
1998, steel imports in the United States surged in the wake of the Asian
economic crisis. In January 1999, the U.S. Commerce Department found evidence
that Japan, Russia, and Brazil illegally dumped hot rolled carbon steel into
the U.S. market at prices dramatically below production costs. These trade
cases demonstrate that flat rolled steel coils became increasingly available
in the Company's market territories, much of it being offered at substantial
discounts to similar product offered by the Company's domestic supply base.
In an effort to stay competitive from a raw material pricing perspective,
during 1998 the Company shifted a major portion of its steel purchases to
imported coils. Due to the use of imported coils and the resultant increase
in inventory, the Company received extended payment terms, primarily from its
import vendors, and elected to forego quick pay discounts on its domestic
inventory purchases. As a result, the Company's investment in inventories and
balance of accounts payable increased in the latter half of 1998 and into the
first quarter of 1999. As of December 31, 1998, the Company also held
approximately $25.9 million of vendor-owned steel coil inventory on a
consignment basis for use in its steel processing and sales activities. This
consigned material was billed to the Company during the first quarter of 1999,
and has subsequently been substantially used in operations. The Company does
not currently possess any significant amount of vendor-owned consigned
material. As discussed further below, the Company utilized proceeds from its
long-term debt refinancing to substantially reduce its outstanding accounts
payable balance during the second quarter of 1999.
The Company's inventories peaked near the end of the first quarter of 1999,
and management focused on increasing inventory turns and better managing
inventory levels. In order to limit the Company's exposure to rapid inventory
price inflationary and deflationary pressures, the Company reduced its steel
coil inventory holdings and intends to maintain these lower levels consistent
with sound business practice. The Company succeeded in its efforts to reduce
its inventory position during 1999, and continues to strive to limit its on-
hand inventory position. The Company believes it can successfully operate its
business on inventory levels lower than those maintained in late 1998 and
early 1999, and believes it can do so through the many supply channels
developed over the past few years and adherence to sound inventory management
practices.
In terms of other consequential working capital items, the Company's
investment in accounts receivable is typically lowest at December 31, versus
that of its interim quarter ends of March, June and September, or that of its
former April 30 year end. The business activity level of the Company is
typically slower during the months of November and December, when there are
less business shipping days due to the holidays occurring during these months.
As a result, the monthly sales levels preceding the Company's interim quarter
ends, as well as its former April 30 year end, is typically higher than
compared to December 31, due to the seasonal nature of its late fourth quarter
sales activity. The $4.8 million decrease in accounts receivable for the
transition period follows this seasonality, while the 1999 decline of $1.7
million is attributable to lower sales transaction prices in 1999 versus 1998.
Otherwise, accounts receivable increased in each of the years ended December
31, 1998 and April 30, 1997, consistent with the Company's sales growth during
those years.
The Company generated $1.6 million, $8.8 million, and $.1 million of cash from
operating activities during 1999, 1998, and the transition period; which
compares to net cash used by operations of $4.5 million for FY97. During 1998
and FY97, the Company was able to fund much if not all of its increased
inventory with increases in accounts payable. 1999 and the transition period
saw the reverse with inventory decreases providing the liquidity to reduce the
Company's accounts payable balance.
The Company generated $8.9 million in cash from investing activities during
1999, primarily related to the sale of the Company's South Carolina facility
on December 15, 1999. The Company also generated approximately $.5 million of
cash from the disposition of certain of its stamping assets from its
Blytheville location during the summer of 1999. The proceeds from these 1999
asset sales were utilized to meet current obligations with trade creditors,
and assisted in reducing the Company's long-term debt. See Note 2 to the
Consolidated Financial Statements for further discussion.
During 1998, the Company completed the physical expansion of its facilities
and operations that began in earnest with its initial public stock offering in
1993. The Company invested, net of routine asset sales, cash of $6.7 million,
$10.0 million, and $28.1 million during 1998, TP97, and FY97, respectively, in
property, plant and equipment additions. The Company sustained these efforts
primarily by way of increased corporate borrowings. The Company also issued
its $4.5 million of Series A Preferred Stock on January 30, 1997 to the
shareholder of Coil-Tec in exchange for certain of its assets. The Company
does not contemplate any further significant level of capital additions over
the course of the next twelve months.
During 1998, capital spending was concentrated on the Company's second coil
pickling line and improvements to the cold rolling mill; both located in
Blytheville, Arkansas, as well as the acquisition and installation of a heavy
gauge cut-to-length line for the Pasadena, Texas facility. Construction of
the Company's new facility in South Carolina, the acquisition of certain steel
processing equipment from Coil-Tec, Inc. on January 30, 1997 and costs related
to the Company's second coil pickling line were the principal property
additions attributable to TP97 and FY97.
Through the end of the 1999 first quarter, the Company's primary long-term
debt agreements required the maintenance of various financial covenants and
ratios. Within these arrangements, the Company agreed to limit its long-term
debt, inclusive of current maturities (i.e., "funded debt"), to no more than
50% of total capitalization (i.e., the sum of the Company's funded debt and
total shareholders' equity)(the "leverage covenant"). However, the Company
was operating very close to its leverage covenant near the end of 1998 and
throughout the first quarter of 1999. In order to access additional
liquidity, the Company entered into negotiations with various domestic
commercial lenders to establish a new asset-based revolving credit agreement
that would either relax or remove the leverage covenant mentioned above.
On April 15, 1999, the Company refinanced substantially all of its long-term
debt obligations by entering into a new revolving credit facility with an
asset-based lending institution. This new financing has a three-year term and
provides the Company with up to $140.0 million in credit at varying rates of
interest set either below the prime rate for LIBOR-based loans or generally
0.5% above the prime rate for daily revolving credit advances, payable
monthly. These rates are generally equivalent to those incurred by the
Company under its former bank revolver, and as of the refinancing were less
than those incurred under the Company's former 8.13% term notes. In
conjunction with this refinancing, the Company retired early its $50.0 million
of 8.13% term notes, which were due in installments through July 15, 2005. As
a result of this early retirement, the Company incurred a prepayment penalty
and related charges of approximately $4.1 million, before income tax benefits,
which amount is reported as an extraordinary item in 1999. The Company also
incurred approximately $1.6 million in costs associated with the issuance of
this new debt.
The new credit agreement eliminated the limitation on the amount of debt that
could be incurred by the Company, which was limited to 50% of total capital
pursuant to the terms of the previous bank revolver and term notes. The
Company used the proceeds of the incremental borrowings, net of the amounts
required for debt retirement and transaction expenses, including the
prepayment penalty, to reduce its obligations to trade vendors which were
unusually high because of abnormally high inventory levels.
Total borrowings under the new agreement were approximately $105.2 million at
December 31, 1999. Security under the new agreement consists of the accounts
receivable, inventory, fixed assets and other assets of the Company. The
maximum amount of borrowings available to the Company under the new revolver
is based upon percentages of eligible accounts receivable and inventory, as
defined in the new agreement, as well as amounts attributable to selected
fixed assets of the Company. Close attention is given to managing the
liquidity afforded under the Company's asset-based revolving credit agreement,
which availability was relatively limited as of December 31, 1999.
The Company has also accessed capital by way of off balance sheet financing
arrangements. The Company has entered into various operating leases with
domestic commercial lenders for steel processing and other equipment at
certain of its facilities. The Company also entered into an operating lease
on January 30, 1997, in order to obtain use of Coil-Tec's former plant
facility in Blytheville. Annual operating lease payments are expected to
range between $3.3 million and $3.9 million over the next five years. During
late 1998 and early 1999, the Company also took advantage of vendor-owned
steel inventory consignment for its raw material needs, primarily from import
sources.
Subsequent to the first quarter 1999 common dividend of $.3 million, the
Company suspended the payment of common dividends. Future common dividends
may or may not be declared, at the discretion of the Board of Directors,
depending on restrictions imposed by the Company's revolving credit agreement,
industry conditions, evaluation of the Company's performance and current
liquidity situation. During 1998, the transition period, and FY'97, the
Company paid dividends of $.9 million, $.9 million and $1.2 million on its
common stock. However, the Company continues to declare and pay the $50,000
quarterly preferred dividend associated with its outstanding Series A
preferred stock.
The Company's operations and unused borrowing capacity available under its
asset-based revolving credit facility is expected to generate sufficient funds
to meet the Company's working capital commitments, debt service requirements,
necessary capital expenditures, and the payment of Series A preferred stock
dividends over the next twelve months.
The Company maintains the flexibility to issue additional equity in the form
of Class A common stock or additional series of preferred stock junior to the
Series A preferred stock if and when market circumstances should ever dictate.
The Company, from time-to-time, also explores financing alternatives such as
the possibility of issuing additional debt, entering into further operating
lease financings, and pursuing strategic alternatives. The Company also
continues to evaluate its business with the intent to streamline operations,
improve productivity and reduce costs.
QUARTERLY EFFECTS AND SEASONALITY:
- ---------------------------------
Shipping volumes are lowest during the November and December holiday periods
and also tend to be lower during mid-summer, as many of the Company's
customers schedule plant shutdowns for vacations. These factors tend to
result in lower net sales and net income during these time periods. Quarterly
results can also be affected, either negatively or positively, by changing
steel prices, as described previously herein.
INFLATION:
- ---------
The Company's operations have not been, nor are they expected to be,
materially affected by inflation. However, the Company is affected by changes
in the price of steel charged by the primary producers, which are not
considered to be inflation-sensitive, but rather sensitive to changes in steel
demand as the primary producers use pricing policy to attempt to control their
order levels and backlog.
YEAR 2000 COMPLIANCE:
- --------------------
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000, nor
with any leap year issues after February 29, 2000. Based on operations of the
Company in early 2000, the Company does not expect any significant impact to
its on-going business as a result of the "Year 2000 issue." The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers or suppliers.
As of December 31, 1998, the Company spent approximately $.7 million in
implementing a new integrated core business system. The Company did not incur
any further significant amounts during 1999 related to the implementation of
its new business system, and the Company cannot quantify how much of these
costs were directly related to Year 2000 compliance matters.
NEW ACCOUNTING STANDARDS:
- ------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133), which establishes
accounting and reporting standards for derivative instruments and for hedging
activities, and requires that all derivatives be recognized as either assets
or liabilities in the statement of financial position and that such
instruments be measured at fair value. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133" (FAS 137), delaying the effective date of FAS 133
until fiscal years beginning after June 15, 2000. Given that the Company has
not entered into hedging transactions or obtained derivative financial
instruments, adoption of FAS 133/FAS 137 is not expected to significantly
impact the Company's financial reporting.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------------------------------------------------------------------
INTEREST RATE RISK
In the ordinary course of business, the Company is exposed to interest rate
risks by way of changes in short-term interest rates. The Company has
currently elected not to hedge the market risk associated with its floating
rate debt. With the completion of the Company's debt refinancing during 1999,
as of December 31, 1999, approximately $105.2 million of the Company's debt
obligations bear interest at variable rates. Accordingly, the Company's
earnings and cash flow are affected by changes in interest rates. Assuming
the current level of borrowings at variable rates and assuming a one-half
point increase in average interest rates under these borrowings, it is
estimated that the Company's annual interest expense would increase by
approximately $.5 million. In the event of an adverse change in interest
rates, management would likely take actions to mitigate the Company's exposure
to interest rate risk; however, due to the uncertainty of the actions that
would be taken and their possible effects, this analysis assumes no such
action. Further, this analysis does not consider the effects of the change in
the level of overall economic activity that could exist in such an
environment.
OTHER RISKS
The Company does not have any significant amount of export sales denominated
in foreign currencies, and acquires its raw material supply needs in U.S.
dollar denominated transactions. Therefore, the Company is not viewed as
being exposed to foreign currency fluctuation market risks. In addition,
although the Company both acquires and sells carbon steel coils and products,
no commodity exchange exists that the Company might access to hedge its risk
to carbon steel price fluctuations.
The Company has no material derivative financial instruments as of December
31, 1999, and does not enter into derivative financial instruments for trading
purposes.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
HUNTCO INC.
CONSOLIDATED BALANCE SHEET
(amounts in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 414 $ 21
Accounts receivable, net 41,835 43,579
Inventories 77,832 92,240
Other current assets 2,380 2,914
------- -------
122,461 138,754
Property, plant and equipment, net 123,548 143,401
Other assets 10,725 11,076
------- -------
$256,734 $293,231
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,279 $ 56,923
Accrued expenses 2,657 3,451
Current maturities of long-term debt 248 7,352
------- -------
46,184 67,726
------- -------
Long-term debt 105,470 102,555
Deferred income taxes 1,166 7,376
------- -------
106,636 109,931
------- -------
Commitments and contingencies (see Note 9) - -
Shareholders' equity:
Series A preferred stock
(stated at liquidation value) 4,500 4,500
Common stock:
Class A (issued and outstanding, 5,292) 53 53
Class B (issued and outstanding, 3,650) 37 37
Additional paid-in-capital 86,530 86,530
Retained earnings 12,794 24,454
------- -------
103,914 115,574
------- -------
$256,734 $293,231
======= =======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Eight months Year
Year ended ended ended
December 31, December 31, April 30,
1999 1998 1997 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $349,947 $391,181 $246,324 $326,563
Cost of sales 332,215 369,864 227,871 294,455
------- ------- -------- -------
Gross profit 17,732 21,317 18,453 32,108
Selling, general and
administrative expenses 19,062 19,939 11,757 15,383
Non-recurring loss on
sale of plant facility 1,720 - - -
------- ------- ------- -------
Income (loss) from operations (3,050) 1,378 6,696 16,725
Interest, net (10,140) (8,113) (5,194) (6,239)
------- ------- ------- -------
Income (loss)
before income taxes (13,190) (6,735) 1,502 10,486
Provision (benefit)
for income taxes (4,687) (2,444) 486 3,997
------- ------- ------- -------
Net income (loss) before
extraordinary item (8,503) (4,291) 1,016 6,489
Extraordinary item, net of tax (2,644) - - -
------- ------- ------- -------
Net income (loss) (11,147) (4,291) 1,016 6,489
Preferred dividends 200 200 133 50
------- ------- ------- -------
Net income (loss) available
for common shareholders $(11,347) $ (4,491) $ 883 $ 6,439
======= ======= ======= =======
Earnings (loss) per common
share (basic and diluted):
Net income (loss) before
extraordinary item $ (.97) $ (.50) $ .10 $ .72
Extraordinary item, net of tax (.30) - - -
----- ----- ----- -----
Net income (loss) for
common shareholders $(1.27) $ (.50) $ .10 $ .72
===== ===== ===== =====
Weighted average
common shares outstanding:
Basic 8,942 8,942 8,942 8,942
===== ===== ===== =====
Diluted 8,942 8,942 8,951 8,942
===== ===== ===== =====
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
Eight months
Year ended ended Year ended
December 31, December 31, April 30,
1999 1998 1997 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Series A preferred stock
Balance at beginning of period $ 4,500 $ 4,500 $ 4,500 $ -
January 30, 1997 share issuance - - - 4,500
------ ------ ------ ------
Balance at end of period $ 4,500 $ 4,500 $ 4,500 $ 4,500
====== ====== ====== ======
Class A common stock
Balance at beginning of period $ 53 $ 53 $ 53 $ 53
------ ------ ------ ------
Balance at end of period $ 53 $ 53 $ 53 $ 53
====== ====== ====== ======
Class B common stock
Balance at beginning of period $ 37 $ 37 $ 37 $ 37
------ ------ ------ ------
Balance at end of period $ 37 $ 37 $ 37 $ 37
====== ====== ====== ======
Additional paid-in-capital
Balance at beginning of period $86,530 $86,530 $86,530 $86,567
Other changes - - - (37)
------ ------ ------ ------
Balance at end of period $86,530 $86,530 $86,530 $86,530
====== ====== ====== ======
Retained earnings
Balance at beginning of period $24,454 $29,885 $29,941 $24,709
Net income (loss) (11,147) (4,291) 1,016 6,489
Dividends on:
Common stock (313) (940) (939) (1,207)
Series A preferred stock (200) (200) (133) (50)
------ ------ ------ ------
Balance at end of period $12,794 $24,454 $29,885 $29,941
====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Eight months
Year ended ended Year ended
December 31, December 31, April 30,
1999 1998 1997 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(11,147) $(4,291) $ 1,016 $ 6,489
------- ------- ------- -------
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 11,395 10,265 6,018 8,225
Loss on early extinguishment of debt 4,067 - - -
Loss (gain) on property sales 1,732 (65) 50 (675)
Decrease (increase) in:
accounts receivable 1,744 (1,936) 4,809 (9,648)
inventories 14,409 (10,628) 23,957 (51,605)
other current assets 534 2,101 (1,032) (2,057)
other assets (446) (1,049) (2,837) (2,632)
Increase (decrease) in:
accounts payable (13,645) 16,896 (32,542) 43,566
accrued expenses (795) (428) (989) 934
non-current deferred taxes (6,211) (2,039) 1,661 2,875
------- ------- ------- -------
Total adjustments 12,784 13,117 (905) (11,017)
------- ------- ------- -------
Net cash provided (used) by operations 1,637 8,826 111 (4,528)
------- ------- ------- -------
Cash flows from investing activities:
Property, plant and equipment:
Acquisitions (904) (8,783) (11,379) (30,210)
Proceeds from facility and asset sales 9,815 2,121 1,371 2,108
------- ------- ------- -------
Net cash provided (used)
by investing activities 8,911 (6,661) (10,008) (28,102)
------- ------- ------- -------
Cash flows from financing activities:
Revolving credit facility net proceeds 46,661 978 10,000 28,000
Payments for debt issuance costs (1,638) - - -
Retirement of long-term notes (50,000) - - -
Debt repurchase premiums (3,816) - - -
Other debt and capital lease payments (849) (2,010) (128) (189)
Preferred stock dividends (200) (200) (133) (50)
Common stock dividends (313) (939) (939) (1,207)
Issuance of Series A preferred stock - - - 4,500
Other - - - (37)
------- ------- ------- -------
Net cash provided
(used) by financing activities (10,155) (2,171) 8,800 31,017
------- ------- ------- -------
Net increase (decrease) in cash 393 (6) (1,097) (1,613)
Cash, beginning of period 21 27 1,124 2,737
------- ------- ------- -------
Cash, end of period $ 414 $ 21 $ 27 $ 1,124
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HUNTCO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
-----------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by the Company in the preparation of the financial
statements conform to U.S. generally accepted accounting principles.
