-----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, C1N9erxMvnke/ja+36F///EM50CuLCt7wf1yMEO4u8vx73kdeEx7fYTRfKHTO2fF BYn1DuWeKbSe36SJXJuQ4g== 0000905722-00-000004.txt : 20000331 0000905722-00-000004.hdr.sgml : 20000331 ACCESSION NUMBER: 0000905722-00-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNTCO INC CENTRAL INDEX KEY: 0000905722 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 431643751 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13600 FILM NUMBER: 584135 BUSINESS ADDRESS: STREET 1: 14323 SOUTH OUTER FORTY STREET 2: STE 600 N CITY: TOWN & COUNTRY STATE: MO ZIP: 63017 BUSINESS PHONE: 3148780155 MAIL ADDRESS: STREET 1: 14323 S OUTER FORTY STREET 2: STE 600N CITY: TOWN & COUNTRY STATE: MO ZIP: 63017 10-K405 1 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 ------- HUNTCO INC. ------------------------------------------------------ (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 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (314) 878-0155 -------------- (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 --------------------- ------------------------------------------- (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 - ----------------- BACKGROUND - ---------- 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 - ----------------- 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 - -------------------------------- 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 - -------------------- 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 - --------------- 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 - --------- 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 - --------- 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 - -------------------------- 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 - ----------- 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 - ----------- 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 - ----------------------- 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 - --------- 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 - ------------------- 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:
Square Utilization Footage Owned or leased - ------------------------------ ------- ------------------------------------- FLAT ROLLED PRODUCTS DIVISION: Blytheville: ----------- 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: ----------- Cutting-to-length 126,000 Owned. Slitting Tension leveling Coil storage Gauge verification and testing Gallatin County: --------------- Cutting-to-length 65,000 Owned. Tension leveling Coil storage Gauge verification and testing Pasadena: -------- Cutting-to-length 45,000 Owned. Gauge verification and testing Humidity controlled coil storage 21,000 Owned. Barge unloading equipment Madison: ------- Cutting-to-length 128,000 Owned. Slitting Tension leveling Coil storage Gauge verification and testing Catoosa: ------- Cutting-to-length 80,000 Owned improvements on leased land. Tension leveling Coil storage Gauge verification and testing ROLLING MILL DIVISION: - --------------------- Blytheville: ----------- 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: - ------------------------ Strafford: --------- Gauge verification and testing 100,000 Owned. Cylinder Assembly Welding Painting Blytheville: ----------- 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.
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 - -------------------------- 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 - ------------------------------------ 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.
High Low Dividends ------ ------ --------- 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 -
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. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - ---------------------------------------------
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 ------- -------- -------- ------- ------- ------- 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.
BALANCE SHEET DATA (in thousands): December 31, April 30, --------------------------- ------------------------ 1999 1998 1997 1997 1996 1995 ------- ------- ------- ------- ------- ------- 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
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"):
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) 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 ===== ===== ===== ===== =====
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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- HUNTCO INC. CONSOLIDATED BALANCE SHEET (amounts in thousands)
December 31, 1999 1998 -------- -------- 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
HUNTCO INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts)
Eight months Year Year ended ended ended December 31, December 31, April 30, 1999 1998 1997 1997 --------- --------- --------- --------- 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
HUNTCO INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (amounts in thousands)
Eight months Year ended ended Year ended December 31, December 31, April 30, 1999 1998 1997 1997 ------ ------ ------ ------ 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
HUNTCO INC. CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands)
Eight months Year ended ended Year ended December 31, December 31, April 30, 1999 1998 1997 1997 ------- ------- ------- ------- 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
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:
December 31, 1999 1998 -------- -------- Raw materials $ 57,013 $ 66,063 Finished goods 20,819 26,177 -------- -------- $ 77,832 $ 92,240 ======== ========
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:
December 31, 1999 1998 ------ ------- 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 ======== ========
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: 2000 $ 248 2001 175 2002 105,295 2003 - 2004 - -------- $105,718 ========
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:
Options Weighted Average Outstanding Exercise Price ----------- ---------------- 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 =======
The following table summarizes stock options outstanding and exercisable as of December 31, 1999:
Outstanding Exercisable ---------------------------- --------------------- Remaining Average Average Exercise No. of Average Exercise No. of Exercise Price Range Options Life Price Options Price - ------------- ------- ------- ------- ------- -------- $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 ======= =======
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:
Eight Years ended months ended Year ended December 31, December 31, April 30, 1999 1998 1997 1997 ------- ------- ------ ------ 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
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:
Eight Years ended months ended Year ended December 31, December 31, April 30, 1999 1998 1997 1997 ---- ---- ---- ---- 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.
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:
December 31, 1999 1998 ------ ------ 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 ====== ======
A reconciliation of the provision (benefit) for income taxes to the maximum statutory Federal rate of 35% is as follows for the following periods:
Eight months Year ended ended Year ended December 31, December 31, April 30, 1999 1998 1997 1997 ---- ---- ---- ---- 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 ====== ====== ===== =====
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: 2000 3,937 2001 3,588 2002 3,411 2003 3,336 2004 3,274 Thereafter 3,757 ------- $21,303 =======
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:
First Second Third Fourth quarter quarter quarter quarter Year ------- ------- ------- ------- ------ 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.
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 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. 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. 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 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. EX-10 2 B. D. HUNTER SEVERANCE AGREEMENT 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 -------------------------------- EX-10 3 ROBERT J. MARISHCEN EMPLOYMENT AGREEMENT 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 --------------------------------- EX-10 4 ANTHONY J. VERKRUYSE EMPLOYMENT AGREEMENT 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 EX-10 5 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:
If Unit the ROC Bonus is at least as follows, Growth is and then Unit Growth Bonus % is: - -------------- ------------------------------------------ 5% 10% 15% ---- ----- ----- 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.
EX-10 6 FORM OF STOCK OPTION AGREEMENT 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 EX-10 7 DESCRIPTION OF TAX REIMBURSEMENT ARRANGEMENT 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. EX-23 8 CONSENT OF PRICEWATERHOUSECOOPERS LLP 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 EX-27 9 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR DEC-31-1999 DEC-31-1999 414 0 42,159 324 77,832 122,461 168,114 44,566 256,734 46,184 105,470 0 4,500 90 99,324 256,734 349,947 349,947 332,215 332,215 0 241 10,140 (13,190) (4,687) (8,503) 0 (2,644) 0 (11,147) (1.27) (1.27)
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