UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
One) THE SECURITIES EXCHANGE ACT OF 1934
[X]
For the quarterly period ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file 1-7276
number ________________________________
EXOLON-ESK COMPANY
________________________________
(Exact name of registrant as specified in its charter)
Delaware 16-0427000
_________ ____________
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1000 East Niagara Street,
Tonawanda, New York 14150
_____________________________
(Address of Principal Executive Offices)
(Zip Code)
(716) 693-4550
__________________
(Registrant's telephone number, including
area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES..X.. NO.....
As of August 9, 1996, the registrant had outstanding 481,995
shares of $1 par value Common Stock and 512,897 shares of $1
par value Class A Common Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Exolon-ESK Company
Condensed Consolidated Balance Sheet
(in thousands except share amounts)
(Unaudited)
ASSETS June 30, December 31,
1996 1995
Current assets:
Cash $20 $440
Accounts receivable (less allowance
for doubtful accounts of
$490 in 1996 and $419 in 1995) 9,075 8,896
Inventories 19,611 19,700
Prepaid expenses 697 359
_______ _______
Total Current Assets 29,403 29,395
Investment in Norwegian joint venture 5,612 5,230
Property, plant and equipment, at cost 56,836 55,903
Accumulated depreciation (41,516) (40,710)
_______ _______
Net property, plant and equipment 15,320 15,193
Other assets 440 397
_______ _______
Total Assets $50,774 $50,215
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $2,000 -
Current maturities of long-term debt 1,550 1,550
Accounts payable 3,829 3,229
Accrued expenses 1,568 1,713
Income taxes payable 1,530 1,329
Deferred income taxes - 160
_______ _______
Total Current Liabilities 10,477 7,981
Deferred income taxes 1,300 1,300
Long-term debt excluding current
installments 10,500 15,350
Other long-term liabilities 3,197 3,286
Stockholder' equity:
Preferred stock
Series A - 19,364 shares issued 276 276
Series B - 19,364 shares issued 166 166
Common stock of $1 par value
Authorized 600,000 shares,
512,897 issued 513 513
Class A common stock of $1 par value -
Authorized 600,000
shares, 512,897 issued 513 513
Additional paid-in capital 4,345 4,345
Retained earnings 19,954 16,952
Cumulative translation adjustment (99) (99)
Treasury stock, at cost (368) (368)
_______ _______
Total Stockholders' Equity 25,300 22,298
_______ _______
Total Liabilities and Stockholders' Equity $50,774 $50,215
======= =======
The accompanying notes are an integral part of these statements.
Exolon-ESK Company
Condensed Statements of Consolidated Income
Unaudited
(in thousands except per share amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
______ ______ ______ ______
Net sales $19,739 $17,131$39,585 $34,308
Cost of goods sold 15,044 13,209 30,346 26,608
______ ______ ______ ______
Gross Profit Before
Depreciation 4,695 3,922 9,239 7,700
______ ______ ______ ______
Depreciation 773 762 1,545 1,524
Selling, general & administrative
expenses 1,347 1,329 2,745 2,563
Research and development 5 4 5 22
______ ______ ______ ______
2,125 2,095 4,295 4,109
______ ______ ______ ______
Operating Income 2,570 1,827 4,944 3,591
Other Expenses (Income):
Equity in (Earnings) before
income taxes of Norwegian
Jt. venture (224) (281) (382) (511)
Interest expense 337 379 705 709
Miscellaneous expense (income) (166) 47 (433) 191
______ ______ ______ ______
(53) 145 (110) 389
______ ______ ______ ______
Earnings before income taxes
and cumulative effect of
accounting change 2,624 1,682 5,053 3,202
Income tax expense 1,020 668 2,040 1,250
______ ______ ______ ______
Earnings before cumulative
effect of accounting change 1,604 1,014 3,013 1,952
Cumulative effect of accounting change
(net of income tax benefit) - - - (762)
______ ______ ______ ______
Net Earnings $1,604 $1,014 $3,013 $1,190
====== ====== ====== ======
PER COMMON SHARE:
Earnings before cumulative
effect of accounting change $1.65 $1.04 $3.10 $2.00
Cumulative effect of
accounting change - - - (0.79)
______ ______ ______ ______
Net Earnings $1.65 $1.04 $3.10 $1.21
====== ====== ====== ======
PER CLASS A COMMON SHARE:
Earnings before cumulative
effect of accounting change $1.55 $0.98 $2.92 $1.88
Cumulative effect of
accounting change - - - (0.74)
______ ______ ______ ______
Net Earnings $1.55 $0.98 $2.92 $1.14
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
Exolon-ESK Company
Condensed Statements of Consolidated Cash Flows
Unaudited
(in thousands)
Six Months
Ended
June 30,
1996 1995
______ ______
Cash Flow from Operating Activities:
Net earnings $3,013 $1,190
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,546 1,524
Cumulative effect of change in
accounting for post-retirement - 762
benefits
Equity in (earnings) of Norwegian
joint venture (382) (511)
(Gain) on fixed asset disposals 184 -
Deferred income taxes (160) (415)
Change in Assets and Liabilities:
(Increase) decrease in:
Accounts receivable (179) (1,918)
Inventories 90 (323)
Prepaid expenses (338) 97
Other assets (43) (43)
(Decrease) Increase in:
Accounts payable 600 1,829
Accrued expenses (146) (84)
Income taxes payable 202 821
Other long-term liabilities (90) 376
______ ______
Net Cash Provided (Used) by Operating
Activities 4,298 3,311
Cash Flow from Investing Activities:
Additions to property, plant and
equipment (1,857) (1,630)
Proceeds from fixed asset disposals - -
______ ______
Net Cash (Used) for Investing Activities (1,857) (1,630)
Cash Flow from Financing Activities:
Borrowings (repayments) on long-term
construction financing loans and
revolving credit agreement (2,850) (2,106)
Dividends paid (11) (22)
______ ______
Net Cash Provided (Used) by Financing
Activities (2,861) (2,128)
Net (decrease) in cash (420) (447)
Cash at beginning of period 440 467
______ ______
Cash at end of period $ 20 $ 20
====== ======
The accompanying notes are an integral part of these
statements.
EXOLON-ESK COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 The financial information is prepared in conformity
with generally accepted accounting principles and such
principles are applied on a basis consistent with those
reflected in the 1995 Form 10-K filed with the
Securities and Exchange Commission. The financial
information included herein, has been prepared by
management without audit by independent certified
public accountants. The information furnished includes
all adjustments and accruals consisting only of normal
recurring accrual adjustments, which are, in the
opinion of management, necessary for a fair
presentation of results for the interim period ended
June 30, 1996.
NOTE 2 Through a wholly-owned non-operating subsidiary, the
Company's 50% interest in the Norwegian joint venture
is recorded on the equity method for financial
reporting purposes. The Company's proportionate share
of the venture's net sales and income before income
taxes together with the subsidiary's net income (in
thousands) are as follows:
Three Months Six Month
Ended Ended
June 30 June 30
______________ ______________
Joint Venture: 1996 1995 1996 1995
____ ____ ____ ____
Net Sales $1,847 $2,022 $3,758 $3,870
Income Before
Income Taxes 224 230 382 511
Net Income 161 166 275 368
NOTE 3 The following are the major classes of inventories (in
thousands) as of June 30, 1996 and December 31, 1995:
June 30, 1996 December 31,
(Unaudited) 1995
_____________ ____________
Raw Materials $3,133 $2,119
Semi-Finished and
Finished Goods 17,595 18,640
Supplies and Other 1,215 1,011
_______ _______
21,943 21,770
Less: LIFO Reserve (2,332) (2,070)
_______ _______
$19,611 $19,700
======= =======
NOTE 4 The Company entered into a Credit Agreement on December
22, 1992 with a U.S. bank, providing for borrowings up
to $10,000,000 under the revolving portion of the
Agreement, a $4,000,000, 5 year term loan and for
borrowing up to $2,000,000 under a demand line of
credit.