Management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. The
significant accounting policies followed by the Company are described below:
Change in fiscal year end:
On October 23, 1997, the Company filed a Form 8-K announcing that it had
determined to change its fiscal year end from April 30 to a calendar year. As
a result, the Company reported an eight-month transition period ended December
31, 1997, in order to change to its new calendar year end.
Organization and operations:
Huntco Inc. ("Huntco" or "the Company") conducts its operations through its
wholly-owned subsidiaries Huntco Steel, Inc. ("Huntco Steel") and Midwest
Products, Inc. ("Midwest"). Huntco Steel operates six steel processing
centers specializing in the processing and distribution of flat rolled carbon
steel, and sells its processed steel products to a diverse group of industrial
customers, steel service centers and distributors. See Note 2 concerning the
disposition of Huntco Steel's South Carolina facility on December 15, 1999.
Midwest is principally engaged in the manufacture of compressed air cylinders
used in the transportation industry and sold through mass merchandisers.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Revenue recognition:
Revenue from the sale of processed steel and compressed air cylinders is
recognized upon shipment to the customer. Costs and related expenses to
process steel and manufacture compressed air cylinders are recorded as cost of
sales when the related revenue is recognized. Sales returns and allowances
are treated as reductions to net sales.
Cash and cash equivalents:
For purposes of the consolidated statement of cash flows, the Company
considers cash on hand and demand deposits with financial institutions with an
original maturity of three months or less to be cash.
Concentration of credit risk:
Huntco Steel sells its products to a wide variety of customers, including
steel service centers and distributors, general fabricators and stampers,
manufacturers of consumer durables, tank manufacturers and energy-related
users, primarily in the midwestern and southern regions of the United States.
Midwest sells its compressed air cylinders to customers in the transportation
industry, to compressor manufacturers, as well as through mass merchandisers.
Concentration of credit risk with respect to trade receivables is limited due
to the size of the customer base and its dispersion. The Company performs on-
going credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses and
such losses have been within management's expectations. As of December 31,
1999, 1998 and 1997, and April 30, 1997, the Company's allowance for doubtful
accounts balance was $324, $530, $333, and $544, respectively.
Relationships with suppliers:
The Company procures raw materials from numerous primary steel producers.
Management believes it is not dependent on any one of its suppliers for raw
materials and that its relationships therewith are strong.
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined
using the specific identification method for steel processing inventories and
on a first-in, first-out (FIFO) basis for its compressed air cylinder
products.
Property, plant and equipment:
Property, plant and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the respective
property, ranging from three to thirty years. Expenditures for repairs,
maintenance and renewals are charged to income as incurred. Expenditures that
improve an asset or extend its useful life are capitalized. When properties
are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
Leases meeting the criteria of a capital lease are recorded at the present
value of the non-cancelable lease payments over the term of the lease.
Properties held under capital leases are amortized over the estimated useful
lives of the assets, ranging from five to twenty years. The interest portion
of the respective capital lease payment is charged to operations.
Environmental policy:
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. The Company has not been notified by regulatory
authorities of non-compliance with any federal, state or local environmental
law or regulation, nor is the Company aware of any such non-compliance.
Income taxes:
Deferred income taxes are accounted for under the liability method, whereby
deferred tax assets and liabilities are recognized based upon temporary
differences between the financial statement and tax bases of assets and
liabilities using presently enacted tax rates.
Earnings per common share:
Earnings per common share is computed by dividing net income (loss) available
for common shareholders by the weighted average number of common shares
outstanding for basic earnings per common share, and by the weighted average
number of common shares and share equivalents outstanding during the period
for diluted earnings per common share.
New accounting standards:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133), which establishes
accounting and reporting standards for derivative instruments and for hedging
activities, and requires that all derivatives be recognized as either assets
or liabilities in the statement of financial position and that such
instruments be measured at fair value. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133" (FAS 137), delaying the effective date of FAS 133
until fiscal years beginning after June 15, 2000. Given that the Company has
not entered into hedging transactions or obtained derivative financial
instruments, adoption of FAS 133/FAS 137 is not expected to significantly
impact the Company's financial reporting.
2. SALE OF SOUTH CAROLINA FACILITY
On December 15, 1999, the Company sold its South Carolina steel processing
facility and related inventory to Feralloy Corporation. The facility, which
had been newly constructed and opened in early 1996, contained cut-to-length
and slitting equipment, both of which processing lines were utilized pursuant
to operating leases.
The net proceeds from the sale were used to retire a short-term note payable to
one of the Company's trade creditors, which represented all of the Company's
short-term debt, with the balance of the proceeds being applied to reduce the
Company's long-term, revolving credit facility. The Company retained the trade
accounts receivable related to the facility's pre-closing sales. In connection
with the sale, the Company was also relieved of its long-term operating lease
commitments on the processing equipment installed at the South Carolina
facility, totaling approximately $663 per year over the next four years.
The Company recognized a non-recurring loss of $1,720, before income tax
benefits, on the sale of its South Carolina facility, which loss included
certain liabilities and contractual obligations incurred by the Company.
3. INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
Raw materials $ 57,013 $ 66,063
Finished goods 20,819 26,177
-------- --------
$ 77,832 $ 92,240
======== ========
</TABLE>
As of December 31, 1998, the Company also held approximately $25.9 million of
vendor-owned steel coil inventory on a consignment basis for use in its steel
processing and sales activities. This consigned material was billed to the
Company during the first quarter of 1999, and the Company did not possess any
substantial amount of vendor-owned consigned material as of December 31, 1999.
The Company's investment in finished goods includes cold rolled steel coils
produced at the Company's Blytheville, Arkansas facility. These cold rolled
coils can either be sold as master coils, without further processing, or may
be slit, blanked or cut-to-length by the Company prior to final sale.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of the dates
presented:
<TABLE>
<CAPTION>
December 31,
1999 1998
------ -------
<S> <C> <C>
Land and improvements $ 4,047 $ 5,032
Buildings and improvements 55,989 62,632
Machinery and equipment 107,873 112,815
-------- --------
167,909 180,479
Less accumulated depreciation 44,566 37,395
-------- --------
123,343 143,084
Construction in progress 205 317
-------- --------
$123,548 $143,401
======== ========
</TABLE>
5. LONG-TERM DEBT
On April 15, 1999, the Company refinanced substantially all of its long-term
debt obligations by entering into a new revolving credit facility with an
asset-based lending institution (the "asset-based revolver"). The asset-based
revolver has a three-year term and provides the Company with up to $140.0
million in credit at varying rates of interest set either below the prime rate
for LIBOR-based loans or generally 0.5% above the prime rate for daily
revolving credit advances, payable monthly. These rates are generally
equivalent to those incurred by the Company under its former bank revolver,
and at the time of the refinancing were less than those incurred under the
Company's former 8.13% term notes.
In conjunction with the April 15, 1999 refinancing, the Company satisfied its
obligations under its former bank revolving credit agreement and retired early
its $50.0 million of 8.13% term notes, which term notes were due in
installments through July 15, 2005. As a result of this early retirement, the
Company incurred a prepayment penalty and related charges of approximately
$4.1 million, before income tax benefits, which amount is reflected as an
extraordinary item during 1999 within the Company's Statement of Operations.
The Company also incurred approximately $1.6 million in costs associated with
the issuance of the asset-based revolver, which amount is being amortized over
the three-year term of the new asset-based revolver.
Entering into the asset-based revolver eliminated the limitation on the amount
of debt that could be incurred by the Company. Under the previous bank
revolver and the 8.13% term notes, the Company's interest-bearing debt was
limited to 50% of total capitalization (i.e., generally the sum of the
Company's interest-bearing debt and total shareholders' equity). The Company
used the proceeds of the incremental borrowings, net of the amounts required
for debt retirement and transaction expenses, including the prepayment
penalty, to reduce its obligations to trade vendors which were unusually high
because of abnormally high inventory levels maintained by the Company in early
1999. The Company's inventory levels peaked near the end of the first quarter
of 1999, and significantly decreased through the end of 1999.
Security under the asset-based revolver consists of the accounts receivable,
inventory, fixed assets and other assets of the Company. The maximum amount
of borrowings available to the Company under the asset-based revolver is based
upon percentages of eligible accounts receivable and inventory, as well as
amounts attributable to selected fixed assets of the Company. Only a limited
amount of unused borrowing capacity was available to the Company as of
December 31, 1999. The asset-based revolver does not require the maintenance
of financial covenants and ratios beyond the maintenance of the Company's
borrowing base.
Principal payments due on the Company's long-term debt for each of the five
years following December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 248
2001 175
2002 105,295
2003 -
2004 -
--------
$105,718
========
</TABLE>
Total cash paid for interest during 1999, 1998, the eight months ended
December 31, 1997, and the year ended April 30, 1997 was $10,226, $9,392,
$5,295, and $7,552, respectively. Of the Company's total interest costs, it
capitalized $1,189, $774, and $1,244, to construction in progress during 1998,
the eight months ended December 31, 1997, and the year ended April 30, 1997,
respectively. The Company did not capitalize interest during 1999.
6. Capital stock
The Company is authorized to issue 5,000,000 shares of $.01 per share par
value preferred stock. The Company is also authorized to issue two classes of
common stock, both of which possess a par value of $.01 per share and have
identical rights, preferences and powers, except the Class B common stock is
entitled to ten votes per share.
On January 30, 1997, the Company issued 225,000 shares of its $.01 par value
Series A preferred stock (the "Series A Preferred"). Shares of Series A
Preferred are cumulative and non-voting, and accrue dividends at the annual
rate of $.888889 per share, with such dividends being payable quarterly
beginning March 1, 1997. The Series A Preferred carries a liquidation
preference of $20.00 per share. The Series A Preferred is convertible on a
one-for-one basis into shares of Class A common stock at any time at the
option of the holder, and at the option of the Company under certain
circumstances, including if at any time the closing price of the Class A
common stock is at least $25.00 per share for thirty consecutive trading days.
Under the Company's Restated Articles of Incorporation, authorized but
unissued preferred stock is issuable in series under such terms and conditions
as the Company's Board of Directors may determine. However, no further shares
of Series A Preferred may be issued by the Company. The Company issued all
225,000 shares of its Series A Preferred in connection with the Company's
acquisition of $4,500 of depreciable assets and certain other operating assets
of Coil-Tec, Inc. on January 30, 1997.
The Company is authorized to issue 25,000,000 shares of Class A common stock,
of which 5,292,000 shares were issued as of December 31, 1999, 1998 and 1997,
and April 30, 1997. The Company is authorized to issue 10,000,000 shares of
Class B common stock, of which 3,650,000 shares were issued as of December 31,
1999, 1998 and 1997, and April 30, 1997. Shares of Class B common stock are
not transferable to persons or entities unaffiliated with Mr. B. D. Hunter,
Chairman of the Board and Chief Executive Officer of the Company, who is in
control of all issued and outstanding shares of Class B common stock through
his personal and family interests. All shares of Class B common stock are
convertible into a like number of shares of Class A common stock at the sole
discretion of the holder of such Class B common stock, with such conversion
becoming mandatory at the date which follows ten years after the death of Mr.
B. D. Hunter.
7. Incentive stock plan
The Company maintains an incentive stock plan, which provides for the grant of
non-qualified stock options, incentive stock options, restricted shares and
stock appreciation rights to officers and key employees, as well as directors,
of the Company selected by a committee of the Board of Directors. A maximum
of 900,000 shares of Class A common stock may be issued under the plan.
Options issued under the plan may be exercised, subject to a ten-year maximum
term, over periods determined by the committee.
A summary of the status of the Company's stock option plan as of December 31,
1999, 1998 and 1997, and April 30, 1997, and changes during the periods ending
on those dates, is as follows:
<TABLE>
<CAPTION>
Options Weighted Average
Outstanding Exercise Price
----------- ----------------
<S> <C> <C>
Balance at April 30, 1996 745,500 $18.78
Options granted 98,500 $12.50
Options canceled or forfeited (8,000) $23.13
-------
Balance at April 30, 1997 836,000 $18.00
Options granted 353,000 $13.50
Options canceled or forfeited (342,750) $20.57
-------
Balance at December 31, 1997 846,250 $15.08
Options canceled or forfeited (113,750) $16.57
-------
Balance at December 31, 1998 732,500 $14.85
Options granted 390,000 $ 7.00
Options canceled or forfeited (445,500) $15.74
-------
Balance at December 31, 1999 677,000 $ 9.74
=======
</TABLE>
The following table summarizes stock options outstanding and exercisable as of
December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------- ---------------------
Remaining Average Average
Exercise No. of Average Exercise No. of Exercise
Price Range Options Life Price Options Price
- ------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
$7.00 383,500 4.1 yrs $ 7.00 246,750 $ 7.00
$12.50-$13.50 293,500 1.4 yrs $13.32 247,750 $13.39
------- -------
677,000 3.0 yrs $ 9.74 494,500 $10.20
======= =======
</TABLE>
No compensation expense has been recognized by the Company for its incentive
stock plan in accordance with the Company's continued use of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", as the exercise price of options granted has either been
equivalent to or higher than the market price of the Company's stock on the
date of grant. Had the fair value method of accounting contemplated by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," been applied to the Company's incentive stock plan, the
Company's net income (loss) and earnings (loss) per common share would have
been revised to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Eight
Years ended months ended Year ended
December 31, December 31, April 30,
1999 1998 1997 1997
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net income (loss) available
for common shareholders:
As reported $(11,347) $(4,491) $ 883 $6,439
Pro forma (11,536) (4,766) 827 6,402
Earnings (loss) per common
share (basic and diluted):
As reported $(1.27) $(.50) $ .10 $ .72
Pro forma (1.29) (.53) .09 .72
</TABLE>
The pro forma impact only takes into account options granted since April 1996,
and is likely to increase in future years as additional options are granted
and amortized ratably over the vesting period. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for options granted
during the year ended December 31, 1999, the eight months ended December 31,
1997, and the year ended April 30, 1997, respectively: risk-free interest
rates of 5.0%, 5.7%, and 6.7%; dividend yield of 0% in 1999 and .9% prior
thereto; expected common stock market price volatility factor of 47.9%, 47.0%,
and 50.1%; and a weighted average expected life of the options of three to
five years. The weighted average fair value of options granted for the year
ended December 31, 1999, the eight months ended December 31, 1997, and the
year ended April 30, 1997, respectively, was zero, $1.90, and $3.84.
