-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VkPgSSFx7AxgrmEc6JyigBCvjhnAzcPqm32xZgDD5A3/C1QzCsB+JgOyYMzOychN fNzYEWi9wwpaIrUHekFvGQ== 0000950116-02-001565.txt : 20020716 0000950116-02-001565.hdr.sgml : 20020716 20020716105817 ACCESSION NUMBER: 0000950116-02-001565 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020602 FILED AS OF DATE: 20020716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT CORP CENTRAL INDEX KEY: 0000049146 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 210481254 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08044 FILM NUMBER: 02703600 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157327700 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: HUNT MANUFACTURING CO DATE OF NAME CHANGE: 19920703 10-Q 1 tenq.txt TENQ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 2, 2002 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8044 --------------------------------------------------------- HUNT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 21-0481254 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Commerce Square 2005 Market Street, Philadelphia, PA 19103 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone no., including area code 215-656-0300 -------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ --- As of July 1, 2002, there were outstanding 8,976,335 shares of the registrant's common stock.
HUNT CORPORATION INDEX Page ------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets as of 3 June 2, 2002 and December 2, 2001 Condensed Consolidated Statements of Income - 4 Three Months and Six Months Ended June 2, 2002 and June 3, 2001 Consolidated Statements of Comprehensive Income (Loss) - 5 Three Months and Six Months Ended June 2, 2002 and June 3, 2001 Condensed Consolidated Statements of Cash Flows - 6 Six Months Ended June 2, 2002 and June 3, 2001 Notes to Condensed Consolidated Financial 7 - 9 Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-17 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 17 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 18 Item 2 - Changes in Securities and Use of Proceeds 18 Item 4 - Submission of Matters to a Vote of Security Holders 19 Item 6 - Exhibits and Reports on Form 8-K 20 Signatures 21
Part I - FINANCIAL INFORMATION Page 3 Item 1. Financial Statements Hunt Corporation Condensed Consolidated Balance Sheets (In thousands except share and per share amounts) June 2, December 2, ASSETS 2002 2001 --------------- --------------- (Unaudited) Current assets: Cash and cash equivalents $ 29,392 $ 25,966 Accounts receivable, less allowance for doubtful accounts: 2002, $735; 2001, $1,031 19,798 17,486 Inventories: Raw materials 3,763 2,973 Work in process 1,722 1,440 Finished goods 7,601 4,976 --------------- --------------- Total inventories 13,086 9,389 Deferred income taxes 2,840 5,834 Prepaid expenses and other current assets 9,187 14,101 --------------- --------------- Total current assets 74,303 72,776 Property, plant and equipment, less accumulated depreciation and amortization: 2002, $44,666; 2001, $42,548 22,645 24,188 Goodwill 754 754 Intangible assets 65 65 Other assets 8,339 8,604 --------------- --------------- Total assets $ 106,106 $ 106,387 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 5,000 $ 5,000 Accounts payable 4,665 4,428 Accrued expenses 18,567 22,776 --------------- --------------- Total current liabilities 28,232 32,204 Long-term debt, less current portion 22,000 22,000 Deferred income taxes 257 1,004 Other non-current liabilities 14,951 14,106 Commitments and contingencies Stockholders' equity: Preferred stock, $.10 par value, authorized 1,000,000 shares; none issued - - Common stock, $.10 par value, 40,000,000 shares authorized; issued: 2001 and 2000 -16,152,322 shares 1,615 1,615 Capital in excess of par value 7,412 7,412 Accumulated other comprehensive loss (42) - Retained earnings 132,394 129,695 --------------- --------------- 141,379 138,722 Less cost of treasury stock: 2002 - 7,175,987 shares; 2001 - 7,248,347 shares; (100,713) (101,649) --------------- --------------- Total stockholders' equity 40,666 37,073 --------------- --------------- Total liabilities and stockholders' equity $ 106,106 $ 106,387 =============== =============== See accompanying notes to condensed consolidated financial statements.
Page 4 Hunt Corporation Condensed Consolidated Statements of Operations (Unaudited) (In thousands except per share amounts) Three Months Ended Six Months Ended ------------------------ ------------------------ June 2, June 3, June 2, June 3, 2002 2001 2002 2001 -------- -------- -------- --------- Net sales $ 40,320 $ 39,135 $ 80,816 $ 81,398 Cost of sales 23,382 23,352 47,918 48,235 -------- -------- -------- -------- Gross profit 16,938 15,783 32,898 33,163 Selling, general and administrative expenses 12,688 12,984 24,869 25,720 Restructuring and other 121 51 202 92 -------- -------- -------- -------- Income from operations 4,129 2,748 7,827 7,351 Interest expense 572 981 1,133 2,054 Interest and other income, net (306) (108) (977) (356) -------- -------- -------- -------- Income from continuing operations before income taxes 3,863 1,875 7,671 5,653 Provision for income taxes 1,372 696 2,724 1,974 -------- -------- -------- -------- Income from continuing operations 2,491 1,179 4,947 3,679 -------- -------- -------- -------- Discontinued operations: Loss from discontinued business, net of tax benefit of $15 and $79 -- (196) -- (1,017) -------- -------- -------- -------- Net income $ 2,491 $ 983 $ 4,947 $ 2,662 ======== ======== ======== ======== Basic earnings per common share: Income from continuing operations $ 0.28 $ 0.13 $ 0.55 $ 0.41 Loss from discontinued business -- (0.02) -- (0.11) -------- -------- -------- -------- Net income per share - Basic $ 0.28 $ 0.11 $ 0.55 $ 0.30 ======== ======== ======== ======== Diluted earnings per common share: Income from continuing operations $ 0.28 $ 0.13 $ 0.55 $ 0.40 Loss from discontinued business -- (0.02) -- (0.11) -------- -------- -------- -------- Net income per share - Diluted $ 0.28 $ 0.11 $ 0.55 $ 0.29 ======== ======== ======== ======== Dividends per common share $ 0.1025 $ 0.1025 $ 0.205 $ 0.205 ======== ======== ======== ======== See accompanying notes to condensed consolidated financial statements.
Page 5 Hunt Corporation Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (In thousands) Three Months Ended Six Months Ended --------------------- --------------------- June 2, June 3, June 2, June 3, 2002 2001 2002 2001 ------- ------- ------- ------- Net income $ 2,491 $ 983 $ 4,947 $ 2,662 Other comprehensive loss: Foreign currency translation adjustments, net of income tax benefit of $1,219 and $362 -- (1,769) -- (508) Currency hedging adjustments, net of income tax benefit of $18 and $23 (32) -- (42) -- ------- ------- ------- ------- Other comprehensive loss (32) (1,769) (42) (508) ------- ------- ------- ------- Comprehensive income (loss) $ 2,459 $ (786) $ 4,905 $ 2,154 ======= ======= ======= ======= See accompanying notes to condensed consolidated financial statements.