At June 30, 1996 borrowings of $2,850,000 were
outstanding under the revolving portion, borrowings of
$1,200,000 were outstanding under the term loan portion
and borrowings of $2,000,000 were outstanding under the
demand line of credit portion of the U.S. Credit
Agreement.
The Company's Canadian subsidiary has a $1,000,000
(Canadian funds) operating demand loan available as
part of a credit facility provided by a Canadian bank.
Borrowings outstanding at June 30, 1996 were $0
(Canadian funds).
The Company is liable for making payments with respect
to $8,000,000 of Industrial Revenue Bonds issued by the
Village of Hennepin, Illinois and purchased by an
insurance company upon refinancing of the bonds on
January 22, 1993. The bonds mature on January 1, 2018.
June 30,
Long Term Debt (in 1996 December
thousands) Consists of: (Unaudited) 31, 1995
___________ ________
Revolving Credit Agreement
with a U.S. bank. Interest
at prime rate plus 1/4% or $4,850 $ 7,100
LIBOR plus 2-1/2% (8.5% at
June 30, 1996).
Term Loan Agreement with a
U.S. Bank. Interest at
prime rate plus 1/2% or 1,200 1,800
LIBOR plus 2-3/4% (8.75% at
June 30, 1996)
Industrial Revenue Bond held
by an insurance company.
Interest at a fixed rate of 8,000 8,000
8-7/8%. Bond maturity is _______ _______
January 15, 2018.
$ 14,050 $ 16,900
Less Current Maturities 3,550 1,550
_______ _______
$10,500 $15,350
======= =======
NOTE 5 The Company provides certain health care and life
insurance benefits to eligible retired employees and
their spouses. Participants generally become eligible
for these benefits after achieving certain age and
years of service requirements. These benefits are
subject to deductibles, co-payment provisions and other
limitations. The Company reserves the right to amend,
change, or terminate the benefits at any time.
Effective January 1, 1993, the Company adopted for its
U.S. operations only, Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which
requires that the estimated cost of postretirement
benefits be accrued over the period earned. Prior to
1993, the Company recognized the costs of these
benefits on the pay-as-you-go basis. The Company's
current policy is to fund these benefits on a pay-as-
you-go basis.
The Company's Canadian subsidiary also provides certain
health care and life insurance benefits to eligible
retired employees and their spouses. Participants
generally become eligible for these benefits after
achieving certain age and years of service
requirements. The Company adopted SFAS No. 106
effective January 1, 1995 for its Canadian subsidiary
and recognized the initial obligation as a one-time,
after-tax charge to earnings of $502,000 in the year
ended December 31, 1995. The Company's current policy
is to fund these benefits on a pay-as-you-go basis.
NOTE 6 Commitments
Royalty Agreements
The Company has a royalty agreement covering production
of crude aluminum oxide at its Thorold, Ontario plant
using process technology acquired as part of the
construction and completion of a furnace plant. A
separate royalty agreement covers the production of
certain specialty products for the refractory markets.
The agreements are for a period of 10 years each and
expire July 31, 1996 and April 30, 2001 respectively.
The royalty expense in U.S. dollars amounted to
$396,000 in the first six months of 1996 and $311,000
in the same period of 1995.
NOTE 7 Contingencies
a. Environmental Issues
(i) Hennepin, Illinois Plant
On October 6, 1994, the Company entered into a Consent
Order (the Consent Order ) with the Illinois Attorney
General and the Illinois Environmental Protection
Agency ( IEPA ) in complete settlement of a complaint
brought by them which alleged that the Company had
violated certain air quality requirements in the
operating permit for its Hennepin, Illinois plant. The
Consent Order provides a schedule for the Company to
install a Continuous Emissions Monitoring System
( CEMS ) and to implement the required Best Available
Control Technology ( BACT ) for air emissions, pursuant
to an IEPA approved construction and operating permit.
The Company obtained final approval for a construction
permit to implement the BACT on June 11, 1996.
Under the terms of the Consent Order the Company has
also agreed to pay a civil penalty of $1,300,000,
payable in installments of $260,000 each on November 1,
1994, April 1, 1995, February 1, 1996, January 1, 1997
and November 1, 1997. The Company recorded an expense
of $1,300,000 in the year ended December 31, 1994,
which represents the civil penalty.
In order to comply with the June 30, 1996 Consent Order
and complete facility improvements, the Company expects
to incur capital costs within the range from
$13,100,000 to $14,000,000 over the next two years.
As of June 30, 1996, the Company has incurred
approximately $1,465,000 of capital costs related to
the facility improvements. The Company is seeking to
finance the costs of the required capital improvements
through an underwritten credit enhanced bond offering
on a tax-exempt basis through the State of Illinois to
the extent permitted by law and a taxable basis for the
remaining portion. The Company has obtained a
modification of its Industrial Revenue Bond Agreement
to allow for the required capital expenditures under
the Consent Order.
(ii) Norwegian Joint Venture
The Government of Norway held discussions with certain
Norwegian industries including the abrasive industry
concerning the implementation of reduced gaseous
emission standards. The Company's joint venture is
participating in these discussions to help achieve the
Norwegian Government's objectives as well as assuring
long term economic viability for the joint venture.
The Company's joint venture appointed a project group
to complete a study and define a project to minimize
sulfur and dust emissions which was presented to the
Norwegian State Pollution Control Authority on March 1,
1995. The Authority has prepared an internal study of
the report and the Authority s draft for new
concessions was presented to the joint venture in
February 1996. Based on a consensus for the
metallurgical industry, the joint venture has initiated
discussions with the Authority to obtain acceptable
emissions levels. The costs associated with the
implementation of environmental expenditures are
uncertain as a result of various alternatives presently
being considered by the Norwegian joint venture.
b. Legal Matters
(i) Federal Proceedings and Related Matters
In February 1994, the Company, its former President,
its former Executive Vice President and certain other
parties were the subject of an indictment under federal
antitrust laws (the "Antitrust Proceedings") which
alleged, among other things, that: (a) prior to the
mid-1980's and from the mid 1980's continuing into
1992, the defendants and unnamed co-conspirators
entered into and engaged in a combination and
conspiracy to fix the prices of artificial abrasive
grain in restraint of interstate trade; (b) during the
same period, the Company and its former President
willfully violated the terms of a Consent Decree dated
November 16, 1948 against the Company and its officers,
which permanently enjoined them from entering into
conspiracies or combinations to fix prices of
artificial abrasive grain; and that (c) the Company's
former Executive Vice President destroyed documents and
made false declarations in response to a grand jury
subpoena issued in an investigation of price fixing
for artificial abrasive grain. On July 12, 1996 a Plea
Agreement was executed by the United States Department
of Justice and the Company in full settlement of the
Criminal Antitrust Proceedings pending against the
Company. The Plea Agreement provides that the Company
will plead guilty to contempt of court in violation of
the 1948 Consent Decree described in (b) above. All
other charges against the Company will be dismissed.