8. Income taxes
The components of the provision (benefit) for income taxes for 1999, 1998, the
transition period ended December 31, 1997, and for the year ended April 30,
1997, respectively, are as follows:
<TABLE>
<CAPTION>
Eight
Years ended months ended Year ended
December 31, December 31, April 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $ 1,011 $ 196 $(1,528) $1,284
State 91 (58) 65 43
------ ------ ------ ------
1,102 138 (1,463) 1,327
------ ------ ------ ------
Deferred (primarily Federal):
Current 421 (543) 288 (205)
Non-current (6,210) (2,039) 1,661 2,875
------ ------ ------ ------
(5,789) (2,582) 1,949 2,670
------ ------ ------ ------
Provision (benefit)
for income taxes $(4,687) $(2,444) $ 486 $3,997
====== ====== ====== ======
The above amounts for 1999 do not include the approximate $1,423 of tax
benefits related to the extraordinary charge on refinancing of debt as
described in Note 5.
</TABLE>
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The net deferred income tax
liabilities of the Company are comprised of the following as of:
<TABLE>
<CAPTION>
December 31,
1999 1998
------ ------
<S> <C> <C>
Total deferred tax liabilities, primarily related
to property basis differences and related effects,
including accelerated tax depreciation $20,240 $18,781
------ ------
Deferred tax assets attributable to:
Non-deductible liabilities and reserves 1,299 1,741
Net operating loss carryovers expiring through
the year ending December 31, 2018 19,073 11,385
------ ------
Total deferred tax assets 20,373 13,126
------ ------
Net deferred tax (assets) liabilities, net of
$1,299 and $1,721, respectively, reflected in
other current assets $ (133) $ 5,655
====== ======
</TABLE>
A reconciliation of the provision (benefit) for income taxes to the maximum
statutory Federal rate of 35% is as follows for the following periods:
<TABLE>
<CAPTION>
Eight months
Year ended ended Year ended
December 31, December 31, April 30,
1999 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax at statutory Federal rate $(4,617) $(2,357) $ 526 $3,670
State income taxes (benefits),
net of federal tax benefit (295) (347) (143) 195
Goodwill amortization 101 101 67 101
Other 124 159 36 31
------ ------ ----- -----
$(4,687) $(2,444) $ 486 $3,997
====== ====== ===== =====
</TABLE>
During 1999, 1998, the eight months ended December 31, 1997, and the year
ended April 30, 1997, the Company made cash payments for income taxes of $105,
$317, $1,016, and $3,000, respectively. Of the amount paid during 1998, $200
was claimed as a Federal refund in January 1999. During 1998, the Company
received Federal tax refunds totaling $2,097. During the year ended April 30,
1997, the Company claimed Federal tax refunds of $1,871, which were received
in May 1997.
9. Commitments and contingencies
The Company is a party to various claims and legal proceedings generally
incidental to its business. Although the ultimate disposition of these
proceedings is not presently determinable, management does not believe that
adverse determination in any or all of such proceedings will have a material
adverse effect upon the financial condition, cash flows, or the results of
operations of the Company.
The Company leases a variety of assets for use in its operations. With
respect to operating leases of steel processing equipment and certain real
property, the Company has negotiated purchase options that are effective prior
to or at the end of the lease term of such operating lease agreements. With
respect to the Company's operating lease commitments, net aggregate future
lease payments as of December 31, 1999, are payable as follows:
<TABLE>
<S> <C>
2000 3,937
2001 3,588
2002 3,411
2003 3,336
2004 3,274
Thereafter 3,757
-------
$21,303
=======
</TABLE>
The Company is a party to certain severance and employment agreements with its
executive officers and other members of senior management, which agreements
provide termination and other benefits to such individuals.
10. Quarterly financial data (unaudited)
Summarized quarterly financial data for the calendar years ended December 31,
1999 and 1998 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
quarter quarter quarter quarter Year
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net sales:
1999 $ 90,377 $ 90,863 $84,199 $84,508 $349,947
1998 110,373 104,724 95,646 80,438 391,181
Gross profit:
1999 2,147 3,588 5,610 6,387 17,732
1998 7,756 7,762 5,156 643 21,317
Net income (loss) before
extraordinary item:
1999 (a) (3,177) (3,048) (946) (1,332) (8,503)
1998 651 482 (1,103) (4,321) (4,291)
Net income (loss):
1999 (a)(b) (3,177) (5,692) (946) (1,332) (11,147)
1998 651 482 (1,103) (4,321) (4,291)
Earnings (loss) per common
share (basic and diluted):
Net income (loss) before
extraordinary item:
1999 (a) (.36) (.35) (.11) (.15) (.97)
1998 .07 .05 (.13) (.49) (.50)
Net income (loss):
1999 (a)(b) (.36) (.65) (.11) (.15) (1.27)
1998 .07 .05 (.13) (.49) (.50)
(a) In the fourth quarter, the Company incurred a pre-tax non-recurring loss of $1,720
on the sale of its South Carolina facility as more fully described in Note 2.
(b) In the second quarter, the Company incurred a net of tax extraordinary loss of
$2,644 (or $.30 per common share, basic and diluted) on refinancing of the Company's
long-term debt, as more fully described in Note 5.
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Huntco Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Huntco Inc. and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998, the eight months ended December 31, 1997, and for
the year ended April 30, 1997, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
January 28, 2000
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------------------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding the Company's directors is incorporated herein by
reference to the information included under the title "Proposal 1: Election of
Directors --Nominees for Directors", "--Information as of March 15, 2000
Regarding the Board's Nominees for Election as Directors at the 2000 Annual
Meeting for Terms to Expire at the Annual Meeting in 2003"; and "--Information
as of March 15, 2000 Regarding the Directors Who are Not Nominees for Election
and Whose Terms Continue Beyond 2000," contained within the Company's 2000
Proxy Statement.
Information regarding the Company's executive officers is contained at the end
of Part I of this Annual Report on Form 10-K (General Instruction G) under the
heading EXECUTIVE OFFICERS OF THE REGISTRANT, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information regarding executive compensation is incorporated herein by
reference to the information included under the titles "Proposal 1: Election
of Directors --Directors' Fees" contained within the Company's 2000 Proxy
Statement; "Executive Compensation --Summary Compensation Table", "-
Option/SAR Grants in Last Fiscal Year", "--Aggregated Option/SAR Exercises in
Last Fiscal Year and FY-End Option/SAR Values", "- Severance and Employment
Agreements", and "--Compensation Committee Interlocks and Insider
Participation" contained within the Company's 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the information included
under the title "Voting, Voting Securities and Principal Holders Thereof --
Holdings of Management and Principal Shareholders" contained within the
Company's 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information included under the title
"Certain Transactions" contained within the Company's 2000 Proxy Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Report:
(1) Financial Statements -- The Company's financial statements
together with the report thereon of PricewaterhouseCoopers LLP dated January
28, 2000, are set forth herein under Item 8.
(2) Financial Statement Schedules -- Omitted, not applicable.
(3) Exhibits -- Exhibits attached are numbered in accordance with the
Exhibit Table at Item 601 of Regulation S-K. For a listing of each management
contract or compensatory plan or arrangement required to be filed as an
exhibit to this Report, see the Exhibits listed under Exhibit Nos.
10(iii)(A)(1) through 10(iii)(A)(11). The following Exhibits listed in the
Exhibit Index are filed with this Report:
10(iii)(A)(1): Severance Agreement dated as of January 1, 2000 executed
by and between Huntco Inc. and B. D. Hunter
10(iii)(A)(2): Employment Agreement dated as of January 1, 2000 executed
by and between Huntco Inc. and Robert J. Marischen
10(iii)(A)(3): Employment Agreement dated as of January 1, 2000 executed
by and between Huntco Inc. and Anthony J. Verkruyse
10(iii)(A)(7): Description of Performance Bonus Arrangement for
executive officers for the calendar year ending December 31, 2000.
10(iii)(A)(9): Form of Option Agreement for Awards of Options under
Amended and Restated 1993 Incentive Stock Plan.
10(iii)(A)(10): Description of tax reimbursement arrangement between the
Company and Mr. Robert J. Marischen, upon exercise of certain non-qualified
stock options.
23(ii): Consent of PricewaterhouseCoopers LLP.
24: Powers of Attorney submitted by B. D. Hunter, Robert J. Marischen,
Anthony J. Verkruyse, James J. Gavin, Jr., Donald E. Brandt and Michael M.
McCarthy.
27: Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K on October 14, 1999 that incorporated by
reference into Item 5, "Other Events", and filed as an exhibit to such Form 8-
K, the press release issued by the Company that discussed (i) its earnings for
the three and nine months ended September 30, 1999, (ii) certain forward-
looking data for the year ending December 31, 1999, and (iii) the appointment
of the Company's new Chief Financial Officer.
The Company filed a Form 8-K on December 10, 1999 that incorporated by
reference into Item 5, "Other Events", and filed as an exhibit to such Form 8-
K, the press release issued by the Company reporting that it had agreed to the
sale of its steel processing facility located in South Carolina.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HUNTCO INC.
(Registrant)
Date: March 24, 2000 By:/s/ Anthony J. Verkruyse
------------------------
Anthony J. Verkruyse,
Vice President and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints B. D. Hunter, Robert J. Marischen and Anthony J.
Verkruyse, and each of them (with full power to each of them to act alone),
his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this report and any and all amendments to this
report, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ B. D. Hunter Director, Chairman of the March 24, 2000
- --------------------------------- Board and Chief Executive
B. D. Hunter Officer
(Principal Executive Officer)
/s/ Robert J. Marischen Director, Vice Chairman of March 24, 2000
- --------------------------------- the Board & President
Robert J. Marischen
/s/ Anthony J. Verkruyse Vice President and Chief March 24, 2000
- --------------------------------- Financial Officer
Anthony J. Verkruyse (Principal Financial
and Accounting Officer)
/s/ Donald E. Brandt Director March 24, 2000
- ---------------------------------
Donald E. Brandt
/s/ James J. Gavin, Jr. Director March 24, 2000
- ---------------------------------
James J. Gavin, Jr.
/s/ Michael M. McCarthy Director March 24, 2000
- ---------------------------------
Michael M. McCarthy
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
2: Omitted - not applicable.
3(i): Restated Articles of Incorporation of Huntco Inc. incorporated by
reference to Exhibit 3(i) of the Company's 1995 Annual Report on Form 10-K,
filed on July 28, 1995.
3(ii): Amended and Restated Bylaws of Huntco Inc., incorporated by
reference to Exhibit 3(ii) of the Company's Form 10-Q for the quarter ended
October 31, 1997, filed on December 15, 1997.
4(i)(a): Reference is made to Articles III and VIII of the Restated Articles
of Incorporation of Huntco Inc., incorporated by reference to Exhibit 3(i) of
the Company's 1995 Annual Report on Form 10-K filed July 28, 1995.
4(i)(b): Certificate of Designation defining the terms and provisions of the
Company's Series A Preferred Stock, incorporated by reference to Exhibit
4(v)(a) of the Company's Form 10-Q for the quarter ended January 31, 1997,
filed on March 14, 1997.
4(i)(c): Registration Rights Agreement dated January 30, 1997, issued in
conjunction with the issuance of the Company's Series A Preferred Stock,
incorporated by reference to Exhibit 4(v)(b) of the Company's Form 10-Q for
the quarter ended January 31, 1997, filed on March 14, 1997.
4(i)(d): Reference is made to Articles III, IV, V, XI, XII, and XIII of the
Amended and Restated Bylaws of Huntco Inc., incorporated by reference to
Exhibit 3(ii) of the Company's Form 10-Q for the quarter ended October 31,
1997, filed on December 15, 1997.
4(ii)(a)(1): Loan and Security Agreement dated April 15, 1999, by and among
Congress Financial Corporation (Central), as Lender; Huntco Steel, Inc. and
Midwest Products, Inc., as Borrowers; and Huntco Inc., Huntco Nevada, Inc.,
and HSI Aviation, Inc., as Guarantors; incorporated by reference to Exhibit
4(ii)(a) of the Company's Form 10-Q for the quarter ended March 31, 1999,
filed on May 14, 1999.
4(ii)(a)(2): Form of Security Agreement dated April 15, 1999, executed by each
of Huntco Inc., Huntco Nevada, Inc., and HSI Aviation, Inc., in favor of
Congress Financial Corporation, executed in connection with the Loan and
Security Agreement dated April 15, 1999 by and among Congress Financial
Corporation (Central), as Lender; Huntco Steel, Inc. and Midwest Products,
Inc., as Borrowers; and Huntco Inc., Huntco Nevada, Inc., and HSI Aviation,
Inc., as Guarantors; incorporated by reference to Exhibit 4(ii)(b) of the
Company's Form 10-Q for the quarter ended March 31, 1999, filed on May 14,
1999.
4(ii)(b)(1): Lease Agreement dated as of June 1, 1992 by and between the City
of Blytheville, Arkansas and Huntco Steel, Inc., which Lease Agreement
represents a capital lease, incorporated herein by reference to Exhibit
10(ii)(D)(1) of the Company's Registration Statement on Form S-1 (33-62936)
and filed on May 19, 1993.
4(ii)(b)(2): First Amendment to Lease Agreement dated as of August 17, 1993
by and between the City of Blytheville, Arkansas and Huntco Steel, Inc., which
Lease Agreement represents a capital lease, incorporated herein by reference
to Exhibit 10(ii)(D)(1)(ii) to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (33-71426) and filed on November 23, 1993.
9: Omitted - not applicable.
10(iii)(A)(1): Severance Agreement dated as of January 1, 2000 executed by
and between Huntco Inc. and B. D. Hunter
10(iii)(A)(2): Employment Agreement dated as of January 1, 2000 executed by
and between Huntco Inc. and Robert J. Marischen
10(iii)(A)(3): Employment Agreement dated as of January 1, 2000 executed by
and between Huntco Inc. and Anthony J. Verkruyse
10(iii)(A)(4): Description of Performance Bonus Arrangement for executive
officers for the fiscal year ending April 30, 1997, incorporated by reference
to Exhibit 10(iii)(A)(5) of the Company's 1996 Annual Report on Form 10-K,
filed on July 26, 1996.
10(iii)(A)(5): Description of Performance Bonus Arrangement for executive
officers for the calendar year ending December 31, 1998, incorporated herein
by reference to Exhibit 10(iii)(A)(7) of the Company's Form 10-K filed on
March 30, 1998.
10(iii)(A)(6): Description of Performance Bonus Arrangement for executive
officers for the calendar year ending December 31, 1999, incorporated herein
by reference to Exhibit 10(iii)(A)(5) of the Company's Form 10-K filed on
March 29, 1999.
10(iii)(A)(7): Description of Performance Bonus Arrangement for executive
officers for the calendar year ending December 31, 2000.
10(iii)(A)(8): Huntco Inc. 1993 Incentive Stock Plan, as Amended and Restated
in 1996, incorporated herein by reference to Exhibit 10(iii)(A)(2) of the
Company's Form 10-Q for the quarter ended July 31, 1996, filed on August 13,
1996.
10(iii)(A)(9): Form of Option Agreement for Awards of Options under the
Amended and Restated 1993 Incentive Stock Plan.
10(iii)(A)(10): Description of tax reimbursement arrangement between the
Company and Mr. Robert J. Marischen, upon exercise of certain non-qualified
stock options.
10(iii)(A)(11): Severance Agreement and Release entered into by and between
Huntco Inc. and Terry J. Heinz, dated as of March 8, 1999, incorporated herein
by reference to Exhibit 10(iii)(A)(9) of the Company's Form 10-K filed on
March 29, 1999.
11: Omitted - not applicable.
12: Omitted - not applicable.
13: Omitted - not applicable.
16: Omitted - not applicable.
18: Omitted - not applicable.
21: Subsidiaries of the Company, incorporated by reference to Exhibit 21 of
the Company's fiscal 1997 Annual Report on Form 10-K, filed on July 25, 1997.
22: Omitted - not applicable.
23(ii): Consent of PricewaterhouseCoopers LLP.
24: Powers of attorney contained on the signature page found herein.
27: Financial Data Schedule.
99: Omitted - not applicable.
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made and entered into as of
January 1, 2000, by and between B. D. Hunter ("Employee") and Huntco Inc. (the
"Company"). In consideration of the mutual covenants and conditions contained
herein, the parties, intending to be legally bound, agree as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment.
- -------------
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Employee and the Company, the
Company agrees to continue to employ Employee, and Employee accepts continued
employment, subject to the terms and conditions of this Agreement.