Page 6 Hunt Corporation Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Six Months Ended ---------------------------------------- June 2, June 3, 2002 2001 ---------------- ---------------- Cash flows from operating activities: Net income $ 4,947 $ 2,662 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,437 4,046 Deferred income taxes 2,247 (162) (Gain) loss on disposals of property, plant and equipment 245 (10) Payment for patent infringement litigation - 102 Payments/credits for special charges (851) (306) Issuance of stock under management incentive bonus and stock grant plans 71 60 Changes in operating assets and liabilities (2,192) (1,713) ---------------- ---------------- Net cash provided by operating activities 6,904 4,679 ---------------- ---------------- Cash flows from investing activities: Additions to property, plant and equipment (1,033) (2,081) Other, net (180) (205) ---------------- ---------------- Net cash used for investing activities (1,213) (2,286) ---------------- ---------------- Cash flows from financing activities: Proceeds from issuance of long-term debt - 4,598 Payments on long-term debt, including current maturities - (4,522) Book overdrafts (908) (2,012) Proceeds from exercise of stock options 443 - Purchases of treasury stock - (3,680) Dividends paid (1,827) (1,823) Other, net - (5) ---------------- ---------------- Net cash used for financing activities (2,292) (7,444) ---------------- ---------------- Effect of exchange rate changes on cash 27 (56) ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 3,426 (5,107) Cash and cash equivalents, beginning of period 25,966 23,878 ---------------- ---------------- Cash and cash equivalents, end of period $ 29,392 $ 18,771 ================ ================ See accompanying notes to condensed consolidated financial statements.
Page 7 Hunt Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) 1. The accompanying condensed consolidated financial statements and related notes are unaudited; however, in management's opinion all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position at June 2, 2002 and the results of operations and cash flows for the periods shown have been made. Such statements are presented in accordance with the requirements of Quarterly Reports on Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's consolidated financial statements and notes included in its 2001 Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of results for the full year. 2. Effective October 1, 2001, the Company sold its commercial Graphics Products business and related assets. The divested business had net sales of approximately $13.6 million and $28.1 million and after-tax losses of $.2 million and $1.0 million for the three months and six months ended June 3, 2001, respectively. The divested business is presented as a discontinued operation in the accompanying Condensed Consolidated Statements of Income. However, the Consolidated Statements of Comprehensive Income for the three months and six months ended June 3, 2001 and Condensed Consolidated Statements of Cash Flows for the six months ended June 3, 2001 have not been restated to reflect the discontinued operation. 3. A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution in calculating the earnings per share is shown below (in thousands):
Three Months Ended --------------------------------- June 2, June 3, 2002 2001 --------------- -------------- Average common shares outstanding-basic 8,938 8,892 Add: common equivalent shares representing shares issuable upon exercise of stock options and vesting of stock grants 182 71 --------------- -------------- Average common shares and dilutive securities outstanding 9,120 8,963 =============== ==============
Six Months Ended --------------------------------- June 2, June 3, 2002 2001 --------------- -------------- Average common shares outstanding-basic 8,922 8,977 Add: common equivalent shares representing shares issuable upon exercise of stock options and vesting of stock grants 128 56 --------------- -------------- Average common shares and dilutive securities outstanding 9,050 9,033 =============== ==============
Page 8 Hunt Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) 4. The following table sets forth the details and the cumulative activity in the various accruals and reserves associated with the Company's 2001 cost reduction plan in the Condensed Consolidated Balance Sheet at June 2, 2002 (in thousands):
Balance at Balance at December 2, Provision/ Cash Non-Cash June 2, 2001 (Credit) Activity Activity 2002 --------------- ---------- -------- ---------- ------------ Lease obligations $256 - (142) - $114 Severance 3,513 (20) (604) - 2,889 Fixed assets 38 (11) - (27) - Other 51 31 (82) - - --------------- ---------- -------- ---------- ------------ Total $3,858 - (828) (27) $3,003 =============== ========== ======== ========== =============
The following table sets forth the details and the cumulative activity in the various accruals and reserves associated with the Company's 1999 restructuring plan in the Condensed Consolidated Balance Sheet at June 2, 2002 (in thousands):
Balance at Balance at December 2, Cash Non-Cash June 2, 2001 Credit Activity Activity 2002 --------------- ---------- -------- ---------- ------------ Lease obligations $249 - - 7 $256 Severance 23 (10) (13) - - --------------- ---------- -------- ---------- ------------ Total $272 (10) (13) 7 $256 =============== ========== ======== ========== ============
5. As a result of the sale of the commercial Graphics Products business in fiscal 2001 (see Note 2 above) and its impact on the Company's internal organizational structure, the Company now has only a single reportable segment: Consumer Products. All of the Company's long-lived assets are located in North America. 6. Effective December 3, 2001, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under this SFAS, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to periodic reviews for impairment. As a result, effective December 3, 2001, the Company no longer amortizes goodwill or intangible assets with indefinite lives. The Company has completed a transitional impairment review to identify whether there is an impairment to goodwill or indefinite-lived intangible assets using a fair value methodology. No such impairment loss was identified. The Company's indefinite-lived intangible assets consist of trademarks, and the Company has no amortizable intangible assets. Page 9 Hunt Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) In conformity with SFAS No. 142, the results of prior periods have not been restated. The following is a reconciliation of the Company's net income and earnings per share for the three months and six months ended June 2, 2002 and June 3, 2001:
Three Months Ended Six Months Ended --------------------------- ------------------------- June 2, June 3, June 2, June 3, 2002 2001 2002 2001 ----------- -------- ---------- -------- Net income: As reported $2,491 $983 $4,947 $2,662 Amortization expense - goodwill - 311 - 496 Amortization expense - intangible assets - 24 - 49 ----------- -------- ---------- -------- Adjusted net income $2,491 $1,318 $4,947 $3,207 =========== ======== ========== ======== Basic earnings per share: As reported $.28 $.11 $.55 $.30 Amortization expense - goodwill - .04 - .06 Amortization expense - intangible assets - - - - ----------- -------- ---------- -------- Adjusted earnings per share - Basic $.28 $.15 $.55 $.36 =========== ======== ========== ======== Diluted earnings per share: As reported $.28 $.11 $.55 $.29 Amortization expense - goodwill - .04 - .06 Amortization expense - intangible assets - - - - ----------- -------- ---------- -------- Adjusted earnings per share - Diluted $.28 $.15 $.55 $.35 =========== ======== ========== ========
Page 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements represent management's assessment based upon information currently available, but are subject to risks and uncertainties which could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, but are not limited to, the Company's ability to successfully complete the implementation, and realize the anticipated benefits, of its restructuring and cost reduction plans on a timely basis; the effect of, and changes in, worldwide general economic conditions, including the severity and duration of any economic slowdown; price and availability of raw materials; foreign exchange rates; technological and other changes affecting the manufacture of and demand for the Company's products; dependence on maintaining key customers; competitive and other pressures in the marketplace; acts of terrorism; and other risks and uncertainties set forth herein and in the Company's 2001 Form 10-K and as may be set forth in the Company's subsequent press releases and/or Forms 10-Q, 8-K, and other filings with the Securities and Exchange Commission. (Note: All earnings per share amounts in Management's Discussion and Analysis, including the paragraph immediately below, are presented on an after-tax, diluted basis.) In November 2001, the Company initiated a cost reduction plan (the "2001 cost reduction plan") designed to reduce the Company's cost structure. This plan resulted primarily from the sale of the commercial Graphics Products business to