The Company has agreed to pay a fine totaling $100,000.
There are no conditions of probation or any further
penalties provided. In addition, all antitrust and
consent decree violation charges against individual
former officers of the Company will be dismissed. This
Agreement must be approved by the Federal District
Court for the Western District of New York, which has
the authority to accept the Plea Agreement or to reject
it in its entirety. The Court is presently reviewing
the Plea Agreement.
On December 8, 1994, in an ex parte proceeding the U.S.
Defense Logistics Agency (the "DLA") issued a
Memorandum of Decision that temporarily suspended the
defendants in the Antitrust Proceedings from
contracting with the U.S. Government under procurement
or non-procurement programs pending the completion of
the Antitrust Proceedings. On January 31, 1995, the
DLA amended the Memorandum of Decision (as amended, the
"DLA Suspension") to include under the DLA Suspension
sixteen alleged affiliates of the defendants including
the Company's subsidiary, Exolon-ESK Company of Canada
Ltd., and Orkla-Exolon K/S, the Norwegian partnership
in which the Company's subsidiary, Norsk Exolon A/S,
has a 50% partnership interest. The DLA Suspension
alleges as causes for the suspension (i) the
indictments of the parties in the Antitrust
Proceedings, and (ii) on separate occasions in October
and November of 1994 the Company s former President and
former Executive Vice President individually made
alleged false certifications in DLA sales contracts
denying the existence within the past three years of
any indictments of the kind involved in the pending
Antitrust Proceedings. A jury trial on a separate
criminal complaint against the Company and the former
Executive Vice President based on the alleged false
certifications in DLA sales contracts found the Company
and the former Executive Vice President not guilty of
all charges.
In general, the DLA Suspension provides, during the
term of the suspension, that the suspended parties will
be prohibited from entering into new contracts, or
renewing or extending old contracts with the U.S.
Government or its agencies, unless the head of the
contracting agency states in writing that there is a
compelling reason to do so; that the suspended parties
may not conduct business with the U.S. Government as an
agent or representative of other contractors; that no
U.S. Government contractor may award a suspended party
a subcontract in excess of $25,000 unless there is
compelling reason to do so and the contracting party
complies with certain notification provisions; and,
that each suspended party's relationship to any
organization doing business with the government will be
examined to determine the impact of those ties on the
responsibility of the other organization to be a
government contractor or subcontractor.
At this time, the Company is not able to predict the
amount and nature of criminal penalties or fines that
might be imposed against the Company or its former
President or former Executive Vice President, if any of
them were convicted of any of the charges alleged in
the Antitrust Proceedings. However, if the Antitrust
Proceedings were resolved in a manner adverse to the
Company, such penalties or fines could be substantial
and could materially adversely affect the Company. The
Company believes there are meritorious defenses to the
alleged violations. Accordingly, the Company believes
that the DLA Suspension against it will be lifted at
the conclusion of the Antitrust Proceedings. The
Company intends to vigorously defend against the
Antitrust Proceedings and to seek to have the DLA
Suspension against it lifted as soon as possible.
The DLA Suspension, for so long as it remains in force,
will prevent the Company from purchasing crude abrasive
grains from U.S. Government stockpiles, unless the head
of the contracting agency states in writing that there
is a compelling reason to permit such purchase.
Nonetheless, it is not otherwise expected to impact the
Company's operations as the Company does not deal with
the U.S. Government as a contractor or subcontractor.
As long as there is an adequate supply of crude
abrasive grains and the U.S. Government does not sell
this grain from its stockpiles at below market prices,
the DLA Suspension is not expected to have a material
adverse effect on the Company's operations. Presently,
and for at least the next 9 month period, the Company
expects crude abrasive grains to be in adequate supply.
However, the Company is unable to predict under what
circumstances the U.S. Government might choose to sell
from its stockpiles. If it were to undertake an
aggressive program of selling abrasive grains at below
market prices, the Company could be placed at a
disadvantage in relation to its competitors.
On October 18, 1994, a lawsuit was commenced in the
U.S. District Court for the Eastern District of
Pennsylvania (No. 94-CV-6332) under the title "General
Refractories Company v. Washington Mills Electro
Minerals Corporation and Exolon-ESK Company." The suit
purports to be a class action seeking treble damages
from the defendants for allegedly conspiring with
unnamed co-conspirators during the period from January
1, 1985 through the date of the complaint to fix,
raise, maintain and stabilize the price of artificial
abrasive grains and to allocate among themselves their
major customers or accounts for purchases of artificial
grains, in violation of Section 1 of the Sherman Act,
15 U.S.C. Section 1. The plaintiffs allegedly paid
more for abrasive grain products than they would have
paid in the absence of such anti-trust violations and
were allegedly damaged in an amount that they are
presently unable to determine. On or about July 17,
1995, a lawsuit captioned Arden Architectural
Specialties, Inc. v. Washington Mills Electro Minerals
Corporation and Exolon-ESK Company, (95-CV-05745(m)),
was commenced in the United States District Court for
the Western District of New York. The Arden
Architectural Specialties complaint purports to be a
class action that is based on the same matters alleged
in the General Refractories complaint. The Company
believes that it has meritorious defenses to the
allegations, and it intends to vigorously defend
against the charges.
In addition to the potential liabilities that the
Company may experience in the legal proceedings brought
by the Department of Justice and third parties, the
Company may incur material expenses in defending
against the actions, and it may incur such expenses
even if it is found to have no liability for any of the
charges asserted against it.
(ii) Exolon-ESK Company of Canada, Ltd.
In June 1993, the Company commenced a legal action in
Ontario, Canada Court (General Division) against one of
its former officers and certain former employees of
Exolon-ESK Company of Canada, Ltd. (Exolon-Canada) on
various charges related to allegations that they
defrauded the Company and Exolon-Canada of money,
property and services over many years (the Canadian
Case ). The Company is seeking $2,000,000 in damages
together with such other damages that may be
determined. A reasonable estimation of the Company's
potential recovery, if any, cannot be made at this
time.
On February 29, 1996, the Company and Exolon-Canada
entered into a Final Release (the Release ) with their
insurance carriers whereby they agreed to release the
carriers from all claims based on the activities of the
defendants in the Canadian Case in consideration of a
payment of $535,000 Canadian (approximately $390,000
U.S.). Under the terms of the Release, the insurance
carriers denied any liability, and the payment may not
be indicative of the amount of any recovery that may be
obtained from the defendants. The insurance carriers
have subrogated all of their third party rights and
claims to Exolon-ESK Company of Canada, Ltd.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of the Six Months Ended June 30, 1996 with the Six
Months Ended June 30, 1995
Net Sales. Total net sales increased by 15% to $39,585,000
during the six months ended June 30, 1996 from $34,308,000 in the
first six months of 1995. The $5,277,000 increase is principally
a result of an increase in shipment volume of the Company s
primary manufactured and purchased products in the first six
months of 1996 when compared to the first six months of 1995 as a
result of the continuation of a strong abrasives, steel and
automotive market within the U.S.
Gross Profit. Gross profit prior to depreciation expense
was $9,239,000 in the first six months of 1996 when compared to
$7,700,000 in the first six months of 1995. As a percent of net
sales, gross margins were 23% in the first six months of 1996
compared to 22% in the same period of 1995.