ARTICLE II
SEVERANCE
2.1 Payments in the Event of a Change of Control.
- -------------------------------------------------
(a) If at any time while Employee is employed by the Company (the "Term")
there is a Change of Control of the Company, as defined below, Employee shall
have the option of resigning his employment with the Company, or its
successor, for any reason, or for no reason, at any time up to one year
following the date of the Change of Control. If Employee resigns his
employment pursuant to this section within one year following a Change of
Control, or Employee's employment is involuntarily terminated by the Company
within one year following a Change of Control, the Company will pay to
Employee an amount equal to three times his then current Base Salary, in a
lump sum, within fifteen days of such resignation or termination. Employee
shall also be entitled to remain on the Company's medical and dental insurance
program at Company's expense for three years following termination of
Employee's employment pursuant to this section. Upon payment of the lump sum
payment provided for herein and the medical and dental benefits herein
described, all obligations of the Company to the Employee hereunder shall be
fully satisfied. The parties further expressly agree that, during the period
after Employee's termination during which period Employee will receive
payments or benefits hereunder, Employee will not have authority to act on
behalf of the Company.
(b) The Company will pay Employee a "Tax Gross-Up" payment if a tax is imposed
on Employee pursuant to Section 4999 of the Internal Revenue Code of 1986 as
amended, or any successor provision, with respect to any excess parachute
payment in connection with a Change of Control of the Company. The amount of
the Tax Gross-Up payment will be equal to (i) the amount of such tax, divided
by (ii) 1 minus the blended marginal federal and applicable state income tax
rates in effect for the applicable period for Employee. The Company shall pay
any Tax Gross-Up amount promptly to enable Employee to timely pay income taxes
for the applicable tax period, estimated or otherwise.
(c) For purposes of this Agreement, a "Change of Control" means the occurrence
of any of the following events: (i) a merger, consolidation or reorganization
of the Company in which the Company does not survive as an independent entity;
(ii) a merger, consolidation or reorganization of the Company in which the
Company does not survive as a publicly held company; (iii) a sale of all or
substantially all of the assets of the Company; (iv) the first purchase of
shares of Class A Common Stock of the Company pursuant to a tender or exchange
offer for more than 20% of the Company's outstanding shares of Class A Common
Stock; or (v) any change in control of a nature that, in the opinion of the
Board of Directors, would be required to be reported under the federal
securities laws; provided that such a change in control shall be deemed to
have occurred if: (A) any person other than the `Hunter Affiliates' as that
term is defined in Article III, SectionB.6(b)(iv) of the Company's Restarted
Articles of Incorporation, or the `Hunter Group' as that term is defined in
Article III, Section B.6(b)(ii) of the Company's Restated Articles of
Incorporation (x) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities, or (y) through a
shareholders' agreement, voting trust, other contractual arrangement, or
otherwise, acquires or obtains the right to vote securities or to direct
another to vote securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding securities; or (B)
during any period of two consecutive years from January 1, 2000 through the
expiration date hereof, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any reason to
constitute a majority thereof unless the election of any director, who was not
a director at the beginning of the period, was approved by a vote of at least
70% of the directors then still in office who were directors at the beginning
of the period.
For purposes of this Section 2.1(c)(v)(B), a director shall be considered to
be a director at the beginning of such two year period if the director's
election was approved either (i) during the lifetime of B.D. Hunter by the
`Hunter Affiliates' as that term is defined in Article III, Section B.6(b)(iv)
of the Company's Restated Articles of Incorporation, or, if after the death of
B.D. Hunter, the `Hunter Group' as that term is defined in Article III,
Section B.6(b)(ii) of the Company's Restated Articles of Incorporation, or
(ii) by a vote of at least 70 percent of the directors then still in office
who were directors at the beginning of the two-year period, or who would be
considered pursuant to this sentence to be a director at the beginning of the
two-year period.
2.2 Continuing Obligations to Remain in Effect.
- -----------------------------------------------
The termination of this Agreement for any reason, including termination due to
a Change of Control, shall not relieve Employee of any continuing obligations
expressly provided in this Agreement, including without limitation each of
those set forth in Article III herein below.
ARTICLE III
COVENANTS REGARDING CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND INVENTIONS,
NONSOLICITATION, AND NONCOMPETITION
3.1 Confidentiality.
- --------------------
Employee recognizes and acknowledges that he will have access to certain
confidential information and trade secrets of the Company. Such confidential
information includes, but is not limited to: customer names and customer
lists, contracts, trade secrets, financial information, product plans,
marketing plans, systems, manuals, training materials, forecasts, inventions,
improvements, ideas, business strategies, formulas, product ideas, computer
programs and software, software designs and documentation, source codes, data
and data bases, techniques, schematics, information relating to confidential
or secret designs, processes, formulae, plans, devices or materials of the
Company, and its business and marketing plans, product and service
development, market development, manuals written by the Company, marketing and
financial analysis, plans, research, programs, and related information and
data, corporate books and records, and other similar intellectual property and
confidential information. Employee acknowledges and agrees that this
confidential information constitutes valuable, special and/or unique property
of the Company. Employee shall, at all times, both during Employee's
employment by the Company and thereafter, keep all such confidential
information in confidence and trust and will not use or disclose any
confidential information or anything relating to it to any person, firm,
corporation, association, or other entity for any reason or purpose without
the written consent of the Company.
3.2 Return of the Company's Property and Documents.
- ---------------------------------------------------
Employee recognizes that all confidential information, however stored or
memorialized, and all identification cards, keys, access codes, marketing
materials, samples, tape recordings, notes, tools, documents, records,
apparatus and other equipment or property which the Company provides to or
makes available to Employee are the sole property of the Company. Employee
shall use such property solely for the benefit of the Company and for no other
purpose. Upon the termination of Employee's employment with the Company,
Employee shall (i) refrain from taking any such property from the Company's
premises, (ii) immediately return to the Company any such property which may
be in Employee's possession or control (including any and all copies thereof),
(iii) immediately return to the Company any copies, notes, or excepts thereof,
all records, data, memoranda, and all documents or materials made or compiled
by Employee which are in the possession or control of Employee and which
relate to Employee's employment or to the business, activities or facilities
of the Company and any of its employees, agents, owners, officers, executives
and directors, and (iv) certify in writing that Employee has complied with
this Section 3.2.
3.3 Assignment of Inventions to the Company.
- --------------------------------------------
Employee will promptly disclose to the Company all improvements, inventions,
formulas, ideas, works of authorship, processes, techniques and trade secrets,
whether or not patentable, made or conceived or developed by Employee, either
alone or jointly with others, during Employee's employment (collectively
"Inventions"). All Inventions, and all patents, copyrights, trade secret
rights and other intellectual property rights related thereto shall be the
sole property of the Company to the maximum extent permitted by law and, to
the extent permitted by law, shall be "works for hire." Employee hereby
assigns to the Company any rights Employee may have or acquire in all
Inventions and agrees to perform, during and after employment with the
Company, all acts necessary or desirable by the Company to permit and assist
the Company, at the Company's expense, in obtaining and enforcing patents,
copyrights, trade secrets or other intellectual property rights with respect
to such Inventions. Employee hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as Employee's agents and
attorneys-in-fact to act for and in Employee's name and stead, to execute and
file any applications or related filings and do all other lawfully permitted
acts to further the prosecution and issuance of patents, copyrights, trade
secret rights or other intellectual property rights with respect to any
Inventions with the same legal force and effect as if executed by Employee.
3.4 Non-Solicitation of Customers and Clients.
- ----------------------------------------------
During the Term of this Agreement and for three years thereafter, Employee
will not, on behalf of any person or entity other than the Company, directly
or indirectly solicit, divert or attempt to solicit or divert any customer or
client of the Company, or any prospective customer or client of the Company,
at the time of Employee's termination or for one year prior thereto, on behalf
of any other person or entity competitive with the Company.
3.5 Non-Solicitation of Other Employees.
- ----------------------------------------
During the Term and for three years thereafter, Employee will not encourage,
solicit, induce, or attempt to encourage, solicit or induce any other
employee, agent or representative of the Company to leave his or her
employment with the Company for a position competitive with the Company and
Employee will not hire or attempt to hire, for any position with any entity
that is competitive with the Company, any person who is an employee, agent or
representative of the Company at such time, or who has been an employee, agent
or representative of the Company at any time within 90 days preceding such
time.
3.6 Non-Interference.
- ---------------------
During the Term of this Agreement and for three years thereafter, Employee
will not directly or indirectly hire, engage, send any work to, place orders
with, or in any manner be associated with any supplier, contractor,
subcontractor or other business relation of the Company if such action by him
would have a material adverse effect on the business, assets, or financial
condition of the Company, or materially interfere with the relationship
between any such person or entity and the Company.
3.7 Non-Competition.
- --------------------
During the Term of this Agreement and for three years thereafter, Employee
shall not, without the prior written consent of the Company, directly or
indirectly own, manage, finance, operate, join, control or participate in the
ownership, management or operation of, or be employed, provide services to or
otherwise be connected in any manner with, any person or entity competitive
with the Company. This prohibition encompasses any and all services, duties,
and employment of the same nature as the services, duties, and
responsibilities which Employee performs under this Agreement.
For the purposes of this Agreement, a person or entity is "competitive with
the Company" if such person or entity conducts, operates, carries out or
otherwise engages in the development, production, marketing or servicing, in
any state or market in which the Company transacts business, or was
contemplating the transaction of business at the time of Employee's
termination, of any product of the Company (i) with which Employee was
involved in the course of his employment with the Company, or (ii) which the
Company is developing, producing, marketing, or servicing, or plans to
develop, produce, market or service and of which Employee gained any knowledge
in the course of his employment with the Company.
3.8 Representations by Employee.
- --------------------------------
In connection with the above covenants, Employee represents that his
experience, capabilities and circumstances are such that the covenants
contained herein will not prevent him from earning a livelihood. Employee
further agrees that the limitations set forth in such covenants do not impose
a greater restraint than is necessary to protect the confidential information,
customer goodwill, and other business interests of the Company. Employee also
agrees that the limitations and covenants are reasonable and properly required
for the adequate protection of the current and future business of the Company.
Employee also agrees that, if any provision of the covenants set forth above
are found to be invalid in part or whole, the Company may elect, but shall not
be required, to have such provision reformed, whether as to time, scope of
activity, or otherwise, as and to the extent required for its validity under
applicable law, and, as so reformed, such provisions shall be enforceable.
3.9 Injunctive and Other Relief.
- --------------------------------
It is understood and agreed that the covenants made by Employee in this
Article III shall survive the expiration or termination of this Agreement.
Employee acknowledges and agrees that a remedy at law for any breach or
threatened breach of the provisions of this Article III would be inadequate,
and therefore agrees that the Company shall be entitled as a matter of right
to injunctive relief in addition to any other available rights and remedies in
cases of such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting the Company from pursuing
any other rights and remedies available for any such breach or threatened
breach, including the recovery of damages and attorneys' fees from Employee.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Successors and Assigns.
- ---------------------------
Except as otherwise provided herein, the rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of the Company. Except as otherwise provided
herein, this Agreement shall be binding upon Employee and his agents, heirs,
executors, administrators and legal representatives. The rights and
obligations of Employee shall not be assignable by Employee.
4.2 Governing Law.
- ------------------
Subject to Section 4.9, this Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri. The parties hereto consent
to the jurisdiction and venue of the Circuit Court in and for St. Louis
County, Missouri and of the Federal District Court of the Eastern District,
Eastern Division of Missouri with respect to any action brought in equity for
the breach of the provisions of Article III.
4.3 Counterparts.
- -----------------
This Agreement may be executed in multiple counterparts, each of which shall
be deemed an original, and all of which shall constitute one instrument.
4.4 Entire Agreement.
- ---------------------
This Agreement contains the entire agreement of the parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, and there are no other
warranties, representations, covenants or agreements among the Company and
Employee in connection with the subject matter hereof.
4.5 Amendment.
- --------------
Employee's obligations under this Agreement may be amended, supplemented,
modified and/or rescinded only through an express written amendment executed
by both Employee and the Company.
4.6 No Waiver of Employee Breach.
- ---------------------------------
The waiver by the Company of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by the Company of any
subsequent breach by Employee.
4.7 Severability.
- -----------------
If a court of competent jurisdiction shall adjudge to be invalid any clause,
sentence, subparagraph, paragraph, or section of this Agreement, such judgment
or decree shall not affect, impair, invalidate, or nullify the remainder of
this Agreement, but the effect thereof shall be confined to the clause,
sentence, subparagraph, paragraph, or section so adjudged to be invalid.
4.8 Survival.
- -------------
Employee and the Company expressly acknowledge and agree that the ongoing
obligations and covenants set forth in this Agreement shall survive the
termination of Employee's employment under this Agreement for the time period
set forth in this Agreement.
4.9 Arbitration.
- ----------------
Any controversy or claim arising out of or relating to the Agreement other
than an action brought in equity for the breach of the provisions of Article
III shall be settled by final and binding arbitration in St. Louis County,
Missouri. A single arbitrator may be selected by the unanimous agreement of
the parties to the dispute, but if the parties to the dispute fail to agree on
and appoint an arbitrator within thirty (30) calendar days of the receipt by
any party of notice of the existence of a dispute, then the dispute shall be
settled in St. Louis County, Missouri in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16 and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof and the parties hereto
consent to the jurisdiction and venue of the Circuit Court in and for St.
Louis County, Missouri and of the Federal District Court of the Eastern
District, Eastern Division of Missouri for the entry of judgment relating to
any award of the arbitrator.
4.10 Opportunity to Review.
- --------------------------
Employee hereby represents and warrants that he (a) has been given a
meaningful opportunity to review this Agreement, and (b) has been encouraged
by the Company to receive the advice of counsel with respect to the meaning
and effect of each Section of this Agreement. Employee acknowledges that he
has voluntarily entered into this Agreement of his own free will based only
upon the terms and conditions included in this Agreement.
4.11 Agreement Not to be Construed Against Either Party.
- -------------------------------------------------------
Employee and Company expressly acknowledge and agree that this Agreement was
the product of arms length negotiation between the parties, and that this
Agreement shall be construed fairly and without prejudice to either party as
the drafter of this Agreement, regardless of whether one party physically
prepared this Agreement.
4.12 Notices.
- ------------
All notices and other communications which are required or permitted hereunder
shall be in writing and shall be deemed to have been duly given and received
when delivered personally, when sent when mailed by registered or certified
mail, return receipt requested and postage prepaid, or when sent by a
nationally known overnight delivery service, or when sent by telephone
facsimile confirmed by overnight delivery service, to the parties at the
addresses or facsimile numbers indicated below (or at such other address as
shall be specified by notice).
EMPLOYEE: COMPANY:
B.D. HUNTER BOARD OF DIRECTORS
615 SPYGLASS SUMMIT HUNTCO INC.
CHESTERFIELD, MO 63017 14323 SOUTH OUTER FORTY
SUITE 600N
TOWN & COUNTY, MO 63017
(314) 878-4537
With a copy to:
Craig A. Adoor, Esq.
Blackwell Sanders Peper Martin LLP
720 Olive Street, 24th Floor
St. Louis, MO 63101
Fax: (314) 345 - 6060
Each party is responsible for informing the other party of any change in
address.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES
EMPLOYEE The COMPANY
Huntco Inc.
/s/ B. D. Hunter By: /s/ Robert J. Marischen
- ------------------------- --------------------------------
B. D. Hunter Its: Vice Chairman & President
--------------------------------
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
January 1, 2000, by and between Robert J. Marischen ("Employee") and Huntco
Inc. (the "Company"). In consideration of the mutual covenants and conditions
contained herein, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
EMPLOYMENT
1.1 Employment.
- ---------------
(a) In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Employee and the Company, the
Company agrees to continue to employ Employee, and Employee accepts continued
employment, subject to the terms and conditions of this Agreement.
(b) Employee shall adhere to the Company's policies, ethical practices and
standards of care and competence. Employee shall devote his full business
time and attention and best efforts to the affairs of the Company, and
Employee shall not engage in any other business duties or pursuits, or
directly or indirectly render any services of a business, commercial, or
professional nature to any other entity or person, whether for monetary
compensation or otherwise, without the prior written consent of the Chairman
of the Board of Huntco Inc.; provided, however, that Employee may participate
in charitable and other civic functions so long as such other activities do
not adversely affect Employee's ability to perform his responsibilities
hereunder.
(c) Employee affirms and represents that he is under no obligation to any
former employer or other party which is in any way inconsistent with, or which
imposes any restriction upon, Employee's acceptance of employment hereunder
with the Company, the employment of Employee by the Company, or the Employee's
undertakings pursuant to this Agreement. For purposes of this Agreement,
including, but not limited to, Sections 1.1(b), 1.1(c) and 5.5, Employee's
past, current and prospective business duties relating to his position as an
officer and director of Huntco Enterprises, Inc., including any of its
subsidiaries and affiliates, are specifically acknowledged and shall in no
event be considered a violation of the terms and provisions of this Agreement.