Neschen AG in October 2001 and is expected to generate approximately $3.6 million of annualized pre-tax cost savings in fiscal 2002 and annualized pre-tax cost savings of approximately $4.7 million in future years. Pre-tax cost savings realized in the second quarter and first half of 2002 were approximately $.9 million ($.06 per share) and $1.4 million ($.10 per share), respectively. Although the Company expects to realize such future cost savings, there is no assurance that they will actually be achieved. The adoption of the 2001 cost reduction plan in the fourth quarter of fiscal 2001 resulted in the recognition of charges totaling $3.9 million pre-tax ($.30 per share) in that quarter which included employee severance costs, recognition of future lease obligations, and other related costs. In addition to the fiscal 2001 fourth quarter charges related to this plan, the Company expects to spend a total of approximately $1.0 million for plan implementation costs (which will be recorded as period costs as incurred) over the next three fiscal years. During the first half of fiscal 2002, the Company recognized $.1 million ($.01 per share) of such implementation costs, consisting primarily of outplacement expenses. See Notes 2 and 4 to the Condensed Consolidated Financial Statements herein. As a result of the sale of the commercial Graphics Products business and subsequent cost reduction plan described in the preceding paragraph, management believes that the Company has simplified its operations and expects to improve the overall profitability and financial strength of the Company's continuing operations. Additionally, the Company's management and Board of Directors continue to review and evaluate various possible strategies that the Company might pursue to strengthen the Company and enhance shareholder value. Such potential strategies range from growing the Company through internal development, joint ventures, and/or acquisitions, to selling some or all of the Company. Page 11 Results of Operations The following discussion is on a continuing operations basis. Net Sales Net sales from continuing operations of $40.3 million for the fiscal 2002 second quarter increased 3.0% from the fiscal 2001 second quarter, while net sales from continuing operations of $80.8 million for the first half of fiscal 2002 decreased 0.7% from the first half of fiscal 2001. The fiscal 2002 second quarter increase was largely due to higher sales of art/framing supplies products (up 4.0%) and office supplies products (up 0.9%), while the first half decrease was primarily due to lower sales of office supplies products (down 5.7%), partially offset by higher sales of art/framing supplies products (up 2.4%). Export sales increased 5.7% and decreased 2.9% in the fiscal 2002 second quarter and first half compared to the same prior year periods. The second quarter increase was primarily due to higher sales of art/framing products in Europe, while the first half decrease was largely due to lower sales in Canada. Management believes that the second quarter increase in sales was due to a combination of certain large customers replenishing inventory levels and to new distribution. Gross Profit The Company's gross profit percentage increased to 42.0% of net sales in the second quarter of fiscal 2002 from 40.3% in the second quarter of fiscal 2001, and was 40.7% in the first six months of fiscal years 2002 and 2001. Gross margin dollars increased $1.2 million and decreased $.3 million in the fiscal 2002 second quarter and first half, respectively, from the same prior year periods. The increases in the second quarter gross profit percentage and gross profit dollars relative to the prior year period were primarily the result of lower raw material and product costs, as well as lower manufacturing costs. Selling, General, and Administrative Expenses Selling, general, and administrative expenses decreased $.3 million, or 2.3%, in the second quarter of fiscal 2002 and $.9 million, or 3.3%, in the first half of fiscal 2002 compared to the same prior year periods. The decreases were the net result of lower marketing and selling expenses, partially offset by higher general and administrative expenses. The decreases in marketing and selling expenses were due to lower salaries and benefits expenses attributable to the costs savings resulting from the 2001 divestiture of the Company's commercial Graphics Products business, and to reduced discretionary marketing spending, partially offset by higher distribution and freight costs. The increases in general and administrative expenses were due principally to increases in accrued incentive compensation expenses and market value decreases in the cash surrender value of officers' life insurance policies, partially offset by lower bad debt expenses, decreases in reserves for customer deductions, and by reduced expenses resulting from the 2001 cost reduction plan (lower salaries and benefit expenses and lower rent expense). Page 12 Selling, general, and administrative expenses, as a percentage of net sales, were 31.5% and 30.8% in the second quarter and first half of fiscal 2002, respectively, and 33.2% and 31.6%, respectively, in the same prior year periods. Restructuring and Other During the first quarter and first half of fiscal 2002, the Company reduced by $10,000 a reserve related to its 1999 restructuring plan, and reversed an accrual of $33,000 established in connection with the implementation of the 1999 restructuring plan. These reductions reflected lower than anticipated severance expense. During the second quarter and first half of fiscal 2001, the Company recorded interest charges of $51,000 and $102,000, respectively, in connection with a previously reported patent infringement suit judgment. The Company recorded net losses on disposals of property, plant and equipment of $121,000 and $245,000 during the second quarter and first half of fiscal 2002, respectively, and recorded a net gain of $10,000 in the first half of fiscal 2001. Interest Expense Interest expense in the fiscal 2002 second quarter and first half decreased to $.6 million and $1.1 million, respectively, from $1.0 million and $2.1 million in the fiscal 2001 second quarter and first half, respectively, due primarily to a principal repayment of $25 million on the Company's senior notes during the fourth quarter of fiscal 2001. Interest and Other Income, net Interest and other income, net increased to $.3 million and $1.0 million in the fiscal 2002 second quarter and first half, respectively, from $.1 million and $.4 million in the same prior year periods. The second quarter increase was due primarily to the favorable foreign currency revaluation of assets held for sale in connection with the 2001 divested business. The first half increase was due principally to management and other net fees of $.6 million for transition services rendered by the Company in connection with the sale of its commercial Graphics Products business to Neschen AG. Provision for Income Taxes The Company's effective income tax rate was 35.5% for the fiscal 2002 second quarter and first half, compared to 37.1% and 34.9% for the same prior year periods due principally to lower tax credits in fiscal 2002. Page 13 Financial Condition The Company's overall financial condition improved during the first half of fiscal 2002. The Company's working capital increased to $46.1 million from $40.6 million, and its current ratio increased to 2.6 from 2.3 at the end of the second quarter of fiscal 2002 from the end of fiscal 2001. The Company's debt/capitalization percentage was 40% at the end of the fiscal 2002 second quarter compared to 42% at the end of fiscal 2001. Funds from operations and available cash balances were sufficient during the first six months of fiscal 2002 to fund additions to property, plant and equipment of $1.0 million, to pay cash dividends of $1.8 million, and to make cash payments of $.8 million related to the 2001 cost reduction plan. Current assets increased to $74.3 million at the end of the second quarter of fiscal 2002 from $72.8 million at the end of fiscal 2001, largely as a result of higher cash and cash equivalents, accounts receivable balances, and inventories, partially offset by lower deferred tax assets and prepaid and other assets. The increase in cash and cash equivalents and the decrease in prepaid and other assets was due to the receipt of income tax refunds, as well as the receipt of amounts due to the Company from Neschen AG for transition services. Accounts receivable increased $2.3 million from the $17.5 million balance at the end of fiscal 2001 due to higher sales in the last month of the fiscal 2002 second quarter compared to the last month of fiscal 2001, payments to customers pursuant to customer incentive programs accrued at the end of fiscal 2001, and to lower bad debt reserve balances in the first half of 2002. The increase in inventories is due principally to inventory build-up in connection with the Company's back-to-school programs. The decrease in deferred tax assets was due primarily to current deductibility of reserves related to the divested business and the 2001 cost reduction plan. Current liabilities decreased to $28.2 million at the end of the second quarter of fiscal 2002 from $32.2 million