Operating Expenses. Total operating expenses increased to
$4,295,000 in the six months ended June 30, 1996 from $4,109,000
in the same period of 1995. Operating expenses as a percent of
sales declined to 11% in the first six months of 1996 compared to
12% in the first six months of 1995. The Company's largest
portion of operating expense, selling, general and administrative
expense, increased to $2,745,000 in the first six months of 1996
when compared to $2,563,000 during the first six months of 1995.
As a percent of net sales, selling and general and administrative
expense was 6.9% in the first six months of 1996 compared to 7.5%
in the same period of 1995.
Operating Income. Operating income increased by 38% to
$4,943,000 in the six months ended June 30, 1996 from $3,591,000
in the six months ended June 30, 1995, due to the increase in net
sales and reduced operating costs.
Norwegian Joint Venture. The Company's Norwegian joint
venture, Orkla Exolon A/S, reported pre-tax earnings in the
Company's 50% share of the venture was $381,500 for the six
months ended June 30, 1996 versus $511,000 in the six months
ended June 30, 1995. The Company's share in the venture's net
sales was $3,758,000 in the six months ended June 30, 1996 as
compared to $3,870,000 in the six months ended June 30, 1995.
The joint venture's gross margins, prior to depreciation,
decreased to 22% for the six months ended June 30, 1996 versus
28% for the six months ended June 30, 1995 primarily due to
higher raw material and power costs incurred in the first six
months of 1996 when compared to the same period in 1995.
Interest and Miscellaneous Expense. Interest expense
decreased marginally in the first six months of 1996. Average
borrowing levels of the Company s bank debt were reduced by
approximately $700,000 in the first six months of 1996 when
compared to the first six months of 1995.
Miscellaneous income of $434,000 was reported in the first
six months of 1996 compared to miscellaneous expense of $191,000
in the quarter ended June 30, 1995. The Company recorded
$320,000 in miscellaneous income during the first quarter of 1996
due to a payment for the settlement with its insurance carrier of
a claim related to a legal action in Ontario, Canada Court. For
further information, reference is made to Note 7(b)(ii) beginning
on page 9 of this Form 10-Q report.
Income Tax. The Company's effective tax rate was 40% for
the six months ended June 30, 1996 as compared to 39% for the six
months ended June 30, 1995.
Comparison of the Three Months Ended June 30, 1996 with the Three
Months Ended June 30, 1995.
Net Sales. Total net sales increased by 15% to $19,739,000
in the three months ended June 30, 1996 from $17,131,000 in the
three months ended June 30, 1995. Shipment volume of the
Company s primary manufactured and purchased products increased
by approximately 15% in the second quarter of 1996, when compared
to the same period during 1995.
Gross Profit. Gross profit prior to depreciation expense
was $4,695,000 in the three months ended June 30, 1996 when
compared to $3,922,000 in the three months ended June 30, 1995.
As a percent of net sales, gross margins were 24% in the second
quarter of 1996 compared to 23% in the second quarter of 1995.
The 1996 increase is primarily a result of the increase in net
sales experienced by the Company in the second quarter of 1996.
Operating Expenses. Total operating expenses increased
marginally in the three month period ended June 30, 1996 from the
same period of 1995. Selling, general and administrative expense
increased $18,000 in the quarter ended June 30, 1996 when
compared to the quarter ended June 30, 1995. As a percent of net
sales, selling, general and administrative expense decreased to
6% in the second quarter of 1996 from 7% in the same period of
1995.
Operating Income. Operating income increased by $742,000 or
41% to $2,570,000 in the second quarter of 1996 from $1,827,000
in the second quarter of 1995, primarily as a result of the
increase in sales and gross profit.
Norwegian Joint Venture. The Norwegian joint venture Orkla
Exolon-A/S, reported the Company s 50% share in the pre-tax
earnings of the venture was $224,000 for the three months ended
June 30, 1996 versus a pre-tax profit of $281,000 during the
three months ended June 30, 1995. The Company s share in the
venture s net sales was $1,847,000 in the three months ended June
30, 1996 when compared to $2,022,000 in the three months ended
June 30, 1995. The decrease in net sales resulted primarily from
an increase in European competition.
Interest and Miscellaneous Expense. Interest expense
decreased by $41,000 to $337,000 in the second quarter of 1996
from $379,000 during the second quarter of 1995. The 11%
decrease resulted primarily from lower debt levels during the
second quarter of 1996 when compared to the second quarter of
1995.
Liquidity and Capital Resources
As of June 30, 1996, working capital (current assets less
current liabilities) has decreased to $18,926,000, when compared
to $21,414,000 as of December 31, 1995. Accounts receivable
increased by $179,000 as of June 30, 1996 versus 1995 year end
primarily as a result of the increase in sales levels during the
first six months of 1996 versus the 1995 year. Inventory
decreased by $90,000 at June 30, 1996 when compared to December
31, 1995. Accounts payable increased by $675,000 as of June
30,1996 versus December 31, 1995. In addition, the Company
borrowed $2,000,000 on a short term note with a low interest rate
during the second quarter of 1996 increasing current liabilities
as of June 30, 1996.
For the six months ended June 30, 1996, net cash provided by
operating activities was $4,298,000. Cash reserves decreased by
$420,000 at June 30, 1996 compared to December 31, 1995. Net
cash provided by operating activities in addition to the
reduction in cash reserves was used to fund $1,857,000 of capital
expenditures in the six months ended June 30, 1996.
The Company's current ratio decreased to 2.8 to 1.0 at June
30, 1996, from 3.7 to 1.0 as of December 31, 1995. The ratio of
total liabilities to shareholder's equity improved to 1.0 to 1.0
as of June 30, 1996, from 1.3 to 1.0 as of December 31, 1995.
Management believes that the cash provided by operations and
long-term borrowing arrangements will provide adequate funds for
current commitments and other requirements in the near future.
The Company has been directed by the Illinois Environmental
Protection Agency ("IEPA") to control its sulfur emissions at its
Hennepin, Illinois silicon carbide furnace plant. For further
information see Note 7(a)(i) to the Notes to Consolidated
Financial Statements on page 7, which is incorporated herein by
reference.
Reference is made to the descriptions of the following legal
matters, within Note 7(b) to the Notes to Consolidated Financial
Statements under the caption Legal Matters beginning on page 8
of this Form 10-Q Report, which descriptions are incorporated
herein by reference: (1) a legal action commenced in June 1993 by
the Company in Ontario, Canada seeking $2,000,000 in damages
against certain former officers and employees; (2) antitrust
proceedings commenced in February 1994 against the Company and
others; (3) a temporary suspension imposed upon the Company and
others in December 1994 by the U.S. Defense Logistics Agency; and
(4) civil law suits brought against the Company and others
commenced by General Refractories Company in October 1994 and by
Arden Architectural Specialties, Inc. in July 1995.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
a. Environmental Proceedings - Hennepin, Illinois Plant
Reference is made to the information presented under
the heading "Environmental Issues - Hennepin, Illinois
Plant" appearing under Note 7(a)(i) to the Notes to
Consolidated Financial Statements on page 7 of this
Form 10-Q Report, which is incorporated herein by
reference.
b. Exolon-ESK Company and Exolon-ESK Company of Canada,
Ltd. v. Michael Perrotto, et al.