1.2 Term.
- ---------
This Agreement shall be effective as of January 1, 2000, and shall, unless
otherwise terminated as provided herein, terminate on December 31, 2000 (the
"Initial Term"). The Initial Term shall automatically be extended, for
additional one year periods, on each subsequent January 1, commencing January
1, 2001, unless the Company notifies Employee to the contrary in writing at
least 30 days prior to the expiration of the Initial Term, or of any such
additional one year period. (Each such additional one year period is referred
to as a "Renewal Term" and the period from the effective date of this
Agreement until the termination of this Agreement as provided for herein is
referred to as the "Term").
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Compensation and Benefits.
- ------------------------------
(a) Base Salary. As compensation for rendering service to the Company under
this Agreement, the Company shall pay to Employee during the Term, a base
salary ("Salary") of not less than $350,000.00 per year, payable at the
Company's customary pay periods, or at such other time or times as the Company
and Employee shall mutually agree. The Board of Directors or any authorized
committee or officer of the Company shall review Employee's overall annual
compensation at least annually with a view to the adequacy thereof.
(b) Bonus and Incentive Compensation. Employee shall be eligible to receive
such incentive or performance bonuses as may, pursuant to delegated authority
or in the discretion of the Board of Directors or any authorized committee or
officer of the Company, be awarded or granted. Employee shall be entitled to
receive a bonus for any quarter, or portion thereof, in which Employee is
actively employed by the Company, even if his employment has been terminated
for any reason at the time that the bonus is actually paid. Employee is not
entitled to receive a bonus for any quarter, or portion thereof, in which he
is not actively employed by the Company.
(c) Benefits. Except as otherwise expressly provided for herein, Employee
shall be eligible for participation in, and shall be covered by, any and all
such medical, disability, life and other insurance plans, and all other
employment benefits, as are generally available to other employees of the
Company in similar employment positions, on the same terms as such employees,
subject to meeting any and all applicable eligibility requirements.
(d) Employment Taxes. All payments to Employee made under this Agreement
shall be made subject to such federal, state, and local payroll and
withholding deductions as may be required by applicable law.
ARTICLE III
DUTIES AND EXTENT OF SERVICE
3.1 General Duties and Responsibilities
- ----------------------------------------
Employee shall serve the Company at its headquarters office located in the St.
Louis, Missouri metropolitan area, in an executive capacity as its Vice
Chairman and President. The duties and responsibilities of Employee include
those described for employee's particular position in the Bylaws of Company,
or other documents of Company, and such other or additional duties as may be
assigned to Employee from time to time by the Chairman of the Board of the
Company. Employee shall do and perform, and shall have the authority to do and
perform, all services, acts and other things necessary to perform the duties
and responsibilities of his position.
Employee acknowledges and agrees that he owes a fiduciary duty of loyalty,
fidelity, and allegiance to act at all times in the best interests of the
Company and to do no act which would injure the Company's business, its
interests or its reputation.
ARTICLE IV
TERMINATION
4.1 Termination.
- -----------------
The following sets forth the bases on which Employee's employment under this
Agreement may or shall terminate:
(a) End of Term: The expiration of the Term shall occur.
(b) Termination Due to Death: The death of the Employee shall occur. Upon a
termination due to death, Employee's estate shall be entitled to receive an
amount equal to three times his then current Salary, payable in equal
installments over a three year period at the Company's customary pay periods.
(c)Termination Due to Disability: The Company shall have the right to
terminate Employee's employment under this Agreement if Employee is unable to
perform his duties hereunder by reason of any mental or physical disability or
incapacity for a period of 60 consecutive days, or if Employee otherwise
becomes disabled such that he is no longer reasonably able to perform his
duties as contemplated by this Agreement. Upon the termination due to
disability, Employee shall be entitled to receive an amount equal to three
times his then current Salary, payable in equal installments over a three year
period at the Company's customary pay periods.
(d) Termination for Cause: The Company shall have the right at any time to
terminate Employee's employment for "Cause." As used herein, "Cause" shall
mean any of the following: If Employee (i) violates any material provision of
this Agreement; (ii) fails to perform the services required of him pursuant to
this Agreement; (iii) takes action (or fails to take action) in bad faith that
Employee knew, or reasonably should have known, was likely to materially
damage the business of the Company; (iv) engages in fraud, embezzlement or any
other illegal or wrongful conduct substantially detrimental to the Company or
the Company's reputation, regardless of whether such conduct is designed to
defraud the Company or others; (v) is indicted, convicted of, or pleads guilty
or "no contest" to a crime other than a routine traffic violation; (vi) is
grossly negligent in the performance of, or willfully disregards, his
obligations hereunder. If Employee is terminated "for Cause" as described
herein, Employee shall not be entitled to receive any further salary or
benefits under this Agreement other than payment for that part of Employee's
Salary that would otherwise be payable to Employee through the last date of
his employment with the Company. Upon such payment, all obligations in any
manner whatsoever of the Company to the Employee shall be fully satisfied.
Employee is not entitled to receive any bonus if his employment is terminated
as provided in this section.
(e) Termination Without Cause: In the event that Employee's employment with
the Company shall be terminated for any reason, except as set forth in
Sections 4.1(b), 4.1(c), 4.1(d), 4.1(f), or 4.1(g) hereof, such termination
deemed to be "Without Cause". Upon Employee's termination Without Cause,
Employee shall be entitled to receive an amount equal to three times his then
current Salary, payable in equal installments over a three year period at the
Company's customary pay periods. If Employee's employment is terminated as
provided in this section, Employee shall also be entitled to receive the
bonus, if any, which is earned or accrued during the quarter in which his
employment is terminated Without Cause. Employee shall not be eligible for
any other bonus following his termination Without Cause. Employee shall also
be entitled to remain on the Company's medical and dental insurance program at
Company's expense for three years following termination of Employee's
employment pursuant to this section. Upon payment of the final monthly
compensation due hereunder, all obligations in any manner whatsoever of the
Company to the Employee shall be fully satisfied. The parties further
expressly agree that, during the period after Employee's termination Without
Cause, in which period Employee will be paid pursuant to Section 4.1(e),
Employee will not have any authority to act on behalf of the Company.
(f) Change of Control: If at any time during the Term there is a Change of
Control of the Company, as defined below, Employee shall have the option of
resigning his employment with the Company, or its successor, for any reason,
or for no reason, at any time up to one year following the date of the Change
of Control. If Employee's employment is involuntarily terminated by the
Company within one year following a Change of Control, or if Employee resigns
his employment pursuant to this section within one year following a Change of
Control, the Company will pay to Employee an amount equal to three times his
then current Salary, in a lump sum, within fifteen days of such involuntary
termination or resignation. If Employee's employment is terminated as provided
in this section, Employee shall also be entitled to receive the bonus, if any,
which is earned or accrued during the quarter in which his employment is
terminated. Employee shall not be eligible for any other bonus following his
termination. Employee shall also be entitled to remain on the Company's
medical and dental insurance program at Company's expense for three years
following termination of Employee's employment pursuant to this section.
The Company will pay Employee a "Tax Gross-Up" payment if a tax is imposed on
Employee pursuant to Section 4999 of the Internal Revenue Code of 1986 as
amended, or any successor provision, with respect to any excess parachute
payment in connection with a Change of Control of the Company. The amount of
the Tax Gross-Up payment will be equal to (i) the amount of such tax, divided
by (ii) 1 minus the blended marginal federal and applicable state income tax
rates in effect for the applicable period for Employee. The Company shall pay
any Tax Gross-Up amount promptly to enable Employee to timely pay income taxes
for the applicable tax period, estimated or otherwise.
Upon payment of the lump sum payment provided for herein and the "Tax Gross-
Up" payment, if any, and the medical and dental benefits herein described, all
obligations of the Company to the Employee hereunder shall be fully satisfied.
The parties further expressly agree that, during the period after Employee's
termination during which period Employee will receive payments or benefits
hereunder, Employee will not have authority to act on behalf of the Company.
For purposes of this Agreement, a "Change of Control" means the occurrence of
any of the following events: (i) a merger, consolidation or reorganization of
the Company in which the Company does not survive as an independent entity;
(ii) a merger, consolidation or reorganization of the Company in which the
Company does not survive as a publicly held company; (iii) a sale of all or
substantially all of the assets of the Company; (iv) the first purchase of
shares of Class A Common Stock of the Company pursuant to a tender or exchange
offer for more than 20% of the Company's outstanding shares of Class A Common
Stock; or (v) any change of control of a nature that, in the opinion of the
Board of Directors, would be required to be reported under the federal
securities laws; provided that such a change of control shall be deemed to
have occurred if: (A) any person other than the `Hunter Affiliates' as that
term is defined in Article III, Section B.6(b)(iv) of the Company's Restarted
Articles of Incorporation, or the `Hunter Group' as that term is defined in
Article III, Section B.6(b)(ii) of the Company's Restated Articles of
Incorporation (x) is or becomes the beneficial owner, directly or indirectly,
of securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities, or (y) through a
shareholders' agreement, voting trust, other contractual arrangement, or
otherwise, acquires or obtains the right to vote securities or to direct
another to vote securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding securities; or (B)
during any period of two consecutive years from January 1, 2000 through the
expiration date hereof, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any reason to
constitute a majority thereof unless the election of any director, who was not
a director at the beginning of the period, was approved by a vote of at least
70% of the directors then still in office who were directors at the beginning
of the period.
For purposes of this Section 4.1(f)(v)(B), a director shall be considered to
be a director at the beginning of such two year period if the director's
election was approved either (i) during the lifetime of B.D. Hunter by the
`Hunter Affiliates' as that term is defined in Article III, Section B.6(b)(iv)
of the Company's Restated Articles of Incorporation, or, if after the death of
B.D. Hunter, the `Hunter Group' as that term is defined in Article III,
Section B.6(b)(ii) of the Company's Restated Articles of Incorporation, or
(ii) by a vote of at least 70 percent of the directors then still in office
who were directors at the beginning of the two-year period, or who would be
considered pursuant to this sentence to be a director at the beginning of the
two-year period.
(g) Resignation of Employee: Employee may resign and terminate his employment
at any time by giving no less than 30 days' written notice to the Company. If
Employee resigns prior to the end of the Term pursuant to this section, this
Agreement shall terminate immediately. Except as provided for in Section
4.1(f), Employee shall not be entitled to receive any further salary or
benefits under this Agreement, other than payment for that part of Employee's
Salary that would otherwise be payable to Employee through the last date of
his employment with the Company. Upon such payment, all obligations in any
manner whatsoever of the Company to the Employee shall be fully satisfied.
Employee is not entitled to receive any bonus if his employment is resigned as
provided in this section.
4.2 Continuing Obligations to Remain in Effect.
- -----------------------------------------------
The termination of this Agreement for any reason, including termination due to
a Change of Control, shall not relieve Employee of any continuing obligations
expressly provided in this Agreement, including without limitation each of
those set forth in Article V herein below.
ARTICLE V
COVENANTS REGARDING CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND INVENTIONS,
NONSOLICITATION, AND NONCOMPETITION
5.1 Confidentiality.
- --------------------
Employee recognizes and acknowledges that he will have access to certain
confidential information and trade secrets of the Company. Such confidential
information includes, but is not limited to: customer names and customer
lists, contracts, trade secrets, financial information, product plans,
marketing plans, systems, manuals, training materials, forecasts, inventions,
improvements, ideas, business strategies, formulas, product ideas, computer
programs and software, software designs and documentation, source codes, data
and data bases, techniques, schematics, information relating to confidential
or secret designs, processes, formulae, plans, devices or materials of the
Company, and its business and marketing plans, product and service
development, market development, manuals written by the Company, marketing and
financial analysis, plans, research, programs, and related information and
data, corporate books and records, and other similar intellectual property and
confidential information. Employee acknowledges and agrees that this
confidential information constitutes valuable, special and/or unique property
of the Company. Employee shall, at all times, both during Employee's
employment by the Company and thereafter, keep all such confidential
information in confidence and trust and will not use or disclose any
confidential information or anything relating to it to any person, firm,
corporation, association, or other entity for any reason or purpose without
the written consent of the Company.
5.2 Return of the Company's Property and Documents.
- ---------------------------------------------------
Employee recognizes that all confidential information, however stored or
memorialized, and all identification cards, keys, access codes, marketing
materials, samples, tape recordings, notes, tools, documents, records,
apparatus and other equipment or property which the Company provides to or
makes available to Employee are the sole property of the Company. Employee
shall use such property solely for the benefit of the Company and for no other
purpose. Upon the termination of Employee's employment with the Company,
Employee shall (i) refrain from taking any such property from the Company's
premises, (ii) immediately return to the Company any such property which may
be in Employee's possession or control (including any and all copies thereof),
(iii) immediately return to the Company any copies, notes, or excepts thereof,
all records, data, memoranda, and all documents or materials made or compiled
by Employee which are in the possession or control of Employee and which
relate to Employee's employment or to the business, activities or facilities
of the Company and any of its employees, agents, owners, officers, executives
and directors, and (iv) certify in writing that Employee has complied with
this Section 5.2.
5.3 Assignment of Inventions to the Company.
- --------------------------------------------
Employee will promptly disclose to the Company all improvements, inventions,
formulas, ideas, works of authorship, processes, techniques and trade secrets,
whether or not patentable, made or conceived or developed by Employee, either
alone or jointly with others, during Employee's employment (collectively
"Inventions"). All Inventions, and all patents, copyrights, trade secret
rights and other intellectual property rights related thereto shall be the
sole property of the Company to the maximum extent permitted by law and, to
the extent permitted by law, shall be "works for hire." Employee hereby
assigns to the Company any rights Employee may have or acquire in all
Inventions and agrees to perform, during and after employment with the
Company, all acts necessary or desirable by the Company to permit and assist
the Company, at the Company's expense, in obtaining and enforcing patents,
copyrights, trade secrets or other intellectual property rights with respect
to such Inventions. Employee hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as Employee's agents and
attorneys-in-fact to act for and in Employee's name and stead, to execute and
file any applications or related filings and do all other lawfully permitted
acts to further the prosecution and issuance of patents, copyrights, trade
secret rights or other intellectual property rights with respect to any
Inventions with the same legal force and effect as if executed by Employee.
5.4 Non-Solicitation of Customers and Clients.
- ----------------------------------------------
During the Term of this Agreement and for three years thereafter, Employee
will not, on behalf of any person or entity other than the Company, directly
or indirectly solicit, divert or attempt to solicit or divert any customer or
client of the Company, or any prospective customer or client of the Company,
at the time of Employee's termination or for one year prior thereto, on behalf
of any other person or entity competitive with the Company.
5.5 Non-Solicitation of Other Employees.
- ----------------------------------------
During the Term and for three years thereafter, Employee will not encourage,
solicit, induce, or attempt to encourage, solicit or induce any other
employee, agent or representative of the Company to leave his or her
employment with the Company for any reason, and Employee will not hire or
attempt to hire, for any position with any other business, any person who is
an employee, agent or representative of the Company at such time or who has
been an employee, agent or representative of the Company at any time within 90
days preceding such time.
5.6 Non-Interference.
- ---------------------
During the Term of this Agreement and for three years thereafter, Employee
will not directly or indirectly hire, engage, send any work to, place orders
with, or in any manner be associated with any supplier, contractor,
subcontractor or other business relation of the Company if such action by him
would have a material adverse effect on the business, assets, or financial
condition of the Company, or materially interfere with the relationship
between any such person or entity and the Company.
5.7 Non-Competition.
- --------------------
During the Term of this Agreement and for three years thereafter, Employee
shall not, without the prior written consent of the Company, directly or
indirectly own, manage, finance, operate, join, control or participate in the
ownership, management or operation of, or be employed, provide services to or
otherwise be connected in any manner with, any person or entity competitive
with the Company. This prohibition encompasses any and all services, duties,
and employment of the same nature as the services, duties, and
responsibilities which Employee performs under this Agreement.
For the purposes of this Agreement, a person or entity is "competitive with
the Company" if such person or entity conducts, operates, carries out or
otherwise engages in the development, production, marketing or servicing, in
any state or market in which the Company transacts business, or was
contemplating the transaction of business at the time of Employee's
termination, of any product of the Company (i) with which Employee was
involved in the course of his employment with the Company, or (ii) which the
Company is developing, producing, marketing, or servicing, or plans to
develop, produce, market or service and of which Employee gained any knowledge
in the course of his employment with the Company.
5.8 Representations by Employee.
- --------------------------------
In connection with the above covenants, Employee represents that his
experience, capabilities and circumstances are such that the covenants
contained herein will not prevent him from earning a livelihood. Employee
further agrees that the limitations set forth in such covenants do not impose
a greater restraint than is necessary to protect the confidential information,
customer goodwill, and other business interests of the Company. Employee also
agrees that the limitations and covenants are reasonable and properly required
for the adequate protection of the current and future business of the Company.