at the end of fiscal 2001. This decrease was largely attributable to reductions of accruals associated with the Company's 2001 divestiture of its commercial Graphics Products business ($3.2 million), and to settlement of amounts owed to Neschen AG ($1.5 million) in connection with the Company's 2001 divested business, partially offset by an increase in accrued incentive compensation ($1.1 million). Although the Company currently has a revolving credit facility of $25 million, there were no outstanding borrowings under this facility at June 2, 2002. The Company's ability to comply with various of its debt covenants under its credit facility and outstanding senior notes will depend largely on the achievement of the Company's business plan, which, in turn, could be adversely affected by the economic climate, competitive uncertainties, and other factors. In the event that non-compliance with such debt covenants should occur or appear to be likely, the Company would pursue various alternatives to successfully resolve the non-compliance, which might include, among other things, seeking debt covenant waivers or amendments, refinancing of debt, restricting payments of future cash dividends, and/or reducing future capital expenditures. Although the Company believes that it would be successful in resolving any such actual or potential non-compliance with its debt covenants, there can be no assurance that such would be the case. Management believes that funds generated from operations, combined with its existing credit facilities, will be sufficient to meet currently anticipated working capital and other capital and debt service requirements. Should the Company require additional funds, management believes that the Company could obtain them at competitive costs. While subject to change, management currently expects that total fiscal 2002 expenditures for additions to property, plant and equipment to increase capacity and productivity will be approximately $2.5 million, of which approximately $1.0 million has been expended through the first six months of fiscal 2002. During the third quarter of fiscal 2002, the Company plans to pay the first of five annual principal repayments of $5 million with respect to its senior debt notes. Outlook The Company is optimistic about the outlook for its business for the second half of fiscal 2002. However, while management anticipates modest sales growth and stronger earnings for the 2002 full fiscal year, the economy remains uncertain and could adversely affect the anticipated results. In addition, the Company's ten largest customers account for a significant portion of its net sales and the loss of, or a reduction in net sales of the Company's products to, one or more of these customers could have a material adverse effect on the Company's future sales and earnings. Although the Company has experienced some cost reductions for certain of its raw materials during the first half of fiscal 2002, management expects cost increases for some of these raw materials during the second half of fiscal 2002. As a result of the Company's 2001 cost reduction plan, the Company expects to generate $2.2 million of additional pre-tax cost savings in the second half of fiscal 2002 and annualized pre-tax cost savings of approximately $4.7 million in future years. However, there is no assurance that such future cost savings will actually be achieved. In addition, management and the Board of Directors continue to review and evaluate various potential strategies that the Company might pursue to strengthen the Company and enhance shareholder value, ranging from growing the Company through internal development, joint ventures, and/or acquisitions, to selling some or all of the Company. Critical Accounting Policies and Estimates Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to customer programs, product returns, bad debts, inventories, valuation of long-lived assets, assets held for sale, intangible assets, cash surrender value of life insurance policies, a deferred cash account, income taxes, warranty obligations, restructuring, business divestitures, pensions and other employee benefit plans or arrangements, environmental matters, and contingencies and litigation. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Page 15 The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: [ ] The Company records estimated reductions to revenue for customer programs including special promotions and other volume-based incentives. [ ] The Company maintains allowances for doubtful accounts for estimated losses resulting from the Company's review and assessment of its customers' ability to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required. [ ] The Company provides for estimated costs of future anticipated product returns and warranty obligations based on historical experience. [ ] The Company maintains reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. [ ] The Company holds life insurance policies for all of its officers in connection with the Company's Supplemental Executive Benefits Plan. The carrying value of these policies is subject to changes in investment market conditions. [ ] The Company maintains an accrual for a deferred cash account in connection with a long-term incentive compensation agreement with the Company's Chairman and former Chief Executive Officer, Donald L. Thompson. The value of this deferred cash account is tied to the Company's stock price, and this accrual is subject to changes in the fair market value of the Company's common stock. [ ] The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Page 16 [ ] The Company accounts for its qualified defined benefit pension plans and Supplemental Executive Benefit Plan in accordance with Statement of Financial Accounting Standards ("SFAS") No. 87, "Employer's Accounting for Pensions," which requires that amounts recognized in the financial statements be determined on an actuarial basis. SFAS No. 87 requires that experience gains and losses, including the effects of the performance of the plan assets and changes in pension liability discount rates on the Company's computation of pension expense (income) be amortized over future periods to the extent that these fall outside a defined threshold under SFAS 87. The most significant elements in determining the Company's pension expense (income) in accordance with SFAS No. 87 are the expected return on plan assets and the discount rate to be used to calculate the present value of plan liabilities. Differences in expected returns and the actual return on plan assets and changes in the discount rate, as well as changes in actuarial assumptions and experience, may materially affect the pension expense (income) year to year. New Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") approved the issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that entities record as a liability obligations associated with the retirement of a tangible long-lived asset when such obligations are incurred, and capitalize the cost by increasing the carrying amount of the related long-lived asset. SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. The Company does not expect a material impact from the adoption of SFAS No. 143 on its consolidated financial statements. In August 2001, the FASB approved the issuance of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and certain parts of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes an accounting model based on SFAS No. 121 for long lived assets to be disposed of by sale, previously accounted for under APB Opinion No. 30. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company believes this Statement will not materially affect the Company's financial position or results of operations. In April 2002, the FASB approved the issuance of SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 primarily affects the reporting requirements and classification of gains and losses from the extinguishment of debt and requires that certain lease modifications with economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company is currently assessing the impact of the adoption of this statement, but believes it will not materially affect the Company's financial position or results of operations. Page 17 Item 3 - Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the Company's market risk from that set forth in Part II, Item 7A of the Company's fiscal 2001 Form 10-K. Page 18 PART II - OTHER INFORMATION Item 1 - Legal Proceedings As previously reported, the Company was the subject of a patent infringement suit in which a judgment originally was entered against the Company in fiscal 2000. The Company's appeal of this judgment and a petition to the U.S. Supreme Court were denied, and the Company paid the judgment and related costs in fiscal 2001, but indicated that it and its patent counsel continued to pursue other options for overturning the verdict. The Company is no longer pursuing such options. Item 2 - Changes in Securities and Use of Proceeds (c) During the second quarter of fiscal 2002, the Company issued from its treasury an aggregate of 4,360 unregistered common shares under its non-employee director compensation plan. Registration of such shares was not required because their issuance did not involve a "sale" under Section 2(3) of the Securities Act of 1933, or, alternatively, their issuance was exempt pursuant to the private offering provisions of that Act and the rules thereunder. Page 19 Item 4 - Submission of Matters to a Vote of Security Holders (a) and (c) The Company's Annual Meeting of Shareholders was held on April 17, 2002, and in connection therewith, proxies were solicited by management pursuant to Regulation 14 under the Securities Exchange Act of 1934. An aggregate of 8,903,975 shares of the Company's common stock ("Shares") were outstanding and entitled to vote at the meeting. At the meeting the following matters (not including ordinary procedural matters) were submitted to a vote of the holders of Shares, with the results indicated below: 1. Election of a class of three directors to serve until the 2005 Annual Meeting. The following persons, all of whom were serving as directors and were management's nominees for reelection, were reelected. There was no solicitation in opposition to such nominees. The tabulation of votes was as follows:
- ---------------------------------------------------------------------------------------------------------------- Withheld Nominee For (including any broker nonvotes) - ---------------------------------------------------------------------------------------------------------------- Donald D. Belcher 8,390,869 33,266 - ---------------------------------------------------------------------------------------------------------------- Bradley P. Johnson 8,388,045 34,092 - ---------------------------------------------------------------------------------------------------------------- Robert H. Rock 8,389,092 35,043 - ----------------------------------------------------------------------------------------------------------------
2. Amendment to the Company's Restated Articles of Incorporation to provide that Subchapter E - Control Transactions of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Company. The amendment of the Company's Restated Articles of Incorporation was approved. The tabulation of votes was as follows:
- ---------------------------------------------------------------------------------------------------------------- Abstentions For Against (including any broker nonvotes) - ---------------------------------------------------------------------------------------------------------------- 6,560,622 385,543 90,147 - ----------------------------------------------------------------------------------------------------------------
3. Ratification of appointment of independent accountants. The appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for fiscal 2002 was ratified. The tabulation of votes was as follows:
- ---------------------------------------------------------------------------------------------------------------- Abstentions For Against (including any broker nonvotes) - ---------------------------------------------------------------------------------------------------------------- 8,390,103 16,786 17,244 - ----------------------------------------------------------------------------------------------------------------
Page 20 Item 6 - Exhibits and Reports on Form 8-K --------------------------------- (a) Exhibits (3)(a)(1) - Restated Articles of Incorporation, and (2) Amendment, effective May 2, 2002, of Restated Articles of Incorporation (incorp. by ref. to Ex. 3(a)(1) and (2) to the Company's Form 8-A12B/A filed with the Commission in May 2002). (10)(h)(6) - Addendum to Transition and Separation Agreement dated May 30, 2002 between Hunt Corporation and Donald L. Thompson (filed herewith). (10)(j)(2) - Stock Grant Agreement dated as of January 2, 2001 between the Company and John W. Carney (filed herewith). (10)(k)(2) - Stock Grant Agreement dated as of January 2, 2001 between the Company and Bradley P. Johnson (filed herewith). (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. Page 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HUNT CORPORATION Date July 16, 2002 By /s/ Dennis S. Pizzica ------------------------ --------------------------------- Dennis S. Pizzica Vice President, Chief Financial Officer Date July 16, 2002 By /s/ Bradley P. Johnson ------------------------ --------------------------------- Bradley P. Johnson Chief Executive Officer and President Date July 16, 2002 By /s/ John Fanelli III ------------------------ -------------------------------- John Fanelli III Vice President, Corporate Controller (Principal Accounting Officer) EX-10 3 ex-10h6.txt EXHIBIT 10(H)(6) Exhibit 10(h)(6) ADDENDUM to TRANSITION AND SEPARATION AGREEMENT This Addendum is entered into as of this 30th day of May, 2002, between Hunt Corporation and Donald L. Thompson. BACKGROUND ---------- The parties are executing this Addendum to the Transition and Separation Agreement between them dated November 30, 2001 (the "Agreement") for the purpose of clarifying the terms of the Agreement. Except as may otherwise be provided in this Addendum, terms used herein shall have the same definitions as set forth in the Agreement. THEREFORE, in consideration of the mutual obligations and agreements set forth herein and in the Agreement, and intending to be legally bound, the Company and Thompson hereby agree as follows: 1. Thompson's employment with the Company and its subsidiaries shall terminate on November 30, 2002. 2. The term "Transition Period" as used in the Agreement and this Addendum shall mean the period from November 30, 2001 through May 31, 2002. 3. The words "Duties during Notice Period" shall be substituted as the heading of Section 1(e) of the Agreement. Thompson's duties as a non-executive employee and as Chairman following his ceasing to be Chief Executive Officer until his termination of employment (the "Notice Period") are those set forth in Section 1(e), and he shall not be entitled to any compensation from the Company (for services during such Notice Period as Chairman of the Board, as a director, as an employee or otherwise) other than the severance compensation provided for in the Agreement. 4. The words "Transition Period" shall be substituted for the word "Employment" in the headings to Sections 2 and 3 of the Agreement. 5. The termination of Thompson's employment on November 30, 2002 shall be deemed to be a retirement with the consent of the Board of Directors of the Company for purposes of the Company's 1993 Stock Option and Stock Grant Plan (the "1993 Plan"). All of Thompson's stock options granted under the 1993 Plan that remain outstanding and have vested at the time of the termination of his employment on November 30, 2002 shall remain exercisable until the earlier of (i) the close of business on February 28, 2003 (except for the options for 175,000 shares granted to Thompson on June 28, 2000 which shall remain exercisable until the close of business on November 29, 2004), and (ii) the original expiration date specified in such options or possible earlier termination of such options pursuant to Section 8 of the 1993 Plan. 6. The Agreement, as clarified and modified by this Addendum, shall continue in full force and effect. IN WITNESS WHEREOF, Thompson has hereunto set his hand and, pursuant to the authorization from the Board of Directors and Compensation Committee of the Company, the Company has caused these presents to be executed in its name on its behalf by its duly authorized officers. ____________________________ _________________________________________ Witness Donald L. Thompson ATTEST: HUNT CORPORATION ____________________________ By:______________________________________ Dennis S. Pizzica John W. Carney Secretary Its: Vice President, Chief Administrative Officer -2- EX-10 4 ex-10j2.txt EXHIBIT 10(J)(2) HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN STOCK GRANT AGREEMENT This Stock Grant Agreement is made as of the 2d day of January, 2001, pursuant to the HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN, between HUNT CORPORATION (the "Company") and John W. Carney (the "Employee") an officer or other key management level employee of the Company. W I T N E S S E T H: WHEREAS, the Compensation Committee of the Company's Board of Directors (the "Committee"), by appropriate action, has, on January 2, 2001, (the "Date of Grant"), made a grant to Employee (the "Grant") of Common Shares of the Company ("Common Shares") under the HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN on the terms and conditions hereinafter set forth; and WHEREAS, Employee has agreed to relinquish all unexercised stock options granted to Employee which have a purchase price in excess of $18.00; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties hereto, intending to be legally bound hereunder, agree as follows: 1. Incorporation of Plan. The Grant is subject to all of the terms and conditions of the HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN, as said Plan may be amended from time to time (the "Plan"), which terms and conditions are incorporated herein by reference, made a part hereof, and shall control in the event of any conflict with any other terms of this Agreement. A copy of the present form of the Plan is attached hereto as Exhibit A and incorporated herein by reference. 2. The Grant. The Grant is for an aggregate of 18,756 Common Shares. 3. Vesting. (a) Date of Vesting. Subject to earlier vesting as provided below and in Section 6(c) of the Plan, the Common Shares subject to this Grant shall vest in full on January 2, 2006, provided the Employee is then still employed by the Company or by any "Related Corporation," as defined below. - 1 - (b) Performance Accelerated Vesting. The Committee has established performance standards based on the achievement of certain targets with respect to the Company's Profit Before Taxes, as defined below ("PBT"). The Committee has set Cumulative Baseline PBT Targets and Cumulative Stretch PBT Targets for 2002, 2003 and 2004 by which performance will be measured and vesting determined. These Cumulative PBT Targets are as follows: 2002 2003 2004 ---- ---- ---- Baseline $24M $41M $57M Stretch $35M $55M $73M If the Cumulative Baseline PBT Target is exceeded at the end of any of these years, vesting will be determined pursuant to the following formula:
Actual Cumulative Cumulative Baseline Vested = PBT for Year minus PBT Target for Year ----------------------------------------------------------------------- Percentage Cumulative Stretch Cumulative Baseline PBT Target for Year minus PBT Target for Year
If the resulting percentage exceeds the percentage of shares previously vested, the Employee shall become vested as of the anniversary date of the Grant following the end of such year in an additional number of shares so that the total number of shares in which Employee is vested equals such new percentage, provided the Employee is still employed by the Company or a Related Corporation on such anniversary date. Once vested, such shares remain vested even though the vested percentage determined under the formula set forth above may be lower in a subsequent year. (c) Vesting upon Change in Control. In the event of a Change in Control, as defined below, the shares subject to this Grant shall be vested in an amount equal to the greater of (i) 50 percent or (ii) the vested percentage determined under (a) or (b) above prior to the Change in Control, provided the Employee is still employed by the Company or a Related Corporation on the date of such Change in Control. (d) Definitions. For purposes of this Section, the following words and phrases shall have the following meanings: (1) "Change in Control" shall mean: (i) any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (A) the Company and/or its wholly-owned subsidiaries, (B) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such plan, (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company or (D) the Employee or any group of Persons of which Employee voluntarily is a part), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or such lesser percentage of voting power, but not less than 15%, as the Board shall determine; provided, however that a Change in Control shall not be deemed to have occurred under the provisions of this subsection (i) by reason of the beneficial ownership of voting securities by members of the Bartol Family (as defined below) unless and until the beneficial ownership of all members of the Bartol Family (including any other individuals or entities who or which, together with any member or members of the Bartol Family, are deemed under Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined voting power of the Company's then outstanding securities; -2- (ii) during any two-year period beginning after October 1, 1999, Directors of the Company in office at the beginning of such period plus any new Director (other than a Director designated by a Person who has entered into an agreement with the Company to effect a transaction within the purview of subsections (i) or (iii) hereof) whose election by the Board, or whose nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, shall cease for any reason to constitute at least a majority of the Board; or (iii) the Company's shareholders or the Board shall approve (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's voting common shares (the "Voting Shares") would be converted into cash, securities and/or other property, other than a merger of the Company in which holders of Voting Shares immediately prior to the merger have the same proportionate ownership of common shares of the surviving corporation immediately after the merger as they had in the Voting Shares immediately before, (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets or earning power of the Company, or (C) the liquidation or dissolution of the Company. As used in this Agreement, "members of the Bartol Family" shall mean the wife, children and descendants of such children of the late George E. Bartol, III, their respective spouses and estates, any trusts or partnerships primarily for the benefit of any of the foregoing and the administrators, executors, trustees and partners of any such estates, trusts or partnerships. Whether a Change in Control has occurred shall be determined by the Committee, as it is constituted on the day proceeding the date of the Change in Control. -3- (2) "Profit Before Taxes" shall mean income from operations excluding special items, minus interest expense, plus interest income, minus other miscellaneous expense, plus other miscellaneous income, less bonus expense. Special items for this purpose may include, for example, expenses related to litigation or an acquisition or changes in accounting regulations, provided, however, that such expense is designated as a special item by the Board of Directors following recommendation by the Chief Executive Officer. Miscellaneous expense for this purpose may include, for example, expenses from sales tax audits or the effects of currency exchange. (3) "Related Corporation" shall mean a subsidiary or a corporate parent of the Company as defined in section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). 4. Delivery of Share Certificates. Upon the vesting of shares subject to the Grant, the Company shall promptly issue certificates representing the vested Common Shares to the Employee or to Employee's Beneficiary in accordance with Section 6(d) of the Plan. Only full Common Shares shall be issued, and any fractional Common Shares which might otherwise be issuable pursuant to the Grant shall be forfeited. Such Common Shares shall be legended with reference to restrictions on transfer of the Common Shares to the extent the Company may require pursuant to Section 7 of the Plan. 5. Non-Transferability of Grant. Except as otherwise provided in Section 6(e) of the Plan, the Grant shall not be assignable or transferable by the Employee other than by will or by the laws of descent and distribution. 6. Designation of Beneficiary. The Employee shall have the right to designate a Beneficiary or Beneficiaries to receive any Common Shares which may become vested upon the Employee's death. The Employee must designate such Beneficiary on the form furnished by the Company. The Employee may, at any time, change his or her designation of Beneficiary by completing a new form, but a designation of Beneficiary shall remain in effect until such new form is received by the Company. If no properly designated Beneficiary survives the Employee, the Employee's estate shall be the Beneficiary. 7. Rights as a Shareholder; Cash Bonus. (a) No Rights as Shareholder until Common Shares Issued. The Employee shall have no rights as a shareholder with respect to any Common Shares covered by the Grant until the issuance of a stock certificate to him or her representing such Common Shares. (b) Cash Bonus. Notwithstanding Section 7(a), however, for so long as an Employee's Grant remains outstanding and unvested, the Company shall, to the extent provided in Section 6(b) of the Plan, pay to the Employee a cash bonus equal to the dividends which the Employee would have received from the Company had he or she actually held the Common Shares represented by the unvested portion of his or her Grant. Such payments shall be made within 60 days following the end of each fiscal quarter of the Company with respect to any dividends which may have been paid by the Company on its Common Shares during such quarter, and will constitute wages subject to withholding for Federal income tax purposes. -4- 8. Capital Adjustments, Corporate Transactions. The number of Common Shares awarded under this Agreement shall be adjusted to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. In the event of certain types of corporate transactions, the Grant may be terminated, accelerated or otherwise modified by the Committee as provided in Section 8 of the Plan. 9. Deferral. In accordance with the terms of the Hunt Corporation Supplemental Executive Benefits Plan, Employee, if a participant in said Plan, may defer the income to be realized upon the vesting of the Common Shares subject to this Grant by transferring this Grant to said Plan prior to becoming vested in such Common Shares. 