Reference is made to the information contained in "PART
II, Item 1. Legal Proceedings, under the heading
"Exolon-ESK Company and Exolon-ESK Company of Canada,
Ltd. v. Michael Perrotto, et al." (the Perrotto Case )
in the Company's Form 10-Q Report for the period ended
September 30, 1993, which is hereby incorporated herein
by reference.
On February 29, 1996, the Company and Exolon-Canada
entered into a Final Release (the Release ) with their
insurance carriers whereby they agreed to release the
carriers from all claims based on the activities of the
defendants in the Perrotto Case, in consideration of a
payment of $535,000 Canadian (approximately $390,000
U.S.). Under the terms of the Release, the insurance
carriers denied any liability, and the payment may not
be indicative of the amount of any recovery that may be
obtained from the defendants. The insurance carriers
have subrogated all of their third party rights and
claims to Exolon-Canada.
c. Federal Proceedings
Reference is made to the information contained in Part
I, Item 3. Legal Proceedings under the heading "Federal
Indictments" contained in the Company's 1993 Form 10-K
Report, which is hereby incorporated herein by
reference. The proceedings described thereunder are
hereinafter referred to as the "Antitrust Proceedings".
Reference is made to the information concerning the DLA
Suspension contained in Note 7(b)(i) of the Notes to
Consolidated Financial Statements beginning on page 8
of this Form 10-Q, which is incorporated herein by
reference.
d. General Refractories Company v. Washington Mills
Electro Minerals Corporation and Exolon-ESK Company
The description of a class action lawsuit relating to
claims under the Sherman Act brought by General
Refractories Company against Washington Mills Electro
Mineral Corporation and the Company, appearing under
the heading Legal Matters under Note 7(b) to the
Notes to Consolidated Financial Statements on Page 10
of the Company s Form 10-Q reported for the period
ended March 31, 1995, is incorporated herein by
reference. On or about July 17, 1995, a law suit
captioned Arden Architectural Specialties, Inc. v.
Washington Mills Electro Minerals Corporation and
Exolon-ESK Company, (95-CV-05745(m)), was commenced in
the United States District Court for the Western
District of New York. The Arden Architectural
Specialties complaint purports to be a class action
that is based on the same matters alleged in the
General Refractories complaint.
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Computation of Earnings Per Share, Exhibit 11
Financial Data Schedule, Exhibit 27
Restated Bylaws, Exhibit 3J
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
EXOLON-ESK COMPANY
/S/J. Fred Silver
________________________
J. Fred Silver
President and Chief Executive Officer
/S/Michael Bieger
________________________
Michael Bieger
Vice President Finance and
Chief Financial Officer
Date: August 12, 1996
EXHIBIT INDEX
Exhibit Description Reference
No.
3A Restated Certificate of Exhibit 3A to the report
Incorporation on Form 10-K for the year
ended December 31, 1995*
3A(1) Certificate of Merger Exhibit 3A(1) to the
report on Form 10-K for
the year ended December
31, 1995*
3E Amendment to Bylaws dated Exhibit 3E to the report
March 23, 1991 on Form 10-Q for the
quarter ended March 23,
1991*
3F Certificate of Amendment of Exhibit 3F to the report
Restated Certificate of on Form 10-K for the year
Incorporation dated April ended December 31, 1994*
23, 1986
3G Certificate of Amendment of Exhibit 3G to the report
Restated Certificate of on Form 10-K for the year
Incorporation dated May 4, ended December 31, 1994*
1987
3H Amendment of Certificate of Exhibit 3H to the Report
Incorporation dated October on Form 10-Q for the
28, 1992 quarter ended September
30, 1992*
3I Bylaws Exhibit 3I to the report
on Form 10-K for the year
ended December 31, 1994*
3J Restated Bylaws Exhibit 3J
4 Instruments Defining Rights Articles of
of Security Holders Incorporation, Exhibits
3A, 3F and 3G to the
report on Form 10-K for
the year ended December
31, 1994*
10D(23) Revolving Credit Agreement Exhibit 10D(23) to the
dated December 22, 1992 Report on Form 10-K for
the year ended December
31, 1992*
10D(24) Industrial Revenue Bond Exhibit 10D(24) to the
Agreement dated January 1, Report on Form 10-K for
1993. the year ended December
31, 1992*
10F Stockholder's Agreement Exhibit 10F to the report
dated as of April 26, 1984 on Form 10-K for the year
between the Registrant and ended December 31, 1995*
Wacker Chemical Corporation
10G Restated License Agreement Exhibit 10G to the report
dated as of April 26, 1984 on Form 10-K for the year
among Elektroschmelzwerk ended December 31, 1995*
Kempten GmbH, ESK
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H to the report
dated April 27, 1984 on Form 10-K for the year
between Elektroschmelzwerk ended December 31, 1995*
Kempten GmbH and the
Registrant
10I Indemnification Agreement Exhibit 10I to the report
dated as of December 15, on Form 10-K for the year
1984 between Wacker ended December 31, 1995*
Chemical Corporation and
the Registrant
10K Contract between Theeb, Exhibit 10K to the
Ltd. and the Exolon-ESK Report on Form 10-K for
Company of Canada, Ltd. the year ended December
dated February 28, 1985 31, 1992*
*Incorporated herein by reference
10M Federal Indictments dated Exhibit 10M to the Report
February 11, 1994 on Form 10-K for the year
ended December 31, 1993*
11 Statement of computation of Page 19
per share earnings
15 Statement re Unaudited None
Interim Financial
Information
18 Letter re Change in None
Accounting Principles
19 Report Furnished to None
Security Holders
22 Published Report Regarding None
Matters Submitted to Vote
of Security Holders
23 Consents of Experts and None
Counsel
24 Power of Attorney None
27 Financial Data Schedule Submitted electronically
99 Conditional Exhibits None
* Incorporated herein by reference
Exhibit 11
Exolon-ESK Company and Subsidiaries
Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
Three Months Six Months
Ended Ended
June 30, June 30,
______________ ______________
1996 1995 1996 1995
______ ______ ______ ______
Net earnings $1,604 $1,014 $3,013 $1,190
Less Preferred Stock
Dividends:
Series A (5) (6) (11) (11)
Series B (5) (6) (11) (11)
______ ______ ______ ______
Undistributed earnings $1,594 $1,002 $2,991 $1,168
Net earnings attributable
to:
Common Stock (50.0%) 796 501 1,495 584
Class A Common Stock
(50.0%) 796 501 1,496 584
______ ______ ______ ______
$1,592 $1,002 $2,991 $1,168
====== ====== ====== ======
Net earnings per share of
Common Stock:
Primary $1.65 $1.04 $3.10 $1.21
Fully Diluted $1.59 $1.01 $2.99 $1.18
Net earnings per share of
Class A Common Stock:
Primary $1.55 $0.98 $2.92 $1.14
Fully Diluted $1.50 $0.95 $2.82 $1.11
Weighted Average Shares
Outstanding:
Primary:
Common Stock 482,000 482,000 482,000 482,000
Class A Common Stock 513,000 513,000 513,000 513,000
Fully Diluted:
Common Stock 504,000 504,000 504,000 504,000
Class A Common Stock 535,000 535,000 535,000 535,000
EXHIBIT 3J
RESTATED
BYLAWS
OF
EXOLON-ESK COMPANY
APRIL 1996
ARTICLE I
Stockholders Meetings
1. Place of Meetings. All meetings of stockholders shall
be held at such place within or without the State of Delaware as
may be designated from time to time by the Board of Directors,
the Chairman of the Board, or the President or, if not so
designated, at the principal office of the Corporation.
2. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such
other business as may properly be brought before the meeting
shall be held in each year on the last Wednesday in April, at ten
o clock, local time, at the place of the meeting. If this date
shall fall upon a legal holiday at the place of the meeting, then
such meeting shall be held on the next succeeding business day
at the same hour.
3. Special Meetings. Special meetings of stockholders for
any purpose or purposes, unless otherwise prohibited by statute
or by the Certificate of Incorporation, may be called at any time
by the Chairman of the Board, the Vice-Chairman of the Board, the
President or by the Board of Directors and shall be called by the
President or Secretary upon the written request (which shall
state the purpose or purposes therefor) of any five members of
the Board of Directors or of stockholders holding one quarter or
more of the shares of the capital stock of the Corporation issued
and outstanding and entitled to vote at such meeting. Business
transacted at any special meeting of stockholders shall be
limited to matters relating to the purposes stated in the notice.
4. Notice of Meetings. Except as otherwise provided by
statute, written notice of each meeting of stockholders, whether
annual or special, shall be given not less than ten (10) nor more
than sixty (60) days prior thereto to each stockholder entitled
to vote at such meeting. The notices of all meetings shall state
the place, date and hour thereof, and, in addition, the purpose
or purposes for which the meeting is called.
5. Voting List. The officer who has charge of the stock
ledger of the Corporation shall prepare, at least ten (10) days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is
present.
6. Quorum. Except as otherwise provided by law, by the
Certificate of Incorporation or by these Bylaws, the holders of a
majority of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote, present in person or
represented by proxy at any meeting, shall be requisite and shall
constitute a quorum for the transaction of business. In the
absence of a quorum, the stockholders present or represented by
proxy and entitled to vote thereat, may adjourn the meeting from
time to time without further notice (except as provided in
Section 7 of this Article I) until a quorum shall be present or
represented.
7. Adjournment. When a meeting is for any reason
adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the
adjourned meeting, any business may be transacted which might
have been transacted at the original meeting; provided, however,
that if adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder entitled to vote at the adjourned
meeting.
8. Voting. Each stockholder shall at every meeting of
stockholders, or with respect to corporate action which may be
taken without a meeting, be entitled to one vote for each share
of stock having voting power held of record by each stockholder
on the record date designated for the meeting or action pursuant
to these Bylaws or the record date established pursuant to the
statute in the absence of such designation.
9. Proxies. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may vote or
express such consent or dissent in person or may authorize
another person or persons to vote or act for him by proxy
pursuant to an instrument in writing subscribed by such
stockholder (or his agent thereunto authorized) and delivered to
the Secretary of the Corporation; provided, that no such proxy
shall be voted or acted upon after three (3) years from the date
of its execution, unless such proxy expressly provides for a
longer period.
10. Action at Meeting. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy
shall decide any question brought before such meeting, unless the
question is one upon which by express provision of any statute,
the Certificate of Incorporation, or these Bylaws, a different
vote is required, in which case such express provision shall
govern and control the decision of such question.
11. Action without Meeting. Any action required to be
taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
Directors
1. General Powers; Election and Tenure. The business and
affairs of the Corporation shall be managed by or under the
direction of a Board of Directors. Each director shall be
elected to serve and shall hold office until the next annual
meeting of the stockholders and until his successor shall be
elected and shall qualify, or until his earlier death,
resignation or removal.
2. Number and Qualifications. The number of directors
shall be eight; on half of whom shall be elected by the shares of
Common Stock and Series A Preferred Stock and one half of whom
shall be elected by the shares of Class A Common Stock and Series
B Preferred Stock. In addition, the Board of Directors may
appoint one or more Consulting Directors to serve in an advisory
capacity to the Board of Directors, and such Consulting Directors
shall have the right to receive notice of all meetings of the
Board of Directors and to attend same, but shall have no right to
vote on any matter. Directors need not be stockholders of the
Corporation or residents of the State of Delaware.
3. Vacancies. A vacancy in the membership of the Board of
Directors shall be filled by a vote of the directors elected by
the shares of Common Stock and Series A Preferred Stock if the
previous director was elected by such shares, and by a vote of
the directors elected by the shares of Class A Common Stock and
Series B Preferred Stock if the previous director was elected by
such shares, or if there be no such director in office to vote to
fill such vacancy then by the holders of such shares. A director
elected to fill a vacancy shall be elected for the unexpired term
of his predecessor in office and until his successor shall be
elected and shall qualify, or until his earlier death,
resignation or removal.
4. First Meeting. The first meeting of the Board of
Directors for the purpose of organization, election of officers
and the transaction of other business shall be held without
notice as soon as practicable after each annual election of
directors.
5. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place,
either within or without the State of Delaware, as shall be
determined from time to time by the Board of Directors.
6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the
President and shall be called by the President or Secretary on
the written request of any two (2) directors or by one (1)
director in the event that there is only a single director in
office. Notice of any special meeting shall be given to each
director. If such notice is given either (a) by delivering
written or printed notice in the United States mail (airmail if
to an overseas address), postage prepaid, it shall be given at
least ten (10) business days in advance, or if such notice is
given by transmitting a cable or telegram or telex, in all cases
directed to such director at his residence or place of business,
it shall be so given at least five (5) days prior to the meeting.
7. Quorum. A majority of the members of the Board of
Directors shall constitute a quorum at all meetings of the Board
of Directors, and the affirmative vote of a majority of the
directors then in office (but in any event not less than five
present at a meeting at which a quorum is present, shall be the
act of the Board of Directors. In the absence of a quorum at any
such meeting a majority of the directors present may adjourn the
meeting from time to time without further notice other than
announcement of the meeting, until a quorum shall be present.
8. Removal. Any director may be removed, with or without
cause, by the holders of a majority of the shares of the class or
classes of shares which elected such director then entitled to
vote at an election of such director.
9. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more directors of
the Corporation. The Board shall designate an Executive
Committee which shall consist of four (4) directors, one half of
whom shall be directors elected by the shares of Common Stock and
Series A Preferred Stock and one half of whom shall be directors
elected by the shares of Class A Common Stock and Series B
Preferred Stock. The affirmative vote of at least one director
elected by the shares of Common Stock and Series A Common Stock
and Series B Preferred Stock shall be necessary in order for the
Executive Committee to take any action. The Board may designate
one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of
the committee. In the case of the Executive Committee, such
alternate member shall be designated by the members of the Board
of Directors elected the same classes of stock as elected the
member to be replaced. In the absence or disqualification of a
member of a committee, the member or members thereof (in the case
of the Executive Committee elected the same such classes of stock
as the absent or disqualified member) present at any meeting and
not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any
such absent or disqualified member. The Executive Committee, to
the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of
the State of Delaware, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the
business affairs of the Corporation. In regard to all committees
of the Board of Directors other than the Executive Committee, the
directors elected by the shares of Common Stock and Series A
Preferred Stock shall have the right to request that at least one
of their number shall be named a member of each such committee,
and the directors elected by the Class A Common Stock and the
Series B Preferred Stock shall have the same such right in regard
to one of their number. Each committee of the Board of Directors
shall keep such minutes and make such reports as the Board of
Directors may from time to time request.
10. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
11. Compensation of Directors. Each director may be
allowed such amount per annum or such fixed sum for attendance at
each meeting of the Board of Directors or any meeting of a
committee, or both, as may be from time to time fixed by
resolution of the Board of Directors, together with reimbursement
for the reasonable and necessary expenses incurred by such
director in connection with the performance of his duties.