Employee also agrees that, if any provision of the covenants set forth above
are found to be invalid in part or whole, the Company may elect, but shall not
be required, to have such provision reformed, whether as to time, scope of
activity, or otherwise, as and to the extent required for its validity under
applicable law, and, as so reformed, such provisions shall be enforceable.
5.9 Injunctive and Other Relief.
- --------------------------------
It is understood and agreed that the covenants made by Employee in this
Article 5 shall survive the expiration or termination of this Agreement.
Employee acknowledges and agrees that a remedy at law for any breach or
threatened breach of the provisions of this Article 5 would be inadequate, and
therefore agrees that the Company shall be entitled as a matter of right to
injunctive relief in addition to any other available rights and remedies in
cases of such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting the Company from pursuing
any other rights and remedies available for any such breach or threatened
breach, including the recovery of damages and attorneys' fees from Employee.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Successors and Assigns.
- ---------------------------
Except as otherwise provided herein, the rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of the Company. Except as otherwise provided
herein, this Agreement shall be binding upon Employee and his agents, heirs,
executors, administrators and legal representatives. The rights and
obligations of Employee shall not be assignable by Employee.
6.2 Governing Law.
- ------------------
Subject to Section 6.9, this Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri. The parties hereto consent
to the jurisdiction and venue of the Circuit Court in and for St. Louis
County, Missouri and of the Federal District Court of the Eastern District,
Eastern Division of Missouri with respect to any action brought in equity for
the breach of the provisions of Article V.
6.3 Counterparts.
- -----------------
This Agreement may be executed in multiple counterparts, each of which shall
be deemed an original, and all of which shall constitute one instrument.
6.4 Entire Agreement.
- ---------------------
This Agreement contains the entire agreement of the parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, and there are no other
warranties, representations, covenants or agreements among the Company and
Employee in connection with the subject matter hereof.
6.5 Amendment.
- --------------
Employee's obligations under this Agreement may be amended, supplemented,
modified and/or rescinded only through an express written amendment executed
by both Employee and the Company.
6.6 No Waiver of Employee Breach.
- ---------------------------------
The waiver by the Company of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by the Company of any
subsequent breach by Employee.
6.7 Severability.
- -----------------
If a court of competent jurisdiction shall adjudge to be invalid any clause,
sentence, subparagraph, paragraph, or section of this Agreement, such judgment
or decree shall not affect, impair, invalidate, or nullify the remainder of
this Agreement, but the effect thereof shall be confined to the clause,
sentence, subparagraph, paragraph, or section so adjudged to be invalid.
6.8 Survival.
- -------------
Employee and the Company expressly acknowledge and agree that the ongoing
obligations and covenants set forth in this Agreement, including without
limitation, those contained in Sections 4.1(b), 4.1(c), 4.1(e), 4.1(f), 5.1,
5.2, 5.3, 5.4, 5.5, 5.6 and 5.7 hereof, shall survive the termination of
Employee's employment under this Agreement.
6.9 Arbitration.
- ----------------
Any controversy or claim arising out of or relating to the Agreement other
than an action brought in equity for the breach of the provisions of Article V
shall be settled by final and binding arbitration in St. Louis County,
Missouri. A single arbitrator may be selected by the unanimous agreement of
the parties to the dispute, but if the parties to the dispute fail to agree on
and appoint an arbitrator within thirty (30) calendar days of the receipt by
any party of notice of the existence of a dispute, then the dispute shall be
settled in St. Louis County, Missouri in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16 and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof and the parties hereto
consent to the jurisdiction and venue of the Circuit Court in and for St.
Louis County, Missouri and of the Federal District Court of the Eastern
District, Eastern Division of Missouri for the entry of judgment relating to
any award of the arbitrator.
6.10 Opportunity to Review.
- --------------------------
Employee hereby represents and warrants that he (a) has been given a
meaningful opportunity to review this Agreement, and (b) has been encouraged
by the Company to receive the advice of counsel with respect to the meaning
and effect of each Section of this Agreement. Employee acknowledges that he
has voluntarily entered into this Agreement of his own free will based only
upon the terms and conditions included in this Agreement.
6.11 Agreement Not to be Construed Against Either Party.
- -------------------------------------------------------
Employee and Company expressly acknowledge and agree that this Agreement was
the product of arms length negotiation between the parties, and that this
Agreement shall be construed fairly and without prejudice to either party as
the drafter of this Agreement, regardless of whether one party physically
prepared this Agreement.
6.12 Notices.
- ------------
All notices and other communications which are required or permitted hereunder
shall be in writing and shall be deemed to have been duly given and received
when delivered personally, when sent when mailed by registered or certified
mail, return receipt requested and postage prepaid, or when sent by a
nationally known overnight delivery service, or when sent by telephone
facsimile confirmed by overnight delivery service, to the parties at the
addresses or facsimile numbers indicated below (or at such other address as
shall be specified by notice).
EMPLOYEE: COMPANY:
ROBERT J. MARISCHEN "CHAIRMAN"
335 HAMPSHIRE HILL LANE HUNTCO INC.
TOWN & COUNTRY, MO 63141 14323 SOUTH OUTER FORTY
SUITE 600N
TOWN & COUNTY, MO 63017
(314) 878-4537
With a copy to:
Craig A. Adoor, Esq.
Blackwell Sanders Peper Martin LLP
720 Olive Street, 24th Floor
St. Louis, MO 63101
Fax: (314) 345 - 6060
Each party is responsible for informing the other party of any change in
address.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES
EMPLOYEE The COMPANY
Huntco Inc.
/s/ Robert J. Marischen By: /s/ Anthony J. Verkruyse
- ------------------------------ ---------------------------------
Robert J. Marischen Its: Vice President & CFO
---------------------------------
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
January 1, 2000, by and between Anthony J. Verkruyse ("Employee") and Huntco
Inc. (the "Company"). In consideration of the mutual covenants and conditions
contained herein, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
EMPLOYMENT
1.1 Employment.
- ---------------
(a) In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Employee and the Company, the
Company agrees to continue to employ Employee, and Employee accepts continued
employment, subject to the terms and conditions of this Agreement.
(b) Employee shall adhere to the Company's policies, ethical practices and
standards of care and competence. Employee shall devote his full business
time and attention and best efforts to the affairs of the Company, and
Employee shall not engage in any other business duties or pursuits, or
directly or indirectly render any services of a business, commercial, or
professional nature to any other entity or person, whether for monetary
compensation or otherwise, without the prior written consent of the President
of Company; provided, however, that Employee may participate in charitable and
other civic functions so long as such other activities do not adversely affect
Employee's ability to perform his responsibilities hereunder.
(c) Employee affirms and represents that he is under no obligation to any
former employer or other party which is in any way inconsistent with, or which
imposes any restriction upon, Employee's acceptance of employment hereunder
with the Company, the employment of Employee by the Company, or the Employee's
undertakings pursuant to this Agreement. For purposes of this Agreement,
including, but not limited to, Sections 1.1(b), 1.1(c) and 5.5, Employee's
past, current and prospective business duties relating to his position as an
officer of Huntco Enterprises, Inc., including any of its subsidiaries and
affiliates, are specifically acknowledged and shall in no event be considered
a violation of the terms and provisions of this Agreement.
1.2 Term.
- --------
This Agreement shall be effective as of January 1, 2000, and shall, unless
otherwise terminated as provided herein, terminate on December 31, 2000 (the
"Initial Term"). The Initial Term shall automatically be extended, for
additional one year periods, on each subsequent January 1, commencing January
1, 2001, unless the Company notifies Employee to the contrary in writing at
least 30 days prior to the expiration of the Initial Term, or of any such
additional one year period. (Each such additional one year period is referred
to as a "Renewal Term" and the period from the effective date of this
Agreement until the termination of this Agreement as provided for herein is
referred to as the "Term").
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Compensation and Benefits.
- ------------------------------
(a) Base Salary. As compensation for rendering service to the Company under
this Agreement, the Company shall pay to Employee during the Term, a base
salary ("Salary") of not less than $150,000.00 per year, payable at the
Company's customary pay periods, or at such other time or times as the Company
and Employee shall mutually agree. The Board of Directors or any authorized
committee or officer of the Company shall review Employee's overall annual
compensation at least annually with a view to the adequacy thereof.
(b) Bonus and Incentive Compensation. Employee shall be eligible to receive
such incentive or performance bonuses as may, pursuant to delegated authority
or in the discretion of the Board of Directors or any authorized committee or
officer of the Company, be awarded or granted. Employee shall be entitled to
receive a bonus for any quarter, or portion thereof, in which Employee is
actively employed by the Company, even if his employment has been terminated
for any reason at the time that the bonus is actually paid. Employee is not
entitled to receive a bonus for any quarter, or portion thereof, in which he
is not actively employed by the Company.
(c) Benefits. Except as otherwise expressly provided for herein, Employee
shall be eligible for participation in, and shall be covered by, any and all
such medical, disability, life and other insurance plans, and all other
employment benefits, as are generally available to other employees of Company
in similar employment positions, on the same terms as such employees, subject
to meeting any and all applicable eligibility requirements.
(d) Employment Taxes. All payments to Employee made under this Agreement
shall be made subject to such federal, state, and local payroll and
withholding deductions as may be required by applicable law.
ARTICLE III
DUTIES AND EXTENT OF SERVICE
3.1 General Duties and Responsibilities
- ----------------------------------------
Employee shall serve the Company, in an executive capacity as Vice President
and Chief Financial and Accounting Officer. The duties and responsibilities of
Employee include those described for Employee's particular position in the
Bylaws of Company, or other documents of Company, and such other or additional
duties as may be assigned to Employee from time to time by the Chairman of the
Board or President of the Company. Employee shall do and perform, and shall
have the authority to do and perform, all services, acts and other things
necessary to perform the duties and responsibilities of his position.
Employee acknowledges and agrees that he owes a fiduciary duty of loyalty,
fidelity, and allegiance to act at all times in the best interests of the
Company and to do no act which would injure the Company's business, its
interests or its reputation.
ARTICLE IV
TERMINATION
4.1 Termination.
- ----------------
The following sets forth the bases on which Employee's employment under this
Agreement may or shall terminate:
(a) End of Term: The expiration of the Term shall occur.
(b) Termination Due to Death: The death of the Employee shall occur. Upon a
termination due to death, Employee's estate shall be entitled to receive an
amount equal to his then current Salary, payable in equal installments over a
one year period at the Company's customary pay periods.
(c)Termination Due to Disability: The Company shall have the right to
terminate Employee's employment under this Agreement if Employee is unable to
perform his duties hereunder by reason of any mental or physical disability or
incapacity for a period of 60 consecutive days, or if Employee otherwise
becomes disabled such that he is no longer reasonably able to perform his
duties as contemplated by this Agreement. Upon the termination due to
disability, Employee shall be entitled to receive an amount equal to his then
current Salary, payable in equal installments over a one year period at the
Company's customary pay periods.
(d) Termination for Cause: The Company shall have the right at any time to
terminate Employee's employment for "Cause." As used herein, "Cause" shall
mean any of the following: If Employee (i) violates any material provision of
this Agreement; (ii) fails to perform the services required of him pursuant to
this Agreement; (iii) takes action (or fails to take action) in bad faith that
Employee knew, or reasonably should have known, was likely to materially
damage the business of the Company; (iv) engages in fraud, embezzlement or any
other illegal or wrongful conduct substantially detrimental to the Company or
the Company's reputation, regardless of whether such conduct is designed to
defraud the Company or others; (v) is indicted, convicted of, or pleads guilty
or "no contest" to a crime other than a routine traffic violation; (vi) is
grossly negligent in the performance of, or willfully disregards, his
obligations hereunder. If Employee is terminated "for Cause" as described
herein, Employee shall not be entitled to receive any further salary or
benefits under this Agreement other than payment for that part of Employee's
Salary that would otherwise be payable to Employee through the last date of
his employment with the Company. Upon such payment, all obligations in any
manner whatsoever of the Company to the Employee shall be fully satisfied.
Employee is not entitled to receive any bonus if his employment is terminated
as provided in this section.
(e) Termination Without Cause: In the event that Employee's employment with
the Company shall be terminated for any reason, except as set forth in
Sections 4.1(b), 4.1(c), 4.1(d), 4.1(f), or 4.1(g) hereof, such termination
shall be deemed to be "Without Cause". Upon Employee's termination Without
Cause, Employee shall be entitled to receive an amount equal to two times his
then current Salary, payable in equal installments over a two year period at
the Company's customary pay periods. If Employee's employment is terminated as
provided in this section, Employee shall also be entitled to receive the
bonus, if any, which is earned or accrued during the quarter in which his
employment is terminated Without Cause. Employee shall not be eligible for
any other bonus following his termination Without Cause. Employee shall also
be entitled to remain on the Company's medical and dental insurance program at
Company's expense for two years following termination of Employee's employment
pursuant to this section. Upon payment of the final monthly compensation due
hereunder, all obligations in any manner whatsoever of the Company to the
Employee shall be fully satisfied. The parties further expressly agree that,
during the period after Employee's termination Without Cause, in which period
Employee will be paid pursuant to Section 4.1(e), Employee will not have any
authority to act on behalf of the Company.
(f) Change of Control: If at any time during the Term there is a Change of
Control of Huntco Inc., as defined below, and within the period of one year
following the Change of Control, such Change of Control results in either:
(i) the termination of Employee's employment with the Company; or (ii) a
substantial reduction in Employee's compensation or authority, and Employee
subsequently resigns within 30 days of the substantial reduction in his
compensation or authority; then the Company will continue to provide Employee
with his monthly compensation, based upon Employee's then current Salary, for
a period of twenty four months following the date of such termination. If
Employee's employment is terminated as provided in this paragraph, Employee
shall also be entitled to receive the bonus, if any, which is earned or
accrued during the quarter in which his employment is terminated. Employee
shall not be eligible for any other bonus following his termination. Employee
shall also be entitled to remain on the Company's medical and dental insurance
program at Company's expense for two years following termination of Employee's
employment pursuant to this section.
The Company will pay Employee a "Tax Gross-Up" payment if a tax is imposed on
Employee pursuant to Section 4999 of the Internal Revenue Code of 1986 as
amended, or any successor provision, with respect to any excess parachute
payment in connection with a Change of Control of Huntco Inc. The amount of
the Tax Gross-Up payment will be equal to (i) the amount of such tax, divided
by (ii) 1 minus the blended marginal federal and applicable state income tax
rates in effect for the applicable period for Employee. The Company shall pay
any Tax Gross-Up amount promptly to enable Employee to timely pay income taxes
for the applicable tax period, estimated or otherwise.
Upon payment of the Salary payments provided for herein and the "Tax Gross-Up"
payment, if any, and the medical and dental benefits herein described, all
obligations of the Company to the Employee hereunder shall be fully satisfied.
The parties further expressly agree that, during the period after Employee's
termination during which period Employee will receive payments or benefits
hereunder, Employee will not have authority to act on behalf of the Company.
For purposes of this Agreement, a "Change of Control" means the occurrence of
any of the following events: (i) a merger, consolidation or reorganization of
Huntco Inc. in which Huntco Inc. does not survive as an independent entity;
(ii) a merger, consolidation or reorganization of Huntco Inc. in which Huntco
Inc. does not survive as a publicly held company; (iii) a sale of all or
substantially all of the assets of Huntco Inc.; (iv) the first purchase of
shares of Class A Common Stock of Huntco Inc. pursuant to a tender or exchange
offer for more than 20% of Huntco Inc.'s outstanding shares of Class A Common
Stock; or (v) any change of control of a nature that, in the opinion of the
Board of Directors of Huntco Inc., would be required to be reported under the
federal securities laws; provided that such a change of control shall be
deemed to have occurred if: (A) any person other than the `Hunter Affiliates'
as that term is defined in Article III, Section B.6(b)(iv) of Huntco Inc.'s
Restarted Articles of Incorporation, or the `Hunter Group' as that term is
defined in Article III, Section B.6(b)(ii) of Huntco Inc.'s Restated Articles
of Incorporation (x) is or becomes the beneficial owner, directly or
indirectly, of securities of Huntco Inc. representing 35% or more of the
combined voting power of Huntco Inc.'s then outstanding securities, or (y)
through a shareholders' agreement, voting trust, other contractual
arrangement, or otherwise, acquires or obtains the right to vote securities or
to direct another to vote securities of Huntco Inc. representing 35% or more
of the combined voting power of Huntco Inc.'s then outstanding securities; or
(B) during any period of two consecutive years from January 1, 2000 through
the expiration date hereof, individuals who at the beginning of such period
constitute the Board of Directors of Huntco Inc. cease for any reason to
constitute a majority thereof unless the election of any director, who was not
a director at the beginning of the period, was approved by a vote of at least
70% of the directors then still in office who were directors at the beginning
of the period.