10. Withholding of Taxes. The obligation of the Company to deliver Common Shares hereunder shall be subject to compliance with applicable Federal, state and local income tax and employment tax and similar tax withholding requirements. To meet this obligation, the Company may withhold the amount necessary from the Employee's salary from the Company. The Employee, however, subject to the discretion of the Committee, and subject to such additional withholding rules ("Withholding Rules") as shall be adopted by the Company, may be permitted by the Committee to satisfy such withholding taxes, in whole or in part, by electing to have the Company withhold (or by returning to the Company previously held Common Shares) Common Shares, which Common Shares shall be valued, for this purpose, at their fair market value on the date on which the value of such Common Shares is required to be included in income by the Employee under section 83 of the Code (the "Determination Date"), provided, however, that if Employee is subject to section 16(b) of the Securities Exchange Act of 1934, any such amount of taxes required to be withheld automatically shall be satisfied by withholding Common Shares. Such election must be made on or before the Determination Date and must be in compliance with and subject to any Withholding Rules. 11. Termination of Employment. If Employee's employment is terminated by the Company and all Related Corporations, the Grant shall be subject to Section 6(c) of the Plan. 12. Other Benefits. The issuance of the Common Shares subject to this Grant to Employee shall be in addition to any other benefits or amounts the Employee may be entitled to under (a) any Company plans, policies, or procedures, or (b) any Change in Control Agreement the Employee has entered into with the Company. 13. Amendment. No provisions of this Agreement may be modified or amended unless such modification or amendment is agreed to in a written instrument signed by the Employee and such officer or officers as may be specifically designated by the Company to sign on its behalf. 14. Absence of Rights. Notwithstanding any provisions of this Agreement or the Plan, the Company shall have the right, subject to the provisions of any employment contract the Employee and the Company have entered into, in its discretion, to retire the Employee at any time pursuant to its retirement rules or otherwise to terminate Employee's employment at any time for any reason whatsoever. -5- 15. Headings. The Section and Subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In the event of a conflict between a heading and the content of a Section or Subsection, the content of the Section or Subsection shall control. 16. Severability. If any clause, phrase, provision or portion of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any law, such event shall not affect or render invalid or unenforceable any other provision of this Agreement and shall not affect the application of any clause, provision, or portion hereof to other persons or circumstances. 17. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, executors, and administrators. 18. Notice. Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if hand delivered or sent by registered or certified mail, postage prepaid: if to the Company, at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103, Attention: The Corporate Secretary; and if to Employee, at the address specified after his or her name on the signature page hereof, or to such other address or addresses as either such party may specify to the other in writing. 19. Entire Agreement. This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof. 20. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the laws of the Commonwealth of Pennsylvania. -6- IN WITNESS WHEREOF, this Stock Grant Agreement has been executed as of the date first above written. Attest: HUNT CORPORATION [SEAL] ___________________ By:______________________________ Witness EMPLOYEE ___________________ _________________________________ Signature Signature _________________________________ _________________________________ _________________________________ Address of Employee (for the giving of notice) -7- EX-10 5 ex-10k2.txt EXHIBIT 10(K)(2) HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN STOCK GRANT AGREEMENT This Stock Grant Agreement is made as of the 2d day of January, 2001, pursuant to the HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN, between HUNT CORPORATION (the "Company") and Bradley P. Johnson (the "Employee") an officer or other key management level employee of the Company. W I T N E S S E T H: WHEREAS, the Compensation Committee of the Company's Board of Directors (the "Committee"), by appropriate action, has, on January 2, 2001, (the "Date of Grant"), made a grant to Employee (the "Grant") of Common Shares of the Company ("Common Shares") under the HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN on the terms and conditions hereinafter set forth; and WHEREAS, Employee has agreed to relinquish all unexercised stock options granted to Employee which have a purchase price in excess of $18.00; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties hereto, intending to be legally bound hereunder, agree as follows: 1. Incorporation of Plan. The Grant is subject to all of the terms and conditions of the HUNT CORPORATION 1993 STOCK OPTION AND STOCK GRANT PLAN, as said Plan may be amended from time to time (the "Plan"), which terms and conditions are incorporated herein by reference, made a part hereof, and shall control in the event of any conflict with any other terms of this Agreement. A copy of the present form of the Plan is attached hereto as Exhibit A and incorporated herein by reference. 2. The Grant. The Grant is for an aggregate of 49,516 Common Shares. 3. Vesting. (a) Date of Vesting. Subject to earlier vesting as provided below and in Section 6(c) of the Plan, the Common Shares subject to this Grant shall vest in full on January 2, 2006, provided the Employee is then still employed by the Company or by any "Related Corporation," as defined below. (b) Performance Accelerated Vesting. The Committee has established performance standards based on the achievement of certain targets with respect to the Company's Profit Before Taxes, as defined below ("PBT"). The Committee has set Cumulative Baseline PBT Targets and Cumulative Stretch PBT Targets for 2002, 2003 and 2004 by which performance will be measured and vesting determined. These Cumulative PBT Targets are as follows: 2002 2003 2004 ---- ---- ---- Baseline $24M $41M $57M Stretch $35M $55M $73M If the Cumulative Baseline PBT Target is exceeded at the end of any of these years, vesting will be determined pursuant to the following formula:
Actual Cumulative Cumulative Baseline Vested = PBT for Year minus PBT Target for Year ------------------------------------------------------------------------ Percentage Cumulative Stretch Cumulative Baseline PBT Target for Year minus PBT Target for Year
If the resulting percentage exceeds the percentage of shares previously vested, the Employee shall become vested as of the anniversary date of the Grant following the end of such year in an additional number of shares so that the total number of shares in which Employee is vested equals such new percentage, provided the Employee is still employed by the Company or a Related Corporation on such anniversary date. Once vested, such shares remain vested even though the vested percentage determined under the formula set forth above may be lower in a subsequent year. (c) Vesting upon Change in Control. In the event of a Change in Control, as defined below, the shares subject to this Grant shall be vested in an amount equal to the greater of (i) 50 percent or (ii) the vested percentage determined under (a) or (b) above prior to the Change in Control, provided the Employee is still employed by the Company or a Related Corporation on the date of such Change in Control. (d) Definitions. For purposes of this Section, the following words and phrases shall have the following meanings: (1) "Change in Control" shall mean: (i) any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (A) the Company and/or its wholly-owned subsidiaries, (B) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such plan, (C) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company or (D) the Employee or any group of Persons of which Employee voluntarily is a part), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or such lesser percentage of voting power, but not less than 15%, as the Board shall determine; provided, however that a Change in Control shall not be deemed to have occurred under the provisions of this subsection (i) by reason of the beneficial ownership of voting securities by members of the Bartol Family (as defined below) unless and until the beneficial ownership of all members of the Bartol Family (including any other individuals or entities who or which, together with any member or members of the Bartol Family, are deemed under Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined voting power of the Company's then outstanding securities; (ii) during any two-year period beginning after October 1, 1999, Directors of the Company in office at the beginning of such period plus any new Director (other than a Director designated by a Person who has entered into an agreement with the Company to effect a transaction within the purview of subsections (i) or (iii) hereof) whose election by the Board, or whose nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, shall cease for any reason to constitute at least a majority of the Board; or (iii) the Company's shareholders or the Board shall approve (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's voting common shares (the "Voting Shares") would be converted into cash, securities and/or other property, other than a merger of the Company in which holders of Voting Shares immediately prior to the merger have the same proportionate ownership of common shares of the surviving corporation immediately after the merger as they had in the Voting Shares immediately before, (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets or earning power of the Company, or (C) the liquidation or dissolution of the Company. As used in this Agreement, "members of the Bartol Family" shall mean the wife, children and descendants of such children of the late George E. Bartol, III, their respective spouses and estates, any trusts or partnerships primarily for the benefit of any of the foregoing and the administrators, executors, trustees and partners of any such estates, trusts or partnerships. Whether a Change in Control has occurred shall be determined by the Committee, as it is constituted on the day proceeding the date of the Change in Control. (2) "Profit Before Taxes" shall mean income from operations excluding special items, minus interest expense, plus interest income, minus other miscellaneous expense, plus other miscellaneous income, less bonus expense. Special items for this purpose may include, for example, expenses related to litigation or an acquisition or changes in accounting regulations, provided, however, that such expense is designated as a special item by the Board of Directors following recommendation by the Chief Executive Officer. Miscellaneous expense for this purpose may include, for example, expenses from sales tax audits or the effects of currency exchange. (3) "Related Corporation" shall mean a subsidiary or a corporate parent of the Company as defined in section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). 4. Delivery of Share Certificates. Upon the vesting of shares subject to the Grant, the Company shall promptly issue certificates representing the vested Common Shares to the Employee or to Employee's Beneficiary in accordance with Section 6(d) of the Plan. Only full Common Shares shall be issued, and any fractional Common Shares which might otherwise be issuable pursuant to the Grant shall be forfeited. Such Common Shares shall be legended with reference to restrictions on transfer of the Common Shares to the extent the Company may require pursuant to Section 7 of the Plan. 5. Non-Transferability of Grant. Except as otherwise provided in Section 6(e) of the Plan, the Grant shall not be assignable or transferable by the Employee other than by will or by the laws of descent and distribution. 6. Designation of Beneficiary. The Employee shall have the right to designate a Beneficiary or Beneficiaries to receive any Common Shares which may become vested upon the Employee's death. The Employee must designate such Beneficiary on the form furnished by the Company. The Employee may, at any time, change his or her designation of Beneficiary by completing a new form, but a designation of Beneficiary shall remain in effect until such new form is received by the Company. If no properly designated Beneficiary survives the Employee, the Employee's estate shall be the Beneficiary. 7. Rights as a Shareholder; Cash Bonus. (a) No Rights as Shareholder until Common Shares Issued. The Employee shall have no rights as a shareholder with respect to any Common Shares covered by the Grant until the issuance of a stock certificate to him or her representing such Common Shares. (b) Cash Bonus. Notwithstanding Section 7(a), however, for so long as an Employee's Grant remains outstanding and unvested, the Company shall, to the extent provided in Section 6(b) of the Plan, pay to the Employee a cash bonus equal to the dividends which the Employee would have received from the Company had he or she actually held the Common Shares represented by the unvested portion of his or her Grant. Such payments shall be made within 60 days following the end of each fiscal quarter of the Company with respect to any dividends which may have been paid by the Company on its Common Shares during such quarter, and will constitute wages subject to withholding for Federal income tax purposes. 8. Capital Adjustments, Corporate Transactions. The number of Common Shares awarded under this Agreement shall be adjusted to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. In the event of certain types of corporate transactions, the Grant may be terminated, accelerated or otherwise modified by the Committee as provided in Section 8 of the Plan. 9. Deferral. In accordance with the terms of the Hunt Corporation Supplemental Executive Benefits Plan, Employee, if a participant in said Plan, may defer the income to be realized upon the vesting of the Common Shares subject to this Grant by transferring this Grant to said Plan prior to becoming vested in such Common Shares. 10. Withholding of Taxes. The obligation of the Company to deliver Common Shares hereunder shall be subject to compliance with applicable Federal, state and local income tax and employment tax and similar tax withholding requirements. To meet this obligation, the Company may withhold the amount necessary from the Employee's salary from the Company. The Employee, however, subject to the discretion of the Committee, and subject to such additional withholding rules ("Withholding Rules") as shall be adopted by the Company, may be permitted by the Committee to satisfy such withholding taxes, in whole or in part, by electing to have the Company withhold (or by returning to the Company previously held Common Shares) Common Shares, which Common Shares shall be valued, for this purpose, at their fair market value on the date on which the value of such Common Shares is required to be included in income by the Employee under section 83 of the Code (the "Determination Date"), provided, however, that if Employee is subject to section 16(b) of the Securities Exchange Act of 1934, any such amount of taxes required to be withheld automatically shall be satisfied by withholding Common Shares. Such election must be made on or before the Determination Date and must be in compliance with and subject to any Withholding Rules. 11. Termination of Employment. If Employee's employment is terminated by the Company and all Related Corporations, the Grant shall be subject to Section 6(c) of the Plan. 12. Other Benefits. The issuance of the Common Shares subject to this Grant to Employee shall be in addition to any other benefits or amounts the Employee may be entitled to under (a) any Company plans, policies, or procedures, or (b) any Change in Control Agreement the Employee has entered into with the Company. 13. Amendment. No provisions of this Agreement may be modified or amended unless such modification or amendment is agreed to in a written instrument signed by the Employee and such officer or officers as may be specifically designated by the Company to sign on its behalf. 14. Absence of Rights. Notwithstanding any provisions of this Agreement or the Plan, the Company shall have the right, subject to the provisions of any employment contract the Employee and the Company have entered into, in its discretion, to retire the Employee at any time pursuant to its retirement rules or otherwise to terminate Employee's employment at any time for any reason whatsoever. 15. Headings. The Section and Subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. In the event of a conflict between a heading and the content of a Section or Subsection, the content of the Section or Subsection shall control. 16. Severability. If any clause, phrase, provision or portion of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any law, such event shall not affect or render invalid or unenforceable any other provision of this Agreement and shall not affect the application of any clause, provision, or portion hereof to other persons or circumstances. 17. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, executors, and administrators. 18. Notice. Any notice or other communications required or permitted hereunder shall be in writing and shall be sufficiently given if hand delivered or sent by registered or certified mail, postage prepaid: if to the Company, at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103, Attention: The Corporate Secretary; and if to Employee, at the address specified after his or her name on the signature page hereof, or to such other address or addresses as either such party may specify to the other in writing. 19. Entire Agreement. This Agreement sets forth the entire understanding of the parties and supersedes all prior agreements, arrangements, and communications, whether oral or written, pertaining to the subject matter hereof. 20. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, this Stock Grant Agreement has been executed as of the date first above written. Attest: HUNT CORPORATION [SEAL] ___________________ By:______________________________ Witness EMPLOYEE ___________________ _________________________________ Signature Signature _________________________________ _________________________________ _________________________________ Address of Employee (for the giving of notice) -----END PRIVACY-ENHANCED MESSAGE-----