Nothing herein contained shall be construed to preclude any
director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving
proper compensation therefor.
12. Approval of Directors. In addition to any other
actions or transactions which by law, the Certificate of
Incorporation, or these Bylaws require the approval of the Board
of Directors, the following actions and transactions of the
Corporation shall be taken only with the prior approval of the
Board or, to the extent permitted by law, the Executive
Committee:
(a) The creation or termination of divisions or the making
of other substantial changes in the organization of the
Corporation or its methods of operating, including,
without limitation, the creation or dissolution of
subsidiaries, the purchase or sale of plants or
factories, the establishment or dissolution of branch
offices;
(b) The acquisition of stock or other securities (other
than for temporary investment) or a substantial portion
of the assets, of any other corporation, other entity
or person, or the sale of any stock or other securities
of, or a substantial portion of the assets of, any
subsidiary corporation;
(c) Any amendment of the certificate of incorporation or
charter or bylaw or other internal regulations of any
subsidiary of the Corporation, or the election of any
directors or officers of any such subsidiaries.
(d) Approval of any capital expenditures in an amount in
excess of $10,000;
(e) Entering into agreements which are not in the ordinary
course of business and which commit the Corporation for
more than one year or for more than $10,000;
(f) Entering into loan agreements or credit arrangements or
incurring any indebtedness for borrowed money not
previously authorized or pursuant to purchase money
obligations, when such agreement, arrangement or
indebtedness:
(1) is not in the ordinary course of business or
(2) exceeds $10,000;
(g) Granting any loans to directors, officers or employees
of the Corporation or any of its subsidiaries;
(h) The extension of guarantees or endorsements (other than
endorsements for collection in the ordinary course of
business) with respect to third-party obligations,
including those in regard to a subsidiary of the
Corporation in the ordinary course of business;
(i) Purchasing, selling or granting mortgages or any other
rights in real property or real estate (or any
interests therein) or constructing buildings or other
facilities which in any instance involve an amount in
excess of $10,000;
(j) Entering into any rental and lease agreements
respecting any real or personal property involving an
amount in excess of $10,000 for the whole term thereof;
(k) Granting any security interest in, lien on, or pledge
of, any personal property of the Corporation except for
purchase money security interests involving less than
$10,000;
(l) Adoption or amendment of pension, group compensation,
profit sharing or other incentive or employee benefit
plans for the Corporation or any of its subsidiaries;
(m) The commencement, compromise or settlement of lawsuits
or other legal proceedings where the amount in
controversy exceeds $50,000, but excepting proceedings
involving any accounts receivable of the Corporation;
(n) Grant or revocation of powers of attorney;
(o) Entering into employment contracts or other agreements
involving recurring or nonrecurring compensation in
excess of $50,000 per year or a term of more than two
years; and
(p) Purchasing, leasing, granting, licensing, or assigning
any patents, copyrights, trademarks or similar rights.
The Board of Directors has the right to make additional
types of actions or transactions dependent on its prior approval.
ARTICLE III
Officers
1. Election and Tenure. The Board of Directors shall
elect a Chairman of the Board, a Vice-Chairman of the Board, a
President, a Secretary, and a Treasurer at the first meeting of
the Board of Directors held after each annual meeting of the
stockholders. The Board of Directors may also elect or appoint
such other officers, including one or more Vice Presidents,
Assistant Treasurers, or Assistant Secretaries, as may be
determined by resolution of the Board of Directors. Any number
of offices may be held by the same person, unless the Certificate
of Incorporation or these Bylaws otherwise provide. Each officer
so elected or appointed shall continue in office until his
successor shall be elected or appointed and shall qualify, or
until his earlier death, resignation or removal.
2. Removal and Vacancies. Any officer shall be removed,
with or without cause, if such removal is requested in writing by
a majority of directors, including in each case, at least one
director elected by the Common Stockholders and one director
elected by the Class A Common Stockholders. If any office
becomes vacant for any reason, the vacancy may be filled in like
manner by the Board of Directors. An officer appointed to fill a
vacancy shall be appointed for the unexpired portion of the term
of his predecessor in office.
3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and the Board of
Directors, and shall perform such duties and possess such powers
as may from time to time be assigned to him by the Board of
Directors.
4. Vice-Chairman of the Board. In the absence of the
Chairman of the Board, the Vice-Chairman of the Board shall
preside at all meetings of the Board of Directors, and in the
absence of both the Chairman of the Board and the President,
shall preside at any meeting of the stockholders. The Vice-
Chairman shall permit such other duties and possess such other
powers as shall from time to time be assigned to him by the
Board of Directors.
5. President. The President shall be the Chief Executive
Officer of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
The President shall have direct charge of the day-to-day business
and operations of the Corporation, and shall report to the Board
of Directors. Between meetings of the Board of Directors the
President shall advise the Executive Committee of all significant
events, provided that this shall not in any way restrict his
authority as Chief Executive Officer responsible to the Board of
Directors. If not a director, he shall be entitled to notice of
and shall be entitled to attend all meetings of the Board of
Directors and Executive Committee provided that a majority of
directors on the Board or Committee, as the case may be,
including at least one director elected by the stockholders of
the Common Stock and one director elected by Series A Common
Stock may determine that the President s attendance of a meeting
is not reasonable or appropriate given the subject matter. In
addition, in the absence of the Chairman of the Board, he shall
preside at any meeting of the stockholders and, in the absence of
the Chairman of the Board and the Vice Chairman of the Board, he
shall preside at any meeting of the Board of Directors. He shall
perform such further duties and shall have such further powers as
may from time to time be assigned to him by the Board of
Directors.
6. Vice-Presidents. The Vice-Presidents shall perform
such duties and possess such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman of the
Board, or the President. In the absence of the President or in
the event of his inability or refusal to act, the Executive Vice-
President (or in the event there is no Executive Vice-President
or in his absence or inability or refusal to act, the Vice-
President, and if there be more than one Vice-President, the
Vice-Presidents in the order designated, or in the absence of any
designation, then in the order of their election or appointment)
shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the
restrictions upon the President.
7. Secretary. The Secretary shall perform such duties and
shall have such powers as may from time to time be assigned to
him by the Board of Directors, the Chairman of the Board, or the
President. In addition, the Secretary shall perform such duties
and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to
give notices of all meetings of stockholders and special meetings
of the Board of Directors, to attend all meetings of stockholders
and the Board of Directors and keep a record of the proceedings,
and to be custodian of corporate records and the corporate seal
and to affix and attest to the same on documents, the execution
of which on behalf of the Corporation is authorized by these
Bylaws or by the action of the Board of Directors.
8. Treasurer. The Treasurer shall perform such duties and
shall have such powers as may from time to time be assigned to
him by the Board of Directors, the Chairman of the Board, or the
President. In addition, the Treasurer shall perform such duties
and have such powers as are incident to the office of treasurer,
including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to
deposit funds of the Corporation in depositories selected in
accordance with these Bylaws, disburse such funds as ordered by
the Board of Directors, making proper accounts thereof, and shall
render as required by the Board of Directors statements of all
such transactions as Treasurer and of the financial condition of
the Corporation.