For purposes of this Section 4.1(f)(v)(B), a director shall be considered to
be a director at the beginning of such two year period if the director's
election was approved either (i) during the lifetime of B.D. Hunter by the
`Hunter Affiliates' as that term is defined in Article III, Section B.6(b)(iv)
of Huntco Inc.'s Restated Articles of Incorporation, or, if after the death of
B.D. Hunter, the `Hunter Group' as that term is defined in Article III,
Section B.6(b)(ii) of Huntco Inc.'s Restated Articles of Incorporation, or
(ii) by a vote of at least 70 percent of the directors then still in office
who were directors at the beginning of the two-year period, or who would be
considered pursuant to this sentence to be a director at the beginning of the
two-year period.
(g) Resignation of Employee: Employee may resign and terminate his employment
at any time by giving no less than 30 days' written notice to the Company. If
Employee resigns prior to the end of the Term pursuant to this section, this
Agreement shall terminate immediately. Except as provided for in Section
4.1(f), Employee shall not be entitled to receive any further salary or
benefits under this Agreement, other than payment for that part of Employee's
Salary that would otherwise be payable to Employee through the last date of
his employment with the Company. Upon such payment, all obligations in any
manner whatsoever of the Company to the Employee shall be fully satisfied.
Employee is not entitled to receive any bonus if his employment is resigned as
provided in this section.
4.2 Continuing Obligations to Remain in Effect.
- -----------------------------------------------
The termination of this Agreement for any reason, including termination due to
a Change of Control, shall not relieve Employee of any continuing obligations
expressly provided in this Agreement, including without limitation each of
those set forth in Article V herein below.
ARTICLE V
COVENANTS REGARDING CONFIDENTIAL INFORMATION, COMPANY PROPERTY AND INVENTIONS,
NONSOLICITATION, AND NONCOMPETITION
5.1 Confidentiality.
- --------------------
Employee recognizes and acknowledges that he will have access to certain
confidential information and trade secrets of the Company. Such confidential
information includes, but is not limited to: customer names and customer
lists, contracts, trade secrets, financial information, product plans,
marketing plans, systems, manuals, training materials, forecasts, inventions,
improvements, ideas, business strategies, formulas, product ideas, computer
programs and software, software designs and documentation, source codes, data
and data bases, techniques, schematics, information relating to confidential
or secret designs, processes, formulae, plans, devices or materials of the
Company, and its business and marketing plans, product and service
development, market development, manuals written by the Company, marketing and
financial analysis, plans, research, programs, and related information and
data, corporate books and records, and other similar intellectual property and
confidential information. Employee acknowledges and agrees that this
confidential information constitutes valuable, special and/or unique property
of the Company. Employee shall, at all times, both during Employee's
employment by the Company and thereafter, keep all such confidential
information in confidence and trust and will not use or disclose any
confidential information or anything relating to it to any person, firm,
corporation, association, or other entity for any reason or purpose without
the written consent of the Company.
5.2 Return of the Company's Property and Documents.
- ---------------------------------------------------
Employee recognizes that all confidential information, however stored or
memorialized, and all identification cards, keys, access codes, marketing
materials, samples, tape recordings, notes, tools, documents, records,
apparatus and other equipment or property which the Company provides to or
makes available to Employee are the sole property of the Company. Employee
shall use such property solely for the benefit of the Company and for no other
purpose. Upon the termination of Employee's employment with the Company,
Employee shall (i) refrain from taking any such property from the Company's
premises, (ii) immediately return to the Company any such property which may
be in Employee's possession or control (including any and all copies thereof),
(iii) immediately return to the Company any copies, notes, or excepts thereof,
all records, data, memoranda, and all documents or materials made or compiled
by Employee which are in the possession or control of Employee and which
relate to Employee's employment or to the business, activities or facilities
of the Company and any of its employees, agents, owners, officers, executives
and directors, and (iv) certify in writing that Employee has complied with
this Section 5.2.
5.3 Assignment of Inventions to the Company.
- --------------------------------------------
Employee will promptly disclose to the Company all improvements, inventions,
formulas, ideas, works of authorship, processes, techniques and trade secrets,
whether or not patentable, made or conceived or developed by Employee, either
alone or jointly with others, during Employee's employment (collectively
"Inventions"). All Inventions, and all patents, copyrights, trade secret
rights and other intellectual property rights related thereto shall be the
sole property of the Company to the maximum extent permitted by law and, to
the extent permitted by law, shall be "works for hire." Employee hereby
assigns to the Company any rights Employee may have or acquire in all
Inventions and agrees to perform, during and after employment with the
Company, all acts necessary or desirable by the Company to permit and assist
the Company, at the Company's expense, in obtaining and enforcing patents,
copyrights, trade secrets or other intellectual property rights with respect
to such Inventions. Employee hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as Employee's agents and
attorneys-in-fact to act for and in Employee's name and stead, to execute and
file any applications or related filings and do all other lawfully permitted
acts to further the prosecution and issuance of patents, copyrights, trade
secret rights or other intellectual property rights with respect to any
Inventions with the same legal force and effect as if executed by Employee.
5.4 Non-Solicitation of Customers and Clients.
- ----------------------------------------------
During the Term of this Agreement and for two years thereafter, Employee will
not, on behalf of any person or entity other than the Company, directly or
indirectly solicit, divert or attempt to solicit or divert any customer or
client of the Company, or any prospective customer or client of the Company,
at the time of Employee's termination or for one year prior thereto, on behalf
of any other person or entity competitive with the Company.
5.5 Non-Solicitation of Other Employees.
- ----------------------------------------
During the Term and for two years thereafter, Employee will not encourage,
solicit, induce, or attempt to encourage, solicit or induce any other
employee, agent or representative of the Company to leave his or her
employment with the Company for any reason, and Employee will not hire or
attempt to hire, for any position with any other business, any person who is
an employee, agent or representative of the Company at such time or who has
been an employee, agent or representative of the Company at any time within 90
days preceding such time.
5.6 Non-Interference.
- ---------------------
During the Term of this Agreement and for two years thereafter, Employee will
not directly or indirectly hire, engage, send any work to, place orders with,
or in any manner be associated with any supplier, contractor, subcontractor or
other business relation of the Company if such action by him would have a
material adverse effect on the business, assets, or financial condition of the
Company, or materially interfere with the relationship between any such person
or entity and the Company.
5.7 Non-Competition.
- --------------------
During the Term of this Agreement and for two years thereafter, Employee shall
not, without the prior written consent of the Company, directly or indirectly
own, manage, finance, operate, join, control or participate in the ownership,
management or operation of, or be employed, provide services to or otherwise
be connected in any manner with, any person or entity competitive with the
Company. This prohibition encompasses any and all services, duties, and
employment of the same nature as the services, duties, and responsibilities
which Employee performs under this Agreement.
For the purposes of this Agreement, a person or entity is "competitive with
the Company" if such person or entity conducts, operates, carries out or
otherwise engages in the development, production, marketing or servicing, in
any state or market in which the Company transacts business, or was
contemplating the transaction of business at the time of Employee's
termination, of any product of the Company (i) with which Employee was
involved in the course of his employment with the Company, or (ii) which the
Company is developing, producing, marketing, or servicing, or plans to
develop, produce, market or service and of which Employee gained any knowledge
in the course of his employment with the Company.
5.8 Representations by Employee.
- --------------------------------
In connection with the above covenants, Employee represents that his
experience, capabilities and circumstances are such that the covenants
contained herein will not prevent him from earning a livelihood. Employee
further agrees that the limitations set forth in such covenants do not impose
a greater restraint than is necessary to protect the confidential information,
customer goodwill, and other business interests of the Company. Employee also
agrees that the limitations and covenants are reasonable and properly required
for the adequate protection of the current and future business of the Company.
Employee also agrees that, if any provision of the covenants set forth above
are found to be invalid in part or whole, the Company may elect, but shall not
be required, to have such provision reformed, whether as to time, scope of
activity, or otherwise, as and to the extent required for its validity under
applicable law, and, as so reformed, such provisions shall be enforceable.
5.9 Injunctive and Other Relief.
- --------------------------------
It is understood and agreed that the covenants made by Employee in this
Article 5 shall survive the expiration or termination of this Agreement.
Employee acknowledges and agrees that a remedy at law for any breach or
threatened breach of the provisions of this Article 5 would be inadequate, and
therefore agrees that the Company shall be entitled as a matter of right to
injunctive relief in addition to any other available rights and remedies in
cases of such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting the Company from pursuing
any other rights and remedies available for any such breach or threatened
breach, including the recovery of damages and attorneys' fees from Employee.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Successors and Assigns.
- ---------------------------
Except as otherwise provided herein, the rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of the Company. Except as otherwise provided
herein, this Agreement shall be binding upon Employee and his agents, heirs,
executors, administrators and legal representatives. The rights and
obligations of Employee shall not be assignable by Employee.
6.2 Governing Law.
- ------------------
Subject to Section 6.9, this Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri. The parties hereto consent
to the jurisdiction and venue of the Circuit Court in and for St. Louis
County, Missouri and of the Federal District Court of the Eastern District,
Eastern Division of Missouri with respect to any action brought in equity for
the breach of the provisions of Article V.
6.3 Counterparts.
- -----------------
This Agreement may be executed in multiple counterparts, each of which shall
be deemed an original, and all of which shall constitute one instrument.
6.4 Entire Agreement.
- ---------------------
This Agreement contains the entire agreement of the parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, and there are no other
warranties, representations, covenants or agreements among the Company and
Employee in connection with the subject matter hereof.
6.5 Amendment.
- --------------
Employee's obligations under this Agreement may be amended, supplemented,
modified and/or rescinded only through an express written amendment executed
by both Employee and the Company.
6.6 No Waiver of Employee Breach.
- ---------------------------------
The waiver by the Company of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by the Company of any
subsequent breach by Employee.
6.7 Severability.
- -----------------
If a court of competent jurisdiction shall adjudge to be invalid any clause,
sentence, subparagraph, paragraph, or section of this Agreement, such judgment
or decree shall not affect, impair, invalidate, or nullify the remainder of
this Agreement, but the effect thereof shall be confined to the clause,
sentence, subparagraph, paragraph, or section so adjudged to be invalid.
6.8 Survival.
- -------------
Employee and the Company expressly acknowledge and agree that the ongoing
obligations and covenants set forth in this Agreement, including without
limitation, those contained in Sections 4.1(b), 4.1(c), 4.1(e), 4.1(f), 5.1,
5.2, 5.3, 5.4, 5.5, 5.6 and 5.7 hereof, shall survive the termination of
Employee's employment under this Agreement.
6.9 Arbitration.
- ----------------
Any controversy or claim arising out of or relating to the Agreement other
than an action brought in equity for the breach of the provisions of Article V
shall be settled by final and binding arbitration in St. Louis County,
Missouri. A single arbitrator may be selected by the unanimous agreement of
the parties to the dispute, but if the parties to the dispute fail to agree on
and appoint an arbitrator within thirty (30) calendar days of the receipt by
any party of notice of the existence of a dispute, then the dispute shall be
settled in St. Louis County, Missouri in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16 and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof and the parties hereto
consent to the jurisdiction and venue of the Circuit Court in and for St.
Louis County, Missouri and of the Federal District Court of the Eastern
District, Eastern Division of Missouri for the entry of judgment relating to
any award of the arbitrator.
6.10 Opportunity to Review.
- --------------------------
Employee hereby represents and warrants that he (a) has been given a
meaningful opportunity to review this Agreement, and (b) has been encouraged
by the Company to receive the advice of counsel with respect to the meaning
and effect of each Section of this Agreement. Employee acknowledges that he
has voluntarily entered into this Agreement of his own free will based only
upon the terms and conditions included in this Agreement.
6.11 Agreement Not to be Construed Against Either Party.
- -------------------------------------------------------
Employee and Company expressly acknowledge and agree that this Agreement was
the product of arms length negotiation between the parties, and that this
Agreement shall be construed fairly and without prejudice to either party as
the drafter of this Agreement, regardless of whether one party physically
prepared this Agreement.
6.12 Notices.
- ------------
All notices and other communications which are required or permitted hereunder
shall be in writing and shall be deemed to have been duly given and received
when delivered personally, when sent when mailed by registered or certified
mail, return receipt requested and postage prepaid, or when sent by a
nationally known overnight delivery service, or when sent by telephone
facsimile confirmed by overnight delivery service, to the parties at the
addresses or facsimile numbers indicated below (or at such other address as
shall be specified by notice).
EMPLOYEE: COMPANY:
ANTHONY J. VERKRUYSE "PRESIDENT"
433 SHADYBROOK DRIVE HUNTCO INC.
CREVE COEUR, MO 63141 14323 SOUTH OUTER FORTY
SUITE 600N
TOWN & COUNTY, MO 63017
(314) 878-4537
With a copy to:
Craig A. Adoor, Esq.
Blackwell Sanders Peper Martin LLP
720 Olive Street, 24th Floor
St. Louis, MO 63101
Fax: (314) 345 - 6060
Each party is responsible for informing the other party of any change in
address.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES
EMPLOYEE The COMPANY
Huntco Inc.
/s/ Anthony J. Verkruyse By: /s/ Robert J. Marischen
- ------------------------------- ---------------------------
Anthony J. Verkruyse Its: President
Description of performance bonus arrangement for executive officers for the
year ending December 31, 2000 ("2000"):
The bonus plan for 2000 is based on two components: 1) Return on Capital and 2)
Unit Growth. Bonuses (if any) are to be calculated and paid quarterly, based
upon stand alone quarterly results. Potential bonuses are also to be
calculated on full year amounts at year end, with such year end calculation
determined at four times the applicable quarterly rate, less any interim
payments. No return of a prior bonus is required if the full year
calculation yields less than the sum of prior quarter payments.
Return on Capital ("ROC") is defined to equal, for the applicable time period
calculated, the product of (a) income from operations before bonus accruals
pursuant to this plan (either for the full year, or annualized by multiplying
quarterly pre-bonus income from operations by four, as applicable), divided by
(b) the sum of (i) average shareholders' equity and (ii) average funded debt.
If ROC is 5% or greater, the ROC bonus shall be actual ROC for the applicable
period times the employee's full year base salary.
Unit Growth is to equal actual unit volume for the applicable quarterly or
full year period, less actual unit volume for the comparable prior year
period, divided by actual unit volume for the comparable prior year period.
The Unit Growth component of the applicable employee's bonus shall be
determined as follows:
<TABLE>
<CAPTION>
If Unit the ROC Bonus is at least as follows,
Growth is and then Unit Growth Bonus % is:
- -------------- ------------------------------------------
5% 10% 15%
---- ----- -----
<S> <C> <C> <C>
Zero or less (1.0)% (2.0)% (3.0)%
0.01% to 9.99% - - -
10.00% to 14.99% 2.5% 5.0% 10.0%
15.00% to 19.99% 5.0% 10.0% 15.0%
20.00% or more 10.0% 15.0% 20.0%
For the executive officers of the Company, the above calculations will be
based on consolidated results for 50% of the quarterly bonus total, if any,
with the other 50% based upon the results of the separate divisions of the
Company.
</TABLE>
HUNTCO INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 3rd day of February, 2000, by and
between Huntco Inc. (the "Company") and [Employee Name] ("You" or "Your").
RECITALS:
A. You are an employee of the Company or one of its Subsidiaries.
B. The Company wishes to enter into this Stock Option Agreement to
secure for the Company the benefits of the incentive inherent in common stock
ownership by a key employee of the Company, and to afford You the opportunity
to obtain or increase a proprietary interest in the Company and, thereby, to
have an opportunity to share in its success.
C. The granted option shall be a non-qualified stock option, which
does not satisfy the requirements of Section 422 of the Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. When used in this Agreement, the following terms
shall have the following meanings:
(a) "Agreement" shall mean this Stock Option Agreement.
(b) "Class A Common Stock" shall mean the Class A Common Stock
of the Company having a par value of $.01 per share.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Discharge" shall mean Termination of Employment other than
a Voluntary Termination.
(e) "Discharge for Aggravated Cause" shall mean a Discharge (i)
because You commit a dishonest or illegal act that causes substantial
financial harm to the Company, (ii) because You intentionally subvert the best
interest of the Company, or (iii) because of gross negligence by You.
(f) "Engage in Competition" shall mean a breach by You of the
non-competition or non-disclosure provisions of any written employment
agreement between You and the Company.
(g) "Expiration Date" is defined in Paragraph 3.
(h) "Fair Market Value" shall mean on any given date the closing
price per share of the Class A Common Stock of the Company prevailing on a
national securities exchange which is registered under the Securities Exchange
Act of 1934, or, if Class A Common Stock was not traded on such date, on the
next preceding date on which such Class A Common Stock was traded; or, if the
Class A Common Stock is not traded on such a national securities exchange, the
mean between the current bid and asked prices, as determined by the Company in
good faith, for the Class A Common Stock quoted by persons independent of the
Company and any of its affiliates, and in the case there is no generally
recognized market for the Class A Common Stock, the fair market value as
determined in good faith by the Company.
(i) "Grant Date" shall mean [__________ __, 20__].
(j) "Hunter Affiliate" is defined in Paragraph 6(d)(v).
(k) "Hunter Group" is defined in Paragraph 6(d)(v).
(l) "Notice Period" is defined in Paragraph 6(d).
(m) "Option Price" shall mean $[x.xx] per share.
(n) "Optioned Shares" is defined in Paragraph 2.
(o) "Option Term" is the period described in Paragraph 3.
(p) "Purchase Agreement" shall mean a stock purchase agreement
in substantially the form of Exhibit A to this Agreement.
(q) "Subsidiary" means any corporation that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company.
(r) "Termination of Employment" shall mean termination of the
employment relationship between You and the Company or its Subsidiaries.
(s) "Voluntary Termination" shall mean a Termination of
Employment resulting solely from Your initiative without undue influence or
coercion on You caused by the Company.
2. Grant of Option. Subject to and upon the terms and conditions of
the Huntco Inc. 1993 Incentive Stock Plan (as amended and restated in 1996),
and the terms and conditions set forth in this Agreement, the Company hereby
grants to You, as of the Grant Date, an option to purchase up to [________]
shares of the Company's Class A Common Stock (the "Optioned Shares") from time
to time during the Option Term at the Option Price.
3. Option Term. This option shall completely expire at the close of
business on the [______] anniversary of the Grant Date (the "Expiration
Date"), unless sooner terminated in accordance with Paragraph 7. In no event
shall any option be exercisable at any time after its Expiration Date.
4. Option Nontransferable. This option shall be neither transferable
nor assignable by You other than by will or by the laws of descent and
distribution, and may be exercised during Your lifetime only by You.
5. Dates of Exercise. [_____] percent (___%) of the Optioned Shares
shall first become exercisable on the date of grant (i.e., __________ __,
20__) and an additional [________] percent (__%) of the Optioned Shares shall
first become exercisable on each subsequent anniversary of such date.
Pursuant to the provisions of this Agreement, during the Option Term You may
purchase any or all of the Optioned Shares that have become exercisable as
described above at any time or from time to time. In no event may You
purchase any nonvested Optioned Shares except as provided in Section 6 below.
6. Accelerated Dates of Exercise. The dates of exercise specified in
Paragraph 5 shall accelerate should one of the following provisions become
applicable.
(a) If You are Discharged as a part of an overall reduction in the
Company's work force and for reasons unrelated to your own specific job
performance before the dates specified in Paragraph 5, You shall have the
immediate right to purchase the entire number of Optioned Shares specified in
Paragraph 2 within three months after termination of Your employment, but in
no event shall this option be exercisable at any time after its Expiration
Date. Upon the expiration of such three month period or (if earlier) upon the
applicable Expiration Date, this option shall terminate and cease to be
exercisable.
(b) Should You die while this option is outstanding, the executors or
administrators of Your estate or Your heirs or legatees (as the case may be)
shall have the right to exercise this option for the entire number of Optioned
Shares specified in Paragraph 2. Such right shall lapse and this option shall
cease to be exercisable upon the earlier of (i) the first anniversary of the
date of Your death or (ii) the Expiration Date applicable to each of such
shares. From time to time, in a form acceptable to the Company, You may
designate any person or persons (concurrently, contingently or successively)
to whom the stock option shall be transferred in the event that You shall die
before You fully exercise the stock option. A beneficiary designation form
shall be effective only when the form is signed by You and filed in writing
with the Company while You are alive, and shall cancel all beneficiary
designation forms that You have previously signed and filed.
(c) Should You become permanently disabled, such that You are unable
to perform the material duties of Your employment with the Company, and cease
by reason thereof to render periodic services to the Company at any time
during the Option Term, then You shall have the right for a period of twelve
months (commencing with the date of such cessation of service status) to
purchase the entire number of Optioned Shares specified in Paragraph 2;
provided, however, that in no event shall this option be exercisable at any
time after the Expiration Date applicable to each of such shares. Upon the
expiration of the limited period of exercisability or (if earlier) upon such
Expiration Date, this option shall terminate and cease to be exercisable.
(d) In the event of a Change in Control pursuant to Subparagraphs
(i)-(iii) of this Paragraph 6(d), the Company shall provide You with written
notice of such Change in Control not less than ten (10) days prior to the
anticipated consummation thereof (the "Notice Period"). You shall have the
immediate right during such Notice Period through and including the Expiration
Date to purchase the entire number of Optioned Shares specified in Paragraph
2, irrespective of Your continuing employment relationship with the Company.
In the event of a Change in Control pursuant to any other provision of this
Paragraph 6(d), the Company shall provide You with prompt written notice of
such Change in Control. You shall have the immediate right from such Change
of Control date through and including the Expiration Date to purchase the
entire number of Optioned Shares specified in Paragraph 2, irrespective of
Your continuing employment relationship with the Company.
Nothing in this Subparagraph 6(d) shall be deemed to affect any rights you may
have pursuant to Paragraph 8 hereof, and in no event shall any Optioned Shares
be exercisable after the Expiration Date.
For purposes of this Agreement, a "Change of Control" means the occurrence of
any of the following events:
(i) a merger, consolidation or reorganization of the Company, in
which the Company does not survive as an independent entity;
(ii) a merger, consolidation or reorganization of the Company, in
which the Company does not survive as a publicly held company;
(iii) a sale of all or substantially all of the assets of the
Company;
(iv) the first purchase of shares of Class A Common Stock of the
Company pursuant to a tender or exchange offer for more than 20% of the
Company's outstanding shares of Class A Common Stock; or
(v) any change of control of a nature that, in the opinion of
the Board of Directors of the Company, would be required to be reported under
the federal securities laws; provided that such a change of control shall be
deemed to have occurred if: (A) any person other than the `Hunter Affiliates'
as that term is defined in Article III, Section B.6(b)(iv) of the Company's
Restarted Articles of Incorporation, or the `Hunter Group' as that term is
defined in Article III, Section B.6(b)(ii) of the Company's Restated Articles
of Incorporation (x) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding securities, or (y)
through a shareholders' agreement, voting trust, other contractual
arrangement, or otherwise, acquires or obtains the right to vote securities or
to direct another to vote securities of the Company representing 35% or more
of the combined voting power of the Company's then outstanding securities; or
(B) during any period of two consecutive years from January 1, 2000 through
the expiration date hereof, individuals who at the beginning of such period
constitute the Board of Directors of the Company cease for any reason to
constitute a majority thereof unless the election of any director, who was not
a director at the beginning of the period, was approved by a vote of at least
70% of the directors then still in office who were directors at the beginning
of the period.
For purposes of Subparagraph 6.(d)(v), a director shall be
considered to be a director at the beginning of such two year period if the
director's election was approved either (i) during the lifetime of B.D. Hunter
by the `Hunter Affiliates' as that term is defined in Article III, Section
B.6(b)(iv) of the Company's Restated Articles of Incorporation, or, if after
the death of B.D. Hunter, the `Hunter Group' as that term is defined in
Article III, Section B.6(b)(ii) of the Company's Restated Articles of
Incorporation, or (ii) by a vote of at least 70 percent of the directors then
still in office who were directors at the beginning of the two-year period, or
who would be considered pursuant to this sentence to be a director at the
beginning of the two-year period.
7. Forfeiture of Options. The Option Term shall terminate (and this
option shall cease to be exercisable) prior to the Expiration Date should one
of the following provisions become applicable.
(a) Except as otherwise provided in subparagraph (b) below, should
You incur a Termination of Employment, other than a Discharge for Aggravated
Cause, then for a period of three months after the date of such Termination of
Employment You shall have the right to purchase only the number of Optioned
Shares (if any) for which this option has become exercisable on the date of
such a Termination of Employment, but in no event shall this option be
exercisable at any time after its Expiration Date. Upon the expiration of
such three month period or (if earlier) upon the applicable Expiration Date,
this option shall terminate and cease to be exercisable. Options that have
not become exercisable in accordance with Paragraph 5 at the time of such a
Termination of Employment shall terminate and never become exercisable.
(b) Should You be Discharged for Aggravated Cause or Engage in
Competition with the Company at any time during the Option Term, You shall
forfeit the right to purchase any Optioned Shares pursuant to this Agreement
on or after such occasion.
8. Adjustment in Optioned Shares.
(a) In the event any change is made to the common stock of the
Company issuable under this Agreement by reason of any stock split, stock
dividend, combination of shares, or other change affecting the outstanding
common stock as a class without receipt of consideration, then appropriate
adjustments will be made to (i) the total number of Optioned Shares and (ii)
the Option Price in order to reflect such change and thereby preclude a
dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other
business combination, then this option, if outstanding under this Agreement
immediately after such merger or other business combination, shall be
appropriately adjusted to apply and pertain to the number and class of
securities which would be issuable to You in the consummation of such merger
or business combination if the option were exercised immediately prior to such
merger or business combination, and appropriate adjustments shall be made to
the Option Price, provided the aggregate Option Price payable hereunder shall
remain the same.
(c) If the Company is not the surviving entity in a merger or other
business combination, then as to the balance of the Optioned Shares not yet
purchased by You, You shall have the right to receive on the effective date of
the merger the difference in cash between the aggregate Option Price of said
shares and the aggregate Fair Market Value for the Class A Common Stock of the
Company paid as a result of the merger or combination whether or not You then
had the right to exercise this option.
9. Privilege of Stock Ownership. As holder of this option, You shall
not have any of the rights of a shareholder with respect to the Optioned
Shares until You have exercised the option and paid the Option Price.
10. Manner of Exercising Option
(a) In order to exercise this option with respect to all or any part
of the Optioned Shares for which this option is at the time exercisable, You
(or in the case of exercise after Your death, Your executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(i) Execute and deliver to the Secretary of the Company a
Purchase Agreement in the form attached hereto as Exhibit A; and
(ii) Pay the aggregate Option Price for the purchased Optioned
Shares in one or more of the following alternative forms:
(A) full payment, in cash or cash equivalents; or
(B) full payment in shares of Class A Common Stock of the
Company, by delivering shares of Class A Common Stock that You already own
having an aggregate Fair Market Value equal to the aggregate Option Price; or
(C) full payment in a combination of shares of Class A
Common Stock of the Company valued at the Fair Market Value and cash or cash
equivalents, equal in the aggregate to the aggregate Option Price; or
(D) any other form which the Company may in its discretion
approve at the time of exercise of this option; and
(iii) Pay to the Company the amount of withholding required
pursuant to Paragraph 15.
(iv) Furnish to the Company appropriate documentation that the
person or persons exercising the option, if other than You, have the right to
exercise this option.
(b) Options shall be deemed to have been exercised with respect to
the number of Optioned Shares specified in the Purchase Agreement at such time
as the executed Purchase Agreement for such shares shall have been delivered
to the Company. Payment of the aggregate Option Price shall immediately
become due and shall accompany the Purchase Agreement. The Fair Market Value
of shares tendered in payment of the aggregate Option Price shall be
determined as of such date. As soon thereafter as practical, the Company
shall mail or deliver to You or to the other person or persons exercising this
option a certificate or certificates representing the Optioned Shares so
purchased and paid for.
11. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of Optioned Shares
upon such exercise shall be subject to compliance by the Company and You with
all applicable requirements of law relating thereto.
(b) In connection with the exercise of this option, You shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
12. Successors and Assigns. Except to the extent otherwise provided
in Paragraph 4, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, Your successors, administrators, heirs, legal
representatives and assigns and the successors and assigns of the Company.
13. No Employment or Service Contract. Except to the extent the terms
of any employment or service contract between the Company and You may
expressly provide otherwise, no provision of this Agreement shall be construed
so as to grant You any right to remain as an employee of the Company or its
parent or subsidiary corporations, if any, for any period of specific
duration.
14. Notices. Any and all notices referred to or relating to this
Agreement shall be furnished in writing and delivered in person or sent by
registered mail to the representative parties at the addresses following their
signatures to this Agreement or at an address given in a notice that complies
with the terms of this paragraph. A copy of all notices shall be sent to the
Company at Huntco Inc., 14323 South Outer Forty, Suite 600N, Town & Country,
Missouri 63017.
15. Withholding. If You acquire Optioned Shares, the Company shall
not deliver or otherwise make such shares available to You until You pay to
the Company in cash (or any other form acceptable to the Company) the amount
necessary to enable the Company to remit to the appropriate government entity
or entities on Your behalf the amount required to be withheld from Your wages
with respect to such transaction.
If, after a reasonable period of time after You exercise this option, You
have failed to remit to the Company the amount necessary to enable the Company
to remit to the appropriate government entity or entities on Your behalf the
amount required to be withheld from Your wages with respect to such
transaction, You hereby authorize, and explicitly grant a power of attorney,
to the Company to sell on Your behalf such number of the Optioned Shares as is
necessary for the Company to obtain such amount.
16. Construction. This Agreement and the option evidenced hereby are
in all respects limited by and subject to the express terms and provisions of
this Agreement. All decisions of the Company with respect to any question or
issue arising under this Agreement shall be conclusive and binding on all
persons having an interest in this option.
17. Governing Law. The laws of the State of Missouri shall govern
the interpretation, performance, and enforcement of this Agreement.
18. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate on its behalf by its duly authorized officer and You have also
executed this Agreement in duplicate, all as of the day and year indicated
above.
COMPANY
By:_____________________________
[Company officer]
________________________________
[Employee Name], You
[Employee address]
EXHIBIT A
STOCK PURCHASE AGREEMENT
This Agreement is made as of this _____ day of_________,20__, by and
among Huntco Inc. (the "Company") and _____________________("You" or "Your"),
the holder of a stock option under the Stock Option Agreement ("Option
Agreement") and ____________________, Your spouse.
I. EXERCISE OF OPTION
1.1 Exercise. You hereby purchase ________ shares of Class A Common
Stock of the Company ("Purchased Shares") pursuant to that certain option
("Option") granted to You on [__________ __, 20__] ("Grant Date") under the
Option Agreement to purchase up to [_____] shares of the Company's Class A
Common Stock (the "Optioned Shares") at an option price of $[x.xxx] (_______
and ____/1000ths dollars) per share (the "Option Price").
1.2 Payment. Concurrently with the delivery of this Agreement to the
Secretary of the Company, You shall pay the aggregate Option Price for the
Purchased Shares and the withholding amount in accordance with the provisions
of the Option Agreement, and shall deliver whatever additional documents may
be required by the Option Agreement as a condition for exercise.
II. MISCELLANEOUS PROVISIONS
3.1 Power of Attorney. Your spouse hereby appoints You his or her
true and lawful attorney in fact, for him or her and in his or her name, place
and stead, and for his or her use and benefit, to agree to any amendment or
modification of this Agreement and to execute such further instruments and
take such further actions as may reasonably be necessary to carry out the
intent of this Agreement. Your spouse further gives and grants unto You as
his or her attorney in fact full power and authority to do and perform every
act necessary and proper to be done in the exercise of any of the foregoing
powers as fully as he or she might or could do if personally present, with
full power of substitution and revocation, hereby ratifying and confirming all
that You shall lawfully do and cause to be done by virtue of this power of
attorney.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
COMPANY
By:________________________________
Title:_____________________________
Address:___________________________
You:_______________________________
Address:___________________________
___________________________________
Your Spouse
Huntco Inc. has agreed to reimburse Mr. Robert J. Marischen, the
Company's Vice Chairman & President, for federal and state income taxes
payable by Mr. Marischen on the first $400,000.00 of taxable income recognized
by Mr. Marischen upon the exercise of any of the 110,000 fully vested non-
qualified stock options granted to Mr. Marischen on February 15, 1999,
pursuant to the Amended and Restated Huntco Inc. 1993 Incentive Stock Plan.
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (Nos. 33-68488, 33-71610, 333-662, and 333-19461) of
Huntco Inc. of our report dated January 28, 2000, appearing under Item 8 of
this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
March 27, 2000
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF HUNTCO INC. AT AND FOR
THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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