9. Assistant Secretaries. The Assistant Secretaries shall
perform such duties and possess such powers as from time to time
shall be assigned to them by the Board of Directors, the Chairman
of the Board, the President, or the Secretary. In the absence,
inability or refusal to act of the Secretary, the Assistant
Secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their
election) shall perform the duties and exercise the powers of the
Secretary.
10. Assistant Treasurers. The Assistant Treasurers shall
perform such duties and possess such powers as from time to time
shall be assigned to them by the Board of Directors, the Chairman
of the Board, the President, or the Treasurer. In the absence,
inability or refusal to act of the Treasurer, the Assistant
Treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their
election) shall perform the duties and exercise the powers of the
Treasurer.
11. Bonding Officers. The Board of Directors may require
any officer to give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of
Directors for such terms and conditions as the Board of Directors
may specify, including without limitation for the faithful
performance or his duties and for the restoration to the
Corporation of all property in his possession or under his
control belonging to the Corporation.
12. Salaries. Officers of the Corporation shall be
entitled to such salaries, compensation or reimbursement as shall
be fixed or allowed from time to time by the Board of Directors.
ARTICLE IV
Capital Stock
1. Certificate of Stock. Every holder of stock of the
Corporation shall be entitled to have a certificate certifying
the number of shares owned by him the Corporation and
designations the class of stock to which such shares belong,
which shall otherwise be in such form as is required by law and
as the Board of Directors shall prescribe. Each such certificate
shall be signed by, or in the name of the Corporation by, the
Chairman of the Board of Directors or the President or a Vice-
President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation.
2. Record. A record shall be kept of the name of each
person or other entity holding the stock represented by each
certificate for shares of the Corporation issued, the number of
shares represented by each such certificate, and the date
thereof, and, in the case of cancellation, the date of
cancellation. The person or other entity in whose name shares
of stock stand on the books of the Corporation shall be deemed
the owner thereof, and thus a holder of record of such shares of
stock, for all purposes as regards the Corporation.
3. Transfer of Stock. Transfers of shares of the stock of
the Corporation shall be made only on the books of the
Corporation by the registered holder thereof, or by his attorney
thereunto authorized, and on the surrender to the Corporation or
the transfer agent of the Corporation of the certificate or
certificates for such shares properly endorsed.
4. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it, alleged to have been
lost, stolen, or destroyed in such manner and upon such terms and
conditions as the Board of Directors may prescribe.
5. Fixing Record Date. The Board of Directors may fix in
advance a date as a record date for the determination of the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent
(or dissent) to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution
or allotment of rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action.
Such record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action to which the same
relates.
ARTICLE V
General Provisions
1. Fiscal Year. The fiscal year of the Corporation shall
be the calendar year.
2. Corporate Seal. The corporate seal shall be in such
form as shall be approved by resolution of the Board of
Directors.
3. Execution of Instruments. The Chairman of the Board,
the President or the Treasurer shall have power to execute and
deliver on behalf and in the name of the Corporation any
instrument requiring the signature of an officer of the
Corporation, except as otherwise provided in these Bylaws, or
where the execution and delivery thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation. Unless authorized so to do by these
Bylaws or by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the
Corporation in any way, to pledge its credit or to render it
liable pecuniarily for any purpose or in any amount.
4. (a) Indemnification. The Corporation shall indemnify
to the full extent authorized or permitted by law any person
made, or threatened to be made a party to any threatened, pending
or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such
person is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director or
officer of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the
Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Section 4, or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this Section 4 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable
standard of conduct set forth in subsections (a) and (b) of this
Section 4. In the event of a change of control of the
Corporation (as hereinafter defined), such determination shall be
made by independent legal counsel approved by the Board of
Directors in a written opinion. In all other events, such
determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel
approved by such disinterested directors in a written opinion, or
(3) by the stockholders. For purposes of this Section 4, a
change of control shall be deemed to have occurred in the event
Wacker Chemical Corporation or any other party acquires fifty
percent or more of the Common Stock of the Corporation whether by
a purchase or pursuant to a merger or a new business combination.
(e) Expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section 4.
No security shall be required for such undertaking and such
undertaking shall be accepted without regard for the recipient s
financial ability to make repayment. Such expenses incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) Any indemnification under Subsections (a), (b) or (c)
or advance of costs, charges and expenses under Subsection (e) of
this Section 4 shall be made promptly, and in any event within 60
days, upon the written request of the director or officer,
directed to the Secretary of the Corporation. The right to
indemnification or advances as granted by this Section 4 shall be
enforceable by the director or officer in any court of competent
jurisdiction if the Corporation denies such request, in whole or
in part, or if no disposition thereof is made within 60 days.
Such person s costs and expenses incurred in connection with
successfully establishing his right to indemnification or
advances, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any
such action (other than an action brought to enforce a claim for
the advance of costs, charges and expenses under Subsection (e)
of this Section 4 where the required undertaking, if any, has
been received by the Corporation) that the claimant has not met
the standard of conduct set forth in Subsections (a) or (b) of
this Section 4, but the burden of proving that such standard of
conduct has not been met shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors,
its independent legal counsel, and its stockholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth
in Subsections (a) and (b) of this Section 4, nor the fact that
there has been an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel,
and its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the
applicable standard of conduct.
(g) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this Section 4 shall not be deemed exclusive of any other right
to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
(h) The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under this Section 4.
(i) For purposes of this Section 4, references to the
Corporation shall include, in addition to the resulting
corporation any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was a director
or officer of such constituent corporation, or is or was
servicing at the request of such constituent corporation as a
director or officer of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(j) For purposes of this Section 4, references to other
enterprises shall include employee benefit plans; references to
fines shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to serving
at the request of the Corporation shall include any service as a
director or officer of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to
an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner not opposed to the best interests of the
Corporation as referred to in this Section 4.
(k) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 4 shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
(l) All rights to indemnification under this Section 4
shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in
such capacity at any time while this Section 4 is in effect. No
amendment or repeal of this Section 4 or of any relevant
provisions of the Delaware General Corporation Law or any other
applicable laws shall adversely affect or deny to any director or
officer any rights to indemnification which such person may have,
or change or release any obligations of the Corporation, under
this Section 4 with respect to any costs, charges, expenses
(including attorneys fees), judgments, fines, and amounts paid
in settlement which arise out of an action, suit or proceeding
based in whole or substantial part on any act or failure to act,
actual or alleged, which takes place before or while this Section
4 is in effect. The provisions of this Subsection (l) shall
apply to any such action, suit or proceeding commenced after any
amendment or repeal of this Section 4.
(m) Nothing contained herein shall affect any rights to
indemnification to which employees or agents other than directors
and officers may be entitled by law or contract.
(n) This Section 4 is intended to provide indemnification
rights to the directors and officers of the Corporation to the
fullest extent provided by Section 145 of the Delaware General
Corporation Law, and nothing contained herein shall be deemed to
constitute a limitation thereof.
5. Waiver of Notice. Whenever any notice whatsoever is
required to be given under the provisions of a statute or of the
Certificate of Incorporation, or by these Bylaws, a waiver
thereof either in writing signed by the person entitled to said
notice (or such person s attorney thereunto authorized) or by
telegraph, cable or any other available method, whether before,
at or after the time stated therein, or the appearance of such
person or persons at such meeting in person or by proxy, shall be
deemed equivalent to such notice.
6. Emergency Bylaws. The Board of Directors may adopt
emergency bylaws in accordance with and pursuant to the
provisions therefor from time to time set forth in the General
Corporation Law of the State of Delaware.
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